Bandero Files Lawsuit Against Queen Mary Master Leaseholder

It seems like it all comes down to “he said, she said,” as one more anchor has been chained to the rights to operate and develop the City of Long Beach’s historic icon, Queen Mary.

A group formed more than three years ago, specifically to negotiate for and ultimately obtain the right to develop property at the former luxury ocean liner and tourist attraction, believes that after years of participating in negotiations muddied by behind-the-scenes financial fiascos, suspicious dealings between a non-profit foundation and its sister for-profit company and the filing of bankruptcy as the ship was slowly sinking into a money pit, there was no other choice but to file a lawsuit, which it did on Nov. 9, to bring the questionable dealings to light.

The Beachcomber coverage of this complex saga offers an exclusive insider look at the years-long dealings between Bandero, LLC, a Nevada Limited Liability Company, Queen’s Seaport Development, Inc. – the master leaseholder of the Queen Mary operations, Jeff Klein of Save the Queen, LLC – a Newport Beach developer and successful bidder to the Queen Mary operations, and a number of affiliated parties that Bandero representatives claim have reneged on signed agreements to include the group in the successful outcome to own the lease to the ship operations and property development.

This story looks at the recent lawsuit filed by Bandero and a brief history of what led to the troubled waters of the Queen Mary.

A Sinking Feeling

Queen’s Seaport Development, Inc. (QSDI) President and CEO Joe Prevratil obtained a 66-year master leasehold from the City of Long Beach, owner of the Queen Mary, in 1996 to run the ship and its assets and acquire the right to develop the property surrounding it. His non-profit, RMS Foundation, has a sublease to run the day-to-day operations of the ship.

Through the next decade, Prevratil intended to improve and upgrade the aging vessel, which included, among other things, to build a new parking structure for thousands of cars, to develop a boutique yacht club hotel and marina and to liven up the entertainment and commercial activities at the site which, at one time, included plans for a permanent exhibit of 50 years of memorabilia from the collection of producer Dick Clark to be housed in the former Spruce Goose dome.

But most of those intentions never materialized.

Say it Isn’t So, Joe

In 2005, a Long Beach community activist brought to light that Prevratil had been taking questionable rent credits intended to be invested back into the ship and its surrounding assets, resulting in QSDI falling nearly $4 million behind in payments to its landlord. QSDI filed bankruptcy after the city issued a notice of intent to default on the lease.

Thus began the scramble to take over the operations of the ship. RMS was not part of the bankruptcy and continued to run the ship’s operations and receive profit from the shops and businesses. Prevratil continued his involvement and only recently stepped down as QSDI President and CEO. However, he remains chair of its board and of the RMS board.

Group Claims Rights Denied

In 2004, Bandero paid $1 million to QSDI for 24 percent development rights, paid an additional $2 million to Prevratil and QSDI stockholder and board member Paul Leevan for their stock and another $3 million for stock options Bandero could exercise at anytime, according to Melanie Balestra, a member of Bandero and a QSDI board member representing the group.

After the rent credit debacle became public, Balestra said Prevratil informed Leevan, Balestra and Donald Westerlund, the other three board members of QSDI, that they needed to file for bankruptcy protection because the operation was losing money. At the same time, Prevratil was disputing the rent credits. A Chapter 11 bankruptcy trustee soon took control of all QSDI assets.

This also was the beginning of what Bandero believes was Prevratil’s pilfering of millions of dollars paid by Bandero to QSDI and RMS and his attempt to push them out of the picture.

“Prevratil thought he could take millions from Bandero, pocket it, continue on with business as usual, never pay Bandero a cent and no one would know any better,” said Greg Mortensen, an attorney for Bandero.

“His strategy was to vilify Bandero to the city, telling Bandero out of one side of his mouth that he had to represent them to the city — so that he could keep control of the Queen Mary with the city, while out of the other side of his mouth using his influence to try to make out Bandero to be inconsequential and unable to put together anything that would help the city while he made himself out to be the only savior of the ailing Queen Mary,” Mortensen said.

Fighting for Right to Run the Queen

Balestra said Bandero brought Jeff Klein into the lease negotiations at the suggestion of attorney Scott Pollard, who was an acquaintance of one of the Bandero members. Pollard, who represented Save the Queen Affiliates, the first group formed by Klein, recommended Klein because of his development experience and because ‘he knew a lot of investors,’ Balestra said Pollard told the group. She explained that when Klein came on board he told the group he believed he could find investors.

Balestra said Klein’s involvement with Bandero gave him access to architectural plans and a feasibility study Bandero already had conducted, information Balestra said was used during the lease negotiations.

“In essence, Klein wanted and used all of Bandero’s rights, efforts, work product and years of effort on this project,” said Mortensen. “Bandero already spent over $12 million (including the initial investment of $6 million) for those rights and works,” he told the Beachcomber. Klein obtained the plans and study and a contract with Remington, the hotel’s operator, and used them to submit the proposal to the bankruptcy trustee and the city to gain approval, as well as bringing in lenders and investors.

Mortensen went on to explain that at first, it was supposed to be a 50-50 relationship with Klein. In turn, he said, that 50-50 relationship would need to give up some percentage – up to 50 percent would leave Bandero and Klein, and Klein’s other affiliates, with 25 percent each.

Through a series of other maneuverings, Mortensen said, including defaulting on promised financial and other support for the ongoing legal actions needed to fight for the rights Bandero had purchased, Klein later reduced that to an agreement to pay Bandero more than $4 million plus a flat 20 percent interest in the project, as well as rights to ongoing income.

“Jeff Klein was able to direct all litigation and negotiate settlements with different parties so that he could obtain the master lease owned by QSDI for the cheapest price possible,” Bandero attorney Lee Durst told the Beachcomber. He said Bandero would drop its lawsuits, including the one against Prevratil and QSDI for breach of contract, as part of the deal and then “buy” into the Save the Queen for $2.5 million as a capital contribution. The $2.5 million was to come from the $4.5 million that Klein owed to Bandero.

“The monetary contribution was explained to me as a ‘bookkeeping’ device for tax purposes,” Durst said. The group also was to receive the exclusive right for real estate brokerage for the property and the right to control entertainment for the property. “That’s what the contract provides, in sum and substance,” Durst said.

But soon after Klein became the successful bidder of the master lease, Bandero was informed it was not part of Save the Queen, even though a signed agreement said the contrary. Save the Queen’s successful bid of $43 million won over the opening bid of $41 million by Santa Monica-based O&S; Holdings, among others along the way, and gave them the ownership of the master lease and property development rights.

“Bandero was 20 percent of Save the Queen,” Balestra said. “They agreed to it after bankruptcy and after Save the Queen obtained the lease,” she said.

However, in an Aug. 15 letter sent to Durst, Klein’s lawyers stated in part that: “There is no business relationship of any kind between Mr. Klein (or any of his affiliates, including Save the Queen, LLC) and you, Bandero and/or any of your or its business affiliates.”

No Resolution in Sight:

Seeing no other option, on Nov. 9, Durst filed a Notice of Pendency of Action in the Superior Court of California on behalf of Bandero against Klein, as an individual; Save the Queen, LLC; Fletcher Development Company, Inc.; Hix Rubenstein Companies; PBR/Phillips Development; OTM Development, a California Corp.; Pacific Capital Holdings, Inc., a California Corp.; and, Queen Mary Affiliates, LLC. All parties are Klein affiliates.

The lawsuit concerns the “ownership of the real property lease” at the Queen Mary and the surrounding 65 acres, including 45 acres of land and 20 acres of water.

According to the suit, the purpose of the litigation is for Breach of Contract, Declaratory Relief, Specific Performance, Fraud, Breach of Fiduciary Duties, Avoidance of Fraudulent Transfer Pursuant to Civil Code 3439.04 (a transfer is deemed fraudulent and may be set aside if it is made with the “actual intent to hinder, delay or defraud any creditor” of the transferor, whether present or future), and for Avoidance of Transfer During Or Resulting In Insolvency, Pursuant to Civil Code 3439.05 (the debtor was insolvent or became insolvent as a result of the transfer.)

The suit goes on to say: “Plaintiff and the above named defendants entered into a written agreement calling for the transfer of 20 percent ownership in the company that was to be formed for the purpose of owning the lease and assets of the corporation owned formerly by Queen’s Seaport Development, Inc., and purchased by Save the Queen LLC on behalf of Plaintiff.”

“What is important to note here is that when this type of lawsuit is filed, it has the ability and does place all lien holders on notice,” Durst explained. In other words, the defendants to the suit would find it extremely difficult to get a loan during the lawsuit proceedings due to the ownership of the property being in question.

Another Angle to the Claim

In addition to the recent lawsuit, another weight that bore down on the lease negotiations was a stay put on the deal by the Ninth Circuit Court of Appeals days before it was to close due to a claim by AAC Shoreline that it purchased the right to develop a small portion of the property near the ship. That claim was rejected by QSDI, even though it allegedly agreed to allow the development through Bandero and took AAC’s $500,000 to do so.

What is amazing, Balestra said, is that Bandero subleased the property to AAC Shoreline to develop on about 13,000 square feet of land near the ship and Bandero still is being denied any rights to the property.

“AAC Shoreline sub-sub leased property with permission of QSDI to build a restaurant on land” at the ship, Balestra explained. “The court said they do have rights.” According to Balestra, if Bandero’s ownership was invalid, how could Bandero sublease to AAC, which subsequently won more than $1 million to settle the dispute it had with QSDI, based on its dealings with Bandero, allowing the future sale of the lease to move forward.

Attempts to reach Klein and Prevratil for comment were unsuccessful. However, Tom Hix of Hix Rubenstein, one of the parties to the lawsuit, told the Beachcomber that: “I’d love to tell our side of it but the newspaper isn’t the place. We have our position and they (Bandero) have theirs, but we are firm we have no liability,” he said, adding that he really couldn’t comment further because of the pending lawsuit and that this issue will have its day in court.