Mammoth Lakes, California, Files for Bankruptcy

By Steven Church and James Nash - Jul 4, 2012 3:38 AM GMT+0700

Eddy Joaquim/Getty Images

The biggest creditor listed in the Mammoth Lakes case is Mammoth Lakes Land Acquisition, which won a $30 million judgment against the town that has since grown to $43 million with interest and legal fees.

Mammoth Lakes, the High Sierra mountain resort, filed for bankruptcy to shelter itself from a $43 million legal judgment, becoming the second California municipality in a week to seek court protection from creditors.

Mammoth Lakes listed assets of more than $100 million and debt of more than $50 million in papers filed today in Sacramento, California, under Chapter 9 of the U.S. Bankruptcy Code, which is reserved for public entities such as cities, counties and special taxing districts.

The town council voted to seek bankruptcy protection after its largest creditor, Mammoth Lakes Land Acquisition, won a court order requiring the town to pay the judgment by June 30, according to a statement on the town’s website. Under Chapter 9, a municipality can halt court actions against it while seeking to reorganize its finances. The tactic is common among corporations that file so-called Chapter 11 bankruptcies.

“Bankruptcy, unfortunately, is the only option that the town is left with,” town officials said in the statement.

The filing comes six days after the northern California city of Stockton filed for bankruptcy with plans to try to impose cuts on bondholders and employees. Vallejo, California, filed for bankruptcy in 2008 and used court protection to cut retiree benefits, renegotiate labor contracts and reduce the interest paid to lenders. The city exited bankruptcy last year.

Biggest Creditor

The biggest creditor listed in the Mammoth Lakes case is Mammoth Lakes Land Acquisition, which won a $30 million judgment against the town that has since grown to $43 million with interest and legal fees. The California Public Employees’ Retirement System, or Calpers, the largest U.S. pension fund, is the second-largest unsecured creditor, owed $4.2 million.

Mammoth Lakes, a ski resort community of 8,200 near Yosemite National Park, has an annual budget of $19 million.

Mammoth Lakes Land Acquisition refused to participate in mediation between Mammoth Lakes and its creditors, according to a statement on the town’s website. That mediation, required under California law, is designed to help cities and counties avoid bankruptcy.

The company sued the town in 2006 and accused it of breaching a development agreement allowing the company to build homes, retail space, hangars and other structural improvements near the Mammoth Yosemite Airport.

In 2008, a state court awarded the company $30 million, which the town appealed. An appeals court sided with the developer, and the California Supreme Court refused to hear the case last year.

Compromise Sought

The company has tried to reach a compromise with the town, said Daniel L. Brockett, a partner at Quinn Emanuel Urquhart & Sullivan LLP in New York, which represented the developer.

The town rebuffed the developer’s offer for $2.7 million annual payments over 30 years, Brockett said in a telephone interview.

“There was no point in us participating in the mediation,” he said. “The mediation was simply so they could check off a box before going to bankruptcy court.

‘‘They just keep putting their heads in the sand and hoping that some guy in a black robe will bail them out.’’

The case is In re Town of Mammoth Lakes, 12-32463, U.S. Bankruptcy Court for the Eastern District of California (Sacramento).

To contact the reporters on this story: Steven Church in Wilmington, Delaware at schurch3@bloomberg.net; James Nash in Los Angeles at jnash24@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net