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The fallout: Restructuring plan will gut Police Department 

On Thursday, the tsunami debris from the proposed airport litigation settlement with MLLA (Mammoth Lakes Land Acquisition) finally reached Mammoth’s shores, and 13 more Town employees now face elimination, including seven police officers (one lieutenant, two sergeants and four patrolmen).

But first, let’s back up. The Town announced its deal with MLLA last Friday, after both weekly newspapers had come out. The basic terms: $48.5 million to be paid over 23 years to MLLA, and another $3.4 million to be paid to Terry Ballas over the next 30 years to finally solve all possible lingering legal entanglements from the infamous 1997 Hot Creek Development Agreement.

At Thursday night’s Special Town Council meeting in Suite Z, Bankruptcy attorneys Ken Klee and Michael Tuchin and Mediating Judge Elizabeth Perris (appearing via videoconference) explained to a standing-room audience why they believed the settlement deal was a good one for the Town.

But before that, they made sure to spend a proper amount of time fawning over their employers (Council), the judge and themselves.

Some choice samples: “Fortune smiled on this town when Elizabeth Perris was appointed [as mediator].” -Ken Klee.

“This settlement itself is a fantastic solution for this town.” -again, Ken Klee, who just happened to negotiate said settlement.

Tuchin characterized the process as “exhausting” and “grueling,” which is how I would feel if I were making $1 million a month publishing this paper. Instead, I listen to this crap and wonder why I didn’t go to law school.

Even Judge Perris got in on the act. Her phrase was “Herculean task.” She also took credit for making the recommendation which ultimately broke the stalemate and led to a settlement.

Do I hear a faint cry from the bleachers? Per-ris! Per-ris!

Imagine, all these egos on display and Rick Wood hadn’t even spoken yet.

Okay, okay … back to telling it straight – or maybe trying to read between the lines, because now we’re onto the editorial page.

From Michael Tuchin’s testimony, it appears as though the Town’s lowball offer in its initial bankruptcy plan (offering about ten cents on the dollar, or approximately $550,000/year for ten years), was not going to play in front of Bankruptcy Judge Thomas Holman, a real stickler whom Tuchin described as “wedded to due process.”

In a separate interview Wednesday afternoon, Town Manager Dave Wilbrecht told The Sheet that “We couldn’t read the Judge [Holman] well enough to know how it would’ve gone.”

Wilbrecht also said that Judge Perris saw two fairly serious flaws in the Town’s plan: 1.) CalPERS. 2.) She felt the Town had the money to pay.

According to Wilbrecht, CalPERS isn’t letting anyone off the hook (Stockton, San Bernardino, et. al.) because it’s leery of a domino effect. Let one entity wriggle out of its pension obligations and you’ll see a mad rush for the door. Wilbrecht suggested MLLA would’ve pulled CalPERS into the fight and we would’ve been even more outgunned.

As it was, the Town’s “burn rate” since declaring Chapter 9 has been about $1 million monthly, and it would’ve cost the Town another $2 to $5 million just to find out whether or not it was bankruptcy-eligible if it hadn’t settled.

Overall, Assistant Town Manager MMMartinez said the Town has spent $8.5 million on lawyers and professionals since the initial judgment was made against it in Mono County Superior Court in April 2008. She estimated we’ve spent $4 million since March of this year.

Prompting Paul Rudder to turn to me and deadpan “If they [Klee and Tuchin] do anything more to save the town money, we really will be bankrupt.”

Before public comment, each Town Councilmember had a say, each say a reflection on their personality. Eastman pointed to all the instances where Mammoth has dug in and pitched in to make itself a better community. As far as he’s concerned, we’ve done it [rallied] before and we’ll do it again.

Wood said the elephant in the room was based on two questions: 1.) How did this happen? 2.) Who’s to blame.

He then went into a long disavowal of his connection to anything, particularly the connection of that long and winding six-foot trunk stuck to his face.

He did, however, make sure to link his name to Mayor Matthew Lehman’s at every opportunity.

Lunch aside: I agree with Wood in that blame does little good and doesn’t move us forward. But even a half-ass “I could’ve done a few things differently” might be nice. You’re about to see 13 more people lose their jobs and the community’s about to lose Whitmore Pool and Park – a contemplated casualty in the draft restructuring plan. If pinning that tail on some donkey (and it’s just an analogy. Don’t be so thin-skinned. I’m not calling you an ass) will make ‘em feel better, be that donkey. 

And from Geisel’s desk … 

Several points and questions were raised during public comment on the Restructuring proposals, one of which was could Ballas come back and sue the Town again? Klee responded that the slate would be clean, and Ballas could only sue if there was a breach in the payment plan going forward. However, he also said later that if there was a shortfall in a payment, for example if the Town were only able to pay $1 million of one of its scheduled $2 million payments, a provision in the deal would mean Ballas could take the payment and the balance due would accrue at 7% interest until paid off.

John Wentworth suggested Council might want to consider priorities, such as whether it wants to pay off the settlement in 7 years or go the entire 23-year distance. Lehman agreed with that idea, noting that the interest is front-loaded, and it might be worth exploring what it might take to get rid of that early, in four years perhaps, and then start knocking down the principal.

Joe Mueller said he is concerned about cuts to the Police Department, but added that, “If we want things, we have to budget for them.” He also said that with 13% [T.O.T.] tax rates, the Town has enough of those, and he doesn’t favor anymore borrowing and then having taxpayers enact more measures to pay for it. Councilmember Wood agreed, saying he’s been of the position that taxing isn’t realistic, calling it a hindrance and not something Council wants to pursue.

John Walter cited the conspicuous absence of one of the airport debacle’s players, MMSA CEO Rusty Gregory. He asked if MMSA was aware of the settlement agreement and planned to participate. Lehman replied that Gregory and MMSA have been briefed on the settlement, but were not privilege to any of the negotiations.

“They’re learning about it the same as [the public] is,” he said. “We had to keep them in the dark about it the same as we had to keep the public in the dark.” He added that MMSA is not in favor of any imposed tax on lift tickets and the like. “They didn’t take that too well,” Lehman related. He did say MMSA indicated it MIGHT support a voluntary tax if were temporary, but didn’t elaborate on what sort of tax might warrant any consideration.

One of the most pointed observations came from John Vereuck. He criticized the “restructuring” as being little more than “cost-cutting,” pointing out that earlier in the Town’s existence, it ran with just 50 staff before ballooning to 130 employees at its peak five or six years ago. He also cautioned Council against talking about passing a tax. “No one’s got the stomach for that,” he said, garnering some applause for suggesting term limits on Council seats.

Dieter Fiebiger was worried about the 47% cut to the Police Department, but even more worried that he’d be 103 by the time the settlement is paid off! Meanwhile, after the meeting, MLPD Chief Dan Watson said he’s going to be trying to get his head around being 24% of the budget, but taking 47% of the cuts, and trying to come up with more ways to shore up both his staff and line item.

Wood indicated the Chapter 9 filing was good at least as a maneuver, one of the few moves the Town’s made during the past few years that’s worked. “The value of Chapter 9 was that it brought MLLA to the table,” he said. He also said he hopes that the soon-to-be-nullified DA would soon be used to attract industry [to the airport property] that’s suitable to the FAA … “and NOT housing.”

Before adjourning, Lehman apologized to the citizenry for the actions of Councils and staffs past. “Every time I drive by the airport, I wonder how we as a Town ended up owing $30 million on property that’s been unchanged since the beginning of time … with no tangible improvements, no structures,” he said in Council remarks. “It leaves me angry and frustrated. It’s a tough pill to swallow. I wanted the number to be a lot closer to zero.”

He concluded by wondering, “Is this legal justice, or a victory of sheer greed?”

The Town is scheduled to appear in Bankruptcy Court on Oct. 19 to seek approval to begin the process under which it would execute the terms of the settlement. Next step from there would be petitioning the court to modify the Writ of Mandate down from the previous amount of $43 million to the settlement amount of $29.5 million. From there, the Town would go before Judge Thomas Holman to have the Chapter 9 filing dismissed, which would likely occur sometime in November.

Council is expected to approve a final list of employee cuts and reductions by its regular meeting on Dec. 5 in order to allow sufficient time to implement layoffs.

For more coverage of this story, see Geisel’s piece on community reaction, and also the text of Councilman Michael Raimondo’s letter.

Chapter 9 Bankruptcy proceeding on hold, perhaps nixed

Following a Tuesday evening Closed Session meeting of Mammoth’s Town Council, Mammoth Lakes Assistant Town Manager Marianna Marysheva-Martinez issued a statement saying the Town and Mammoth Lakes Land Acquisition LLC (MLLA) had reached a tentative settlement agreement in their ongoing haggle over a final airport litigation number (Click here to read statement).

Initially, MLLA won a $30 million judgment against the Town in 2008 for breach of a development agreement.

That number has since ballooned to $43 million with attorney fees and interest.

A court-established mediation process in advance of formal Chapter 9 Municipal Bankruptcy hearings could mean both parties have averted a final bankruptcy court showdown and reached the conclusion of a lengthy and contentious legal battle.

According to the statement, “Also a party to the settlement is Terrence Ballas, the developer holding commercial development rights under the Town’s 1997 Airport Development Agreement and associated leases. The Airport commercial development has been put on hold since legal issues with MLLA emerged over the hotel/residential portion, and the Developer has since asserted various contract breaches by the Town, which the settlement will address.”

The parties, both of which had only recently sat down at a table in mediation for the first time, were shepherded by U.S. Bankruptcy Judge Elizabeth Perris, whom Marysheva-Martinez called “a talented and trustworthy mediator.” Perris has been working on the matter have since being appointed on Aug. 6.

“The settlement agreement, including any and all terms, will remain confidential until it is fully documented and executed,” the statement went on to say. “While steps are taken to document and seek approval of the settlement, all discovery and litigation among the parties will be put on hold. At the same time, some key deadlines established by the U.S. bankruptcy court will remain, including a deadline to file objections to the Town’s eligibility by entities not party to the settlement.

“The Town will provide additional information to the public as soon as the settlement documentation is finalized and filed for court approval, which is expected within weeks.” On behalf of the Town, MLLA and Ballas, she took the liberty to “sincerely thank U.S. Bankruptcy Judge Elizabeth Perris, who served as the mediator and tirelessly worked with the parties around the clock to reach the settlement.”

After Closed Session, Mayor Matthew Lehman told The Sheet there wasn’t much more that could be disclosed, except to say that details are to be hammered out in the coming days and weeks, and that the mood with both Council and staff is “cautiously optimistic.”

Less than optimistic are some locals, however, who weighed in with disparaging online comments. One raged against Council’s spending “tens of millions of dollars to litigate over years, just to settle now in the 13th hour of bankruptcy. Who is going to pay for this after they just approved a budget that couldn’t support a settlement? Where is the money coming from? [Council] has made a decision that will saddle you and your kids for the rest of their lives.”

Since 2008, the Town filed several appeals of the initial judgment, all of which were denied. The appeals ended in March 2011, when the Supreme Court of California refused to hear the case. Legal fees involved have since ballooned the original judgment amount to more than $43 million, and earlier this year a Writ of Mandate was upheld, essentially ordering the Town to begin making restitution to MLLA.

The Town then entered into prescribed mediation with its creditors, and announced its intention to file for municipal bankruptcy protection on July 2. MLLA rejected all requests to participate in the process until ordered into mediation by U.S. Bankruptcy Judge Thomas Holman, who is overseeing the Chapter 9 proceedings so far.

Town Manager Dave Wilbrecht previously said that one option is selling a bond to finance the payments.

Local businessman Dan O’Connell, who is also an attorney, said he’s participated in many types of mediations, and thinks the bankruptcy was a good idea. “As a lawyer, a judgment is only worth what the debtor can afford to pay,” he explained. “In the case of the town, there aren’t a lot of assets, so this judgment clearly isn’t worth $43 million.”

O’Connell indicated it’s not unusual for the mediator to hear the worst case scenarios of both sides, then talk to each individually. “Then you get to the serious horse trading,” he added, which is what he thinks could have happened in the mediation with Judge Perris. “People think there is, but there really isn’t a lot of fat in [the Town] government, one that’s been laying people off. It’s pretty lean and mean at this point.”

He does, however, see the possible deal as part of a turning point in the local economy, and suggests that it’s one part of what he views as a new time of opportunity for real estate and building.

O’Connell is a principal in a proposed Rock ‘n Bowl center which could break ground this fall just off Old Mammoth Road next to the Cast Off.

Meanwhile, both sets of attorneys were silent after the possible settlement was announced. Marysheva-Martinez, however, did reinforce the Town’s stated commitment to involve the public. “We certainly intend to engage and educate the public when we are able to do so, and look forward to the process,” she told The Sheet on Thursday.

Partners in the Southern California law firm of Wadhwani & Shanfeld, which specializes in foreclosures and Chapter 7 and 13 bankruptcy law, told The Sheet that debt settlement is a practical alternative.

“It might seem strange that creditors would accept less than what is owed to them, but lurking in the background is the possibility of non-payment: your creditors would rather get paid less than is owed to them than potentially nothing at all,” they said. A move toward filing for bankruptcy means creditors will take you much more seriously, once you’ve “crossed the mental threshold and embraced the idea of filing for bankruptcy.”

Bankruptcy filing updates for the Town of Mammoth Lakes

Once a bankruptcy is declared, it’s not unusual to see offers to creditors saying, “Let’s make a deal … we’ll buy your debt.” If you’re a creditor of the Town of Mammoth Lakes, which recently filed for protection under federal Chapter 9 Municipal Bankruptcy statutes, you can either wait for a check from the Town or take what’s behind Door #2. And behind that door is Sierra Liquidity Fund, LLC, an Irvine-based company, which just issued an Offer to Purchase Claims and Accounts Receivable due from the Town.

According to the prospectus, the offer on the table at the moment is only for claims that are for accounts receivable that were payable and/or due prior to the Bankruptcy Petition filing by the Town on July 3. It covers “GOODS” delivered to and received by the Town between June 14 and up to and including July 2.

Sierra Liquidity is offering 65% of the current amount outstanding, and is advertising pay off within 10 business days of receipt of transfer claims.

“The offer we have out now is for a certain type of claim,” said Pia Gullifer, the Sierra Liquidity’s Transfer Agent and Spokesperson. “It has to be GOODS, not labor, service, freight, etc. Everything else that is not in the date range and is not specifically goods will go into a different rate.”

Gullifer added that no offer for the other items has been put together as yet; but is forthcoming. The rate will be different for those, and based on an analysis of debt versus assets, including general secured and unsecured revenue. And expect the rate on those to potentially be a lot lower.

“A lot depends on the size and strength of the debtor. With a big company holding lots of assets, such as American Airlines, it could be 40%,” she said. “The Town of Mammoth could be much lower, perhaps as low as 5 or 10%, maybe 20% if they’re lucky.”

On the other hand, Sierra Liquidity has a lot of confidence in its ability to make something on its trade claim transfers. The fund and affiliated funds have, according to the company, purchased more than $150 million in illiquid assets from more than 20,000 firms and individuals.

The company is a small hedge fund, formerly a part of Riley Bower, Inc., a development company that’s been in existence for about 20 years. Sierra Liquidity was started as a spinoff company about 12 years ago, and since then has bought bankruptcy plans, usually Chapter 11 and Chapter 7 reorganizations.

It is one of only about 10 or so such funds in the state that specialize in this type of claims and accounts offers. Gullifer said the Chapter 9 offer regarding the Town is a unique one for the company, and so far has no plans to make similar offers to other state municipalities that have recently entered the Chapter 9 process, such as San Bernardino or Stockton.

The deal is contingent on the petition for Chapter 9 being accepted, and part of the prospectus pitch is that, even though the Town might be current on post-petition debt, it’s not allowed to pay certain pre-petition outstanding invoices until the Bankruptcy court approves a plan or reorganization.

“There’s risk involved, but if you do the research, it can be better than Vegas, better than the banks,” Gullifer said.

Meanwhile, Town Manager Dave Wilbrecht is scheduled to head to Los Angeles for a two-day series of court-ordered mediation meetings with its biggest creditor, Mammoth Lakes Land Acquisition, holder of $44 million in judgment and legal fee obligations against the Town. This will mark the first time the Town sits down to any sort of mediation with MLLA since the mediation process began in the spring. MLLA refused to participate in pre-Chapter 9 mediations the Town held with other creditors.

San Berdoo/Mammoth similarity

San Bernardino’s bankruptcy may provide Mammoth Lakes with some good ideas, vis a vis outsourcing city police and fire services. According to an item in the Digital Clipping Service’s County News, the city’s recent decision to file for bankruptcy protection has reignited the debate about whether the city, as a potential cost-cutting measure, should dissolve its police and fire departments and contract with the county for those services.

Last week, the City Council declared a state of fiscal emergency and directed staff to file for Chapter 9 bankruptcy protection.

Officials at the San Bernardino County sheriff’s and fire departments said San Bernardino city officials have not approached them on the subject of contracting with their agencies for police and fire services.

According to a story from Bloomberg, the Southern California city of San Bernardino voted to file for Chapter 9 bankruptcy on Wednesday, joining the ranks of two other California cities that have sought court protection: Stockton and Mammoth Lakes.

In a FOX News report Wednesday morning, Trace Gallagher said that the city is staring down the barrel of a $46 million budget deficit and would not be able to make payroll after Aug. 15, at which point essential city services would either go unpaid or simply stop working.

“If the employees are not paid on Aug. 15, on Aug. 16 there will be a mass exodus of city employees,” City Attorney James Penman told the council before the vote, according to Bloomberg. “People are not going to work when they don’t get paid. Most of our employees will not show up to work. That would include police, fire, everybody. The city will virtually shut down.”

Another victim of the depressed housing market, San Bernardino has the third-largest municipal foreclosure rate in the country. One can also chalk this Chapter 9 filing up to unfunded pension mandates, which have led to grossly wrong budget projections, bad investments and what one disgruntled San Bernardino resident suggested amounted to 15 years of lies about the city’s fiscal condition.

A recent Reuters report said San Bernardino and Stockton are two of 8,500 local governments that have up to $2 trillion in unfunded pension mandates.

San Bernardino Councilman John Valdivia, who abstained from voting, said he did not trust the information presented at the meeting, and having only served since March believed he could not be held responsible for the money mess. “The taxpayers of this city have been duped, hoodwinked and misguided for the past several years,” Valdivia said in a statement to the San Bernardino Sun.

Gallagher also reported that the city wouldn’t be able to get out of paying police and other city workers their pension and other already owed contractual obligations; it will, however, be able to use the courts to renegotiate new contracts with employees’ unions.

Just three weeks ago, the City Council of Stockton, Calif., this week approved filing for Chapter 9 Bankruptcy on June 28, making it the largest municipality ever to do so.

Mammoth Lakes sought protection from creditors on July 2, when the Town Council saw no other way to pay for a $44 million litigation judgment and related legal fees.

By Paul Oster

Dear Honorable Bankruptcy Judge: 

There is so much you need to know. As a 30+ year resident, property owner and business owner of Mammoth Lakes, I would like to enter my own comments into the record regarding the Town’s filing for bankruptcy.

The entity that today “owns” the judgment (MLLA) that is the root cause (the proverbial straw the broke the camel’s back) of the bankruptcy includes, from all appearances, a group of high-powered attorneys including some from New York City. One would only expect they would use their cunning to distort reality and influence The Court.

The most recent information that is particularly disturbing to me appeared in this past week’s issue of The Sheet (one of our local media outlets). The information appears on The Sheet’s highly influential (and read) editorial page. The quotes (arguments?) are from a former New York City bankruptcy attorney (and Harvard Law grad) who now works in “a firm that specializes in the trading of distressed debt.” (That brief resume translates to “very smart, powerful, VULTURE,” for me.)

Mr. Vulture’s premise is that “he is very dubious about Mammoth’s ability to get into bankruptcy.” He is quoted, “Bankruptcy is not something that happens overnight or as a result of one or two problems. Everyone tries to blame their troubles on just one thing, but if you look deeper, you’ll find it is a culmination of years and years of mismanagement and neglect. At worst, the mismanagement is deliberate. At best, it is basic incompetence.”

Mr. Vulture continues his argument as to why Mammoth’s bankruptcy is bogus. He implies this is a “one event” scenario and that all of the cost cutting during the bankruptcy mandated mediation is pretended. He ultimately suggests (“guesses”) the settlement should be in the neighborhood of “Thirty million over 15 years at 4% interest would be a great deal for them (the Town). Great for who? (Sounds like he is ready to broker the deal.) And I’ll give him that he admits he has “limited knowledge of the case” based on newspaper reports (although The Sheet has probably covered the whole story as well as anyone). I encourage The Court not to rely on too many people advocating from positions of “limited knowledge.”

But the argument that this is a “one event” driven bankruptcy is quite interesting because he makes a calculated, but erroneous, argument. This is exactly what an outsider might think, or someone who hasn’t been close to the history of it all. I will argue with The Court that this bankruptcy is indeed the result of decades of difficulties and challenges. There is reasonable argument for “mismanagement and neglect” and “incompetence,” but not all necessarily emanating from the Town. This bankruptcy is certainly not the result of a “one time” event, although MLLA is attempting to paint that picture. We know they’re trying to make it a “big time” event.

The Mammoth Airport is a contentious issue and has been for decades. But let me make some assumptions: Airports all across the world are critical for local commerce and a locally “progressive” society. In the United States it was decided decades ago that airports and the airlines are worthy of subsidy, much like subsidizing farmers, subsidizing the ownership of real estate, etc. Many airports have military history and/or provide critical public safety elements. I also need to propose an assumption about Mammoth Lakes. While most trust funders, pine-cone-eaters, or DWP employees don’t care if the town thrives or not, most people who make this their home need to make a living. That has never been easy. So there has been, and always should be, a drive to make Mammoth a more successful resort. For some that means serving breakfast with a smile, and for other it means trying to develop condos.

So Mammoth Lakes has desired for decades to become a more attractive and prosperous resort. The incorporation of the Town in the 1980’s was a direct result of the community wanting better control over that destiny. Mono County is a large, diverse county. The interests in the southern portion are quite different from the north. Maybe this is where the mismanagement and neglect started (so the real roots go back to the 1960s and ‘70s). But the people in Mammoth Lakes clearly decided upon this path. It’s all in our General Plan. In the early 90’s the County government was in a shambles. The State was raiding the coffers and the County could barely cover necessities like paramedic service. The County looked to rid itself of the responsibility of Mammoth Airport. What could the Town do? Mammoth Lakes as a community was publicly planning its future; North Village, “resort corridors”, bikeway plans, public amenities, etc. The Town had to take responsibility for the Airport as part of the vision.

By 1997 the Town fathers realized it could tap into FAA funds to help make large and costly capital improvements at the Airport. At the same time, the Town was presented with an opportunity (via a development agreement) to have private enterprise take over the “fixed based operations” (FBO) of the airport by an experienced operator. Both parties took risks and had expenses. At the time it looked like a win-win situation. And in retrospect, how much money would the Town be shelling-out if they were running the FBO the past 15 years? That would be a public outcry too. It isn’t a big money maker, unless lots of Gulfstream pilots top-off their tanks at inflated prices.

The Town tried to do everything right, but Fish & Game shot down the cross-wind runway. The Sierra Club sued over everything and delayed air service for almost a decade. Then The Company in this company town exerted its position and influence, too. After all, The Company would benefit the most from a successful airport and airline service, and it was becoming impatient.

By the mid-2000’s our FBO partner decides to sue everybody, but the courts decide the agreement is between the Town and him. The subsequent jury trial becomes Mr. Vulture’s highlight of “at best, basic incompetence.”  The legal team representing the Town failed to adequately cross-examine the plaintiff’s star witness––the appraiser who claimed the “loss” for not being able to develop a timeshare (okay, fractional) condo project at the airport was $30 million. At the time of the trial there were two (the only two) bankrupt fractional projects in Mammoth (both with stellar locations). What a farce, what folly. A decent attorney can bring an appraiser to tears, it’s art, not physics.

After that the Town is convinced the Appeals Court and Supreme Court are the next course of action. It might have been prudent, but at the cost of $13 million? So part of Mr. Vulture’s “culmination of years and years of mismanagement and neglect” really is about trying to “do the right thing” but spending crippling amounts defending in court. And if it wasn’t the Sierra Club, or our development “partner” suing us it would be the Forest Service, or LADWP, or some new pseudo-Eco-Nazi faction. Basically, it was all mismanaged because it is impossible to manage. There are simply too many heavy-handed interest groups for this small town. And it has been this way for decades. Even worse, the ownership of The Company moved from longstanding “mom and pop” ownership, to a publicly traded real estate developer, to a Greenwich-based equity firm.

So your Honor, take mercy on our little town. Please do what is fair. But you’ll likely kick us in the teeth like all the rest. This has become the price we pay for trying to make home in one of the most special places on earth, but please, in this golden age of bailouts and victims, we deserve standing in The Court.

For the full story and other writings of Mr. Oster, Owner/Broker of Re/Max of Mammoth, visit www.mammothrealestateblog.com

The Sheet sent reporter Addie Gottwald to Sacramento on Thursday to attend the Town’s first bankruptcy hearing. The following is her report: 

The first court hearing for the Town of Mammoth bankruptcy petition, held on Thursday in Sacramento, was one big scheduling fight. The Town repeatedly stressed the importance of an expedited hearing.

Zach Clement, the lead lawyer for the Town of Mammoth Lakes, stated that the town “desperately needs to get [the court hearings] over with before [the next ski season].”

However, Eric Winston, the MLLA (Mammoth Lakes Land Acquisition) attorney, is scheduled to leave for a two-week family vacation until July 30 and the Town acted as if they did not wish to interfere with his plans.

Judge Thomas Holman is scheduled to be out of the country the first couple weeks of September, but stated, “I understand that there are time pressures in this case.”

Winston’s response after hearing the bankruptcy announcement was to ask to get MLLA and the Town representatives in a room together to talk and have a “last chance to see if there is a way to resolve this.” The Town had denied that offer, but the court has ordered Oregon Judge Elizabeth Perris to mediate between MLLA and the town (she is also in charge or mediating Stockton’s bankruptcy hearing).

“All we’re asking for is a fair amount of time,” Winston said. He wanted the eligibility hearing to be held in October. Judge Holman responded “more time for proper presentation, I get it.”

Clement wanted the confirmation of bankruptcy to be over with before November or December, the beginning of ski season.

The Town wants to have Town Manager Dave Wilbrecht and Assistant Town Manager Marianna Marysheva Martinez as witnesses at the eligibility hearing, assuming that MLLA objects to the eligibility.

Judge Holman said he was “not willing to compromise due-process” just to get the case done on the Town’s time favored time schedule. He felt that he could not take the Town’s desire for confirmation by December and work backwards from that to make scheduled hearings, and did not want the first hearing to be an evidentiary hearing.

Dates decided:

Order and amended notice due Monday, July 16

Start publication (announce to public and bond issues) by Friday, July 20

Objection filing deadline (for MLLA) Aug. 24

“My answer to you [MLLA] is ‘get going,’” said Judge Holman “no point in delaying this … not in anyone’s interest to keep a city in a chapter 9 case … don’t want my absence to delay this 3 weeks” (going to be out of the country) –

A status conference was first scheduled for Aug. 31, but Winston opposed it because his son on a varsity football team that is playing in Dublin, Ireland that day. He suggested Aug. 29 (he joked that the Town owed him one for moving the date up even a couple more days).

So the status conference was set for Aug. 29 in Sacramento with Judge Holman at 1:30 p.m.

The mediation date with Judge Elizabeth Perris is still being scheduled.

Gary Katz is the Principal of Downtown Capital Partners (based in Tarrytown, New York), a firm which specializes in the trading of distressed debt.

In essence, he loans money to bankrupt companies.

He is a former bankruptcy attorney for Skadden Arps, a prestigious New York City law firm. He is also a graduate of Harvard Law School.

In short, while not an expert in municipal bankruptcy, it’s familiar territory. And as a Sheet subscriber, he has followed Mammoth’s legal travails with interest.

And he is very dubious about Mammoth’s ability to get into bankruptcy.

As he said via a telephone interview this week, “Bankruptcy is not something that happens overnight or as a result of one or two problems.

“Everyone tries to blame their troubles on just one thing, but if you look deeper,  you’ll find it’s the culmination of years and years of mismanagement and neglect. At worst, the mismanagement is deliberate. At best, it’s just basic incompetence.

“Orange County’s bankruptcy [in the ‘90s] was a unique Madoff-type problem with bad derivatives trades … But generally, there are municipalities around the country that have made errors similar to Mammoth’s. And the vast majority of them have not filed for bankruptcy. They make painful political decisions. Careers are ruined. But they take their medicine and move on the best they can.

“If you have 10 cops and have to fire eight of them, or shut down your only hospital or fire department, that’s one thing, but if you don’t have to do that, you’re just the victim of really bad decision – both about the proposed project and then in not reaching a settlement in regard to the judgment.”

As Katz said, the strategy (some of which the Town has used) is to cut your budget and then threaten bankruptcy to negotiate better terms. While acknowledging he has limited knowledge of the case based simply upon newspaper reports, he gave this best guess:

“Thirty million over 15 years at 4% interest would be a great deal for them [the Town]” he concluded.

That’s what “Friends” are for … MUSD Superintendent Rich Boccia (left) honored former Town Councilmember and Mayor Skip Harvey as a “Friend of Public Education” last Thursday evening.

Thought the Skip Harvey recognition as a “Friend of Public Education” was fairly hilarious. The Ice Rink deal has to go down as one of the Town’s greatest financial boondoggles, and the entity that ate your lunch, Mammoth Unified, has the nerve to reward you for being a dupe … and you accept!!As Rich Boccia said when presenting the plaque: “I had the opportunity to work with Skip, who was Mayor at the time, and he helped us through headaches and challenges, but also took the time to introduce me to the Council and many wonderful townspeople,” Boccia recalled.

As far as the air subsidy issue goes, it’s time for Rick Wood to look in the mirror, make the tough decision, and tell his fellow runners that funding for the Whitmore Track Project will have to wait. That $450,000 pledged to the track project is needed for the air subsidy. We can’t fund both. We’ve got 25 years and untold millions invested in the airport. Operate it or shut it down. And have the balls to defend that decision either way.

At the very least, give me some financial analysis showing me that building a track will drive more business long-term than continued air service. Then again, I cringe at the thought of Council contracting out another $500,000 consultant. Never mind.

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In our recent follow-ups from the Town’s budget balancing measures and passage of the 2012-2013 fiscal year budget, one thing that escaped mention (until now) is some errant data in an attachment to a budget balancing Agenda Bill that has since been corrected by the Mammoth Lakes Police Department.

Chief Dan Watson said that instead of losing two sworn police officer positions as a result of the budget that was approved by the Town Council on June 20, the MLPD will lose only one officer.

After that report was prepared, the Police Officers Association (POA) agreed to additional concessions totaling more than 16%, according to Chief Dan Wason. The cut position is for Traffic Enforcement Officer.  It is unknown at this time whether the School Resource Officer (SRO) will continue or be reassigned to patrol duties in an effort to reduce overtime.

Watson added that if the decision is to no longer have a SRO, the officer in that position will return to patrol. An officer has accepted a tentative job offer with another police department which means he will most likely leave in 2-3 weeks, which means that no one will be laid off.  -Geisel

And a correction to our recent story on the Long Valley Hydrologic Advisory Committee (The Sheet, June 30, page 8). Ormat representative Charlene Wardlow wrote in, “Glad you could attend the meeting. One correction: you note the new CD-4 project will be at Shady Rest Park. The well field will be in that area, but the power plant is proposed up by the Southern California Edison substation, just north of the existing facilities at Casa Diablo.” Apologies to readers for any confusion. -Geisel

Updated July 2, 12:36 p.m. Sheet reporter, Andy Geisel, attended the Special Town Council Meeting on July 2, and reported the following:

Prior to voting, Council opened the floor to public comment, but there were no takers for time at the podium.

“You can try and lead a horse to water, but there’s not much you can do if they just don’t want to drink,” noted Mayor Matthew Lehman. He went on to add that the resolution to authorize Chapter 9 was an “unfortunate, but the necessary first step to getting [the judgment] settled and done.”

Mammoth newest Town Councilmember Michael Raimondo said he thought the Chapter 9 vote was “a year overdue,” but agreed that it was a big, essential first step towards getting the judgment resolved and keeping the Town moving forward.

Now the heavy lifting falls to the Town Manager’s office, requiring Manager Dave Wilbrecht and Assistant Town Manager Marianna Marysheva-Martinez, who shepherded much of the mediation and budget balancing during the past several months, to prepare the petition, schedules, lists and any other papers required by the U.S. Bankruptcy Court/Eastern California District in Sacramento to consider.

Filing a Chapter 9 petition doesn’t necessarily guarantee that it will be accepted or approved by the court. Attorneys from the legal firm of Fulbright and Jaworski, which represented the Town’s interests during parts of the MLLA lawsuit and judgment, and the subsequent mediation process, indicated their confidence that the Town is “qualified under state and federal Chapter 9 requirements.”

Timing of the Chapter 9 petition filing is interesting, in that Mammoth Lakes joins the City of Stockton, Calif., as the second state municipality to file such a petition in the last two weeks. Last week, Stockton also authorized its city management to file for Chapter 9 protection, the largest U.S. municipality to do so, though its circumstances are somewhat different. According to a Wall Street Journal report, a three-month confidential mediation with creditors and unions ended in failure. Stockton’s unions opposed benefit changes deemed necessary, and creditors stood fast against giving up what they are due. -Geisel

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FOR IMMEDIATE RELEASE

TOWN OF MAMMOTH LAKES FILES FOR CHAPTER 9 BANKRUPTCY PROTECTION

Town of Mammoth Lakes, California, July 2, 2012 – At a special meeting on Monday, July 2, 2012, the Mammoth Lakes Town Council voted unanimously to authorize the filing of a petition for relief under Chapter 9 of the Bankruptcy Code in U.S. federal court. 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, 2012.

In the past few months, Mammoth Lakes has struggled with two problems:

One – 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, balanced through painful measures in June 2011, an additional unanticipated shortfall of $0.9 million in the same 2011-2012 fiscal year that forced the Town to reduce its already low available cash, and a projected $2.8 million budget shortfall in its 2012-2013 fiscal year.

Two – a Writ of Mandate issued by a State Court ordering the Town pay a $43 million judgment owed to MLLA by June 30, 2012.

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 took place in the context of the neutral evaluation process established by the California Government Code (the AB 506 mediation), and concluded on June 29, 2012. The neutral evaluation was conducted by the Hon. David Coar (Ret.), 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 deliver 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. -Press release

Following hearing, MLLA issues letter to Town confirming it will not sit down at mediation

It only took presiding Judge Roger D. Randall 15 minutes on the afternoon of March 23 to grant a petition previously submitted by Mammoth Lakes Land Acquisition (MLLA) to issue a writ of mandate that requires the Town of Mammoth Lakes to pay the entire $42 million judgment by the end of this fiscal year. Hours later, MLLA had issued a letter to the Town stating that it would  not participate in mediation. The letter also lays out the payment plan MLLA would like to see enforced. Click here to read the letter.

The Town now owes more than $42 million in judgment awards from what has been known as the Hot Creek litigation.

Earlier this month the Judge granted the Town and its legal counsel additional time to file any last pleas, motions and responses, but as of Friday afternoon, time ran out, and now the burden of payment rests squarely on the Town.

Prior to making his ruling, Judge Randall said he had reviewed all the material submitted by the Town and responses by the plaintiff, and asked for final comments from both parties.

Best Best & Krieger attorney John Higginbotham, representing the Town, said he didn’t have much to add. “The debt is owed,” he acknowledged. He went on to argue, however, that as per a recent California statue, precipitated by the recent City of Vallejo bankruptcy case, the Town should have 60 days of pre-Chapter 9 process time, or mediation. “We’re not suggesting that MLLA isn’t entitled to the writ, or that you shouldn’t grant it.”

Attorney John Pierce, representing MLLA, responded that without the writ, it would not be possible to properly enforce the judgment. “The Town would continue attempts at mediation, as if it were immune, which would be a waste of time.” According to the letter issued by MLLA this afternoon, it will not take part in mediation.

Both the Town and MLLA have repeatedly made attempts at coming to a settlement to no avail. Town leaders, such as Council member John Eastman, have said in previous interviews that the distance between the two parties remained great.

“The Town should be permitted to take advantage of a 10-year payment plan,” Pierce added. “It’s not a bad thing; on the contrary it’s an extraordinary remedy.”

Section 970.6 of California Code makes such a payment plan available if the governing body of the local public entity has adopted an ordinance or resolution finding that an unreasonable hardship will result unless the judgment is paid in installments. Judge Randall said he would make an additional finding of hardship, given the Town’s economic situation.

Higginbotham responded that, contrary to Pierce’s assertion that 970.6 benefits the creditor, the code in fact is written for the benefit of the public entity. “It’s our call, the Town’s decision [whether to invoke 970.6],” he said. Higginbotham added his take that it’s not even the Court’s place to order the Town to exercise that option, and indicated that there should be a proper hearing should the Town decide to invoke 970.6.

To be eligible for bankruptcy, the Town would first have to prove that it is insolvent.

Should the Town file for relief under the U.S. Chapter 9 Municipal Bankruptcy statute, its debt would be neither discharged, nor necessarily reduced in any way. In short, according to U.S. statute, Chapter 9 provides for “reorganization of municipalities, which includes cities and towns, as well as villages, counties, taxing districts, municipal utilities and school districts,” and restructuring debt, not erasing it.

In the more than 60 years since Congress established a federal mechanism for the resolution of municipal debts, there have been fewer than 500 municipal bankruptcy petitions filed.

Town Manager Dave Wilbrecht was present during the proceeding, but made no comment afterward.

At the Tuesday, March 13 Mono County Board of Supervisors meeting, County Counsel Marshall Rudolph said the County had received a letter from the Town of Mammoth asking if the County would like to participate in mediation talks regarding the fallout from the Mammoth Lakes Land Acquisition settlement.

“This is a required step before filing for municipal bankruptcy,” Rudolph explained. “The Town is starting the process.”

The County has been given the option to participate in the talks because it is a vendor to the Town. The County has 10 days to decide if it wants to participate. Rudolph planned to check with the Town to see when that clock started. The Board agreed to put a discussion of the topic on its agenda for its March 20 meeting, and left it to Rudolph’s discretion to determine whether or not the item should be discussed in closed session.

Mammoth Lakes Town Manager Dave Wilbrecht conceded that yes, the Town had sent the mediation letter to the County.

“We have many creditors we work with,” Wilbrecht said. “State law mandates that we go to mediation with our creditors before filing for bankruptcy.”

Wilbrecht said that the County is one of about 40 Town creditors. He added that the creditors, including MLLA, do not have to participate in mediation, but the Town does have to send the letters.

The County provides Animal Control, joint GIS and Sheriff’s Department services to the Town.

At Thursday’s Town/County Liaison meeting, Town representatives stated that they wanted the County to come to the table.

“I want everyone at the table staring at MLLA,” said Councilmember Rick Wood. Of course, that would only happen if MLLA shows up to mediation. They have yet to agree according to the Town.

Mediation can go a maximum of 90 days, according to Rudolph.

Later in the meeting, during Board reports, Supervisor Vikki Bauer asked that the Board review the County’s support of Mammoth’s Fourth of July celebration to see if it should contribute more this year.

“We help Bridgeport a lot,” she said in comparison.