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Mammoth stumbles its way to $30 million loss in Hot Creek lawsuit

January 8, 2011

The Town Council on Wednesday, Jan. 5, considering its options. Or lack of them.

A travesty of justice?

The California Third Appellate District Court sure didn’t think so.

The three-member panel last week unanimously upheld a $30 million judgment against the Town of Mammoth Lakes in the Hot Creek Aviation litigation.

It wasn’t even close.

Thus ends the litigation in a dispute that began in 1997. Now begin the myriad questions facing the Town and what it’s going to do about them.

First among these is filing an appeal with the California Supreme Court, said Mammoth Town Councilman Rick Wood Thursday. Wood said that decision was made in council’s closed session Wednesday night.

Town Manager Rob Clark now will be asked to help sort this thing out, and on Tuesday he was still a little taken aback.

“We think they made the wrong decision. However, given the comments that they made at oral argument we weren’t totally taken by surprise.”

Two weeks ago, as former Town Attorney Peter Tracy was leaving the council chambers, having accepted a plaque of appreciation from the council, he said that if the state appeals court upheld the judgment against Mammoth Lakes, it would be “the worst travesty of justice I’ve seen in 32 years of practicing law.”

Asked if he agreed with that, Clark said, “Um, yeah.”

Yet the court’s 66-page decision tells a much different story, one of:

• Bollixed communications by the Town with the Federal Aviation Administration (FAA) and the project developers over a 13-year span.
• Unclear motives by the Town as it shifted its focus from private side development to creating an airport for commercial aircraft service.
• A change in direction by the FAA, which along the way laid down tougher requirements for the airport in mid-stream.
• An unwillingness of the Town to seriously negotiate a settlement, believing it had the right to simply walk away from a signed agreement.

“Many years were spent seeking an alternative to litigation, but we were unwilling to accept a solution that simply absolved the Town of its contractual obligations,” said Mark Rosenthal of Mammoth Lakes Land Acquisition, LLC., which pressed the case against the Town.

In an e-mail, Rosenthal wrote, “While we are still not prepared to make any of our own editorial comments, I think it will be clear from this opinion why the Hot Creek developers were left with no alternative to filing suit.

“Now that both trial and appellate courts affirmed the legal position that the Hot Creek developers expressed to the Town’s representatives for years, perhaps (Mammoth Lakes) officials will choose to take responsibility for their actions and work with us to seek a realistic resolution to a problem of their own making, rather than simply spending more money on legal fees.”

Given the history of rancor between the two sides, that’s hard to imagine.

For example, in 2004, then-Deputy Town Manager Charles Long met with officials from the FAA and told them that the Hot Creek project was “inconsistent with the Town’s goals.”

He said the project might never be built.

According to the court ruling, “He (Long) asked the FAA to help the Town ‘get rid of Hot Creek’ because it interfered with expanded air service.”

On June 29, 2004, the day after the meeting with the FAA, Long sent an e-mail to the Hot Creek developers, saying,

“The FAA is primarily concerned … that the airport will run out of land for aeronautical purposes as a result of the land used by the non-aeronautical purposes your project represents.

“The FAA intends to send us a specific itemization of these compliance concerns in the next few weeks. Until these issues are resolved, we will be unable to move forward with your project.”

But all along, the fact remained that the Town had signed a development agreement with Terry Ballas in 1997.

Even at the start, the Town Council bungled the timing.

Nine days before the council signed the agreement, according to the ruling, airport manager Bill Manning, having submitted the proposal to the FAA, received a return fax indicating the FAA had some serious objections to the document as it then stood.

It had a problem with the projects proposed 55-year lease, for example.

Nevertheless, on Aug. 21, 1997, the council plowed ahead, signing a Development Agreement in spite of the red flags raised by the FAA.

“While the Town claimed that the Town’s airport director (Manning) discussed the FAA’s concerns with Ballas,” the court ruling said, “Ballas testified that the Town did not disclose to him the FAA’s concerns about the Development Agreement until seven years later.”

Unknown to Ballas and the Town at the time, a 13-year battle was thus joined, ending on Thursday, Dec. 30, when the Town, having already lost a jury trial in Bridgeport, lost its appeal by a unanimous vote of the appeals court.

By the time the wrangling was over, the town had gone through seven Town Councils, a steady turnover of town staff and four Town Managers – Tracy Fuller, Steve Julian, Charley Long and Robert Clark.

Only a few players remained start-to-finish. Among them were Town Attorney Tracy, Airport Manager Manning, and councilman John Eastman. Some were in-and-out players, such as councilman Rick Wood, who served eight years on the council, four as Mayor, before leaving. Wood was re-elected to the council last June.

On the other side, Ballas long ago sold his interest to Mammoth Lakes Land Acquisition, LLC.
Some people were caught in the crossfire, among them current Town Manager Clark, who succeeded Long and landed smack in the middle of the imbroglio.

Clark, in an interview, said he spent an entire year trying make things right, “to get our ducks in a row.” However, once he thought he had succeeded, the FAA once again zig-zagged, sabotaging his efforts.

But at least some officials think the Town Council and Town government were woefully unprepared for the high-level negotiations an ambitious project like Ballas’ required, let alone one involving the FAA.

Kathy Cage is a former Town Council member (1994-2002), the only one of the five council members to vote “no” on the 1997 development agreement at the heart of the appellate court’s decision.

“I wish I could say I was a genius, that I saw all this coming, but the real reason I voted “no” was because the agreement was prepared to allow the land under the airport to be valued at the date of the agreement,” she said.

“I thought that was ridiculous.”

But this kind of action spoke to a pervasive problem, she said: a staff and council “out of their league.” Yet they were unwilling to invest in the kind of high-level legal and negotiating expertise that Cage said wasn’t always in place and that she often advocated for in regard to the airport development issues.

“It all comes down to the fact that we went into this without the defensive attitude we should have had,” she said. “We were pressured to see the agreement with Ballas as a partnership, and that was not enough to protect our interests.”

Left on clean-up duty is a new Town Attorney from Best, Best & Krieger, a sprawling law firm that represents many towns and cities in California, addressing just these kinds of issues.

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