June 28 (Bloomberg) -- Timberland owner Pacific Lumber Co. and its subsidiary Scotia Pacific Co. will be in court today to halt prosecution of a lawsuit against their affiliate Maxxam Inc. and Charles Hurtitz who heads the companies.
The lawsuit in question was filed in California by two individuals suing in the names of the State of California and the U.S. government under laws allowing citizens to prove in court that someone made a false claim against the government. The suit rests on an arrangement that Palco made with California to swap 7,000 acres of old-growth forests for $390 million cash, other timber acreage, and approval of a plan for sustainable timber harvesting. The plaintiffs say that Palco is liable for not disclosing faulty methodology in the sustainable harvesting plan. Both the U.S. and California governments declined to join the lawsuit.
The Chapter 11 filing by Palco stopped the lawsuit automatically. In papers filed in the U.S. Bankruptcy Court in Corpus Christi, Texas, Palco is asking Bankruptcy Judge Richard Schmidt today to stop the lawsuit against Maxxam and Hurwitz. Palco says that proceeding with the suit against Maxxam and Hurwitz will have the practical effect of deciding the entire case, even though the companies in Chapter 11 would not technically be taking part.
Palco, Scotia Pacific and four affiliates filed Chapter 11 petitions January 18 just before a $27 million payment came due on $714 million in notes secured by timber acreage in Humboldt County, California. Maxxam acquired the companies in a 1986 leveraged buyout.
The case is Scotia Pacific Co. LLC, No. 07-20027, Bankruptcy Court, Southern District Texas (Corpus Christi).