UPDATE 2-California ski resort town to file for bankruptcy

Mon Jul 2, 2012 8:55pm EDT

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* Resort town says can't afford $42 mln legal judgment

* Creditor says will contest bankruptcy eligibility

SAN FRANCISCO, July 2 (Reuters) - The leaders of Mammoth Lakes, California, voted on Monday to approve a bankruptcy filing for the ski resort town, just days after Stockton, California, became the most populous U.S. city to turn to bankruptcy court for protection from its creditors.

The vote by the Mammoth Lakes town council to seek Chapter 9 bankruptcy protection was unanimous, according to a statement on the town's website. (Statement:)

The town of about 8,000 residents in the Sierra Nevada mountains about 300 miles (483 km) north of Los Angeles saw no other options after its largest creditor, Mammoth Lakes Land Acquisition, refused to negotiate concessions, the statement said. Mammoth Lakes Land Acquisition won a $43 million legal judgment against the town stemming from a property development dispute that began in 2006.

A new state law requires financially troubled municipalities to attempt mediation with their creditors before they may file for bankruptcy.

Lawyer Dan Brockett said the town invited Mammoth Lakes Land Acquisition to enter into mediation only to follow the law until it could move forward with a bankruptcy filing.

"The mediation in our view was something they would do to check a box," Brockett told Reuters, adding that his client will contest the town's eligibility for bankruptcy.

"We're going to fight this," Brockett said. "This whole idea we forced them into bankruptcy is nonsense."

Brockett said the town snubbed a plan by his client that would allow it to pay off the judgment over 30 years.

"We structured a very reasonable proposal to resolve this," Brockett said. "They're not even insolvent."

Lawyers for Stockton, a city of nearly 300,000 people in California's Central Valley, are due to appear at Sacramento court this week. The city filed for Chapter 9 bankruptcy protection last week.

Stockton is seeking court approval for its 2013 fiscal year budget. The city negotiated with creditors for three months but failed to produce enough concessions to close its budget gap by the time the deadline for the talks expired last week.

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