Note to Mammoth Lakes Town Council: It’s always important to have a good attitude in the face of adversity.
We’re snow farmers, not legal eagles. Town now oh for two in Hot Creek litigation
Ever since California’s Third Court of Appeals upheld Mammoth Lakes Land Acquisition’s $30 million judgment against the Town of Mammoth Lakes on Dec. 30, the powers-that-be have reiterated that it’s time to stop pointing fingers and start looking for solutions.
However, while Town officials decry the decision and vow an appeal to the Supreme Court, a certain sense of reality has finally sunk in. As Councilman John Eastman said this week, “I think we suck it up and do what we have to do to pay it off.”
We being Mammoth taxpayers and the guests we’ll inevitably pass the cost down to. 14% T.O.T., anyone?
Of course, the $30 million judgment is actually worth $40 million now, when you take into account 10% annual interest over 2.5 years and nearly $2.5 million owed in attorney fees. Hardly the result forecast by former Mayor Neil McCarroll, who thought (and still thinks) there’s been a miscarriage of justice.
“Attorneys have just ruined California,” said McCarroll, himself an attorney.
For the uninitiated, here’s a brief synopsis of the case.
In 1997, the Town of Mammoth Lakes signed a Development Agreement with Mammoth Lakes Land Acquisition (aka the Hot Creek developers) to essentially take over Mammoth airport operations, becoming Mammoth’s fixed-base operator.
The deal also gave Hot Creek property development rights.
A few years later, the Federal Aviation Administration (FAA) came along and dangled $30 million in airport improvements before the Town’s starry, we-want-to-be-a-world-class-destination-resort eyes.
But there was a catch. The development rights held by Hot Creek clashed with the FAA’s policy which mandates preserving airport property for aeronautical uses.
In short, to date the FAA, the Town had to dump Hot Creek, but instead of doing the right thing and condemning the property via eminent domain and paying Hot Creek fair market value, the Town chose to try to wriggle out of its promises via some clever lawyering.
The trial court and now the appeals court has chastised the Town (and its legal counsel) for its behavior.
This was attorney cum mall magnate Paul Rudder’s view after reading the appellate opinion:
“Without commenting on the behavior of Town officials and the Town Council, I can’t remember reading an appellate opinion where every other page pointed out something counsel for a party failed to do, or did wrongly, either at trial or on appeal, page after page after page. To say that the Town suffered from poor representation would be putting it mildly. Sometimes the practice of law devolves into nothing more than what Kenny Rogers said, ‘you gotta know when to hold ‘em, you gotta know when to fold ‘em.’ Clearly, given the facts enunciated by the Court of Appeal, this matter should have been resolved before it ever got near a court of law.”
What would it have cost to settle with Hot Creek back when the problem first arose? Town Manager Rob Clark addressed that a in letter back in 2004: “Hot Creek estimates the market value of their project at $400 million, which is $1.6 million per unit based on fractional ownership, and the value of the option at 5% of sales price [$20 million]. Even if the value is half that amount, it would cost $10 million to acquire the option through negotiation. They offered to have a mutually agreeable expert determine the value. Since we don’t have $10 to $20 million in spare change, I am trying to come up with some other way to compensate Hot Creek.”
That was before the Town decided that it would rather rely on some legal arguments and pay nothing at all.
According to the appellate decision, “Section XVII(e) of the Development Agreement (clause E) stated that neither party would be in default for a cause beyond the reasonable control of the parties. It stated: ‘Neither party shall be in default of this Agreement for delays in or failures of performance due to war, insurrection, strikes, floods, earthquakes, fires, casualties, acts of God, governmental restrictions imposed or mandated by governmental entities other than Town, enactment of conflicting State or Federal laws or regulations, judicial decisions, or similar bases beyond the reasonable control of the party excused.’
The Town asserts that, as a matter of law, the emphasized portion of clause E excused it from performing on the Development Agreement because both the Town and the Developer were required to comply with the FAA restrictions (regarding property develiopment at the airport. This assertion is without merit because the FAA’s restrictions were within the control of the Town.”
In other words, if the Town chose to never expand its airport, it would never have to comply with the FAA. Compliance was a choice, just as entering into a Development Agreement is a choice.
And as McCarroll told The Sheet this week, “If getting an airport ends up costing us $20 million, that’s still a better deal than having a bunch of condominiums down at the airport.”
As Town Manager Rob Clark said, we now have three options: Supreme Court, bankruptcy or settlement.
The threat of a municipal bankruptcy may induce Mammoth Lakes Land Acquisition to settle for a lesser sum, as a municipality, though it can’t duck a judgment, could certainly drag out the payment timeline for a long, long time. According to USCourts.gov, the following are some of the parameters of Chapter 9 bankruptcy:
“Chapter 9 is significantly different in that there is no provision in the law for liquidation of the assets of the municipality and distribution of the proceeds to creditors.
… the municipal debtor has broad powers to use its property, raise taxes, and make expenditures as it sees fit. It is also permitted to adjust burdensome non-debt contractual relationships under the power to reject executory contracts and unexpired leases, subject to court approval, and it has the same avoiding powers as other debtors. Municipalities may also reject collective bargaining agreements and retiree benefit plans without going through the usual procedures required in chapter 11 cases.”
Which doesn’t sound so enticing if you’re a local taxeater.
The Sheet asked Clark how a bankruptcy might affect Town services. “That’s hard to foresee,” he said. “The purpose of municipal bankruptcy is to protect the citizenry. You can’t endanger the public by having to eliminate essential services.”
Will there be renewed thought given to disbanding the MLPD and contracting out law enforcement services with Mono County?
“A consultant has already looked at this. I don’t think there are savings to be generated,” Clark said. Mono Sheriff Rick Scholl, however, said whether there would be savings or not is uncertain, since the County has never run any figures or cost analysis on consolidating the two agencies.
Village hires Agee
Dion Agee, 43, has been hired to replace Betsy Smith as Director of the Neighborhood Company, which operates the Village at Mammoth.
The hiring marks the return of a native son. Agee was born in Bishop, grew up locally and is the son of former MMSA Senior manager Dennis Agee.
Agee most recently worked for the U.S. Ski Team in Salt Lake City. Prior to that, he founded a shoe store in Bend, Ore. in 2005, which he sold in 2008.
When he left Mammoth in 2004, Agee was MMSA’s G.M. of Staff Accommodations.
Agee’s goal in his new job is to further the success of events initiated by his predecessors while building relationships with the Town, Chamber and Arts Council to “continue to make the Village an integral part of the community … This is an opportunity to build cohesion.”
The strengths Agee brings to the job are: retail and property management experience and a knowledge of the community.
Sheet: Is it safe to assume you’ll be back for awhile?
Agee: I’m back for good if I can make it work that way.
And from Kirkner’s desk …
At Wednesday’s Council meeting, member Rick Wood brought up the “elephant in the Town,” the airport litigation only to say that he did not believe the denial was the end of the road for the Town. “I for one take this seriously,” Wood said. “I will do what I can as a Council member and a citizen to protect our assets. We are not in a great place but we are not in a bad place, we are just in a process.” Council was expected to further discuss the outcome of the litigation’s appeal during closed session. According to a press release on Jan. 6, Council opted to petition the California Supreme Court to review the Hot Creek decision.
The Mammoth Lakes Post Office is no longer able to process passports. According to Postal Worker Scott Mowat this is because of cutbacks. The main offices prefer to cutback services rather than hire more employees for the Mammoth branch. Mowat stated that there would be a lot of other changes in the upcoming months. To get a passport, Mammoth locals should go to the Bishop Post Office.
Mark Johnson, legal representation for Sergeant Eric Hugelman attended the Council meeting and spoke during public comment. He asked that the Town heed Hearing Officer Arturo Morales’ report and decision that Hugelman be reinstated. Johnson claimed that Hugelman and his family were just looking for closure in the situation. He later told The Sheet that he was there to negotiate and enforce Morales’ decision. “It’s like when you sue and you win but they don’t want to pay and you have to enforce it,” Johnson said.