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 ) CALIFORNIA, ) ) Plaintiff, ) ) vs. ) ) THE PACIFIC LUMBER COMPANY, ) SCOTIA PACIFIC HOLDING ) COMPANY, SALMON CREEK ) CORPORATION, and DOES 1 ) through 50, ) ) Defendants. ) ____________________________________)

No. DR030070 FIRST AMENDED COMPLAINT FOR CIVIL PENALTIES, INJUNCTION, AND RESTITUTION Business and Professions Code, Section 17200, in re Headwaters Forest Project: Unfair Competition by Fraudulent, Unlawful, and Unfair Business Practices [Jury Trial Demanded]

TABLE OF CONTENTS Page I. II. III. IV. V. VI. VII. Introduction Plaintiff The Defendants Jurisdiction and Venue Factual Allegations HCP and SYP Validity as Dependent Upon EIR Validity First Cause of Action: Violation of Business and Professions Code Section 17200: Knowing or Grossly Negligent Submission of False Information to Government Decision Makers VIII. Second Cause of Action: Violation of Business and Professions Code Section 17200: Not Notifying Government of Corrected Information After Submitting False Information IX. Third Cause of Action: Violation of Business and Professions Code Section 17200: Failing to Correct Government's Material Reliance on False Information When Certifying the Final Environmental Impact Report X. Fourth Cause of Action: Violation of Business and Professions Code Section 17200: Failing to Correct Government's Material Reliance on False Information When Approving "Long Term Sustained Yield" Projection, SYP Alternative 25 4 7 7 8 9 14

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No. DR 030070 -2_____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

Page XI. Fifth Cause of Action: Violation of Business and Professions Code Section 17200: Failing to Correct Government's Material Reliance on False Information When Approving the Habitat Conservation Plan and "Incidental Take Permit" XII. Sixth Cause of Action: Violation of Business and Professions Code Section 17200: Violating Forest Practice Rules by Submitting Timber Harvest Plans and Harvesting Timber Based Upon a Fraudulent Sustained Yield Plan and Fraudulent Habitat Conservation Plan XII. Seventh Cause of Action: Violation of Business and Professions Code Section 17200: 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 XIV. XV. Prayer for Relief Demand for Jury

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No. DR 030070 -3_____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

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.
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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. No. DR 030070 -4_____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

(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 No. DR 030070 -5_____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

government. Had Pacific Lumber complied with their duty to notify the appropriate decisionmakers 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.

No. DR 030070 -6_____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

* 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. No. DR 030070 -8_____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

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 package and a complete SYP, FWS and CDF will make available for review and comment a draft EIS/EIR on PL's proposed HCP pursuant 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." No. DR 030070 -9_____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

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, No. DR 030070 - 10 _____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

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: 916653-8957).") 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 No. DR 030070 - 13 _____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

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 No. DR 030070 - 14 _____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

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 Violation of Business and Professions Code Section 17200: 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 Violation of Business and Professions Code Section 17200: Not Notifying Government of Corrected Information After Submitting False Information 47. Plaintiff realleges and incorporates by reference each allegation of each of the preceding paragraphs of this complaint. 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. No. DR 030070 - 16 _____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

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 _____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

53. 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. IX. THIRD CAUSE OF ACTION Violation of Business and Professions Code Section 17200: Failing to Correct Government's Material Reliance on False Information When Certifying the Final Environmental Impact Report 54. Plaintiff realleges and incorporates by reference each allegation of each of the preceding paragraphs of this complaint. 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 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." No. DR 030070 - 18 _____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

57. 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. 58. 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. X. FOURTH CAUSE OF ACTION Violation of Business and Professions Code Section 17200: Failing to Correct Government's Material Reliance on False Information When Approving "Long Term Sustained Yield" Projection, SYP Alternative 25 59. Plaintiff realleges and incorporates by reference each allegation of each of the preceding paragraphs of this complaint. 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. 61. 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 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 No. DR 030070 - 19 _____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

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, based upon the Final EIS/EIR. 62. 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. 63. 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. XI. FIFTH CAUSE OF ACTION Violation of Business and Professions Code Section 17200: Failing to Correct Government's Material Reliance on False Information When Approving the Habitat Conservation Plan and "Incidental Take Permit" 64. Plaintiff realleges and incorporates by reference each allegation of each of the preceding paragraphs of this complaint. 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 _____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

66. 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 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 ITP 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 habitat conservation plan, including its 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." 67. 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. 68. 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. XII. SIXTH CAUSE OF ACTION Violation of Business and Professions Code Section 17200: Violating Forest Practice Rules by Submitting Timber Harvest Plans and Harvesting Timber Based Upon a Fraudulent Sustained Yield Plan and Fraudulent Habitat Conservation Plan 69. Plaintiff realleges and incorporates by reference each allegation of each of the preceding paragraphs of this complaint. No. DR 030070 - 21 _____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

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. 73. 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.

No. DR 030070 - 22 _____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

XII. SEVENTH CAUSE OF ACTION Violation of Business and Professions Code Section 17200: 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 74. Plaintiff realleges and incorporates by reference each allegation of each of the preceding paragraphs of this complaint. 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 _____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

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. 80. 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. 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 _____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003

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 _____________________________________________________________________________ Complaint (FA): People v. The Pacific Lumber Company, Filed May 27, 2003