Business & Real Estate

Judge rejects Sierra Pacific attempt to throw out Moonlight fire settlement

Smoke from the Moonlight Fire obscures the view of the Plumas National Forest in September 2007. The federal government blames timber giant Sierra Pacific Industries and a subcontractor for accidentally starting the massive blaze.
Smoke from the Moonlight Fire obscures the view of the Plumas National Forest in September 2007. The federal government blames timber giant Sierra Pacific Industries and a subcontractor for accidentally starting the massive blaze. Sacramento Bee file

A U.S. District Court judge on Friday rejected claims that misconduct by prosecutors hoodwinked the federal court into approving a $100 million settlement over the massive Moonlight fire eight years ago.

The ruling by Senior U.S. District Judge William B. Shubb deals a major setback to timber giant Sierra Pacific Industries, which contends it has been unfairly blamed for the inferno that devastated huge swaths of Plumas and Lassen national forests after it was sparked on Labor Day 2007.

In a 63-page order, the judge declared that Sierra Pacific had not proved its claims and that most of the evidence it cited in its motion to vacate the settlement was known to its lawyers before that time. Even if there was evidence discovered after the pact, Sierra Pacific’s lawyers should have found it themselves before agreeing to the deal, he added.

“The significance of defendants’ decision to settle with the government cannot be overstated,” Shubb wrote. “A settlement, by its very nature, is a calculated assessment that the benefit of settling outweighs the potential exposure, risks, and expense of litigation ...

“Any settlement agreement would become just a meaningless formality if a settling party could set aside that agreement at any later time based upon alleged fraud the party knew of when entering into the agreement.”

The judge noted the ferocity of the battle waged between the company and prosecutors before the settlement was reached, observing that the docket had nearly 600 entries when he was assigned to the case last October, after the motion to set aside the settlement had been filed.

“To say that this case was litigated aggressively and exhaustively by all parties would be an understatement,” Shubb wrote.

He added that Sierra Pacific’s argument that it discovered new evidence in the case through discovery in a separate lawsuit in Plumas County did not hold water because “the court can discern no reason why they could not have obtained that same evidence through diligent discovery in the federal action.”

“Defendants have been represented by numerous high-priced attorneys throughout this litigation and the court has no doubt that defense counsel expended many hours reviewing and revising each term in the settlement agreement,” Shubb wrote. “A grave miscarriage of justice cannot result from enforcing the clear and deliberate terms of a settlement agreement.”

Shubb concluded that, “stripped of all its bluster, defendants’ motion is wholly devoid of any substance.”

Both sides continued their war of words Friday following the judge’s order, signaling that the case is far from finished.

“I have repeatedly stated that a full examination of the actual record in this case would demonstrate that the misconduct claims made by the attorneys for Sierra Pacific were bogus, and I am very gratified by the court’s thorough and thoughtful ruling,” U.S. Attorney Benjamin Wagner said in a statement. “Sierra Pacific’s reckless accusations have been broadcast in open court and in numerous media stories throughout the country.

“It is not an inconsequential thing to besmirch the integrity of dedicated public servants.”

Sierra Pacific attorney William Warne said the case will be appealed to the 9th U.S. Circuit Court of Appeals and that he expected the appeal to show that “the investigators and prosecutors for the state and the investigators and prosecutors for the federal government worked an egregious fraud on our entire system of justice.”

The case has been closely watched by Sacramento’s legal community because of Sierra Pacific’s claims that the U.S. attorney’s office engaged in misconduct to pin the blame for the fire on a company with the ability to pay millions to restore the forests and foot the firefighting bill. The timber company is the largest private landowner in California and the second largest in North America.

Sierra Pacific has long denied it had any responsibility for the monster blaze, which the government blames on a bulldozer operator employed by a logging company that was doing work for Sierra Pacific.

Federal prosecutors filed suit against the company in 2009, and Sierra Pacific fought the suit for three years before agreeing to a settlement that called for it to pay $47 million to the government and hand over 22,500 acres of land.

The company already has paid $32 million and deeded over a comparatively small amount of property.

That agreement came after Sierra Pacific lost a key court ruling, but the company continued to insist it was not responsible for the blaze and, last October, filed court papers accusing prosecutors of unethical behavior that amounted to “fraud upon the court.”

The company maintained that misconduct by prosecutors and lies by fire investigators – some under oath – amounted to such egregious behavior that the entire settlement should be tossed out and the suit dismissed.

Sierra Pacific said its stance was strengthened by a 2014 court victory in Plumas Superior Court, where a specially appointed judge ruled in the state’s lawsuit over the fire that conduct by Cal Fire investigators and lawyers was “egregious and reprehensible.” That judge ordered Cal Fire to pay Sierra Pacific and other defendants more than $32 million, an order the agency is appealing.

Federal officials have rejected Sierra Pacific’s claims in the strongest possible language, saying in court filings that the company’s efforts to overturn the settlement agreement “lack integrity.”

“This is professional misconduct of the worst kind,” prosecutors wrote.

Shubb’s ruling came after a two-hour hearing Monday that filled his 14th-floor courtroom to overflowing with lawyers and others interested in witnessing oral arguments in what has turned into a titanic and bitter battle between federal prosecutors and the timber giant.

Six lawyers appeared at the defense table for Sierra Pacific and other defendants.

“It’s not an effort to retry the case,” Warne told Shubb. “It’s about what was done to this court.”

Warne argued that Sierra Pacific agreed to the settlement, then decided to fight it, as evidence began to mount that the investigation into the cause of the fire and subsequent efforts to prosecute his client were tainted.

“There was no light switch that was flicked on in this case when suddenly the room went from dark to light,” Warne said.

Instead, there was a slow progression as one former prosecutor alleged misconduct and defense attorneys learned of incidents they considered questionable and the government’s focus on Sierra Pacific as a “deep pockets” defendant, despite what Warne described as evidence that the company and its subcontractor had no responsibility for the fire.

“This is a case with a trail of fraud,” Warne said.

But the U.S. attorney’s office, represented by three lawyers at the hearing, argued that its prosecutors had acted properly and that, if Sierra Pacific was convinced of its position, it easily could have gone to trial rather than agree to a settlement. It insisted that Warne was aware before the settlement of virtually all the evidence he now cites in support of his arguments to dump the settlement.

“They had everything they needed to try their main claims,” said David Shelledy, chief of the civil division in the U.S. attorney’s office in Sacramento. “There’s no indication here that they’re not responsible for the fire.”

Call The Bee’s Denny Walsh, (916) 321-1189.

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