Richard Pombo

Mr. POMBO

Mr. POMBO. Mr. Chairman, I offer an amendment.

Mr. POMBO. Mr. Chairman, I rise to offer this amendment after which I plan to withdraw it. Mr. Chairman, my amendment would redirect $1 million from the Cooperative Endangered Species Conservation Fund to the Banta-Carbona Irrigation District in Tracy, California, for a fish screen project located at the entrance to the Banta-Carbona Irrigation District intake channel on the San Joaquin River. This is a very simple amendment which would provide much needed financial assistance to help defray the construction, operating and maintenance costs of this fish screen. Let me point out that the Banta-Carbona Irrigation District is required by the U.S. Fish and Wildlife Service to put in a fish screen facility on the San Joaquin River to protect the delta smelt, the steelhead, the fall run chinook salmon and the splittail. All of these fish are either endangered or threatened species and fall under the authority of U.S. Fish and Wildlife Service or the National Marine Fisheries Service. Without the fish screen project, the Banta-Carbona Irrigation District's agricultural water diversions could be shut down by these Federal agencies. Mr. Chairman, the Banta-Carbona Irrigation District is facing a reduced allocation of water from the Central Valley Project. To make matters worse, high energy costs in California coupled with low agricultural commodity prices have made it nearly impossible for the water users to pay for the capital, operating and maintenance costs of a fish screen facility. The bottom line is, Mr. Chairman, the Federal Government has required the Banta-Carbona Irrigation District to facilitate the funding, design, and construction of this fish barrier screen facility with little or no assistance. Under the ESA, the Federal Government continues to require farmers, ranchers, landowners, irrigation districts, and local government and communities to spend millions of dollars to protect endangered species. In fact, let me point out to my colleagues the millions of dollars that the county hospital in Riverside, California, had to spend to protect a fly. And how about the millions of dollars homebuilders and ranchers in my district are spending to protect the fairy shrimp, a quarter-inch crustacean that lives in pools of water which we normally call mud puddles. Mr. Chairman, this is real money that could be used to help individuals offset the costs of their high utility bills. Further, this is real money that is being diverted away from the State and local government's education, infrastructure, and health care budgets. I am convinced that the only species that is benefiting from this process is the cash cow, being milked by the agencies and environmental lawyers. The truth is, contrary to claims made by the green conflict industry, people who own property do care about the survival of valued species and the health of our environment. Quite frankly, Mr. Chairman, this is another example of why the Endangered Species Act is not working. The act has failed to save species; it has caused acrimony and gridlock, generated endless litigation; it has cost the American taxpayer and private-property owner hundreds of billions of dollars in wasted effort; and it has misappropriated property and lost production. All of these problems, Mr. Chairman, and the act has not even been authorized for nearly a decade. I simply cannot stand by quietly as farmers and ranchers, families and businesses, especially those in the West who depend on natural resources for a living, suffer for no constructive purpose. The time has come to make human species as important as the Endangered Species Act equation. Mr. Chairman, it is time to take back our economic and constitutional rights. Ensuring that the Banta-Carbona Irrigation District receives Federal assistance for the fish screen project will do such a thing by holding the Federal Government accountable for its actions. I urge my colleagues to do the right thing to correct this injustice. I have worked with the gentleman from New Mexico in the past several years on these issues. I intend to continue working with him. I know that if it were up to him totally that we would take care of these problems posthaste; but in light of the situation we are in right now, I respectfully withdraw my amendment at this point.

Mr. POMBO

Mr. POMBO. Mr. Speaker, the staff report is entitled Redwoods Debt- For-Nature Agenda of the Federal Deposit Insurance Corporation and the Office of Thrift Supervision to Acquire the Headwaters Forest. This report was prepared for the Committee to wrap up some oversight work on the FDIC and Office of Thrift Supervision redwoods debt-for-nature matter started during the last congress. The analysis concludes that there was a redwoods debt-for-nature scheme pursued by the bank regulators at the FDIC and the OTS beginning in at least February 1994. The startling part is that the banking claims against Mr. Charles Hurwitz (stemming from his minority ownership of a failed savings and loan) that were to be used a leverage to get Pacific Lumber Company's redwoods, a company owned and controlled by Mr. Hurwitz, were loser claims. By the FDIC's own internal evaluation, there was a 70 percent chance the claims would fail procedurally and more than 50 percent chance of failing on the merits. The conduct of the bank regulators was so bad that it led a U.S. District Court Judge, the Honorable Lynn Hughes to conclude that the agencies used tools equivalent to the cosa nostra--a mafia tactic--in their pursuit of Mr. Hurwitz and his privately owned redwoods. This staff report gives even more basis to validate the conclusion of the federal judge. No one-whether a millionaire industrialist or a laborer in a factory-should be subject to the unchecked tools of an out of control ``independent'' agency like the FDIC or the OTS. The redwood scheme grew as the FDIC understood the importance of its--and the OTS'--potential claims as the leverage for the redwoods during an extraordinary 1994 strategy meeting with a Member of Congress--19 months before the claims were even authorized to be filed. The other bank regulator, the OTS, was enlisted by the FDIC right after that meeting. They were hired to pursue the same claims against Mr. Hurwitz administratively as leverage for their claims. FDIC's reason for teaming up with the OTS: to get ``the trees,'' according to the notes of their own staff. The redwoods scheme was introduced through an intense lobbying campaign by environmental groups, including Earth First! They penetrated the ``independent'' FDIC, the FDIC's outside counsel, the OTS, the Administration, the Department of the Interior, the White House, and Members of Congress. The FDIC (and its agent, the OTS) were the critical part of the scheme. The bank regulators were willing advocates who promoted a redwoods exchange for banking claims against Mr. Hurwitz well before the claims were authorized by the FDIC board, well before they were filed, and very well before Mr. Hurwitz raised the notion of redwoods. The evidence of the FDIC's participation in the redwoods scheme contradicts the testimony offered by the witnesses at the December 12, 2000, hearing of the Committee Task Force. That testimony was that banking claims or the threat of banking claims against Mr. Hurwitz involving USAT were not brought as leverage in a broader plan to get the groves of redwoods from Mr. Hurwitz. The weight of the documentation contradicts that conclusion. The cost of bringing these claims that would have been ``closed out'' if it were the normal situation--is nearly $40 million to Mr. Hurwitz. One of two things needs to happen. We need to either have a hearing on this situation or the FDIC and OTS boards need to correct this action and revisit the underlying board actions that authorized the suits in the first place. I would be surprised if the FDIC and OTS board members actually knew what their staffs were doing with the redwoods scheme. I hope they would be surprised, but the evidence is now here for them to see. This is embarrassing to the bank regulators--they need to address it now. Redwoods Debt-for-Nature Agenda of the Federal Deposit Insurance Corporation and the Office of Thrift Supervision to Acquire the Headwaters Forest, June 6, 2001 Preface Documentation References Documentation is referenced in parentheticals throughout the text of this report. References to ``Document A'' through ``Document X'' are references to documents that were incorporated into the hearing record by unanimous consent by the Task Force on Headwaters Forest and Related Matters on December 12, 2000. These documents are contained in the files of the Committee and those that are referred to are reproduced in Appendix 1. Documentation referenced as ``Record 1,'' ``Record 2,'' etc. is documentation found in Appendix 2. Much of this documentation was not introduced as part of the hearing record, and it is provided for reference to substantiate key facts referenced in this report. References to ``Document DOI A,'' ``Document DOI B,'' etc. are references to documents that were incorporated into the hearing record by unanimous consent of the Task Force on December 12, 2000. These documents were produced to the Committee from the Department of the Interior. Appendix 4 contains the correspondence between the Comntittee and the bank regulators. All documentation referenced in this report and attached in an appendix is necessary to contextually verify the information and conclusions reached in this report on subjects within and related to the jurisdiction of the Committee on Resources. The records, documents, and analysis in this report are provided for the information of Members pursuant to Rule X 2.(a) and (b) of the Rules of the House of Representatives, so that Members may discharge their responsibilities under such rules. Role of the Committee on Resources: The Headwaters Forest Purchase and Management Ordinarily, one would think that the Committee on Resources does not regularly interact or have jurisdiction over bank regulators. It is important to understand that the Committee on Resources has jurisdiction over the underlying law that initially authorized the purchase of the Headwaters Forest by the United States and management of the land by the Bureau of Land Management. That law was enacted in November 1997 and is P.L. 105-83, Title V, 111 Stat. 1610. That legislation was incorporated in an appropriations bill that funded the Department of the Interior. Several conditions constrained the Headwaters authorization. One of those conditions was that any ``funds appropriated by the Federal Government to acquire lands or interests in lands that enlarge the Headwaters Forest by more than five acres per each acquisition shall be subject to specific authorization enacted subsequent to this Act.'' This clause in the authorizing statute is commonly referred to as the ``no more'' clause, because it prohibits federal money from being used to expand the Headwaters Forest after the initial federal acquisition.\1\ This was part of the agreement between the Administration and the Congress when funds were authorized and appropriated for the purchase of the Headwaters Forest. The federal acquisition actually took place on March 1, 1999, the final day of the authorization, at which time all federal activity to acquire additional Headwaters Forest should have been dropped. Thus, the FDIC's lawsuit and the OTS's administrative action should be dropped. This statute, including the ``no more'' clause, is part of the Committee's basis to compel bank regulators to provide documents and testimony about subjects related to the Headwaters Forest, debt-for-nature, redwoods, and related subjects. The sheer volume of material possessed by the banking regulators on subjects related to the Headwaters Forest, possible acquisition of Headwaters Forest, and redwoods debt-for-nature schemes provide more than adequate basis for the Committee's jurisdiction over these agencies about these subjects. Additionally, the banking regulators have submitted themselves, properly, to the jurisdiction of the Committee. Use of Records and Documents The FDIC and the OTS will undoubtedly complain that use of some of the records and documents disclosed in this report will jeopardize their case against Mr. Hurwitz, and that certain litigation privileges or a court seal apply to the documents; however, as stressed above, all documentation in this report and attached in an appendix is necessary to contextually verify the information and conclusions reached in this report. The documentation directly bears on subjects within and related to the jurisdiction of the Committee on Resources. The records, documents, and analysis in this report are provided for the information of Members. Informing Members has legal basis in Article I of the Constitution and is implied because Members of Congress need accurate information to legislate. Indeed, the Committee has legislated on the Headwaters Forest. Informing members also has legal basis under Rule X 2.(a) and (b) of the Rules of the House of Representatives. Members will be better able to discharge their responsibilities under such rules after reviewing the information in this report. Some may believe that litigation privileges might prohibit use of the records not already part of the Task Force hearing records. However, litigation privileges do not generally apply to Congress. They are created by the judicial branch of government for use in that forum. Assertions of any litigation privileges by the FDIC or the OTS or Mr. Hurwitz related to documents that are disclosed in this report may still be made in the judicial forum. Committee staff has redacted sensitive information (for example information unrelated to redwoods or debt-for-nature and information involving legal strategy) of certain records and documents to preserve the integrity of the judicial and administrative proceedings. It is expected that the FDIC and OTS may erroneously say that disclosure of certain documents and records will undercut their litigation position. While many of the documents and records disclosed may be quite embarrassing to the bank regulators, embarrassment is no basis for keeping the information about the unauthorized redwoods debt for nature scheme secret. Some sunshine will expose the unauthorized redwoods agenda of the bank regulators in this case and sanitize the system in the future. Background and Summary On December 12, 2000, the Task Force on Headwaters Forest and Related Matters held a hearing that exposed an evolving redwoods ``debt-for-nature'' scheme undertaken by bank regulators--the Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS). Presented at that hearing was substantial documentation and testimony showing how federal banking regulators, swayed by an intense environmentalist lobbying campaign, willingly became integral to a ``debt-for-nature'' scheme to obtain redwood trees. In short, banking regulators provided the otherwise unavailable leverage for a federal plan to extort privately owned redwood trees. The leverage used was the threat of ``professional liability'' banking claims against Mr. Charles Hurwitz, a minority owner of United Savings Association of Texas (USAT), a failed Texas savings and loan. Mr. Hurwitz was a favorite target of certain environmental activists who wished to obtain the large grove of redwood trees in northern California, redwoods that belonged to a company, the Pacific Lumber Company, also owned by Hurwitz. The environmental interests pressured Congress, the Administration, and the banking regulators to bring the banking actions against Mr. Hurwitz and USAT. The idea was that the actions or threat of actions would lever or even force Mr. Hurwitz into transferring redwood trees to the federal government. The FDIC suit (Federal Deposit Insurance Corporation, as manager of the FSLIC Resolution Fund v. Charles Hurwitz, Civil Action No. H-95-3956) and the OTS administrative action (In the Matter of United Savings Association of Texas and United Financial Group, No. WA 94-01) against Mr. Hurwitz actually became what the environmentalists and political forces sought: the legal actions were the leverage for redwoods. The bank regulators knew that their actions would be the leverage for such a debt-for-nature transaction. Between late 1993 and when the actions were initiated,\2\ the bank regulators became more and more enmeshed with the environmental groups, the Department of the Interior, and the White House in the redwoods debt-for-nature scheme. In the end, they ignored every prior internal analysis indicating that they would lose the USAT suit, so they teamed up and brought it administratively and in the courts. Ultimately, the FDIC suit and their hiring of OTS to bring the separate administrative action forced Mr. Hurwitz to the negotiation table. The bank regulators, in concert with the Department of the Interior and the White House, actually baited Mr. Hurwitz into raising the redwoods issue first, so it would not appear that the bank regulators were seeking redwood trees.\3\ Indeed the bank regulators still try to propogate the fiction that Mr. Hurwitz somehow raised the issue first, but they can point to no document written evidence prior to September 6, 1995, when Mr. Hurwitz finally submitted and broached the possibility of swapping redwoods for bank claims. After an intense banking regulator effort to get the redwoods that lasted from 1993 through 1998, the federal government and the State of California switched the plan and purchased the redwood land owned by Mr. Hurwitz's company. They did so as authorized by Congress (P.L. 105-83, Title V, 111 Stat. 1610). After the federal purchase, the residue was: (1) fatally flawed banking claims that lacked merit; (2) bank regulators standing alone having been used politically by the White House and Department of the Interior; (3) a group of environmentalists still screaming ``debt-for-more-nature;'' (4) a federal judge who compared the tactics of the bank regulators to those of hired governments and the ``Cosa Nostra'' (the mafia); and (5) Mr. Hurwitz who was required to spend upwards of $40 million to fight the scheme. In short, the residue was a big mess. However, not until the oversight review and December 12, 2000, hearing of the Task Force did the banking regulators' redwoods ``debt-for-nature'' motivation, which trumped their own negative evaluation of the merits of their case, become more fully understood.\4\ It was clear after the hearing that the ``professional liability'' claims would have been administratively closed--never even brought to the FDIC board by FDIC staff for action--had Mr. Hurwitz not owned Pacific Lumber Company and the Headwaters Forest redwood trees. Instead, intense political pressure, intense environmental lobbying, and White House pressure to pursue the banking claims as leverage for redwoods outweighed the standard operating procedure to administratively close the USAT case, because there was no USAT case. Two sets of banking regulators--the FDIC and the OTS--became willing instruments and partners in the debt-for-nature scheme as they violated their own test for bringing ``professional liability'' claims. Bank regulators brought the claims against Mr. Hurwitz even though they were more likely than not to fail and were not cost effective. The banking regulators' own assessment was that their action would have a 70% likelihood of failure on statute of limitation grounds alone. Even if the claims survive the statute of limitation challenges, their own cerebral assessment put less than a 50% likelihood of success on the merits of their claims. These are not the conclusions of the Task Force, although some Members may well agree with them; they are the conclusions of the bank regulators themselves. Moreover, the bank regulators (OTS and FDIC) held numerous meetings about the redwoods debt-for-nature scheme, and at a critical juncture right before they reversed their recommendation to the FDIC board, they met with DOI. The bank regulators walked away from that meeting knowing that ``[i]f we drop [our] suit, [it] will undercut everything.'' (Record 21). This is the meeting that most likely ensured that the leverage for the redwoods desired by the DOI and the Clinton Administration would become real through filing legal and administrative actions. These contacts were far outside of normal operating practice for banking regulators and were described by the former Chairman of the FDIC as ``shocking'' and ``highly inappropriate'' (Hearing Transcript, 43-44). In addition, the former FDIC Chairman told the Task Force that environmental reference to redwoods does not have ``any relevance whatsoever [on] whether or not you [the FDIC] sue[s] Charles Hurwitz and Maxxam over the failure of United Savings. Whether they own redwood trees or not is absolutely, totally irrelevant.''--(Hearing Transcript, page 45). This stinging rebuke from a past FDIC Chairman is a fitting assessment of the actions of an agency caught up in a debt- for-nature agenda that was too big, too political, and too unrelated to its statutorily authorized purpose. While there were many factors that nudged the FDIC, and by association the OTS, into the debt-for-nature scheme--its own outside counsel, the law firm of Hopkins & Sutter-- provided early and direct links into the environmental advocates who lobbied and advocated for federal acquisition of the Headwaters Forest through a debt-for-nature scheme. In fact, they were selected over as outside counsel other firms because of their environmental connections and ability to handle a redwoods debt-for-nature swap. In addition, the predisposition of the legal staff of the FDIC and OTS, the strong desires of Department of the Interior and the White House, the creative lobbying of the Rose Foundation and the radical Earth First! protesters (whose effect was felt and noted in the FDIC Board Meeting discussions during consideration of the USAT matter) all allowed the redwoods debt-for-nature scheme to pollute FDIC and OTS decision-making about the potential claims over USAT's failure. Very little if any documentation provided to the Task Force justified, on a substantive basis, the decision to proceed with the banking actions against Mr. Hurwitz and the other USAT officers and directors. Redwoods and ``debt-for-nature'' were not part of banking regulators decisionmaking or thought process early in the investigation of possible USAT banking claims--from December 1988 through about August 1993. The notion was first introduced to the FDIC in November 1993, when the redwoods debt-for-nature proposal sent to them by Earth First! was ``reviewed'' by FDIC lawyers. The first Congressional lobbying of bank regulators promoting redwoods debt-for- nature occurred by letter on November 19, 1993. The first known in-person lobbying of bank regulators by a Member of Congress about potential claims of bank regulators being swapped for redwoods occurred in February 1994. The tainting of any possible legitimate banking claims began with the occurrence of that very unusual meeting. The documents and records show how the redwoods debt-for- nature notion ultimately permeated bank regulators decisions while they developed and brought their claims against W. Hurwitz. As the claims were kept active during fourteen tolling agreements between bank regulators and Mr. Hurwitz as the leverage against him for redwoods using those claims was applied. And when the claims were authorized and then filed on August 2, 1995, the claims became more leverage. In the end, the evidence is clear that, but for the environmentalists pressure to get redwoods through debt-for- nature and, but for Congressional pressure to get leverage on Mr. Hurwitz to submit and give up his redwoods to the government, the banking claims would not even have been brought. Interestingly, it was unknown early in that process whether a settlement for potential USAT claims would be viable at all or include redwoods, or whether the government would possibly purchase the redwoods. In any case, the threat of and actual FDIC and OTS claims brought Mr. Hurwitz to the negotiating table. Prior to the claims being filed, the FDIC conspired with the White House and the Department of the Interior about the importance and role of the banking claims to advance the debt-for-nature redwoods agenda. The OTS was present during some of those meetings and was reportedly ``amenable'' to the redwoods debt-for-nature strategy. Even after the outright federal acquisition, which was by purchase, the call became ``debt for more nature,'' \5\ through a continued use of the bank regulators leverage of suits that were in process already. The claims continued to be used by the federal government to lever Mr. Hurwitz for more nature, at that juncture arguably in violation of the authorizing statute.\6\ What remained at the end of the day were filed claims that would not have been brought under ordinary circumstances had Mr. Hurwitz not owned redwoods. The bank bureaucracy, with its reason for bringing the claims in the first place having evaporated, continued the fiction: they continued propagating the false notion that redwoods and debt-for nature had nothing to do with their bringing the USAT claims. Mr. Hurwitz raised it first, they said, even as the FDIC told Department of the Interior that they needed an ``exit strategy'' from the redwoods issue. If redwoods had nothing to do with bringing or pursuing the claims in the first place, then there would be no need for an ``exit'' strategy from the redwoods issue. The documentation discovered by Chairman Young and Task Force Chairman Doolittle, which is explained in this report, dispels the notion that Mr. Hurwitz raised the redwoods debt- for-nature first. To the contrary, the federal government, bank regulators This report synthesizes records and information about the redwoods ``debt-for-nature'' scheme of banking regulators, the information subpoenaed from the FDIC and OTS, and the information collected at the December 12, 2000, hearing of the task force. Ordinary Role of the FDIC and OTS: Regulate Banks and Recover Money As a starting point, it is helpful to understand the ordinary and authorized role of bank regulators when financial institutions fall. The FDIC is the independent government agency created by Congress in 1933 to maintain stability and public confidence in the nation's banking system by insuring deposits. The FDIC administers two deposit insurance funds, the Bank Insurance Fund for commercial banks and other insured financial institutions and the Savings Association Insurance Fund for thrifts. Other than its deposit insurance function, the FDIC is the primary regulator for banks. It supervises, monitors, and audits the activities of federally insured commercial banks and other financial institutions. The FDIC is also responsible for managing and disposing of assets of failed banking and thrift institutions, which is what it did concerning USAT, 24 percent of which was owned by Mr. Charles Hurwitz. In connection with its duties associated with failed banks, the FDIC manages the Federal Savings and Loan Insurance Corporation Resolution Fund, which includes the assets and liabilities of the former FSLIC and Resolution Trust Corporation. The OTS is the government agency that performs a similar function to that of the FDIC for thrifts insured through a different insurance fund. The OTS is the primary regulator for thrifts. The responsibilities of the FDIC and OTS overlap in certain instances. The OTS has explained how the two agencies divide those shared responsibilities: the FDIC ``seek[s] restitution from wrongdoers associated with failed thrifts'' and the OTS ``focus[es] on preventing further problems.'' The USAT case is an exception to these stated policies of federal institutions. Nowhere in the statutes authorizing the OTS \7\ or the FDIC \8\ is there authority to pursue ``professional liability'' claims or other claims for purposes of obtaining redwood trees or ``debt-for-nature'' schemes. The sole purpose of such actions with respect to failed institutions is to recover funds or cash not trees and not nature. The mission of recovering cash was acknowledged by the OTS and FDIC. (See, Hearing Transcript, page 63, 64, Ms. Seidman (OTS) answered: ``Our restitution claim is brought for cash.'' Ms. Tanoue (FDIC) answered: ``[T]he FDIC considered all options to settle claims, at the encouragement of Mr. Hurwitz and his representative agency, looked at trees, but the preference has always been for cash.'') Indeed, this may be why the Chronological Facts and Analysis Regarding the FDIC and OTS Pursuit of USAT Claims 1986: Mr. Hurwitz Buys Pacific Lumber Company and Its Redwood Groves Mr. Charles Hurwitz owns Pacific Lumber Company. He acquired it in a hostile takeover on February 26, 1986, using high yield bonds. Pacific Lumber Company owned the Headwaters Forest, a grove of about 6,000 acres of old redwood trees. That property became desired by environmental groups because of the redwood trees. After Mr. Hurwitz bought Pacific Lumber Company, he and the company became a target of several environmental groups when the company increased harvest rates on its land. Harvests were still well within sustainable levels authorized under the company's state forest plan, but harvest rates were generally greater than prior Pacific Lumber Company management undertook. Environmentalist publicly framed the Hurwitz takeover of Pacific Lumber Company, as that by a ``corporate raider'' who floated ``junk bonds'' to finance a ``hostile takeover'' of the company to simply cut down more old redwood tree. It is unclear whether framing this issue in such a way had more to do with intense fundraising motivations aligned with certain environmental groups described in the recent Sacramento Bee series about financing the environmental movement (www.sacbee.com/news.proiects/environment/20010422.html) or more to do with ensuring that trees are not cut. At this juncture, Mr. Hurwitz and Pacific Lumber Company were targets of environmentalists, but his opponents had little leverage to stop the redwood logging on the company's land other than the traditional Endangered Species Act or State Forest Practices Act mechanisms. 1988: Hurwitz's 24% Investment in Texas Savings and Loan is Lost Mr. Hurwitz also owned 24% of USAT, a failed Texas-based thrift bank. The bank failed on December 30, 1988, just like 557 banks and 302 thrifts failed in Texas between 1985 and 1995 resulting from the broad-based collapse of the Texas real estate market. As a result of the failure, the banking regulators say they paid out $1.6 billion from the insurance fund to keep the bank solvent and secure another owner. That number has never been substantiated by documentation. Because Hurwitz owned less than 25% of the bank, and because he did not execute what is known as a ``net worth maintenance agreement,'' he was not obligated to contribute funds to keep the bank solvent when it failed. Such agreements (or obligations when a person owns 25 percent or more of an institution) are enforced through what is known as a ``professional liability'' action brought by bank regulators. In certain cases, the FDIC and OTS are authorized by law to bring to recover money is for the ``professional liability'' against officers, directors, and owners of failed banks. The idea is to recover restitution--money--it took to make failed institutions solvent. This type of claim was brought against Mr. Hurwitz by the bank regulators at OTS after they were hired to do so by the FDIC. The nature of ``professional liability'' claims are explained well in bank regulator's publication as follows: Professional Liability [PL] activities are closely related to important matters of corporate governance and public confidence. . . . [They] strengthen the perception and reality that directors, officers, and other professionals at financial institutions are held accountable for wrongful conduct. To this end, the complex collection process for PL claims is conducted in as consistent and fair a manner possible. Potential claims are investigated carefully after every bank and savings and loan failure and are subjected to a multi-layered review by the FDIC's attorneys and investigators before a final decision is rendered on whether to proceed. . . . (Managing the Crisis: The FDIC and the RTC Experience 1980-94, published by FDIC, August 1998, page 266) Indeed, the bank regulators at the FDIC undertook an investigation of USAT beginning when USAT failed on December 31, 1988, to determine what claims they might have against USAT officers, directors, and owners. 1989-September 1991: Investigation Continues The investigation of USAT proceeded, and interim reports were issued by law firms investigating potential USAT claims for the FDIC. Environmentalists initiated various non-banking campaigns to block redwoods timber activities of Pacific Lumber Company on their Headwaters land. October 1991-November 1993: Bank Regulators Find No Fraud, No Gross Negligence, No Pattern of Self-Dealing By October 1991, the bank regulators determined that there was no ``intentional fraud, gross negligence, or pattern of self-dealing'' related to officer, director or other professional liability issues related to the failure of USAT (Document B, page 7). They also determined that there was ``no direct evidence of insider trading, stock manipulation, or theft of corporate opportunity by the officers and directors of USAT.'' (Document B, page 14). Bank regulators said that the USAT ``directors' motivation was maintenance of the institution in compliance with the capitalization requirements and not self gain or violation of their duty of loyalty.'' (Document B, page 17) There being no wrongful In spite of the determination that there was no basis to file a claim regarding USAT, a determination that was unknown to Mr. Hurwitz or the other potential defendants at the time, the banking regulators and Hurwitz made numerous agreements beginning November 22, 1991, expiring July 31, 1995, to toll the statute of limitations. This gave the bank regulators more time to investigate while they withheld filing of a claim. These agreements are fairly routine in complex cases like USAT. Beginning in August 1993 while the statute was still tolled, several actions to attempt to acquire the Headwaters Forest were taken in Congress and urged by environmental groups. For example, on August 4, 1993, Rep. Hamburg introduced a bill to purchase 44,000 acres (20%) of the Pacific Lumber Company's land and make it into a federal Headwaters Forest. In August 1993, the first contact between the Rose Foundation (the primary environmental proponent of advancing USAT claims against Hurwitz to obtain Pacific Lumber redwoods) and attorneys for the FDIC was made. As early as November 30, 1993,\10\ FDIC attorneys were aware of the Hamburg Headwaters bill and ``materials from Chuck Fulton re: net worth maintenance obligation'' (Record 3A). The handwritten FDIC memo from Jack Smith to Pat Bak notes that the professional liability section ``is supposed to pursue that claim.'' It reminds her not to ``let it fall through the crack!'' And if the claim is not viable, the banking regulators ``need to have a reliable analysis that will withstand substantial scrutiny.'' (Record 3A) Pressure to advance claims against Hurwitz in connection with the redwoods in a debt-for-nature swap came in a variety of forms to the FDIC. It first came from Congress on November 19, 1993, in a letter to the FDIC Chairman from Rep. Henry B. Gonzolez, Chairman of the House Committee on Banking (Record 2). Numerous written Congressional contacts with the banking regulators, most urging FDIC or OTS to bring claims against Hurwitz occurred in late 1993 when the debt-for-nature scheme was framed \11\ and subsequently over the years. On the same day, Bob DeHenzel, an FDIC lawyer, got an e mail about a ``strange call'' regarding USAT (Record 1). It was received by Mary Saltzman from a Bob Close, he [DeHenzel] had some knowledge of the nature of the inquiry [by Mr. Close] as well as the attorney Bill Bertain disclosed by Close. DeHenzel stated that this group was involved in fighting a takeover action of some company by Hurwitz involving forest property in the northwestern United States. Apparently they are trying to obtain information to utilize in their efforts. (Record 1) Then on November 24, 1993, Mr. DeHenzel, faxed a November 22, 1993, memo he received on November 22, 1993, from the radical group Earth First! to another FDIC staff member. That memo laid out the ``direct connection between the Savings and Loans, the FDIC and the clearcutting of California's ancient redwoods.'' (Document E) The memo introduced the concept that the USAT ``debt'' (which were only potential claims that FDIC internal analysis had already concluded had no basis) should be traded for Pacific Lumber Company redwoods. An excerpt of the memo lays out the scheme: Coincidently, Hurwitz is asking for more than $500 million for the Headwaters Forest redwoods. So if your agency can secure the money for his failed S&L, we the people will have the funds to by Headwaters Forest. Debt-for-nature. Right here in the U.S. That's where you come in. Go get Hurwitz. (Document E) The FDIC apparently took Earth First! seriously. Within one month, the FDIC lawyers reported to the acting chairman in a memo that they were ``reviewing a suggestion by `Earth First' that the FDIC trade its claims against Hurwitz for 3000 acres of redwood forests owned by Pacific Lumber, a subsidiary of Maxxam.'' (emphasis supplied) (Document G, December 21, 1993, Memorandum to Andrew Hove, Acting Chairman, From Jack D. Smith, Deputy General Counsel). \12\ The handwritten note on the top of the page indicates that the acting chairman Hove was orally briefed about the USAT situation prior to the memo. Thus, well before Mr. Hurwitz raised the issue of redwoods and debt-for-nature directly with the FDIC in August or September 1996 \13\ with the bank regulators, its Then in the close of 1993, a press inquiry report to Chairman Hove on debt-for-nature and the redwoods was received and documented from the Los Angeles Times. The press question was whether FDIC lawyers have considered whether ``we could legally swap a potential claim of $548 million against Charles Hurwitz (stemming from the failure of United Savings Association of Texax) for 44,000 acres of redwood forest owned by a Hurwitz controlled company.'' (Record 3B) The redwoods debt-for-nature scheme had been introduced via these various venues during 1993. At the same time FDIC's own analysis had shown absolutely no basis for a banking claim lawsuit involving USAT. However, it was not until early 1994 when the FDIC and their agent, the OTS, adopted the redwoods debt-for-nature scheme, and it became inextricably intertwined in its USAT bank claims. Ironically, it was political forces that enticed the bank regulators, who are supposed to act on bank claims without political influence, into wholesale and willing adoption of the redwoods debt-for- nature scheme. 1994: Undisclosed Congressional Meetings Lobbying on the Redwoods ``Debt-For-Nature'' Plan By February 2, 1994, the FDIC attorneys knew the weakness of several of its net worth maintenance claims and it acknowledged that it ``can point to no evidence showing that either UFG or Hurwitz signed a net worth maintenance agreement'' (Record 5, page 6). They acknowledged the weakness in a status memo (Record 5). As a result, the FDIC teamed up with the OTS to have OTS attempt to construct an ``administrative'' net worth maintenance claim against Mr. Hurwitz and his company that owned the redwoods. They believed (but offered no proof that) ``the actual operating control of [MCO, FDC, and UFG] was exercised by Charles Hurwitz.'' (Record 5, page 9). In short, FDIC did not have a claim, but the OTS may be able to bring an action in an administrative forum \14\ that was much more conducive to bank regulators, so the FDIC would hire the OTS. The net worth maintenance claim was important because if it could be established on the facts (i.e., if Mr. Hurwitz owned 25 percent of USAT or he was somehow in control of USAT) it could mean he would be liable for that percentage of the USAT loss, which totaled $1.6 billion.\15\ In that way the bank regulators could conceivably get into However, in written correspondence and at the Task Force hearing on December 12, 2000--the FDIC and the OTS denied that the litigation concerning USAT and Mr. Hurwitz had anything to do with redwoods.\16\ They also denied that their discovery tactics were improper or for the purpose of ``harassment.'' \17\ One exchange at the hearing between Mr. Kroener, the FDIC's General Counsel and Chairman Doolittle, however, typifies the response to the question of whether the bank regulators' litigation had anything to do with redwoods or leveraging redwoods: Mr. Doolittle. . . . Did this litigation or discovery tactic [harassment through discovery] have anything to do with redwoods or the desire to create a legal claim to leverage redwoods? Mr. Kroener. It did not. . . . (Hearing Transcript, page 99) While they have publicly denied any linkage, their own written words show the opposite. There was indeed a scheme involving politicizing bank claims against Mr. Hurwitz. Mr. Kroener's answer and the repeated denials of a linkage is purely wrong. A superb example of just how wrong Mr. Kroener's answer was is contained in the previously unreleased meeting notes from a February 3, 1994, meeting between FDIC legal and Congressional staff and a U.S. Congressman. The redwoods debt-for-nature linkage was the point of the meeting. The high ranking FDIC lawyers working on the redwoods case--Mr. Jack Smith, FDIC Deputy General Counsel, and Mr. John Thomas--and a Rep. Dan Hamburg \18\ met on February 3, 1994, to discuss the potential banking claims targeting Mr. Hurwitz.\19\ (Record 2A). The fact that the meeting occurred at all--especially that it occurred eighteen months prior to the USAT claim being authorized or filed--and the notes from the meeting evince that leverage for redwoods was promoted by FDIC lawyers. The notes also show that the FDIC knew claims targeting Hurwitz were invalid and probably could not be used as leverage (Record 2A). Highlights of the Spittler (Record 2A, page ES 0509) meeting notes are as follows. Rep. Hamburg had ``an immediate interest in the case,'' probably because he had a bill pending to purchase the Headwaters, and the proposal from environmentalists in his district to swap the Hurwitz banking claim ``debt'' for redwoods had been generally floated. (Record 8A, The Humboldt Beacon, Thursday, August 26, 1993, Earth First! Wants 98,000; 4,500 Acres Tops, PL Says.) According to Spittler's notes, which are Record 2A, Rep. Hamburg said he was ``interested enough over potential filing of the complaint to ask what is about to proceed.'' And Hamburg [r]ealized that this possible avenue would be lost.'' The ``avenue'' he was referring to was applying leverage against Mr. Hurwitz for a redwoods debt-for nature swap, and Jack Smith obviously understood this. According to Spittler's notes, Smith replied, it is ``very difficult to do a swap for trees,'' which means Smith knew that the authority of the FDIC to recover restitution in trees was difficult or impossible. Smith then told Hamburg about the USAT investigation: ``The investigation has looked at several areas. [One c]laim [is] on the net worth maintenance agreements.''\20\ (Record 2A) The other FDIC attorney present, Mr. John Thomas, acknowledged the fatal flaw of FDIC's claim: ``[There] have been attempts to enforce this, [referring to the net worth maintenance agreement.] Thomas then said, ``we can't find signed agreement [between] FSLIC [and USAT/Hurwitz]. We never found the agreement.'' Record 2A) Thomas was absolutely correct--because there never was a net worth maintenance agreement signed by Mr. Hurwitz. Besides the highly irregular nature of any communication between the FDIC and anyone about a case under investigation this communication is incredible for two reasons. First, it shows the willful manner in which FDIC volunteered to get involved in a political issue and mix potential claims with the redwoods issue. The meeting notes prove that the FDIC lawyers actually secretly briefed a Congressman about the specifics of an ongoing investigation that would become mixed with a political issue. Second, the timing of the Congressional strategy session was eighteen months before the FDIC board had not even approved filing a claim against Mr. Hurwitz--and its lawyers were then discussing the specifics their investigation of a potential claim in the discussions that occurred between FDIC staff and people outside the Agency prior to and during litigation were inappropriate. The fact that those discussions occurred exposes the FDIC and the OTS to the charge that the motivation for their litigation was to pressure Charles Hurwitz and Maxxam to give up their private property, the redwood trees owned by Pacific Lumber. . . . [T]heir repeated contacts with parties with whom they have no business discussing this litigation, congressional and administrative officials and environmental groups, leaves them open to whatever negative conclusions one might care to draw. (Hearing Transcript, pages 15--16). Mr. Isaac noted the impropriety later again in the hearing. --that really would have shocked me as chairman to see the FDIC staff having meetings with people outside the Agency about the redwood trees, and . . . congressional officials about a possible litigation we're thinking about bringing involving redwood trees; you know, somehow tying these redwood trees into it, and getting that mixed up in our decision as to whether to bring a suit over the failure of a bank. (Hearing Transcript, page 44-45) The content of the meeting between Hamburg, Smith (as opposed to the fact that the meeting even occurred), is even more appalling considering Jack Smith's next comment. According to Spittler's notes, he said ``If we can convince the other side [Hurwitz] that we have claim[s] worth $400 million and they want to settle, could be a hook into the holding company.'' Of course, the ``convincing'' about valid claims was the leverage, and the ``hook'' into the holding company was getting company assets, including redwood trees. This was redwoods debt-for-nature. FDIC was part of the redwoods scheme. Not only does this show that the idea about debt-for-nature was real to the FDIC lawyers, it shows when they promoted it at a congressional meeting in February 1994, more than 18 months before the FDIC lawsuit against Hurwitz was even authorized by the board and 17 months before, according to Mr. Kroener's testimony, Mr. Hurwitz ``indirectly'' raised the debt-for-nature swap with the FDIC through the Department of the Interior. Contrary to Mr. Kroener's representations to the Task Force, the FDIC legal The contents of the meeting shows irresponsible ends-driven government, from almost any perspective. Mr. Smith was not even talking about investigating and bringing valid legitimate bank claims. He was only talking about ``convincing'' Mr. Hurwitz that ``we have claims.'' This may even be unethical, because he implied that an invalid, unviable claim (the net worth maintenance claim) may be used as leverage to get redwoods from Mr. Hurwitz. The FDIC is supposed to be an ``Independent agency,'' that is, it is supposed to insulate itself from political pressure and disputes. FDIC legal staff suddenly injected themselves into a political issue of emerging national prominence (redwood trees and debt-for-nature using banking claims), an issue beyond the normalcy of banking recovery actions. The meeting notes show that the FDIC attorneys engaged to promote the issue of a debt-for nature swap, and that the design was to merely ``convince the other side'' that the FDIC had claims worth $400 million that the agency knew it did not have. This is a sad, sad statement from an ``independent'' government agency, and it is only the early part of the slide for the FDIC. Buttress what the FDIC lawyers said in the February 1994 meeting to Rep. Hamburg about trees and claims, against what Mr. Kroener and the other bank regulators told the Task Force in sworn testimony: Mr. POMBO. Ms. Seidman and Ms. Tanoue, the FDIC and the OTS have repeatedly said to the public and the Congress, including this morning, that what the agency wanted from USAT claims was cash, is that correct? Ms. Seidman. Yes. Our restitution claim is brought for cash. As to any further discussions both relating to the decision to bring the claim that way and subsequent settlement discussions, none of which I took part in, I would defer to Ms. Buck. Ms. Tanoue. I will also say that the FDIC considered all options to settle claims, at the encouragement of Mr. Hurwitz and his representative agency, \22\ looked at trees, but the preference has always been for cash. . . . At a minimum, Ms. Tanoue is misleading. Eighteen months prior to even having a claim to settle or having a claim authorized or having a claim filed, her agency's top lawyers were sitting in a Congressional office talking about ``convincing the other side'' that ``we have claims worth $400 million'' and getting a ``hook'' into a holding company that owns redwoods. Mr. Pombo. At what point did you start looking at the other options, and you mention trees? Ms. Tanoue. Much of this discussion occurred before my tenure. I turn to Mr. Kroener for elaboration on that point. Mr. Kroener. . . . We were first offered trees or natural resources assets by representatives of Mr. Hurwitz indirectly in July of 1995.\23\ There had obviously been a huge public debate going on regarding this forest. We were not part of that \24\ but we had lots of communications, others got lots of communications, . . . [and our chairman and general counsel] had responded to inquiries of Congress that were mindful that trees could come into play in our claims, but our claims didn't involve trees; they involved cash. (Hearing Transcript, pages 63-65) Obviously their claims involved cash, because by law their mission is to replenish the insurance fund with money. Mr. Kroener was wrong when he said their claims did not involve trees, and trees certainly came into play as evidenced by the February 1994 the Rep. Hamburg-Smith-Thomas meeting. Indeed trees were the motivating force that led the FDIC to promote net worth maintenance claims to the OTS. The clear implication of Ms. Tanoue's answer is that Mr. Hurwitz was the first to bring the redwoods into a possible settlement, but we know that FDIC lawyers were scheming in February 1994 with a Member of Congress to get a banking claim ``hook'' into the redwoods holding company owned by Mr. Hurwitz. Mr. Hurwitz was not the one who first brought the redwoods into banking claim issue-the environmental groups, FDIC lawyers, and certain Members of Congress had already done so by that point. Perhaps W. Kroener did not read the meeting notes that he provided to the Task Force about the February 1994 meeting between FDIC lawyers and Rep. Hamburg when he told the Task Force that FDIC claims did not involve trees until July 1995 when Mr. Hurwitz raised the redwoods to the FDIC indirectly through the Department of the Interior. The claims did involve trees--convincing the ``other side'' that there is a $400 As to Ms. Seidman, she stated a fact--that the OTS claim was for cash, which is technically all that it could be for. What she omits is that the FDIC had imparted the redwoods debt-for-nature agenda directly to the OTS on the heels of the February 3, 1994, meeting between FDIC and Rep. Hamburg-- and the FDIC did so because its claims were too weak and too small to provide enough leverage for the redwoods (See, Record 33, Record 35 and accompanying discussion infra). It took less than 24 hours following the FDIC-Rep. Hamburg meeting for the FDIC Deputy General Counsel, Jack Smith, to write to Carolyn Lieberman (now Carolyn Buck), the top lawyer at OTS. (Record 6). The letter (1) forwarded legal analysis of the net worth maintenance claim against the Hurwitz's holding company that owned the redwoods; (2) admitted that FDIC had no net worth maintenance claim; (3) prodded OTS to review whether it could administratively bring a net worth maintenance claim; and (4) in an incredible admission of purpose and intent, the letter notified OTS about the redwoods debt-for-nature scheme. The last paragraph of the one page letter reads: You should be aware that this case has attracted public attention because of the involvement of Charles Hurwitz, and environmental groups have suggested that possible claims against Mr. Hurwitz should be traded for 44,000 acres of North West timber land owned by Pacific Lumber, a subsidiary of Maxxam. Chairman Gonzales has inquired about the matter and we have advised him we would make a decision by this May. After you have reviewed these papers, please call me or Pat Bak (736-0664) to discuss the next step and to arrange coordination with our professional liability claims. (Record 6) Clearly, this action, immediately after the FDIC strategy meeting with Rep. Hamburg constitutes direct engagement of the FDIC to promote the claim that would become the leverage for the redwood debt-for-nature scheme. It is worth stressing that the FDIC that wrote this letter on the heels of the Rep. Hamburg meeting is the same FDIC that testified to the Task Force that their litigation did not have anything to do with trees. How could it not when the FDIC told the OTS that it promised Rep. Gonzalez that the agency ``would advise him of its decision about an environmental group suggestion ``that possible claims against Mr. Hurwitz should be traded for 44,000 acres of North West timber land owned by Pacific Lumber. This is debt for nature. It was real in February 1994. It ultimately overrode the fact that the FDIC knew its claim was weak and it led almost immediately to the FDIC hiring the OTS to promote the net worth maintenance claim against Mr. Hurwitz. This letter was sent three months prior to FDIC hiring OTS to pursue the net worth maintenance claim that FDIC knew it did not have.\25\ Importantly, it was sent In effect, the FDIC scheme beginning at least in February 1994, polluted the OTS action. What was a ``hook'' into the ``holding company'' that owned the redwoods for FDIC, was a ``hook'' into the holding company for the OTS. In fact, without the FDIC money (which by 1995 totaled $529,452 and by 2000 totaled $3,002,825), OTS's five lawyers and six paralegals advancing the claims against Mr. Hurwitz would have been unfunded--and probably not advanced the claim. And without the net worth maintenance claim--by far the largest claim--there would be no hook into Mr. Hurwitz, therefore no hook into his redwoods. It is helpful to understand why Mr. Smith told Rep. Hamburg that it is ``very difficult to do a swap for trees.'' It was very difficult for two reasons. First, the claims would not ordinarily be brought because they would fail on the merits, so it would be difficult to exchange a claim that would not have been ordinarily brought. The bank regulators manual explains their policies from 1980 through 1994 for bringing claims as follows: No claim is pursued by the FDIC unless it meets both requirements of a two-part test. First, the claim must be sound on its merits, and the receiver must be more than likely to succeed in any litigation necessary to collect on the claim. Second, it must be probable that any necessary litigation will be cost-effective, considering liability insurance coverage and personal assets held by defendants. (Managing the Crisis: The FDIC and the RTC Experience 1980- 94, published by FDIC, August 1998, page 266) Second, the claims would be for restitution, and the FDIC could not accept trees in settlement. The FDIC even admits that they would need ``modest'' legislation to accept trees, which is an admission that their purpose in seeking redwoods is indeed unauthorized. However, it was political pressure, such as that applied by environmental groups in 1993 and Rep. Hamburg beginning in 1994, that led the willing FDIC (and ultimately its agent, the OTS, after FDIC began paying OTS in May 1994) into ignoiing the mission of recovering money on cost effective banking claims. Instead the FDIC adopted unauthorized missions of providing leverage through lawsuits that are unsound on the merits and would ``convince'' (the word used by Mr. Smith) Mr. Hurwitz that FDIC had a claim of ``$400 million'' so that they could get a February 2 through 4, 1994, were important redwoods debt- for-nature days for the FDIC's legal team. There was the FDIC memo admitting that it had no net worth maintenance claim. Then there was the meeting with Rep. Hamburg about the redwoods scheme. Then there was an odd, but revealing e-mail sent by FDIC's congressional liaison, Eric Spittler, to Jack Smith on February 4, 1994, about a conversation he had with Smith on February 3, 1994, the same day as the Rep. Hamburg meeting. The message was about the selection of an outside law firm to act as counsel on the USAT matter: Jack, I thought about over conversation yesterday. My advice from a political perspective is that the ``C'' firm [Cravath] is still politically risky. We would catch less political heat for another firm, perhaps one with some environmental connections. Otherwise, they might not criticize the deal but they might argue that the firm [Cravath] already got $ 100 million and we should spread it around more. (emphasis supplied) (Document I) Indeed, ``environmental connections'' were a factor in selection of the outside counsel for the USAT matter. A February 14, 1994, memo about ``Retention of Outside Counsel'' for the USAT matter (Record 15) from various FDIC lawyers to Douglas Jones, FDIC's acting General Counsel, trumpets the ability of the firm ultimately selected, Hopkins & Sutter, to handle a redwood debt-for-nature settlement: The firm [Hopkins & Sutter] has a proven record handling high profile litigation on behalf of the [FDIC] and, drawing on its extensive representation of the lumber industry, will be able to cover all aspects of any potentially unique debt for redwoods settlement arrangements. (Record 15, page 8) The FDIC was clearly planning--even in February 1994 with the selection of an outside counsel--for a redwoods debt-for- nature swap as part of a settlement! This was before they even knew if their potential claims were really claims, and before the FDIC Board had authorized filing of any claims. From the FDIC's perspective, an outside counsel law firm with ``environmental connections'' that can ``cover all aspects of any potentially unique debt for redwoods settlement'' is the only choice. (Record 15) So in February 1994, the FDIC--which denies to this day its litigation against Mr. Hurwitz has any linkage to a redwoods debt-for-nature scheme--selected the outside counsel for the USAT matter because it could handle a debt for redwoods settlement. This firm was an ideal choice for a bank regulator with an agenda to get a ``hook'' into a holding company that has redwood tree assets that might be traded for bank claims--if they can ``convince'' the other side that they have valid claims. Mr. Hurwitz's redwood The FDIC, its lawyers and acting chairman knew of the linkage between bank claims and redwoods, as did their outside counsel, Hopkins & Sutter, which even facilitated numerous contacts, information exchanges, strategy sessions, and meetings during the remainder of 1994 between the bank regulators and environmentalist proponents of a Hurwitz debt- for-nature redwoods swap. But Ms. Tanoue and Mr. Kroener testified that redwoods had nothing got do with the litigation, hardly an accurate proposition in light of the fact that the FDIC's outside counsel was selected because of their environmental connections and ability to handle a ``unique debt for redwoods settlement.'' (Record 15) Indeed, Hopkins & Sutter's ``environmental connections'' paid off--to the environmentalists advocating a redwoods debt-for-nature scheme. F. Thomas Hecht, the lead partner at Hopkins and Sutter on the USAT matter, in a memo copied to FDIC attorney's summarized the intense lobbying effort [beginning in about March 1994] by certain environmental activists led by the Rose Foundation of Oakland, California[, whose] principal concern has been to conserve an area of unprotected old-growth redwoods in northern California known as the Headwaters Forest. (Document N, page 1) The memo (Document N, page 3-4) details the following contacts: On June, 17, 1994, Thomas Hecht met with Jill Ratner of the Rose Foundation in San Francisco for an initial meeting at which Ms. Ratner outlined her groups' concerns. On October 4, 1994, Hecht, Jeffrey Williams, Robert DeHenzel and the Rose Foundation and its lawyer participated in a teleconference at which the claims prepared by the Rose Foundation were presented in more detail. On January 20, 1995, DeHenzel and Hecht met with Julia Levin of the Natural Heritage Foundation (``NHF''), a group closely associated with the Rose Foundation. The NHF is conducting much of the lobbying effort on behalf of the Rose Foundation and other environmental activists on this issue. In addition to these more formal encounters, Williams, DeHenzel and Hecht have each been contacted repeatedly by the Rose Foundation and its attorneys to explore the theories in more depth and to urge the FDIC to take action. In each of these meetings and in subsequent telephone conversations and correspondence, the Rose Foundation and its allies have urged three general This is just a sampling of the many instances were the bank regulators own notes and memos show integration between what were still possible bank claims and the redwoods. All of these occurred beginning 18 months before the USAT claims against Mr. Hurwitz were authorized or filed. Record 8 contains several examples of outside contacts between bank regulators and environmental groups about different mechanisms to leverage redwoods using potential banking claims. 1995 The Federal Government Scheme Is Defined--``High Profile Damages Case'' In Which Redwoods Are ``A Bargaining Chip'' The relationship between the possible banking claims and the redwoods is not just implied by the number of meetings or the extensive evaluations by bank regulators and their lawyers throughout 1994, it was directly stated in the March 1995 memo by F. Thomas Hecht, FDIC's outside counsel: As their theories have become subject to criticisms, certain counsel for the Rose Foundation have shifted (at least in part) from arguments compelling the seizure of the redwoods to urging the development of an aggressive and high profile damages case in which redwoods become a bargaining chip in negotiating a resolution. This, indeed, may be the best option available to the environmental groups; its greatest strength is that it does not depend on difficult seizure theories. This approach would require that both the FDIC and OTS undertake to make the redwoods part of any settlement package.\28\ (footnote not in original) (Document N, page 8) Thus, the FDIC's outside counsel explained and evaluated the best course of action for the environmental groups (never mind the FDIC or the government). The fact is that a high profile damage claim where redwoods were leveraged from Mr. Hurwitz--the In spite of these facts, the FDIC has consistently insisted since late 1993 that ``there is no direct relationship between USAT and the Headwaters Forest currently owned by Pacific Lumber Company . . . [however], if such a swap became an option, the FDIC would consider it as one alternative . . .'' (Record 28). Indeed, this is exactly what the banking regulators have told the Committee in writing: they have always been open to the idea, but they prefer cash. The documentation outlined above shows that the banking regulators actively pursued a redwoods debt-for-nature agenda using their claims as urged by certain Members of Congress and by environmental groups. However, by this point, the Department of the Interior and the White House had yet to engage. That changed in early 1995. In February 1995, a host of environmentalists proposed an acquisition of the Headwaters redwood trees to President Clinton, and Leon Panetta (Chief of Staff) wrote back to them saying that budget constraints would not permit outright acquisition (Record 16A). He suggested that they push a debt- for-nature swap or land exchange instead. That action served to lower expectations for appropriated funds for the redwoods, and focused the proponents on continuing to push the redwoods debt-for-nature scheme. By April 3, 1995, FDIC lawyers were openly attempting to leverage Mr. Hurwitz into settling claims that were still yet to be filed for redwood trees. The redwoods debt-for-nature scheme was alive and active at the FDIC as indicated by the words in this e mail to Mr. Jack Smith from Mr. Bob DeHenzel: Jack: Just a note regarding our brief discussion on Charles Hurwitz and exploring creative options that may induce a settlement involving the sequoia redwoods in the FDIC/OTS case: . . . (Record 9) In these words the FDIC's attorneys were indeed leveraging redwoods by using their banking claims--at least three months before FDIC says that Mr. Hurwitz raised the redwood-debt-for nature idea through his ``representative agency'' (presumably the DOI), attorneys, four months before the FDIC board authorized the suit against Mr. Hurwitz, and about five months before the FDIC maintains Mr. Hurwitz raised the redwoods swap idea directly with the bank regulators. Thus, well before the notion of the redwoods debt-for- nature deal was introduced to the FDIC by Mr. Hurwitz (as the bank regulators religiously maintain) the bank regulators were indeed targeting Mr. Hurwitz's redwoods and using their potential claims as leverage to ``induce'' a settlement. The repeated statements and the sworn testimony of The notes of FDIC attorneys about what they were seeking and why the FDIC and the OTS were cooperating also contradict the testimony of the bank regulators when they say that redwoods had noting to do with the litigation against Mr. Hurwitz. Sometime in mid-1994 (but before July 20, 1994) \29\, FDIC wished to continue studying their claim and ``a possible capital maintenance claim by OTS against Maxxam.'' In illuminating candor, the handwritten memo articulates why the FDIC lawyers wanted to hire the OTS and double team Mr. Hurwitz: Why? (1) Tactically, combining FDIC & OTS' claims--if they all stand scrutiny--is more likely to produce a large recovery/ the trees than is a piecemeal approach (Record 10, bates number JT 000145) So, the senior FDIC lawyer, Mr. John Thomas, contemporaneously wrote that their strategy with OTS would be more likely to produce ``the trees.'' But their Chairman, their General Counsel, and the OTS Director repeatedly told the commiittee that the litigation had nothing to do with trees. Were the FDIC and OTS management and their board members so ill-informed about what their attorneys were seeking to achieve? ``The trees'' is not cash, period. The other very alarming notion is how integral OTS is to the strategy to ``produce'' ``the trees,'' according to the FDIC attorneys. The strategy to ``combine'' FDIC's weak claims with possible OTS claims on net worth maintenance further explains the February 4, 1994, letter from FDIC's lawyers to OTS's lawyers (Record 6). It transmitted the net worth maintenance claim to the OTS and introduced the notion that the FDIC was considering a redwoods debt-for-nature swap scheme. The FDIC told OTS that they were about to report to Rep. Gonzalez about the potential for the swap. The implication was that viable claims against Mr. Hurwitz (brought directly by the FDIC or indirectly through the OTS) would allow the FDIC to report back to Mr. Gonzalez that they could help get ``the trees'' because a swap would be more viable. Without the OTS, the FDIC would not have enough leverage to produce ``the trees,'' because by its own analysis, the FDIC claims were losers. The repeated intra-government lobbying of FDIC and OTS also pushed the bank regulators into the political redwoods debt- for-nature acquisition scheme. This intragovernment lobbying began indirectly by at least May 19, 1995,\30\ and is first evidenced The notes (Record 11) indicate that Ms. Ratner told Mr. DeHenzel about the Department of the Interior (DOI) players who are ``very interested in debt-for-nature swap'': Mr. Alan McReynolds, a Special Assistant to the Secretary of the DOI, Mr. Jeff Webb, with DOI congressional relations, Mr. George Frampton, the Assistant Secretary for Fish Wildlife, and Parks at DOI, and Mr. Jay Ziegler, an assistant to Mr. Frampton were all discussed as redwoods debt-for-nature advocates. And Record 11A illustrates that the Rose Foundation had done substantial work regarding various mechanisms to transfer the redwoods to the federal government. The notes indicate that Mr. McReynolds had flown over Headwaters during the week of May 8, 1995, \31\ with Ms. Ratner a primary advocate of various plans to acquire the Headwaters Forest. This was the first indication that DOI was engaging on the redwoods debt-for-nature scheme and probably Mr. McReynolds' first exposure to the concept that bank claims could provide the leverage for the redwoods scheme. There is no mention in the notes that Mr. Hurwitz requested DOI to raise the issue of a redwoods swap or look into it: Interior is . . . discussions will continue. Webb & Zeigler will continue doing prelim[inary] work to explore whether debt-for-nature would work. (Record 11) By the time that the DOI engaged in May 1995, the FDIC lawyers were well aware of the `` `debt-for-nature' transaction that various environmental groups have been advocating to resolve the claims involving Hurwitz and USAT.'' (Record 12) They were also apparently intimidated by the environmentalists as shown by the two page FDIC memo about a redwoods debt-for-nature letter to FDIC referencing the Oklahoma City bombing and a ``call to defuse this situation'' by doing a swap (Record 12). The following excerpt of the memo shows detailed knowledge about the debt- for-nature scheme and a perceived threat of violence related to environmentalist who had pushed the FDIC into it: As you know, the above-referenced investigation has resulted in attracting the attention of organizations and individuals that have interests in environmental preservation. This has arisen as a result of Charles Hurwitz's acquisition (through affiliates) of Pacific Lumber, a logging company in Humbolt County California, that owns the last stands of old growth, virgin redwoods. \32\ It has been widely The environmentalist's issues are centered on preserving the old growth redwoods through a mechanism of persuading Hurwitz to settle the government's claims involving losses sustained on the USAT failure by, in part, transferring the redwood stands to the FDIC or other federal agency responsible for managing such forest lands. FDIC has received thousands of letters urging FDIC to pursue such a transaction. The environmental movement, like many others, is not homogeneous and contains extreme elements that that have resorted to civil disobedience and even criminal conduct to further their goals. As a result of the recent tragedy in Oklahoma City, everyone appears more sensitive to the possibility that people can and do resort to desperate, depraved criminal acts. Accordingly we take any references to such conduct, even ones that appear innocent, more seriously. (Record 12) This excerpt shows that FDIC attorneys were (1) probably somewhat intimidated and (2) already well-versed in the debt- for-nature scheme when Ms. Ratner told Mr. DeHenzel who the DOI players supporting the redwoods debt-for-nature scheme were. The FDIC was keen to the motivations and methods of those who fed the scheme to them. Perhaps the intimate knowledge by the FDIC of the interests and desires of the environmental community came through the numerous pieces of correspondence and legal memos from the Rose Foundation to the FDIC through Hopkins & Sutter.\33\ The material showing the constant pummeling of FDIC by these advocates (and the willing acceptance by the FDIC and its outside law firm with ``environmental connections'') is too voluminous to reproduce. It is contained in the Committee's files. With the FDIC primed, the Department of the Interior directly engaged with the FDIC. The first known direct contact was a 5:00 p.m. call on July 17, 1995, from Alan McReynolds to Robert DeHenzel.\34\ The notes taken by DeHenzel (Record 16) indicate The following day, DeHenzel consulted about the McReynolds inquiry with ``JVT,'' John V. Thomas, the same FDIC lawyer who attended the Rep. Hamburg meeting in November 1993. Mr. Thomas told him to talk to Jack Smith and Alice Goodman. The notes say that ``JVT's reaction--Smith & Goodman should be there with us'' (Record 16) for the meeting with McReynolds. Then the unexpected occurred. On July 20, 1995, Mr. Hurwitz refused to extend the statute of limitations tolling agreement with the FDIC (Record 17, See, footnote 1 on page 2). He had last done so on March 27, 1995, and that extension was to expire on July 31, 1995. As a result, any lawsuit by FDIC regarding USAT claims against Mr. Hurwitz were required to be filed by August 2, 1995, just thirteen days later. It was just three days after Mr. McReynolds contacted the FDIC for a meeting about the potential FDIC and OTS actions against Mr. Hurwitz that the FDIC was told that Mr. Hurwitz would not extend the tolling agreement. The FDIC was unprepared for this action. They had enjoyed six years and eight months of discovery during which they were lobbied by outside groups and Members of Congress on the completely unrelated issue of pursuing the redwoods debt-for- nature swap. However, the agency had failed to do its job and cobble together enough evidence supporting a banking claim involving USAT and Mr. Hurwitz. They were not ready to file a complaint or drop the case on their own volition, even though Mr. Hurwitz provided voluminous records to the agency in the discovery process, records that defined the facts and illuminated issues raised by the FDIC. As a result, the FDIC was facing two issues--the request for a meeting with the Office of the Secretary of the DOI and the need to address the fact that they did not have the USAT case prepared after more than six years of investigation. They addressed these issues internally in a July 20, 1995, meeting between ``Mr. Jack Smith, JVT [John V. Thomas, FDIC lawyer], MA [Maryland Anderson, FDIC lawyer], JW [Jeff Williams, FDIC lawyer], and Robert DeHenzel.'' (Record 18) It is clear from this meeting that the FDIC lawyers were not anxious to recommend a lawsuit against Hurwitz. They did not have a case, because it did not meet their internal standards. Instead they prefer-red to hinge their action on whether OTS brought the administrative action, the action that they prompted and paid OTS to bring against Hurwitz. This is an odd trigger for an agency that does admits it does not have a case, disavows it seeks redwoods, and is only interested in receiving ``cash.'' Thus, the FDIC lawyers'' behavior is somewhat schizophrenic--on the one hand they know their internal policies will not let them bring a suit, but on the other hand they want to sue Mr. Hurwitz (and not other potential defendants). They then begin constructing the justification for doing so around the notion that the potential claims against Mr. Hurwitz are somehow special-not ``ordinary.'' They also apparently talk of telling Mr. McReynolds what they will do--evidence of further improper coordination with the DOI outside of normal FDIC operating parameters. Mr. Thomas' notes from the internal FDIC meeting (Record 18) explain: Re: McReynolds-Kosmetsky-Hurwitz-Tolling Jack [Smith]--we will not go forward if OTS files a case-- if OTS does not file suit, we still have to decide our case on the merits before tolling expires *Memo to the GC [General Counsel] to Chairman--update status of case & recommends that we let Kozmetsky out. If suit against Hurwitz--we sue only him and not others Find out if Hurwitz will toll Write a memo on case status to GC 10 page memo should do it! continue tolling sue or let them go If ordinary case, we do not believe there is a 50% chance we will prevail therefore, we cannot recommend a lawsuit. McReyonlds-handle same as the Hill presentation (Record 18) Clearly, the thinking coming out of the July 20, 1995, meeting was that the FDIC lawyers were not ready to make a recommendation on the merits of the case. Continued tolling was not an option because Mr. Hurwitz refused to sign a tolling extension, so the options ``sue or let them go'' were the only viable options. If it were an ordinary case the preference at that point would be to close the case out--that is let them go. FDIC lawyer, Mr. John Thomas' later notes outlining some points for that memo to the General Counsel tell us why this was not the ``ordinary'' case: ``[G]iven (a) visibility--tree people, Congress & press . . . we thought you--B[oar]d--should be advised of what we intend to do--and why--before it is too late.'' (Record. 22) What Mr. Thomas was saying is that the staff intends to close out the case, and if the FDIC board wants to do otherwise before the case is closed (administratively by the staff or by virtue of the statute of limitations running), then the Board must intercede. Importantly, the FDIC lawyers deviated from ordinary operating procedures because of the intense lobbying campaign for the redwoods debt-for-nature swap. Clearly, the intense lobbying effort by the environmental groups, by their outside counsel, by the DOI, by the White House, and by other federal entities was effective! At that point the bank regulators bought the redwoods scheme, but were unprepared then to totally disregard there what they knew they should do under their rules and guidelines, so the staff punted the issue to the board. The FDIC had already injected itself into a political issue. Their dilemma was summed up by Mr. Thomas in notes preparing for a discussion on the USAT claims with the board apparently scribed a few days later: Dilemma (why they [the FDIC Board] get paid the big bucks)--take: Hit for dismissed suit Hit for walking based on staff analysis of 70% loss of most/all on S of L [statute of limitations] (Record 23) The action by the FDIC of treating this case differently than the ``ordinary'' case and the concerted manipulation of hiring the OTS to pursue parallel claims to be used as leverage sends the strong message: if someone wants to influence bank regulators on an entirely collateral issue, and politically manipulate the bank regulators, they can successfully do it. All that must be done to use the bank regulators to achieve a collateral issue is to pursue two year public relations campaign aimed at them, swamp the bank regulators with cards and letters about the collateral issue, write and submit various legal briefs for them that link the collateral issue, meet with the bank regulators about the collateral Indeed, the redwoods debt-for-nature swap became linked to USAT and Mr. Hurwitz just as the environmental groups wished. This was not the ordinary case--it was going to the FDIC Board even though the FDIC admitted their case had a 70 percent chance of being dismissed because of the statute of limitations, and was more likely than not of falling on the merits if they were reached. Apparently, the FDIC legal staff was prepared to tell McReynolds and ``the Hill'' [Congress] the same thing--their course of action described in the July 20, 1995, meeting notes (Record 18). This modified procedure still left the door open for the board to act against staff recommendations and authorize the suit anyway--something that may not have been ideal from Mr. McReynolds perspective, but would still leave open the possibility of the leverage that DOI desired against Mr. Hurwitz. Then something else changed on July 21, 1995, which was the day following the internal FDIC meeting on their potential claims against Mr. Hurwitz. The change caused the entire approach of the FDIC lawyers to evolve again. What changed was not any new information about the facts of the potential claims against Mr. Hurwitz related to USAT. What changed was not any favorable development in law that strengthened their potential claims against Mr. Hurwitz related to USAT. What changed was not any analysis about the nature or strength of the potential claims against Mr. Hurwitz. All of these things remained the same. What changed was the realization by the FDIC lawyers, as communicated by a senior DOI official, that (1) the Clinton Administration and the DOI, had adopted and embraced the redwoods debt-for-nature scheme and they wanted the scheme to be successful, and (2) the FDIC's potential banking claims were critical to pulling off that redwoods debt-for-nature scheme. The potential banking claims--the same claims that the FDIC lawyers would have dropped using ``delegated authority''--were the leverage that were critical to making the redwoods debt-for-nature scheme work. That realization occurred when the FDIC lawyers met with Mr. McReynolds on Friday, July 21, 1995, at 11:00 a.m. (Record 19), just as he had requested on Monday, July 17, 1995. Meeting notes indicate that background about the redwoods and endangered species issues associated with the Mr. Hurwitz's redwoods \36\ were initially discussed (Record 20). Other background about Governor Wilson's task force and the willingness of California to participate in the deal were discussed, as were Mr. Hurwitz's H[urwitz] values 8K [acres] at $500 m. Interior wants to deal it down. H[urwitz] really wants $200m total. Calif. Deleg[ation] is really putting pressure on. Dallas/Ft. Worth--Base closure \37\ The FDIC also told McReynolds about the meeting that FDIC lawyers had set for the following Wednesday, July 26, 1995, with the OTS to discuss the USAT matter. They told Mr. McReynolds about the fact that they were doing the memo to the Chairman (the 10 page memo they concluded they needed in their July 20, 1995, meeting amongst the FDIC lawyers, See Record 18). The entry regarding this in Record 20 is reproduced below: Wed [July 26] 10:30 mtg w/OTS. Memo for Chairman. (Record 20) Eric Spittler's notes from the July 21, 1995, meeting add helpful details, and they are reproduced below: $400,000 expenses on OTS \38\ Have not decided whether to bring case--won't decide for months.\39\ Alan McReynolds--Adm[instration] want to do deal Gov. Wilson w/DOI had task force of 6 groups Told to find a way to make it happen CA will trade $100m in CA [California] timber Adm[instration] might trade mil[itary] base \40\ Had call from atty. Appraisal on prop[erty] for $500m. Said they want to make a deal. \41\ Don't know how much credence we have from them about a claim. At If we drop suit, will undercut everything. (emphasis supplied) (Record 21) So, the FDIC knew--according to the meeting notes--that if the FDIC dropped the suit by letting the statute of limitations run, ``it will undercut everything'' related to the redwoods scheme that was just discussed with McReynolds. In other words, letting the statute of limitations expire-- the ``ordinary'' procedure and recommendation of the FDIC lawyers at the time--meant the leverage for the redwoods debt-for-nature deal would evaporate, as would the scheme to get Hurwitz's redwoods. Thus, the notes confirm a redwoods debt-for-nature scheme and that FDIC did not really know whether Mr. Hurwitz believed that the FDIC had a valid claim--further evidence of the fact that the claims were indeed weak substantively and procedurally. In this context--where the FDIC knew its claims (and the claims it was paying OTS to pursue) were the essential leverage for the redwoods--the FDIC lawyers began drafting the memo. Clearly, the agency was struggling with the fact that dropping the claims was inconsistent with what the DOI and the Administration needed to accomplish the redwoods debt-for-nature swap. The handwritten outline of Mr. John Thomas (Record 22) reviewed the major points in the contemplated for the memo to the Chairman. The outline reiterated the linkage between FDIC and OTS, and it reinforced staff conclusion that the USAT claims against Mr. Hurwitz should be left to expire otherwise the court would dismiss them. Mr. John Thomas' outline clearly show that if this case were ``ordinary'' it would be closed. Pressure for redwoods was the justification for informing the Board of the staff's intent to close out the case, and the option of pursuing the case for purposes of leverage was therefore left open. Mr. Thomas' outline, which appears to be composed for the 2:00 p.m. briefing of the Chairman on July 26, 1995, (Record 22) is partially reproduced below-- May recall briefed re OTS--[FDIC is] paying [the OTS]--some months ago. OTS is making progress, but not ready. Thus, tolling again. OTS staff hopes to have draft notice of charges to Hurwitz, et al. Aug-Sept. (Apologize for short fuse)--we thought we would be able to put off a final decision until OTS acted. Hurwitz refused to toll. Normal matter, we would close out under delegated authority w/o [without] bringing it to your Bd's attention. However, given (a) visibility-tree people, Congress & press (b) [OMITTED] we thought you--Bd--should be advised of what we intend to do--and why--before it is too late. * * * * * Bottom line: likely to lose on S of L [statute of limitations]--let it go or have ct. dismiss it. Continue to fund OTS We'd also write Congress re what & why rather than awaiting reaction Redwood Swap-- Interior/Calif. Forest--[military] base--FDIC/OTS claim(?) (Record 22) This outline reinforces the approach and dilemma described by FDIC lawyers in their July 20, 1995, meeting. First, there was coordination with the OTS claims to get redwoods. That's because FDIC's possible claims were losers on substantive and procedural (statute of limitations) grounds. Second, ordinary procedures to close out the matter were circumvented due to ``visibility'' from the redwoods debt-for-nature campaign of the ``tree people'' (Earth First! and the Rose Foundation), Congress, and the press. Third, the Department of the Interior's ``Redwood Swap'' was taking shape and FDCI lawyers were beginning to coordinate with DOI staff. All these factors combined to override the normal course of action, which was to close out the case. Instead, the Board would get the decision. All of this confirmed in John Thomas' own handwritten outline (Record 22), and all of it adding up to show that the redwoods debt-for-nature scheme had a real impact on the approach of the FDIC's lawyers. It had yet to skew the FDIC's final judgment based on early versions of the memo to the Chairman (Document X), but the final version dated July 27, 1995, would reflect skewed judgment. The memo was drafted, and a version reflecting Mr. Thomas' notes and all of the prior internal staff discussions was produced and dated July 24, 1995. The drafts are Document X, and the final before the reversal is Document X, pages ES 0490-0495. It contains an unsigned signature block. Highlights of this memo are reproduced below and they tell exactly what the FDIC lawyers would advise the FDIC Board: We had hoped to delay a final decision on this matter until after OTS decides whether to pursue clams against Hurwitz, et. al. However, we were advised on July 21, 1995 that Hurwitz would not extend our tolling agreement with him. Consequently, if suit were to be brought it would have to be filed by August 2, 1995. We are not recommending suit because there is a 70% probability that most or all the FDIC cases would be dismissed on statute of limitations grounds. Under the circumstances the staff would ordinarily close out the investigation under delegated authority. However (evidenced by numerous letters from Congressmen and environmental groups), we are advising the Board in advance of our action in case there is a contrary view. (Document X, page ES 0490) And in discussing the merits, the memo again advised: The effect of these recent adverse [court] decisions is that there is a very high probability that the FDIC's claims will not survive a motion to dismiss on statute of limitations grounds. We would also be at increased risks of dismissal on the merits. Because there is only a 30% chance that we can avoid dismissal on statute of limitations grounds, and because even if we survived a statute of limitations motion, victory on the merits (especially on the claims most likely to survive a statute of limitations motion) is uncertain given the state of the law in Texas, we do not recommend suit on the FDIC's potential claims. (Document X, page ES 0493-0494) The memo then discusses the redwood forest matter, an interesting notion given the fact that the FDIC has consistently maintained that the redwoods were not at all connected to their litigation: The decision not to sue Hurwitz and former directors and officers of USAT is likely to attract media coverage and criticism from environmental groups and member of Congress. Hurwitz has a reputation as a corporate raider, and his hostile takeover of Pacific Lumber attracted enormous publicity and litigation because of his harvesting of California redwoods. Environmental interests have received considerable publicity in the last two years, suggesting exchanging our D&O [director and officer] claims for the redwood forest. On July 21, we met with representatives of the Department of the Interior, who informed us that they are negotiating with Hurwitz about the possibility of swapping various properties, plus the possibility the FDIC/OTS claim, for the redwood forest. They stated that the Administration is seriously interested in pursuing such a settlement.\42\ This is feasible with perhaps some new modest legislative authority. . . . We plan to follow up on these discussions with the OTS and Department of [the] Interior in the coming weeks. . . . When the Hurwitz tolling agreement expires, we would recommend that we update those Congressmen who have inquired about our It is helpful to understand that there were four major versions of this memo drafted and revised. The drafts of this memo are all type-dated July 24, 1995, and they all reference discussions with the Department of the Interior. These drafts are Document X, which was made part of the Task Force hearing record by unanimous consent. However, one version of this memo contains numerous handwritten changes, including a date that was changed from July 24, 1995, to July 27, 1995 (Document X, pages PLS 000192-000195). The changes amount to the complete and total reversal in approach to the USAT claims related to Mr. Hurwitz. The July 27, 1995, version is the text that was incorporated into the Authority to Sue (ATS) cover Memorandum \43\ that was itself dated July 27, 1995. It, with the ATS memo (Document L, EM 00123-00135), went to the FDIC Board, and it recommended the suit against Mr. Hurwitz be brought. The July 27 final version rolled into the ATS memo also discusses the ``Pacific Lumber-Redwood Forest Matter'' (Document L, page EM 00129). Therein, it notes the July 21, 1995, FDIC meeting with ``representatives of the Department of the Interior [McReynolds], who informed us [the FDIC] that they are negotiating with Hurwitz about the possibility of swapping various properties, plus the possibility of the FDIC/OTS claim, for the redwood forest.'' (Document L, page EM00129). The memo also says that the ``Administration is seriously interested in pursuing such a settlement.'' Note what the memo does not say. It does not say Mr. Hurwitz raised the issue of redwoods and linked them in any way to the banking claims. It says that the Administration is negotiating a swap of possible properties, plus the banking claims. When the bank regulators learned of this (probably from Mr. McReynolds on July 21, 1995), the bank regulators should have been very uncomfortable. They had already voluntarily injected themselves into a political dynamic with other government agencies--one of which had apparently taken their statutory obligation to recover cash by using claims that belonged to the FDIC and were not even brought yet. At this juncture Mr. Hurwitz had not raised the prospect of such a scheme with the FDIC. The only other intervening event between the July 24, 1995, memo drafts and the July 27, 1995, reversal is a meeting on July 26, 1995, at 10:30 a.m. between the FDIC and OTS. Record 26 are the only set of meeting notes from that meeting,\44\ and the notes reiterate the discussion between FDIC lawyers and Mr. McReynolds on July 21, 1995. This puts the OTS squarely inside the redwoods debt-for-nature scheme. The notes are very helpful to show the degree of coordination between the FDIC and OTS about redwoods and the linkage between the potential claims and redwoods. They also show how the FDIC polluted the OTS decision-making with the same political dynamic it had been part of for more than a year. The FDIC staff summed up the situation and briefed OTS about all of the important redwoods developments related to Mr. Hurwitz: J. Smith-- --Hurwitz won't sign tolling agreement with FDIC--need to file lawsuit by 8/12 --J Thomas-chances of success on stat. Limitations is 30% or less --will continue discussions with Helfer --Pressure from California congressional delegation to proceed Dept. of Interior--Alan McReynolds --Administration interested in resolving case & getting Redwoods\45\ --Pete Wilson has put together a multi-agency task group --Calif would put up $ 100 MM of California timberland --Hurwitz wants a military base between Dallas & Fort worth-Suitable for commercial development --Hurwitz also wants our cases settled as part of the deal \46\ Two weeks ago-Hurwitz lawyer called Teri Gordon at home & told him he should not be turned off by the $500 MM appraisal What is OTS'schedule? How comfortable is OTS w/ giving info to Interior? (Record 26) None of the records reviewed contains any banking law rationale for the reversal in the staff recommendation July 24, 1995, (which was to notify the board that they would close out the potential claim against Mr. Hurwitz by letting the statute of limitations run) and the July 27, 1995, approach (which recommended a lawsuit against Mr. Hurwitz). The only explanation for the reversal is the meeting with Mr. McReynolds where the DOI and Administration's desire for leverage was communicated and understood by the FDIC coupled with the meeting with OTS where bank regulators from both agencies discussed the Administration's desire for the redwoods debt-for-nature scheme to succeed. At this juncture, the thinking was that there would be no money for an appropriation for the Headwaters, so a swap of some sort was the only way to acquire the redwoods. The FDIC board only saw the July 27, 1995, memo. In their meeting they discussed the redwoods scheme when they discussed bringing the action against Mr. Hurwits (Record 27). As part of his briefing, Mr. John Thomas elaborates on the redwood scheme to the FDIC board: Mr. Thomas. This is, of course, a very visible matter. It is visible for something having no direct relationship to this case, but having some indirect relationship. Mr. Hurwitz, through Maxxam, purchased Pacific Lumber. Pacific Lumber owns the largest stand of virgin redwoods in private hands in the world, the Headwaters. That has been the subject of considering--considerable environmental interest, including the picketing downstairs of a year or so ago. It has been the subject of Congressional inquiry and press inquiry. So we assume that whatever we do will be visible. Interior, you should also be awar--aware, the Department of Interior is trying to put together a deal to the headlines [sic] [Headwaters] trade property and perhaps our claim. They had spoken--they spoke to staff a few days ago about that and staff of the FDIC has indicated that we would be interested in working with them to see whether something is possible. We believe that legislation would ultimately be required to achieve that. But again, if it's the Board's pleasure, we would at least try to find out what's happening and pursue that matter and make sure that nothing goes on we're not aware of--we're not part of. (Record 27, page 11-12) Later, Chairman Helfer raised the issue of whether bringing suit enhances the prospect of settlement of non-banking issues, that is the redwoods: Chairman Helfer. . . . does the FDIC's authorization to sue enhance the prospect--the prospects for a settlement on a variety of issues associated with the case? Mr. Thomas. It might have some marginal benefit, but I don't think it would make a large difference. I think the reality is that the FDIC and OTS staff have worked together, expect to continue to work together, and so, I don't think it would have a major impact. It might make some difference, but I think particularly any effort to resolve this with . . . a solution that involves the redwoods would be extremely difficult.\47\ . . . (Record 27, page 16) These exchanges in the FDIC board meeting about the redwoods are troubling simply because they occurred. They injected factors that had nothing whatsoever to do with the validity of banking claims against Mr. Hurwitz. The advice and recommendations on July 27, 1995, deviated so widely from the approach of staff that The deviation is likely a result of that meeting, coupled with the OTS meeting on July 26, 1995, where they coordinated on the claims they were paying the OTS to pursue and conspired about the need for leverage to get the redwood claims. The FDIC understood at that point that OTS's claims may not be brought for months (or perhaps at all) and they certainly knew that if ``we drop our suit, [it] will undercut everything.'' (Record 21) The day following filing of the suit, FDIC lawyers sent a memo to their communications department reiterating the congressional and environmental interest due to the redwoods issue. (Record 28) The memo explained conspiracy with the Department of the Interior and how the department had been negotiating for the redwoods using the FDIC and OTS claims. The memo also indicated that it was the Administration that was ``seriously interested in pursuing such a settlement.'' (Record 28, page 2) In addition, as if the FDIC lawyers knew they were doing something wrong, the memo emphasized that ``All of our discussions with the DOI are strictly confidential.'' (Record 28, page 2) Then the memo went on to suggest that the FDIC should not disclose these discussions or deviate from the prior public statement about redwoods. Basically that statement was that if a redwood ``swap became an option, the FDIC would consider it as one alternative and would conscientiously strive to resolve any pertinent issues.'' (Record 28, page 2) The work on a redwoods swap by the FDIC and the Department of Interior then grew as indicated by the volume of notes from meetings where other federal entities were drawn into the scheme. There was an August 2, 1995, DOI Headwaters acquisition strategy paper drafted by Mr. McReynolds. It reports the FDIC and the OTS ``are amenable to [a debt for nature swap] if the Administration supports it.'' (Document DOI B). This is blatant evidence of just how political the FDIC's July 27, 1995, reversal was. There was the August 15, 1995, meeting between DOI, FDIC (Smith), and OTS (Renaldi and Stems) (Document DOI C, page 2) where it was reported that ``FDIC and OTS are wondering why DOI is not being more aggressive with Hurwitz and is permitting [Governor] Wilson's task force to take the lead'' (Document DOI C, page 2). This is a stunning indictment of the political motivation of the FDIC and OTS staff. There was coordination with Congressional offices (Document

Mr. POMBO

Mr. POMBO. Mr. Speaker, through professional and scientific management, this nation currently enjoys stable and healthy wildlife and marine resource populations. Sadly, there were excessive harvests of wildlife in the 17th and 18th centuries, but that circumstance is history never to be repeated. Today, through appropriate laws and reasoned regulations, the future of these resources is assured for generations to come. Given this background of successful management and wise use of these renewable resources, I am dismayed when government representatives of this nation participate in international conventions, treaties and bilateral and multi-lateral conservation agreements concerning the sustainable use of wildlife and marine resources, a different agenda seems to be in place; specifically, that agenda rejects science and favors anti consumptive use of those renewable resources. For example, policy positions taken by the United States Delegations at the Conference of the Parties of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) and the Annual Meetings of the International Whaling Commission (IWC) of the International Convention for the Regulation of Whaling (ICRW) reflect a political agenda rather than a science-based policy. Through the past leadership of the United States at CITES and IWC, several nations have followed this flawed and imprudent policy to the detriment of various wildlife and marine species. Mr. Speaker, I was pleased to note President Bush's recent remarks to the Environmental Youth Award winners regarding this Administrations foundation for environmental policy. He affirmed that it will be ``based on sound science, not some environmental fad of what may sound good--that we're going to rely on the best evidence before we decide [on policy].'' Currently, the United States is developing its position for the upcoming 53rd Annual Meeting of the IWC. Due to the significance of the event, I recently sent a letter to the Secretary of Interior, the Secretary of State and the Secretary of Commerce concerning the background of United States policy at the IWC meetings. Mr. Speaker, at this time I hereby submit to the Record for my colleagues consideration the letters (referenced above) to the Bush administration. I believe the time has come for the United States to truly reflect an international commitment to the sustainable use of renewable wildlife and marine resources based on science. As I stated in my letters, this conservation policy should be followed whether the subject species are elephants, turtles, whales, or trees. Such leadership by the United States is the responsible and ethical policy that must be pursued for the benefit of renewable wildlife, marine resources and humankind itself. Congress of the United States, House of Representatives, Washington, DC, May 3, 2001. Hon. Gale Norton, Secretary, U.S. Department of Interior, Washington, DC. Dear Secretary Norton: I am writing to express my strong support for the need for science to be the fundamental guide in United States participation in international conservation commitments as legally recognized under the Uruguay Round Agreements of the General Agreements on Tariffs and Trade (GATT). Unfortunately, the United States policy under the former- Clinton administration acted contrary to this legal concept under the tenets of the International Convention for the Regulation of Whaling (ICRW). Specifically, it did so by continued opposition and obstructionist positions on the resumption of limited and managed whaling by island and coastal nations. Although it is true that there was over exploitation of certain whale stocks in the 18th and 19th centuries for commercial oil products, this is not the case today. In fact, no whale stocks were ever threatened by whale harvests for human food consumption. The Scientific Committee of the governing body of the ICRW and the International Whaling Commission (IWC) has found that limited harvests would have no adverse impact on population stocks. However, in the past, the United States and other nations have consistently opposed the resumptions of limited whaling on what amounts to purely a political agenda. For instance, the United States supported the adoption of the Southern Ocean Sanctuary for whales without any scientific basis for such a position. Further, the United States is supporting the adoption of a Pacific Ocean Sanctuary where there is no scientific basis for the establishment of such a sanctuary. Even after the Bush administration took office, the Department of State has opposed legal trade in whale products between Norway and Japan. I would sincerely urge the Bush administration to carefully review the United States policy in terms of science and law. I must say, I was extremely pleased to note President Bush's recent remarks to the Environmental Youth Award winners about environmental policy. As you know, the President stated that decisions regarding environmental matters in his Administration would be, and I quote, ``based upon sound science, not some environmental fad or what may sound good--that we're going to rely on the best evidence before we decide [on policy].'' After representing the Congress at two Conferences of the Parties (COP) to Convention on International Trade in Endangered Specie of Wild Fauna and Flora (CITES), as well as having chaired several hearings in the Congress about the sustainable use or renewable resources on the international level, I know the United States is certainly a nation that supports the consumptive use of renewable wildlife and marine resources under scientific management. As such, I respectfully request that any future policy regarding various species--whether the subject species are elephants, whales, turtles, or trees--be based on sound science and the legal ramifications of the Uruguay Round Agreements of GATT. I appreciate your attention to this request, and I look forward to your response. Please do not hesitate to contact me should you have questions or comments. Sincerely, Richard W. Pombo, Member of Congress.

Mr. POMBO

Mr. POMBO. Mr. Speaker, I would like to call the House's attention to one of the agricultural success stories of the last decade. I refer to this nation's poultry trade with Mexico, a trade that has benefited both nations tremendously and that today finds itself charting new paths for the future. Mexico in the late 1980s emerged as an important new market for U.S. poultry products. Mexican meat processors began buying large quantities of turkey and chicken cuts, including mechanically de-boned meat, from the United States. Much of this poultry meat was used to make the sausage, hot dogs, bologna and turkey ham products demanded by Mexican consumers. There was for a time a concern that NAFTA might slow this progress. The agreement was written in the infancy of the U.S.-Mexican poultry trade, and NAFTA's authors did not foresee the explosion in Mexican demand for U.S. poultry. The agreement set a quota for duty-free poultry exports to Mexico that was far too small and set the over-quota tariff at a staggering initial rate of 269 percent. In fact, that over- quota tariff does not drop below 49.4 percent until it ultimately is removed in 2002. Fortunately, the fears raised by NAFTA were not realized. The Mexican government has recognized the demand for poultry and has allowed a much higher level of duty free poultry imports than NAFTA requires. The results of this policy have been spectacular--and the primary beneficiary has been the Mexican economy and the Mexican people. Mexico's processed meat industry has doubled during the last five years and now creates jobs--directly or indirectly--for 290,000 people. Annual sales of processed meat, including processed poultry products, have reached $1.3 billion annually and are climbing. The consumption of meat protein products in Mexico has increased significantly, and the cost to Mexican consumers has been kept low. Obviously, this has made the Mexican market a critical one for the U.S. poultry industry. Mexico now purchases about 10 percent of all U.S. poultry, and is the third largest export market for American poultry. For the turkey industry, the market is even more significant. Mexico is by far the biggest purchaser of U.S. turkey, consuming almost 10 percent of all the turkey produced in the United States and accounting for 55 percent of all our turkey exports. Mr. Speaker, this success story needs to be continued. Mexico is undergoing historic political changes, and indications so far are that the Fox administration is continuing to maintain a positive policy toward poultry imports. However, there is certain to be continued pressure on the new government from some who want to eliminate competition in the market for processed meat. Mexico's meat processors cannot meet their consumers' needs or price expectations without continuing waivers on the NAFTA quotas for U.S. poultry products. The Mexican government has understood this for the last seven years, and they are to be commended for putting the broader needs of their nation's consumers and the entire economy ahead of parochial political considerations. Also, our Agriculture Department and the Office of the Trade Representative are to be congratulated for the time and attention they devote to ensuring fair and open trade between our two countries. The U.S. and Mexican poultry and meat processing industries recognize the importance of continuing this trade relationship. The two industries are signing an agreement pledging to work with their respective governments for a policy of open and unrestricted trade of poultry products. As we wait for that goal to become a reality, we want to express our appreciation for the hard work of the Mexican government and our own trade officials for the accomplishments to this point in promoting prosperous poultry trade between our two countries.

Mr. POMBO

Mr. POMBO. Mr. Speaker, I rise today with my fellow delegates to celebrate and honor the 150th birthday of the great state of California. I have the honor of representing the 11th district of California, which includes the San Joaquin County cities of Stockton and Lodi. Each has played a dynamic part in the historic and economic development of the Golden State. The town of Lodi was settled by families of German descent from North Dakota. It first served as a railroad stop known as Mokelumne Station in 1869, which was renamed to Lodi three years later. Formally the ``Watermelon Capital,'' Lodi today is known as the ``Wine grape Capital'' of the world. This booming town of over 50,000 residents is home to the Tokay Grape and over 40,000 acres of vineyards. Some of California's finest wineries are located in nearby Woodbridge and Acampo. Stockton is the backbone of California's agricultural hub and home to nearly 250,000 residents. It is our state's largest inland shipping port, which sends the San Joaquin Valley's farm products to the open market. Thanks to its rich soil and temperate climate, Stockton is one of the most productive growing areas in California. Major crops include asparagus, cherries, tomatoes, walnuts and almonds. Stockton is also home to the University of the Pacific, a charming campus known for its programs in law and pharmacy. Stockton has historically been a multicultural city. Older generations of families from Europe and Mexico are being joined by new arrivals from South East Asia and Central America. In 1999, Stockton was awarded the ``All American City'' award by the National Civic League. Mr. Speaker, it is indeed a great honor to be a life long native of the 11th district and to represent it today in the Congress. The 11th is one of the most diverse culturally and economically. But together, its people serve an important role in the economy of both California and America. I am pleased to join my delegates today in celebrating the Sesquicentennial of the Golden State.

Mr. POMBO

Mr. POMBO. I want to thank the gentleman for all of the help he has given me on this issue over the year and I look forward to working with him. Amendment Offered by Mr. Hansen to Amendment Offered by Mr. Dicks

Mr. POMBO. Mr. Chairman, I move to strike the last word. The CHAIRMAN: Without objection, the gentleman is recognized for five minutes.

Mr. POMBO. Mr. Chairman, I would like to engage in a colloquy with the chairman of the Subcommittee on the Interior of the Committee on Appropriations. As the gentleman is aware, the Stone Lakes National Wildlife Refuge is in my Eleventh Congressional District in California. Due to the controversy over its existence and management, the chairman has been instrumental in limiting funds from being spent on land acquisitions for the refuge. I thank the chairman for his support over the years on this issue. Unfortunately, it has come to my attention that the U.S. Fish and Wildlife Service has intentionally ignored the direction from the Congress and commitments made to myself on this issue. The Service has been actively seeking and approving land purchases for the Stone Lakes refuge. One documented purchase used CVPIA funds, Land and Water Conservation Funds, National Fish and Wildlife Foundation Funds, Packard Foundation grant money, and Stone Lakes environmental grant money. The amounts used for these various sources totaled over $1.9 million. It gets better. When the Director of Fish and Wildlife Service was asked about this, she was not immediately aware of the purchase of land at Stone Lakes. Apparently the regional manager initiated and approved the purchases without consulting her office. This action was in violation of congressional direction, and violated instruction from the director that proposed purchases for this refuge be brought to her attention. While I would like to see the purchase negated, the damage is done. The innocent landowner who sold his property was lied to and misled about the Federal Government's authority to buy his property for Stone Lakes. The Federal taxpayer is out the money and Congress has been ignored. I have contacted the director of Fish and Wildlife, and we have met this morning. However, as the Representative of the area in question I must act to ensure that there is a consequence to this ill-advised Federal action. Mr. Chairman, in light of the Fish and Wildlife Service's blatant disregard of the direction of Congress I ask that the gentleman work with me as this bill moves forward in conference to include the strongest language possible to prevent any funds from being spent or handled by the Department of Interior for purposes of buying land or easements for Stone Lakes, including administrative funds. I also ask that such language address the Department's escalating acceptance of non-Federal funds to carry out purchases of land and easements. The routine practice of foundations and conservation organizations giving money directly to the Department has contributed to problems at Stone Lakes. Without congressional oversight or accountability, the Department is bound to repeat history.

Mr. POMBO. I yield to the gentleman from Ohio.

Mr. POMBO. I yield to the gentleman from Ohio.

Mr. POMBO

Mr. POMBO. Mr. Chairman, I demand a recorded vote.

Mr. POMBO. Mr. Chairman, I rise in opposition to the amendment, not because I do not feel that this is a good program, because it is, and I have supported it in the past. At the same time, we have heard over the last 2 days repeatedly about the delicate balance that exists in this bill, and how important it is to hold the bill together and not accept any of the amendments. I had amendments that added money to urban parks, and all my friends voted against it. I had amendments that added money to endangered species recovery, and all my friends voted against it, including the chairman and those that are in favor of this particular amendment. They were all opposed to all the good things that we were trying to do to this bill. I would ask for a no vote on this particular amendment, because if there is such a delicate balance and if it is so important not to accept any amendments, then we should not accept this amendment.

Mr. POMBO. Mr. Chairman, I thank the gentleman from Texas for yielding me this time. Mr. Chairman, I rise in support of the substitute. I think that it was a well-written, well-thought-out, and I think well-intentioned amendment substitute to this legislation. What the gentleman from Texas (Mr. Thornberry) is attempting to do is to try to bring us back into a little bit of reality, reality of budget, reality of what our constitutional responsibilities are, a little bit of reality as to what we really should be doing with this legislation. I can tell my colleagues I grew up in a small town, a small farming town in the Central Valley of California that is not so small anymore. It has grown. It has become somewhat of a suburb of the Bay Area. We are going through a lot of the problems that this bill is intended to address: the problem of loss of farmland, the problem with interaction with wildlife of endangered species, the problem with funding urban parks. A lot of the problems that this bill is intended to go after will impact my district. It is as if it was written to directly go after the problems that I have in my district. But I have to, at the same time, tell my colleagues that I strongly oppose this legislation. The reason is that the underlying laws that this bill intends to force money toward, the underlying laws that this bill force-feeds money into, are broken. Our Federal land management system is a shambles. We are doing a horrible job of managing the Federal lands that we currently have. There is no one in this body that can say that we are doing a good job because we are not. We are doing a terrible job. Yet we are going to put $1 billion a year more into buying land. A billion dollars a year more into buying public lands. The Federal Government owns a third of this country already. They own half of the State of California that I come from. And yet that is not enough. We are going to force-feed more money into it because they are doing such a terrible job of managing the lands they currently have. The Endangered Species Act is a shambles. It is a complete and utter failure. We have been trying for the last 8 years to reauthorize the Endangered Species Act. And what is our answer to that? We force-feed another $100 million a year into it. The Urban Parks Program has been controversial, and many would argue it has been a failure. Our response to that is not to fix it but to force-feed more money into it. Everything that we are doing with this bill may be of a higher cause, it may be something we think is great, it may be mom and apple pie, but the truth of the matter is those programs are all broken. And we cannot just force more money into broken programs and expect that to solve the problem. We had an amendment earlier in the debate that put more money into those programs and it was defeated. I cannot for the life of me understand how people can say they are in favor of all of these programs and then vote against giving more money to them, but that is what is happening. Mr. Chairman, I urge support for the substitute and I urge defeat of the final bill.

Mr. POMBO. Mr. Chairman, I thank the gentleman for yielding me the time. Mr. Chairman, I would have to say to my friend the gentleman from Louisiana (Mr. Tauzin) that I wish the property rights language in the bill did what he says it does. Because he knows that we both worked extremely hard to try to get to that point and, unfortunately, that is not where we are. The language that is actually in the bill when it comes to condemnation leaves one very big loophole, and that is that unless it is authorized by an act of Congress, which is a huge loophole. What it says is that under the generic authorization of the National Park Service, the Bureau of Land Management, the Forest Service, it allows condemnation. Therefore, condemnation is allowed in the bill. That is identified in the bill on page 33 when it talks about taking land by adverse condemnation. It is identified in the bill. It is quite clear why this was put in. I was part of the negotiations, and we all know why it was put in, because it was insisted that the Government be allowed that their right of condemnation be protected. And that is why it is in the bill. Now, what the gentleman from California (Mr. Calvert) is doing is he is saying that if the States are going to take land that they should not be allowed to take the land by condemnation. The fifth amendment of the Constitution was put in place to protect the property rights of individuals. It is a Federal issue. And there is no way around that. It is our responsibility to stand up for the property owners.

Mr. POMBO

Mr. POMBO. Madam Chairman, I demand a recorded vote.

Mr. POMBO. Mr. Chairman, I yield the balance of our time to the gentlewoman from Idaho (Mrs. Chenoweth-Hage)

Mr. POMBO. Mr. Chairman, I yield 2 minutes to the gentleman from Florida (Mr. Stearns).

Mr. POMBO. Mr. Chairman, I yield 1\1/2\ minutes to the gentleman from California (Mr. Calvert).

Mr. POMBO. Mr. Chairman, I yield myself such time as I may consume. First off, I would like to thank the chairman and the ranking member. This has been a very long process to get to this point, and a very contentious process in trying to work out differences that existed with my point of view and the point of view of the gentleman from California (Mr. George Miller), but we were able to work out a lot of differences. I can tell my colleagues there are a lot of good parts to this bill. There are a lot of things that I got included in the bill that they accepted, that we worked out, and there are, quite frankly, some things in this bill that I think fix things that are wrong with current law. But before the rhetoric I think gets too hot on the legislation, I will have to also say that I do not believe that there is anything in this legislation that directly takes away people's property rights. I do not believe that the chairman of the committee would do that. I do not believe that it is in this legislation. But I can say this. I oppose this legislation because the system that we are force-feeding this money into is broken. It is severely broken. We have a system of land management in this country that is, at best, wasteful; at worst, fraudulent, and that does systematically take away people's private property rights. We have passed legislation within this Congress, whether it be the Clean Water Act, the Endangered Species Act, things that were done with good intention and that had the full support of this Congress, but through court decisions and bureaucratic decisions that were made, they have systematically taken away people's private property rights. Because of that, I believe that the current system is broken. We need to fix the current system. We need to step in and doing the tough work and fix the Clean Water Act, fix the Clean Air Act, fix the Endangered Species Act. But we have been unable to do that. For that reason I believe, at best, this legislation is premature because the system needs to be fixed before we begin to buy more land, before we begin to put more money into it. Now, we hear a lot of people that will come to the floor and talk about all the great things that are going to be done with this money. One of those is to increase the amount of land that people are going to have access to. And we will hear all the great flowery things about our national park system, the BLM, the Forest Service, and that is fine, but the truth of the matter is, under the current system, we are limiting people's access to that. We are continually limiting access into our public lands so that people do not have access to them. That has to be fixed before we go buy more land. This bill does not allow for that. I will have to tell my colleagues that I will oppose this bill because the system is broken, because I do not believe that the Federal Government should have more land. I do not believe that we should be putting more money into a system to give the Federal Government more land when they already own a third of this country. Mr. Chairman, I reserve the balance of my time.

Mr. POMBO. Madam Chairman, I yield myself such time as I may consume. Madam Chairman, I would like to point out that my colleague from California is absolutely wrong, did not read the amendment; and what he is talking about I would not propose and has absolutely nothing to do with this particular amendment. What this amendment says is that just because as an action taken under this act that they get put inside one of these Federal boundaries, they would not be treated differently than someone outside of the boundary. The Clean Air Act still applies, the Clean Water Act still applies, the Endangered Species Act still applies just like it does today. This amendment does not change any of that. Madam Chairman, I yield 2 minutes to the gentleman from California (Mr. Herger).

Mr. POMBO. Mr. Chairman, the 4,000 or 5,000 or 100,000 that the gentleman has on that sheet, none of those people are badgering for more Federal land acquisition. That is all the State side money, the $2.8 money in State side.

Mr. POMBO. Mr. Chairman, will the gentleman yield?

Mr. POMBO. Madam Chairman, I yield myself the balance of the time. Madam chairman, I would like to bring us back to what we are doing here today. We are approving legislation which will shove almost a billion dollars a year into land acquisition every single year. What I am saying is that, if under this act, because we are shoving so much new money at new land purchases, if the Federal Government goes in and goes after land that is around their property or adjacent to the land that they own, that the Federal Government is not going to control the land that they own, as a private property owner and as an American citizen, that they are not going to take away their property rights just because we are shoving another billion dollars a year into land acquisition. This is one of my major complaints with this legislation. The Federal Government goes in and through adverse condemnation takes away property rights through regulation, away from private citizens. They do not pay for it. They do not sit down and negotiate a fair price. They just take it. Now, let us just say that you happen to know a little inn on the side of a river somewhere. It is a beautiful place. The government comes in and buys the land around you and they tell you, ``We don't want you there anymore.'' Under current law, they can shut you down. They can say, you cannot improve your place anymore, you cannot discharge anymore, you cannot put a fire in your fireplace anymore, all because they came in and bought land around you. This bill has a provision for a willing seller in it and I will be damned if you are not going to become a willing seller under that provision. That is exactly what is going to happen. All I am trying to do is to protect those property owners that end up because of this bill getting stuck inside some green area, not because of any action of their own but because of an action of this Congress. I just want to protect those property owners. That is all this amendment is trying to do. Darn if Members should not accept it.

Mr. POMBO. Mr. Chairman, I thank the gentleman from Pennsylvania (Mr. Peterson) for yielding me the time. Mr. Chairman, we just had a vote on an amendment that I offered which would have protected the property rights of those in-holders that we are talking about in this particular amendment, unfortunately that amendment was defeated. My friends voted against it. They said that the Federal Government could come in and control the land that they did not own; that they could tell private property owners what they could do or could not do with their private property, and the will of the House was that that would proceed; that we would do that to those private property owners. Now, having voted that way, having made that decision and told those property owners that we were going to control their property, even though we did not know own it, the least we can do at that point is to approve this amendment, because this amendment now says that that is our priority, we have to go in and buy out those in-holders. We have to go in and pay those people for their land, because see we do not want to protect their property rights, we voted against that, we said we want to control them. Now, the least we can do is pay them for the land that we are taking from them. That is the only consistent vote that we can cast now in terms of protecting those private property owners, unless, of course, we just want to say we do not care. We want to take your property; we do not want to pay you for it. We want to expand all over the country and create more in-holders and never pay for the land that we are taking through adverse condemnation. It is a very simple amendment. It is very straightforward. The decision was made on the previous amendment. Now, I believe we have no choice but to support this amendment.