March 20, 2005


Read my review when I visited the ship in long beach in december, and said then I felt the ship was in "managed decline".... it was not that surprising for me to read that it had filed for bankupcy protection...

rom Press Telegram:

"LONG BEACH — It took the city and the Queen Mary's operator nearly two years to confirm that they were miles apart on a lingering rent dispute that has reached $3.4 million.
But with Queen's Seaport Development Inc. filing for Chapter 11 bankruptcy protection this week, legal observers say the issue may come to a relatively quick resolution.

"Chapter 11 generally takes about 10 months to a year on average," said Lynn Lopucki, a UCLA bankruptcy law professor. QSDI's bankruptcy filing marks the latest twist in the Queen Mary's complicated history as Long Beach's iconic tourist attraction. Observers said the bankruptcy case also has some unusual aspects.

But bankruptcy lawyers and professors said the $3.4 million in dispute and another $389,000 that QSDI owes its 20 largest unsecured creditors, according to its filing, are relatively small amounts for a Chapter 11 proceeding.

"I wouldn't characterize the Queen Mary as a larger case," said Randye Soref, a Los Angeles bankruptcy attorney with the law firm of Buchalter, Nemer, Fields & Younger. "I'd just characterize it as a high-profile case."

QSDI, which leases the city-owned Queen Mary and its surrounding 55 acres, filed for bankruptcy protection on Tuesday. The move allows the company to continue running the ship while the rent issue is resolved.

The filing came the day before a city deadline for the company to pay $3.4 million in rent back to 2000, a demand QSDI disputes. QSDI's attorney, Joseph Eisenberg, said the filing allows QSDI to continue operating the ship without the city terminating the company's 66-year lease or filing a civil lawsuit for the money.

In a Feb. 24 default notice to QSDI, the city said it was prepared to take "all available legal remedies" to collect the money. The notice gave QSDI 10 days to pay, although the city later extended the deadline to March 16. The bankruptcy filing effectively moved the issue to federal bankruptcy court instead of a likely date in county superior court.

U.S. Bankruptcy Court Judge Vincent Zurzolo will now be tasked with sorting out a mess that the city and its tenant have been unable to resolve. Several observers said the fact that the case is in bankruptcy court may bode well for QSDI.

"Bankruptcy courts are generally thought to be a more favorable court for a debtor," Lopucki said. Still, aspects of the case are unusual, he said. Lopucki estimated that 5 percent of Chapter 11 filings involve disputes over the debt that initially sparked the bankruptcy filing.

"Most bankruptcies are generally to deal with undisputed debt," he said.

But Soref, who represents creditors in bankruptcy cases, said it's not that uncommon.

"In my world, I see that all the time," she said.

By filing for bankruptcy protection, QSDI must seek court approval before it can spend money, even for its day-to-day operations. The company was in court Friday and won approval to make four weeks of costs, including operating and maintenance expenses, and employee paychecks.

The issue of whether the company owes the city past rent could move toward a resolution within 60 days, attorneys for both sides said. Under bankruptcy provisions, QSDI can file a motion to assume the lease within that time frame, a process that would require a decision by the judge on the merits of the dispute.

But before that happens, the city will likely get a closer look at the company's expenses. By March 30, QSDI will be required to list its assets and liabilities, although Soref said debtors can seek an extension. With its Tuesday filing, QSDI listed its 20 largest unsecured creditors, which included debts as of that day to attorneys, accountants and utilities, among others. It also included a variety of vendors including a Shafter, Calif., fireworks company that QSDI owes $8,900.

The city was not listed as a creditor, which Wesley Avery, a bankruptcy attorney hired by the city, said was unusual. Eisenberg, QSDI's attorney, said the city wasn't listed because the company disputes the city's rent claim.

Joseph Prevratil, QSDI's president and CEO, has leased the ship since 1993. Prior to QSDI, several companies, including The Walt Disney Co. and Wrather Corp., held and later backed away from the lease. City officials have hoped development of the surrounding acres would spark attendance and interest in the historic ship, although past development plans have failed to materialize.

The rent dispute centers around credits that QSDI has claimed under a provision of an amended lease signed in 1998. That lease provision allowed the company to keep up to 9 percent of whatever it spends to develop land around the ship.

City officials say QSDI took credits since 2000 for work not eligible under that provision, including improvements to the ship itself. The company says its credits met the lease terms and that city-signed documents back their case.

The sides have been informally arguing over the issue since 2003, although they recently spent nine months in formal talks in search of a solution. Those talks ended with the city's Feb. 24 default notice.

Regardless of the outcome, the parties have one thing in common: They're both looking outside for their legal help.

QSDI has paid Eisenberg $100,000, according to the company's bankruptcy petition. He works for Jeffer, Mangels, Butler & Marmaro in Los Angeles.

The city, meanwhile, has retained Ezra, Brutzkus & Gubner, an Encino-based bankruptcy law firm. Long Beach has yet to pay $100,000 in the case, although the City Council will be asked to approve the firm's expenses if that threshold is crossed, City Attorney Bob Shannon said."


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