ER - Appeal court upholds dismissal of fraud suit against PALCO

Appeal court upholds dismissal of fraud suit against PALCO

By NATHAN RUSHTON, The Eureka Reporter
Published: Jan 10 2008, 8:09 PM

A California Appeals Court has upheld a Humboldt County Superior Court ruling that the fraud charges brought against Pacific Lumber Co. by District Attorney Paul Gallegos weren’t legally sufficient to move forward.

Barring an appeal to the California Supreme Court, it is the end of the line for the lawsuit filed by Gallegos under Unfair Competition Laws in 2003.

The suit alleges that PALCO intentionally committed fraud in an effort to increase timber harvesting by manipulating watershed sediment reports during the environmental review that led to the signing of the controversial Headwaters Deal in 1999.

But the district attorney’s case and two subsequent amendments were dismissed by the courts on demurrer, which effectively throws out the case as a result of a lack of legal claims.

In 2005, visiting judge Richard Freeborn, acting for the Humboldt County Superior Court, sustained a previous demurrer ruling that PALCO’s submission of an allegedly erroneous report and the subsequent resubmission of corrected data was protected by the “litigation privilege” under Civil Code section 47(b).

Litigation privilege protects communications made as part of a judicial or quasi-judicial proceeding, according to court documents.

PALCO said its actions were also protected under the Noerr-Pennington Doctrine, which it argued is constitutionally protected freedom of speech that provides immunity from litigation to businesses in their efforts to persuade government.

In this case it was the lengthy California Department of Forestry’s environmental review as part of the California Environmental Quality Act process for the timber company’s long-term harvest plan as part of the Headwaters Agreement.

Gallegos stated in his oral arguments Dec. 19 to the Appeals Court justices in San Francisco that the trial court erred in its previous ruling in applying the law, citing PALCO’s conduct was not protected under the litigation privilege or Noerr-Pennington.

In an audio transcript obtained by The Eureka Reporter, Gallegos told the court that the fraud case is “fundamentally about preserving the integrity” of judicial and CEQA proceedings.

Gallegos said that to grant immunity to an applicant who submits false information “completely erodes the integrity of the system and disempowers the administrative agencies from fulfilling their mandate,” which he said in this case is protecting the state’s resources.

But the appellate court justices disagreed and concluded in a rare 23-page published ruling and opinion that Gallegos failed to prove — on his third attempt — any “reasonable possibility” that his case could be corrected to move forward and even if it did, the evidence presented “would not justify their prevailing at trial.”

The court also noted that even though PALCO may have submitted erroneous data, the corrected data was available to decision-makers and stricter harvest permits were adopted.

The opinion states: “Given the undisputed presence of disinterested decision makers at the CDF, as well as other state agencies, the extensive independent review and analysis of Pacific Lumber’s proposed harvesting plan, the public hearing open to all interested persons and agencies, and the review process that was available for correcting any identifiable errors (including misrepresentations) in a timely fashion, we are thus disinclined to conclude the CEQA proceedings were rendered illegitimate by Pacific Lumber’s alleged submission of fraudulent data — which indeed was corrected over a month before issuance of the CDF’s ultimate decision.”

Frank Bacik, vice president and general counsel for PALCO, said in a telephone interview from San Francisco Thursday that the company was pleased with the court’s published ruling.

“The court confirmed the application of longstanding legal doctrines established by the state legislature and the U.S. Supreme Court protecting the right of companies to petition the government,” Bacik said in a statement. “The court determined that the trial court was correct as a matter of law to dismiss the case, even before trial, because the DA simply urged incorrect and untenable interpretations of law.”

Bacik said in upholding the dismissal of the case, the appeal court looked at a vast array of facts and found that CDF and the public had extraordinary access to reports and information related to the long-term timber harvest plan in question.

“I am very pleased to the extent that the facts were analyzed,” Bacik said.

For Gallegos, the lawsuit he first filed against PALCO in February 2003 was a key moment in his political career.

The controversial lawsuit propagated an unsuccessful recall effort to oust him from the District Attorney position he took over in 2002 after defeating 20-year incumbent Terry Farmer.

Whether or not Gallegos intends to appeal Thursday’s ruling to the California Supreme Court and how much the county might have to pay PALCO for its legal costs to defend itself is uncertain.

Gallegos did not return phone calls to The Eureka Reporter by deadline.