The federal judge overseeing the Pacific Lumber Co.’s more than year-long bankruptcy proceeding has approved the reorganization plan offered to the court by the Mendocino Redwood Co. and Marathon Structured Finance Fund.

Judge Richard Schmidt indicated in a court hearing Friday that the plan to auction off the company’s 210,000 acres of timber lands offered by the Scotia Pacific’s largest creditor — the Timber Noteholders — was not confirmable.

The MRC/Marathon plan aims to take possession of the timberlands and Scotia’s mill to keep the commercial timber and milling operations in production.

California’s governor, who had weighed in on the case earlier, commented on the news of the ruling Friday.

Gov. Arnold Schwarzenegger issued a statement regarding the federal judges confirmation of the Mendocino Redwood Co./Marathon Financial Fund’s reorganization plan for reorganization of the Pacific Lumber Co.’s bankruptcy proceedings.

Schwarzenegger indicated that he supported Judge Richard Schmidt’s approval of the MRC/Marathon plan because it offers the best opportunity to advance and protect both the economic and environmental value of these assets over the long-term and enhances the Headwaters Forest Agreement reached in 1996.

“Today’s decision in the Pacific Lumber bankruptcy case is good news for the people of California,” Schwarzenegger said. “I commend U.S. Judge Schmidt for his consideration of the principles I articulated in order to preserve the historic Headwaters Forest Agreement, and I hope this decision will establish a strong precedent that weighs both the economic and environmental benefit of long-term sustainability and preservation.”