Queen Mary celebrates 40th anniversary in bankruptcy court
By Dave Wielenga

The giddy reaction to last week’s $41 million bid on the Queen Mary lease shows that Long Beach leaders still haven’t shaken the desperate and destructive personality trait that first drove the city into its cursed love affair with the legendary luxury liner 40 years ago. Or has everybody forgotten that all that money is barely enough to get the old boat out of bankruptcy court?

The Press-Telegram led the cheerleading, characterizing the offer by O&S Holdings of Santa Monica as the first shot in a possible summer-long “bidding war” (their optimist choice of words) for the Queen Mary. It never mentioned that $41 million is the minimum amount the bankruptcy trustee would even consider. Or that all but $1.23 million is refundable—and that if somebody does submit a higher bid, O&S Holdings gets all its money back, plus what’s called a “breakup fee”—so that the company could actually end up making money on a deal it never consummated.

But if $41 million turns out to be the winning bid, O&S gets a bargain-basement deal on Long Beach’s signature icon and nearly 50 acres of surrounding property for the next 57 years, while taxpayers get low-balled again. Can anybody even imagine what such a huge a swath of waterfront land will be worth in 2064?

O&S hasn’t said what it might do with all that civic heritage and ocean frontage. But the company’s developments around the country (in places like Waukee, Iowa; Waco, Texas; Altoona, Wisconsin—you know, the country) are standard mixed-use complexes—mostly chain restaurants and retail, maybe a hotel, probably a movie theater. They’re a lot like The Pike at Rainbow Harbor, which is still struggling four years after it opened across the bay from the Queen Mary.

“When I read that I thought, ‘Gag me with a spoon,’” said longtime downtown restaurateur John Morris, owner of Smooth’s Sports Grille. “I would hope we would learn from our past mistakes. We fucked it up once in Queensway Bay (aka Rainbow Harbor); we can’t fuck it up twice with our entryway. That should be the jewel of our city. Whatever we put there has got to generate enough money so that the city never has to worry again.”

Nonetheless, elected officials quoted in the P-T echoed the paper’s exuberance over the O&S Holdings bid. City Councilwoman Suja Lowenthal described the prospects as an “exciting opportunity,” while Mayor Bob Foster expressed certainty that the Queen Mary would soon be on an even keel.

Such a lack of both economic and emotional perspective has characterized Long Beach’s entangled relationship with the Queen from the beginning. The city has been drained of so much money that it stopped counting in the early 1990s, when the bill reached a demoralizing $100 million.

A subsequent lack of accountability by the city auditor’s office—headed by the now-departed Gary Burroughs–made things even worse, allowing the Queen’s most recent lease-holder, Joseph Prevatil, to build a personal financial empire while allowing the beloved ship to fall ever farther into appalling disrepair.

Prevatil was supposed to pay the city a base rent of $25,000 a month, plus a percentage of his profits. But various amendments to his lease gave him a discount—9 percent of whatever he spent on capital improvements to the aging vessel. Prevatil claimed massive capital-improvement expenses, but a public records request by Long Beach housewife Tracy Wilson-Kleekamp cast doubt on those claims and revealed little oversight by city auditor Burroughs. In January, U.S. Bankruptcy Court Judge Vincent Zurzolo ordered Prevatil to pay Long Beach $4.9 million in back rent.

Prevatil’s complex administration of Queen Mary received funding from various public and private sources while transferring money back and forth between two ship-related agencies he headed—the for-profit (and now bankrupt) Queen’s Seaport Development, Inc., and the non-profit RMS Foundation.

That’s why the whole mess will be back in Judge Zurzolo’s bankruptcy court May 3. There, the Queen Mary’s court-appointed trustee Howard Ehrenberg of the Los Angeles firm SulmeyerKupetz will attempt to clear the way for O&S Holdings to officially open the bidding for rights to the ship. He’s got one problem, however: Bandero LLC, a Nevada-based company that claims it already owns some of those rights, and is first in line for the rest of them.

Turns out that in 2003, during one of his money crunches, Prevatil sold Bandero 24 percent Queen’s Seaport Development, Inc. (QSDI) for $2 million—and gave the corporation an option to buy the other 76 percent for $3 million and development rights for $1 million more. City officials say they knew nothing of the arrangement until 2004, when Bandero attempted to exercise its development. Seeking information, the city sent Bandero a couple dozen questions.

“Bandero answered those questions, and delivered them to the city,” asserts Bandero attorney Greg Mortensen. “When the city did not respond within a lease-mandated 14 days, Bandero assumed the transfer had been approved. Bandero believes it has the right to develop the Queen Mary and it intends to pursue those rights.”

It’s difficult to assess the magnitude of the obstacle that Bandero’s claim presents, but Ehrenberg is at least irritated by it, if not exactly daunted.

“My responsibility is to be in a position so I can deliver a clear title,” he says, “Right now I can’t do so, but I believe there are other provisions of the bankruptcy code that will enable me to sell clear of disputed rights. Both the city and myself have filed for a summary judgment that will be heard May 3. With that out of the way, in 60 days we can conduct a sale.”