Agency failed to say the contracts would likely be targeted

By MATEUSZ PERKOWSKI, Capital Press 4/14/11

The government violated several timber sales contracts and must pay an Oregon timber company nearly $6.9 million, a federal judge ruled.

The judgment is intended to compensate Scott Timber for lost profits related to timber sales that were suspended more than a decade ago.

In 1999, the U.S. Forest Service awarded three contracts that allowed Scott to log trees from the Umpqua National Forest.

According to the judge, the agency violated its "covenant of good faith and fair dealing and duty to cooperate" because it didn't disclose that the logging operations were likely to be targeted in court by environmentalists.

The government was told by environmentalists that the parcels were likely to be included in litigation, but lawyers for the agency didn't disclosed that information to Scott Timber because they feared violating attorney-client privilege.

A federal judge blocked logging on those and other timber sales until the Forest Service completed surveys for sensitive forest species on the parcels.

In a previous order, Judge Charles Lettow of the U.S. Court of Federal Claims concluded it was unreasonable for the Forest Service to withhold that information from the timber company.

Lettow's most recent order pertains to financial damages owed to Scott Timber for the breach of contract.

Attorneys for the federal government argued that Scott Timber could not recover lost profits from the suspensions because most of the actual losses were suffered by its sister company, the plywood and lumber manufacturer Roseburg Forest Products Co. in Dillard, Ore.

However, Lettow ruled that Scott Timber is liable for losses caused to Roseburg Forest Products, and thus can "pass through" its sister company's claim against the federal government. The federal government also argued that any damages awarded to Scott Timber should be reduced by the amount of profit the company eventually earned when the timber sales were reinstated.

An accounting expert testifying on behalf of the government said that Scott Timber actually earned more from the contracts by harvesting trees between 2004 and 2008 than it would have previously.

Scott Timber countered that it would have simply gotten the logs from different sources during those years, and thus should still be compensated for lost volume in the aftermath of the injunction.

Lettow agreed with the plaintiffs for the most part, finding that Scott Timber and Roseburg Forest Products sustained more than $7 million in damages from lost market opportunities and replacement log costs. However, he did reduce the judgment by roughly $170,000 because the companies would not have been able to acquire all the logs they needed from alternate sources between 2004 and 2008.