# Joint Appendix Vol II — Weyerhaeuser v. Ross-Simmons Hardwood Lumber > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0220%3A14 ## Record - **Collection:** Supreme Court brief - **Document type:** Joint Appendix Vol II - **Published:** January 1, 2007 - **Citation:** 549 U.S. 312 ## Text FILED Qf) 236 24 2006 OFFICE OF THE CLERK SUFR No. 05-381 EME COURT. U.S. Jn the Supreme Court of the Gnited States WEYERHAEUSER COMPANY, Petitioner, Vv. Ross-SIMMONS HARDWOOD LUMBER Co., INC., Respondent. On Writ of Certiorari to the United States Court of Appeals for the Ninth Circuit JOINT APPENDIX — VOLUME II ANDREW J. PINCUS MICHAEL E, HAGLUND Counsel of Record Counsel of Record Mayer, Brown, Rowe Haglund, Kelley, Horngren, & Maw LLP Jones & Wilder LLP 1909 K Street, N.W. 101 SW Main St. Washington, DC 20006 Suite 1800 (202) 263-3000 Portland, OR 97204 (503) 225-0777 Counsel for Petitioner | Counsel for Respondent PETITION FOR CERTIORARI FILED SEPT. 23, 2005 CERTIORARI GRANTED JUNE 26, 2006 TABLE OF CONTENTS (By Docket Date) Page VOLUME I Relevant Docket Entries — United States District Court for the District of Oregon (Portland)................... la Relevant Docket Entries — United States Court of Appeals for the Ninth Circuit ................:cssseseesseeeseeeeees Sa Defendant’s Memorandum in Support of Motion for Summary Judgment (Oct. 31, 2002) .............:cccceeeeeeeees 6a Defendant’s Reply Memorandum in Support of Motion for Summary Judgment (Nov. 25, 2002)......... 25a Hearing Transcript (Jan. 15, 2003).............cssssssseeseeseeeeseees 34a Opinion Denying Summary Judgment (Jan. 21, 2003)......54a ‘Plaintiffs’ Proposed Jury Instructions (Feb. 14, 2003).......70a Defendant’s Requested Jury Instructions re ID cerectanigericinbenicncaceeiettnmalincsnimisniiandeniive 97a Defendant’s Proposed Verdict Form (Feb. 14, 2003)...... 123a Fourth Amended Complaint (Feb. 27, 2003) ................... 129a Stipulated Glossary (Apr. 1, 2003)...........cc.cceeeeseeeeeeeneees 145a Sapulated Facts (Ape. 1, 2003)........000.scccoserrserevestossssseeses 1Sla Excerpts of Relevant Trial Testimony In the United States District Court for the District of Oregon SESS SEER LS aR Le Teco ee er 163a Plaintiffs’ Opening Argument (Apr. a 164a Testimony of William Nelson (Apr. 8-9, 2003)......... 166a Testimony of Grant Wheeler (Apr. 9, 2003).............. 222a Testimony of Rodney Buck (Apr. 9, 2003)................ 238a Testimony of James Harrison (Apr. 9, 2002)............. 246a (I) TABLE OF CONTENTS (By Docket Date) Page Testimony of Thomas Collet (Apr. 9, 2003).............. 253a Testimony of Clifford Chulos (Apr. 10, 2003) .......... 256a Testimony of Mark Rasmussen (Apr. 10, 2003)........ 267a Testimony of George Lukin (Apr. '0, 2003)............. 328a Testimony of James Webber (Apr. 10, 2003)............ 336a Testimony of Eugene Novak (Apr. 10, 2003)............ 338a Testimony of Paul Ehinger (Apr. 10, 2003)............... 360a Testimony of Richard Zerbe (Apr. 11, 2003)............. 375a Testimony of Ludwig Rabold (Apr. 11, 2003)........... 402a Testimony of Mel Kayser (Apr. 11, 2003)................. 405a Testimony of Wayne Demarest (Apr. 11, 2003)........ 4l4a Testimony of Sonny Powell (Apr. 11, 2003) ............. 417a Testimony of Steve Fitzgerald (Apr. 11, 2003).......... 418a Testimony of William Blaney (Apr. 11, 2003).......... 419a Testimony of Wayne Kidd (Apr. 11, 2003) ............... 433a Testimony of Delores Pigsley (Apr. 14, 2003) .......... 445a Testimony of Leo Sheehan (Apr. 14, 2003)............... 446a Testimony of John Simmons (Apr. 14, 2003)............ 453a Testimony of Philip Smith (Apr. 14, 2003)................ 456a Testimony of Jerry Martin (Apr. 14, 2003)................ 478a Testimony of David Bosley (Apr. 14, 2003).............. 495a Testimony of Arnold Curtis (Apr. 14, 2003).............. 500a Testimony of David McCullam (Apr. 14, 2003)........ 517a Testimony of George Brulotte (Apr. 14, 2003).......... 519a (il) TABLE OF CONTENTS (By Docket Date) Page Testimony of David Princehouse (Apr. 15, 2003) .....528a Testimony of Heinz Hohendorf (Apr. 15, 2003)........ 548a Testimony of Steven Carter (Apr. 15, 2003).............. 557a VOLUME II Excerpts of Relevant Trial Testimony Cont’d Testimony of Roy Burke (Apr. 15, 2003)...............0. $77a ‘Testimony of Robert Taylor (Apr. 15, 2003)............. 579a Testimony of Vicki McInnally (Apr. 15, 2003)......... 592a Testimony of David Kurtz (Apr. 15, 2003)................ 6lla Testimony of Larry Bray (Apr. 15, 2003).................. 612a Testimony of Raymond Poppe (Apr. 15, 2003)......... 615a Testimony of Bruce Sutten (Apr. 15, 2003)............... 618a Testimony of Gary Nelson (Apr. 16, 2003) ............... 629a Testimony of Jerry Bain (Apr. 16, 2003)................2. 642a Testimony of Bernie McCain (Apr. 16, 2003)........... 654a Testimony of Philip Tedder (Apr. 16, 2003).............. 660a Testimony of Delroy Fisher (Apr. 16, 2003).............. 669a Testimony of Randall Pozdena (Apr. 16, 2003)......... 692a Argument on Defendant’s Motions and Jury Rastyuctions (Apt. 17, 2003) .....0...cscosesrorssesscessecensessees 718a Argument on Jury Instructions Cent’d See SE chid AibdeichDeaiahile apeihitadieideipeapientoheiadsgniin 723a Plaintiffs’ Closing Argument (Apr. 17, 2003)................. 731a Plaintiffs’ Rebuttal Argument (Apr. 17, 2003)................ 736a (111) TABLE OF CONTENTS (By Docket Date) Excerpts of Relevant Trial Exhibits GEE CG TINNY icin osdecstccsiceatsnncnsivaiiapsendenieahdiiapiailipainans EPI WIM aliciacivesiisnesistcuiisdincitsaitidsrainsesasidiilaminniaialiatel EE TIEN cicnscscopuiscmntnpeghabeanleiisiinmenginmtnameniiinaliaamaed I BPO iiciecitsis cccnssdibhantchinssiitsiihinaialeieiiindinianbaciadaas: SONNE TAD ccinicssvicsinenstinistsedstrindsabiiaadineiiipbialaddeiiiiedas INGE CBO sncicersviviscatnspescioisniiiaiidiicdiniditibatddiaiettimiidiakaaa OE BEF inrctcsscrtnasiistnniepinisicuieteiteisminatntaliibiiiaiaidiaasna IIE Ne ictcsptniscbcninteviticrmnienitasentasanmnaiiaamenaniel IR DE sis cscacevisvinicnersassinptnientiaesiesnpuiiateapiaahaiaiiveds TEE DI sciscsnincnovisscrssisrvrisisnssnsiegeaiaesnepitionintaaiainn : SIGE OGD nicviccncconsceensvsserenemmnniincsibeisabeiasnideniiaaiadin Exhibit 40S .............. olepieilibekinsiohadiicatasaain ania BE GO vn rsincssnnseenepinigionmionassieitcbonnitapeminibdivaialiin IN IT hcccicseseanoecersesesniosiociteniicistivasvicmannatatia TNE ID i cinncssensenerniticscnerninnsnnpminaivnidiniciintnidihesail I BOP wctncccccncevinsncepepicctensssucntecicntipemuiinisiivaitiitiaiinns Re OI ete iioccsssstvscbinnsininnamnssniattveiidectaphuanaailiaia BEMNIIIE OG Ease cocoecesosconssnmecatodonicittensegenennipanbetaagiotianial BIE 8S cacsccnesenessrnieinionnmnstete ermnanianmpniglinaial SMR BED oni cacsaresesentssnadsncoiniiaosianemsenttnenesideeataliiiga IE EG cn ccvcesscssecimninanpionstensibeliamibioapumiectiamuliin IIR GSS oeiscccnoscicscenasvneesstnientetninitnnesmnivitéaaiiaainin ERI BAG... .ncccrocssotcsspooscavesourasassunsobivasasnionannantasinatinns TABLE OF CONTENTS (By Docket Date) ITT iailhcenipinstontaneniiintenninsnsepdeintiendtinsigtemiedsegnttaies REE EN ED ST discinnciinatitsuseneshdeunsatndnstebebiendinvenistetetiiasibaetntiia IIIT uiiciinichieeiipaseectinindibsialbtebieieliiitinetgcanienidimnnieabalie Tlic ic Rieinihevlapitadheiasipaititcansiiaieeinn EniDit 486 2... sccecnsersccesassesereorensensencncenscecnnsncenesesess IIT bsnnttethideiiesensthteiiibsicabasbadtnitimabeeeteeganeapeinibnaseentan SE RE ERAEN Ese Sanat Rech ORE SEES SOMO SETI hadi teccticieniinchortitghiiciatbidieliicnliinncaningadipniciinbpiioguile NT da tincistasindsciepiliciihiaiibilaepieninlesctininatantennininnetions ERSTE ESSE SAT EA Fw ROO Cre OF EIS A A eae eae ee vem ESE ESD Sa ae Excerpts of Relevant Trial Exhibits (Color)................0.-«. EERE AES GEA Pe eon a a I OA srtensstussitsecvtnineesetseniennstliontunesenstneniiininasbseniionsonn SNE a coclinipcntsheinchcpsannsiinisiicttaiasiuiuinnianisanncacetunteiandtii TABLE OF CONTENTS (By Docket Date) Page REID DINU shicisctuisinalsiniinstcchsnsindasadichibieiinabsitsdicdielptsascieaiahiali 927a SUITE SEIT intihlinicinesinencnacianpasendiipinitbatantenisduitiacmanesiiivias 928a a Ne acct shivtsibesscdeetvagieibciaadahbctltaieiisiedenla 930a Defendant’s Amended Proposed Verdict Form RS EE Eee eresenenearesensereeenenonens 93la Defendant’s Supplemental Requested Jury ES ee 933a Defendant’s Memorandum in Support of Motion for Judgment as a Matter of Law (Liability) OR ER ater ee eee aoe See 936a Court’s Draft Jury Verdict Form (Apr. 17, 2003)............ 949a Court’s First Draft of Jury Instructions SR i, ee ieneititinesan ni ctnnands trap ticsqvnnntsintianetel 95la Verdict for Plaintiff (Apr. 18, 2003) ..............cccceeseeeeeees 967a Court’s Instructions to the Jury (Apr. 21, 2003) .............. 969a Court’s Final Draft of the Verdict (Apr. 21, 2003).......... 985a Defendant’s Memorandum In Support of Post-Trial eT ND Celtis ccennidainerneniicntentsétcmninnmnes 987a Hearing on Post-Trial Motions (May 29, 2003)............... 994a (VI) TABLE OF CONTENTS (By Docket Date) Page The following opinions have been omitted in printing this joint appendix because they appear on the following pages in the appendix to the Petition for a Writ of Certiorari: Judgment of the District Court for the District of Oregon (Portland) (Apr. 22, 2003) .............csccscccenseeeeees 47a Opinion and Order of the United States District Court for the District of Oregon Denying Defendant’s Renewed Motion for Judgment as a Matter of Fy SE eee 28a Opinion of the United States Court of Appeals for the Peete Capea (Gy SI, ZOIDS) onecccccesevcesesvscocsscecnereessecnsees la Order of the United States Court of Appeals for the Ninth Circuit Denying Petition for Rehearing and Rehearing En Bane (July 8, 2005).....00.0......cccccceeeeeeeeee 48a (Vil) 577a - [Vol. 6-B (Apr. 15, 2003)] [Testimony of Roy Burke] * * * [Tr. 11] Q. So you don’t know anything about contracts that were signed in 1998 just as another competitor was start- ing up a mill in Northwest Washington? A. I know about some alder contracts, yes. MR. HAGLUND: Okay. Let me ask that you be handed Exhibits 432 and 433. MR. SIMON: Objection. Beyond the scope of the direct, Your Honor. THE COURT: Let me look — MR. HAGLUND: This is to explore bias, Your Honor. THE COURT: [’ll allow it, within limits, if it is limited to that. I need to see the exhibits, though, before I make a final ruling. (Pause in proceedings.) THE COURT: I'll permit very limited examination on those. Do you know about those contracts, Mr. Burke? Were you aware of them? THE WITNESS: Yes. THE COURT: All right. You can inquire very generally as to what they are, not in detail. BY MR. HAGLUND: Q. Is it a fair statement that these contracts committed all of the volume from Crown Pacific tree farms in Northwest Washington to Weyerhaeuser? [Tr. 12] MR. SIMON: Objection, Your Honor. That is not gencral inquiry about the contracts. 578a THE COURT: To the extent that he knows, without re- ferring to them, he can testify. THE WITNESS: | am pretty sure these contracts were done by my former boss; but, yeah, we had contracts with Northwest Hardwoods. BY MR. HAGLUND: Q. And you were aware that those contracts in ‘98-’99, committed the alder saw log volume from — THE COURT: I'll sustain objection to counsel’s state- ments about what the contracts called for. BY MR. HAGLUND: Q. Okay. Just a couple other questions. Mr. Burke, isn’t it true that you got a call from Bill Nelson shortly after this lawsuit was filed? A. He called me wanting to buy some logs. Q. Didn’t he tell you about — MR. SIMON: Objection, Your Honor, hearsay. -——JHE COURT: Objection will be overruled. You may answer it. THE WITNESS: | am pretty sure he didn’t say anything about it. BY MR. HAGLUND: Q. And you didn’t tell him that you couldn’t afford to [Tr. 13] testify against Weyerhaeuser? A. No, absolutely not. Q. Your company has been on the sales block for the last two-and-a-half years, hasn’t it? A. Oh, yeah. That’s common knowledge. * * * 579a [Vol. 6-B (Apr. 15, 2003)] [Testimony of Robert Taylor] * > * [Tr. 19] So as I moved to the east United States and the eastern business, those same criteria held true, the same processes, which was excellent for me. And then when I was appointed in the role I am today in the late 1990s, it gave me an opportunity to then go to customers, new customers, and really sell the value of that product, but know how alder sub- stitutes in and out with a number of species. Q. Would you describe that for us a little bit. A. Well, you know, the customer really determines what species they use. It’s all about style, it’s about taste, it’s all about experience and look for them, as well as how well it machines and how well they are able to control their costs, and make a good margin of profit by processing it. You know, the alder clearly can be substituted for other products as well as be substituted out based on those styles and trends. So when we are around the world, what we’re trying to do is understand the customer, understand what they’re trying to produce, and look to see how we can fit a product into their need. And sometimes that’s alder and sometimes it’s other products for alder, so it’s a real advantage we have by being close to that customer to understand what their needs arc. Q. Now, there has been testimony in this trial about vari- ous technological improvements that have been made at [Tr. 20] Northwest Hardwoods, and other witnesses have gone into detail, the various pieces of machinery, how they’re op- erated. Let me ask you from a big picture perspective, why does Northwest Hardwoods make the investments it makes? A. Well, it starts with understanding where value is cre- ated; and, secondarily, understanding the resource that’s 580a available and trying to put equipment in that extracts the most value out of that resource. Starting with a sawmill, if logs are small and crooked, you have to put equipment in that maximizes the value and the amount of lumber that comes out of that log in order to then protect that as it moves through the entire manufacturing process. We also install technology to help improve the de- cision by the employee that’s handling the wood. Unlike softwood lumber, every employee that handles a piece of hardwood is making a decision based on the value of a piece of lumber, that log, that block. And it’s important that we provide those tools to the employee, whether it be equipment and/or education in order for them to protect the value and get more value out of it, so we really design our mills in order to do that. And then hopefully if we’ve done our job well, and sometimes we don’t do our job as well as we could, we limit the amount of — of loss from the time that log lands at our [Tr. 21] facility until the time the customer receives the lum- ber. We take ownership during that entire process. We will not pass on to the customer any defects, to the best of our abilities. Q. Let’s change topics a little bit and talk about some of the experiences that Northwest Hardwoods was seeing in its lumber sales market in the late 1990s, in particular directing your attention to the latter part of 1997, early part of 1998. What was the company experiencing? A. There was a lot of — I guess turmoil might be a good word, going on in the world marketplace. We had an Asian crisis beginning to occur, and the demand primarily in Japan was reducing. Their economy, their bubble economy had kind of burst and things were tough there. In Europe, things were also slowing down, and customers that would use alder for the building of furniture needed less. 58la And then the third component was the eastern U.S. furniture producers were starting to move offshore. And all of those things started to occur, even though minor, some of those, and we had to change our focus on customers that we sold to. Q. Tell us about that. What exactly were the changes? What were the changes that Northwest Hardwoods started making in response to this economic situation? A. Well, first of all, the cabinet industry in the United * * * [Tr. 30] A. From — in the early ‘90s was eastern business vice president. Q. And from time to time, would you have meetings with Arnold Curtis and the managers of Northwest Hard- woods? A. On occasion, but they didn’t occur very often. Q. Did you hear Mr. Curtis or Mr. Hohendorf ever ex- press an opinion that Northwest Hardwoods should maintain high log prices? A. Never. Q. In the year 2000, were there any recommendations from Weyerhaeuser, or decisions made with respect to modi- fying the accounting of corporate and business level costs? A. Yes. Q. What happened? A. Yes. All selling gencral administration costs were asked to be kept at the business level, and the units, the manufacturing units were asked only to keep track of those costs that they controlled. Q. Did that have ~ was that just for Northwest Hard- woods? I 582a A. No, that was the entire company. And it was for stan- dardization, so that when businesses were being compared against, everyone was using the same accounting principles. MR. SIMON: Your Honor, we ask that a copy of the ju- ror notebook be given to this witness. THE COURT: He has it, | think. * * * — [Tr. 33] business, meaning why should you be in busi- ness. And the second part included strategy and rationale, which is, what can do you and how attractive of an industry are you in. Then you look at the execution of that strategy and the outcome. All of which each business went through in order for the Weyerhaeuser senior management team to understand what businesses should be a part of the company, what businesses need to improve to be industry leaders, because the goal is to be an industry leader, and then what businesses need to be just held or divested. Q. Some of those documents contain some statements about what some other hardwood mills in the Pacific North- west were doing or experiencing or facing. First of all, where did that information come from? A. It was all estimates. In the western U.S., there isn’t any place to find data regarding even production of lumber, so everything is just looking at our best guess estimate, using whatever resources we had available to us. It’s very difficult to come up with actual numbers. It was strictly an estimate for the western United States. Q. Now, what’s the point or purpose of making these es- timates about what some of the competitors’ situations might be? A. Well, for us, what we were more concerned with was what [Tr. 34] our business units were doing and how to im- a Neen ene enn ene 583a prove those. Because, again, our goal was to be number one or two in our industry, in the hardwood industry, and that was our objective, to display how we were performing. Q. Now, we’ve been talking about the investment direc- tion setting and the company level. Was there also some- thing called an annual planning process within Northwest Hardwoods? A. Well, it wasn’t just Northwest Hardwoods. It was the entire company. Q. Would you just explain what that is and how it differs from IDS? A. The IDS was done in springtime to provide the Wey- erhacuser senior management team information by mid-year, so they could begin to set their goals. The annual planning process occurred in October, and that was for each business to plan for the following year. The company would do that so they could roll all the businesses up and then go to Wall Street, you know, to indi- cate how performance and forecast looked. There was a lot of pressure to predict what future earnings were going to be. Q. Now, who participated at Northwest Hardwoods in this annual planning process? Not the Weyerhaeuser com- pany-level IDS, but who were some of the participants in the annual [Tr. 35] planning process? A. As far as the annual planning process, it was really done at the mill levels, and then it was rolled up to Northwest Hardwoods’ leadership team. Q. And that would include you? A. Yeah. MR. SIMON: Thank you. | have nothing further. THE COURT: Cross-cxamination. 584a MR. HAGLUND: Thank you, Your Honor. CROSS-EXAMINATION BY MR. HAGLUND: Q. Mr. Taylor, would you agree that if the alder resource in the Pacific Northwest were to be off limits or to disappear, that the existing hardwood industry here would also disap- pear? A. Well, you know, the mills that we have today, are constructed with equipment to handle the alder and maple resource. | — I know we've run a few tests on softwoods, such as hemlock, but because we have never had a need to run other softwood species — THE COURT: His question related to hardwoods. The hardwoods industry woul. disappear? BY MR. HAGLUND: Q. Was the answer yes? A. If there were no other hardwoods to run, yes. Then * * * [Tr. 39] Q. And Weyerhaeuser maintains detailed acrial and other inventories of the entire forest resource in the Pa- cific Northwest, correct? A. They keep track of inventories, that’s correct. Q. Quite closely, correct? A. They usually do that every three to five years, yes. Q. And you were involved in reviewing these materials before they were actually shared with senior management that was above you, correct? A. That’s correct. Q. So you had input into what is Exhibit 400, correct? 585a A. That’s correct. Q. Okay. Let’s move to Exhibit 405. Are you familiar with this document? It is also in your book, and I’ll blow it up more in a moment. This is 405. A. Yes. Q. Is Del Fisher in the upper right-hand corner? A. That’s correct. Q. And was this — this shows — oh, I don’t see a date. Was this also prepared for this strategy session you’ve de- scribed? A. Yes. This is — it appears, based on the comments, this is 1999. Q. Well, wouldn’t it have been 2000 if your third bullet * * * [Tr. 43] Q. I'll restate the question. Isn’t it true that your senior management team of Northwest Hardwoods gave two $1,000 recognition awards at the end of 2000, and one of those was to Gene Novak? A. I — I would have to check that. I can’t remember three years ago what that recognition was. Q. Well, do you remember that you did give one to Gene Novak? A. I do not recall that, no. MR. HAGLUND: Okay. May | approach the witness? THE COURT: You may. THE WITNESS: Okay. Yes, | do remember this. BY MR. HAGLUND: Q. Would you read what’s stated in your — is that your handwriting in the lower left-hand corner? 586a A. That’s correct. Q. Could you read what you wrote to Mr. Novak. A. “Recognition award of $1,000 will appear on the 12- 29 pay period. Thanks for your support and assistance.” And this was to the Project Grizzly team. Q. And Mr. Novak was part of that team? A. That’s correct. Q. And he got a thousand dollar bonus at year end as a result? A. That’s correct. According to this, yes. * * * [Tr. 50] weren’t added until after you bought Coast Mountain? A. That’s not correct. Q. Isn’t it true, Mr. Taylor, that the forest licenses were not a significant factor in Weyerhaeuser’s valuation of the purchase — in Weyerhaeuser’s valuation of Coast Mountain? A. That’s correct. MR. HAGLUND: Novy, if the witness could be handed Exhibit 482. (The clerk complies.) BY MR. HAGLUND: Q. Now, Mr. Taylor, I want to ask you some questions about the procedures for establishing transfer pricing for al- der saw logs supplied to the Northwest Hardwoods mills from company lands. Is it a fair statement that it’s your understanding that those transfer prices are to be set 587a quarterly at fair market value as reflected by sales to purchases from third parties? MR. SIMON: Your Honor, I object. It’s beyond the scope of direct on this line. THE COURT: The objection will be overruled. THE WITNESS: It’s my understanding that prices arc set based on the market. BY MR. HAGLUND: [Tr. 51] Q. Transfer prices are set based on market, is your understanding? A. That’s correct. Q. Okay. I'd like to — you’ve got 482. It’s a 66-page exhibit. I am only going to be dealing with a few pages, but | need to tell you what the numbers are. !f you could first turn to Page 13. First, Mr. Taylor, let me tell you that Exhibit 482 consists of the year-end profit and loss statements for each of your hardwood — your alder sawmills in Oregon, Washington and British Columbia for the period of 1997 through 2001. Each one is a two-page document and all of them are contained in this exhibit. | assume you're quite familiar with these, and the format. Is that a fair statement? A. That’s correct. Q. And the first one | want to show you is for the first year that you owned Coast Mountain. And you call it your Delta, BC, sawmill, correct? A. Ah, Delta, BC, correct. Q. And here, if we blow this up a little bit, | want to go to the middle where the logs are. We can see two major S88a categories of logs, is that correct, third party and Weyco or Weyerhaeuser. A. That’s correct. [Tr. 52] Q. Now, the third party logs would be those that your company is buying from outside suppliers; is that right? A. |~1 am not familiar with the exact category. I’m as- suming that that’s correct. There is a difference between Weyerhaeuser and then third party. Q. And the Weyerhaeuser category would be those com- ing from either private hands like those you acquired from MacMillan-Blodel or the forest licenses you acquired from Coast Mountain? A. That’s correct. Q. Okay. And if we move across here to the far column, which shows the year-end data, wouldn’t you agree? A. Correct. Q. If you look on the screen, what we see in 2001 is that you bought 22.4 million board feet from third parties; is that right? A. That’s correct. Q. And the average price that you paid for per thousand board feet is $282 per thousand board feet, correct? A. Right. Q. And the second category, which is the private com- pany wood or the forest license logs, you bought 9.8 million, or you supplied 9.8 million board feet of those logs to your Delta sawmill in 2001? A. Correct. That’s what this says, yes. (Tr. 53] Q. And the transfer price that you recorded in your year-end financial statement was $282; is that right? 589a A. That’s what this says, yes. Q. So at least in British Columbia in 2001, there was no differential between the transfer price and the third party price on a year-end all average basis, correct? A. Other than the handling costs. Q. Okay. Other than a very small difference between handling costs? A. Uh-huh. Q. Okay. Now, I'd like to have you turn to Eugene, which is Page 45 in this document. Some of the page num- bers are sideways because of constraints in the copy. Now, would you agree with me, Mr. Taylor, that this is the Eugene mil! year-end Page 2 statement for the financial performance of the Eugene sawmill? A. That's actually Page |. Q. Okay. That’s Page |. You’re right. Page | of the two-page year-end financial statement? A. Correct. Q. Now, if we go down to the same section of logs, do we have these same two categorics, purchased third party, purchased Weyerhaeuser or fee trmber? A. Yes. Q. And I’ve marked those with a highlighter on the screen; [Tr. 54] is that right? A. That’s correct. Q. Now, if we move across, do we see here, Mr. Taylor, that the third party volume that you bought from third parties for the Eugene mill in 2001 was 32.1 million board fect? A. Correct. 590a Q. And you paid an average price of $449 a thousand for that? A. For the 12 months, yes. Q. Okay. And then when we look at what was delivered to the Eugene mill from your company lands, it was 3.6 mil- lion board feet, correct? For the 12 months, yes. And the average price is $436? Correct. And that’s a differential of just $13? For the year average. For the year average. Pe? es Pe FP? Right, but not for each individual purchase. Q. I agree. Just the year-end average $13 per thousand differential year-end. Okay. Now, let’s turn to Longview 2001, which is Page 10 of this document, Exhibit 48?. Would you agree that Page 10 of this exhibit is the Longview mill, Page | of the [Tr. 55] year-end financial statement for 2001? A. Correct. Q. We go down to the same area in the first column. Do we see the same two categories of third party open market logs and company logs? A. All logs, right. Q. Well, we see two different categories, night? The same two we saw before. A. We don’t separate saw logs from pulp logs, so it’s all logs. a 59la Q. I understand. Then if we go across for Longview in 2001, it is correct that you bought 23.2 million logs on the open market for the year? You need to answer out loud. A. Yes. Q. And the average cost was $537, correct? =~ A. That's correct. Q. And then you supplied from company lands 11.1 mil- lion board feet, correct? A. Correct. Q. And the average price for the year was $362? A. For all logs, yes. Q. And let me represent to you that’s a $175 differential? A. There is a difference in price between saw logs and pulp logs. * * * [Tr. 66] Q. All right. And then you also made a state- ment in response to Mr. Haglund, you didn’t see a relation- ship between the alder lumber market and the alder log market? A. That’s correct. Q. Let’s take those through and I'd like you to explain what you meant. First, why did you disagree with him when he asked, “Can Northwest Hardwoods control the price of logs?” A. Well, | view the lumber market and the log market different. So in the logs, it’s driven by the softwood harvest, and there are a lot of decisions that take place by a landowner because of the softwood volumes on there. The hardwoods come along after. So the volume in value is determined on what that softwood harvest is. 592a {Vol. 6-B (Apr. 15, 2003)| [Testimony of Vicki McInnally| * * * [Vol. 68] Eugene Novak. | take it you know who Mr. Novak Is. A. Yes. Q. Did you work with Mr. Novak, and in what capacity? Tell us a little bit about that relationship just generally. A. Gene Novak was on our financial lead team. He was a business analyst for Northwest Hardwoods. He did report to me for the duration of my stay there, which was three-and- a-half years. Q. Which time period? A. From November 1998 through August of 2001. Q. And directing your attention to the time period of early 2001 — or, frankly, let me broaden it. From any time that Mr. Novak reported to you during that time period when you were controller of Northwest Hardwoods, did you ever make any statements at all to Mr. Novak that it was North- west Hardwoods’ business strategy or objective to have or maintain high log prices? A. | never made a statement like that, absolutely not. Q. As a matter of fact, is it Northwest Hardwoods — or was it ever Northwest Hardwoods’ strategy to maintain high log prices during your tenure there? A. Never. Our strategy is to manage our log costs. The very first | heard about that supposed conversation was in Gene Novak’s deposition several months after he left the company. * * * (Tr. 77] Q. I understand that. And when he came to town, was it unusual for him to meet with you in your office? 593a A. Occasionally we would meet. Typically we would meet in Portland because | was traveling there more often. Q. Let me put it this way: Did Mr. Novak ever meet with you in Federal Way ‘= your office? A. Yes. Q. And was it just the two of you in that office? A. There may have been several times when it was just the two of us. Q. Does that separate Mr. Novak from any employee tha reports to you? A. No. Q. Many times they would come into your office and have a discussion? A. Very, very often, yes. Q. And in 1998-1999 time period, do you ever remember Mr. Novak at one of these meetings explaining to you about this disconnect between what he considered was happening to the alder lumber prices and alder log prices? A. In the ‘98 to ‘99 time frame? Q. Yes. A. We had several discussions. In ‘99, I asked Gene to help put together a model on the western log resource activ- ity. And for several months in ‘99, the latter part of [Tr. 78] ‘99, he was working on a model that showed ail of the logis- tics flows from the resources, the standing timber to each of the logs — Q. He was trying to check out — A. ~ each of the plants. Q. I’m sorry. He was trying to figure out the problem, right? 594a A. Yes. This is a model that’s very familiar that we use in other geographies, and | asked Gene to help put one to- gether for the west. Because he worked on a similar model in our northeast and our southeast operations. I said, “We needed to get — because it’s such a complex set of mills and sourcing areas, that would help if we had a model put to- gether.” So Gene and | did have conversations about that model. As a matter of fact, we took it for a trial run. It would have been in the very end of ‘99-— or actually the end of 2000. Q. My question simply was: Mr. Novak was familiar with this model then, obviously? A. He was putting it together. Q. And he was familiar with it from prior assignments, correct? A. Yes. Q. Now in this time frame that we have been discussing, [Tr. 79] in 1998 and 1999, did Mr. Novak ever come in to you and ask, “Why are log prices so high when we control so much of the market?” A. | don’t remember any of those specific conversations. Q. In general, was that the topic of any of the questions he had for you? A. It would have been more in the latter — as we were in- vestigating our strategy for 2001 is when we had more con- versations. Q. How about 2000? In 2000, would he have had a question similar to what | just asked? A. The end of 2000 and early 2001 is when we were put- ting all the information together and we were having a lot of conversations about how to manage our log costs down. 595Sa Q. In that time frame, Ms. McInnally, do you recall Mr. Novak coming in to you and saying, “Why are log costs so high when we control so much of the alder log market?” A. No, | do not remember him asking that. Q. And you never said, “We have a strategy in connec- tion to alder logs”? A. I’ve never said anything to that effect. 1 would never say anything to that effect. That was fictional. Q. Is it your opinion that Mr. Novak, after he had some personal problems with his divorce, that he never did any good work for Weyerhacuser again after that? * * * [Tr. 83] THE COURT: All right. Any further questions of this witness? | BY MR. KELLEY: Q. Ms. MclInnally, in 2000 and after, did sales expenses go away in terms of allocation for Northwest Hardwoods mills? A. We had several changes in how we allocated over- head costs each year. In 2001, they entirely were held at the business level. In 2000, which you’re referring to, we re- tained the IT costs and the business management costs at the business level, because it was difficult to allocate those costs based on units of production. Q. But the expenses still existed, right? A. That’s true. They were declining, but they still ex- isted. We were asked to keep our accounting processes as simple as possible, and by the time we put together the plan for 2001, all of the costs were held at the business level. Q. And now Weyerhacuser as a parent corporation car- ries significant debt, does it not? 596a MR. SIMON: Objection, beyond the scope of the direct. THE COURT: She testified, as I recall, about the alloca- tion and the savings of the money necessary for the corpora- tion, Weyerhaeuser. MR. KELLEY: Relates to allocation, Your Honor. THE COURT: | will permit it. * * * [Tr. 89] THE COURT: You may continue your cross- examination of this witness. MR. KELLEY: Thank you, Your Honor. Your Honor, may | approach? I have some blowups of some exhibits. THE COURT: You may. BY MR. KELLEY: Q. Ms. Mclnnally, I am going to ask you some questions about 400 and 405. Maybe it is casicr than me trying to put them on the screen if you could look over here, please. Can you see that? A. Yes. Are you familiar with Exhibit 400, Ms. McInnally? Yes, | put that together in the spring of 1999. You put that together? Yes. Q. Yes. And on the primary contributors with you on this exhibit, were they not David Weyerhacuser? POP A. David Weyerhaeuser. Q. Rob Taylor? A. Rob Taylor. 597a Q. Del Fisher? A. Jerry Martin, Del Fisher. [Tr. 90] Q. And this was to be used, as I understand it, in 1999, which is called the IDS seminar or meeting? A. Yes. Q. And that’s a report where Northwest Hardwoods is and where it’s going into the future, correct? A. Correct. Q. Now, have you seen the original of this document without the redactions lately? A. Not lately. Not for a couple years. Q. Well, you put it together. Let me ask you, do you re- call specifically what has been redacted by your lawyers from this document? A. I can tell that the outlook is missing, future years, and typically we put key bullets at the top. Q. Do you recall specifically what the verbiage was in these key bullets? A. There’s a second exhibit that has one of the bullets on it, next page. Industry consolidation has occurred in the west. Northwest Hardwoods is a consolidator. Q. Anything else you recall about the bullets on Exhibit 400? A. I don’t recall what they said. Q. Do you recall on the outlook where the graph went and what Northwest Hardwoods’ share was projected to be in the 2003 to 2007 time frame? [Tr. 91] A. The intent of this chart was to show the sup- ply outlook, so this is a chart that is intended to give a fore- cast of where the harvest levels are going. 598a Q. And my question only was: Do you recall in the 2003 and 2007 time frame, what share of the market is represented in Exhibit 400 for Northwest Hardwoods? A. I don’t recall the share after what’s shown there. | can’t recall what that says. It has been several years. Q. Then if you take a look, please, at Exhibit 405, you also, did you not, prepared this document? A. Yes. This is — this is the way that we show our com- petitiveness for our strategic review. This one is for Wash- ington state. Q. Did you put this Powerpoint presentation together? A. Yes, I did, and the analysis, the numbers behind it. Q. And I understand that you and the same individuals | mentioned, Mr. Weyerhaeuser, Mr. Taylor, Mr. Fisher, were the wordsmiths, if you would, of these bullet points? A. What you’re looking at, this is the note pages for the speakers, so when we’re presenting this, typically what the senior team would have seen is just what is in the box, the slide up above. And so these were notes below for Dale to, as he was explaining the chart, there were notes that he could refer to. Q. This was on the screen for the entire audience? [Tr. 92] A. And in their notebooks. Q. And these were Mr. Fisher’s talking points? A. Correct. Q. Do you recall what’s been redacted on this exhibit from No. 405? A. We may have had some letters in there representing different competitors. Q. Do you recall specifically that you did have, in fact? 599a A. I don’t recall —I don’t recall. Q. Let me see if you can explain for me exactly what this shows. The zero to 100, that would show a profit margin, would it not? A. On the left axis is the net margins, which is the profit margin. It’s the earnings of that plant divided by the lumber that they sold. And so it goes from zero to 100. You could see Centralia was $100 margin, correct. That is the left axis. Q. And the bottom axis, this is what? A. On the bottom that shows the log supply for that time period that we’re working with. In this case, it is roughly 250 million feet of log availability in that area servicing those mills. Q. Were there any projections in terms of where the sup- ply of the alder resource was going on Exhibit 405? A. No, that’s - that’s more of a current view snapshot, [Tr. 93] where we’re at today. The intent of that is to show a balance where you’re at with your supply that’s available versus the capacity that you have in the area. We do that with all of our businesses. Q. You’re looking at a snapshot of where you are now, not what the forecast is in the years to come? A. Correct. This isn’t long term. Q. Ms. MclInnally, would it be any assistance to you in recalling specifically what was redacted from these two documents if you saw the original of the document unre- dacted from your lawyers? MR. SIMON: Your Honor, we have an objection to this that I would like to be heard outside — THE COURT: All right. You can do that. Any further questions? 600a MR. KELLEY: Yes, Your Honor. I would like to re- fresh her recollection. THE COURT: All right. We will call her back in the morning if necessary. MR. SIMON: Your Honor, this witness is from out of town and left two teenage children at home. THE COURT: You may show me then the originals and Ill make a determination. MR. SIMON: Well, | don’t have them, he has them. | have a different issue that | want to raise with the Court [Tr. 94] about that and this procedure. THE COURT: Ladies and gentlemen, we'll excuse you for a little extra recess for a few minutes. Sometimes these things do happen. (Open court; jury not present:) THE COURT: All right. What’s the problem? MR. SIMON: Your Honor, the problem is that when these documents were first delivered to Mr. Haglund by Mr. Novak, who took them from Weyerhaeuser, they contained competitively-sensitive information dealing with other com- petitors. At the time, Mr. Michael Haglund was a — and we’re out of the presence of the jury, Your Honor — was a part owner and chairman and member of the Board of Direc- tors of Washington Alder. THE COURT: I recall that. MR. SIMON: We objected to Mr. Haglund seeing this compctitively-sensitive information. THE COURT: I understand that. MR. SIMON: There was no objection made at the time by Mr. Haglund on that point, no motion to compel at all. | And, therefore, Your Honor, | think the jury will draw an er- 601a roneous inference when the jury hears there are names of other competitors on there of why we didn’t provide it. So I have two points: One is | think that that information should be provided and disclosed under seal and [Tr. 95] confidentially so our other competitors don’t find out about that, but more significantly, Your Honor, | would like an in- struction to the jury that the reason why it says, “redacted,” and they’re correct, my office redacted it. THE COURT: I will find a way to teil them that, so you won't be tarred with that brush. And my recollection is that in some of the later arguments, you said that since Mr. Haglund was no longer involved, you didn’t have any prob- lem with it, so the real issue now is to make sure the jury doesn’t draw any prejudice from the fact that it was redacted. MR. SIMON: And the only way, Your Honor, the only way in my opinion, and I submit this to the Court quite sin- cerely, the only way for the jury to understand that and ac- cept that is for the jury to understand that at the time they were redacted, from Mr. Haglund’s view, it was because of his connection with an active ongoing competitor in Wash- ington. THE COURT: We’re not going to do that. | can find a way to tell them it was redacted and the reasons it was re- dacted were valid at the time and they aren’t any longer; and, therefore, they’re being disclosed voluntarily by the defen- dant. MR. SIMON: And the record reflects my disagreement with that and my objection. | appreciate the [Tr. 96] oppor- tunity to put that on the record. THE COURT: Very well. Let’s see if there are any other arguments now while we’re at it. You're going to show those original exhibits to her — MR. KELLEY: Correct, Your Honor. 602a THE COURT: - to refresh her recollection. And I will tell the jury at the time you do that the reason they were re- dacted originally, that purpose is not in effect any longer, it should not be construed in any way against the defendant, the fact that they were redacted. MR. KELLEY: Your Honor, these documents remained in this form after Mr. Haglund no longer had any interest in Washington Alder whatsoever. THE COURT: | understand that. You didn’t particularly ask for me to relieve the redaction or I might have done it. Anyway, let’s get on with the testimony. The jury can come back in now. You'll want these under seal, I assume, still? MR. SIMON: Yes, Your Honor. THE COURT: Okay. (Open court, jury present at 3:30 p.m.) THE COURT: Ladies and gentlemen, you’ve heard a lit- tle bit about some redaction on some exhibits. I want you to know the reason those were redacted by the defendant when they were disclosed originally is no longer in [Tr. 97} exis- tence anymore. It shouldn’t have anything to do with hold- ing anything against the defendant that they have been redacted. I have now ordered that the redaction be lifted, but you should not hold against the defendant anything for re- dacting them originally, because that reason is now gone. All right. You may proceed. MR. KELLEY: Thank you, Your Honor. THE COURT: And we'd better mark these “A” num- bers, so we keep these straight. MR. KELLEY: Your Honor, | have previously marked them as our next document, 485 and 486. 603a THE COURT: Let’s give them “A” numbers because they’re the same exhibits without the redaction. So 400 will be 400A; is that right? MR. KELLEY: Correct, Your Honor, and 405A. THE COURT: All right. Those are the only two? MR. KELLEY: Yes, Your Honor. THE COURT: All right. MR. KELLEY: May | approach again, Your Honor? THE COURT: You may. And I assume, once again, other than as stated, there is no objection to 400A and 405A. MR. SIMON: Yes, there is, Your Honor. With respect to 400A, we’re going into post-2002 data, which is contrary to this Court’s ruling. [Tr. 98] THE COURT: All right. We’ll have to get that out. We'll have to stay within — this case involves every- thing up to December 31st, 2001, so we’ll have to find a way to get that information beyond that time out of the exhibit. Assuming that’s done, | assume 400A and 405A can be re- ceived subject to your previous objection. MR. SIMON: Subject, yes. THE COURT: They’ll be received. (Plaintiffs’ Exhibit Nos. 400A and 405A were received.) BY MR. KELLEY: Q. I'd like to hand you 400A. Would you take a look at that document, please. A. Uh-huh. Q. And before I ask you if that refreshes your recollec- tion, let me just repeat, this is a document that you prepared for an IDS presentation in 1999 looking forward, correct? 604a A. Yes. I was new to Northwest Hardwoods, so I facili- tated putting it together, the chart. Q. In 1999? A. Uh-huh. Q. Now, does looking at 400A refresh your recolleetion, Ms. Mcinnally, in terms of what the projection was for the 2003 to 2007 time frame? [Tr. 99} MR. SIMON: I object, Your Honor. If evidence is coming in post-2002, then I object to that, Your Honor. And I am not quite sure that the Court’s ruling makes clear to this witness what is and is not permitted. THE COURT: What’s your position about why we’re talking about 2007 now? MR. KELLEY: Because it was a projection made, Your Honor, in 1999 going forward in terms of what the market was and what share they wanted of that market. THE COURT: I will permit that, but you should under- stand the case is about acts that occurred only up to Decem- ber 31st, 2001. This projection was made before that time and so I will permit it. , Go ahead. MR. KELLEY: Thank you, Your Honor. BY MR. KELLEY: Q. Ms. MclInnally, now, the next column. Does a review of Exhibit 400A refresh your recollection as to what the pro- jected share for Northwest Hardwoods was during the next five-year period? A. Yes. What the next column shows, the main intent is that we have — Q. | just want to know what the column says. | am sure Mr. Simon will ask you additional questions in followup. 605Sa What does this column reflect in terms of [Tr. 100] North- west Hardwoods’ market share, 2003 to 2007? A. We’re showing a supply share and it is different than market share. And the share is 85 percent. It is due to the log costs. THE COURT: It is 85 percent of the supply of logs available or — you said supply, what — THE WITNESS: What’s happening is we were project- ing declining availability primarily due to all the regulations that were unknown at the time. THE COURT: Declining ability of logs? MR. SIMON: Availability, Your Honor. THE COURT: Availability, excuse me. THE WITNESS: ‘99 was the time frame where all the salmon regulations were coming into play, and there was a huge amount of uncertainty. And so those of us who have capacity were concerned about what will the regulations do, and stream-side management. At this time this chart was put together, we did not know, so you can see at the bottom, we took some projections about how much will be available at that time. And we were con- cerned because it was an unknown and we projected that there may be less available. THE COURT: Let me get back to my question. That last column is talking about an estimated percent share of the logs, alder logs; is that right? [Tr. 101] THE WITNESS: On the axis it’s showing the logs that will be available, each harvest for each year. And then what we’re interested in is, because our mills are be- coming more efficient — THE COURT: All | want to know is what that last col- umn is. What does it say? 606a THE WITNESS: The total log supply availability, and of that, how much we project Northwest Hardwoods’ will be. THE COURT: Okay. Supply of log availability. That’s what it means. THE WITNESS: Yeah, it’s supply. THE COURT: All right. Go ahead. Excuse me, Mr. Kelley. MR. KELLEY: No problem, Your Honor. BY MR. KELLEY: Q. In 1999, you projected that Weyerhaeuser would go over 85 percent of the supply share in this time frame, 2003 to 2007? A. It was a function of having less available and our mills becoming more efficient. Q. And having said that, the projection was 85 percent of the supply share? A. That was our projection at the time, and we were very concerned about that. {[Tr. 102] Q. Let me hand you 405A, and ask you the same question, Ms. McInnally, if that refreshes your recollec- tion in connection with certain information that was previ- ously redacted. A. I can’t tell by looking at this chart what year it is. Q. Okay. | think you testified earlier this was from an IDS in 1999? A. 1999. Q. Does that sound accurate? A. Yes, but it doesn’t have a date on it. We did very similar charts in ‘99 and 2000. 607a Q. A similar chart like this was available in both 1999 and 2000? A. Yes, that’s correct, but they were slightly different. We ended up putting Washington and Oregon together for simplicity in the following year, so this must be 1999. Q. And 405A, does it refresh your recollection in con- nection with what these particular redactions were? A. Yes, we had the — Q. Let’s start with this one. A. Those days, specifically what it says? It says, “Other capacity.” Q. The next box, Ms. MclInnally? A. Washington Alder. These are the names of plants in the area. (Tr. 103] Q. And the following box? A. Ross. Q. Based on your understanding, would that be Ross- Simmons? A. Yes. The next box, ma’am? Pacific. This right here is Pacific? Right. | am not familiar with that business, Pacific. DPOF And there is a line right here. What does that indi- ~ cate! A. Well, it looks like what’s happened is there’s another line that you’re missing. Q. Does this line continue up, ma’am? 608a Yes, it does. And it says, “2012 supply.” This line does? Yes, uh-huh. Or does this line? No. The line immediately next to Ross-Simmons — POP S&H PY No, go over. Let’s see. Well, there are two lines on here that you need to draw out. Q. If you identified this as Ross-Simmons, is there a line that has a supply indication that goes up immediately next to Ross-Simmons? {Tr. 104] A. Yes, and that’s called current supply. Q. Current? A. Which is intended to mean that there is roughly 200 million feet of saw logs, and all the rest of the capacity is pulp logs. Q. And then is there one more projection in terms of the supply into the future? A. That’s the second line. Q. Would that be here, ma’am? A. Yes. Q. And that goes to 2012? A. Yes. Q. So, now is your recollection refreshed that you did, in fact, in 1999 at this IDS, project forward in terms of what the supply would be? A. Yes. This is similar to the other chart. Here we're putting where the supply is in the future. 609a Q. And one last question, this box here, who is that? A. That’s Cascade. Earlier ] stated that this was a certain point in time, and I did not recall putting timelines in there — Q. | understand. A. — until I saw this. Q. So in 1999, when this document was created, the cur- rent supply showed that there was not enough supply for all of [Tr. 105] the competition in the marketplace; is that cor- rect? A. Actually, that is not correct, because all those mills were running. There’s also quite a few puip logs, so there is other volume that’s out there that is maybe smaller in diame- ter which allowed the remaining capacity. Q. That’s a good point. Ross-Simmons now, you know, is no longer operating; is that correct? A. That’s what | understand. Q. You know that, don’t you? How about Pacific, do you know whcther or not they’re still operating? A. I don’t know. MR. KELLEY: That’s all I have, ma’am. Thank you. THE COURT: Further questions? _ MR. SIMON: Yes, Your Honor. May I inquire of the Court, though? [ want to comply with the Court’s rule, since Mr. Kelley just asked whether or not those companies are still operating, am I now free to go into what happened post- December 31, 2001? THE COURT: No, except as to projections based upon data made available before December 31st, 2001. MR. SIMON: Even though Mr. Kelley just asked about what’s happening now with his last two questions? 610a THE COURT: Whether they are still in existence. | will ict you — that’s a good point. I will let you go into that to the extent it talks about what is available * * * 6lla | Vol. 6-B (Apr. 15, 2003)} [Testimony of David Kurtz] * * * [Tr. 110] A. You mean the actual prices for the prod- ucts? Q. Yes. A. Quarterly. It is usually quarterly. Every now and then, they might have gone to monthly, but generally quar- terly price negotiations. Q. And how much volume are we talking about, first with respect to Weyerhaeuser selling pulp logs to Georgia Pacific? A. 40,000 green tons. _ Q. And what about the volume that was being sold to Northwest Hardwoods from Georgia Pacific in Oregon? A. It was 80 percent of the annual harvest, and that har- vest would fluctuate, but it was probably three to five million feet. Q. Why was it just 80 percent, do you recall? A. We generally try not to sell 100 percent. Kind of like not putting all your eggs in one basket. We try to sell a per- cent and that way we have that remaining 20 or 30 percent to sell on the open market to make sure we are getting a correct price. It doesn’t have to go there, if we think we’re getting a good price, all 100 percent can go to the same home. Q. Now, on a monthly basis or the quarterly basis, were those separate — were those separate selling arrangements? A. Yes. What I had was a buyer in Washington that * * * 612a [Vol. 6-B (Apr. 15, 2003)] [Testimony of Larry Bray| * * * (Tr. 117] logs to the Ross-Simmons STEDCO Joint Ven- ture? A. No. We’ve had a history ever since I started or even before that that selling logs month to month, on a month-to- month basis, and that’s always the way it had been there. MR. JOHNSON: No further questions. THE COURT: Cross-examination. CROSS-EXAMINATION BY MR. HAGLUND: Q. Isn’t it true that after this lunch within a year you en- tered into — or your company entered into two successive one-year contracts to sell 80 percent of the volume from the Toledo tree farm to — the alder volume to Northwest Hard- woods? MR. JOHNSON: Objection, Your Honor. THE COURT: The objection will be overruled. THE WITNESS: Our company entered into an agree- ment, a buy-sell agreement, whereas, the Bellingham paper mill would get pulp wood from a Weyerhaeuser operation in Washington state, and at the same time, Georgia Pacific would sell to Northwest Hardwoods a certain percentage of their Toledo-only harvest. | think that was a one or a two year — one-year agreements. Q. And it was devoted, in terms of what GP was selling, exclusively to the hardwood component of that tree farm, [Tr. 118] correct? | A. Could you restate that? Q. In terms of the contract with Northwest Hardwoods, what GP was willing, agrecing to sell was 80 percent of the 613a hardwood saw logs generated from the harvest on the Toledo tree farm? A. That’s correct. Q. And this was a commitment that was a year-long con- tract in two successive years, correct? A. That’s correct. Q. It wasn’t a month-to-month situation, was it? A. Well, the contract was in place for a one-year time frame. But in reality what we did is we had month-to-month negotiations, and pricing would be done each month based on current market conditions and based on negotiations between a representative of Northwest Hardwoods and myself. And that’s the way we’ve donc it for the last six years. Q. Okay. A. In selling alder off that tree farm. MR. HAGLUND: Could the witness be handed Exhibit 430. THE COURT: Is this the contract? MR. HAGLUND: Yes. THE COURT: Mr. Bray, we just heard a witness say that the price was negotiated quarterly instead of monthly. [Tr. 119] Would that be correct? THE WITNESS: | believe that the contract states that it would be negotiated quarterly, and that’s probably what’s in the first contract. The second contract says monthly. We actually did it on a monthly basis. BY MR. HAGLUND: Q. Now - and the close relationship with Northwest Hardwoods has continued throughout the last several years, correct? 614a A. The last several years, we haven’t owned the tree farm. Q. Well, Pll withdraw that question then. Now, did Mr. Gary Schimmel ever talk with you about the contract he had discussed with Mr. Nelson? A. I can’t recall that. MR. HAGLUND: No further questions. THE COURT: Any further questions? MR. JOHNSON: One question, Your Honor. REDIRECT EXAMINATION BY MR. JOHNSON: Q. The 20 percent that was not sent to Northwest Hard- woods, what did you do with that 20 percent? A. It was sold to H.R. Jones Veneer in Grand Ronde and Morton Alder, sold to other outside buyers of hardwood. MR. JOHNSON: No further questions. THE COURT: You may step down. Thank you, sir. * * * 615a [| Vol. 6-B (Apr. 15, 2003)] [Testimony of Raymond Poppe] * * * - [Tr. 122] regard to general inventory levels? A. Yes, I did. Q. And how did you go about managing the log invento- ries? A. We - in larger producers of logs, more often than not, our purchase agreements are based — were done on a quar- terly basis, and the smaller suppliers that weren’t apt to be producing steadily on a quarterly basis, we would negotiate with them and write our purchase agreements with them as their product was — became available. Q. As a resource manager, were you concerned about the potential for stain in logs? A. Stain was a very significant issue with alder logs be- tween April and October. So stain was another — or that part of the season was another concern when we were looking at controlling inventories and maintaining the supply, stain was a significant issue. Q. From whom did you purchase logs in general? A. From the large timberlands people, from independent loggers who bought timbers sales, from small landowners. Anyone who — who had hardwood logs to offer. Q. We’ heard some testimony in this case about nego- tiations with log suppliers, and the shopping that can go on between suppliers and log buyers. Are you aware of what I’m talking about? A. I am not sure that I understand “shopping.” [Tr. 123] Q. Are there times when a supplier would come back to you and say, “Cascade had offered $5 more than you. Will you beat their bid?” 616a A. That was something that would occur occasionally. It was my practice not to engage in that whipsawing of prices because I'd already made an offer basec on my best informa- tion and more often than not probably wouldn’t produce any — any results anyway. If I understand your question, that’s what | call whipsawing of the buyers, and I didn’t engage in that. Q. Mr. Poppe, did you purchase logs from Northwes* Hardwoods — or did you purchase logs from Weyerhaeuser timberlands? A. Yes, we did. Q. And how were those prices negotiated? A. Those were — excuse me, I came here with a cold. We negotiated with Weyerhaeuser, Weyerhaeuser timber, at arm’s length. And the market prices is what we dealt with - the same with Weyerhaeuser, with Weyerhaeuser timber- lands, as we would another large timberland operator. Q. During that time frame, 1990 to 1993, relative to what you were buying from third parties, what types of logs was Northwest Hardwoods buying from Weyerhaeuser timber- lands in Longview? A. From ‘90, ‘91, we were buying a sawmill sort from [Tr. 124] Weyerhaeuser and Weyerhaeuser timberlands. Probably somewhere in ‘91 and probably because of the pa- per mill right there in Longview, we began buying the pulp logs as well. So in that frame — time frame, we bought again, beginning probably somewhere ‘91, we bought the camp run hardwoods or pulp logs as well as saw logs. Q. Mr. Poppe, who did you report to as a resource man- ager at Northwest Hardwoods? A. I reported to Heinz Hohendorf. 617a Q. Did Mr. Hohendorf ever instruct you that it was the business strategy of Northwest Hardwoods to buy more logs than it needed at Longview in order to keep logs away from competitors? A. Never. Q. Did Mr. Hohendorf ever tell you that you should buy logs at high prices, higher than the market, in order to raise the log prices to competitors? A. Never. MR. JOHNSON: No further questions. THE COURT: Cross-examination. MR. KELLEY: Briefly, Your Honor. Thank you. CROSS-EXAMINATION BY MR. KELLEY: Q. Sir, if I understand your testimony, when you faced a situation in which a competitor might be raising what he * * * 618a [Vol. 6-B (Apr. 15, 2003)] [Testimony of Bruce Sutten| * * * (Tr. 128] standing timber that we utilize inside of our op- erating unit. | am also responsible for-appraisal work and for the evaluation of any land adjustment, and land adjustment is simply where we buy land and timber and/or sell land and timber or reproduction. We are constantly either consolidat- ing Our properties or getting rid of properties that don’t fit the core, so that’s my responsibility. Q. So you’re a part of Western Timberlands? A. Yes, | am, Western Timberlands. Q. Now, as part of your duties, do you negotiate with Northwest Hardwoods’ personnel on the transfer price for hardwood logs? A. Yes, 1 do. In fact, I do all of the transfer prices for all the operations in the Twin Harbors area. That is one of my fundamental responsibilities. Northwest is only one of many units we have in our operation. We have western lumber business, which has three sawmills; the western veneer busi- ness, we have two veneer plants. We have pulp, paper and packaging, a pulp mill that I ne- gotiate transfer prices with, and Centralia Northwest Hard- woods. All of those are divisions of the corporation, Twin Harbors, Timberlands being the division that handles the land and timber, and then | have to sit down on a monthly basis and negotiate prices with all of the other individual operating divisions. [Tr. 129] Q. So in terms of Northwest Hardwoods, with whom do you negotiate? A. For Centralia, who | negotiate, Centralia mill which is the closest to our operation logistically, the shortest haul for our trucks, and our tree farm is actually right up against their operating boundaries, is the Centralia sawmill. 619a That doesn’t preclude, though, if Centralia needs to move some inventory from Longview that I won’t sit down and negotiate prices with Longview mill, but predominantly our production goes to Centralia. Centralia also has a pulp facil- ity at DePaul. We split our hardwood into two essential sorts coming out of the woods. Our loggers make a definitive ef- fort to make an eight inch plus grade log sort which goes di- rectly to the sawmill, and then a fiber sort which goes directly to the fiber facility. Q. Now, with regard to who you negotiate with at Cen- tralia, during the 1990s, who was that person? A. Bernie McCain. Q. Now, with regard to the logs that you would transfer to the Longview sawmill, through the majority of the 1990s, who were you negotiating with? A. 1990s would be Jerry Bain. Q. Now, how would these negotiations work? How would they happen? [Tr. 130] A. Oh, boy. Northwest Hardwoods, when it was first acquired by Weyerhaeuser Company, it was ac- quired as a wholly-owned subsidiary. Because of the legal sensitivities around that, at that point in time, and the time frame I do not recall. I simply do not remember when the time frame was, it was a hand’s off negotiation. Essentially what that means is it was arm’s length where I sat and negotiated with Bernie at that point in time and Heinz Hohendorf, as open market logs. And so I was dealing with them as if it was another customer, any other customer in the business. After the company decided or made the decision in the legal sense to turn it from a wholly-owned subsidiary to a division, then the rules changed. | have very, very definitive rules that tell me how I set my transfer prices and how | deal with my transfer prices, 620a and when it became a division of the company, I deal my transfer prices with it as a division of the company exactly like 1 would with western lumber business, which is one of the my softwood mills, or with the pulp and paper business, which is the pulp mill. And there is a corporate policy that I have to follow in order to establish those transfer prices. Q. Now, the majority of logs that you deal in are coni- fers, in terms of the scope of your duties? (Tr. 131] A. Yes, itis. Q. So how do you know when you sit down with Mr. McCain or Mr. Bain that you are getting the market price? A. Well, to step back to the wholly-owned subsidiary. At that point in time, our operating unit had excess hardwood above and beyond what Centralia and Longview nceded out of my operating unit. And during that time frame, I actually sold logs to a company by the name of Hampton Hardwoods, which is owned by Hampton Tree Farms, which is — well, they had a large sawmill here in Oregon and some in Wash- ington. At that point in time, they had a hardwood mill located in our operating unit. I also sold logs to Cascade Hardwoods. So during that time frame, it was very easy to get it because I was sclling logs on the open market and it was not hard for me to establish what market value was and how hard I had to push Jerry or Bernie. When it became a division, what we fell back to at that point is the market evidence that I have to accumulate to do appraisals. I’m constantly out looking at timber, either when we're dealing with a land transaction that has merchantable timber on it, or if it’s just a stand of merchantable timber. And part of my responsibilities as senior appraiser is to know what the markets are, so 1 know what I have to pay for that, just as if you were appraising a house [Tr. 132] or an apartment building. You do comp sales, and that’s the only 62la way you are going to know about where you have to be to pay for that patch of timber or that patch of land for timber. Now, my largest responsibilities are the softwood part of it. Well, you don’t get pure stands of Doug fir out in our neck of the woods. We have Doug fir, hemlock, spruce, ma- ple, alder, cedar, all growing on the same piece of property. So to do a credible appraisal for that piece of property, you have to have a good solid understanding of what those markets are for each of those species and for the quality as- sociated with each of those species that exist on a piece of property to establish what your comp sale is going to be, so I can take it forward to my management team, and say, “Okay. This is what 1 am recommending that we actually spend for that piece of property.” Without credible information, quite frankly, | would get it thrown back in my face and I’d be doing something different. Q. You mentioned that when you were sending logs to the Centralia mili, you will — Western Timberlands will sort pulp and saw logs. Is that what you said? A. Yes. Q. Now, with respect to the Longview tree farm, how does [Tr. 133] it work there? A. That’s a little different down there. The location — currently, the location that their hardwood goes to is one fault. The hardwood all goes to the Longview operation. And so for us at Twin Harbors, we specifically have two iso- lated disposal points, which mileage wise | would say they are 25 to 30 miles apart, physically the sawmill and physi- cally the pulp mill. -To save money operationally, you make the decision off the landing or out of the woods to take the truck of gray to the sawmill, so that you don’t have to end up putting it on 622a another truck and hauling it back down the highway to the sawmill, so we make that split in the woods. In Longview, that’s not the case. They’re going to one location. They take it out of the woods, take it to that loca- tion. They get paid appropriately. They can get paid essen- tially what they show up with. On the average, back to the acre, | would assume it is pretty close. Quite frankly, I’ve never sat down and made a compari- son directly between the two of them. | know from my facts, you know, what we get back per acre. MR. JOHNSON: No further questions. * * * [Tr. 134] CROSS-EXAMINATION BY MR. HAGLUND: Q. Mr. Sutten, you work out of the Grays Harbor area? A. Yes. I work out of where our operating unit is in a small town called Cosmopolis. _Q. And is Weyerhaeuser the dominant log exporter of conifer logs out of Port of Grays Harbor? A. Now we are. Yes, we are. The export market is ex- tremely weak at this point. We’re dominant, but very, very weak ourselves. Q. Are you also the dominant exporter of chips out of the Port of Grays Harbor? A. We don’t export chips overseas out of the Port of Grays Harbor. We do transfer chips from our operations out of Grays Harbor to other operations in Longview. Q. Now, is it a fair statement that the bulk of what your office does in Cosmopolis is source export logs to combine, on the open market to combine with export logs from your own tree farms? 623a A. No. The Twin Harbors tree farm, as we have transt- tioned, we transitioned the second growth management in about 1976. And when I’m saying second growth manage- ment, we were truly in second growth. We have the pride to say that we are the first industrial tree farm in the United States right there at Twin Harbors. * * * [Tr. 139] Q. And he would follow the same process that you follow when you negotiate transfer prices; ts that cor- rect? A. We have a policy that we have to follow. Q. Okay. And in looking at the detailed records, Mr. Sutten, it appears that the — that the vast bulk of your volume from the Twin Harbors tree farm goes to Centralia? A. Oh, yes. Yes, it does. Q. And you do your best to establish transfer prices that are at market value? A. That’s my job. Q. And that’s the policy? A. That’s the policy. Q. And when one looks at the Longview record, sir, it’s clear that that’s what you do when you sell logs from Twin Harbors to Longview, correct? A. Yes, it is. Q. Because if one were to compare the prices for high, medium and low logs within the various diameter classes that you're selling in a given quarter, mostly to Centralia, but some to Longview, you’d have the same pricing, correct? A. If I was selling from the Twin Harbors operation to the Centralia mill and to the Longview, | get paid the Cen- 624a tralia price, plus the additional trucking that it costs me to go there. [Tr. 140} Q. And, in fact, if one would go through the detail as we have done, that’s what it shows. You’re getting the same price for — MR. JOHNSON: Objection, Your Honor. Counsel is testifying. THE COURT: It’s cross-examination. I’!] hear the ques- tion. MR. HAGLUND.: I will back up a second. BY MR. HAGLUND: Q. There are quarters, aren’t there, Mr. Sutten, if I under- stand your testimony correctly, where you negotiate both with Mr. McCain on the vast bulk of your volume going to Centralia, as well as with Mr. Bain on the smaller amount of volume that goes to Longview? A. Yes, I do. Q. And the — A. Or | have, I should say. Q. You have. We’re talking about a historic period, ‘96 through 2001, correct? A. Yes. Q. And you’ve been in this position that whole time frame? A. Yes, I have. Q. And if the records show that you’re getting the same price whether you’re sending those logs to Centralia. or Longview, you are acting according to the policy as you know [Tr. 141] it? A. That’s right. 625a Q. Okay. Now — And when it comes to the prices that the Longview tree farm is paying for deliveries to Longview, you’ve never looked at that, you said? A. I’ve never made an absolute comparison, no; but, again, I go back to the comment that I made earlier, we make a definitive grade definition break in the woods. And that definition break in the woods that we make for the Centralia mill also holds true for anything out of Twin Harbors opera- tion that is transferred to the Longview operation, which is entirely different than what Longview does, because Long- view takes camp run wood direct to their Longview opera- tion. So we’re talking apples and oranges here, because Twin Harbors makes an extra exerted effort to draw value on a grade basis, because we have two different places. Longview doesn’t. They don’t make the extended effort to do the same kinds of things we do. So when I ship logs to Longview, it’s the same quality control out of the woods that we would have if I was going to Centralia. So | would have to assume without looking at the numbers specifically that, yes, my numbers would be higher because of the quality of our logs. Q. But let me — what you’ve described is a situation [Tr. 142] where your tree farm does more sorting in the woods than the Longview tree farm does, as you understand it, cor- rect? A. Yes. Q. But when you send a log truck into Centralia, the log truck is offloaded, is it not, and the logs are placed on the . ground on what is called a roll-out scale, correct? A. That’s correct. Q. And a Northwest Hardwoods’ log scaler trained in the high, low, medium specs scale those logs, right? 626a A. Correct. Q. And then your timberland division is paid according to the data that he inputs into his handheld, and goes into the computer system? A. That’s correct. Q. And the same system is used in Longview, is it not? A. Yes, it is. Q. Now, isn’t it true, Mr. Sutten, that in 1997 or 1998, you had a conversation with George Lukin, then of Pacific Hardwoods, in which you told him that your superiors had been told — or had told you to give Northwest Hardwoods some extra help in log procurement, and that you were to go into the market and tell log suppliers that you wouldn’t buy their export conifer unless they also delivered their alder saw logs? A. Oh, absolutely not. (Tr. 143] MR. JOHNSON: Objection, Your Honor. THE WITNESS: Absolutely not, no. MR. JOHNSON: Outside the scope. THE COURT: The objection will be overruled as to the scope. It is cross-examination and it is appropriate. MR. HAGLUND: I didn’t quite get — THE COURT: And my memory is that was another wit- ness, so it is proper impeachment. You may proceed. The answer stands. He said it was ab- solutely not. MR. HAGLUND: And | would — THE WITNESS: Id like to expound on that a little bit; and, quite frankly, the reason I would like to expound on it is we have — every year, we, in management at my level or ac- 627a tually a level below me and above, go through what we call antitrust training. And I do not — never do I attach a buy-sell agreement to each other. I will buy and I will sell to the same customer, but there is no attachment ever that I have done in the 25 years I have been doing this. I do not do that. BY MR. HAGLUND: Q. So George Lukin testified to the contrary, that was false? A. I have absolutely no idea what George said, but I do not do that and I would not have donc that. (Tr. 144] Q. And in your antitrust compliance program, _ there’s an explicit reference to tying arrangements being im- proper, correct? A. That was the guidance we’ve gotten from our attor- neys and our antitrust training that we’ve had over the years that I’ve had it, yes. And | simply do not tie buy-sell agree- ment. I will buy and scll to the same customers, but they are entirely separate transactions, entirely separate contracts with entirely separate volumes attached to it. Q. | understand there are separate contracts, but — A. There’s no tying. Q. — isn’t it true that you have told loggers that if — A. Never. Q. — they want to sell their export logs to you, they’ve also got to send their alder saw logs to Northwest Hard- woods? A. I recommend that they do that, but I’m not — depend- ing on the market, the majority of the time, they come back and tell me that Northwest isn’t paying a high enough price, you should sell to Cascade Hardwoods or scll them to Ross- 628a Simmons. But really, quite frankly, I would never tie that, no. If | bought the standing timber then it becomes mine in fee patent, then I can sell it internally to all of our facilities as a fee patent piece of timber and company asset. [Tr. 145] But for me to tie a purchase of export logs to Northwest Hard- woods division, or the pulp and paper division, I do not do that. Q. How strongly do you recommend that your suppliers send their alder saw logs to Northwest Hardwoods? A. I suggest because I don’t really, quite frankly, on the hardwood side of the business, I don’t have privy to the types . of prices that Bernie is working with day to day to day. I do have abSolute control over our local sawmills in the softwood business, because I’m the one who scts the prices. So for our own sawmills, | will offer prices for all the volume on the piece of property that the logger owns that I can util- ize. As far as Northwest Hardwoods is concerned, | recom- mend he calls Bernie or Steve Axel (ph), depending on where it’s located. That’s as far as it goes. * * * 629a [Vol. 7-A (Apr. 16, 2003)] [Testimony of Gary Nelson] * * * [Tr. 16] You may call your next witness. MR. SIMON: Thank you, Your Honor. Your Honor, the defendant calls Mr. Gary Nelson. THE COURT: All right. (The witness was duly sworn.) THE WITNESS: Gary Gene Nelson, Junior. N-E-L-S-O- N. DIRECT EXAMINATION BY MR. SIMON: Q. Good morning, Mr. Nelson. Michael Simon for Northwest Hardwoods and Weyerhaeuser. | want to begin by reading a brief statement about who you are. | will ask you if it is correct and then I have some questions for you. I understand you are presently the executive director of the Port of Grays Harbor up in Washington, but previously you were the general manager of the plaintiff Ross-Simmons Hardwood Lumber Company; that you were employed by Ross-Simmons from February 1997 through approximately December of 1999. Am I correct, sir? A. Yes. Q. Will you briefly describe your job functions and his- tories and any changes that took place while you were at Ross-Simmons from February of 1997 through end of 1999. What were you doing? A. I started as vice president of raw resources, which is {Tr. 17] essentially the log procurement manager and was in that capacity until the summer of ‘98. Then I took on the title of general manager, CEO —- COO I think at that time. 630a Q. Essentially the chief operating officer, equivalent to like a president or general manager? A. No. I think John Simmons was president and CEO at the time. J] was in charge of operations. Q. While you were doing raw resource material log pro- curement, was that for both the Joint Venture mill in Toledo, Oregon, and for the Ross-Simmons Longview mill or one or the other? A. It was both. Q. Would you take us through — would you describe for us how you went about — how Ross-Simmons went about procuring logs for the Toledo mill, and as part of the Joint Venture, what did they do and what were the experiences that you saw, starting with 1997? A. When I came on board, we had a log buyer, full-time log buyer in Toledo at the mill by the name of Dave Frazier. It didn’t work out too well. | think | let him go that summer and took over responsibility for procurement there. It was a network of log suppliers — timberland owners and log suppliers. After 15 years in the business, you kind of know who is who and who to call. There is mailings you get on distribution lists, some of the larger [Tr. 18] companics, Georgia-Pacific, Willamette will have regular offerings, maybe quarterly offerings, and they will mail out a prospec- tus, if you will. A lot it is just inquiries. We advertise in the newspaper, in the local papers, and we have people call in and then we would go out and look at their logs and bid or appraise the logs for them. I would say — I can’t say percentage-wise. I don’t have the documents in front of me. You can look and see what was small private versus larger timberland owner. 63la Q. Were you able to get — why don’t you describe what you were able to get generally in terms of the timber resource or alder log supply at the Toledo Joint Venture mill in terms of quality and price. A. In ‘97, we actually had a pretty good log — actually had too many logs. In late 1997, we actually had to back- haul some logs up to Longview to get them processed before they stained on us. Going into ‘98, again, the market started weakening in late ‘97 as did log prices go down. And then you have peo- ple who just don’t log. Every time you have a drop in prices, the marginal supplier says, I’m not willing to sell at that price. Availability drops off. The ovevall age class in that kind of working circle was, we felt, much younger than what we had in the * * * {Tr. 21] Siletz, 1 think in the deck, and then we picked up the cost of transportation. So we paid the actual cost there and then picked up the transportation. We ended up with a delivered log in Longview comparable to what the market was in Longview. Q. Let’s talk about the market in Longview. In the 1997 time period, what was Ross-Simmons’ experience in terms of buying logs for its Longview mill in terms of could it find adequate supply at appropriate market prices or appropriate prices? A. Yeah. I think we had a good supply of logs. We also were buying in Port Angeles at that time. I think Bill Nelson had started or instigated a program with Crown Pacific in Port Angeles for regular supply. That relationship deterio- rated, | think, in the fall of ‘97. I’m not sure why to this day, but that fell apart. But we did continue to procure logs in Port Angeles. That was a small increment of our logs for Longview. 632a In Longview, Longview Fiber was, I’m sure, the largest supplier of the whole spectrum, from small diameter pulp logs up to large diameter sawlogs. There was a fair amount of activity until late ‘97 was about the time that everybody called the Asian flu. The export market slowed down and, therefore, logging slowed down, so there were less logs available. [Tr. 22] Q. I want to spend some time on that. I want to close this part of the story and make sure I understand at least, in your experience, through the end of 1997, you were saying that there was an adequate supply of logs at appropri- ate prices for both the Toledo Joint Venture mill and Ross- Simmons’ Longview operation. Do I have that right? A. Yes. Q. Then what happened the later part of 1997 that af- fected the Ross-Simmons business and the Toledo Joint Ven- ture operations? A. I would say in probably the fourth quarter of ‘97 we started seeing demand decrease. Q. Demand for what? A. Demand for our lumber. Q. Okay. A. So we weren’t moving as much lumber. Usually when that happens, you are not getting the price that you thought you were going to get. So you got not only a little deterioration of volume but also the average sales price started to deteriorate. And then you start making adjust- ments. You start running the mill at 80 percent capacity or something like that. You try to slow things down. Slow production down to meet the sales. That’s kind of where we were at in ‘97, at the end of ‘97, first part of “98, and it just continued [Tr. 23] to deteriorate. That was in Longview. The issues with 633a STEDCO down in Toledo were pretty much the same except we were still battling some quality problems with the lumber coming out. Q. Let’s talk about quality issues out of Toledo. What did you observe? A. What the lumber sales staff told me was they had a hard time moving the same grade of STEDCO lumber versus Ross-Simmons lumber. I’m not really sure why. I don’t know if it was because it was a new product out there in the market or if there was truly something less desirable about the product. That was more finished grade product. The other issues we had were getting, 1 guess, true boards, if you will. Q. What does that mean? A. The head rig — one of the head rig rails was off kelter, so we end up, as the saw went through the log, it tended to dive at the inner snipe. You ended up losing extra fiber on the end. The head nig — excuse me — the gang saw — we had a combination gang/edger. We continually had problems get- ting cants stuck. I think we finally got that figured out, how to lubricate it and keep the spaces of the saws from getting hot so we didn’t end up with uneven lumber. That was the issue. You end up with poorly manufactured lumber. [Tr. 24] Q. We heard terms like “snipe” or “uneven lum- ber.” What is snipe? A. It is at the end of the board. It gets real narrow. The saw dives in and it ends up like this. Q. You are making a point like an upside down V? Yes. I take it customers don’t want that? No ~ that eventually gets trimmed off. It is lost fiber. OP? > By fiber you mean wood? 634a A. Yeah. Q. Did you say thin? Thick? A. In the gang setup there at SEDCO you end up with — ] can’t remember — six or seven boards, maybe eight, but you end up with one board that is an inch-and-a-half and the rest are 2 inch, for example, when they all should be the same. That had to do with the saws not tracking through the cant evenly. So when you run that through the kiln and dry it and plane it, you come up with skips. Q. What’s that? A. A skip is when it goes through the planer, and the planer puts a nice, smooth surface on it. If it is not uniform thickness, the planer tends to jump over spots. You will have a rough spot or a frayed spot in between. Q. Now, you mentioned that the market was having problems, [Tr. 25] the lumber market was having problems at the end of 1997. Did that continue into 1998? A. Yeah. There were a few bright spots, but in general | think the trend was probably down in terms of demand and prices. There are several markets. Any time you cut a saw- log or an alder log, you are going to have chips on the low end. You are going to have prime or select on the top end and everything in between. Usually you have a buyer for select. You have a different buyer that buys the chips. You have a different buyer that buys the median or lower grades. It is not all the same mar- ket. The trick in sales is try to get everything to kind of move proportionately so you don’t end up with your warc- house out of balance. Q. How are the sales done for Ross-Simmons? A. We had a sales staff — Q. Who was it? 635a A.- Sonny and John. Q. Sonny Powell? A. Sonny Powell. And Sonny took care of our $2S or our dried lumber primary. John took care of the pallet and shook, the green lumber sales. Q. When you say that Mr. Sonny Powell took care of the S2S or dried lumber, that’s the more valuable higher grade product. Am | correct? [Tr. 26] A. Yes. Q. Did Mr. Powell — to whom did Mr. Powell sell? What types of customers did he sell? A. When I came in ‘97, we were selling primarily to wholesalers. | think the philosophy at the time was let’s turn our money. Let’s get our money back. Let them figure out how to merchandise that or market it. Is it going to Europe or Asia or staying in the United States? Q. Would you spell that a little bit more. What was the business philosophy of Ross-Simmons during this time pe- riod with respect to what its priorities were? A. The priority was to sell as much lumber as we could. It seemed to be that the — and, again, I didn’t have, other than to witness which direction lumber was flowing, it seemed that there was North Pacific, I think, was a big brokerage that we used. We would sell to brokers, and they would market the lumber to whoever. A lot of times we never knew who the end user would be. Q. I understand the financial records are in here. I won’t ask any details about that. Is it generally your understanding that 1997 was one of the biggest sales and profit ycars for Ross-Simmons? A. I don’t think so. I thought that ‘96 or ‘95 was better. I don’t know. 636a Q. We will look at the financials later. I won’t go into * * * [Tr. 31] Did you mean anything besides what it says? A. No. Q. The next sentence, what did you mean by that? “Un- fortunately, we could only push log prices down to a certain point as our competition kept a floor on log prices.” What did you mean by that? A. It is a tactic that all log buyers use. If you screw up and you buy too many logs at a high price and you can’t take any more logs, then obviously you don’t want the competi- tion to get logs at a lower price. You try to do everything you can to keep that — even if you are not buying — a standard one was if I was buying, | would pay X, but I’m not taking logs. It was just really a strategy | think we all used to pro- tect ourselves on the downside. Q. Do you have any knowledge at all specifically that Northwest Hardwoods did that? A. No. Q. Do you have any knowledge at all of any anticompeti- tive activity by Northwest Hardwoods or any activity at all designed to push log prices up or keep logs away from com- petition? A. Not by Northwest Hardwoods, no. Q. That next sentence on paragraph 3, “Also softwood log markets were poor so the overall logging activity was down resulting in a supply of alder logs that was lower than [Tr. 32] normal.” What did you mean? A. Anybody that has been in the woods in the Northwest know that alder and cedar are not a predominant species. Hemlock and fir are. Most companies, when they go to log, they are logging Douglas fir or hemlock or a combination. 637a Along with that they will harvest alder. There is very few 90 or 100 percent stands of alder. It is usually a come-along specics. It comes along with everything else that they har- vest. So if the demand, either domestically or in export market for Douglas fir is down, the supply of aider logs on the mar- ket is going to diminish. Q. Is that what you experienced in ‘97 and ‘98? A. Yes. Q. Look at paragraph 5, Mr. Nelson. It says, “Produc- tion costs were higher than anticipated due to not being able to produce at the projected Ievel of four 8-hour shifts per week.” You told us you curtailed back to four 8-hour shifts. A. Uh-huh. Q. What did you mean by that statement? A. I guess that means that we didn’t produce at four 8- hour shifts per week. I don’t recall. Q. Okay. Fair enough. May I ask that you be shown Exhibit 1020. This is a letter dated August 12, 1998. It * * * (Tr. 46] Q. You believe that decision to sit and hold, though, caused the market to become stagnant, though, didn’t you? A. I couldn’t say. Log market or lumber market? Q. Lumber market. A. I don’t know if that contributed or not. Q. You don’t specifically recall telling anyone that or writing that? A. No. 638a Q. Now, if | understood correctly, you testified that in your entire tenure at Ross-Simmons, you didn’t see any un- fair activity.on behalf of Weyerhaeuser in terms of log pric- ing or trying to keep logs away from competitors. Is. that right? A. Right. Q. Do you remember, sir, in 1999 Weyerhacuser seeking an exemption from — secking an exemption so they could ex- port logs and at the same time still purchase alder from state properties in Oregon? A. In Oregon, yes. Q. Do you recall that? A. Yes, 1 do. Q. Do you recall that you — do you recall what your opinion was of that at the time? A. Yeah. Q. What was it? [Tr. 47] A. I didn’t think they should be able to. It was one niche that we had available to us. I didn’t think they should be able to do both. Q. Did you, in fact, think that it violated the intent of the federal substitution rules? A. It had nothing to do with the federal. I thought it was the state. It was state land we were talking about, not federal. Q. In May of 1999, sir, do you believe it was your opin- ~ ion that this effort by Weyerhaeuser to both export log and purchase alder sawlogs from Oregon property violated both the federal substitution rules and the Oregon substitution rules? A. I think the Oregon substitution rules. 639a Q. Do you recall that it was your opinion at the time that Weyerhaeuser was attempting to use a loophole so that it could do both? A. I’ve got to remember what the rules were. | think it was you could not — if you exported — if you exported out of the state of Oregon, you couldn’t buy Oregon state timber or logs, and they were trying to get an exemption so that they could buy Oregon state timber or logs. And I didn’t think that was fair. Q. Mr. Nelson, would it refresh your recollection about what your exact position was in May of 1999 about this issue [Tr. 48] if 1 showed you a letter that you wrote at the time? A. That would be great. MR. KELLEY: May | approach, Your Honor? THE COURT: You may. THE COURT: Has this been marked? MR. KELLEY: It has not, Your Honor. BY MR. KELLEY: Q. Have you had a chance to review your May 14 letter? A. Yes. Q. Does that refresh your recollection of Wcyerhaeuser’s efforts to both export logs and purchase alder from state lands violated both federal substitution rules and Oregon substitution rules? A. Yes, because |] think what was driving this, sir, was they made a decision, | think, in early ‘99 to start exporting conifer logs out of Coos Bay. That was the change that kind of — | think up until that time Weyerhaeuser could buy ODF timber. It was when they made — in fact, this goes back to the early ‘90s. Weyerhaeuser took a position that they 64%a wouldn’t export logs out of the state of Oregon. Then in ‘99, I think, is about the time they reversed that, so that changed. So the Oregon timber was something that Northwest Hardwoods, as Weyerhaeuser, had been able to access. And when they changed their mind and decided to export conifer [Tr. 49] logs, I thought that was a violation. Q. In fact, you thought that they found some kind of a loophole, did you not? A. Yeah. Q. At the time, in May of 1999, did you believe that Weyerhaeuser controlled about 50 percent of the export mar- ket and 70 percent of the hardwood lumber manufacturing facilities? A. That’s what I said, yeah. Q. Did you believe they had the motive — their motives were suspect? A. | think that’s what it says here. Q. In fact, you describe it as an 800-pound gorilla, do you not? A. Yes, I do. Q. All you were asking for was a level playing field to compete against a mega-corporation like Weyerhaeuser? A. Yes. MR. KELLEY: No further questions. THE COURT: Further questions of this witness? MR. SIMON: Yes, Your Honor. REDIRECT EXAMINATION BY MR. SIMON: 64la Q. Mr. Nelson, did Ross-Simmons, when you were there, buy a significant amount of timber from these Oregon state [Tr. 50] timber sales, the ODF timber sales? A. Probably not. A lot of the ODF timber came out of the Tillamook forest which was kind of a tributary to Gari- baldi, but we did pick up some in northwest Oregon, occa- sionally a little bit down on the central coast, but it wasn’t a lot. Q. Thank you. Now, when Mr. Kelley was asking you questions, I think | heard you say that with respect to driving log prices, you said sometimes Cascade Hardwood would drive log prices; sometimes Washington Alder would drive log prices. Then you said sometimes us, Ross-Simmons, would drive log prices. What do you mean by that? A. There are several instances when that occurs. Usually the most common is when a new player emerges. I think I would — I’m sure STEDCO had a similar experience when they first started up. You have to, 1 say, buy your way into the market. You have to get credibility with the local suppli- ers. And the way you do that is through a price premium. Washington Alder, when they started up, whenever that was. It was in the spring of whatever, in Port Angeles, we noticed an immediate jump in prices up there. Again, it is buying your way into the market; buying credibility with the suppliers. The other time that this happens is, let’s say a sawmill has.a run or sells a bunch of their inventory, so * * * 642a [Vol. 7-A (Apr. 16, 2003)] [Testimony of Jerry Bain] * * * {Tr. 53] Q. Who were the suppliers during the 1990s that you purchased from? A. Oh, in a given year we would have 250 to sometimes 300 suppliers, small suppliers from one to two — load suppli- ers all the way up to the larger suppliers. Q. Who are some of the larger suppliers? A. Cavenham (phonetic), Weyerhaeuser, Hampton. Those were probably our major larger suppliers. Q. How about Rayonier? A. Rayonier, we got logs from them. Q. Simpson? A. We never got anything from Simpson in Longview. Q. I am going to ask the witness be shown Exhibit 14 and Exhibit 482. Mr. Bain, Exhibit 14 is a plaintiffs’ exhibit. Do you see the area where Longview is? A. Yes. Q. What is that red area right next to Longview? A. That is the Weyerhaeuser timberlands. Q. Now, the blue area in this map are the state timber- lands both in Oregon and Washington. During the 1990s, how did Northwest Hardwoods go about purchasing logs on state lands? A. On state lands we weren’t able to bid the timber sales, but we could buy the logs off the timber sales from whoever * * * 6434 [Tr. 56] price and negotiate a separate agreement for pulp logs at market price. Q. What was the market price based on? A. Based on — at the time whatever the market was. Their sales rep. pretty well knew what the log market was in the region, and I might have a price that [ wanted to pay, he would have a price he wanted, and we negotiated a price from that. Q. Do you have Exhibit 482 in front of you? A. Okay. _Q. This is an exhibit of the plaintiffs. If you look at the first page, it shows the average price for the year for third- party logs in Longview and the average price for Weyco logs in Longview. Do you see that? A. Yes. Q. It has it for different years from 1997 to 2001? A. Yes. Q. If you turn the page to page 2, if you look about two- thirds of the way down, do you see where those numbers came from, the purchase logs, third-party, and purchase logs ~ Weyco? | A. Yes. Q. Now the average for the end of the year, the average purchase price for Weyerhaeuser was different from the av- erage price to third parties - [Tr. 57] A. Correct. Q. — at Longview? Please explain that. A. The average price on the third party is primarily saw- logs, which is always at a higher rate. The average price for Weyerhaeuser is a weighted average of the pulp logs and the 644a sawlogs that were purchased and melded together for the end of the year. Q. So for Weyerhaeuser, you are buying both pulp logs and sawlogs? A. Correct. _ Q. In general for third parties you are buying what? A. Primarily sawlogs. We bought very little — we did buy some pulp logs from third parties but not very much. Most of the pulp logs we got from Weyerhaeuser was enough to meet our needs. We did buy a little bit. We would have some supplier that would say: Hey, I want to sell my pulp to you also. Okay. We will buy your pulp, and this is the mar- ket and buy their pulp log. Q. Let’s talk a little bit about pulp logs then. First of all, how did those trucks come into the mill? A. They came in from all of our suppliers, sorted the sawlogs on one load and sorted pulp logs on another load. Q. From Weyerhaeuser, why didn’t you have them send all the loads altogether? A. Actually they wanted to do that. The main reason is * a * [Tr. 59] needed one. At that time they went out on the market, paid extremely high prices, offered extremely high prices for logs. Extremely higher than what we could pay. We just backed away from the market and stayed where we were at. Q. Do you know why they were paying high prices? A. I don’t know. They were — like I say, they were short of logs at one time and — Q. Throughout the 1990s who did you report to? A. What year? Excuse me. 645a Q. From 1993 to 2000, who did you report to as resource manager? A. I don’t know when Heinz left. Heinz Hohendorf part of the time and Jay Mehta (phonetic) was in there a short time and Del Fisher until I retired. Q. Now, did any of those individuals ever express to you that it was a strategy of Northwest Hardwoods to raise the level of log costs in order to hurt competition? _A. Oh, absolutely not. Q. Did any of those individuals ever tell you to buy more logs than Longview needed in order to keep logs away from -Ross-Simmons or other competitors? A. Absolutely not. MR. JOHNSON: No further questions. THE COURT: Cross-examination. CROSS-EXAMINATION [Tr. 60] BY MR. HAGLUND: Q. Now, Mr. Bain, you were the resource manager in Longview from ‘93 to 2000 until you retired, correct? A. Yes. Q. You would have been the top log buyer at the Long- view mill resourcing for that mill during that time frame, cor- rect? A. Yes, that’s correct. -Q. You reported to the three individuals you mentioned, Mr. Hohendorf, Mr. Mehta and then Mr. Fisher from ap- proximately ‘97 through 2000? A. Yes. Q. From the time frame — you started at Longview in ‘86, right? 646a A. ‘87. Q. And from ‘87 until some point in ‘93 when you be- came the resource manager, you were reporting to a resource manager named David Wood. Is that correct? A. David Wood for part of the time and then he retired. Then Ray Poppe. Q. Now, is it your testimony, sir, that in ‘89 and, again, in 1993 that the Longview mill had no significant stain prob- lems? A. We periodically, throughout the whole time, would have stain problems. [Tr. 61] Q. Did you have a significant stain problem in 1989 and, again, in 1993? A. I can’t answer to 1989, but in ‘93 is when we pur- chased a large amount of pulp for the chipping operation, and we had — a lot of the pulp logs were stored on land and a lot of those did get stained and did affect the chip quality. Q. Do you ever remember a significant stain problem in the sawlog inventory in “89 or ‘93? A. No. Like | say, I can’t say for ‘89, but ‘93 I was there. Q. Weren’t you there in ‘89? A. | was there. I was a log buyer. Resource manager was responsible. Q. You can’t remember? A. I don’t recall. Q. Okay. Okay. So there might have been a significant stain problem. You just can’t remember at this point in ‘89? A. I don’t recall. 647a Q. Okay. Now, is it true, sir, that throughout your entire career as a log buyer for Northwest Hardwoods that you have made it a personal practice never to increase your original bid above your first bid in the face of a competing bid? A. On a bid basis, no, | never did change the bid on a [Tr. 62] bid. Q. You would never change the bid? A. Not on a bid. Q. When you say “bid,” what do you mean? A. If somebody has a stand of timber or a group of logs on a bid basis and normally you have a one-shot chance to bid those logs, you send the bid in and that’s it. Q. Let’s not use the situation where you are following a formal written bid procedure. You have been — let’s take the situation where you have got a call from a logger or land- owner. They say: | got a patch of timber. It is going to be harvested in two months. | would like to find out what the market is doing and get a quote from you guys. You would go out and look at it, right? A. Correct. Q. Then you make a phone call and give them the quote? A. That’s correct. Q. The occasion occurred, did it not, where that logger or landowner would call you back up and say: Ross-Simmons is $3 a ton higher. If you want the wood, you need to beat them. That happened? A. Oh, it did happen. Q. Was it your personal practice never to increase — | A. It was my personal practice to avoid that. If there was somebody that | really knew, that | trusted, I might [Tr. 63] meet the price. But to go over that, absolutely not. It was 648a very rarely that that did happen, but occasionally there was a situation, somebody that I really knew — because some of these people that you are referring to at times would — they would come to me or whoever was there and say: Well, Ross-Simmons offered this price. And would they go over to Ross-Simmons and say: Northwest Hardwoods offered this price, back and forth. They jerk you around like a yo-yo. It is a practice you try to avoid. Q. | want to make sure we understand your testimony. You never would beat the bid? A. I never did beat the bid. I would match it. Q. You only did that once or twice to the best of your recollection? A. You know, I don’t know exactly how many but not very many. Less than 10? Yes. In 15 years? You know, you are getting specific. lo or a That’s what the case is all about, sir, getting specific. A. But I can’t say exactly over 15 years. But I know it was a very small amount. dain Q. Now, from time to time do you, as a log buyer or [Tr. 64] resource manager for Northwest Hardwoods, receive an- titrust training at corporate headquarters? A. I had been to, | think, two different meetings over the years. Q. And is it made clear in that antitrust training that an employee will be fired if they violate the company’s — Wey- erhaeuser’s antitrust policies? A. Yes. 649a Q. So there are major consequences of failing to live up to those guidelines and policies, correct? A. Yes. Q. Now, is it your understanding that tie-in situations were covered in your training? A. What was that question, please. Q. As part of your training did you ever have explained to you in these Weyerhaeuser antitrust sessions that tie-in sales were not legal? A. Tie-in — 1 don’t understand the question. MR. JOHNSON: Objection, this is beyond the scope of the direct. THE COURT: The objection will be overruled. Explain what you mean by tie-in. BY MR. HAGLUND: Q. A tie-in situation is where a particular company has a particular product that a buyer or supplier wants — [Tr. 65] MR. JOHNSON: Your Honor, I do object — THE COURT: Objection, overruled. | MR. JOHNSON: - to his characterization of what tie-in is. THE COURT: I will hear the question first. BY MR. HAGLUND: Q. I will try to explain it as simply as I can. It is a situa- tion where a company has a product that some other party wants and as a condition of selling that product to that party, the seller says: You also have to buy something else or sell something to me? A. I was never involved in that. 650a MR. JOHNSON: Objection. THE COURT: Objection overruled. He can state his premise, and we will argue about the law later. BY MR. HAGLUND: Q. You are not familiar with that concept at all? A. Ine *vas involved in any of it whatsoever. | know what you .alking about now, but, no, we never got into that situation. Q. Did you ever develop relationships with any of your suppliers, Mr. Bain, where you had an agreement with that supplier that you would get a last look at buying their timber? A. A last look? No. No. [Tr. 66] Q. You never ever had a relationship with a sup- plicr where they knew that they could go into the market, get the Ross-Simmons price, come to you and you would meet it? A. No. No. Q. Never? A. No. Q. Okay. Would that violate your training to engage in that kind of activity? A. I don’t know. I’m not sure of that. Q. You are not sure? A. Yeah. That’s just - Q. You never did it, but you can’t recall whether it would violate your training? A. I don’t recall if it would violate training. I just never did it. 65la Q. Okay. Let me ask some questions about the log grad- ing and sorting procedures at Longvicw. There has been tes- timony previously about the sorting system in place within the alder mills. Is it a fair statement that when logs come into Longview, just like in Centralia or Eugene, that they will be taken off the truck, rolled out on the ground and scaled? A. Correct. Q. And that happens whether it is wood bought from a third party or from Weyerhacuser tree farms? * * * [Tr. 71] Q. Now, the pulp logs are going to fetch a lower value, correct? A. Correct. Q. Now, when you would negotiate with — let me ask this first. You have testified earlier that when you are buying sawlogs, whether it was from a third party or from the Wey- erhacuser tree farm, that they come into the yard, they would be scaled and the data put into the computer system? A. Yes. Q. Now, you also bought some camp run from what I understand? A. From who? Q. From third parties. A. I just said that after 1991 we changed, went away from buying camp run, and we got sawlog sorted and pulp sorted. Q. But let’s be clear. You still continued to buy some camp-run wood from third parties? A. You know, if we did, it was a very minimal amount. I don’t recall exactly. 1 can’t go back and say specifically. But if it was, it was a minimum amount because we made a 652a big cffort to get away from buying camp run because camp run is very risky when you are buying camp run from any supplier. Q. Now, it is not your testimony that you did not buy any camp-run log truckloads in the year ‘95 to 2001, is it not? MR. JOHNSON: Your Honor, I think it has been * * * [Tr. 73] and Centralia would negotiate with Bruce. Now, we'd wait for the other to get done with the other. We would do it simultaneously. Q. Let’s make sure we got our names and positions straight. Mr. Sutton, he is the marketing manager for the Twin Harbors tree farm that is closest to the Centralia saw- mill? A. That’s correct. Q. He would negotiate with Mr. Bernie McCain? A. That’s correct. Q. And Chuck Lappe is the marketing manager for the Longview tree farm, the closest to your operation? A. That’s correct. Q. On a quarterly basis you would negotiate with him for the prices for sawlogs? A. Yes. For the Longview region, yes. Q. You were familiar, weren’t you, from time to time with the prices that Mr. Sutton and Mr. McCain were negoti- ating, correct? A. Oh, yes. Q. Is it a fair statement that the sawlog prices for the volume received from the Weyerhaeuser Longview tree farm would be comparable to the market prices you were paying 653a for the same grade and diameter class of sawlogs from third parties? [Tr. 74] A. Yes. Q. Okay. And that’s what the computer data should show? A. That’s correct. MR. HAGLUND: Nothing further, Your Honor. THE COURT: Further questions of this witness? REDIRECT EXAMINATION BY MR. JOHNSON: Q. Has any supplier ever expressed this dissatisfaction to you about Northwest Hardwoods’ scaling? A. At times, yeah. Q. And did you work with that supplier to see if they could better understand the scaling system? A. I tried to at times. Q. Have any suppliers ever chosen to sell to Ross- Simmons or Cascade or someone else because of Northwest Hardwoods’ scaling system? A. It has happened, yes. MR. JOHNSON: No further questions. MR. HAGLUND: Nothing further. THE COURT: You may step down. * * * 654a [Vol. 7-A (Apr. 16, 2003)] [Testimony of Bernie McCain] + * * [Tr. 75] DIRECT EXAMINATION BY MR. JOHNSON: Q. Mr. McCain, you graduated from high school in 1965, served in the Navy for 18 months and then got a for- estry degree from Centralia College in 1973. In 1973, you then went to work at Northwest Hardwoods as a log buyer at the Centralia mill. You were named resource manager for Northwest Hardwoods’ Centralia mill in the early 1980s. And that is your current position? A. That’s correct. Q. Mr. McCain, could you tell this Court and the jury about your gencral approach to buying logs at Northwest Hardwoods. A. Well, I try to keep it rather simple. | try to buy the highest quality log I can at the lowest price. Q. Now, when you are going out and offering a price for logs, what factors are you considering? A. You factor a lot of things, but mainly you factor the quality of the wood, the size of the wood, the availability, timing, when it is going to come in, the supplier. But mainly you extract the price, look at the wood and the quality of the wood. Q. Now, Mr. McCain, we have heard testimony about log staining in this trial. How do you go about managing your log inventories to minimize the potential for stain? [Tr. 76] A. At the log yards at Centralia, we can hold about almost 3 million feet of logs in our yards at Centralia. Our monthly cut there is on the average around four, four and a half million feet of logs. 655a We advocate stump-to-dump three weeks. That’s a pretty good average for logs to stay fresh from landing to the yard. Then we can rotate our inventory in probably two to three weeks in the yard so we are in real good shape. We have had bigger inventories at times. At that point we direct logs to go into the water. They go in the water. They stay fresh in the water there for that moment before we use them. With our small yard it keeps us keen on keeping our log inventory fresh just by the size of our yard. Q. Mr. McCain, during the 1990s, who did you consider your competition for logs to be? A. In the ‘90s, kind of go around in my mind geographi- cally there, Edmond Company bought hardwood in Tacoma. Sheers bought logs in Sheldon. Steve Pullen bought hard- wood in Sheldon. Willis Enterprises bought logs in the Ho- quiam area. Olympic Fiber bought hardwood in Aberdeen. Dahlstrom’s in Aberdeen bought logs. WTD in South Bend at that time bought logs. Alexander in Onalaska bought logs, hardwood. Northwest Fiber in Morton bought logs. Cascade Hardwoods in Chehalis. I might have left somebody out. [Tr. 77] Q. Do you know who Mr. Bill Nelson is? A. Yes. Q. Mr. Bill Nelson testified earlier in this trial that dur- ing the early 1980s when he was at Cascade Hardwoods, there was what he called a log war between you and him. Do you recall anything about that? A. No. I don’t recall any log wars, no. During the 1990s, who did you report to? 1990s I reported to Mr. Heinz Hohendorf. From 1997 on through 2000? I reported to Jay Mehta and Mr. Fisher at that time. >O>Oo 656a Q. What types of conversations would you have with the person that you reported to? A. The types of conversations throughout the time period there, we would — I would contact all the superiors in what I thought the market was doing, where log flows were going to be during the season. Alder is real susceptible, like any log, in wintertime it slows down. It is susceptible to other mar- kets, especially hemlock. If that market slows down and the logging slows down, why alder is kind of a come-along species. 1 wanted to keep them abreast where the market — where the log flows are go- ing to be and keep abreast where inventory was and things like that in general so they were informed and had an idea of what the future looked like. It is very hard to [Tr. 78] call sometimes, but you do the best you can. Q. During the 1990s, what was the strategy of Northwest Hardwoods in terms of log prices? A. Well, basically it is — you asked me before, we try to buy the best quality log at the best price or lowest price we can. That’s generally what the market is doing in your area. We try to do it that way. Q. Did either Mr. Hohendorf or Mr. Mehta or Mr. Fisher ever express to you that it was the strategy of Northwest Hardwoods to maintain high log prices to hurt competition? A. No, I never heard that message. Q. Did any of those individuals ever express to you that you should buy more logs than you needed in order to keep logs away from your competitors? A. No, never. MR. JOHNSON: No further questions. THE COURT: Further questions of this witness? MR. KELLEY: Briefly, Your Honor. 657a CROSS-EXAMINATION BY MR. KELLEY: Q. Good morning, Mr. McCain. During your time at Northwest Hardwoods or Weyerhaeuser, did you reccive some training, sir, in connection with antitrust? A. Yeah. We annually have that meeting. Q. In the sessions that you attended, do they address [Tr. 79] issues related to log buying? A. Yes. Q. And do you have an opinion of whether or not issues related to a last look at logs is addressed in that — in those sessions? MR. JOHNSON: Objection to the form of the questions. THE COURT: Overruled. THE WITNESS: I don’t understand “last look.” Could you explain that more? BY MR. KELLEY: Q. Your witness statement says that you never had a last look, an arrangement where you had a last look at a log. Let me make sure you and I are communicating. | interpret that to mean that you never had a situation with a supplier of any kind where you told them to go around. Go ahead and look. Shop it around. See what bids you get. But give me the last look at your logs before you sell them. A. No. I have had people call me. When people call you, you have got a range of customers that are — that’s their business. They log. And you have got people that has got a few loads in the backyard, and they really need help. I give them prices. They ask me if there is anybody else buying hardwood in the area. | say: Yeah, you can check other places, and I gave them names. As far as saying, you [Tr. 658a 80] know, if you get another price, give me a call back. | give them a price at that time and it is over with. Q. You give the best price. If they want it, yeah, great. If they don’t, sell to somebody else? A. Right. The only other situation is if somebody else calls you and you get the prices and say, well, would you like to take a look at it? What do you think? Is it worth more? It could be. No promises. If the quality is there, the stand tex- ture looks good for the mill and everything, | say: I would appreciate it if | could come out and take a look. Q. Fair enough. In your whole time, though, have you ever had an arraignment that I described, this last look, where you told the supplier: Go ahead and shop it. Let me have the last look at the log? A. I don’t recall. Q. You don’t recall ever having such a situation? A. No. Q. Were last looks like that covered in your antitrust training? A. | don’t know if they said last looks in our antitrust. Q. Fair enough. Mr. Johnson just asked you some ques- tions about Bill Nelson in the early 1980s. You were at Cen- tralia at the time, correct? A. Correct. * * + [Tr. 82] three grades? A. Correct. Q. When the scalers are going through at the mill look- ing at the logs, they input all that information in a little hand- held? 659a A. Correct. Q. That information goes to a central location in Port- land? A. I believe so, yes, our log system. Q. Is it your understanding, sir, that all purchases from Weyerhaeuser timberlands, transfer of purchases, are at the same as market prices? A. That’s correct. MR. KELLEY: Thank you. THE COURT: Any further questions? MR. JOHNSON: No further questions. * * * 660a |Vol. 7- [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0220%3A14. Public record. Not legal advice.