Vol. 23 No. 22 Thursday, June 1, 2000

Judge Rules Against Queen Mary In Lawsuit

By Harry Saltzgaver,
Executive Editor

A summary judgment issued by a Superior Court judge on May 12 has put the nonprofit operator of the Queen Mary under a $2 million cloud, and apparently given the first round to Dr. Robert Gumbiner in his long-running feud with Joseph Prevratil, president and CEO of the RMS Foundation.

Judge Margaret Hay ruled May 12 that the RMS Foundation owes the Museum of Latin American Art (MoLAA) $1 million plus interest for a loan Gumbiner made in 1993 to help found the RMS Foundation as a nonprofit organization to lease and operate the Queen Mary. Gumbiner later transferred the note to MoLAA after he founded that museum.

Prevratil said this week that the foundation's attorneys already have filed a motion for Judge Hay to reconsider her ruling based on the interpretation of facts. That hearing is scheduled for June 27. Prevratil added that if the judge declines to reconsider, an appeal is a virtual certainty.

"We were very surprised at the ruling," Prevratil said. "We've supplied the judge with memorandum points and authorities to point out where we believe she erred in the ruling... There clearly are try-able issues of fact that should go to trial.

"If a judgment is entered, we would have to appeal that. But that would require a very large bond, and there is some question of whether we could raise that. It could be a very large blow."

The lawsuit is the culmination of a relationship between two of Long Beach's most influential entrepreneurs that began as a partnership and has devolved into a bitter feud. Gumbiner and Prevratil joined forces in 1992 to form the RMS Foundation and save Long Beach's landmark ship after Disney Entertainment dropped its lease, and the city was considering selling the Queen Mary.

Gumbiner put up $2 million as the private donation to start the RMS Foundation when the City Council agreed to lease the ship to the RMS Foundation for five years. At the time, he promised to forgive the loan, plus raise more money for the foundation.

However, the donation was structured as a loan for tax purposes. In 1993, Gumbiner forgave $1 million of the loan, with the other $1 million restructured as another loan. Attorneys for the RMS Foundation argue that the note was a "sham document," prepared and signed strictly for tax purposes. Gumbiner's stated intention was to donate the money, the attorneys say.

Gumbiner was reticent about the case when reached Tuesday.

"I don't really have any comment on it," he said. "The RMS Foundation owed the money, and I gave the note to MoLAA. Prevratil said he didn't owe the money, and the judge said he did. That's about it."

As Prevratil reopened the Queen Mary as an attraction and a hotel, he and Gumbiner split, largely over Gumbiner's FHP Healthcare. Gumbiner created FHP as one of the first health maintenance organizations (HMOs) in the country. Prevratil was one of the directors on the FHP board.

In late 1994, there was a move to oust Gumbiner from his position as chair of the FHP board. Prevratil voted with the majority to remove Gumbiner. The following year, Gumbiner evicted FHP from his Hippodrome property on Alamitos Avenue (which he owned personally), and created MoLAA there.

In December 1994, Gumbiner set out a series of conditions that he said had to be met by the RMS Foundation before he would forgive the second $1 million. Those conditions included detailed financial and operation reports that the RMS Foundation declined to provide.

After years of attempting to settle the issue, MoLAA attorneys filed the lawsuit for payment in March 1999. In Hay's ruling, she said that no admissible evidence had been provided to show that the note was a sham document, and that it was enforceable. She said further that even if there had been a promise to forgive the debt, the time to enforce that promise had passed.

If the judgment stands, the RMS Foundation would be liable for more than $1.5 million (including interest), plus attorneys' fees. If an appeal is required, the foundation likely would need to put up a bond at least equal to that amount.

Prevratil and the RMS Foundation lost money operating the Queen Mary for the first three years, but has posted a profit for the last four years. Prevratil also has formed the Queen's Seaport Development Inc. (QSDI), a for-profit company, to develop the 55 acres surrounding the historic ship. The RMS Foundation continues to be the operator of record for the ship itself.

The City Council has twice extended the lease for the ship and the land surrounding it, first to 20 years, then to 66 years. QSDI currently holds that lease, so it could not be attached as a result of the lawsuit.

Prevratil has announced plans for the property that might include a Carnival Cruise Lines terminal at the former Spruce Goose dome, a Dick Clark Music Museum, a Brunswick bowling center, a series of retail shops adjacent to the ship and, eventually, a Science Fiction Museum. Aboard the ship, the hotel rooms and public rooms are being refurbished and restored, and a new Ghosts and Legends tour attraction is scheduled to open June 16.

"We are very hopeful that the judge will reverse herself," Prevratil said. "We believe we will ultimately prevail... But should the judgment be upheld, it would be a very large blow. It does represent a serious threat to the RMS Foundation."