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.”