2020 the Vision

Headwaters price far too high


Douglas Kendall: Founder and exeeutive director of the Community Rights Counsel, a nonprofit law firm that helps state and local governments defend amainst takings lawsuits .

You would hope it would take more than a bluff to rob the U.S. and California taxpayers of $480 million. But by sealing a pact with Maxxam Corp. to buy 9,500 acres aroun the Headwaters Grove - an oldgrowth redwood forest in Northern California - at a cost Of*about $48,000 an acre, the U.S. and California have signaled that the coffers are open to any corporate raider with a poker face and a pair of deuces.

Yet "bluff" is a generous description of the suit Maxxarn and its subsidiary, Pacific Lum ber, brandished to pressure state and federal officials into signing the Headwaters deal. Maxxam insisted that if state and federal officials required it to leave any of its trees unlogged to protect the endangered coho salmon and marbled murTelet, Maxxam would sue and win. Maxxam's legal basis for this threat was the so-called "takings clause" of the U.S. Constitution.

Luckily for taxpayers, that is not the way the takings clause works. The framers drafted the clause only to ensure compensation when the government physically takes possession of Property to build a road or to quarter soldiers. The Supreme Court has expanded the clause to require compensation for extreme regulations that are the functional equivalent of Physical expropriations. The clause was never intended and has never been interpreted to require compensation when the government requires a corporation to leave a small portion of a large parcel of property undeveloped.

Indeed, three specific, fatal flaws stood between Maxxam and victory on its takings claim. First, to prevail, Maxxam would have had to distinguish the trees in the Headwaters Forest from the trees it owns in surrounding areas. But large corporations are not allowed to divide their. assets and claim a "taking- of only those assets that are impacted by a regulation. As the Supreme Court ruled unanimously in 1993, "a cWmantlg par-cel (can)not first be divided into what was taken and what was left for the purpose of demonstrating a biking of the former to be complete and hence compensable."

The logging restrictions necessary to protect the marbled murrelet and coho salmon encompassed a small part of the contiguous timberland Maxxam owns in Northern California. Maxxam's claim was thus directly analogous to the failed claim made by the Keystone Coal Co. in a 1987 Supreme Court case. Keystone was forced to leave 27 million of its 1-5 billion tons of coal in place; it aryued that its "Parcel" should be defined only as this 27 million-ton "support estate." The court flatly rejected Keystone's argument and denied its claim.

Second, Maxxam could not show any cognizable impact on its "reasonable investment-backed expectations." The Supreme Court looks closely at the impact of a regulation on a corporation's bottom line and finds property "taken" only when a corporation's expectations are reasonable and the regulatory impact on those expectations is extreme. Because of its aggressive cleareutting, Maxxam has already realized an estimated $2 billion in profits since its acquisition of Pacific Lumber, more than twice the $850 million it spent to Purchase the company in 1985- Maxxam would not have succeeded in transforming the takings clause into a vehicle that guarantees it every dime it could possibly extract from its timberland.

Finally, courts frown on speculators who buy restricted property at a discount and then seek to extort fron, taxpayers the market value.of the property without restrictions. The Supreme Court in Lucas v. South Carolina Coastal Council, for example, ruled that restrictions that "inhere in the title" obtained by a developer can never be considered takings. Numerous lower courts have interpreted Lucas to prohibit corporations from Obtaining compensation for environmental regulations that were in place upon Purchase.

Maxxam bought the Headwaters Grove and the Other Pacific Lumber acres in 1985, fully aware of the environmental restrictions that applied to the property. Accordingly, Maxxam paid a highly discounted price. Courts disfavor claims, like Maxxam's, that seek constitutional pro. tection for a corporation's desire to have its cake and to eat it too.

By caving in to Maxxam's bluff, the U.S. and California have set an awful Precedent. Developers and resource ex traction companies will demand more and threaten suit earlier. One can hear the boardroom talk: "Maxxam got $500 million, and they didn't even have a case!" Ironically, a deal signed to avoid litigation will result in far more cases filed against federal, state and local gov ernments.

There are reasons to cheer the purchase of the Headwaters Grove. The sale removes a remarkably beautiful and ecologi cally critical stand of redwoods from the grasps of a corporate raider and opens the property to visits by the public. But the price paid, in taxpayer dollars and in precedent, was far too high.

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