Owners of Gap retail win legal battle over redwoods

HOUSTON (Reuters) - A judge in Texas on Friday chose a bankruptcy reorganization plan favored by California officials and environmentalists for a redwood harvester that blamed government limits on tree-cutting for its troubles.

U.S. Bankruptcy Judge Richard Schmidt in Corpus Christi endorsed the plan for Scotia Pacific Co LLC that was proposed by Mendocino Redwood Co, owned by the environmentally active Fisher family, founders of the U.S. retail clothing chain Gap Inc.

Under the plan, Mendocino will take control of 220,000 acres of Scotia Pacific timberland in California, including the so-called Headwaters stand of old-growth redwoods that environmentalists have fought for years to protect.

The plan calls for Mendocino and Marathon Structured Finance Fund LP to pay $530 million to creditors of Scotia Pacific for the timber land, saw mill and company town of Scotia, and invest millions to keep them operating.

Mendocino, which already manages 230,000 acres of timber, seeks to maximize profits from redwood lumber production through "sustainable and predictable long-term harvesting yields while maintaining public and regulatory acceptance of the company's practices," Schmidt wrote.

The Mendocino plan was endorsed by environmental advocates and local, state and federal officials, including California Gov. Arnold Schwarzenegger.

"I hope this decision will establish a strong precedent that weighs both the economic and environmental benefits of long-term sustainability and preservation," Schwarzenegger said in a statement.

"It will keep the mill open, keep employee pensions funded and keep most of the current employees working. There is no question that their plan will enhance the Headwaters Forest Agreement we worked so hard to reach in 1996."

The Headwaters agreement imposed limits on harvesting practices brought to 140-year-old Pacific Lumber after it was taken over by a Houston conglomerate, Maxxam Inc