Too bad the Airport’s firefighting vehicle can’t be used for financial conflagrations. Pictured: Aviation Rescue Firefighter Rick Poedtke (Photo: Geisel)
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) and issue a writ of mandate. The writ requires the Town of Mammoth Lakes to pay the entire $42 million airport litigation judgment by the end of this fiscal year. Hours later, MLLA 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 adopted.
The Town now owes more than $42 million in judgment awards and legal fees from what has been known as the Hot Creek litigation.
For those unfamiliar with the case, the Town double-dealt on a developer in the early 2000s and ultimately got doused with a double-dose of whup-ass.
According to Town Financial Consultant Marianna Marysheva-Martinez, however, the Town’s position this week appears to have changed little since the writ of mandate was ordered. It still wants to “mediate,” though the process now seems to be referred to as finding a “resolution,” and a petition for Chapter 9 Municipal Bankruptcy is considered the nuclear option.
In the letter, attorneys with law firm Quinn Emanuel, which represents MLLA, said that the Town has “studiously avoided accepting any responsibility for its contractual obligations to MLLA” and called any further mediation “another step to delay the final resolution of this claim.”
“After [more than a] decade … of trying to resolve this matter behind closed doors with the Town Council and town managers, it is time to open the process to all the constituents in the town,” the letter stated.
Marysheva-Martinez expressed her disapproval of that letter being given to the media, a move some community members have labeled “shrewd” and “savvy” on the part of Quinn Emanuel.
“We’re not happy that the letter was released to the public and more importantly to the media; we had a confidentiality agreement in place, but releasing it was MLLA’s call,” she said. “Be that as it may, we maintain that we can’t pay the amount that MLLA is asking us to pay, and have been working diligently on a restructuring plan that would address both MLLA’s issues, and general budget challenges the Town has to address, not only next year, but also the next five years.”
She went on to say that the Town still has to outline what it can afford to pay, though no amounts were mentioned.
Marysheva-Martinez also said filing a petition for Chapter 9 is not considered a preferred option.
Earlier this month the Judge granted the Town and its legal counsel additional time to file any last pleas, motions and responses. 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, acknowledged on Friday that, “The debt is owed.” 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 on behalf of 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.”
Both the Town and MLLA have repeatedly made attempts at coming to a settlement to no avail. Town leaders, such as Councilmember 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.
Town Manager Dave Wilbrecht was present during the proceeding last Friday, but made no comment afterward, and has been mum on it since.
In its letter to the Town following the judgment, Quinn Emanuel extended what amounted to a final olive branch. “While MLLA is skeptical that the Chapter 9 filing of the town is anything but inevitable (whether or not it qualifies), as a final effort to resume direct negotiations, MLLA is prepared to proceed with a settlement of the judgment on the terms set forth in this Letter of Intent (“LOI”).
According to Quinn Emanuel’s calculations, as of April 30, 2012, the full amount of the judgment will be at least $42,746,754.70, including the amount of the original jury verdict, fees, costs and interest. The payment schedule proposed is as follows:
A written settlement agreement would be finalized no later than the set effective date of April 30, at which time the Town would make an Initial Payment of $2 million to MLLA.
The balance would be amortized over 30 years at 4.25% interest, if structured as a tax-free bond, and 5.6% if taxable. And the first year would be interest-free, unless the Town defaults, and monthly payments on the debt wouldn’t commence until May 1, 2013. Under this structure, the Town will be required to make total annual payments of approximately $2.8 million per year on a taxable instrument, or approximately $2.4 million on a tax-free bond issued to MLLA.
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.
No matter what course of resolution the Town opts to pursue, it will also have to deal with a potential $2.2 million shortfall in next fiscal year’s budget. Making up that amount could require some concessions on the part of Town staff.
On Thursday afternoon, the Town Council, heretofore largely silent on the judgment, discussed the MLLA matter in closed session.
In the open session, Council took up a tangentially-related MLLA matter, a proposal to borrow $4.7 million against the $10 million in the Vehicle Replacement Fund.