Mammoth Lakes files for bankruptcy over $43-million judgment

The HighSierra town of Mammoth Lakes said Monday that it filed for bankruptcy because it cannot afford to pay a $43-million breach-of-contract judgment in a lawsuit brought against it by a developer.

In a prepared statement, Mammoth Lakes officials said “bankruptcy, unfortunately, is the only option left” for the town, whose largest creditor, Mammoth Lakes Land Acquisition, had won a state court order requiring full payment by June 30, 2012.

Facing a judgment nearly three times the size of its annual operating budget and a $2.8-million shortfall in its 2011-12 fiscal year, the town had already cut many services and asked employees to take reductions in pay. Compounding problems, the adjacent Mammoth Mountain ski resort was forced to lay off 70 full-time employees last year because of a dearth of snow.

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A breakdown in negotiations with the developer was the last straw.

The town plans to ask the bankruptcy court to approve a payment plan it says is the most it can afford without jeopardizing the safety of residents and tourists: $500,000 a year over the next 10 years.

In the meantime, officials said the town of 7,700 permanent residents about 300 miles north of Los Angeles will remain open for business, and local police and fire departments will continue to provide “high levels of response and care.”

Mammoth Hospital, the Mammoth Community Water District and Mono County are separate from the town and are not affected, officials said.

Mark Rosenthal, a spokesman for the developer, was not immediately available for comment.

A state appellate court decision in December 2010 upheld the judgment and chastised the town for trying to back out of the agreement it signed in 1997 with Mammoth Lakes Land Acquisition.

The agreement required the developer to make improvements to nearby Mammoth Yosemite Airport’s fixed-base operations. In return, it would receive rights to develop a $400-million Hot Creek hotel project on 25 acres at the airport and an option to buy the land.

The court found that Mammoth Lakes changed its priorities in 2007 after it determined the project would interfere with Federal Aviation Administration policy governing the use of the airport property for aeronautical purposes and, as a result, derail the town’s plans to extend the runway to accommodate Boeing 757 passenger jets.

The developer, which had invested in some improvements at the airport, filed a breach-of-contract lawsuit against the town after it refused to move forward with the hotel project until the FAA policy issues were resolved.

The court found the city had not lived up to its end of the bargain.

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