Wednesday, November 22, 2006 Queen Mary, L.B. settle dispute   By Wendy Thomas Russell Staff writer City to receive $4.9M in back rent from ship's operators. LONG BEACH - The city of Long Beach and the company that operates the Queen Mary have tentatively settled a bitter and long-standing legal dispute over an estimated $9 million in rent. Under the terms of the settlement, signed Tuesday, Queen's Seaport Development Inc. - the company that leases the city-owned ship - would pay $4.9 million to the city from the sale of its lease under a bankruptcy proceeding, city officials said. In addition, another $4.1 million would be considered an "unsecured claim" and would be paid to the city if the sale amount exceeds $40 million - enough to pay all of QSDI's other creditors first. The resolution, a significant step in resolving QSDI's ongoing Chapter 11 bankruptcy case, comes nearly six months after a bankruptcy judge appointed trustee Howard Ehrenberg to take over the ship's operations. Ehrenberg, who signed the agreement along with City Manager Jerry Miller, said he was pleased with the outcome. "Ultimately, it puts aside all the litigation that is both legal in nature and was emotional on some level, as well," Ehrenberg said. "By having this settlement, the city and QSDI are now essentially partners in trying to find a qualified developer to take over the property and turn it into what it always should have been: something that will greatly benefit the city of Long Beach." Miller, who once characterized the rent dispute as "a tangle of knots," credited Ehrenberg with sorting through the issue's many complexities and helping to broker a fair deal in the end. "We're going in the right direction," Miller said. In a statement, Mayor Bob Foster said "we're hopeful the bankruptcy court can now move to expeditiously resolve any remaining issues and bring this matter to a close." If approved by bankruptcy judge Vincent Zurzolo, the settlement will end a lawsuit filed over rent payments allegedly owed to the city. According to a 66-year lease agreement signed in 1998, QSDI was required to pay the city $25,000 a month, plus up to 5 percent of its annual gross revenue. The latter rent, called percentage rent, was due once a year. But as an incentive to develop the land around the ship, the city included a provision in the lease that allowed QSDI to receive credit for up to 9 percent of whatever it spent to develop waterfront projects on the surrounding land. And for each year since 2000, QSDI claimed credit for work performed on the ship that it said fell within the provision. Those credits, according to QSDI's then-CEO Joseph Prevratil, offset the percentage rent. But in a lawsuit filed early last year, the city demanded nearly $4 million in back rent, claiming QSDI had erroneously claimed rent credits over the years. Since then, Deputy City Attorney Charles Parkin said Tuesday, the rent due to the city has grown to more than $9 million. Prevratil, who began leasing the ship in 1993, had struggled to keep the historic attraction financially viable for years. Initially, he planned to build hotels, a science fiction museum and an ice rink on the adjacent land; none materialized, and the company steadily sunk deep into debt. The city's lawsuit was the last straw. QSDI declared bankruptcy in March 2005. Parkin said he saw Tuesday's resolution as "good news for both sides" and hoped it would speed the process of finding a new lessee for the ship. Ehrenberg said that development is not far off. "I am in discussions with multiple parties," he said, "at least one of whom is prepared to make an offer in an amount sufficient to pay all the debts of the estate. And it is going through the due-diligence process now." The opening bid, he said, is expected to come in around $40 million, he said, with "overbids" being sought in an auction-like sale in bankruptcy court. It is the overbidding process that might elevate the lease price enough to pay the city the second half of its claim - the $4.1 million.