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Transfer of PALCO assets mired in legal wrangling

By Nathan Rushton
The Eureka Reporter
July 29, 2008

A federal judge in the Pacific Lumber Co. bankruptcy case has denied an emergency motion by Mendocino Redwood Co. to order Scotia Pacific to sign over its timberlands and other assets as part of a court-approved reorganization plan.

Judge Richard Schmidt, who has overseen the 18-month bankruptcy case, ruled Monday that his confirmation order approved July 8 is final and directs PALCO and Scotia Pacific “to take all necessary and appropriate steps to consummate” MRC’s reorganization plan.

“Failure to abide by its terms risks contempt,” Schmidt wrote.

PALCO’s largest creditor group — the Timber Noteholders that hold the timber company’s 210,000 acres of lands as collateral — is trying to stall the transfer to MRC so an appellate court can review the approved reorganization plan it argues denied its rights under the law.

The 5th Circuit Court of Appeals did grant the Noteholders’ motion to hear their appeal — even ordering an expedited review — but denied their motion to grant a stay to halt the plan from being consummated.

In an e-mail last week from Timber Noteholders, attorney Toby Gerber advised Scotia Pacific Co. not to sign the transfer documents with MRC, arguing a provision of the reorganization plan prevents it from being finalized and moving forward while an appeal of the case is pending.

In his six-page ruling Monday, Schmidt wrote that the court intended to make the confirmation order final for the purpose of appeal and a delay in implementing the reorganization plan would have disastrous effects for MRC, PALCO’s retired and current employees, the environment and Northern California’s economy.

“To now argue that ‘Final Order’ does mean ‘Final Order’ as defined in the (reorganization plan’s) appendix renders the stay granted by this Court in paragraph 53 meaningless,” Schmidt wrote.

As to when the timberlands, the town of Scotia and its mill and other assets will be transferred, and what will become of the more than 300 PALCO employees, is still uncertain.

“We are awaiting direction from the courts,” said Heather Muller Monday afternoon, communications director for SCOPAC.

Schmidt’s ruling could start a jurisdictional turf war between the courts.

In response to his ruling, attorneys for the Noteholders fired back with an emergency motion to the 5th Circuit seeking an injunction and reconsideration of its previous ruling against a stay pending appeal, arguing that the appellate court has sole jurisdiction in the case because it has granted an appeal of Schmidt’s ruling.

But without a stay pending appeal, Schmidt asserted that the U.S. Bankruptcy Court for the Corpus Christi Division of the Southern District of Texas, “without question, retains jurisdiction to enforce the Confirmation Order.”

MRC officials did not comment in time for this article.

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