30 ELR 10756 | Environmental Law Reporter | copyright © 2000 | All rights reserved

Redwoods, Junk Bonds, and Tools of Cosa Nostra: A Visit to the Dark Side of the Headwaters Controversy

Gideon Kanner is professor of law emeritus at the Loyola Law School in Los Angeles, and Editor of Just Compensation. He is of counsel to the Santa Monica law firm of Berger & Norton. The firm represented the Pacific Lumber Company as litigation counsel in its inverse condemnation lawsuit against the federal government, which was pending in the U.S. Court of Federal Claims while the negotiated acquisition of the Headwaters redwood grove took place. Neither the author nor Berger & Norton were directly involved in the negotiations with the federal government that led to the government's purchase of Headwaters. The views expressed here are solely the author's.

[30 ELR 10756]

The February 2000 issue of the Environmental Law Reporter (ELR) carried an Article by Deputy Secretary of the Interior David J. Hayes relating the dramatic negotiations that led to the settlement of the Headwaters controversy, whereby the federal government agreed to buy the Pacific Lumber Company's (PALCO's) Headwaters Forest, a 7,500-acre tract of old growth redwood trees, in order to preserve it as a national park.¹ Though I was one of the lawyers for PALCO, and thus my perspective of this affair understandably differs from Mr. Hayes' perspective, I must at the outset agree with his bottom line that in terms of ultimate outcome, this was a "win-win" transaction. The public gained a major, environmentally important asset and PALCO received the protection of the Fifth Amendment of the U.S. Constitution, which requires the government to pay just compensation for private property it acquires for public purposes.

But this note of agreement falls short of ending the matter. Any telling of the Headwaters story must also take note of the "dark side" of this affair, particularly the astonishing tone of the public debate that preceded the settlement. After all, what was involved here was a land purchase, something that the government does routinely.² No doubt, preservation of the Headwaters old growth redwood grove was important, but no more so than the creation of the National Redwood Park in 1968. Yet for all the constructiveness of the Headwaters deal, this controversy implicates a saga of mendacity in public discourse³ that—with the eager cooperation of the press—succeeded in purveying a false picture of these events to the American public.

Though the last word is yet to be uttered when the collateral litigation arising from the failure of the United Savings Association in Texas is concluded,⁴ there does not seem to be much doubt that the federal government used the Headwaters controversy in a largely unsuccessful effort to coerce MAXXAM Corporation (the parent corporation of PALCO) and its Chief Executive Officer (CEO) Charles Hurwitz into foregoing the just compensation guaranteed by the Fifth Amendment for government takings of private property. Indeed, as Mr. Hayes makes clear, some coercive factors seeped into the negotiations that led to PALCO's assent to the government's imposition of an unprecedented habitat conservation plan (HCP), encompassing some 200,000 acres outside Headwaters.⁵ In that context, the actual acquisition of Headwaters appears almost incidental.

[30 ELR 10757]

After all, if public acquisition of Headwaters had been the real bone of contention, the government could have made short work of it either by negotiating its purchase as required by 42 U.S.C. § 4651(1), or by pursuing one of three litigation options. It could have filed a "quick take" condemnation action and filed a declaration of taking under 40 U.S.C. § 258a. That would have instantly put an end to any prospects of logging in the Headwaters area, and transfered possession and title to it, leaving the determination of just compensation for later.⁶ Or, it could have pursued a "slow take" condemnation action under 40 U.S.C. § 257 in which the just compensation would be first judicially determined, and title and possession taken by the government after payment of the judgment amount.⁷ Or, Congress could have used the same legislative expropriation procedure it used in 1968 to create the Redwood National Park.⁸

The first and third of these procedures would have led to an instant transfer of Headwaters to federal ownership, and put an end to the asserted threat of Headwaters being logged.⁹ This would have accomplished the immediate preservation of Headwaters, and would have put a prompt end to the raging acrimonious debate.

Absent the use of these eminent domain options by the government, it is difficult to understand why it would complain about PALCO's logging of its forests, Headwaters included, particularly since the land in question was zoned for logging as its only permitted use. Accepting the government's arguments, the U.S. Supreme Court made it clear in Kirby Forest Industries v. United States¹⁰ that until private forest land is formally taken, its owners retain every right to log it. Thus, lumber companies would be foolish to accede to government requests that they cease logging on land that the government means to acquire, because under Kirby they would then lose both the productive use of their lan, while waiting for the condemnation action to be filed (and decided), as well as interest on their eventual just compensation that should have accrued during the period of disuse of their land. For such land owners, to cooperate with the government would be an illustration of the cynical proverb that no good deed goes unpunished, as the land owners in Kirby learned the hard way (i.e., at the government's request they had ceased logging but received no compensation for the resulting loss of their timber harvest and no interest for the long-delayed payment of their just compensation).

In short, ideas have consequences and the consequence of the Kirby rule is that where private property is slated for government acquisition, its owners have every right to continue using their land for any otherwise lawful private uses, including logging. This right extends even past the time when a "slow take" condemnation action is filed under 40 U.S.C. § 257, and remains undisturbed until the government pays the judgment and takes title. Until then, the owner's property rights are not deemed taken, unless the government in some way substantially interferes with normal land uses before the de jure taking occurs—at which point a de facto [inverse] taking would occur.¹¹ In cases where the government wants to take private property in order to preserve it in its pre-taking condition and to that end wants to interdict private activities that may alter it, its remedy is the use of the "quick take" procedure and the filing of a declaration of taking which enables it to take immediate possession of the land in question, and thus prevent its alteration.¹²

But it seems clear that in this case the government's funding (or perhaps more accurately, its willingness to fund this acquisition)¹³ did not at first match its acquisitory desire. One surmises that this was so because the government was at first not aware of Headwaters' existence, and thus had no plans to acquire it. The impetus to do so came from the environmentalists. Even then, the government did not want to expose itself to the risk of having to pay Headwaters' fair market value as impartially adjudicated in a court of law. Moreover, Congress was evidently unwilling to write a blank check to acquire Headwaters either by an act of legislative expropriation or by the use of a declaration of taking, thus risking exposure to a subsequent irreversible adjudication of value favorable to PALCO.

Perhaps more important, a taking by eminent domain would not have given the government the HCP covering large forest areas outside Headwaters. A unilateral imposition of the stringent terms of the HCP would have carried the risk of a successful inverse condemnation action against it, that might have proved quite expensive to the government.¹⁴ Indeed, Mr. Hayes notes that "it was this portion of the deal—rather than the purchase of the Headwaters Forest itself—that generated the most controversy."¹⁵ Thus, by agreeing to purchase Headwaters for the negotiated $ 380 million (toward which the state of California chipped in $ 130 million) the government got the proverbial two-for-the-price-of-one deal: title to Headwaters for a fraction of its total market value and a far-reaching, precedent setting HCP for the surrounding 200,000 acres of redwood [30 ELR 10758] forests.¹⁶ And so, when the Headwaters acquisition is viewed through the prism of result-orientation, Mr. Hayes has every reason to be pleased. But when examined from the perspective of constitutional values, particularly the distinction between ends and means that animates the Bill of Rights, to say nothing of the policies enacted in the Uniform Relocation Assistance and Land Acquisition Policies Act,¹⁷ the picture that emerges is not nearly so pretty.

The unfortunate bottom line is that the negotiations that led to the Headwaters agreement were carried on against a background of pejorative polemics, based on the bogus foundational assertions that the government should be able to obtain title to highly desirable private property without bothering to observe the Fifth Amendment's "just compensation" mandate. This Dialogue offers an insight into these matters and tells the story that the press failed to disclose to the American public.

What's Going on Here?

No rational person can honestly dispute that, on principle, government acquisition and preservation of irreplaceable natural resources is a good thing. Government preservation efforts have a long and distinguished history. Of course, legitimate disputes may arise as to the soundness of the government's choices of specific acquisition targets, and the legality of the means the government employs at times in pursuit of this commendable public policy.¹⁸ The 1968 congressional establishment of the Redwood National Park in California, by an act of legislative expropriation, is exemplary of how to do it forthrightly. That legislation¹⁹ expropriated privately owned redwood groves within the boundaries of the proposed park,²⁰ granting the former owners the right to seek compensation in the U.S. Court of Claims (as it was then called).²¹ The government thus protected stands of ancient coast redwoods by buying—not confiscating—them, while observing their owners' rights. This process exemplified the constitutional principles voiced by Justice Holmes that the rights of the public in land are only those that it has acquired and paid for, and that a strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for the change.²² Of course, even that generally benign event exacted a harsh price of impoverishing the surrounding communities that had depended on logging, and that were transformed into an "Appalachia of the West," as one former logger put it.²³

In sharp contrast, the 1999 acquisition of the Headwaters old growth redwood grove was preceded by a bitter public struggle in which environmental activists vociferously asserted that the land's owner had no right to log it, and that the government should gain control and eventually ownership of Headwaters without paying for it. Amazingly, this unblushingly voiced demand that the government ignore the Fifth Amendment—and the Eighth Commandment, if you are of a religious bent²⁴—far from being treated as the outlandish attack on constitutional values that it was, enjoyed support from the mainstream press that encouraged such government conduct and evidently emboldened it to give it a try.²⁵ There is ample reason to believe that the government not only acquiesced in these improper tactics of radical environmentalists, but made an overt effort to implement them when it brought a dubious lawsuit against Charles Hurwitz, CEO of MAXXAM Corporation (the owner of PALCO) in the U.S. District Court in Houston, claiming nine-figure restitution for his assertedly improper activities in the operation of a failed Texas savings and loan association.²⁶ As eventually became apparent, federal thrift officials thus tried to implement the radical environmentalists' legally unfounded notion that the "debt" said to be owed by Charles Hurwitz to the Federal Deposit Insurance Corporation (FDIC) be forgiven on condition that PALCO make a gift of Headwaters to the federal government²⁷—a maneuver the [30 ELR 10759] U.S. District Court in Texas characterized as cosa nostra tactics²⁸ (i.e. an effort to make an "offer" that Hurwitz could not refuse, or so the feds thought).

The attitude underlying this attack on the Constitution was familiar, even if the specific objective and tactics were new. Environmentalists have attacked (albeit unsuccessfully) the Just Compensation Clause for decades, though historically the attack was focused on the concept of non-physical, regulatory takings, and stopped short of cases of formal government acquisitions of title to private land.²⁹ To the best of my knowledge, until the Headwaters case came along, no rational person with a rudimentary knowledge of American constitutional law had the chutzpah to advance as public policy the notion that overt government acquisitions of title to valuable private land be permitted without the payment of just compensation—a notion wholly at odds, not only with American constitutional law, but also with the laws of every civilized nonauthoritarian society.³⁰

What is puzzling, however, is why otherwise respectable mainstream newspapers picked up the radical environmentalists' cue to the extent they did—they simply took it as a given that it is illegal or at least wicked for owners of land that the government covets, to continue devoting it to its customary uses of logging, and to insist on payment of just compensation specified by the Constitution when the government acquires it. And make no mistake, this notion was assiduously peddled, not just by ideological zealots or some far-out partisan rags edited by small town eccentrics, but by first-rank national newspapers.

For example, the Wall Street Journal—a publication one would think to be understanding, if not respectful of private-property rights and customary business practices—tried to make it appear that Charles Hurwitz was blackmailing Uncle Sam, rather than the other way around. Terming Hurwitz's position "a proposal that brings new meaning to the term greenmail," the Journal's Charles McCoy asserted that "Hurwitz wants the U.S. government to pay him hundreds of millions of dollars for 4,500 acres of the ancient redwoods, in a remote California grove known as the Headwaters Forest. Otherwise, he says, he will press ahead with his plans to cut the trees down."³¹ In fact, what Hurwitz wanted was to be left alone, and he only demanded the constitutionally mandated just compensation in response to demands that Headwaters be conveyed to the government. In the interim, continued logging by PALCO was perfectly legal under the Kirby holding. It was the government (acting in response to demands of radical environmentalists) that demanded that PALCO simply give Headwaters to Uncle Sam, on pain of the government pressing its unrelated, dubious claims against Hurwitz.

And so, if any "greenmail" could be said to be present here, it was the government that used the Headwaters controversy as a leveraging tool, by filing a collateral litigation in federal court in Texas in a manner that inspired the federal judge presiding over it to denounce the government's tactics as "tools of cosa nostra"³²—an event that for all of its conspicuous newsworthiness to the business community at the very least, the Journal (as well as other mainstream papers that otherwise covered the Headwaters story at length) unaccountably failed to report.

The press depiction of this controversy and the relentless stream of villification of Charles Hurwitz that was an intrinsic part of its reportage were astounding for yet another reason. After all, mainstream American newspapers are largely enormous enterprises, often owned by conspicuously wealthy families that would understandably take umbrage if someone were to demand that they surrender their prized holdings for the public good without compensation.³³ Yet, [30 ELR 10760] there they were, forcefully supporting demands that the constitutionally protected rights of Hurwitz and PALCO be summarily abrogated by the government, and their property simply confiscated.

What adds to this astonishing picture is the fact that like all human endeavors, the newspapers' cherished public function has its dark side. Newspapers regularly pursue editorial policies and run news stories that are untrue, defamatory, invasive of individual privacy, inconsistent with effective law enforcement and national security, and at least in the case of the tabloids, destructive of moral values of a good society. Similarly, it is not unusual for newspapers to frustrate the administration of justice when they happen to become privy to confidentially obtained information that if revealed in court would be decisive in the adjudication of important civil or criminal litigation, to say nothing of their sometimes shameless interviews with murderous international terrorists whose whereabouts are avidly sought by law enforcement agencies, thus providing those terrorists with valuable publicity and opportunities to peddle their anti-American propaganda on a worldwide scale. Yet, when called to account, the reflexive response of journalists is that their utterances are protected by the First Amendment, and if they cause public or individual harm in particular cases, that is outweighed by the greater good brought about by newspapers fostering open public discourse.³⁴ That, they say, is part of the price of living in a free society. Why they would not similarly acknowledge that observance of individual property rights secured by the Fifth Amendment is likewise essential to the well-being of that same free society, and is a part of the same price we pay for freedom,³⁵ is logically and morally inexplicable, and in the end amounts to little more than the hypocritical assertion "do as we say, not as we do."

Whatever sea change may have taken place in the quality of American public discourse in recent decades, one would have thought that a line would be drawn somewhere. After all, politically motivated cries for confiscation of private property, as if in some Third World dictatorship,³⁶ are not something that is readily saleable to mainstream America. Though Americans may view environmental values positively, they themselves are property owners in large numbers and as such not likely to buy into the notion that—to borrow Justice Holmes' words again—the government should be able to take privately owned land and then refuse to pay for it just because the public wants it very much.³⁷

Moreover, this case of open demands for confiscation of constitutionally protected private property was remarkable for its tone as well as its content. The press took it as axiomatic that it was evil and indeed somehow illegal for PALCO to use its own land for its historical use of timber harvesting,³⁸ and that it was overreaching for Charles Hurwitz to insist that the Constitution's plain language be enforced. But unlike the usual "taking issue" controversies in which the dispute centers on whether the government regulations go "too far" and thus become de facto regulatory takings, the core issue here was not regulation but outright government acquisition of title and possession. There was simply no respectable legal basis for asserting that this government land acquisition should not have been accompanied by payment of just compensation in accordance with the explicit terms of the Fifth Amendment.³⁹

In sum, this was a massive propaganda campaign, launched by radical environmentalists, swallowed hook line and sinker by the press, and disingenuously embraced by at least some federal government functionaries. The remarkable thing about it was that though most of the factual predicates for the environmentalists' story were untrue and readily subject to exposure as such, the press—far from acting out its vaunted role of a public watch dog—acted more like the environmentalists' lap dog. It not only went along with the distortions, but gave them astonishing currency through a drumbeat of repetition, at times in extravagant language. This is hardly the first time that the press has misrepresented the facts and issues of controversies centered on the Fifth Amendment's eminent domain clause,⁴⁰ but in this case the display of journalistic bias and misrepresentation went beyond the pale.

[30 ELR 10761]

What drove this propaganda campaign was the notion that Charles Hurwitz, the CEO of MAXXAM Corporation (which acquired PALCO) was a villain who had to be stopped by any means necessary, without regard for the usual norms of due process. Though the asserted illegality of his conduct had nothing to do with PALCO's operations (i.e., even on the environmentalists' dubious premise it involved banking activities in Texas,⁴¹ not PALCO's logging in California), Hurwitz's image as the wicked "Wall Street raider" and Michael Milken's confidant was widely disseminated as a flimsy excuse for denying him his property rights. This approach studiously ignored the fact that in America everyone—"nice" people as well as wicked people, including those charged with heinous anti-social conduct—is entitled to due process of law and to protection of their constitutional rights.

Indeed, it is a bedrock tenet of constitutional law (ironically, one much beloved by First Amendment afficionados of the press) that freedoms secured by the Bill of Rights are in greatest need of safeguarding when they are claimed by unpopular people advancing unpopular causes. We simply do not declare individuals who challenge government policy to be ipso facto guilty of some sort of functional equivalent of high treason and as such subject to having their lands forfeited to the crown. That is a notion that might be at home in the pre-Magna Carta royal courts of England. If indeed Hurwitz violated the banking laws in Texas in some fashion (a matter yet to be determined) the proper response should have been the pursuit of a due process adjudication to that effect, not government "cosa nostra" tactics, nor the howl of a journalistic lynch mob that uncritically swallowed and propagated what now quite evidently appear to be untrue assertions of radical environmentalists who were none too fastidious about the means they used in their effort to frustrate Hurwitz's constitutional rights.

Ironically, when the true factual picture finally emerged in 1998, it was not the product of investigative journalists, but of two scholars at the University of Southern California School of Business, who did the investigative work thatthe press failed to do.⁴² Even then, in spite of the enormous coverage that the Headwaters story had received, the mainstream press failed to confront or even acknowledge the fact that its depiction of the facts underlying the Headwaters controversy was now being challenged by respectable scholarly researchers as simply not true.⁴³ The DeAngelos' expose has not been picked up by the press, and has been ignored by the very newspapers that were at the forefront of disseminating the false story.

The Myth

The Warm and Fuzzy, Mom-and-Pop, Treehugging Lumber Company

The foundation of the inaccurate depiction of the Headwaters controversy was the characterization of the pre-take-over PALCO as a family-owned, forest-friendly little company that, sure enough, cut some redwoods here and there,⁴⁴ but was basically a treehugging, environmentally minded, family-held outfit, whose management style embodied a committment to preservation of its old growth forests.⁴⁵ The overall tone of this press depiction conjures up the image of a virtually Druidic, tree-worshipping family that cut some redwood trees, but did so selectively, leaving its old timber standing. Just how a lumber company could exist while taking "a few trees here [and] a few trees over there" was never asked or explained. In fact, "91% of [PALCO's] ancient forests had already been logged before the takeover and [PALCO's] prior management was systematically proceeding to log all the firm's old-growth redwoods."⁴⁶

The "Wall Street Raider" and the—Shudder!—Michael Milken Connection

In sharp contrast with the warm and fuzzy image of the old PALCO management as benignly paternalistic, the press never missed an opportunity to depict MAXXAM's CEO, [30 ELR 10762] Charles Hurwitz, in harshly pejorative terms.⁴⁷ A staple of this press coverage was to allude to convicted "junk bond king" Michael Milken, who arranged the bond financing of MAXXAM's leveraged buyout of PALCO, and to brandish his name as a symbol of corporate greed and evil.⁴⁸ None of the pertinent stories provided any evidence that Milken (apart from arranging the financing) was in any way personally involved in PALCO's logging operations. Still, Milken's name was freely bandied about in a clumsy effort to make PALCO's operations look bad, even though MAXXAM bonds proved to be an excellent investment, and PALCO's "junk bonds" were later called and replaced with lower yield investment grade bonds.

In spite of all that, Michael Milken's "junk bonds" figured prominently in the press coverage of PALCO's logging operations as a clumsy means of persuading the public that, having leveraged the acquisition of PALCO, Hurwitz had no alternative but to double or triple—take your pick⁴⁹—PALCO's historical redwood harvest in order to service those bonds.⁵⁰

The Infamous "Chain Saw Massacre" to Pay Off the Junk Bond Debt

As noted, the assertion that drove the story was that in order to take over PALCO Hurwitz had to float "junk bonds" to raise the purchase price. Then, went the story, faced with high interest payments on those bonds, Hurwitz had to step up PALCO's timber production to raise the necessary funds.⁵¹ As it turned out, that part of the story was also incorrect,⁵² but it was peddled by the press assiduously, since it provided a plausible negative explanation (i.e., greed) for Hurwitz's assertedly evil motivation.

Just what was the size of the debt incurred by Hurwitz in purchasing PALCO depends on which newspaper you read. You can have your pick of $ 600 million,⁵³ or $ 680 million,⁵⁴ or $ 750 million,⁵⁵ or $ 754 million,⁵⁶ or $ 795 [30 ELR 10763] million,⁵⁷ or $ 800 million,⁵⁸ or $ 810 million,⁵⁹ or $ 900 million.⁶⁰

The actual figure was $ 750 million.

The "Debt for Nature" Scam

But by far the most amazing thing about this affair was the environmentalists' display of chutzpah when they asserted that inasmuch as Hurwitz was involved with a failed Texas savings and loan association (a subsidiary of a holding company in which he held a minority interest, and the subject of a federal investigation), it was incumbent on him to "donate" Headwaters (plus other redwood groves totalling some 63,000 acres)⁶¹ to Uncle Sam, whereupon his asserted "debt" to the government, would be forgiven, and the investigation thereof by federal authorities would just go away.⁶² Thus, the "debt for nature" swap.⁶³

The Facts⁶⁴

Before the MAXXAM Takeover PALCO Was Not a Family-Owned, Well Run, Environmentally Sensitive Company

Contrary to the endless press stories, when MAXXAM took over PALCO it was not family-owned or family-managed. At that time its founding [Murphy] family held only one seat (out of nine) on the board of directors, and only one member of that family worked for PALCO as manager of lumber operations. PALCO's stock was traded on the New York Stock Exchange (NYSE), with 44% of its traded shares held by institutions (about average for NYSE traded firms).⁶⁵ Indeed, MAXXAM gained control of PALCO by purchasing some of its shares in the open market.

It also appears that PALCO was not the model of environmental efficiency it was said to be. Its operating policies were highly idiosyncratic and at odds with the modus operandi of the rest of the redwood logging industry.⁶⁶ The DeAngelo Report notes that before the takeover, in 1984, PALCO stock traded in the low $ 20s, having earlier risen to $ 30. The stockholders were so disenchanted with its performance that in September 1984, when the old management announced a repurchase tender offer at $ 30 per share (or a 16.5% premium at the time) the offer was heavily oversubscribed, and some 33% of the outstanding shares were tendered (which ironically was a fact that attracted Hurwitz's attention).

PALCO's old management had evidently not commissioned an independent assessment of its standing timber since 1956, and thus grossly underestimated its own holdings. Post-takeover surveys of PALCO's timber holdings revealed that it owned some 30% more standing timber and 45% more old growth trees than the old management believed it had.⁶⁷ In contrast, MAXXAM commissioned aerial surveys of PALCO's timber holdings before launching the takeover bid, and thus learned that the old company was undervalued. The conclusion that the old PALCO management and shareholders did not appreciate what they owned is further reinforced by the fact that when Hurwitz made his takeover bid, it attracted no competitive "White Knight" bids, since evidently no other investors thought old PALCO was worth fighting over.⁶⁸

It should also be noted that when employed,old PALCO's practice of selective logging (as opposed to clear-cutting) was motivated, at least in part, by financial considerations. At one time California law provided that when timberlands were cut to an extent not exceeding 70% they were exempt from property taxes. When that law was repealed, the old PALCO management went back to clear-cutting.⁶⁹

Both the Old and the Post-Takeover PALCO Harvested Trees in Accordance With Accepted Practices

The story that the old PALCO management refrained from logging old growth trees also appears to be incorrect. The DeAngelo Report indicates that before the takeover, PALCO was harvesting 1,200 acres of virgin old growth per year to meet its mill requirements.⁷⁰ At that rate, if left to its [30 ELR 10764] pre-takeover management practices, PALCO would have harvested all its old growth trees—including the Headwaters grove—by 1999. Taking into account that PALCO's actual timber holdings were considerably larger than management thought, this would have extended the life of the virgin old growth forests by a few years—no later than to the year 2009.⁷¹ Thus under the practices of the old PALCO management, the old growth forests would have been cut down in a few years anyway, for reasons that had nothing to do with Hurwitz, or Milken, or junk bonds, or MAXXAM, or the latter's takeover of PALCO.⁷²

It should go without saying, but in the distorted debate that has surrounded this matter it must be said explicitly, all redwood lumber companies are inherently in the redwood cutting business. They prefer to harvest old growth trees for perfectly rational business reasons. Older redwood trees not only produce superior wood, but they no longer grow, whereas younger trees continue to grow and yield lower quality, cheaper lumber. Thus, rational redwood logging companies prefer to log old trees, a practice that produces an immediate higher cash flow, and in the longer run permits the younger trees to grow, thus adding to future quantity and quality of harvested lumber and thus higher future revenues.⁷³ Viewed as a rational business practice, there was thus nothing evil about old or new PALCO's practice of harvesting old virgin growth trees, and if the government wanted to preserve them as a public resource, it was incumbent upon it to do so the honest way by buying and preserving them.⁷⁴

Finally, in another touch of irony, if not outright hypocrisy, even as Hurwitz was being vilified for failing to preserve the old coast redwoods, the federal government was delaying protection of huge stands of old giant sequoias (inland cousins of the coast redwoods), and refrained from creating the Sequoia National Monument on federally owned land until April 2000, while permitting their harvesting that is still going on.⁷⁵

Servicing the "Junk Bond" Debt Was Not the Driving Force Behind the Increase in Logging by the Post-Takeover PALCO Management

Probably the most important facet of the DeAngelo Report was its demonstration that the widely peddled notion that Hurwitz had to double or triple the tree harvesting rate upon acquiring PALCO, in order to pay the interest on the bonds that were issued to finance the acquisition, was not true. Sure enough, the new PALCO management stepped up the tree harvest rate, but as the DeAngelo Report demonstrates, that was a business decision that was not compelled by bond financing.

This conclusion flows from considerations of corporate financing, income tax laws, and simple arithmetic. The old PALCO paid high dividends that are not tax deductible to the paying corporation, and was relatively debt-free.⁷⁶ After the MAXXAM takeover, PALCO changed its financial policy and increased its debt, using the funds formerly paid out as dividends to service the debt. Because interest payments are deductible, their payout generated substantial tax benefits and made more money available to the company which could thus service a higher debt than under the old system in which most of the profits were paid out as dividends. Nor was this all. As the DeAngelo Report puts it, "[PALCO] had substantial timber holdings that were carried on the books at a small fraction of their current value, hence that would generate large tax benefits from the post-acquisition asset value writeup available at the time."⁷⁷ Finally, the old PALCO's pension plan was overfunded by some $ 50-60 million, and that too was a source of funds available to new management to service the bond debt.⁷⁸ Thus, the DeAngelo study concludes that after shifting profits from dividends to debt servicing, selling some nonlumber-related assets, capturing the pension fund surplus, and considering the acquisition-related asset value writeup, PALCO's new management could have maintained the old management's harvest rate and still serviced the newly issued bonds.⁷⁹ The DeAngelo Report concludes that the new PALCO management increased the rate of tree harvesting not because of a dire need to service the new bonds, but for two other rational reasons: first, doing so was profitable, and second, it corrected the old management's mistaken perception of its standing timber holdings, that in reality were larger than supposed, and thus capable of yielding a higher harvest.

"Debt for Nature" Swap or "Tools of Cosa Nostra"?

It is hardly news that in the 1980s the American savings and loan business suffered a widespread, calamitous decline, with many savings and loan associations (S&Ls) becoming insolvent and being taken over by federal regulators. The United Savings Association of Texas (USAT) was one such financial institution. It went under along with most Texas S&Ls. At the time of its collapse, USAT was a subsidiary of [30 ELR 10765] United Financial Group, Inc. (UFG), a holding company in which MAXXAM and Hurwitz held a minority interest. At the time MAXXAM acquired its interest in UFG, the latter had already contracted to sell USAT,⁸⁰ and thus there was no intention on the part of MAXXAM or Hurwitz to operate it. However, the sale of USAT fell through⁸¹ and as a result MAXXAM found itself with a minority interest in a holding company whose primary asset was USAT.

In 1987 federal regulators thought that USAT could be saved, and considered it a candidate for acquisition by someone who would continue to operate it. The Federal Home Loan Bank Board considered MAXXAM to be a potential buyer of USAT and invited it to submit a bid, which MAXXAM did at considerable cost. However, the response was that MAXXAM's bid was too low, and eventually another bidder was selected. It was not until seven years later that the government disclosed, in response to discovery conducted in an action that the FDIC brought against Hurwitz, that in violation of its internal procedures and mandates, the bid that was accepted was $ 100 million more costly to the government than MAXXAM's bid would have been.⁸² What in the world was going on here? Why would the feds forego the extra $ 100 million implicit in MAXXAM's offer, accept a lower one, and then make a claim against Hurwitz? On its face, this made no sense at all. Unless, that is, the feds had an ulterior motive. They evidently did.

As time went on, things got more and more curious. In 1988, the FDIC started its investigation of Hurwitz, and requested on November 22, 1991, that he sign a statute-of-limitations waiver extension to give the FDIC an adequate opportunity to conduct its investigation. He did. The FDIC failed to complete its investigation on time and asked for another waiver. And another, and another, and another, and . . . . Thirteen waivers and seven years later, Hurwitz said "enough already," and declined to sign further waivers.⁸³ The FDIC's response was to sue him in August 1995. Which proved to be a mistake because once a lawsuit was filed, Hurwitz gained access to the discovery process, and things started coming unglued for the feds.

Inasmuch as the Office of Thrift Supervision (OTS) was pursuing parallel administrative proceedings against Hurwitz, in which its claims duplicated those made by the FDIC in the Texas lawsuit, Hurwitz's lawyers understandably got curious as to why this was happening. Eventually, they took the unusual step of asking the federal court for an order disclosing the FDIC's internal Authority to Sue memo (ATS) on which this proceeding was based. The FDIC vigorously resisted this request on the grounds that it was privileged attorney-client communication. But after reviewing a redacted version of the ATS in camera, the judge concluded that it contained unprivileged information, and ordered that its full text be produced and unsealed.⁸⁴ It was. Though the U.S. Court of Appeals for the Fifth Circuit eventually issued an order resealing that letter, it was public record for several days during which it became the subject of an expose by the Houston Chronicle which also reproduced parts of it.⁸⁵

The ATS revealed that the FDIC itself had great doubts about the soundness of its action, and before filing it concluded that it was not likely to succeed because of substantive weaknesses in its case as well as limitations problems. Moreover, the ATS disclosed that an investigation by the FDIC's independent outside counsel had earlier concluded that there was no intentional fraud, gross negligence, patterns of self-dealing, nor evidence of insider trading, stock manipulation, or misappropriation of corporate opportunity by USAT's officers and directors. There was thus ample reason for concluding that the FDIC's action was not undertaken in good faith. It also turned out that the FDIC literally hired OTS, and paid it to institute administrative proceedings against Hurwitz (and others), while the FDIC was double-teaming him in the U.S. District Court action where it made identical claims. This strategy gave every indication of being an effort to impose crushing litigation expenses on Hurwitz, and make him come to terms. Once the duplicative (and as the court put it, "duplicitous") nature of these tandem administrative and judicial proceedings became clear, the court ordered a joinder of OTS as a plaintiff in the judicial proceedings, to avoid the prospects of conflicting findings by the judicial and administrative tribunals. The FDIC's reaction was to file what it characterized as an amended complaint, but what the judge rightly determined to be a motion for nonsuit and a plea in abatement. The FDIC dropped from its amended complaint all charges against Hurwitz, leaving only the contingent possibility that if it should happen that the OTS found in the administrative proceedings that MAXXAM breached its duty to maintain the net worth of the failed USAT, then Hurwitz would be liable for breaching his fiduciary duty to cause MAXXAM to maintain USAT's net worth, and then, if the OTS were unable to collect the entire amount allegedly owed by Hurwitz and MAXXAM in the administrative proceedings, the FDIC would reactivate the judicial proceeding and seek to do so there.⁸⁶

Faced with this pattern of deception and clear abuse of the judicial process, the judge concluded that the FDIC action was a "shell game" involving "active misrepresentation" and was "wasting precious judicial resources, [and] harassing respondent citizens."⁸⁷ The court dismissed OTS from the judicial action (since it was pursuing separate administrative proceedings that were no longer duplicative of the court action) and concluded that "systematic falsehood[s] are the tools of cosa nostra not res publica."⁸⁸

[30 ELR 10766]

In retrospect, it isn't too hard to figure out what happened here, and it is hard to resist the conclusion that this lawsuit was brought in bad faith to put pressure on Hurwitz. Unable to make a straightforward case likely to succeed in court, the FDIC paid the OTS to launch an administrative proceeding on a procedurally friendly turf where judicial due process standards do not apply, and where the accuser is also the ultimate judge.⁸⁹ While this went on, the FDIC also tried to work Hurwitz over in federal court for the same asserted transgressions. As the court put it: "The FDIC had actually hired the OTS to front for it in attacking Hurwitz administratively" while it was also pursuing him judicially.⁹⁰

The truth thus came out in bits and pieces in the FDIC's lawsuit as a result of dogged insistence by Hurwitz's law-yers that the government live up to its obligation as a litigant and give candid responses to Hurwitz's discovery, which the government resisted every step of the way. The FDIC's law-suit was quite evidently an effort to impose such draconian costs of litigation on Hurwitz that he would settle and thereby avoid an adverse administrative adjudication by its adversary serving as a judge, or gain a pyrrhic victory that would be horrendously costly. But here, the feds picked the wrong target. Hurwitz spent some $ 20 million as of 1998⁹¹ to defend himself against these dubious charges. And so, if the feds thought they were making an offer Hurwitz could not refuse, they were proven wrong—he could and he did.

As of this writing the administrative proceedings before the OTS have been concluded, and a decision by an administrative law judge is expected at any time. But regardless of the ultimate outcome, this much is clear: no matter how sliced, the pursuit of the double-team action against Hurwitz by the FDIC and the OTS makes no legally legitimate sense whatever. Either it was a completely malicious or irrational act, a conclusion I am unwilling to accept, or the motivation for the government's disgraceful behavior lay thousands of miles away, in the Headwaters forest in California.

That the latter was more likely the case is suggested by the fact that the discovery conducted by Hurwitz's lawyers in Texas unearthed a smoking gun. It turned out that the factors considered by the FDIC in bringing the action against Hurwitz included "the wholly unrelated matters about MAXXAM's indirect holdings of Pacific Coast redwood forests."⁹² The Houston Chronicle published portions of the ATS letter while it was unsealed, and its pertinent language speaks for itself:

"IV. The Pacific Lumber-Redwood Forest Matter

Any decision regarding Hurwitz and the former directors and officers of USAT is likely to attract media coverage and comment from environmental groups and members of Congress. Hurwitz has a reputation as a corporate raider, and his hostile takeover of Pacific Lumber attracted enormous publicity and litigation because [of] his harvesting of California redwoods. Environmental interests have received considerable publicity in the last two years, suggesting exchanging our D&O claims for the redwood forest. On July 21, 1995, we met with representatives of the Department of the Interior, who informed us that they are negotiating with Hurwitz about the possibility of swapping various properties, plus possibly the FDIC/OTS claims, for the redwood forest. They stated that the administration is seriously interested in pursuing such a settlement.[⁹³] We plan to follow up on these discussions with the Department of [the] Interior in the coming weeks."⁹⁴

Of course, even a moment's thought makes clear that whatever Hurwitz's alleged transgressions may have been with regard to the misadventures of USTA, they could have nothing whatever to do with the harvesting of redwoods in the Headwaters forest and hence the latter could have no legitimate role in the FDIC's "duplicative and duplicitous" lawsuit. Here was evidence strongly suggesting that the feds, acting in violation of 42 U.S.C. § 4651(7) (forbidding coercion in government land acquisitions) tried to pressure Hurwitz into surrendering Headwaters without compensation.

Bottom line: Judge Hughes was amply justified in concluding that the feds' tactics used against Hurwitz were the tools of cosa nostra, not res publica.

Conclusion

Because the Headwaters controversy was cast as a dramatic morality play, pitting the force of law against the grasping of a greedy "Wall Street raider," it is only proper that a conclusion be drawn in legal as well as moral terms. The cold fact is that after all the sound and fury, Charles Hurwitz, or more accurately the company controlled by him, was an object of planned government land acquisition and as such a prospective condemnee, and it is in that context that the conclusions must be drawn.⁹⁵ And once this controversy is viewed in context, the moral center of gravity of this wretched affair shifts rapidly away from the government's side.

The propaganda campaign that preceded the acquisition of Headwaters was dominated by the environmentalists' unblushing [30 ELR 10767] demand that the very government officials who take office with a hand on the Bible, swearing to uphold and protect the Constitution of the United States, instead trash that document, and find some way to engage in an outright land grab. Whatever the ideological influences on constitutional law that since the 1930s have caused property rights and economic liberties to become a disfavored stepchild of the American legal system, this much is clear and not rationally contestable: when it comes to the government acting in an acquisitory capacity and actually taking title to and possession of private property, a constitutional bright line is crossed. Government acquisition of private property against its owner's wishes—its "compulsory purchase" as the British put it—must be accompanied by the payment of just compensation, no ands, ifs or buts. Moreover, both constitutional and statutory law forbids the government to diminish the value of property it means to acquire and then acquire it at the depressed price.⁹⁶

And yet much of the Headwaters controversy was dominated by demands that these bedrock constitutional principles be disregarded. In that context, any weighing of morality of this affair can only lead to a moral rout for both the environmentalists and the government functionaries who pursued the bogus "debt for nature" swap.

The Headwaters imbroglio illustrated Justice Potter Stewart's observations voiced in Lynch v. Household Finance Co.⁹⁷ that property does not have rights, people have rights, and their personal and economic liberties are interdependent so that neither can have meaning without the other. In other words, a government that is free to impoverish its citizens has little need to interfere overtly with their other liberties. People who are made to understand that the government may plunder their wealth with impunity are going to think twice before speaking their mind and exercising their other ostensibly "protected" prerogatives of citizenship in a way that is likely to displease the government.⁹⁸ To that one might add that people who do not get involved in publicly contested controversies have no need of constitutional protection; it is those who are confronted by a government adversary that are the prime beneficiaries of constitutional guarantees.

That Justice Stewart was right is attested to by the fact that there are no societies in which a high degree of personal and political liberty does not correlate with a similarly high level of economic liberty. History and current events have taught the lesson over and over again, that adherence to a rule of law that reliably protects individual economic rights is indispensable to the well-being of a free society, and is the surest path to granting citizens—however humble their origins—the opportunity to better their lot in life economically, socially, and culturally. And yet, the Headwaters affair provides a depressing illustration of how ideologically besotted individuals can become so enamored of the results they seek in a particular case that they are not only willing to jettison the rule of law in order to gain their short-term objectives, but also to exhort government "tools of cosa nostra" as a public good.⁹⁹

Moreover, what should have been equally important to the environmentalists is the fact that it is societies that adhere to the rule of law and respect private-property rights that have by and large achieved the highest levels of environmental preservation and protection. Those that have failed to grant their people the level of economic liberty associated with a modern, democratic, western, and, yes, capitalist system, and that disdain the rule of law, are instead the ones that suffer the greatest degree of environmental degradation.¹⁰⁰ There is a lesson in that, which one would think is obvious, but that, alas, is yet to be learned by too many people involved in the Headwaters affair.

Finally, an event with all the drama of the Headwaters controversy cannot be dealt with without drawing conclusions about its villains and its heroes. This affair had villains aplenty, ranging from the radical environmentalists who were eager to ignore the Constitution and embrace extortion as a favored government policy, to the federal thrift officials who evidently tried to subvert the judicial process in a crude (but thankfully, unsuccessful) effort to dupe an honest judge into serving as an instrument of government extortion, to the press that became a willing (or at least an unwitting) tool of this scam, in disregard of its cherished slogan that "the public has a right to know."

Which brings us to the protagonist in this drama. Bearing in mind that the Headwaters controversy has throughout been centered on whether Hurwitz, the "Wall Street raider," was acting within the law, the question of whether he was a villain must be answered in the context of the law that governs public land acquisitions. And insofar as the Headwaters acquisition by the government is concerned, Hurwitz was clearly within his legal rights under Kirby. That conclusion leaves unanswered broader questions of morality, but since the controversy centered on the government's acquisition of private property against its owner's wishes, probing that "dark corner of the law"—as textwriter Lewis Orgel characterized it [30 ELR 10768] one-half century ago—reveals a mode of government conduct that is hardly something to brag about. Those who would wield the power of eminent domain do not have a moral leg to stand on. The law and practice of eminent domain are and always have been a profoundly immoral process in which government employs its raw power and routinely abuses its citizens.

Though said to be an inherent government power rooted in necessities of governance, today's eminent domain law and practice have been stretched beyond the bounds supportable by that rationale. As far as government condemnations are concerned, the Supreme Court has allowed takings for just about any imaginable reason, even when doing so stretches the meaning of the Fifth Amendment's phrase "public use," and has construed the provisions of assertedly authorizing statutes beyond their logical breaking point.¹⁰¹ As actually practiced, much of today's eminent domain power is wielded far beyond any legitimate governmental purview,¹⁰² and though constitutionally required to be exercised for "public use," it is routinely deployed in support of the economic interests of favored private, profit-making persons and entities, at the expense of other American property owners from all walks of life. The enrichment of mass merchandizers and shopping center developers and operators, race track promoters, automobile dealers, gambling casino operators and other politically well-connected, private, profit-making entrepreneurs who cynically prey on their neighbors in the guise of redevelopment,¹⁰³ is these days routinely rubber-stamped by compliant courts and decreed to be a "public use" for which the power of eminent domain may be freely exercised.¹⁰⁴

But when condemnees rightly complain of such mistreatment, they are archly told by the courts that they are trying to stand in the path of progress,¹⁰⁵ that enrichment of private parties who are benefitted by the exercise of eminent domain is merely incidental to the ostensible "public purpose"¹⁰⁶ and as such not even subject to heightened scrutiny,¹⁰⁷ that judicial assurances of "fairness and equity" occasionally found in court opinions are merely so much "panoramic" window dressing that is not to be relied on,¹⁰⁸ and in the end that though the measure of "just compensation" is limited to fair market value, some elements of value that would concededly be considered and paid for by the market are simply to be ignored.¹⁰⁹ Perhaps more morally distressing are cases in which condemning agencies make specific representations, promises and requests to prospective condemnees who, after acting accordingly to their detriment, discover that they have been lied to. Courts typically refuse to provide relief, and have even been known to assert that such government misrepresentations to condemnees are within the "rules of the game."¹¹⁰

[30 ELR 10769]

Paradoxically, though the courts stoutly assert that the shaping of the rules of "just compensation" is a judicial prerogative to which the legislature is subservient,¹¹¹ and while they concede that judge-made law of eminent domain is "harsh," they simultaneously turn away condemnees' justified submissions that the law is archaic and woefully inadequate to provide the constitutionally promised "just compensation" in the context of modern legal and economic realities.¹¹² The courts do so on the self-stultifying ground that even though formulation of the "harsh" law of just compensation is a judicial task, the rectification of its conceded deficiencies and injustices is a job for the legislature.¹¹³

Adding further insult to injury, the courts that in the context of ruling on the right to take profess to lack any power to pass on the necessity, desirability, and feasibility of public projects for which private land is being taken¹¹⁴—deeming those subjects to be altogether nonjusticiable—suddenly come alive in the context of compensation, execute an intellectual about-face, and now assert that judges have not only the power but indeed the duty to become involved in facilitating those projects' feasibility by seeing to it that the level of compensation is kept down.¹¹⁵ They do so in disregard of the manifest fact that public projects' economic feasibility is determined primarily by their design, scope, size, and location (all controlled by the condemning authority), and that typically, the cost of right-of-way acquisition is but a fraction of the project's cost. Moreover, there is no evidence before the courts as to whether or not the challenged projects would be feasible if condemnees were indemnified for their demonstrable losses, so that judicial apprehensions of this sort are no more than unfounded fears, based on a prevailing judicial anti-condemnee bias, without any factual basis whatever. Indeed, this judicial attitude is evident even when a condemning agency is running huge surpluses.¹¹⁶

Thus, these "keeping-the-cost-of-condemnation-down" judicial lamentations can be pure voodoo economics¹¹⁷ that mask the immorality of prevailing judicial under-compensation of condemnees. The total cost of a project is what itis, whether condemnees are indemnified or not. Denying them full compensation only shifts some of the true cost from the government and the benefitted public, where it belongs, to individuals who are thus forced to bear its disproportionate share and, unlike the government, lack either the resources to bear the cost or the means to spread it across the benefitted population.

And so, most courts (that in the past one-half century have expansively reshaped the law and American society, in the name of formulating fair rules that reflect changed social conditions), by and large grow reluctant to reform the many concededly unfair rules that make up the archaic law of "just compensation" when urged to do so by condemnees. The intellectual and moral nadir of such judicial assertions was reached in Community Redevelopment Agency v. Abrams,¹¹⁸ in which the California Supreme Court (then near its liberal/activist peak, and thus presumably quite capable of changing the law as it had on many other occasions) absurdly asserted that even though changed circumstances compelled the conclusion that the century-old eminent domain rule denying compensation for business losses adopted by it in 1915 was no longer consonant with prevailing constitutional policy and new urban reality, the court would do nothing to rectify the harsh rule of its own creation, for reasons inter alia of lack of "institutional competence" and "institutional capabilities."¹¹⁹ Adding insult to injury, when the shoe is on the other foot and the government complains that prevailing rules of compensation work to its disadvantage in a particular situation, the judicial response is to accommodate the government on the theory that "technical concepts of property law" must be tempered by "basic equitable principles of fairness."¹²⁰

In this broader context, in which the government is thus free to wield its unaccountable power to waste huge amounts of money,¹²¹ treat its citizens harshly,¹²² use public projects corruptly as a means of political favoritism,¹²³ and in the process destroy condemnees economically,¹²⁴ I suggest that it is intolerable hypocrisy for government functionaries and their groupies to demand that a prospective condemnee is to be held to punctillious standards of morality that they themselves eschew, and that he be required to cooperate in hiw own economic rape, i.e., that his conduct be judged not by the letter of the law which they so harshly impose upon him, but by some self-abnegating standards of ethical conduct that transcend more legality.

So was Charles Hurwitz a villain? Not in the context of this case. He was a prospective condemnee who defended himself within the limits of the harsh law brought to bear upon him, which he had every right to do. That is what the guarantees of the Bill of Rights are all about. I surmise that one reason for the fury directed at Hurwitz was not so much that he resisted the government's demands (many condemnees do that), but tht his resistance to the government's unlawful demands was principled,¹²⁵ forceful, and effective. In short, for all the angry propoganda to which he was subjected, in the context of the acquisition of Headwaters by the government, Charles Hurwitz emerges as more sinned against than sinner.

Finally, were there any heroes here? To be sure. As a lawyer and an occasional critic of the judiciary, I am pleased to note that the one person who without qualification stands out as the hero in this otherwise wretched mess is Judge Lynn N. Hughes of the U.S. District Court for the Southern District of Texas. He acted in the best tradition of an independent judiciary. He saw through the government's clumsy deception, calling 'em the way he saw 'em, and he saw 'em with a clear moral vision, without fear, and with uncompromising integrity. His actions in this matter can well serve as a model for his colleagues who, alas, all too often avert their eyes or pull their punches when faced with abusive government treatment of property owners.

Epilogue

On June 16, 2000, the chairman of the House Committee on Resources sent a letter to the chairman of the FDIC and the director of the OTS, informing them:

(a) that the Committee is initiating an oversight review of the advancement of claims by the FDIC and OTS "against private parties to ultimately obtain additional parcels of the Headwaters Forest owned by the Pacific Lumber Company. This advancement runs contrary to the Headwaters acquisition statute . . [P.L. 105-83] contrary to FDIC's mission to oversee the nation's financial system, and contrary to the interests of the federal department under the jurisdiction of my committee that would manage such additional Headwaters holdings."

(b)"I have very serious concerns over the notion that the FDIC somehow has the authority, let alone the 'power and duty to protect forest assets . . . and endangered species' as the extremist activists hold your office. I am not aware of FDIC or OTS authority or jurisdiction in these areas."

(c)"The legislation and agreement reached when Congress adopted Title V of P.L. 105-83 contemplated no additions to the Headwaters Forest over five acres. However, the extreme elements within the environmental movement, the FDIC, and the OTS continue to pursue what appears to be a [sic] orchestrated agenda and cases against MAXXAM and Mr. Charles Hurwitz to apparently create a 'debt' to be 'swapped' for additions to the Headwaters Forest owned by Pacific Lumber. This idea is contrary to the agreement reached by Congress and the Administration, contrary to the law, and contrary to the mission of the FCIC."¹²⁶

The letter goes on to request that the FCIC and OTS produce and deliver to the House Committee on Resources a variety of documents relating in any way to claims against Hurwitz by the FDIC and OTS that mention "debt for nature." The request includes documents involving any outside grant-making organizations (including the Rose and Turner Foundations), any environmentalist organiztions (such as Earth First! and others), and requests the production of records ofany FDIC and OTS claims that mention "debt for nature." The congressional investigation of this wretched affair has thus begun.

Stay tuned.

1. David J. Hayes, Saving the Headwaters Forest: A Jewel That Nearly Slipped Away, 30 ELR 10131 (Feb. 2000).

2. See Lois J. Schiffer, Taking Stock of the Takings Debate, 38 SANTA CLARA L. REV. 153-54 (1998) (attorney in charge of the U.S. Department of Justice (DOJ) Environment and Natural Resources Division reported that at the time she wrote some 9,000 land acquisition matters were pending). For a response to Ms. Schiffer's substantive arguments, see Michael M. Berger & Gideon Kanner, The Need for Takings Law Reform A View From the Trenches, 38 SANTA CLARA L. REV. 837 (1998).

3. I hasten to note that my critical remarks are not directed at Mr. Hayes or the lawyers for the DOJ, who handled PALCO's inverse condemnation lawsuit. Our experience was that the DOJ lawyers with whom we dealt conducted themselves throughout in a professional manner.

4. See infra notes 80-94 and accompanying text.

5. See Hayes, supra note 1, 30 ELR at 10138 ("we had executed a precedent-setting HCP that established new standards for forest practices"). Mr. Hayes also notes candidly that the federal government's strategy had a coercive component; the alternative to PALCO would have been to "continue to be enemy Number One to the environmental groups who were concerned about the Company's practices," and that absent an agreement on the HCP, "federal and state authorities could not stand by and allow the Company to operate in violation of the ESA without a permit. They would need to step up their vigilance to ensure that logging practices did not violate the ESA." Id. at 10135-36. It is, of course, an all too familiar experience of condemnees that enforcement of land use regulations of all sorts is abruptly "stepped up" with regard to land coveted by the government. See generally Gideon Kanner, Condemnation Blight: Just How Just Is Just Compensation?, 48 NOTRE DAME LAW. 765, 769, 788 (1973). Here, the state of California was also ready to use similarly coercive tactics. When negotiations between the federal government and PALCO broke down temporarily in February 1999, California Governor Gray Davis promptly "ordered a doubling of state inspection and enforcement operations in Humboldt County where the Headwaters is located." Government Agencies Prepare to Battle, WALL ST. J., Mar. 1, 1999, at A6, PALCO was also "bound to face renewed scrutiny from the Clinton administration regarding compliance with the Endangered Species Act." Id. Compare 42 U.S.C. § 4651(7), forbidding the use of coercive practices in government land acquisitions. For illustrations of such practices, see Drakes Bay Land Co. v. United States, 424 F.2d 574 (Ct. Cl. 1970) (interference with development of property slated for acquisition for the Point Reyes National Seashore); Bydlon v. United States, 175 F. Supp. 891 (Ct. Cl. 1959) (access denied to property slated for acquisition); and United States v. Certain Lands in Truro, 476 F. Supp. 1031, 1034 (D. Mass. 1979) (town Board of Selectmen pressured by federal functionaries into adopting uneconomical, value-diminishing zoning in anticipation of acquisition for the Cape Cod National Park).

This, of course, is not to say that prospective condemnees should not be required to obey the law, but it is to say that they, as compared to all other property owners, should not have to bear more intensive and more intrusive "stepped up" law enforcement practices than anyone else, particularly when the intensity of those practices is transparently intended to make the ownership of the targeted property more costly and less productive, thus lowering its value and softening up its owner for the coming condemnation. Klopping v. City of Whittier, 8 Cal. 3d 39, 46, 500 P.2d 1345 (1972) (alluding to "particularly harsh zoning regulations, often calculatingly designed to decrease any future award"); Kissinger v. City of Los Angeles, 161 Cal. App. 2d 454, 327 P.2d 10 (1958) (land downzoned in anticipation of condemnation); see Kanner, id. at 790-92, 795, 806-07.

6. It seems clear that Congress has grown disenchanted with the National Park Service's (NPS') peremptory use of the Declaration of Taking procedure, and has limited its application to those cases in which its use is necessary "to protect a parcel from destruction." Kirby Forest Indus. v. United States, 467 U.S. 1, 7 (1984). If protection of Headwaters from logging was the moving force behind the government's action, the filing of a Declaration of Taking would have been permissible.

7. These options available to federal government condemnors are described id. at 5-7.

8. See JACQUES B. GELIN & DAVID W. MILLER, THE FEDERAL LAW OF EMINENT DOMAIN 6, n.11 (Michie 1982).

9. See Kirby, 467 U.S. at 15-16.

10. Id. at 15.

11. Id. at 14.

12. Id. at 15-16.

13. See infra note 93.

14. The government presumably learned that lesson in Whitney Benefits v. United States, 926 F.2d 1169 (Fed. Cir. 1991) where, after imposing stringent regulations that denied a land owner the right to mine its coal deposits in Wyoming, it was held liable, with the final settlement tab (including interest and attorneys' fees) coming to $ 200 million. See George W. Miller, The Odyssey of Whitney Benefits: What a Long, Strange Trip It's Been, 1 REAL PROP. RTS. LITIG. RPTR. II (1995).

15. Hayes, supra note 1, 30 ELR at 10132.

16. Actually, the $ 380 million figure is an approximation because the transfer to the government also included the Elk Springs Forest, and the government also transferred to PALCO approximately 7,700 acres of forest known as Elk River Timberlands, that were carved out of a 9,470-acre forest tract for which the government paid some $ 78 million to third parties.

17. 42 U.S.C. § 4651.

18. See, e.g., United States v. 341.45 Acres, 751 F.2d 924, 927 (8th Cir. 1984) (National Park Service functionary informed prospective condemnees that he intended to acquire their land for 30 cents on the dollar, and failing their assent to such lowballing, he would delay the acquisition for a few years and then compel them to litigate over value, thus forcing them to incur large attorneys' fees and other litigation expenses.); United States v. 320 Acres, 605 F.2d 762, 777-80 n.22 (5th Cir. 1979) (in acquiring land for enlargement of the Everglades in the Big Cypress area of Florida, government lawyers presented condemnation cases to a compliant judge without notice to land owners appearing pro se, and when caught red-handed, refused to stipulate to vacation of the improperly entered judgments). Also see cases cited supra note 5.

19. Pub. L. No. 90-545, 82 Stat. 931, see 16 U.S.C. § 79c(B)(a).

20. Counterintuitive as it may seem, as a matter of constitutional law, the power of eminent domain resides in the legislative branch of government in the first instance (Rindge Co. v. County of Los Angeles, 262 U.S. 700, 709 (1923)), and therefore Congress can expropriate private property for public use by legislative fiat, without due process of law, provided, of course, it complies with the Fifth Amendment and provides for the payment of just compensation whose determination is a judicial function. Monongahela Navigation Co. v. United States, 148 U.S. 312 (1893). The executive branch of government may not seize private property, unless authorized by Congress. Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952).

But even when acquisition is authorized by statute, the government's right to seize private land has been limited since 1971 by enactment of 42 U.S.C. § 4651(4), which requires the government to bring a condemnation action and file a declaration of taking under 40 U.S.C. § 258a as a precondition to the taking.

21. See, e.g., Miller v. United States, 620 F.2d 812, 814 (Ct. Cl. 1980), Rocca v. United States, 500 F.2d 492, 496 (Ct. Cl. 1974).

22. Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415 (1922).

23. See Edwin Koester Jr., A New Park Saved the Tall Trees, But at a High Cost to the Community, SMITHSONIAN, Oct. 1993, at 42.

24. One of the unintentionally amusing aspects of the Headwaters controversy was the emergence of a group of liberal northern California clerics of several denominations who, eschewing the prevailing liberal dogma that there must be a "wall of separation" between religion and government, argued that in this case their religious values should drive public policy. Seth Zuckerman, Redwood Rabbis, SIERRA, Nov. 1, 1998, at 62; see Gideon Kanner, Ol' Time Religion Meets New Age, NAT'L L.J., Dec. 30, 1996, at A23. Ironically, when President Reagan's Secretary of the Interior, James Watt, advanced a similar position (that scriptural values should be reflected in government land management policy), he was widely denounced for it.

25. See infra note 94 and accompanying text.

26. Federal Deposit Ins. Corp. v. Hurwitz, Civ. Action No. H-95-3965 (S.D. Tex. Oct. 10, 1997) (hereafter FDIC v. Hurwitz). See Terry Carter, Reining in the Regulators: Judges Blast Banking Agencies for "Bad Faith" Overzealousness in Numerous Cases, A.B.A. J., May 1999, at 42; John L. Douglas, Government, the Abusive Plaintiff, WASH. TIMES, Mar. 19, 1999, at A19; Amy Ridenour, It's Outrageous How FDIC Has Treated Hurwitz, HOUS. CHRON., June 28, 2000, A21.

27. Obviously, it would would have been illegal and certainly improper for Hurwitz to impair the rights of the two corporation's stockholders and bondholders by giving away corporate assets in order to buy off claims made against him personally.

28. See infra note 32.

29. This attack began in earnest with the 1973 book, THE TAKING ISSUE, by Fred Bosselman, David L. Callies and John Banta, a government-funded polemical work that candidly advocated the overruling of the Pennsylvania Coal case. Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922). It continued with the 1973 announcement of the federal Task Force on Land Use and Urban Growth of the Citizens Advisory Committee on Environmental Quality that henceforth the right to develop private land was to be regarded as "resting with the community rather than with the property owner." Gladwin Hill, Authority to Develop Land Is Termed a Public Right, N.Y. TIMES, May 20, 1973, at 1.

The point of this attack was to legitimize the notion that harsh government land use regulations, no matter how confiscatory, should no longer be deemed takings under any circumstances, but rather be viewed as deprivations of property without due process of law, and as such outside the scope of the Just Compensation Clause, with invalidation of the regulation as the aggrieved property owners' sole remedy, even when the regulation denied all economically viable use and thus inflicted serious and irreversible economic harm. See Fred F. French Invest. Co. v. City of New York, 350 N.E.2d 381, 385-86, 6 ELR 20810, 20812 (N.Y. 1976), Agins v. City of Tiburon, 24 Cal. 3d 266, 9 ELR 20260 (Cal. 1979), aff'd on other grounds, 447 U.S. 255, 10 ELR 20361 (1980), overruled, First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, 482 U.S. 304, 17 ELR 20787 (1987). For a full-bore, pre-First English debate on the issue of remedies for uncompensated takings, compare Norman Williams et al., The White River Junction Manifesto, 9 VT. L. REV. 193 (1981) with Michael M. Berger & Gideon Kanner, Thoughts on The White River Junction Manifesto: A Reply to the "Gang of Five's" Views on Just Compensation for Regulatory Taking of Property, 19 LOY. L.A. L. REV. 685 (1986). Suffice it to say that the Court resolved the debate by opting for the compensation remedy in First English.

30. See generally COMPENSATION FOR EXPROPRIATION: A COMPARATIVE STUDY (Gavin M. Erasmus ed., United Kingdom National Committee of Comparative Law, Oxford, 1990) (two volume work).

31. C. McCoy, For Takeover Baron, Redwood Forests Are Just One More Deal: Hurwitz Wants U.S. to Buy His Trees for $ 600 Million or He'll Let the Chainsaws In, WALL ST. J., Aug. 6, 1993, at A1.

32. In dismissing the Office of Thrift Supervision (OTS) as a plaintiff in action brought by the FDIC against Charles Hurwitz in the U.S. District Court for the Southern District of Texas, Judge Lynn N. Hughes concluded: "Hired governments and systematic falsehoods are the tools of cosa nostra not res publica." FDIC v. Hurwitz, Opinion on Dismissal of the Office of Thrift Supervision, filed Oct. 23, 1997, at 5.

33. Thus when the printing plant of the Los Angeles Times was taken for a new city hall site, the Times insisted on and received a higher measure of compensation for its fixtures and equipment than any other California condemnee was able to equal. See City of Los Angeles v. Klinker, 219 Cal. 198, 25 P.2d 826 (1933), and compare the treatment meted out by the California courts to an ordinary condemnee seeking the same rule as applied to the Times in Klinker. City of Los Angeles v. Siegel, 230 Cal. ApP.2d 982, 41 Cal. Rptr. 563 (1964). The Times' recovery was so high that the city was forced to make an unsuccessful attempt to abandon the condemnation; see Times Mirror Corp. v. Superior Court, 3 Cal. 2d 309, 44 P.2d 547 (1935). Following the latter decision, the city was unable to pay the judgment, and so the state took the subject property off the city's hands and built a state office building on it. The Los Angeles city hall had to be built elsewhere.

The New York Times has also benefitted from condemnation. It has just become the beneficiary of an apparent sweetheart deal whereby the city of New York is to condemn 8 existing buildings in the Times Square area and turn over the land to the Times for a price of $ 100 million, minus "a series of tax breaks." Charles V. Bagli, The Times Is Expected to Sign an Accord on a New Building, N.Y. TIMES, June 20, 2000, at B3. The Times (which has evidently been exempted from competitive bidding for the site) is keeping mum as to the amount of those "tax breaks." Andrew Rice, Scrappy Parking Man Battles Times Tower, Won't Sell His Lots, N.Y. OBSERVER, July 3-10, 2000, 1, at 28.

34. Thus, Larry Flynt, the publisher of Hustler magazine, about as sleazy a publication as can be found on top of newsstand counters, was the subject of a flattering major motion picture depicting him as a heroic champion of constitutionally secured freedom of speech.

35. As the Court put it in First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, 482 U.S. 304, 321, 17 ELR 20787, 20791 (1987):

We realize that even our present holding will undoubtedly lessen to some extent the freedom and flexibility of land-use planners and governing bodies of municipal corporations when enacting land-use regulations. But such consequences necessarily flow from any decision upholding a claim of constitutional right; many of the provisions of the Constitution are designed to limit the flexibility and freedom of government authorities, and the Just Compensation Clause of the Fifth Amendment is one of them.

(Emphasis added.) See also Dolan v. City of Tigard, 512 U.S. 374, 392, 24 ELR 21083, 21087 (1994) (property rights are protected by the U.S. Constitution the same as First Amendment rights, and are not to be treated as a constitutional "poor relation").

36. A good illustration of such government behavior is provided by the current events in Zimbabwe where squatters, acting in the name of land redistribution and with the encouragement of that country's president, are lawlessly seizing large, privately owned farms. See Henri E. Cauvin, Zimbabwe Signals It Still Plans to Seize White-Owned Farms, N.Y. TIMES, Mar. 3, 2000, at A10; Mugabe to Invoke Powers for Redistribution of Land, L.A. TIMES, May 1, 2000, at A4; Plan Calls for Seizure of Land From Whites, DALLAS MORNING NEWS, Apr. 30, 2000, at 9A.

37. Pennsylvania Coal, supra note 29, at 415; see Michael M. Berger, The State's Police Power Is Not [Yet] the Power of a Police State, 35 Land Use L. & Zoning Dig. 4, 8 (1983).

38. Compare Kirby Forest Indus. v. United States, 467 U.S. 1, 15 (1984). If nothing else, PALCO clearly had reasonable, investment-backed expectations that, as a lumber company, it could continue harvesting timber that was its property (CAL. CIV. CODE §§ 658, 660; Sears v. Ackerman, 138 Cal. 583, 586 (1903)), as it had consistently done for over 100 years in compliance with the only use permitted by local zoning, namely, logging, so that destruction of those expectations would give rise to a compensable taking. See Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104, 127. 8 ELR 20528, 20534 (1978).

39. There is a clear distinction between proper government regulations that preserve natural resources and the "entirely separate question" of whether the effect of those valid regulations is so severe as to effect a taking of the regulated property. Kaiser Aetna v. United States, 442 U.S. 164, 10 ELR 20042 (1979).

40. See Gideon Kanner, Lucas and the Press: How to Be Politically Correct on the Taking Issue, in AFTER Lucas: LAND USE REGULATION AND THE TAKING OF PROPERTY WITHOUT COMPENSATION 102 (David L. Callies ed., 1993); Gideon Kanner, Not With a Bang, But a Giggle: The Settlement of the Lucas Case, in TAKINGS: LAND-DEVELOPMENT CONDITIONS AND REGULATORY TAKINGS AFTER Dolan AND Lucas 308 (David L. Callies ed., 1996).

41. In other words, whatever may have happened in Texas with regard to the failure of the United Savings Association of Texas (see infra notes 80-82 and accompanying text), and whatever irregularities may have occurred in MAXXAM's acquisition of PALCO, had nothing to do with PALCO's logging operations. Those had to be judged by the standard of what is legally permissible, not the identities of the actors. Whether PALCO was run by its old management, or acquired by a "Wall Street raider" or by an order of saintly nuns, the right to use its property would be the same. Put another way, property rights do not wax and wane depending on the identity, character, or status of the owner. That would be a positively feudal notion.

42. See Harry DeAngelo & Linda DeAngelo, Ancient Redwoods and the Politics of Finance: The Hostile Takeover of the Pacific Lumber Company, 47 J. FIN. ECON. 3 (1998) [hereinafter DeAngelo Report].

43. As far as I could determine, none of the mainstream newspapers that spent years villifying Charles Hurwitz, ever ran a news story offering a correction of their earlier false depiction of this affair, or even news that their earlier reportage was being factually challenged by impartial investigators. My research discloses only two brief stories in lower tier newspapers, reporting the DeAngelo study: Jonathan Marshall, Study Says Media Wrong on Headwaters, S.F. CHRON., Apr. 13, 1998, at B1 and Mike Geniella, Scholars Claim Public Misled on Headwaters, THE PRESS DEMOCRAT (SANTA ROSA), Apr. 27, 1997, at A1.

44. This is no hyperbole. A prestigious environmentalist magazine described the pre-takeover PALCO as a lumber company whose logging crews "went into the forest and took a few trees here, a few trees over there. . . ." John G. Mitchell, Tree Sitters Protest as Old Redwoods Fall to a Corporate Raider, AUDUBON, Sept. 1988, at 78.

45. "Pacific Lumber had operated a modest timber business, and never cleared the redwoods." ECONOMIST, May 11, 1996, at 26; "Before the takeover, the company was widely regarded as the most environmentally sensitive in the industry, selectively cutting its old-growth under a sustained yield policy." Cheryl Sullivan, Clear-Cutting Controversy: California Redwoods Embattled Anew, CHRISTIAN SCI. MONITOR, Nov. 18, 1987, at 3; "Pacific Lumber was a conservatively operated, family-owned operation." Brad Knickerbocker, CHRISTIAN SCI. MONITOR, Dec.3, 1993, at 1; PALCO "never cut more than it grew in a year" Paul Rauber, MAXXAMizing Profits, SIERRA, July/Aug. 1994, at 42; "Until 10 years ago the family-operated business was known as a conservative steward of private holdings." Brad Knickerbocker, California Redwoods: Saw or Save?, CHRISTIAN SCI. MONITOR, Sept. 18, 1995, at 1; "Pre-Hurwitz, family run Pacific Lumber had logged selectively to preserve the forest ecosystem." Thomas Fields-Meyer, Forest Gumption: A Stubborn Activist Takes on a Tycoon in a Fight for the Redwoods' Survival, PEOPLE, Nov. 11, 1996, at 56; "Pacific Lumber Company was a model forestry and logging firm as well as a model of corporate paternalism." ECONOMIST, Mar. 16, 1996, at R10; "For 117 years, family-operated Pacific Lumber Co. was a model corporation." Pete Stark & George Brown, Dealing With a Raider to Save a Forest, L.A. TIMES, Sept. 7, 1995, at B9; PALCO "raised benign paternalism to a management art." E. Schiltz, A Raider's Ruckus in the Woods, FORTUNE, Apr. 24, 1989, at 172.

46. DeAngelo Report, supra note 42, at 29 (emphasis in the original).

47. Hurwitz "began attacking the company's birthright: thousands of acres of so-called old-growth redwoods." Pamela Abramson, Razing the Giant Redwoods, NEWSWEEK, July 6, 1987, at 38; Hurwitz is "looting the forest." J. Skow, Redwoods: The Last Stand, TIME, June 6, 1994, at 58; "Charles Hurwitz's merciless jungle of capitalist predation." SIERRA, July/Aug. 1994, at 42; "Hurwitz has been a symbol of the various presumed evils of corporate raiders." M. Parrish, L.A. TIMES, Aug. 19, 1990, at D1; Hurwitz is "a corporate raider from Houston who ran with Michael Milken in the glory days of junk bonds and hostile takeovers." P. King, Once More, Into the Redwoods, L.A. TIMES, Sept. 18, 1996, at A3; "Hurwitz is a smooth, greedy operator . . . ." Goev Parrish, Target: Kaiser, SEATTLE WEEKLY, Mar. 9, 2000, at 19.

48. "It's a story about Michael Milken, junk bonds, Ivan Boesky, Drexel Burnham Lambert, enormous conglomerates—and between 10,000 and 12,000 acres of virgin redwoods." Bill McKibben, Milken, Junk Bonds, and Raping Redwoods, ROLLING STONE, Aug. 10, 1989, at 39; "[Hurwitz] grabbed Pacific [Lumber] in a 1986 hostile takeover, paid for largely with junk bonds issued by Drexel Burnham Lambert's Michael Milken, . . . ." J. Skow, Redwoods: The Last Stand, TIME, June 6, 1994, at 58; "$ 900 million buyout involving high-risk junk bonds financed by Michael Milken and Drexel Burnham Lambert, Inc." Knickerbocker, supra note 45, at 1.

49. According to Elliot Diriger, Cutting a Deal on Redwoods, S.F. CHRON., Sept. 4, 1996, at A1, and Robert Reinhold, Failure of S. & L. in California Could Save a Redwood Forest, N.Y. TIMES, Mar. 27, 1991, at 1, the rate was doubled, but according to Frank Clifford, Lumber Firm Rejects Plan to Save Headwaters Forest, L.A. TIMES, Feb. 27, 1999, at A1, Of Murrelets and Redwoods, ECONOMIST, May 11, 1996, at 26, and Carl Pope, A Texan's Chain Saw Massacre, S.F. EXAMINER, Sept. 5, 1996, at A19, the rate was tripled.

50. John Skow, Earth Day Blues, TIME, Apr. 24, 1995, at 75.

51. "Financed with more than $ 800 million in junk bonds, the Pacific Lumber deal worked only if Hurwitz seviced the debt by doubling, then tripting, the rate of lumbering." Eric Schine, A 1980s Chainsaw Massacre, BUS. WK., Feb. 26, 1996, at 16; "Hurwitz . . . is busily chopping down the redwoods to pay off massive debts . . . ." Pamela Abramson, Razing the Giant Redwoods, NEWSWEEK, July 6, 1987, at 38; "To help pay off the $ 750 million debt created by the controversial purchase, the new owner has doubled the company's redwood lumber production." P. Nussbaum, Takeover Triggers Battle Over Giant Redwoods, WASH. POST, Aug. 30, 1987, at H5; "The stately trees, most predating the American Revolution and some as old as the Magna Carta are now being clear-cut to pay the cost of MAXXAM's 1985 takeover, environmentalists say." Cheryl Sullivan, Clear-Cutting Controversy: California Redwoods Embattled Anew, CHRISTIAN SCI. MONITOR, Nov. 18, 1987, at 3.

Hurwitz soon set about paying off his newly acquired high-leverage debt. And how did he propose that? Why, by doubling the rate of timber production, by replacing selective harvests with wholesale clearcuts and by upping the take from the virgin stands, which alas, yield bigger bucks than do boards hewn from younger logs of the second growth.

Mitchell, supra note 44, at 78; "Hurwitz brought to Pacific Lumber a massive debt, which the company can pay off in only one way: cutting more trees." B. McKibben, ROLLING STONE, Aug. 10, 1989, at 40; "Pacific Lumber had doubled its rate of cutting to pay off junk bond debts after it was acquired by a hostile takeover, . . . ." T. Gabriel, If a Tree Falls in the Forest, They Hear It, N.Y. TIMES, Nov. 4, 1990 (Magazine), at 34; "MAXXAM took over . . . Pacific Lumber, and doubled the rate at which it felled the valuable redwoods on its land to pay off the $ 795 million debt it took on to finance the purchase." Reinhold, supra note 49, at A1; "To pay off the $ 754 million in junk bonds arranged by Drexel Burnham Lambert Inc. to finance the hostile takeover, Pacific Lumber under the new ownership doubled its rate of cutting." Brad Knickerbocker, Political Debate Surrounds Pacific Lumber, CHRISTIAN SCI. MONITOR, June 5, 1991, at 11; "Hurwitz stepped up the cutting rate to help generate cash to pay for his junk bonds." A. Sloan, How Complex Are Charles Hurwitz's Tree-Backed Bonds? Don't Ax, WASH. POST, Jan. 19, 1993, at D3; "After Hurwitz's MAXXAM Corporation gobbled it up in 1985, the [Pacific Lumber] company doubled the cut in order to pay off Hurwitz's junk bond debt, using clearcuts for the first time in its history." Rauber, supra note 45, at 42; "To help pay off the 12.5 percent interest on the bonds, Hurwitz began logging the more lucrative old-growth tracts at double the company's sustainable harvest rate." Michael Satchell, Trading Tall Trees for Debt: A Unique Deal for a Forest and a Financier?, U.S. NEWS & WORLD REP., Aug. 29/Sept. 5, 1994, at 52; "When MAXXAM took over, the rate of cut in the redwoods was doubled in part to pay off the debt incurred in buying the company." Brad Knickerbocker, Future of Redwoods Hinges on Government Land Swap, CHRISTIAN SCI. MONITOR, July 29, 1996, at 3; "MAXXAM has been obliged to double its annual timber harvest to service the heavy load of the debt Hurwitz took on in the PALCO takeover . . . ." Diana Henriques, The Redwood Raider: Charles Hurwitz Stirs Up Dust Again, BARRON'S, Sept. 28, 1987, at 14; "After Houston's Charles Hurwitz got Pacific Lumber, he speeded logging to pay debt." Schiltz, supra note 45, at 172; "[Hurwitz] bought [Pacific Lumber] in 1986 in a controversial junk bond deal and immediately accelerated the rate at which it was felling old redwoods . . . ." C. McCoy, A Mass Flyover by Spotted Owls Could Be a Nice Finale to a Day, WALL ST. J., July 3, 1992, at B1; "Under Mr. Hurwitz, Pacific Lumber began cutting down redwoods at twice the company's historic pace, to pay down debts." McCoy, supra note 31, at A1.

52. See DeAngelo Report, supra note 42, at 23.

53. K. Pender, A Question of Trees vs. Jobs: Ecologists Battle the Timber Industry on the North Coast, S.F. CHRON., May 16, 1988, at C1.

54. J. Bahls. A Timber Takeover's High Toll: What Do Corporate Raiders and Junk Bonds Have to Do With How Far U.S. Forests Are Logged?, SIERRA, Sept./Oct. 1988, at 33.

55. Fields-Meyer, supra note 45, at 56; Ryan Lizza, Gold Diggers, NEW REPUBLIC, May 4, 1998, at 20.

56. Knickerbocker, Political Debate Surrounds Pacific Lumber, supra note 51, at 11.

57. Mitchell, supra note 44, at 78; Reinhold supra note 49, at 1.

58. Schine, supra note 51, at 16.

59. The Redwood Forests, Saved, at a Price, ECONOMIST, Mar. 6, 1999, at 30.

60. Rauber, supra note 45, at 1.

61. Rose Foundation, Action to End Maxxam's Savings and Loan Exposure, Exec. Sum., at 2 (Oct. 11, 1999) [hereinafter Rose Report]. See also A. Cockburn, The Feds Blinked on Redwood Swap, L.A. TIMES, Aug. 2, 1996, at B9 (the "swap" would involve 60,000 acres of redwoods in exchange for freeing Hurwitz of "his $ 750 million (S&L) obligation.").

62. I claim no expertise in federal government finance law, but even so, I cannot help wondering how it could possibly be legal for the OTS (or the FDIC) to forgive an asserted nine figure "debt" said to be owing to them, so that the U.S. Department of the Interior could forego its obligation to comply with the Constitution and the Uniform Relocation Assistance Act. Can multi-hundred-million dollar sums be so casually shifted around between federal government departments without congressional authorization? I think not. For example, the recent transfer of funds from the Departments of Defense, Veterans Affairs, and Health and Human Services, to help fund the DOJ's law-suit against the tobacco companies, required congressional authorization. See Steven A. Holmes, House Votes to Let Justice Department Accept Aid in Tobacco Suit, N.Y. TIMES, June 24, 2000, at A12.

We shall soon find out whether my hunch is right; on May 31, 2000, Hurwitz filed a counterclaim against the government, seeking a court order barring the FDIC from funding the OTS proceedings, and a declaration that such "hiring" of one government agency by another is illegal. See Shannon Buggs, Maxxam's Hurwitz Sues Government in FDIC Case, HOUS, CHRON., June 1, 2000, at C1.

63. "Environmentalists have been pushing a 'debt-for-nature' swap in which the Texas financier would give up the Headwaters forest in exchange for taxpayer costs associated with his dealings." Brad Knickerbocker, Future of Redwoods Hinges on Government Land Swap, CHRISTIAN SCI. MONITOR, July 29, 1996, at 3.

64. The factual data for this portion of this Dialogue are taken from the DeAngelo Report, supra note 42.

65. Id. at 20.

66. DAVID HARRIS, THE LAST STAND 16-17 (Times Books 1995). Even so, old PALCO's management policies were motivated by its management's vision of long-term profitability, not an abstract love of the environment. Management believed that by harvesting its timber stands as it did it would ensure long-term availability of old growth timber for logging and thus enhance its own long-term profitability. Id.

67. De Angelo Report, supra note 42, at 21.

68. Id.

69. The DeAngelo Report further notes that selective cutting, though more aesthetically pleasing because it does not leave behind the "moonscape" that clearcutting does, is not an environmental panacea, because it exposes more trees to wind damage, and consumes more of the forest ecosystem for the same amount of harvested lumber. Id. at 22.

70. Id. at 14.

71. Id. at 16-17.

72. Id. at 24.

73. Id. at 19.

74. See Kirby Forest Indus. v. United States, 467 U.S. 1, 7 (1984). I am not oblivious to the considerable aesthetic, biological, and civic values inherent in preservation efforts of unique natural resources. But that's just the point: the great public benefits flowing from such preservation are uniquely a proper subject for government to secure, which is why historically, preservation efforts have involvedacquisition of valued natural resources by government. See Richard Simon, Donors Help Complete Desert Land Purchase, L.A. TIMES, May 19, 2000, at A3; Julie Cart, Nature in Its Rarest Form Can Be Found at Baca Ranch, Ecology: Few Have Seen the Beauty of This Land U.S. Wants to Purchase, L.A. TIMES, May 19, 2000, at A1. This is consonant with the constitutional principle that individuals should not be called upon to shoulder alone economic burdens that in fairness should be spread on society at large as the price of the benefits enjoyed by society at those individuals' expense. Armstrong v. United States, 364 U.S. 40, 49 (1960). One would think that the more valuable the resource and the greater the public benefits, the more forcefully this principle applies. As the California Supreme Court observed: the need to compensate is greatest when the loss is greatest, not just in cases where the taking is cheap and easy. Klopping v. City of Whittier, 8 Cal. 3d 39, 43, 500 P.2d 1345 (1972).

75. Barbara Whitaker, A Plan to Preserve Giant Sequoias, World's Biggest Trees, N.Y. TIMES, Apr. 9, 2000, at A18; Edwin Chen, Giant Sequoia National Monument Created, L.A. TIMES, Apr. 16, 2000, at A36.

76. The old PALCO had "substantial unused debt capacity, with a 7.2% long-term debt to total capitalization ratio (at market value), and its dividend payout ratio ranged from 55.5% to 94.0% over 1977-1984." DeAngelo Report, supra note 42, at 21.

77. Id. at 21.

78. Id.

79. Id. at 23-24.

80. Investor Gains in Bid to Acquire Texas S & L, AM. BANKER, Jan. 27, 1982, at 2.

81. Minutes of the Meeting of the Board of Directors, United Financial Group, Mar. 15, 1982, appearing as Exhibit A-1681 in the OTS administrative proceedings.

82. John L. Douglas, Government, the Abusive Plaintiff, WASH. TIMES, Mar. 19, 1999, at A19.

83. Carter, supra note 26, at 42.

84. FDIC v. Hurwitz, Order to Produce, Oct. 10, 1997.

85. Bob Sablatura, Redwoods, Not Red Ink, May Have Motivated the FDIC Against Hurwitz, HOUS. CHRON., July 19, 1998 at A1. See http://www.chron.com/content/chronicle/special/hurwitzdocs/l.html.

86. In the court's words:

The only claim remaining is a contingent one. FDIC argues that, if the OTS determines Federated and Maxxam owed a duty to maintain the net worth of the bank, then Hurwitz breached his fiduciary duty to the bank by not compelling them to honor it. . . . The FDIC now abandons entirely the bulk of its claims and abates its remaining claim. Having hired the OTS so it had another forum, the FDIC is content to leave the resolution of liability to the "independent" regulatory process.

FDIC v. Hurwitz, Opinion on Reconsideration of Production of the FDIC Report, Oct. 23, 1997, at 4.

87. Id.

88. Id. at 5.

89. In the administrative proceedings, the initial adjudication is made by an administrative law judge working for the OTS. But the insidious feature of the administrative proceeding approach is that whatever the administrative judge decides, his decision may be overruled by the head of the administrative agency, subject only to review by a U.S. court of appeals. While this may be the way it is in administrative law, such a procedure—particularly in a case involving government improprieties—obviously raises questions about the appearance of partiality at best, and a threat of railroading at worst. As one federal appellate court put it, commenting on administrative proceedings: "It requires no superior olfactory powers to recognize that the danger of unfairness through prejudgment is not diminished by a cloak of self-righteousness." Cinderella Career & Fin. Sch., Inc. v. Federal Trade Comm'n, 425 F.2d 583, 590 (D.C. Cir. 1970).

90. FDIC v. Hurwitz, Opinion on Production of FDIC Report, Oct. 10, 1997, at 4.

91. Sablatura, supra note 85, at A1, A16.

92. FDIC v. Hurwitz, Opinion on Production of FDIC Report, Oct. 10, 1997, at 3.

93. Just how "interested" the administration was in swinging this coercive deal is made clear in the Mar. 21, 1995, letter on White House stationery from White House Chief of Staff Leon Panetta to the National Audubon Society: "Budgetary constraints have made it impractical to acquire such an expensive tract of land through outright federal purchase. Your suggestion to consider acquisition through a debt-for-nature swap or other land exchange is worth pursuing." See Sablatura, supra note 85, at A16. The FDIC indicated in the ATS letter that: "The Department of the Interior recently informed us that the Administration is seriously interested in pursuing such a settlement." Id.

94. Photocopy reproduced in the HOUS. CHRON., July 19, 1998.

95. Not being an expert in federal securities and banking laws, I leave to others the judgment on those aspects of this controversy and others in which Hurwitz may have been involved. I am content to accept Judge Hughes' harsh characterization of that affair, since he was the only party without an ax to grind and was "fully informed in the premises" as the old legal expression goes.

96. United States v. Virginia Elec. & Power Co., 365 U.S. 624, 636 (1961); see United States v. Reynolds, 397 U.S. 14, 16 (1970); 42 U.S.C. § 4651(3).

97. 405 U.S. 538, 552 (1972).

98. For a recent example, see Berger & Kanner, supra note 2, at 879 n. 157.

99. And speaking of short- versus long-term objectives, this Dialogue would not be complete without noting an important consideration spotlighted by the DeAngelo Report, but otherwise ignored. For the $ 380 million price, the federal government acquired some3,000 acres of old growth redwoods, which add only 4% to the 81,500 acres of such trees already in public parks. For the same money, the federal government could have acquired 633,000 acres of cut over redwood forest land (almost one-third of the two million acres on which coast redwoods originally grew). DeAngelo Report, supra note 42, at 28. If left alone and protected by the government, land acquired in this fashion would have produced in the long run an enormous redwood forest to be enjoyed by posterity in perpetuity, and would have gone a long way toward restoration of the original one. See Susan Jane M. Brown, "The Forest Must Come First"; Gifford Pinchot's Conservation Ethic and the Gifford Pinchot National Forest—The Ideal and the Reality, FORDHAM ENVTL. L.J. 137, 185-86 (1999). Assuming a lack of public funds to preserve both resources (a questionable assumption these days when the federal treasury is bulging with huge surpluses), would it have been worth it to sacrifice 3,000 acres of redwoods in the short run to gain 633,000 acres in the long run? That is a policy question on which reasonable minds can differ. But as the DeAngelo Report correctly point out, this option was never even considered, thus shedding a penetrating, if oblique, light on the deficiencies of the national environmental policy—or lack thereof. See Richard J. Ansson Jr., Finding Our National Parks in the 21st Century: Will We Be Able to Preserve and Protect Our Embattled National Parks?, 11 FORDHAM ENVTL. L.J. 1 (1999).

100. See, e.g., David Gonzales, Guatemalan Squatters Torching Park Forests, N.Y. TIMES, May 20, 2000, at A5.

101. See United States ex rel. TVA v. Welch, 327 U.S. 546 (1946) (congressional statute authorizing the Tennessee Valley Authority taking for a federal reservoir said to authorize excess taking of land to spare the state the need to build a new road to replace the old one flooded by the reservoir); Department of the Interior v. South Dakota, 519 U.S. 919 (1996) (summarily reversing South Dakota v. Department of the Interior, 69 F.3d 878 (8th Cir. 1995), in which the Eighth Circuit held that a statute authorizing condemnation of land for Indians, without further elaboration, was unconstitutional since it facially permitted takings for nonpublic reasons as long as Indians were involved).

102. One journalist aptly characterized eminent domain as "a legal term meaning 'we can do anything we want.'" Steve Lopez, In the Name of the Father, TIME, July 14, 1997, at 4.

103. Sonya Bekoff Molho & Gideon Kanner, Urban Renewal: Laissez-Faire for the Poor, Welfare for the Rich, 8 PAC. L.J. 627 (1977).

104. Yonkers Community Dev. Agency v. Morris, 335 N.E.2d 327, 331 (N.Y. 1975). See Edward D. McKirdy, The New Eminent Domain: Public Use Defense Vanishing in Wake of Growing Privatization of Power, 155 N.J. L.J. 1145 (1999); John Gibeaut, The Money Chase, A.B.A. J., Mar. 1999, at 58; see Dean Starkman, Take and Give: Condemnation Is Used to Hand One Business Property of Another, WALL ST. J., Dec. 2, 1998, at A1.

For an excellent judicial discussion of the pitfalls inherent in such unwholesome relationships between municipalities and redevelopers, see Regus v. City of Baldwin Park, 70 Cal. App. 3d 968, 982-83, 111 Cal. Rptr. 196 (1977). See also Community Redev. Agency v. Force Elecs., 55 Cal. App. 4th 622, 64 Cal. Rptr. 2d 209 (1897) for an illustration of the concerns voiced in Regus (redevelopment agency unable to pay condemnation judgment after deal put together by redeveloper collapsed).

105. Yonkers Community Dev. Agency, 335 N.E.2d at 334 (no duty on the part of redevelopment agency to show that subject area is blighted or to comply with redevelopment procedural safeguards before seizing pivate property). In should be noted that, as it turned out, Yonkers got its comeuppance when a few years later the Otis Elevator Company, on whose behalf Mr. Morris' land was taken, shut down its Yonkers operations and left town, leaving the city holding the bag. See City of Yonkers v. Otis Elevator Co., 844 F.2d 42 (2d Cir. 1988).

106. County of Los Angeles v. Anthony, 224 Cal. App. 2d 103, 106-07 (1964) (the fact that a private motion picture museum would be operated on taken land was incidental to the "public use" of creating the museum that, in fact, was never built); Freeman v. Cherokee Water Co., 11 S.W.3d 480, 484 (Tex. App. 2000) (subdivision and private sales of land taken for a reservoir incidental to reservoir use).

107. In re M.C.D.A, 582 N.W.2d 596, 599 (Minn. App. 1998) (condemnation of parcels in an existing shopping mall to make room for a Target store held to be proper without heightened scrutiny review, even though the avowed purpose of the taking was to bring a mediumpriced department store to the area, not to eliminate slums or blight).

108. County of Los Angeles v. Ortiz, 6 Cal. 3d 141, 490 P.2d 1142 (1971) (holding that award of litigation expenses is a purely legislative prerogative, beyond courts' power to grant, even if a property owner's constitutionally guaranteed "just compensation" is consumed by expenses incurred to secure it). Compare the diametrically opposite holding by the same court where the subject matter of the litigation lay outside the field of eminent domain: Serrano v. Priest, 20 Cal. 3d 25, 46, 569 P.2d 1303 (1977) (because the underlying substantive issue [of school financing] was constitutional, court had the equitable power to award litigation expenses without legislative authorization; the Ortiz case, also of constitutional import, went without so much as a mention).

109. United States v. General Motors Corp., 323 U.S. 373, 379 (1945).

110. National Amusements, Inc. v. New Jersey Turnpike Auth., 619 A.2d 262, 266 (N.J. Super. 1992) (responding to condemnor's threats that proceeding with construction of a planned theater complex would be seen as acting in bad faith, owner built a smaller one to accommodate state's road plans which were then abandoned; court termed such government conduct to be within the "rules of the game"); County of Allegheny v. Church of Jesus Christ, 322 A.2d 803 (Pa. Cmwlth. 1974) (church acceded to county request that it cease building to accommodate acquisition of its land for a county airport expansion, whereupon taking was delayed from 1969 to 1974 with no compensation for the delay and disruption); Watson v. City of St. Louis, 956 S.W.2d 920 (Mo. App. 1997) (mobile home park tenants promised relocation, but after a higher verdict than the city wanted to pay, city made side deal with landlord who evicted tenants who received nothing); City of Marietta v. Edwards, 519 S.E.2d 217 (Ga. 1999) (city sold land to owner after representing that it would not be condemned; after owner invested $ 400,000 in renovations, city condemned property anyway); Melamed v. City of Long Beach, 15 Cal. App. 4th 70, 18 Cal. Rptr. 2d 729 (1993) (in disregard of provisions of CAL. GOV'T CODE § 7267.2 requring offer of the full amount of the condemnor's appraisal, owner duped by city into accepting less).

Particularly egregious was City of Buffalo v. J.W. Clement Co., 28 N.Y.2d 241, 269 N.E.2d 896 (N.Y. 1971) (after extended planning turmoil and denial of construction permits necessary for repairs of buildings in the area, huge printing plant induced by city to move to a new location, precisely to meet city's schedule for acquisition of old plant site, whereupon city ceased acquisition activities over a period of years).

111. Monongahela Navigation Co. v. United States, 148 U.S. 312, 327 (1892); United States v. New River Collieries, 262 U.S. 341, 343 (1923) ("ascertainment of just compensation is a judicial function and no power exists in any department of government to declare what the compensation shall be").

112. American eminent domain law largely reflects archaic notions, long since discarded in other fields of law; see, e.g., Eminent Domain Valuation in an Age of Redevelopment: Incidental Losses, 67 YALE L.J. 61 (1957); D. Michael Risinger, Direct Damages: The Lost Key to Constitutional Just Compensation When Business Premises Are Condemned, 15 SETON HALL L. REV. 483 (1985).

113. See, e.g., United States v. General Motors Corp., 323 U.S. 373, 382 (1945) (judge-made law of eminent domain is "harsh" but its rectification is a legislative task). Legislatures are free to set higher levels of compensation. Joslin Mfg. Co. v. Providence, 262 U.S. 668, 676-77 (1923). But there is no question that the courts are supreme in formulating the minimal constitutional standards, so that their acknowledgements that their law of "just compensation" is unjust, coupled with their refusal to rectify its moral deficiencies, is puzzling, to say the least.

114. For egregious examples, see Itasca County v. Carpenter, 602 N.W.2d 887 (Minn. App. 1999) (condemnation of land for a road that, on the record before the court, could not be built); In re Condemnation by Penn Township, 702 A.2d 614 (Pa. Cmwlth. 1997) (condemnation allowed for a road for which the township had no funds). See also Comes v. City of Atlantic, 601 N.W.2d 93 (Iowa 1999).

115. People v. Ricciardi, 23 Cal. 2d 390, 396, 436 P.2d 342 (1943) (courts see to it "that the cost of public improvements be not unduly enhanced"); People v. Symons, 54 Cal. 2d 855, 862, 357 P.2d 451 (1960) (indemnifying condemnees would "place an embargo upon the creation of new and desirable roads").

116. See Kanner, supra note 5, at 786 n.101.

117. People v. Superior Court (Rodoni), 68 Cal. 2d 206, 436 P.2d 342 (1968) (allowing excess condemnation of a 54-acre parcel, ostensibly to save the condemnor from having to pay severance damages for the taking of a 0.54-acre part of it; compare dissent by Mosk, J., pointing out that by acquiring the entire 54-acre parcel the condemnor would axiomatically have to pay more, not less, money than for a partial taking. Id. at 216, 218-19). Subsequent studies by California's Little Hoover Commission disclosed that in fact the state's excess lands program was a rathole for public funds, and that the state was holding many millions' worth of such lands unsold and unused. See William Endicott, Handling of State Freeway Land Hit: Report Charges Mismanagement of $ 100 Million, L.A. TIMES, Jan. 12, 1972, at A1 (reporting, inter alia, that among the lands the state had acquired as excess some $ 15 million worth was not even listed in state inventories and that state had no idea that it actually owned it). See also Jack Jones, Excess State Freeway Property Goes Begging; Land Management Agency Finds Trouble in Disposing of Parcels No Longer Needed, L.A. TIMES, Jan. 17, 1972, at A3.

118. 15 Cal. 3d 813, 828, 543 P.2d 905 (1975).

119. Id. at 827, 828 & 832.

120. United States v. Fuller, 409 U.S. 488, 490 (1973) (holding that though the market would pay the full value of the subject range land, reflecting the fact that it enjoyed a federal grazing permit, that increment of valuewould not be considered in a condemnation of such land).

121. An exploration of the instances in which public money in huge amounts has been wasted on public projects that were either never built or turned out to be failures would take us beyond the scope of this Dialogue. Suffice it to take note of the egregious case of the San Francisco freeways to nowhere-freeways whose construction was commenced in the 1960s but never completed, and whose unfinished segments tower over parts of that city until this day. For instances of other such misbegotten projects, see Gideon Kanner, What to do Until the Bulldozers Come? Precondemnation Planning for Landowners, 27 REAL EST. L.J. 47, 53-54 (1998).

122. People v. Chevalier, 52 Cal. 2d 299, 340 P.2d 598 (1959)(private property may be condemned even when the claimed necessity of doing to si the product of governmental fraud, bad faith and abuse of discretion.)

123. Rosenthal & Rosenthal, Inc. v. City of New York, 605 F. Supp. 612 (S.D.N.Y. 1985), aff'd, 771 F.2d44(2d Cir. 1985)(shaping redevelopment project to enrich favored, politically connected developers is not constitutionally objectionable, courts will not parse evidence of corruption and favoritism in approving constitutionality of condemnation.) Shortly after the rosenthal building was taken, the real estate market went south, and the proposed "public" project did not materialize, thus graphically demonstrating that such "public" uses are little more than real estate speculations conducted under the aegis of local politicians. And so, since the mid-1980's the Rosenthal building has been sitting empty. Rice, supra note 33, at 28. See also James Geoffrey Durham, Efficient Just Compensation as a Limit on Eminent Domain, 69 MINN. L. REV. 1277, 1297-300 (describing the politically corrupt process by which the route of teh Cross-Bronx Expressway was chosen, at a much higher cost and greater human disruption than the available alternative route).

124. People v. Ayon, 54 Cal. 2d 217, 352 P.2d 519 (1960) (a condemnation action may entirely destroy a lawful business without compensation).

125. Charles Hurwitz aptly captured the principle of teh matter when he observed, "we paid for [Headwaters], we pay taxes on it, it's zoned for timber production. Why shouldn't we harvest it?" Fields-Meyer, supra note 45, at 56.

126. Letter from Representative Don Young, Chairman, House Committee on Resources, to Donna Tanoue, Chairman, FDIC and Ellen Seidman, Director, OTS (June 16, 2000)(on file with author).

30 ELR 10756 | Environmental Law Reporter | copyright © 2000 | All rights reserved