By Aaron Reiss
By Angelica Leicht
By Dianna Wray
By Aaron Reiss
By Camilo Smith
By Craig Malisow
By Jeff Balke
By Angelica Leicht
Hurwitz seldom chooses to face his critics head-on. And who can blame him after that disastrous run-in he had with environmentalists in Austin six years ago? But there are signs that he may be wearying of the chase. After years of depositions, motions and other legal foot-dragging, Maxxam and its various entities are starting to break the logjams in courtrooms scattered from California to Delaware.
In California, for instance, Pacific Lumber and Maxxam agreed in December to settle a long-running collection of suits brought by attorney Bertain on behalf of the original Pacific Lumber shareholders, who felt the original Pacific Lumber board had sold them out for a ridiculously low price in Hurwitz's takeover. The angry shareholders had been seeking more than $1.5 billion in damages but accepted a settlement of $150 million, with about $33 million of that coming from Maxxam's pocket.
Meanwhile, Pacific Lumber, Maxxam and Hurwitz are in the final stages of an equally long-running fight with the U.S. Labor Department over whether Pacific Lumber illegally raided its employees' pension fund. After the takeover, Pacific liquidated the $60 million cash surplus in its pension fund and replaced the whole thing with annuities bought from Executive Life Insurance Co. -- another member of Milken's junk bond club -- which later went bust. Although Pacific Lumber has made up its workers' losses on the worthless annuities, the Labor Department is investigating possible violations of federal pension laws and illegal quid pro quo dealings.
In a January filing with the SEC, Maxxam revealed it has agreed in principle to settle the case, although it has yet to actually do so. But one of the federal attorneys working on the case hints that negotiations are particularly sensitive at the moment, meaning a settlement agreement is probably near.
Closer to home, United Savings' parent company -- UFG -- agreed in December to settle federal thrift regulators' claims related to its role in the violations of United Savings' net worth maintenance agreement and certain tax-sharing obligations. The OTS sopped up $9.45 million of the scant $12 million UFG had left in the bank. But, interestingly, neither the feds nor Maxxam will read any larger meaning into UFG's decision to settle rather than fight the federal case alongside Hurwitz. "It means UFG isn't a respondent; that's all," the OTS' Stearns says carefully.
Even Harold Simmons recently got his day in court, when his five-year-old suit against Hurwitz went into closing arguments in late February. No verdict had been returned at press time, "because you can't rush a Delaware court," Simmons says with a sigh.
"Hurwitz seems to be going through a settle-all-these-lawsuits-for-me phase," Martel suggests. "The issues are still alive, but the lawsuits are disappearing."
Yet Hurwitz has defiantly dug in his heels in the legal arenas where the stakes are highest. Hurwitz recently fired off a salvo of his own at federal thrift regulators, suing the OTS in federal court for refusing to sell him what was left of United Savings after the thrift went belly-up.
Maxxam's countersuit contends that its bid was $100 million higher than the one the feds chose, a decision that needlessly hiked the bailout tab for taxpayers. The countersuit also claims regulators lied to Maxxam about why its bid was rejected, and quotes at length from a draft RTC report that was prepared by the Washington law firm of Steptoe & Johnson.
However, what the suit fails to mention is that the Steptoe & Johnson report shows that the Federal Home Loan Bank Board members in charge of divvying up United's leftovers simply couldn't stomach the idea of giving them back to Hurwitz -- no matter how much he wanted to pay.
"If you had a group that had run a savings and loan into the ground, you did not want to reward such behavior by offering federal make-good money to allow these same individuals to retain control," explains New York University economics professor Lawrence White, a FHLBB member at the time who voted against Maxxam's bid.
Hurwitz will need all the moxie he can muster in a few months, when the battleground shifts to the courtroom. The OTS had planned to begin presenting its case in court by late summer, but Hurwitz's attorneys recently won a delay until January 1997. However, the FDIC is under orders to complete discovery in its case by the end of July. Pretrial motions and depositions in the lawsuit already fill the better part of a file cabinet at the federal courthouse in downtown Houston.
The nearly decade-long delay in bringing the federal case against Hurwitz and his associates worries some of his foes. Indeed, defense attorneys repeatedly point out in their responses to the FDIC and OTS that the various statutes of limitations have long since expired.
However, in light of the fact that Hurwitz and the other defendants kept signing federal tolling agreements, which extend the statute of limitations for as long as both sides agree to keep signing them, that argument is expected to go nowhere. Hurwitz stopped signing tolling agreements last July, and the FDIC filed suit against him in less than a week.
"Charles signed the tolling agreement because he had nothing to hide," Irelan says. "We gave the process time to work. As long as it has gone this far, we want the courts to resolve this."