It has been a long journey for the Town of Mammoth Lakes, from the 1997 development agreement with Terry Ballas, to now, with the hammer of a $42 million judgment against the town by the Mammoth Lakes Land Acquisition company.
Here are some frequently asked questions regarding the judgment awarded to Mammoth Lakes Land Acquisition (MLLA) and status of settlement negotiations.
The FAQ, from the town’s point of view, appears on the Town of Mammoth Lakes website. We print it here, unedited, as a public service.
Why is there a judgment, and what is the amount?
In 1997, the Town entered into a Development Agreement (“DA”) with Terrance Ballas (“Developer”) to construct residential units, retail, hangars and other structural improvements near the Mammoth Yosemite Airport. The Developer subsequently transferred development rights for the residential (hotel/condominium) portion of the DA to Mammoth Lakes Land Acquisition (“MLLA”). In 2006, MLLA sued the Town for breach of contract over their portion of the DA. As a result of a jury trial, in 2008 MLLA was awarded a $30 million judgment against the Town. While the Town appealed the judgment several times, those appeals were ultimately unsuccessful. After the latest appeal in Nov. 2010, the Town requested review by the California Supreme Court. That request was denied in March 2011. The Town, therefore, has exhausted its options to appeal the judgment. The amount of the judgment, in the meantime, has grown to over $42 million. This amount includes nearly $2.4 million in MLLA attorney’s fees that were previously awarded by the trial court, MLLA attorney’s fees incurred as a result of the various appeals, other related MLLA costs, as well as post-judgment interest at seven percent as established by law.
Why is it taking so long to settle?
After the State Supreme Court declined to hear the Town’s appeal in late March 2011, theTown and MLLA promptly met and established a process to exchange information and beginsettlement discussions.On April 18, 2011, representatives of the Town and MLLA, along with their respective legalcounsel, held their first meeting, and initiated a collaborative process in pursuit of asettlement that protects the public service interests and functions of the Town andcompensates MLLA. What followed that meeting, through the months of May, June, July,Aug. and Sept. 2011, was a review of the Town’s financials and related details byMLLA. Volumes of information were provided to MLLA in response to their questions andrequests, and several meetings were held between the Town’s and MLLA’s representatives tocollectively review the provided information, and answer any follow up questions. Duringthese meetings, possible components of a settlement, and the Town’s ability to pay, were alsoreviewed and discussed.After completing their review of the Town’s finances, in early Oct. 2011, MLLA presented to the Town their first proposal on paying the judgment. The Town responded to MLLA on Oct. 5, 2011, and received a counter-proposal from MLLA on Nov. 16, 2011. The Town Council discussed MLLA’s counter-proposal in a closed session on Nov. 30, 2011, and responded with its own counter-proposal #2 on Dec. 1, 2011. MLLA rejected the Town’s Dec. 1, 2011 settlement proposal, and MLLA responded with another counter-proposal that was received on Dec. 14, 2011. In early Jan. 2012, additional information about the Town’s fiscal condition for the current and next fiscal years became known, and the Town has been developing a restructuring plan to address all of its obligations, including the MLLA judgment.
It has been reported in the local media that the Town’s settlement discussions with MLLA have been discontinued. Is this true?
Not from the Town’s standpoint. On the contrary, the Town continues to make every attempt to reach a settlement with MLLA. In this respect, on Jan. 19, 2012, the Town wrote to MLLA the following: “In light of current fiscal realities, the Town has determined that it needs to more closely analyze and assess pertinent issues with financial implications, including the ongoing efforts to reach a resolution with MLLA. The Town has begun developing a global restructuring plan, which will address the various fiscal issues impacting the Town.” The Town’s Jan. 19th letter further stated that another settlement offer would be presented to MLLA after Feb. 1, 2012. In the meantime, on Feb. 2, 2012, MLLA filed a petition with the State Court seeking a writ demanding the Town to pay the full $42 million judgment. Despite this recent State Court proceeding, the Town still intends to continue settlement talks with MLLA. In this respect, on Feb. 15, 2012, the Town sent MLLA a letter requesting that the parties continue their settlement discussions through a neutral evaluation process (i.e., mediation) in accordance with section 53760.3 of the California Government Code. In that neutral evaluation process, the Town will submit to MLLA a restructuring plan that addresses all of its obligations, including the MLLA judgment. Various creditors of the Town and other interested parties will also be receiving similar letters from the Town providing notice of this neutral evaluation process.
What procedural options are available to the Town?
The Town cannot pay the full judgment amount, which currently stands at over $42 million, with interest and legal fees. In light of this inability to pay, the Town has pursued settlement discussions with MLLA. These settlement discussions began after a five-month information exchange period on the Town’s finances, structure and services, at MLLA’s request. In furtherance of those settlement discussions, on Feb. 15, 2012, the Town sent MLLA a letter requesting that the parties participate in a neutral evaluation process (i.e., mediation) in accordance with section 53760.3 of the California Government Code. Various creditors of the Town and other interested parties will also be receiving similar letters from the Town providing notice of this neutral evaluation process. In the event that the neutral evaluation process is unsuccessful, the Town may be forced into Chapter 9 bankruptcy.
Why not just file for bankruptcy? Many other cities seem to be doing this.
The goal of the Town is to achieve a feasible, consensual out-of-court resolution. The Town views Chapter 9 bankruptcy as a last resort to be used only after other potentially feasible means of resolving the judgment have been fully explored.
What exactly is Chapter 9 bankruptcy?
Chapter 9 of the Bankruptcy Code is designed to enable a local governmental entity that is unable to pay its debts as they come due to continue to provide essential programs and services to its residents while working out and presenting a plan to adjust its debts. A Federal Bankruptcy Judge presides over a municipal debt adjustment case.
How could the Town afford to pay anything at all, given that the Town only recently balanced a $2.8 million budget gap?
The Town cannot pay the entire $42 million judgment. However, the Town will work with MLLA to reach a settlement that the Town can reasonably afford to pay, without significantly impacting the Town’s essential programs and services. In this respect, on Feb. 15, 2012, the Town sent MLLA a letter requesting that the parties continue their settlement discussions through a neutral evaluation process (i.e., mediation) in accordance with section 53760.3 of the California Government Code. The Town will submit to MLLA a restructuring plan that addresses all of its obligations, including the MLLA judgment, in that neutral evaluation process. Various creditors of the Town and other interested parties will also be receiving similar letters from the Town providing notice of this neutral evaluation process.
What about long-term economic viability of the Town, and the need to keep our resort status in order to continue attracting visitors and generating revenues?
The Town must continue to provide resources to sustain current levels of Town municipal services, without further erosion of already severely depleted service levels. The Town’s own experience, and the experience of similar resort communities, emphasize the importance of investing in and supporting: commercial air travel service, local free transit, affordable workforce housing, tourism promotion, public safety and recreation. The Town’s spending in these areas is comparable to – and, in some cases, lower than – other resort communities with which it must stay competitive. Furthermore, the Town must provide annual funding for road rehabilitation and maintenance, and snow removal; fully address its existing debt obligations, unfunded or under-funded liabilities such as pensions and post-employment benefits; and maintain adequate cash reserves necessary to both pay bills during the year and provide funding in the case of uncertainties (such as the lack of snow) or emergencies. Meeting the above objectives will be challenging, given the current fiscal realities and the bleak fiscal future of the Town. Nevertheless, the Town is committed to continuing to work with MLLA to reach a settlement for an amount that the Town can afford to pay.
What payment options is the Town considering?
The Town has offered to MLLA various alternatives to settle the judgment.
This is not the first time that something has gone bad for a developer in the Town of Mammoth Lakes. What is going to change so that this does not happen again?
The Town has assembled a team of strong, experienced professionals to help it negotiate a settlement with MLLA and to protect the Town’s interests in the process. The Town has a new Town Manager, an in-house financial consultant, and recently hired internationally acclaimed firms specializing in restructuring: Fulbright & Jaworski (legal) and FTI (financial).
Does the Town feel any remorse for what is happening to our community and for the Town’s current financial condition?
The Town’s current financial condition has resulted from a variety of factors, including lack of tourism caused by adverse weather conditions this past year and the general recession. The Town’s estimated 2012/2013 budget shortfall is likewise due to a multitude of factors beyond the Town’s control. On top of these financial difficulties, the Town has also been negotiating with MLLA with respect to its $42 million judgment. The Town has done its very best to defend itself in connection with the MLLA proceedings, and has exercised all legal appellate options. Moreover, when the last appeal was exhausted in March 2011, the Town immediately began efforts to settle with MLLA. The Town will continue to work with MLLA to reach a settlement that the Town can reasonably afford to pay, without significantly impacting the Town’s essential programs and services. The Town is currently developing a restructuring plan that will address all of the Town’s obligations, including the MLLA judgment.
If the Town were to enter Chapter 9 bankruptcy, what would that entail for vendors who do business with the Town? Will all vendor contracts be renegotiated?
Upon the filing of a Chapter 9 bankruptcy case, an injunction, or “automatic stay,” goes into effect. This “automatic stay” prohibits any creditor from taking any action against the Town or its property without first obtaining relief from the stay by the Bankruptcy Court. For trade creditors, this automatic stay enjoins any attempt by such creditor to collect on pre-petition obligations owed by the Town. Those pre-petition obligations would be dealt with and paid in accordance with a plan of adjustment that would have to be approved by the Bankruptcy Court. The Bankruptcy Code also provides relatively clear guidelines with respect to creditors that have ongoing contracts with the Town. Generally, the Town has the ability to either assume or reject any “executory” contracts (i.e., contracts that have material unperformed obligations on both sides). The Town may also negotiate with certain creditors in order to modify and assume such contract.
Finally, because Chapter 9 bankruptcy only protects the Town against debts that arose before the date the bankruptcy petition was filed, any contracts that are awarded after a Chapter 9 filing would not be affected.
Is it true that another lawsuit has been filed, or is about to be filed, by Terry Ballas concerning the Hot Creek Development Agreement?
As of Feb. 29, 2012, the Town has not been served with any lawsuit filed by Mr. Ballas.
What is the timeline for the Town to conduct mediation and to enter into and emerge from bankruptcy if Chapter 9 bankruptcy case is filed?
A new California State law, which became effective in Jan. 2012, requires that a municipality considering Chapter 9 bankruptcy protection to engage in a pre-bankruptcy “neutral evaluation process” (i.e., mediation) first. Once the parties that have agreed to participate in the mediation process select a mediator, the mediation should last no more than 60 days. On Feb. 15, 2012, the Town sent a letter to MLLA initiating the mediation process. As of Feb. 29, 2012 MLLA has not yet responded. The Town will be sending letters to other interested parties inviting such parties to participate in the mediation process. In the event that mediation is unsuccessful, the Town may then seek Chapter 9 protection. The Chapter 9 process does not have any specific timeframes from beginning to end. However, the Town’s legal firm of Fulbright and Jaworski has successfully taken other clients through efficient and streamlined bankruptcies, and it is the Town’s belief that the bankruptcy process, from entering Chapter 9 to exiting with an approved restructuring plan, should take approximately three months. Given the lack of timeframes in a Chapter 9 proceeding from beginning to end, however, it is possible that this timetable could exceed three months.
I understand that there are investors in the MLLA Judgment, and that they are seeking to profit from this action. Is that true?
On Feb. 2, 2012, MLLA filed with the State court a “Certificate of Interested Entities or Persons”, which states: “Mammoth Lakes Land Acquisition, LLC is a limited liability corporation, which has sixteen members. Currently, only two of these members, C. Ray Johnson and Mammoth Opportunity Fund-1, LLC own 10 percent or more of (MLLA). There are no other entities or persons having a direct ownership interest of 10 percent or more in (MLLA).”
We know what the Town’s liabilities are. What are the Town’s assets, and is this information public knowledge? Could you tell us what our Town is worth?
The Town’s assets, liabilities, revenues and expenses, and other related financial information are all public knowledge. The Town’s financial records are audited on an annual basis by an independent auditor, and these audits are available on the Town’s website. The Town’s audited financial statements are the best source of information on the Town’s assets and liabilities, and contain a great level of detail.
How much has the Town spent on legal expenses related to the MLLA lawsuit and settlement, and are those expenses included in the $42 million MLLA liability figure?
Since the MLLA lawsuit was filed in 2006 and through Feb. 2011, the Town spent $4.3million in legal fees to defend the MLLA lawsuit and to prosecute the Town’s variousappeals. The law firm of Morrison & Foerster was the Town’s lead counsel in these matters.In March 2011, when the Town’s request for case review was denied by the CaliforniaSupreme Court, the Town engaged a new law firm, Sulmeyer Kupetz, and engaged thefinancial advisory firm of Kibel Green. From March 2011 through Jan. 2012, the Townspent $285,000 in legal and financial advisory fees to these firms.Finally, in Jan. 2012, as the Town began to more seriously explore municipalrestructuring, the Town engaged the law firm of Fulbright & Jaworski and the financialadvisory firm of FTI. No invoices have been received or paid to these firms as of Feb. 27, 2012.The above legal expenses are not included within the $42 million judgment amount.
I understand that a lot has been done to cut the Town’s expenses, and to do more with less. Has the Town done anything to help generate new business and bring more visitors to Mammoth Lakes?
The Town’s own experience, and the experience of similar resort communities, emphasize the importance of investing in and supporting tourism promotion, and the Town’s spending in this area is comparable to – and, in some cases, lower than – other resort communities with which it must stay competitive. Specifically, the Town annually allocates 2.5 percentage points of the 13 percent hotel tax to promote the Town as a resort and travel destination. This tourism promotion and marketing is done through a contract with Mammoth Lakes Tourism.
It has been reported by the local media that the Town could impose a special assessment on properties within the Town to help pay for the judgment. I also have heard that MLLA could seek a lien against all properties within the Town. Is this really possible?
Neither the Town nor MLLA could impose or force the Town to impose, through court order, an assessment or lien on any Town property. MLLA does not have the legal ability to seize the Town’s assets or any public or private properties in the Town. Indeed, if the Town wanted to levy a tax or an assessment, such a levy would require voter approval in a municipal election.
I have heard of MLLA’s request for a writ of mandate from the State Court. Whatwould such a writ enable MLLA to do? Would it secure MLLA’s judgment with a lienor an assessment? Would this force the Town into bankruptcy?
On February 2, 2012, MLLA filed a petition with the State Court seeking a writ demanding
the Town to pay the full $42 million judgment. The assigned State judge heard arguments
from both sides on March 8, 2012; another hearing has been set for March 23, 2012.
The writ cannot result in a lien on public or private property in the Town, nor can it lead to
any assessment. A writ will not make MLLA’s judgment secured. A writ is simply a court
order to pay. If the Town does not pay as requested by MLLA (by the end of June 2012, or
paying over 10 years by requesting a 10-year payment plan as the law allows), the Town
could be held in contempt of court.
Despite this recent action by MLLA, the Town still intends to continue settlement talks with
MLLA. On February 15, 2012, the Town sent MLLA a letter requesting that the parties
continue their settlement discussions through a neutral evaluation process (i.e., mediation) in
accordance with section 53760.3 of the California Government Code. In that neutral
evaluation process, the Town will submit to MLLA a restructuring plan that addresses all of
its obligations, including the MLLA judgment. Various other creditors of the Town also
received similar letters providing notice of this neutral evaluation process.
Will there be an opportunity for public input?
The Town held an open-meeting discussion with the public on Feb. 15, 2012. Responses were provided to questions regarding the settlement process. Additional questions asked at the meeting were recorded, and responses added to this document. A video recording of the Feb. 15, 2012 discussion is available online at
Where can I get additional information?
You can contact the Town Manager’s office at 760-934-8989, extension 223, or send an email to email@example.com . If you call with, or otherwise submit a question that has not yet been included in this document, we will add a question and a response for everyone’s benefit.