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In a message dated 3/31/2007 4:29:50 PM Pacific Daylight Time, aeb@inreach.com writes:

”Scopac doesn't follow the rules; the rules follow Scopac” - Scopac attorney Kathryn Coleman

http://www.times-standard.com/local/ci_5565506
Palco's timber assets assessed
John Driscoll The Times-Standard
Eureka Times Standard
03/31/2007

With arguments that made the issue as clear as mist in the redwoods, attorneys battled for a day over whether the Pacific Lumber Co.'s timberlands are a single project that might be reorganized apart from its milling operations.

Lawyers for the noteholders that carry $714 million in debt secured by 210,000 acres of timberland held by Palco subsidiary Scotia Pacific looked to convince a federal bankruptcy judge in Texas that since all of its activities on the land -- and its revenue -- revolve around growing trees, it should be declared a single asset.

Scotia Pacific argued that trees are personal property, not real property, and that the numerous activities of the subsidiary's scientists show the company is too complicated to be deemed a single asset. Its attorneys spent hours extracting testimony from its scientists on every aspect of their efforts, which they claimed are the only way it is allowed to cut trees.

The Times-Standard listened to the Corpus Christi U.S. District Court proceeding by teleconference, which was open to the public at the newspaper's Eureka office.

Noteholders' attorney Evan Flaschen asked Judge Richard Schmidt to declare Scotia Pacific a single asset company and let the case move on to the pending brawl over what the timberlands are worth. That will weigh heavily toward whether Palco and its parent company Maxxam keep control of the timber, or whether the noteholders foreclose on it and reorganize.

”Let's bring on the battle that we all know is going to happen,” Flaschen said.

Case law on the subject is limited, especially since Congress in 2005 amended the single asset statute to no longer exclude properties worth more than $4 million. Attorneys were stuck with trying to compare Scopac to apartment complexes and golf courses that have been put through the bankruptcy process.

Scopac attorney Kathryn Coleman said the company's revenues are generated by its 65 employees -- without whose technical expertise it would not be able to satisfy regulators and gain access to the timber. The complex hydrological, biological and geologic studies Scotia Pacific performs also make it a commercial science lab on the cutting edge, she said.

”Scopac doesn't follow the rules; the rules follow Scopac,” Coleman said.

Palco attorney Shelby Jordan added that if Scopac is a single asset, every farm and every oil and gas company would be one, too. The land generates nothing, he claimed, and the situation is not like a landowner who passively holds an investment property while waiting for the market to turn.

Schmidt said that he would guess any farm -- outside the family farm -- is a single-asset entity, since its revenues are derived almost exclusively from the land.

In closing arguments, Flaschen said all the complicated regulatory endeavors on Scotia Pacific's lands are for one purpose only: to grow trees.

”It's amazing to say that a tree growing in the ground isn't real estate,” he said. “Of course it's real estate.”

He added that Palco's stated “doomsday scenario” -- that the noteholders acquisition of the timberlands would mean the mill would be shut down -- is baseless. Palco is a logical buyer for the timber, he said, and there's no reason to expect that the bond holders would shut down a business whose sole revenue is from its trees.

Schmidt took the matter under submission, stopping the hearing on it after one day. He also briefly addressed concerns from attorneys about when he might rule on a request by the noteholders and others to have the case moved to Oakland. He said work on that decision is largely done, and could be filed as early as next week.

John Driscoll can be reached at 441-0504 or jdriscoll at times-standard.com.
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