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PAUL V. GALLEGOS, SBN 161408District Attorney of Humboldt CountyTIMOTHY O. STOEN, SBN 37372Assistant District AttorneyNANDOR VADAS, SBN 103577

Deputy District Attorney825 Fifth Street, 4th FloorEureka, CA 95501707-445-7411Attorneys for Plaintiff

SUPERIOR COURT OF CALIFORNIA

COUNTY OF HUMBOLDT

____________________________________THE PEOPLE OF THE STATE OF ) No. DR030070CALIFORNIA, )

) FIRST AMENDEDCOMPLAINT FORPlaintiff, ) CIVIL PENALTIES, INJUNCTION,

) AND RESTITUTIONvs. )

) Business andProfessions Code, SectionTHE PACIFIC LUMBER COMPANY, ) 17200, in reHeadwaters Forest Project:SCOTIA PACIFIC HOLDING )COMPANY, SALMON CREEK ) Unfair Competition by Fraudulent,CORPORATION, and DOES 1 ) Unlawful, and Unfair Business Practicesthrough 50, )

)Defendants. ) [Jury Trial Demanded]

____________________________________)


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

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 FalseInformation to Government Decision Makers 15

VIII. Second Cause of Action:

Violation of Business and Professions Code Section 17200:Not Notifying Government of Corrected Information AfterSubmitting False Information 16

IX. Third Cause of Action:

Violation of Business and Professions Code Section 17200:Failing to Correct Government's Material Reliance on FalseInformation When Certifying the Final Environmental ImpactReport 18

X. Fourth Cause of Action:

Violation of Business and Professions Code Section 17200:Failing to Correct Government's Material Reliance on FalseInformation When Approving "Long Term Sustained Yield"Projection, SYP Alternative 25 19


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Page

XI. Fifth Cause of Action:

Violation of Business and Professions Code Section 17200:Failing to Correct Government's Material Reliance on FalseInformation When Approving the Habitat Conservation Planand "Incidental Take Permit" 20

XII. Sixth Cause of Action:

Violation of Business and Professions Code Section 17200:Violating Forest Practice Rules by Submitting TimberHarvest Plans and Harvesting Timber Based Upon aFraudulent Sustained Yield Plan and Fraudulent Habitat

Conservation Plan 21

XII. Seventh Cause of Action:

Violation of Business and Professions Code Section 17200:Taking $300 Million Dollars From Escrow In Contraventionof Implied Condition that All Escrow Documents WereUntainted by Fraud and Express Condition Requiring Deliveryof 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 offourteen

criminalconvictions 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

governments 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 governments 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

harvestedby 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 harvestedunder

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 companys 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 afterthe

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 Governments 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 governments 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 governments

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

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


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.


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IX.

THIRD CAUSE OF ACTION


Failing to Correct Government's Material Reliance on False

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





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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.







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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.


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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




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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.




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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.


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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.


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No. DR 030070 - 25 -

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. STOENAssistant District AttorneyAttorneys for the People of the State of California