Palcocompgalleg

PAUL V.
GALLEGOS, SBN 161408

District Attorney of Humboldt County
TIMOTHY O. STOEN, SBN 37372
Assistant District Attorney
NANDOR VADAS, SBN 103577
Deputy District Attorney
825 Fifth Street, 4th Floor
Eureka, CA 95501
707-445-7411
Attorneys for Plaintiff
SUPERIOR COURT OF CALIFORNIA
COUNTY OF HUMBOLDT
____________________________________
THE PEOPLE OF THE STATE OF ) No. DR030070
CALIFORNIA, )
) FIRST AMENDED COMPLAINT FOR
Plaintiff, ) CIVIL PENALTIES, INJUNCTION,
) AND RESTITUTION
vs. )
) Business and Professions Code, Section
THE PACIFIC LUMBER COMPANY, ) 17200, in re Headwaters Forest Project:
SCOTIA PACIFIC HOLDING )
COMPANY, SALMON CREEK ) Unfair Competition by Fraudulent,
CORPORATION, and DOES 1 ) Unlawful, and Unfair Business Practices
through 50, )
)
Defendants. ) [Jury Trial Demanded]
____________________________________)
TABLE OF CONTENTS
Page
I. Introduction 4
II. Plaintiff 7
III. The Defendants 7
IV. Jurisdiction and Venue 8
V. Factual Allegations 9
VI. HCP and SYP Validity as Dependent Upon EIR Validity 14
VII. First Cause of Action:
Violation of Business and Professions Code Section 17200:

Knowing or Grossly Negligent Submission of False
Information to Government Decision Makers 15
VIII. Second Cause of Action:

Not Notifying Government of Corrected Information After
Submitting False Information 16
IX. Third Cause of Action:

Failing to Correct Government's Material Reliance on False
Information When Certifying the Final Environmental Impact
Report 18
X. Fourth Cause of Action:

Information When Approving "Long Term Sustained Yield"
Projection, SYP Alternative 25 19
No. DR 030070 -2-

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Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003
Page
XI. Fifth Cause of Action:

Information When Approving the Habitat Conservation Plan
and "Incidental Take Permit" 20
XII. Sixth Cause of Action:

Violating Forest Practice Rules by Submitting Timber
Harvest Plans and Harvesting Timber Based Upon a
Fraudulent Sustained Yield Plan and Fraudulent Habitat
Conservation Plan 21
XII. Seventh Cause of Action:

Taking $300 Million Dollars From Escrow In Contravention
of Implied Condition that All Escrow Documents Were
Untainted by Fraud and Express Condition Requiring Delivery
of Approved Sustained Yield Plan 23
XIV. Prayer for Relief 24
XV. Demand for Jury 25
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THE PEOPLE OF THE STATE OF CALIFORNIA, by and through PAUL V.
GALLEGOS, District Attorney of the County of Humboldt, hereby allege the following upon
information and belief:
I.
INTRODUCTION
1. The District Attorney brings this action against Pacific Lumber Company pursuant to
its obligation to protect the public against fraudulent, unlawful, and unfair business practices
under Section 17200 of the California Business and Professions Code, known as the Unfair
Competition Law. The District Attorney does so out of a deep concern that all citizens,
individual, and corporations comply with the law.
2. This complaint filed by the District Attorney alleges that Pacific Lumber engaged in
four basic types of business practices in violation of the Unfair Competition Law so as to harvest
trees "at all costs." 1
(1) False information: Pacific Lumber provided false information to the government in
order to minimize harvesting restrictions designed to protect wildlife and water quality."
(2) Fraudulent concealment: Pacific Lumber fraudulently concealed required
information from the government in order to minimize such harvesting restrictions.
(3) Violating Forest Practice Rules: Pacific Lumber conducted timber operations in
violation of the Forest Practice Rules.
1
This complaint is filed in light of a prior Pacific Lumber case known as "the Owl Creek
affair," in which a federal judge made findings revealing Pacific Lumber's providing false
information, committing fraudulent concealment, and violating the Forest Practice Rules; the
case is Marbled Murrelet v. Pacific Lumber Company, 880 F. Supp. 1343, 1361, 1362 (N.D.Cal.
1995), aff'd, 83 F.3d 1060 (9th Cir. 1996), cert. denied, 117 S.Ct. 942 (1997). This complaint is
filed in light of the California Department of Forestry and Fire Protection's suspension of Pacific
Lumber's Timber Operator's License on November 9, 1998 for violating the Forest Practices
Rules and committing fraudulent concealment. This complaint is filed in light of fourteen
criminal convictions of Pacific Lumber for violations of the Forest Practice Rules, or Fish and
Game Code, between February 21, 1993 and April 17, 2002.
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(4) Fraudulent escrow conduct: Pacific Lumber took $300 million from the taxpayers
of the United States and California out of an escrow in violation of two escrow conditions, one
implied and the other express.
3. Pacific Lumber's acts described herein deprived the public of their lawful, meaningful
opportunity to comment on information that was critical to the approval of the Headwaters Forest
Project – an agreement that involved governmental purchase of approximately 5600 acres of
Pacific Lumber's forestland for $300 million dollars, the transfer of 7755 acres to Pacific Lumber
of land purchased by the government from Elk River Timber Company, plus undisclosed tax
benefits. Their acts led to the foreseeable, material reliance by the government, when it approved
the Headwaters Project, on false information that Pacific Lumber knowingly provided, and then
failed to correct. Pacific Lumber benefited from its wrongful conduct by obtaining an unfair
business advantage.
4. Pacific Lumber's acts described herein were motivated by the desire to increase the
permitted volume of their annual harvest of timber, such volume being essential to their ability to
meet financial obligations imposed by their sale of almost a billion dollars of bonds. As such,
Pacific Lumber devised a plan to deceive government regulators that consisted of four stages.
5. In stage one, Pacific Lumber baited state and federal decision-making officials
responsible for approval of the Headwaters Project with false landslide information contained in
a “draft” report of a watershed known as Jordan Creek in order to counteract the pattern of
landslide data of two other watershed reports. Pacific Lumber knew or should have known that
the draft was incorrect.
6. In stage two, in order to provide plausible deniability, three months later Pacific
Lumber submitted the correct landslide data by lodging it with local agency officials whom it
knew or should have known would not understand its significance. Either intentionally or, as a
result of gross and wanton negligence, Pacific Lumber did not advise relevant decision-makers
that the corrected data contradicted previously-submitted, but relied upon, incorrect information.
Pacific Lumber did not instruct the local officials to transmit the new data to Sacramento, nor did
they inform the decision-makers in Sacramento of the significant new information.
7. These actions allowed Pacific Lumber to conceal the corrected data from state and
federal decision-makers while also allowing them to assert that they had timely "notified” the
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government. Had Pacific Lumber complied with their duty to notify the appropriate decision-
makers of the truth, this new information would have triggered a legal requirement that the
permitting documents for the Headwaters Project be recirculated to the public and to federal and
state agencies.
8. In stage three, when Pacific Lumber discovered or should have discovered the
government’s material reliance on the “incorrect” report, they were under both a legal and moral
duty to take immediate steps to correct this improper reliance. Pacific Lumber failed to do so. A
review of the final permitting documents reveals that government officials were not aware of the
correct information, but rather relied on the false draft report in a substantial and material
manner. In essence, Pacific Lumber allowed what they knew to be false information -
information that they themselves had provided -- to go uncorrected.
9. In stage four, Pacific Lumber engaged in the self-advantaging actions of wrongfully
accepting and appropriating, out of escrow, the sum of $300 million cash in violation of (a) an
implied condition of the escrow, namely that all escrow documents were untainted by fraud, and
(b) that an express condition of the escrow, namely that two copies of the Sustained Yield Plan
be delivered.
10. The acts of Pacific Lumber allowed them to gain an unfair business advantage that
would have been impossible had it discharged its duty to disclose the truth. As a consequence of
the government’s reliance on false information, Pacific Lumber obtained a permitted annual
harvest level on their 211,000 acre ownership in excess of that which would have been otherwise
justified.
11. The District Attorney seeks a preliminary and permanent injunction to prevent Pacific
Lumber from benefiting from its unfair business practices, civil penalties penalizing Pacific
Lumber for its wrongdoing, and restitution to U.S. and California taxpayers. The court will be
asked to enter the following judgments:
* Injunction: A preliminary and permanent injunction requiring, at a minimum, that
Pacific Lumber immediately reduce its logging by 40 million board feet per year, the amount of
extra logging authorized as a result of the fraud-tainted Headwaters Forest Project documents
across its entire 211,000 acres.
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* Civil Penalties: A civil penalty up to $2500 per tree for each and every tree
harvested by Pacific Lumber since March 1, 1999 as a result of the fraud-tainted Headwaters
Forest Project documents, and for each and every tree authorized to be harvested under
Sustained Yield Plan Alternative 25.
* Restitution: An order that Pacific Lumber pay restitution to the taxpayers of the
United States and to the State of California for fraudulently accepting and appropriating $300
million.
II.
PLAINTIFF
12. PAUL V. GALLEGOS, District Attorney of Humboldt County, acting to protect the
general public from unfair business practices, brings this action in the public interest in the name
of THE PEOPLE OF THE STATE OF CALIFORNIA, pursuant to sections 17204 and 17206 of
the Business and Professions Code.
III.
THE DEFENDANTS
13. Defendant THE PACIFIC LUMBER COMPANY and its subsidiaries, Defendant
SCOTIA PACIFIC HOLDING COMPANY and Defendant SALMON CREEK
CORPORATION (all three corporations herein being referred to collectively as "Pacific
Lumber" or "PL" or "PALCO"), are corporations existing under the laws of the State of
California and which are now, and at all times mentioned herein were, engaged in business in the
County of Humboldt in the State of California. Pacific Lumber's principal office is located at
Scotia, California. At all relevant times Pacific Lumber has been the owner of properties subject
to the Habitat Conservation Plan/Sustained Yield Plan Project incorporated by the Headwaters
Forest Agreement of March 1999 between itself, its owner Maxxam Corporation, and various
federal and state government agencies.
14. Defendants DOES 1 through 50 are the officers, agents, employees, servants or others
acting in interest with defendant Pacific Lumber. Plaintiff is ignorant of the true names of
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defendants sued herein as DOES 1 through 50. When the names of these defendants have been
ascertained, plaintiff will seek leave to amend this complaint to allege such names and capacities.
15. Whenever reference is made in this complaint to any act of the corporate defendants,
such allegation shall mean that such corporation did the acts alleged in that particular cause of
action through its owners, officers, directors, managers, agents, employees and/or representatives
while they were acting within the actual or ostensible scope of their authority.
16. Whenever reference is made in this complaint to any act of “defendants,” such
allegation shall mean that each defendant named in that particular cause of action is acting in
such defendant's individual capacity as well as acting jointly with the other defendants in that
cause of action.
17. Whenever reference is made in this complaint to any act of “defendants,” such
allegation shall mean the act of each defendant acting individually, jointly and severally.
18. Plaintiff is informed and believes and on that basis alleges that at all times relevant
herein, defendants were the agents, employees, servants or alter egos of their co-defendants and
were acting in the course and scope of such agency, employment, and/or relationship.
Defendants conspired to commit all of the acts alleged herein.
19. Defendants at all times mentioned herein have transacted business in the County of
Humboldt, and elsewhere in the State of California. The violations of law hereinafter described
have been committed in the County of Humboldt and the State of California.
IV.
JURISDICTION AND VENUE
20. This court has jurisdiction pursuant to Cal. Const. Art. VI, Section 10. This court has
jurisdiction over the defendants named above because they do sufficient business in California,
or otherwise have sufficient minimum contacts in California to render the exercise of jurisdiction
over them by the California courts consistent with traditional notions of fair play and substantial
justice.
21. Venue of this action in Humboldt County is proper in accordance with Code of Civil
Procedure sections 392 through 395.5. Venue is also proper in this court because the cause arises
in the County of Humboldt where the violations of law have occurred.
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22. Pursuant to applicable standards of law, equity and judicial economy, Plaintiffs herein
respectfully request that this matter be tried before a jury.
V.
FACTUAL ALLEGATIONS
A. Creation of the Motive and Plan

23. On September 28, 1996, (a) Pacific Lumber (on behalf of itself, its subsidiaries and
its affiliates), (b) Maxxam Corporation, by Charles E. Hurwitz, (c) The United States
Department of the Interior, and (d) The California Resources Agency, signed an agreement ("the
Headwaters Agreement") whereby, subject to certain conditions, Pacific Lumber would sell to
the public 4500 acres of its timberlands, commonly referred to as the "Headwaters Forest," and
would exchange additional property, for a federal and state combined consideration of $300
million, an amount subsequently increased. One of the conditions of this Agreement was that
Pacific Lumber, in addition to a Habitat Conservation Plan ("HCP"), submit to the State of
California a "Sustained Yield Plan" ("SYP") for its "Resulting Pacific Lumber Timber Property"
(some 211,700 acres) "consistent with applicable and legal requirements."
24. On February 27, 1998, Pacific Lumber and agencies of the United States and the State
of California signed a follow-up agreement ("The Pre-Permit Application Agreement in
Principle"), whereby all parties agreed that the California Department of Forestry and Fire
Protection ("CDF") and the U.S. Fish and Wildlife Service ("USFWS" or "FWS") would make
available for review and comment a draft Environmental Impact Statement/Environmental
Impact Report ("EIS/EIR") on PL's Sustained Yield Plan "pursuant" to the California
Environmental Quality Act ("CEQA"):
"After receipt of a complete Section 10(a) permit application pack-
age and a complete SYP, FWS and CDF will make available for
review and comment a draft EIS/EIR on PL's proposed HCP pur-
suant to the National Environmental Policy Act (NEPA), 42 U.S.C.
4321, et seq., and its SYP pursuant to the California Environmental
Quality Act (CEQA), Cal. Pub. Res. Code 21000, et seq."
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25. In October 1998, Pacific Lumber became greatly alarmed by the prospect that
conclusions from recently released reports on two of its watersheds would be generalized across
all of its holdings in the EIS/EIR and thereby affect the allowable harvest rate of the Headwaters
Project. These reports in Bear Creek and the North Fork Elk River, as well as three others in
Jordan, Stitz and Freshwater Creeks that had yet to be completed, were ordered by the North
Coast Regional Water Quality Control Board ("Water Quality") in response to the severe
logging-related impacts that had been observed by government agents over the preceding years
in the five watersheds. Reflective of the dire condition of these areas, no timber company in
California had ever been requested to perform such whole watershed reviews. The order by
Water Quality for these so-called sediment source inventories and the reports subsequently
produced by Pacific Lumber were unprecedented.
26. The reports in Bear Creek and Elk River, performed by agents of Pacific Lumber, as
would be expected demonstrated that recently logged areas of the watersheds were much more
prone to landslides and failures than those areas that had recovered from past logging. Pacific
Lumber knew that if left to fair scientific and public review, such information would likely
reduce the amount and rate of timber harvesting it proposed as part of its proposed Habitat
Conservation Plan and Sustained Yield Plan.
27. Pacific Lumber's concern was directly related to an event that had occurred two
months earlier. In August 1998, Pacific Lumber's corporate parent, Maxxam Corporation,
refinanced Pacific Lumber's debt by selling almost one billion dollars of “timber bonds.”
Security for the bonds was the 211,000 acres of timberland owned by Pacific Lumber. These
bonds required that Pacific Lumber harvest sufficient timber volume to meet their ongoing bond
payments. Because they could not risk a reduction in their ability to meet this bond obligation
without exposure to harsh financial liability, in addition to other reasons, Pacific Lumber formed
an intention to undermine, at all costs, the Bear and Elk Reports.
28. Pacific Lumber feared that these two reports would be used scientifically to show that
their proposed logging and mitigations, under their proposed Long-Term Sustained Yield
("LTSY") projections and HCP, would expose waterways to unacceptable mass wasting events
and other negative impacts associated with their proposed harvesting rates. Pacific Lumber
correctly concluded that the Elk and Bear reports would result in a lower annual harvest rate,
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authorized by the SYP/HCP then under consideration, over their entire ownership than that
required to meet the financial needs imposed by the company’s bond obligations. To counteract
such an outcome, Pacific Lumber formulated a four-stage strategy.
B. Stage One – Submission of Significant, False Information by Pacific Lumber

29. In stage one, on November 18, 1998, two days after the close of the public comment
period and pursuant to its intention to undermine the Bear and Elk reports, Pacific Lumber
submitted significant, “mistaken” information regarding Jordan Creek, a watershed adjacent to
Bear Creek. Pacific Lumber submitted this information, alleging such as being based on a "draft"
Jordan Creek report, in the form of a letter submitted to the government for inclusion in the Final
Environmental Impact Statement/ Environmental Impact Report on the Headwaters Forest
Project. The letter stated:
* "[W]e discovered harvest and landslide associations that
directly and dramatically contradicted those
encountered in Bear Creek."
* "In Jordan Creek, 85 percent of the recent landslides had
occurred on the older harvested area, and only 15% on
the recently harvested area."
This information was false and Pacific Lumber knew or should have known that it was false.
This act of submitting false information was part of, and intended by Pacific Lumber to be part
of, a single course of conduct culminating in the failure of Pacific Lumber to comply with its
duty to notify CDF Sacramento of the corrected information on February 23, 1999 and thereafter,
and in the fraudulent concealment by Pacific Lumber of the corrected information on February
23, 1999 and thereafter.
B. Stage Two – Failure by Pacific Lumber to Notify the Government of Corrected

Information
30. In stage two, on January 22, 1999, Pacific Lumber prepared a final, truthful report
which it knew showed for Jordan Creek the same relationship between recent logging and
landslides as had been reported for Bear Creek and North Fork Elk River. In order to benefit
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from governmental reliance on the false draft information but mindful that it might be held
accountable for withholding the truth, Pacific Lumber conceived a tactic to conceal the report.
31. The tactic entailed delivering the corrected report on January 22, two days after the
final EIS/EIR was published, to local offices of CDF and to the Water Quality Control Board
instead of to the legally designated CDF office in Sacramento. (The draft EIS/EIR designated all
comments on the SYP to be "mailed to John Munn, California Department of Forestry and Fire
Protection, State Headquarters, P.O. Box 944246, Sacramento, California 94244-2460 (Fax: 916-
653-8957).") Pacific Lumber could then claim that they had "served” CDF, when, in fact, the
government agents responsible for issuing permits would never see the correct data. Pacific
Lumber made no attempt to explain the fact that the new report supported rather than
contradicted the pattern of landsliding observed in Bear Creek and North Fork Elk River, and
rendered their previously submitted false Jordan Creek information, and the determinations
reliant upon it, factually and scientifically worthless. Pacific Lumber made no attempt to explain
that the new report constituted significant new information. Pacific Lumber made no attempt to
inform the local offices of CDF or the Water Quality Control Board to transmit the information
to the legally CDF office in Sacramento.
32. Had Pacific Lumber not concealed the report from the legally designated CDF office
in Sacramento, which was responsible for preparing the final EIR, the final EIS/EIR would have
been required to be recirculated to all of the relevant government decision makers and to the
public, with the addition of the correct Jordan Creek data, and an opportunity would have been
required to be given to all of them to submit "comments" on the correct Jordan Creek data.
C. Stage Three - Failure of Pacific Lumber to Correct Government’s Material

Reliance on Their False Information
33. In stage three, from January 22 through March 1, 1999 the day the Headwaters
Project was finalized, Pacific Lumber knew that its efforts to conceal the correct Jordan Creek
Report from relevant decision-makers had been successful but failed to take any steps to correct
the government’s reliance. As a result, Pacific Lumber succeeded in depriving members of the
public and government officials of a fair opportunity to make "comments" in view of the new
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information. Pacific Lumber's suppression of the truth and concealment to avert recirculation of
the EIS/EIR was an act of unfair competition.
34. When the final EIS/EIR was published on January 20, 1999, the government officers
charged with the duty to protect both the integrity of the process and the public's participation in
the process relied upon, and continued to rely upon, the false Jordan Creek information
submitted by Pacific Lumber. Pacific Lumber knew that these government officers had relied on
the false Jordan Creek information. Rather than acting as a law abiding, reasonable person would
have done in the face of such reliance, Pacific Lumber took no steps to correct the reliance.
Instead, Pacific Lumber deceptively withheld and suppressed the corrected data while it actively
sought unfair advantages that it knew or should have known would flow from the government’s
reliance.
35. On February 25, 1999 CDF issued findings for the SYP adopting a Long-Term
Sustained Yield ("LTSY") projection known as SYP Alternative 25(a), a level of harvest that
allowed Pacific Lumber to log up to 136 million board feet of timber annually for the first ten
year period of the permit. Claiming, however, that this volume was insufficient, Pacific Lumber
proceeded to aggressively lobby CDF and other government agents to increase this annual limit.
36. On March 1, 1999, CDF adopted a different LTSY projection, known as SYP
Alternative 25, which allowed Pacific Lumber to harvest up to 176.2 million board feet of timber
annually. Pacific Lumber knew that CDF had relied on the false Jordan Report in making both
volume determinations but failed even then to correct the record. In the absence of truthful and
complete and open discussions involving the Bear, Elk and Jordan reports, and to the clear
financial advantage of Pacific Lumber, Pacific Lumber could assert that there was no obvious
trend between timber harvesting and landslides.
37. By submitting the false Jordan Creek information, Pacific Lumber (1) caused their
proposed Habitat Conservation Plan and Sustained Yield Plan to inadequately mitigate the
effects of excessive logging, and (2) gave itself the opening to further lobby for the right to log a
greater volume per year than would have otherwise been justified. This false information was
and remained published in the Final EIS/EIR, became a basis for the approved Incidental Take
Permit and Habitat Conservation Plan (assuming an actual Habitat Conservation Plan has ever
been approved) and for the approved LTSY SYP 25 and Sustained Yield Plan (assuming an
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actual Sustained Yield Plan has ever been approved), became part of the final administrative
record for the entire Headwaters Forest Project, and was thereafter relied upon by governmental
officials and the public.
D. Stage Four - Timber Harvesting and Appropriating of $300 Million by Pacific

Lumber Without an Approved Sustained Yield Plan
38. In stage four, from March 1, 1999 to the present time, Pacific Lumber committed the
fraudulent, unlawful, and unfair business practice of wrongfully accepting and appropriating,
continuing to the present time, the sum of $300 million cash (a) in violation of an implied
condition that none of the Headwaters Forest Project documents given in consideration of said
moneys, including the Habitat Conservation Plan and Sustained Yield Plan, had been induced by
Pacific Lumber's fraud, a condition never satisfied, and (b) in violation of an express condition
that copies of the Sustained Yield Plan be delivered, a condition never satisfied.
VI.
HCP AND SYP VALIDITY AS DEPENDENT UPON EIR VALIDITY
39. An Environmental Impact Statement and Environmental Impact Report ("EIS/EIR")
is a joint document that evaluates the environmental impacts of a proposed project, and, in this
case, the proposed project was the draft HCP/SYP. The EIS/EIR also evaluates a range of
alternatives to the proposed project, some that are more environmentally protective and others
that are less environmentally protective. The EIS is prepared under the auspices of the National
Environmental Policy Act and the EIR is prepared under the California Environmental Quality
Act. The purpose of an EIS/EIR is to allow the public to develop a better understanding of the
impacts associated with the proposed project, and to assist the public in forming and expressing
their opinions.
40. Because of the intertwined nature of the combined Habitat Conservation Plan and a
Sustained Yield Plan, and because of the corresponding intertwined nature of the EIS/EIR, on
which the HCP and SYP were fundamentally dependent, the legality of the entire Headwaters
Forest Project, including that of any HCP (including any Incidental Take Permit) and any SYP
(including any LTSY projection), was dependent upon the Director of CDF legally certifying
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that the EIR portion of the EIS/EIR was complete and adequate. Because the Final EIR was
fraudulently obtained, and hence the Sustained Yield Plan and SYP Alternative 25 and the
Habitat Conservation Plan and the Incidental Take Permit based thereon were fraudulently
obtained, every tree harvested under the Headwaters Forest Project has been unlawfully
harvested and every tree authorized by SYP Alternative 25 to be harvested has been unlawfully
authorized to be harvested.
VII.
FIRST CAUSE OF ACTION
Knowing or Grossly Negligent Submission of False
Information to Government Decision Makers
41. Plaintiff realleges and incorporates by reference each of the allegations in each of the
preceding paragraphs of this complaint.
42.At all relevant times, defendants Pacific Lumber and Does 1 through 50 had the duty
under Section 17200 of the Business and Professions Code not to commit any unlawful, unfair,
or "fraudulent" business practice.
43. Any business practice constituting "deceit" as defined by the Civil Code is a
fraudulent unfair business practice, including suppression of a fact after giving information of
other facts. This type of fraud is defined by Section 1710, subd. 3, of the Civil Code as follows:
"A deceit . . . is . . . [t]he suppression of a fact, by one . . . who
gives information of other facts which are likely to mislead for
want of communication of that fact . . . ."
44. On or about November 18, 1998, when they submitted the “incorrect” Jordan Creek
draft results to government agents, defendants Pacific Lumber and Does 1 through 50 were under
a duty to take all steps reasonably necessary to ensure that accurate and truthful information be
submitted to government agents charged with determining the outcome of the Headwaters
Project. Said defendants knew or should have known that the information they submitted
concerning the Jordan Creek watershed was false and that government agents would rely on such
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false information. Despite such clear duty, said defendants failed to take sufficient steps to
reasonably and completely discharge their duty to submit accurate and truthful information.
45.The aforesaid conduct of said defendants constitute unfair business practices.
46. As a proximate result of the aforesaid conduct of defendants, each and every tree that
has been harvested since March 1, 1999 by Pacific Lumber has been unlawfully cut.
VIII.
SECOND CAUSE OF ACTION
Not Notifying Government of Corrected Information After
Submitting False Information
47. Plaintiff realleges and incorporates by reference each allegation of each of the
48. The corrective Jordan Creek data constituted "significant new information" under Cal.
Admin. Code tit. 14, section 15088.5(a)(2). It constituted a disclosure showing that a substantial
increase in the severity of an environmental impact, namely landslides, would result from timber
harvesting in the Jordan Creek watershed and, by validating the scientific conclusions of the
Bear Creek report, would result in all of Pacific Lumber's watersheds. Its existence required that
the Director of CDF recirculate the Final EIS/EIR with the corrective Jordan Creek data pursuant
to Cal. Administrative Code tit. 14, section 15088.5(a). Pacific Lumber and Does 1 through 50
knew or should have known that the corrective data would, if properly disclosed, require that the
Director of CDF recirculate the Final EIS/EIR, with the corrective Jordan Creek data added
thereto, pursuant to Cal. Administrative Code tit. 14, section 15088.5(a).
49. Between January 20, 1999, the date of publication of the Final EIS/EIR and February
23, 1999, the date of Final EIR certification, defendants Pacific Lumber and Does 1 through 50
were specifically under a duty to take all steps reasonably necessary to ensure that their
fraudulently or grossly negligently arrived-at incorrect Jordan Creek data would be disclosed to
the Director of CDF in Sacramento as false information. Despite such clear duty arising from
their conduct, said defendants failed to take sufficient steps to reasonably and completely
discharge their duty to avoid such reliance.
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50. On or before February 23, 1999, the date on which the government produced its
legally required responses to public comment in the Final EIR, said defendants knew or should
have known that their efforts to prevent reliance on the “mistaken” Jordan Creek Report had
failed. In fact said defendants knew that the Final EIR relied on the “mistaken” Jordan Creek
data in a material manner in no less than three occasions, and that this Final EIR would, in turn,
be relied upon by the public and by the government agencies being called upon to make
decisions regarding Pacific Lumber's proposed HCP and proposed SYP, which in fact was thus
relied upon. Once legally charged with this knowledge said defendants were under a duty to
correct this misplaced reliance but failed to take any steps reasonably calculated to do so. Said
defendants' failure to correct the misplaced reliance on their “mistake” was the result of their
specific intent or of wanton and gross negligence.
51. Defendants, having this knowledge, breached this duty. Such breach of duty resulted
in variously foreseeable harms including but not limited to (a) preventing the Director of CDF
from complying with his duty to recirculate the Final EIS/EIR, (b) depriving the public and
government officials of a fair opportunity to make "comments" on the recirculated Final
EIS/EIR, and the proposed HCP and SYP based thereon, that they would have been entitled to
make in view of this corrective data, and (c) depriving the public and government officials of a
fair opportunity to submit the case they were legally entitled to submit attacking Pacific
Lumber's proposed sustained yield plan, including its LTSY projections, and Pacific Lumber's
proposed habitat conservation plan, including its proposed Incidental Take Permits, based upon
the Final EIS/EIR, including the appropriateness of the HCP's standards for prohibiting
harvesting in unstable areas and the validity of its ranking of potential mass wasting sites and
mass wasting areas of concern ("unstable slopes") as "high," "very high," or "extreme."
52. The aforesaid conduct of said defendants constituted (a) extrinsic fraud, (b) unfair
competition under Section 17200 of the Business and Professions Code, (c) fraudulent business
practice under Section 17200 and, inter alia, Civil Code, section 1710, sub. 3, (d) an unlawful
business practice under Section 17200 and Cal. Administrative Code, Title 14, Section 15088.5,
and (e) an unfair business practice under Section 17200 of the Business and Professions Code,
such "unfair" business practice being defined as any practice which offends public policy or
which is immoral, unethical, oppressive, or unscrupulous.
No. DR 030070 - 17 -
_____________________________________________________________________________
IX.
THIRD CAUSE OF ACTION
Information When Certifying the Final Environmental Impact
Report
55. From January 20, 1999, when the Final EIS/EIR was published through February 23,
1999, when the Final EIR was certified as complete and adequate by the Director of CDF,
defendants Pacific Lumber and Does 1 through 50, having provided the false Jordan Creek data
to the government and being aware of it being part of the Final EIS/EIR, were under a duty to
take all reasonable steps necessary to ensure that the false Jordan Creek data would not be relied
upon by government in making any approvals pertaining to the Headwaters Forest Project,
including the Final EIR.
56. During such time said defendants breached their duty by not taking such steps,
resulting in foreseeable harms, including but not limited to (a) preventing the Director of CDF
Lumber's proposed sustained yield plan, including its LTSY projections, and Pacific Lumber's
proposed habitat conservation plan, including its proposed Incidental Take Permits, based upon
No. DR 030070 - 18 -
_____________________________________________________________________________
X.
FOURTH CAUSE OF ACTION
Information When Approving "Long Term Sustained Yield"
Projection, SYP Alternative 25
60. From January 20, 1999, when the Final EIS/EIR was published through March 1,
1999, when the Long-Term Sustained Yield Projection ("LTSY") SYP 25 was approved,
defendants Pacific Lumber and Does 1 through 50, having provided the false Jordan Creek data
to the government and being aware of it being part of the Final EIS/EIR, were under a duty to
take all reasonable steps necessary to ensure that the false Jordan Creek data would not be relied
upon by government in making any approvals pertaining to the Headwaters Forest Project,
including any SYP and any LTSY.
No. DR 030070 - 19 -
_____________________________________________________________________________
Lumber's proposed sustained yield plan, including its LTSY projections, based upon the Final
EIS/EIR.
XI.
FIFTH CAUSE OF ACTION
Information When Approving the Habitat Conservation Plan
and "Incidental Take Permit"
65. From January 20, 1999, when the Final EIS/EIR was published through March 1,
1999, when the Incidental Take Permit ("ITP") and the Habitat Conservation Plan were approved
by the State of California, defendants Pacific Lumber and Does 1 through 50, having provided
the false Jordan Creek data to the government and being aware of it being part of the Final
EIS/EIR, were under a duty to take all reasonable steps necessary to ensure that the false Jordan
Creek data would not be relied upon by government in making any approvals pertaining to the
Headwaters Forest Project, including any Habitat Conservation Plan and any Incidental Take
Permit.
No. DR 030070 - 20 -
_____________________________________________________________________________
EIS/EIR, and the proposed HCP and ITP based thereon, that they would have been entitled to
Lumber's proposed habitat conservation plan, including its Incidental Take Permits, based upon
XII.
SIXTH CAUSE OF ACTION
Violating Forest Practice Rules by Submitting Timber Harvest
Plans and Harvesting Timber Based Upon a Fraudulent
Sustained Yield Plan and Fraudulent Habitat Conservation
Plan
No. DR 030070 - 21 -
_____________________________________________________________________________
70. Commencing on March 1, 1999, and continuing to the present time, defendants
Pacific Lumber and Does 1 through 50 have submitted timber harvested plans, and have
harvested timber, on Pacific Lumber's Headwaters Forest Project lands (a) based upon a
fraudulently obtained, and hence invalid, sustained yield plan, in violation of Cal. Administrative
Code tit. 14, sections 1091.10 and 913.11, and (b) based upon a fraudulently obtained, and hence
invalid, Habitat Conservation Plan, in violation of the California Endangered Species Act.
71. By causing Pacific Lumber to commence the submission of timber harvest plans and
to commence harvesting effective March 1, 1999 without a valid sustained yield plan, and to
continue said submissions and said harvesting to the present time without a valid sustained yield
plan, said defendants have caused Pacific Lumber to operate illegally in each of the following
respects:
a. By harvesting when there was no valid sustained yield plan, Pacific Lumber has
engaged in the fraudulent, unlawful, and unfair business practice of an ongoing violation of Cal.
Administrative Code tit. 14, sections 1091.10 and 913.11;
b. By representing in each and every timber harvest plan submitted to CDF since
March 1, 1999 that it has an approved SYP 96-002, knowing that it is invalid, Pacific Lumber
has engaged in the fraudulent, unlawful, and unfair business practice of an ongoing in violation
of Cal. Administrative Code tit. 14, sections 1035, 1034, and 897(b)(3); and
c. By operating for more than four years, since March 1, 1999, at the level of harvest
authorized by the March 1999 LTSY (SYP Alternative 25) approval, thereby exceeding the
February 1999 (SYP Alternative 25(a)) approval by levels up to 40 million board feet per year,
Pacific Lumber has engaged in the fraudulent, unlawful, and unfair business practice of an
ongoing violation of Cal. Administrative Code tit. 14, section 913.11(b).
72. In thus failing to obtain a valid sustained yield plan and habitat conservation plan
prior to harvesting, the aforesaid defendants committed unfair competition, and committed an
unlawful, fraudulent, and unfair business practice.
No. DR 030070 - 22 -
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XII.
SEVENTH CAUSE OF ACTION
Taking $300 Million Dollars From Escrow In Contravention of
Implied Condition that All Escrow Documents Were Untainted
by Fraud and Express Condition Requiring Delivery of
Approved Sustained Yield Plan
75. The official Headwaters Escrow Instructions, dated February 28, 1999, required that
the United States, on behalf of itself and the State of California, deposit the sum of $300 million
dollars into an escrow conducted by Fidelity National Title Insurance Company, together with
(a) "Two copies of the Sustained Yield Plan for the Properties of The Pacific Lumber Company,
Scotia Pacific Company LLC and Salmon Creek Corporation approved by CDF and approval
letter"; and (b) Two copies of the Habitat Conservation Plan for the Properties of The Pacific
Lumber Company, Scotia Pacific Company LLC and Salmon Creek Corporation issued by
USFWS and NMFS."
76. Pacific Lumber was under a duty not to take or appropriate any portion of that $300
million dollars until all implied conditions of said escrow were fulfilled, including, particularly, a
condition that the Final EIR and the Habitat Conservation Plan and the Sustained Yield Plan,
together with all other documents referenced in the escrow instructions, were untainted by
Pacific Lumber's fraud, a condition that was not fulfilled and a condition that Pacific Lumber
knew was not fulfilled.
77. Pacific Lumber was also under a duty not to take or appropriate any portion of that
$300 million dollars until all express conditions of said escrow were fulfilled, including,
particularly, the condition requiring that copies of the Sustained Yield Plan "approved by CDF"
be delivered into escrow.
78. On March 1, 1999, Pacific Lumber and Does 1 through 50 breached the aforesaid
duty by Pacific Lumber's taking and appropriating the $300 million dollars in full.
No. DR 030070 - 23 -
_____________________________________________________________________________
79. The aforesaid conduct of said defendants constituted (a) unfair competition under
Section 17200 of the Business and Professions Code, (b) fraudulent business practice under
Section 17200 and, inter alia, Civil Code, section 1710, sub. 3, (c) an unlawful business practice
under Section 17200 and Cal. Administrative Code, Title 14, Section 15088.5, and (d) an unfair
business practice under Section 17200 of the Business and Professions Code, such "unfair"
business practice being defined as any practice which offends public policy or which is immoral,
unethical, oppressive, or unscrupulous.
XIV.
PRAYER FOR RELIEF
WHEREFORE, plaintiff requests that the Court grant a preliminary and permanent
injunction to prevent Pacific Lumber from benefiting from its unfair competition, civil penalties
penalizing Pacific Lumber for its wrongdoing, and restitution to U.S. and California taxpayers,
including, inter alia, the following specific relief:
1. Injunction: A preliminary and permanent injunction requiring, at a minimum, that
Pacific Lumber immediately reduce its logging by 40 million board feet per year, the amount of
extra logging authorized as a result of the fraud-tainted Headwaters Forest Project documents
across its entire 211,700 acres, according to proof at trial.
2. Civil Penalties: A civil penalty up to $2500 per tree for each and every tree harvested
by Pacific Lumber since March 1, 1999 as a result of the fraud-tainted Headwaters Forest Project
documents, and for each and every tree authorized to be harvested under SYP Alternative 25,
according to proof at trial.
3. Restitution: An order that Pacific Lumber pay restitution to the United States and to the
State of California for obtaining $300 million based on Pacific Lumber's aforesaid fraud-tainted
Headwaters Forest Project documents, and for accepting and appropriating said moneys in
violation of the Headwaters escrow condition requiring the delivery into escrow of "[t]wo copies
of the Sustained Yield Plan for the Properties of The Pacific Lumber Company, Scotia Pacific
Company LLC and Salmon Creek Corporation approved by CDF," a condition never satisfied.
No. DR 030070 - 24 -
_____________________________________________________________________________
4. Costs: Grant Plaintiff its costs incurred in this action.
5. Other Relief: Grant Plaintiff such other and further relief as the nature of this case may
require and the Court deems proper to fully and successfully dissipate the effects of the unlawful,
fraudulent, and unfair acts complained of herein.
XV.
DEMAND FOR JURY
A jury trial is hereby requested.
NOTICE: This Complaint is deemed verified pursuant to section 446 of the Code of
Civil Procedure and requires a verified answer.
Dated: May 27, 2003

PAUL V. GALLEGOS,
District Attorney of the County of Humboldt
______________________________________
TIMOTHY O. STOEN
Assistant District Attorney
Attorneys for the People of the State of California
No. DR 030070 - 25 -
_____________________________________________________________________________

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PAUL V.

GALLEGOS, SBN 161408

SUPERIOR COURT OF CALIFORNIA

III. The Defendants 7

IV. Jurisdiction and Venue 8

VI. HCP and SYP Validity as Dependent Upon EIR Validity 14

VII. First Cause of Action:

Violation of Business and Professions Code Section 17200:

VIII. Second Cause of Action:

Violation of Business and Professions Code Section 17200:

IX. Third Cause of Action:

Violation of Business and Professions Code Section 17200:

X. Fourth Cause of Action:

Violation of Business and Professions Code Section 17200:

No. DR 030070 -2-

XI. Fifth Cause of Action:

Violation of Business and Professions Code Section 17200:

XII. Sixth Cause of Action:

Violation of Business and Professions Code Section 17200:

XII. Seventh Cause of Action:

Violation of Business and Professions Code Section 17200:

XIV. Prayer for Relief 24

XV. Demand for Jury 25

No. DR 030070 -3-

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No. DR 030070 -6-

No. DR 030070 -7-

No. DR 030070 -8-

A. Creation of the Motive and Plan

No. DR 030070 -9-

B. Stage One – Submission of Significant, False Information by Pacific Lumber

B. Stage Two – Failure by Pacific Lumber to Notify the Government of Corrected

C. Stage Three - Failure of Pacific Lumber to Correct Government’s Material

D. Stage Four - Timber Harvesting and Appropriating of $300 Million by Pacific

Dated: May 27, 2003

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