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IN THE UNITED STATES COURT OF FEDERAL CLAIMS PRECISION PINE & TIMBER, INC., Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 98-720C (Judge George W. Miller)

PLAINTIFF'S RESPONSE TO DEFENDANT'S PROPOSED FINDINGS OF FACT

Alan I. Saltman SALTMAN & STEVENS, P.C. 1801 K Street, N.W. Suite M-110 Washington, D.C. 20006 (202) 452-2140 Counsel for Plaintiff OF COUNSEL: Richard W. Goeken Bryan T. Bunting SALTMAN & STEVENS, P.C. 1801 K Street, N.W. Washington, D.C. 20006 (202) 452-2140 Dated: November 14, 2005

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A substantial number of defendant's more than 600 proposed findings of "fact" suffer from the infirmity of being half-truths or worse. Indeed, defendant cites to no fewer than 25 exhibits which were never accepted into evidence.1 Set forth below are plaintiff's comments on those of defendant's proposed findings that are both inaccurate in some fashion and have a modicum of relevance to issues before the Court. The fact that plaintiff has chosen not to comment on other of defendant's proposed findings should not be taken as an indication that plaintiff concurs with them. Rather, in most, if not all, instances, it is merely an indication of plaintiff's belief that the proposed finding is irrelevant to a determination of the amount of damages to which plaintiff is entitled.

I.

ARIZONA LUMBER AND TIMBER ­ AN INDUSTRY IN DECLINE 1. In terms of volume and value, Arizona is a relatively small producer of timber and

lumber. As of 1992, the total timberland in Arizona was approximately 4 million acres. More than twothirds of that area was designated as National Forest. In terms of volume of available sawtimber, the percentage of public ownership is even higher. Despite the fact that timber and timberland in Arizona are predominately public owned, timber production in the state has been largely from non-Federal sources. Tr. 3428 (Neuberger); DX776. Plaintiff's Comment ­ For his opinion that "timber production in [Arizona] has been largely from non-Federal sources," Dr. Neuberger examined production in 1996, which is the anomalous year when, because of the MSO injunction giving rise to this case, Federal sources of timber were largely unavailable. Tr. 3428-29 (Neuberger) ("Clearly, 1996 was affected by the suspension in this case, so 1996 may not have been the best choice"). In reality, at all times relevant to this case, Precision Pine's sawmills, as well as all other non-Indian-owned sawmills in Northern

Given the pervasiveness of defendant's citations to exhibits that were never admitted, Precision Pine moves the Court to disregard any DPFF which cites to such exhibits, including DPFF 37, 42, 59, 60, 62, 65, 66, 76, 78, 88, 120, 173, 235, 241, 242, 295, 299, 437, 455, and 603. 1

1

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Arizona, were substantially dependant upon the Forest Service's commercial timber sale program for their supply of logs to their sawmills. PPFF 7.

2.

The production of lumber from Arizona sawmills fell in every year from 1988 to

1996, from 447 million board feet ("mmbf") in 1998 to 105 million board feet in 1996. This secular (i.e., non-cyclical) decline in production continued after 1996. By 1998, lumber production in Arizona had fallen to 78 million board feet. Tr. 3330-31 (Neuberger); DX776. Plaintiff's Comment (also for paragraphs 3-17 & 28, infra) ­ As an initial matter, the relevance of DPFF 1-17 is unclear. Defendant groups these "facts" under headings such as "an industry in decline" and a "strategy of aggressive growth." Even if such assertions, made without benefit of any citation, were true, however, it is left unstated by defendant what affect, if any, they would have had on Precision Pine's use of timber it had under contract to carry out its operations during the suspension or its entitlement to damages resulting from the Forest Service's established protracted suspension and breach of those contracts. Moreover, defendant's attempts to insinuate that market conditions would have some how prevented Precision Pine from operating profitably in the absence of a suspension is incorrect because, as defendant's own experts agreed, prior to the suspension Precision Pine had been consistently profitable, even in times of market volatility. Tr. 3418-19 (Neuberger); Tr. 5015-16 (Moosman). Moreover, the market bottomed by late January-early February 1996, rising rapidly and consistently thereafter throughout the suspension. DX 776 at Ex. 3 (pg US07812). As Mr. Porter testified, at the same time that the volume of Forest Service timber being offered and lumber production was putatively declining, so too was the total sawmill capacity of Precision Pine's competitors for Forest Service timber sales. Tr. 103-09 (Porter). Indeed, from the late-1980's until the suspension occurred, some 47 million feet (mmbf) of sawmill capacity that had competed with Precision Pine for Forest Service timber in Northern Arizona had been shut down. 2

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Id. at 109. In fact, at the time of the suspension, there were only two other sawmills that remained in competition with Precision Pine, the Reidhead sawmill in Nutrioso (near Eager) and the Stone sawmill in Eagar (Tr. 102-03 (Porter)), both of which were proximate to the Apache-Sitgreaves National Forest (see PX 104, Map of Arizona showing relative positions of Eager, Nutrioso and the Apache-Sitgreaves National Forest). As a result, there was effectively no competition for Forest Service timber sales for Precision Pine's sawmills in Heber or Winslow, which drew their source of supply primarily from the Tonto, the Coconino and the Kaibab National Forests. PPFF 10-12; Tr. 88-89, 103 (Porter); PX 104. As Dr. Neuberger correctly conceded: (1) there had been a "dramatic" reduction in sawmill capacity competing with Precision Pine for Forest Service timber sales; (2) given the location of the remaining competitors, Precision Pine may have been wellsituated to obtain Forest Service timber sales offered on the Coconino, Tonto, Kaibab and the western half of the Apache-Sitgreaves National Forests; and, most importantly, (3) Precision Pine was well-positioned to cut the timber it had under contract at the time of the suspension. Tr. 344849 (Neuberger); see PPFF 10-13. Simply put, the alleged decline in the volume of Forest Service timber sale offerings and lumber production as whole in Arizona would not have changed the fact that, absent the suspension, Precision Pine's would have harvested all of the timber on the breached sales that it had under contract to supply its three sawmills and sold the resulting lumber at profit, just as it always had done prior to the suspension.

3.

Logging restrictions on national forest land have been largely responsible for the

downward trend in lumber production volumes in Arizona. While Federal timber sales in Arizona have been limited since the late 1980's, these limitations have become increasingly restrictive over time. For instance, during the 1990's, wildlife restrictions designed to protect the Northern Goshawk and the Mexican Spotted Owl substantially reduced the amount of timber put up for sale by the Forest Service. As a result, the amount of timber on national forest land offered for sale declined significantly during the 3

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late 1980's and throughout the 1990's. Tr. 3327-28 (Neuberger), 3821 (Harris); DX776; see also Tr. 1111, 1112 (Porter) (acknowledging that the supply of timber in Arizona has been diminishing). Plaintiff's Comment ­ See plaintiff's comment to DPFF 2. Additionally, defendant's reliance on the testimony and report of Dr. Neuberger with respect to the putative harvest restrictions due to listings under the ESA is wholly unwarranted. Tr. 3436-43 (Neuberger).

4.

Offers of timber on Federal lands in Arizona were approximately 250 million board feet

in 1988, down from more than 300 million board feet in 1984 and 1985. By 1995, the amount of timber offered for sale had fallen below 70 million board feet. Since 1998, Forest Service timber offers have averaged approximately 60 million board feet per year. Tr. 3323-24 (Neuberger); DX776. Plaintiff's Comment ­ See plaintiff's comment to DPFF 2.

5.

In terms of the volume of timber cut, amounts have fallen from approximately

280 million board feet in 1988, to approximately 40 million in 1995. Annual harvests have averaged about 30 million board feet per year since 1997. Tr. 33 10-12 (Neuberger); DX776. Plaintiff's Comment ­ See plaintiff's comment to DPFF 2. Of course, the suspension was in place during more than four months of 1995 and virtually all of 1996, thereby reducing the harvest in the relevant years.

II.

PRECISION PINE'S UNSUCCESSFUL STRATEGY OF AGGRESSIVE GROWTH A. 6. Precision Pine Acquires Sawmills And Triples Its Mill Capacity While Arizona timber and lumber markets were largely on the decline throughout the

early and mid-1990's, Precision Pine chose to embark on a substantial expansion of its operations. DX776; DX798.

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Plaintiff's Comment ­ See plaintiff's comments to DPFF 2. As defendant points out, Precision Pine bought other sawmills in the early 1990's, but either: never operated those mills (DPFF 8, 15); operated those sawmills for a short time on timber located proximate to them and then closed them (DPFF 9); and/or used those sawmills for parts to build sawmills in better strategic locations (DPFF 16; PPFF 10); see also Tr. 103-09 (Porter). Indeed, defendant's own proposed findings of fact suggest that Precision Pine's operations in 1992 were considerably larger than at the time of the suspension in 1995. See DFFF 14 (Precision Pine had annual lumber production capacity in excess of 35 mmbf and was operating two planers). Thus, before the suspension, Precision Pine was simply continuing to locate its sawmilling operations in proximity to those areas where it had timber under contract and not, as defendant asserts, "choosing to embark on a substantial expansion" of its sawmill capacity. See DPFF 6. In this regard, as Dr. Neuberger conceded, at the time of the suspension Precision Pine was well-positioned to operate on the timber it had under contract. Tr. 3448-49 (Neuberger).

7.

In 1990, Precision Pine was operating a single sawmill in Heber, Arizona with a

putative single-shift capacity of 850 thousand board feet ("mbf") per month. See DX798; Tr. 94, 1433 (Porter); see also Tr. 1074; DX559. At the same time, Precision Pine was operating a single planer in Snowflake, Arizona. DX798; Tr. 619 (Porter). Plaintiff's Comment ­ See plaintiff's comments to DPFF 2 and 6.

8.

Precision Pine purchased a sawmill in Show Low, Arizona prior to June 1991. Precision

Pine did not operate the Show Low sawmill. DX798, Tr. 1484 (Porter). Plaintiff's Comment ­ See plaintiff's comments to DPFF 2 and 6.

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9.

Precision Pine purchased a sawmill in Clay Springs, Arizona prior to June 1991.

Precision Pine operated the Clay Springs sawmill for a short period. The Clay Springs sawmill was closed permanently in the early 1990s. DX798. Plaintiff's Comment ­ See plaintiff's comments to DPFF 2 and 6.

10.

In December 1991, Precision Pine purchased from Duke City Lumber Company a

sawmill and two planers in Winslow, Arizona. First Joint Stip. ¶¶ 3-4; DX798; Tr. 90, 96 (Porter) (stating also that Precision Pine acquired three dry kilns from Duke City). The putative capacity of the Winslow sawmill is 1150 mbf (lumber tally) per month. Tr. 94, 1432 (Porter); see also Tr. 1074 (Porter). Plaintiff's Comment ­ See plaintiff's comments to DPFF 2 and 6.

11.

Precision Pine operated the newly-acquired Winslow sawmill in tandem with the

company's sawmill in Heber. See DX559; DX798. Similarly, Precision Pine operated both the newly-acquired planers and its Snowflake planer. DX798; see also DX294 (April 1995 to March 1996 summary). Plaintiff's Comment ­ See plaintiff's comments to DPFF 2 and 6.

12.

In October 1992, Precision Pine purchased a sawmill in Williams, Arizona from Grand

Canyon Forest Industries. Tr. 106 (Porter); DX798. The Williams sawmill had a capacity of about 1,100 mbf (l.t.) per month. Tr. 106 (Porter). Plaintiff's Comment ­ See plaintiff's comments to DPFF 2 and 6.

13.

Precision Pine operated the newly-acquired Williams sawmill together with its sawmills

in Winslow and Heber. Tr. 106, 1485 (Porter); DX798. Plaintiff's Comment ­ See plaintiff's comments to DPFF 2 and 6. 6

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14.

Thus, by late 1992, Precision Pine was operating three sawmills and had more than

tripled its alleged single-shift capacity. DX798; DX559 (identifying sawmills in Heber, Winslow and Williams); Tr. 94, 106, 1074 (Porter) (indicating that these mills had a production capacity in excess of 35 million board feet (lumber tally) per year). Likewise, Precision Pine had substantially increased its planing capacity and was operating planers in both Winslow and Snowflake. See DX798. Plaintiff's Comment ­ See plaintiff's comments to DPFF 2 and 6.

15.

In June 1993, Precision Pine purchased a sawmill in Payson, Arizona from Kaibab Forest

Products Company. Precision Pine did not operate the Payson sawmill. DX798; Tr. 106-08, 1486 (Porter). Plaintiff's Comment ­ See plaintiff's comments to DPFF 2 and 6.

16.

During 1993, Precision Pine assembled a sawmill in Eagar, Arizona using

equipment from the sawmills it had bought in Show Low and Clay Springs. DX798; Tr. 1855-56 (Porter). The putative capacity of the Eagar sawmill is 850 mbf (l.t.) per month. Tr. 94, 1432 (Porter); see also Tr. 1074 (Porter). Plaintiff's Comment ­ See plaintiff's comments to DPFF 2 and 6.

17.

In October 1993, Precision Pine opened the Eagar sawmill. At about the same time,

Precision Pine permanently closed its Williams sawmill. DX798; DX559; Tr.106, 1485 (Porter). Plaintiff's Comment ­ See plaintiff's comments to DPFF 2 and 6.

B. 18.

Precision Pine's Acquisition Of Timber For Expanded Mill Operations In order to secure raw material for its three sawmills from increasingly restricted sources

of supply, during the early and mid-1990's, Precision Pine bid on timber and multi- product sale contracts 7

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offered by various sources: the Forest Service; the State of Arizona; Indian tribes; and private landowners. DX776; Tr. 1653, 2037 (Porter). Plaintiff's Comment ­ See plaintiff's comments to DPFF 2 and 6. At all times, Precision Pine, like all timber purchasers in Northern Arizona, was dependant upon Forest Service timber sale offerings. PPFF 7. Precision Pine relied on the Forest Service for at least 75% of its supply of raw material. Id.

19.

Bidding for timber sale contracts was competitive. Tr. 1278 (Porter). And Precision

Pine's bidding strategy was aggressive as evidenced by the bid premiums that the company was willing to pay over and above minimum bid prices. Tr. 3463 (Neuberger); DX776; see also Tr. 4139 (Harris), 463032 (Dils), 4563-65 (Lee); DX554 (writing, during bidding, "[d]on't give Stone anything over here"); DX559 (showing the per mbf payment to the Forest Service (i.e., the stumpage fee) was increasing during the 1990's). Plaintiff's Comment ­ See plaintiff's comment to DPFF 20, infra. The prices that Precision Pine bid for its contracts were not uneconomical, as evidenced by the fact that Precision Pine was profitable in every year prior to the suspension. Tr. 3418-19 (Neuberger); Tr. 5015-16 (Moosman). Indeed, but for the suspension, Precision Pine would have operated all of the breached contracts profitably during the period of the suspension. PX 131.

20.

While Precision Pine's aggressive bidding practices enabled the company to win many

contracts upon which it bid, and to secure some additional timber for its expanded mill operations, it also meant that the company had to pay high prices for timber ­ prices that were likely to be uneconomical. DX776; Tr. 3351-57 (Neuberger). Plaintiff's Comment ­ Defendant purports to rely solely on the report and testimony of Dr. Neuberger in support of its contention that prices bid for timber by Precision Pine were "likely to 8

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be uneconomical." Dr. Neuberger's "opinions" in this regard, however, are of no value to the Court as he admitted that he had no independent view as to whether Precision Pine had bid too high on any timber sale contract. Tr. 3456 (Neuberger). Rather, Dr. Neuberger relied exclusively on a few conversations with Forest Service employees and another expert in this case that suggested that one of Precision Pine's contracts "was not likely to be profitable." Id. As the Court commented, "cross-examination has elicited that he [Dr. Neuberger] independently is not in a position to say anything about whether bid prices were too high or not . . ." Tr. 3456-60 (Neuberger). Indeed, as the Court stated, the testimony of Dr. Neuberger on bidding had the appearance of "matter that comes in an ear and goes out the mouth without human intervention." Id.

21.

This exposed the company to considerable market risk. This market risk was especially

acute during periods in which lumber prices were depressed because the lower the market prices for lumber products, the greater the number of Precision Pine's contracts that were rendered unprofitable. Tr. 3312-14 (Neuberger); DX776. Plaintiff's Comment ­ See plaintiff's comment to DPFF 20. Dr. Neuberger's report and testimony is of no assistance to the Court on this point. See also Tr. 3466-67 (Neuberger) ("I don't have an objective measure to say that the[bid] price is either to high or too low").

C. 22.

Precision Pine's Sawmill Overcapacity Precision Pine harvested 25,399 mbf (log scale) in 1992. DX559.

Plaintiff' Comment ­ On DX 559 (cited here and in DPFF 23-26 and 28-34), the figures for "Annual Volume Harvested" are in the wrong columns. Specifically, the figures are shifted one column to the left. Tr. 2105-10, 2143, 1409-10, 1417-18 (Porter). Thus, it was in 1993 not 1992 that Precision Pine logged 25,399 mbf (LS) of timber. As set forth in PPFF 250, using this timber, in the 9

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fiscal year ending March 31, 1994 Precision Pine produced 30,088 mbf (LT) of lumber. Tr. 2320 (Ness).

23.

Precision Pine harvested 23,541 mbf (1.s.) in 1993. DX559.

Plaintiff' Comment ­ See plaintiff's comment to DPFF 22. It was in 1994 not 1993 that Precision Pine logged 23,541 mbf (LS) of timber. Tr. 2105-10 (Porter). Using this timber, in the fiscal year ending 3/31/95, Precision Pine produced 30,197 mbf (LT) of lumber. Tr. 2320 (Ness.)

24.

Precision Pine harvested 18,673 mbf (l.s.) in 1994. DX559.

Plaintiff' Comment ­ See plaintiff's comment to DPFF 22. It was in 1995 (over four months of which were during the suspension), not in 1994 that Precision Pine logged 18,673 mbf (LS) of timber. Tr. 2105-10 (Porter). Using this timber, in the fiscal year ending 3/31/96, Precision Pine produced 22,363 mbf (LT) of lumber. Tr. 2320 (Ness).

25.

Precision Pine harvested 11,011 mbf (l.s.) through late 1995. DX559.

Plaintiff' Comment ­ See plaintiff's comment to DPFF 22. It was in 1996 (over 11 months of which were during the suspension), not in 1995 that Precision Pine logged 11,011 mbf (LS) of timber. Tr. 2105-10 (Porter). Using this timber, in the fiscal year ending 3/31/97, Precision Pine produced 12,260 mbf (LT) of lumber. Tr. 2321 (Ness).

26.

Precision Pine never harvested a sufficient volume of timber to run its three sawmills at

their putative 35 million board foot annual capacity. See Tr. 14 14-15, 1421-22 (Porter); DX559; see also 1074 (Porter) (testifying that the annual capacity for Eagar, Heber and Winslow was about 35 mmbf (1.t.)/year).

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Plaintiff' Comment ­ Prior to the suspension the capacity of Precision Pine's three sawmills at issue in this case was less than 35 mmbf (LT). The 35 mmbf (LT) figure was based on the fact that, at the time of the suspension, Precision Pine was completing upgrades to its Eagar facility. PPFF 15. Accordingly, before the suspension, there was no need for Precision Pine to harvest the volume of timber needed to produce 35 mmbf (LT). Instead, it was harvesting at about 93% of that rate. PPFF 250. Moreover, but for the suspension, Precision Pine would have harvested sufficient timber to produce 35 mmbf (LT) per year. PPFF 250-51.

27.

Precision Pine's three sawmill operation was never run at its putative 35 million board

foot capacity. See Tr. 1410, 2144 (Porter); DX802. Plaintiff's Comment ­ See plaintiff's comment to DPFF 26.

28.

Despite Precision Pine's aggressive bidding, and despite the fact that Precision Pine's

mills were operating at less than capacity, the volume of timber that Precision Pine had under contract declined steadily during the mid-1990s. DX559. Plaintiff's Comment ­ See plaintiff's comments to DPFF 2, 20 and 26 with respect to defendant's assertions about aggressive bidding and Precision Pine's sawmill operations. Most of the decline in Precision Pine's timber under contract occurred in late 1995. DX 559; DPFF 29-33. Accordingly, the decline corresponded with the Forest Service's drastic reduction of its timber offerings as a result of the MSO suspension. DPFF 3; see Joint Stipulation (May 12, 2005) ¶¶ 1, 6, 11, 16. Moreover, despite the alleged decline in the amount under contract, Precision Pine always had enough timber under contract, including at the time of the suspension to produce 35 mmbf (LT). See DX 559 (showing 34 mmbf (LS) of timber as the minimum amount under contract, more than enough to produce 35 mmbf (LT), even under the most unreasonable overrun factor suggested by defendant.) 11

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29.

In 1992, Precision Pine had 51,571 mbf (l.s.) timber under contract. DX559.

Plaintiff' Comment ­ See plaintiff's comment to DPFF 28.

30.

In 1993, Precision Pine had 51,097 mbf (l.s.) timber under contract. DX559.

Plaintiff' Comment ­ See plaintiff's comment to DPFF 28.

31.

In 1994, Precision Pine had 49,647 mbf (l.s.) timber under contract. DX559.

Plaintiff' Comment ­ See plaintiff's comment to DPFF 28.

32.

In 1995, Precision Pine had 40,786 mbf (1.s.) timber under contract. DX559.

Plaintiff' Comment ­ See plaintiff's comment to DPFF 28.

33.

In December 1995, Precision Pine had 34,288 mbf (1.s.) timber under contract. DX559.

Plaintiff' Comment ­ See plaintiff's comment to DPFF 28.

34.

Thus, Precision Pine had 50 percent more timber under contract in 1992 ­ the year in

which Precision Pine opened a third sawmill ­ than at the close of 1995. DX559. Plaintiff' Comment ­ See plaintiff's comment to DPFF 28.

35.

In March 1995, Precision Pine began reducing operations by closing its Snowflake planer

­ a planer that Precision Pine had operated continuously since the 1980's. DX798. Plaintiff's Comment ­ Precision Pine did not need the Snowflake planer after acquiring the two planers at Winslow, because one planer can handle the output of two sawmills. Tr. 96-97 (Porter). (So the planers at Winslow could have accommodated the output from yet a fourth 12

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sawmill.) Thus, closing the Snowflake planer simply reflects Precision Pine's ongoing efficient refocusing of its productive capacity. Additionally, the closure of the Snowflake planer is inconsistent with defendant's theory that Precision Pine was engaged in "aggressive growth." The fact remains that Precision Pine regularly opened and closed mill facilities to best suit the efficiencies of its operations. See plaintiff's comment to DPFF 6.

36.

In April 1995, recognizing that additional downsizing would be necessary, Tri- Star

Logging ­ Precision Pine's long-time logging contractor for the Winslow and Heber sawmills, Tr. 110709 (Porter) ­ sought and obtained an agreement that it would perform all logging "for the remaining two mills" if Precision Pine is "forced to shut down another sawmill." DX463. Plaintiff's Comment ­ The proposition set out in this paragraph is not supported by the document cited (DX 463). The document does not indicate that Precision Pine recognized that additional downsizing would be required. It merely provided that Tri-Star would remain Precision Pine's exclusive logging subcontractor, "If we are required to shut down another sawmill. . . ." DX 463. In fact, the Eagar mill was not permanently closed until more than two years after the date of this document. See DX 463 (dated April 18, 1995); PPFF 47 (Eager closed permanently at the end of July, 1997).

37.

At about the same time, Precision Pine vice president, Lewis Tenney, suggested that

company would have to close its Eagar sawmill. DX85 (stating that the renewed availability of the Hay contract would "enable the small mill [ Eagar] to keep running and save jobs for a while longer" (emphasis added); see also DX81; DX82. Plaintiff's Comment ­ None of the exhibits cited in support of this proposition (DX 81, 82, 85) were ever proffered or accepted as evidence in this case. As such, defendant's citation to them

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is improper. The Eager mill did not close down at that time or for more than two years thereafter. PPFF 47.

D. 38.

Precision Pine Cancels Timber Contracts And Defers Harvesting By July 1995, lumber prices had fallen substantially from where they stood in

1993 and 1994, the time period when Precision Pine was bidding on the timber it currently had under contract. See PX305; DX776 (exhibit 3). Plaintiff's Comment ­ The lumber market is cyclical and the market for Ponderosa Pine lumber is no exception. Ponderosa Pine lumber prices stopped falling by the 4th quarter of 1995, remained flat until January or February 1996, and then escalated very rapidly (i.e., "took off like a rocket") throughout the remainder of the suspension and damages periods. PPFF 246.e. When prices for lumber products fell, stumpage prices on a number of Precision Pine's contracts were correspondingly reduced. PPFF 19; see, e.g., PX 169 at HAY-37 (contract clause B3.2, establishing de-escalation procedures). In any event, contrary to defendant's proposed finding eight of Precision Pine's contracts were awarded either before 1993 or after 1994. See Precision Pine, 50 Fed.Cl. at 38 n.1.

39.

As a result, even with an outlet for roundwood from its multi-product sales,2 Precision

Pine was unable to profitably harvest more than a third of the timber it had under contract. See, e.g., DX523 (Jersey Horse) (1,700 mbf); DX526 (Salt) (2,120 mbf); DX528 (Campbell) (2,280 mbf); DX535 (U-Bar) (1,900 mbf); DX540 (Merritt) (700 mbf); DX542 (Hualapai) (790 mbf); DX543 (Dutch Joe) (750 mbf); DX544 (Park) (900 mbf); DX545 (Barber) (2,275 mbf).
2

As discussed below, by September 1995, Stone Container Corporation was unwilling to purchase roundwood coming from Precision Pine's contracts. See paragraphs 55- 56, infra. This lack of an outlet for roundwood caused still more contracts to be unprofitable during the period of the MSO suspensions. See paragraphs 584-92, infra. Plaintiff's Comment ­ See plaintiff's comment to DPFF 55-56, 584-92, infra. 14

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Plaintiff's Comment ­ This assertion is based on documents dated July 17, 1995 that Mr. Porter prepared as a "worst case scenario" and never intended to use as projection of what revenues Precision Pine would actually recover from these sales. See plaintiff's comment to DPFF 583. Additionally, only three of the contracts identified are at issue in this case.

40.

To address this situation, Precision Pine (1) took advantage of opportunities to cancel

overpriced contracts, (2) operated its mills at a reduced level (substantially below their alleged capacities), and (3) deferred the harvesting of less profitable contracts. See, e.g., PX106; DX559; DX505; DX802; Tr. 1063-64 (Porter). Plaintiff's Comment ­ These assertions were rebutted in plaintiff's opening brief. P's PostTrial Br. at 52-56. Defendant also ignores the facts that, during the suspension, Precision Pine was forced to operate its mills at reduced levels because the Forest Service had suspended operation on nearly all of its Forest Service timber sale contracts for 16 months (PPFF 390), and the Forest Service was also not selling any new timber sales during the suspension, see Joint Stipulation of Fact (May 12, 2005), ¶¶ 2, 7, 12, 17.

41.

In October 1995, Precision Pine used the opportunity provided by the MSO suspensions

to negotiate the cancellation of its two highest priced (and biggest money losing) contracts ­ Barber and Campbell. PX106 ¶ 4; Tr. 1848-49 (Porter). The cancellation of these contracts reduced by about 5 million board feet the timber Precision Pine had under contract during the period of the MSO suspensions, DX528; DX545, and eliminated two (of three) principal sources of large diameter logs, see PX99 (identifying Barber, Campbell and Hay as having "large diameter trees" needed by Precision Pine); Tr. 1849 (Porter). However, it allowed Precision Pine to avoid performing two contracts upon which Precision Pine expected to lose over $800,000. See DX545 (Barber) (loss of $503,646); DX528 (Campbell) (loss of $342,839). 15

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Plaintiff's Comments ­ See also P's Post-Trial Br. at 52-56. The Barber and Campbell sales contained high quality timber, would have produced high quality lumber, and were priced accordingly. Tr. 1849 (Porter); 2938, 2973 (Tenney). Precision Pine agreed to the Forest Service's cancellation of these two sales, because they were politically contentious in the Silver v. Babbitt litigation (because they contained high quality, older timber), and Precision Pine was cooperating with the Forest Service to appease the environmental litigants with the aim of shortening the suspension and obtaining the release of all of its timber sale contracts. See Tr. 2936-2942 (Tenney). DX 545 & 528, cited in the last sentence of DPFF 41, are two of Precision Pine's July 17, 1995 "worst case scenario" projections and did not reflect what Precision Pine actually anticipated earning from the sales. See also plaintiff's comment to DPFF 583.

42.

Similarly, in September 1996, Precision Pine negotiated a "friendly default" with the

State of Arizona on the Park multi-product sale. See DX546; DX699; DX709; DX717; Tr. 1841-42 (Porter). The default reduced the volume of timber Precision Pine had under contract during the period of the MSO suspension by nearly one million board feet, see DX544 (990 mbf), but allowed Precision Pine to avoid performing another contract on which it expected to lose money for a relatively small penalty. See DX546 (requiring payment of a $8,190 penalty); DX544 (projecting a loss, without accounting for roundwood losses, of $45,151). Plaintiff's Comment ­ See P's Post-Trial Br. at 52-56. Additionally, DX 709 & 717, relied on to support the first sentence of the above paragraph, were neither proffered nor accepted as evidence in this case. As such, defendant's citation to them is improper. DX 544, cited in the last sentence, is one of Precision Pine's July 17, 1995 "worst case scenario" projections and did not reflect what Precision Pine actually anticipated earning from the sale. See plaintiff's comment to DPFF 583, infra. Moreover, a dispute arose between Precision Pine and the State of Arizona

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regarding the amount of timber remaining on the contract; thus, it is not clear that any timber remained under contract at the time of the friendly default. See PPFF 392.d; PPFF 270.

43.

During 1994, a year that Precision Pine's operations were not affected by Forest Service

suspensions, Precision Pine chose to operate its sawmills at 70 percent of their alleged annual capacity. DX559; Tr. 1419-22 (Porter). Plaintiff's Comment ­ Defendant's proposed finding is incorrect. As Mr. Porter testified, the numbers on DX 559 are not set forth correctly. Tr. 1409-10 (Porter). In both fiscal years ending 3/31/94 and 3/31/95, which includes all of calendar year 1994, Precision Pine actually produced in excess of 30 mmbf of lumber (PX 246), some 93% of the capacity at the three sawmills at issue in this case.

44.

Similarly, prior to the MSO suspensions in 1995, Precision Pine chose to operate its

sawmills at less than their alleged capacity. DX802 (showing that Precision Pine's mills operated below their supposed capacity from April to September 1995); DX505 (showing that none of Precision Pine's mills were operating at capacity in April 1995); see also Tr. 1425-29 (Porter) (Precision Pine's sawmills would have run through all logs harvested by late May had they been operating at capacity in 1995); DX559 (showing timber harvests of 11,011 mbf (l.s.)). Plaintiff's Comment ­ Defendant's putative facts are incorrect in several respects: DX 802 does not show that the sawmills were not operating at capacity "from April to September, 1995" as claimed; rather, the exhibit shows only that as of September 30, 1995, i.e., after the suspension had been in place for move than five weeks, Precision Pine's production for the year to date was below capacity. That DX 505 suggests that production might be below monthly capacity in April of 1995 is not surprising as April is typically a month of relatively low production (see Tr. 3101-03 (Porter)), nor is it surprising that production in any single month during the year is below capacity. 17

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The fact remains that in FYE 3/31/96, i.e. April 1, 1995 to March 31, 1996, Precision Pine produced 22.363 mmbf of lumber (PX 246) even though the suspension had been in place since August, 1995 (i.e., more than seven months of the fiscal year) and both the Winslow and Eagar sawmills had been shutdown due to the suspension. PX 163. Thus, absent the suspension, Precision Pine would have operated at capacity in FYE 1996, as projected. PX 131.

45.

In subsequent years, Precision Pine continued to run its mills at less than capacity and,

additionally, never operated more than two mills at any given time. See Tr. 1080-82 (Porter); DX798. Plaintiff's Comment ­ In 1995 and 1996, Precision Pine had to temporarily shut down some of its sawmills during the suspension as a direct result of the Forest Service's breach of contract. See P's Post-Trial Br. at 15-16, 51-52. After the suspension, in 1997, Precision Pine attempted to reopen the sawmills it closed, in order to have all three sawmills operational again, but eventually had to close Eagar mill permanently as the result of yet another Forest Service suspension. PPFF 374-386.

46.

In 1994 and prior to the MSO suspension in 1995, Precision Pine deferred harvesting

numerous timber and multi-product sales that were under contract and available. See, e.g., DX3 (cutting no timber on O.D. Ridge in 1995); DX128 (cutting no timber on Jersey Horse in 1994 or 1995); DX152 (cutting no timber on Salt in 1994 or 1995); DX251 (cutting no timber on Hutch-Boondock in 1994 or 1995); DX291 (cutting no timber on Mud in 1994 or 1995); DX320 (cutting no timber on SaginawKennedy in 1994 or 1995); DX361 (cutting no timber on Brann in 1994 or 1995); DX437 (cutting no timber on Monument in 1994 or 1995); Tr. 1063-64 (Porter) (admitting Precision Pine deferred harvesting ­ and in fact never harvested ­ timber from the Salt, Monument and Saginaw-Kennedy contracts). Plaintiff's Comment ­ Using the timber that Precision Pine did harvest in the fiscal year ending March 31, 1995, Precision Pine produced 30,197 mbf (LT) of lumber (Tr. 2320 (Ness)), 18

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which was close to its capacity for that time period. See Tr. 94-95 (Porter) (before the 1995 upgrades, the Heber sawmill's capacity was about 15-20% less than what its capacity would have been but for the suspension). Accordingly, the fact that Precision Pine did not harvest some of the sales it had under contract at that time is explained by the simple fact that Precision Pine needed no more logs to fill its sawmill's capacity at that time.

47.

Precision Pine continued to defer harvesting on available timber under contract during

and after the period of the MSO suspensions. See, e.g., DX791; DX800; Tr. 1063-64 (Porter). Plaintiff's Comment ­ With respect to the alleged "deferral" of timber harvest during the period of the suspension, see P's Post-Trial Br. at 52-56. The alleged deferral of timber harvest after the suspension is irrelevant to any issue before the Court as Precision Pine is a lost volume seller. Should the Court rule, however, that Precision Pine is not a lost volume seller, the extent to which profitable operations were possible on the breached sales during the post-suspension period is set forth in PX 182. (Mr. Ness' expert report on post-suspension profits). Additionally, DX 791, a transcript of a status conference on November 4, 2003, cited by defendant in DPFF 47, is subject to Precision Pine's pending motion to strike, see Tr. 1072-74, 1085-88, 1115, 1244-45, 1687-1690. DX 791 should be stricken because plaintiff timely supplemented its answers to interrogatory 34 in accordance with the Court's order of November 4, 2003, which provided that the statement of plaintiff's counsel at a status conference would be admitted only if plaintiff failed to so supplement. Indeed, the government had plaintiff's supplemental answers admitted as evidence in this case as DX 786; accordingly, the statements of counsel at a status conference are not evidence in this matter.

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E. 48.

Precision Pine Loses Its Outlet For Roundwood In July 1995, Stone Container Corporation a/k/a Stone Forest Industries ("Stone")

inquired about purchasing Precision Pine. Tr. 1566 (Porter), 2948-49 (Tenney). Plaintiff's Comment ­ The fact that one of the two other remaining sawmill operations in Arizona approached Precision Pine to begin buyout negotiations supports Precision Pine's theories that market consolidation was occurring in Arizona, that Precision Pine was a profitable operation, that market integration can occur in the face of declining supply, and that Precision Pine's consolidating with other sawmills was not a "risky" business practice under such conditions. See plaintiff's comment to DPFF 2.

49.

Stone was a competitor of Precision Pine. Tr. 1283 (Porter), 1741 (Reidhead) (Precision

Pine competed "very strongly" with Stone); DX554 ("Don't give Stone anything over here"). 50. Precision Pine's vice president, Lewis Tenney, handled negotiations with Stone. Tr.

1566-67 (Porter), 2948-52, 3035 (Tenney). 51. Precision Pine's president, Lorin Porter, was less interested in selling the company to

Stone than was Mr. Tenney. Tr. 1568 (Porter), 2949, 3033 (Tenney). 52. In order to provide Mr. Tenney information on the value of timber under contract, on July

17, 1995, Mr. Porter prepared a set of profit projections addressing each of Precision Pine's timber and multi-product sale contracts. Tr. 1568, 2063 (Porter); DX519; DX521-45. Plaintiff's Comment ­ Mr. Porter prepared the 7/17/95 documents in order to show Mr. Tenney the absolute minimum (i.e., the "worst case") that Precision Pine would realize from the timber that it had under contract at that time. Tr. 1567 (Porter); Tr. 2949 (Tenney). Even under

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this worse case scenario, the projections show that Precision Pine would have earned more than $1.6 million. PPFFF* 1382.3

53.

Mr. Porter's profit projections showed the anticipated gross profit for the sale of lumber

and by-products. Tr. 1568, 1570 (Porter); DX519; DX521-45. Plaintiff's Comment ­ Mr. Porter's profit projections do not show what an accountant might regard as gross profit before operating overhead. Tr. 2590-91 (Ness); Tr. 1568-69 (Porter) (indicating that Mr. Porter included some operating overhead in his profit projections). Indeed, there may be no accounting term that describes the results of Mr. Porter "profit projections." Tr. 2591 (Ness). Also, the "profit projections" dated July 17, 1995, were never intended to reflect what Mr. Porter thought Precision Pine would actually recover from the sales analyzed. See plaintiff's comment to DPFF 583.

54.

The profit projections did not address the roundwood component of multi-product sales

and did not provide a profit figure, i.e., they did not deduct general and administrative overhead expenses. Tr. 1571, 2137 (Porter); DX519; DX521-45. Plaintiff's Comment ­ That Mr. Porter generally did not consider pulpwood profits or losses when preparing to bid on a sale (which was his primary purpose for using his computerized worksheet (Tr. 2950 (Tenney); Tr. 857-867 (Porter)) shows the fact that pulpwood was a breakeven proposition for Precision Pine, i.e., neither profits nor losses would have inured to Precision Pine from pulpwood sales.

55.

During the course of negotiations with Stone, Precision Pine provided detailed

information about its timber sale contracts (e.g., the volume of timber and roundwood remaining under Plaintiff's citations to Proposed Findings of Fact numbered 1000 or higher are to supplemental facts filed in support of Plaintiff's Response Brief. 21
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contract, sale area maps, the periodic payment dates) and allowed Stone representatives to tour Precision Pine's lumber manufacturing facilities. Tr. 1567 (Porter), 1948-52, 3033, 3035 (Tenney); DX458; DX473. Plaintiff's Comment ­ There is no evidence that Precision Pine showed Stone the details of its timber sale contracts, other than the maps. Tr. 2952 (Tenney). Indeed, Mr. Porter indicated that Stone was not that concerned about the contracts. Tr. 1567 (Porter). Mr. Tenney testified that Stone only needed to know what portion of the volume it could harvest under the Small Business Administration rules. Tr. 2951-52 (Tenney). Also, defendant's citation to Tr. 1948-52 does not support defendant's proposed finding as that portion of the transcript deals with the Park Timber Sale contract with the State of Arizona.

56.

Based in part on Mr. Porter's profit projections, Mr. Tenney offered to sell the Precision

Pine to Stone for the sum of $10 million. Tr. 2950-5 1, 3033-34, 3043-44 (Tenney). 57. Stone did not make a counteroffer and a sale of Precision Pine to Stone was never

consummated. Tr. 3034, 3043 (Tenney). Plaintiff's Comment ­ Shortly after Stone's inquiry about purchasing Precision Pine, the Forest Service imposed the suspension (Tr. 3035-36 (Tenney)), which grossly affected the timber market in Arizona, and adversely affected Precision Pine's profitability. Additionally, a second suspension of many of Precision Pine's sales was imposed in late May of 1997 and remained in place until December 15, 1997, which further impacted the timber and lumber market in Northern Arizona. See PPFF 47.

58.

As of August 1995, as Stone had learned during negotiations, the total volume of

roundwood remaining to be harvested on the contracts at issue was 19,306 hundred cubic feet ("ccf"). See Third Joint Stip. ¶¶ 2, 4, 6, 9, 11, 13, 15, 17, 19, 21 & 23; see also DX473. 22

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Plaintiff's Comment ­ None of the evidence cited indicates that Stone was advised during negotiations of the volume of pulpwood remaining in the contracts at issue as of August 1, 1995.

59.

Stone was the only substantial purchaser of roundwood from Precision Pine's multi-

product sale contracts. See Tr. DX566; DX570; DX800. Plaintiff's Comment ­ DX 566 was neither proffered nor admitted as evidence in this case. The government's citation of it is improper. There were other purchasers of pulpwood. See plaintiff's comment to DPFF 556.

60.

On occasions when Stone would purchase roundwood from Precision Pine, Precision

Pine and Stone would execute a contract that established the sale price, the quantity of roundwood that Stone would accept, and the multi-product sale contract from which the roundwood would be harvested. See DX457; DX470; DX471; PX223. Plaintiff's Comment ­ DX 471 was neither proffered nor admitted as evidence in this case. The government's citation to DX 471 is improper. The sale of pulpwood from Precision Pine's sales to Stone took many forms including: contracts between Stone and Precision Pine, loggers selling Precision Pine's pulpwood to Stone, loggers selling Precision Pine's roundwood to Stone but not disclosing its origin, Stone's purchase of pulpwood at its gate with no prior contractual arrangement. See PPFF 270.

61.

Precision Pine was not usually able to cover the roundwood stumpage cost owed to the

Forest Service. Tr. 1731 (Reidhead). Plaintiff's Comment ­The stumpage price for pulpwood was covered by Precision Pine as follows: In situations where Stone paid Precision Pine for pulpwood deliveries from Precision Pine's sales, Precision Pine retained sufficient revenue to cover its stumpage costs with the Forest 23

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Service and paid the remainder to Tri-Star. Tr. 1014-16 (Porter). In situations, which were becoming more common, where Stone paid Tri-Star directly (whether wittingly or unwittingly) for deliveries of pulpwood from Precision Pine's sales, documentary evidence and testimony confirm that Tri-Star remitted the stumpage price to Precision Pine out of such proceeds. Tr. 1014-16 (Porter); PX 239 (Precision Pine withholds payments for logging and hauling performed by TriStar because Tri-Star still owed Precision Pine for stumpage on pulpwood). Additionally, at times stumpage would be paid directly from Stone to Precision Pine. PX 242 (If Stone paid Precision Pine for pulpwood delivery then Precision Pine was to pay Tri-Star its logging and hauling costs; however, if Stone made payment to Precision Pine for only the stumpage on pulpwood, then Tri-Star should look to Stone for payment on pulpwood delivery). See also DX 564 (Stone paid the stumpage price for 3,500 cords of pulpwood directly to Precision Pine). These payment systems have in common that Precision Pine covered its stumpage costs for pulpwood and the additional revenue for pulpwood went to Tri-Star. As Mr. Ness testified, in calculating Tri-Star's pass-through claim for lost profits on pulpwood he had relied on conversations with Mr. Reidhead and on Tri-Star documents that showed that Tri-Star absorbed the pulpwood stumpage costs, i.e., by remitting payment for them to Precision Pine. Tr. 2750-54 (Ness). At trial, Mr. Reidhead qualified his testimony in this regard, stating that he did not "think" that Tri-Star remitted the stumpage, implying that he was not sure that was the case. As demonstrated above, the evidence is to the contrary.

62.

As of August 25, 1995, no contracts between Precision Pine and Stone required Stone to

purchase roundwood harvested from any of the contracts at issue. See DX457; DX470; DX471; PX223. Plaintiff's Comment ­ As an initial matter, DX 471 was neither proffered nor admitted as evidence in this case. Defendant's citation to this exhibit is improper.

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Moreover, at the time of the suspension, Precision Pine was making sizable pulpwood deliveries from a number of its sales to Stone. Indeed, in August of 1995, Tri-Star removed 1,332.95 cords of pulpwood from the Dutch-Joe, Brookbank and Merritt sale areas and delivered it to Stone. Tr. 1731-39 (Reidhead); PX 101; PX 1010 (demonstrative exhibit prepared by Mr. Reidhead). These considerable pulpwood deliveries were made in the very month of the suspension, even though there is no evidence that a contract or other agreement between Stone and Precision Pine existed with respect to pulpwood removed from Dutch-Joe or Merritt. Additionally, during the suspension, Stone took down time at its plant that utilized chips and pulpwood in October and only resumed operations in April of 1996. DX 476. During part of this time, Stone suspended deliveries of chips due to "market conditions" during the suspension (id.) and evinced a diminished need for pulpwood as well. DX 475 (Letter dated October 3, 1995 indicated that Stone's needs for pulpwood are secure for the current logging season). Thus, absent the market conditions caused by the suspension, Stone may well have continued operating during the suspension and continued to accept pulpwood deliveries from Precision Pine. Indeed, shortly after the suspension was lifted, Stone resumed purchasing sizable quantities of pulpwood directly from Precision Pine, taking all of the pulpwood from the Kettle sale in 1997 (PX 117) and all of the pulpwood from the Mud sale in late-1997 and into 1998 (PX 223), in each instance Precision Pine received revenue sufficient to cover its stumpage costs. In early 1998, however, Stone announced that it was permanently closing it pulp-making facility and, therefore, would no longer be accepting pulpwood deliveries. PX 125.

63.

In September 1995, shortly after the MSO suspensions had begun, Mr. Tenney sent a

letter to Stone stating that he had recently heard that Stone was interested in purchasing roundwood. DX474. Mr. Tenney expressed "surprise" that no one at Stone had contacted Precision Pine. He offered

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to sell Stone 1,000 cords of roundwood from the Park timber sale ­ a multi-product sale that had been awarded to Precision Pine by the State of Arizona. Id. Plaintiff's Comment ­ See plaintiff's comment to DPFF 62.

64.

On October 3, 1995, Stone rejected Mr. Tenney's offer to purchase roundwood from

Precision Pine. Stone explained that it was "not looking to make any new commitments" for roundwood during the 1995-96 season. DX475. Plaintiff's Comment ­ See plaintiff's comment to DPFF 62. Defendant overreaches in its characterization of the letter. Stone said it was not looking to make new commitments during the current, i.e., 1995, logging season. Moreover, Stone took down time at its facility that utilized pulpwood and chips from October 1995 to April 1996. DX 476. Precision Pine did harvest pulpwood during the suspension. PPFF 1270.

65.

For the next two years, Stone continued to refuse to purchase roundwood from Precision

Pine's multi-product sale contracts. See DX263 (Oct. 31, 1995); DX242 (Nov. 6, 1995); DX243 (Nov. 14, 1995); DX667 (Nov. 30, 1995); DX375 (Jan. 26, 1996); DX349 (Jan. 30, 1996); DX306 (Apr. 9, 1996); DX555 (June 6, 1996); DX309 (July 12, 1996); DX313 (Sept. 26, 1996); DX455 (Mar. 7, 1997); DX454 (Mar. 22, 1996); DX279 (Jan. 22, 1997); DX41 (Apr. 28, 1997); DX21 (May 12, 1997); DX403 (June 6, 1997); DX339 (June 20, 1997); DX392 (June 20, 1997); DX280 (July 1, 1997); DX47 (Aug. 23, 1997); DX461 (Aug. 29, 1997); see also Tr. 1741 (Reidhead) (Stone would refuse to buy roundwood because Precision Pine would often compete "very strongly" with Stone and "Stone would get upset"); Tr. 3857-61, 3864 (Harris) (during 1996 Stone refused to take roundwood from Art Daley upon learning that Mr. Daley was obtaining the roundwood from a Precision Pine sale); Tr. 1942 (Porter) (Precision Pine did not enter into any contracts with Stone concerning roundwood during the period of the MSO suspensions); Tr. 682-83 (Porter) (Stone did not consistently buy roundwood from Precision Pine or from 26

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Tri-Star Logging); Tr. 1642, 1648-49, 1956, 1969-72, 2015 (Porter) (Precision Pine had difficulty moving roundwood in 1996); Tr. 1947-48 (Porter) (Precision Pine decked roundwood at its Eagar mill in 1997 as it had no outlet for roundwood). Plaintiff's Comment ­ As an initial matter, regarding the documents defendant cites in DPFF 65, DX 41 was neither proffered or admitted as evidence in this case. DX 279, while initially proffered, was withdrawn by the government, and was never admitted as evidence in this case. Defendant's citation to these exhibits is improper. Precision Pine did harvest pulpwood during the suspensions. PPFF 1270. With respect to the roundwood that Precision Pine decked in the Eagar yard in 1997, Precision Pine eventually did sell the entire quantity to Stone. Tr. 1946-48 (Porter). See also plaintiff's comment to DPPF 62. Although Stone took some six months of down time due to "market conditions" during the suspension (DX 476), after the suspension was lifted Stone purchased all the pulpwood on the Kettle sale in 1997(PX 117) and all of the pulpwood on the Mud sale in 1997 and 1998 (PX 223) before permanently closing its pulping facility in early 1998. PX 125. Moreover, even if there had been no outlet during the suspension period, pulpwood harvest would not have had a significant impact on Precision Pine's profitable operations of the breached sales had there been no suspension. P's Post-Trial Br. at 47-51.

66.

Because Stone declined to accept roundwood from Precision Pine, on numerous

occasions during and after the period of the MSO suspensions, Precision Pine informed the Forest Service that it had no outlet for roundwood. See, e.g., DX263 (Oct. 31, 1995) ("PP&T does not have an outlet for pulpwood at this time"); DX306 (Apr. 9, 1996) ("we have no outlet for pulpwood"); DX555 (June 6, 1996) ("Stone Container has in the recent past declined to purchase pulpwood from PP&T"); DX309 (July 12, 1996) (stating that Stone still remained unavailable as an "outlet for our roundwood"); DX279 (Jan. 22, 1997) (noting continuing uncertainty about "the availability of a market for our pulpwood"); 27

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DX403 (June 6, 1997) ("Stone is not accepting any pulpwood at this time"); DX280 (July 1, 1997) (citing current "problems with marketing the smaller size material"); DX47 (Aug. 21, 1997) (noting "Stone's unwillingness to buy . . . roundwood from us"). Plaintiff's Comment ­ See plaintiff's comments to DPFF 62 and 65. DX 279 and 403 were proffered, but withdrawn by the government upon the plaintiff's objection, and were not admitted as evidence in this case. Defendant's citation to these exhibits is improper.

67.

For the fiscal year ending March 31, 1996 ("FYE 1996"), Precision Pine's financial

statement shows no revenue from roundwood sales. PX248; DX777 (page 6a1). Plaintiff's Comment ­ Precision Pine did harvest pulpwood during the suspension. PPFF 1270. That Precision Pine did not retain pulpwood revenue, except to offset stumpage costs, supports Precision Pine's assertion that pulpwood was a "break even proposition" for the company. PPFF 270; P's Post-Trial Br. at 48; see also plaintiff's comment to DPFF 62.

68.

For the fiscal year ending March 31, 1997 ("FYE 1997"), Precision Pine's financial

statement shows no revenue from roundwood sales. PX248; DX777 (page 6c1). Plaintiff's Comment ­ See plaintiff's comment to DPFF 67.

69.

In August 1997, Precision Pine transferred the Kettle multi-product sale contract to

Stone. PX117. Precision Pine informed the Forest Service that it was transferring the contract because of "Stone's unwillingness to buy the roundwood from us." DX47; Tr. 1964-65 (Porter). Stone obtained roundwood as part of its acquisition of the Kettle multi-product sale. See PX117; DX553 (accepting roundwood from the Kettle sale that Precision Pine had cut and decked (i.e., stacked) at the Eagar mill).

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Plaintiff's Comment ­ Defendant again overreaches ­ the letter states that among the reasons for the transfer of the Kettle sale is the one identified by defendant. See also PX 182, Ex. 4, p. 5 (showing significant pulpwood harvest in the post-suspension period and sales to Stone). Finally, as noted above, the post-suspension period is irrelevant to Precision Pine's damages as it is a lost volume seller.

70.

In November 1997, Stone and Precision Pine executed a contract selling roundwood from

the Mud multi-product sale to Stone. This was the only roundwood contract between Precision Pine and Stone that was entered into after August 25, 1995. Tr. 2121-22 (Porter); PX223; see also Tr. 1942-43 (Porter) (Precision Pine did not enter into any contracts with Stone concerning roundwood during the period of the MSO suspensions). Plaintiff's Comment ­ Stone purchased considerable quantities of both standing and decked pulpwood from Precision Pine in the post-suspension period. See PX 117; PX 182, Ex. 4, p. 5 showing significant pulpwood harvest and sales to Stone. Finally, as noted above, the postsuspension period is irrelevant to Precision Pine's damages as it is a lost volume seller.

71.

On February 12, 1998, Stone announced that it intended to stop purchasing roundwood as

Stone would be using only recycled material at its paper mill. See Tr. 99 1-92 (Porter); PX126. Plaintiff's Comment ­ But for the Forest Service's breach of contract, all of the timber (including the pulpwood) remaining on the breached sales would have been harvested before February 1998. See Tr. 2245-46 (Ness); PX 131, Apx. A at 4 (showing all remaining volume on breached sales harvested by December, 1996). Precision Pine continued to harvest pulpwood even after the closure of Stone. PX 182, Ex. 4, p. 5.

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F. 72.

Lumber Prices During The Period Of The MSO Suspensions The price for wood products hit bottom during [sic] middle of the MSO suspensions.

PX305; DX776 (exhibit 3); Tr. 3311 (Neuberger). Plaintiff's Comment ­ The WWPA index for Ponderosa Pine prices in the Rocky Mountain region reached its lowest point during the suspension in late January to early February 1996, and rose steadily thereafter. PX 305. January is only the fifth full month of the 16-month suspension and, therefore, is not "in the middle" of the suspension. See also Tr. 3481-82 (Neuberger) (The price turnaround came maybe a third of the way through the suspension.) Additionally, as the WWPA index price decreased, so too did the stumpage price to be paid by Precision Pine under each of the eight breached contracts with escalated/de-escalated pricing. See, e.g., PX 169 at HAY37 (clause BT 3.2); Tr. 3477 (Neuberger) (De-escalation provision insulated purchasers from the full effect of falling prices.) Despite the putatively "low" prices and the existence of the suspension after August of 1995, Precision Pine continued to harvest available timber during 1995, operated at least two sawmills after the suspension was imposed in 1995 (PX 163); and produced more than 22 mmbf of lumber in FYE 3/31/96 (PX 246), even though the suspension was in place during more than half of that fiscal year. Indeed, even in the "depths of the slump" in pricing in January to February 1996, Precision Pine was operating its two available sawmills at capacity. Tr. 3545 (Neuberger). Additionally, as noted, under the eight contracts with escalated/deescalated pricing, Precision Pine was obtained a full reduction of its stumpage price to correspond with decreases in the Index price, although its stumpage price would increase by only 50% of any increase in the WWPA index. See, e.g., PX 169 at HAY-37 (clause BT 3.2). Moreover, once a payment unit is opened on a given sale, the price for timber becomes locked-in as of the time that the unit is opened. Id. Accordingly, a period of rising prices, such as existed after January 1996, is an ideal time to

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open payment units and harvest Forest Service timber contracts with escalated/deescalated pricing. Tr. 641-42 (Porter).

73.

Ponderosa Pine prices were better both before the suspensions in 1993 and 1994 and after

the suspensions in 1997. PX305 (showing that WWPA's annual average lumber price index for Inland Rocky Mountain Ponderosa Pine was: $460.50 in 1993; $473.23 in 1994; $423.32 in 1995; $426.38 in 1996; and $471.10 in 1997); see also DX776 (exhibit 3). Plaintiff's Comment ­ The issue for the Court is the extent to which the breached sales would have been profitable during the suspension. See PX 131. Prices before and after the suspension are irrelevant to that determination. All of Precision Pine's large diameter Forest Service timber was suspended again from late May to December 15, 1997 due to the Forest Guardians suspension. PX 119-124.

74.

Lumber prices for Ponderosa Pine remained below pre-suspension levels until late

1996. PX305; see also DX776 (exhibit 3). Plaintiff's Comment ­ In the month preceding the suspension, the WWPA index price for Ponderosa Pine was $397.26 and was actually slightly higher during the first month of the suspension. PX 305. The WWPA price never fell even $25/mbf from the pre-suspension price, i.e., a decrease of just 6%. Id. The pre-suspension price was surpassed in June/July of 1996, which is not "late 1996." Id.

75.

Due to the drastic downturn in lumber prices in 1995 and 1996, in March 1996, the Forest

Service offered Precision Pine contract term adjustments pursuant to contract clause CT 8.212. This gave Precision Pine the option of requesting a contract term adjustment of four months for each of its contracts. See DX271; DX272. 31

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Plaintiff's Comment ­ See plaintiff's comment to DPFF 74. The "downturn" during the suspension was not drastic.

76.

Precision Pine requested and obtained market-related term adjustments on several

contracts. See DX2; DX239; DX436. Plaintiff's Comment ­ The evidence defendant cites only establishes that Precision Pine received a market-related contract term adjustment on one of the contracts, Hutch-Boondock (which was not even breached), not "several" of them.

G. 77.

Forest Service Fire Closures During The Summer Of 1996 The summer of 1996 was an unusually severe fire season. Tr. 3900-01, 4165 (Harris);

see also Tr. 3871, 4499, 4533 (Harris). As a result, the Forest Service was forced to implement progressively more stringent restrictions on timber harvesting operations in the Apache-Sitgreaves, Coconino, Kaibab, and Tonto National Forests. See, e.g., Tr. 3900-01, 4165-66 (Harris) (explaining that the Forest Service took the extraordinary step of closing entire National Forests to the public). Plaintiff's Comment ­ Defendant does not contend that Precision Pine's projected harvesting in any quarter on any sale would have been prevented by any putative fire closure. See PPFF 257-262.

78.

On or about May 6, 1996, the Forest Service implemented Industrial Fire Plan D on the

Apache-Sitgreaves, Coconino, Kaibab, and Tonto National Forests timber [sic]. Tr. 3900- 01, 4165-66, 4533 (Harris); PX113; DX118; DX275; DX277; DX308; DX333; DX378; DX380; see also Tr. 2095-96 (Porter) (discussing fire closures on the Apache-Sitgreaves and Kaibab National Forests). This required the suspension of all timber harvesting operations. Tr. 1506 (Porter); Tr. 3900 (Harris).

32

Case 1:98-cv-00720-GWM

Document 398

Filed 11/14/2005

Page 34 of 207

Plaintiff's Comment ­ Defendant does not contend that Precision Pine's projected harvesting in any quarter on any sale would have been prevented by any putative fire closure. See PPFF 257-262. DX 333 was proffered by the Government, but the Court sustained plaintiff's objection, and, therefore, it was not admitted into evidence. Defendant's citation to this exhibit is improper. 79. Conditions on the ground improved and Industrial Fire Plan D was lifted on July 9, 1996,

at which time timber harvesting operations were permitted to resume. See, e.g., Tr. 4123, 4165 (Harris), 2096 (Porter). Plaintiff's Comment ­ Defendant does not contend that Precision Pine's projected harvesting in any quarter on any sale would have been prevented by any putative fire closure. See PPFF 257-262.

80.

Precision Pine could have requested and received contract term adjustments for time lost

as a result of the fire closures but for the MSO suspensions. Tr. 3905-06, 4123-24 (Harris), 4555-56 (Lee), 1521-22 (Porter); DX277. Plaintiff's Comment ­ Defendant does not contend that Precision Pine's projected harvesting in any quarter on any sale would have been prevented by any putative fire closure. See PPFF 257-262.

H. 81.

The MSO Suspensions Are Lifted And Precision P