Ruling: No damages for Alaska Pulp

Japanese-owned firm won 2001 ruling that U.S. government breached its 50-year timber contract

Posted: Sunday, February 22, 2004

ANCHORAGE - A pulp mill that dominated the economy of Southeast Alaska for decades should not receive damages from a lawsuit it won against the U.S. Forest Service, a federal judge has ruled.

Alaska Pulp Corp., which operated a mill in Sitka for nearly 40 years, had sought up to $8.7 billion in damages from the federal treasury.

The Japanese-owned company won a court ruling in 2001 that the government breached its 50-year contract to supply the mill with timber from the Tongass National Forest, the country's largest national forest.

A judge then agreed that when Congress enacted the Tongass Timber Reform Act in 1990, which reduced the amount of trees available for logging, it constituted a violation of Alaska Pulp's contract. The company was entitled to press for damages.

But Judge Lawrence M. Baskir said in a ruling Jan. 28 said that Alaska Pulp should not get a dime from the government.

Although the Forest Service violated the contract by ending it in 1994, the Tongass logging reforms had nothing to do with the pulp mill's demise, Baskir determined. The company, which closed in September 1993, was a losing proposition almost since its beginning in the 1950s. The government should not pay for its failed business practices, the judge concluded.

"We are persuaded by the evidence that the TTRA was not a substantial factor - indeed, no factor at all - in the closure of the pulp mill and the resulting termination of the contract," wrote Baskir on behalf of the U.S. Court of Federal Claims.

The mill shut down because its own managers concluded that "there was no reasonable prospect of profitability."

"Consequently, any damages would constitute a windfall, irrespective of the question of causation. We do not award damages in lost profits to a plaintiff who could never seem to find profits in the first place," Baskir wrote.

Baskir said Japanese banks propped up Alaska Pulp. Despite the special treatment, profits always seemed to elude the mill. By 1964, APC had accumulated a $20 million deficit. By the mid-1970s, the mill owed its parent company $60 million, the judge found. Despite the Forest Service's guaranteed supply of timber, the mill could never make a go of it.

"The administration of this contract turned out to be unprofitable for APC almost from the beginning," Baskir wrote.

Phone calls by the Anchorage Daily News to lawyers for Alaska Pulp in Washington, D.C., and Juneau were not returned. No one could be reached at the company's Seattle office.

Baskir cited comments by the late George Ishiyama, Alaska Pulp's former president, to mill workers in 1992. Ishiyama explained how structural changes in world pulp markets made it nearly impossible for the Sitka mill to compete.

"The economic environment today is not a normal cyclical recession, in my opinion. It is something that is far more fundamental," he said.

Baskir relied on Alaska Pulp's internal reports to determine that the company faced a host of crushing problems, including declining pulp markets, high labor costs, expensive compliance with environmental regulations, and badly needed upgrades to and maintenance of the aging plant. He said Alaska Pulp officials did not regard federal logging restrictions "as necessarily causing the company immediate injury."

"Internally, company officials continued to regard the TTRA as a minor potential problem. But for the public, it was portrayed as the major, if not the sole obstacle confronting the company."

Baskir took Ishiyama to task for repeatedly defying court orders to give a deposition. Pulp mill lawyers had cited his failing health as the reason Ishiyama couldn't travel from Tokyo to the United States to testify.

But government lawyers offered credible evidence that Ishiyama "had traveled frequently for business and pleasure and that he, in fact, maintained residences in both California and Hawaii," the judge wrote.

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