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Mammoth goes to bankruptcy court; showdown begins in Sacto next week

July 6, 2012

Town Councilman John Eastman, the only council member to sit at the dais through the entire airport fiasco, hands out treats to kids at the Mammoth Lakes Fourth of July Parade on Wednesday. Photo/George Shirk

Mammoth’s legal team kicked into high gear this past week, preparing for a make-or-break appeal to a Sacramento bankruptcy court.

The process will begin next week, said Mammoth Town Manager Dave Wilbrecht.

If the legal team, led by town attorney Andrew Ross, wins its case, there is a glimmer of light at the end of the tunnel for a town carrying a $43 million legal debt that it says it cannot pay.

Lose it, Wilbrecht said, and the town probably would have to find a way through the thickets of the bond market to try to come up with the cash, at whatever terms to which the bondholder and the Town would agree.

This is not about wishful thinking or finding a soft spot in a judge’s heart. This is a bottom-of-the-ninth case, built on strict legal precedent and the rule of law.

Mammoth never wanted to be here, but this scenario hardly caught anyone off-guard.

“I wish this hadn’t happened,” said Mayor Matthew Lehman, “but it’s not the way the cards fell for us.”

The cards fell in a hurry on Monday morning when the Town Council instructed its legal team to file for municipal bankruptcy protection. The town immediately issued a press release regarding the Town Council decision.

“Bankruptcy, unfortunately, is the only option that the Town is left with, after its largest creditor, Mammoth Lakes Land Acquisition (MLLA) repeatedly refused to mediate its $43 million judgment against the Town, and obtained a State court order requiring payment of the full judgment by June 30.”

The decision was hardly a surprise,

said Mayor Pro Tem Rick Wood.

“We had no option,” he said, “and I think it could be universally stated by everybody here that we don’t feel good about it. But it was a necessary and unavoidable step under the circumstances.

“In some ways, and I don’t want to say it’s anticlimactic, but this has been brewing over some time. We sure tried to avoid it, but here we are.”

The intention to file for bankruptcy was the talk of the town in Mammoth on the Fourth of July, as parade watchers and fireworks aficionados discussed a different kind of independence—any kind of path to avoid yet another legal crushing defeat.

Was there a hidden political message in the Trojan Horse parade float designed by Karen and Mono County Supervisor Larry Johnston? Did the warriors accompanying the float represent lawyers? There were a few cracks about the lineup of firefighting trucks, as if they were there to put out some kind of fire.

In Sacramento, the bankruptcy court can accept the Town’s argument and set out a payment schedule, or decline to settle the case.

Opening presentations were to be made next week.

Wilbrecht said the town would present a mountain of evidence to sway the court to accept its position.
At the heart of the position is the town’s well-documented plan to reserve at least $500,000 this year—and for at least the next five years—for payment of the debt.

Should the bankruptcy court accept the town’s plan, which was crafted in large part by assistant town manager Marianna Marysheva-Martinez, the town’s obligation could get kicked down to about $5-$6 million.

Earlier this year, a state judge ordered the town to pay the full $43 million by June 30. That date came and went last Saturday, and the town on Monday declared its intent to file for bankruptcy.

On the other side of the take-it-to-the-judge battle will be the legal team representing Mammoth Lakes Land Acquisition (MLLA).

“They’re going to fight this,” Wilbrecht said. He said the opposing attorneys do not want the settlement in the hands of a court, and MLLA believes it has a strong case for keeping it out of bankruptcy court.

Under municipal bankruptcy law, if Mammoth wins the case, the court would determine the schedule of payments.

It will not be an overnight decision, Wilbrecht said. He said the town’s legal team has advised that the entire mess would be cleared up “by the end of the calendar year.”

The MLLA attorneys, as has been their custom, declined to comment on the case, other than to say that MLLA will contest Mammoth’s bid for protection.

“In the past few months, Mammoth Lakes has struggled with two problems,” said the town in its press release.

“First, there was a lack of sufficient revenue to pay its current and anticipated obligations, as evidenced by a $2.7 million initial shortfall in its 2011-2012 fiscal year budget.

“That budget was balanced and passed on June 20.

“Second, a Writ of Mandate issued by a State Court ordering the Town pay a $43 million judgment owed to MLLA by June 30.

“The Town has attempted to deal with both of these problems in a responsible fashion, cutting many services and asking its employees and the majority of its creditors and other parties in interest to take substantial cuts in payment.

“These negotiations ended on June 29.

“The neutral evaluation was conducted by the Hon. David Coar (Ret.), who the town characterized as “a very experienced and respected former Bankruptcy and U.S. District Court Judge” selected by the participants.

“The Town has already implemented the cuts it proposed during mediation, in effect breaching many existing contracts.

“However, based on agreements reached with many of its creditors, these contract breaches will be cured in new agreements, contingent upon either (a) a settlement with MLLA or (b) a Chapter 9 plan confirmation.

“The Town’s creditors and employees were willing to make their concessions as part of a global resolution of the Town’s financial challenges; their agreements were not made without reservations, their concessions are part of a global resolution that would allow the Town to move forward in a fiscally responsible manner.

“As the Town acts in keeping with these agreements and as they are ultimately consummated, the Town will be able not only to overcome its structural fiscal issues, reflected in the annual budget shortfall, but also free up approximately $500,000 a year that can be used to pay its creditors, including MLLA, over the next 10 years, or to obtain a bond supported by that same payment stream, the proceeds of which will be paid to creditors, including MLLA.

“Although invited on multiple occasions, MLLA refused to participate in the AB 506 mediation to discuss settlement or demonstrate to the mediator and the participating creditors that the Town can afford to pay more. As a result, a mediation that might have succeeded in avoiding a Chapter 9 case failed because a crucial party simply refused even to attend and discuss any issues it might have.

“The Town will ask the bankruptcy court to process its Chapter 9 case efficiently and quickly. The Town has limited financial resources and cannot afford a long drawn-out case. If the case lasts too long, it will significantly reduce the Town’s available funds, necessarily reducing recoveries to the Town’s unsecured creditors.

“While the Town proceeds with its Chapter 9 bankruptcy case, it will remain open for business as expected, with the support from other governmental agencies:

• The Police and Fire Departments, along with other safety partners such as paramedics and Sheriff’s office, will provide high levels of response and care

• Road, parks, and airport maintenance services will continue as scheduled

• Town Office business hours and service delivery will continue as usual without interruption of services

• Community services and providers such as Mammoth Hospital, Mammoth Community Water District, and Mono County are separate from the Town and are not impacted.”

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