The Lehman Brothers group, which is the financier of the owners of the Royal Oasis Resort in Freeport, is suing the Grand Bahama Power Company for its refusal to supply electricity to the property.
The Driftwood Group closed the resort after Hurricane Frances caused extensive damage in September 2004 and subsequently laid off approximately 1,000 workers, but did not pay them severance payments.
Last month, the Grand Bahama Power Company shut off electricity to the property, demanding that the owners pay their outstanding bill, which amounts to more than 550,000.
As a result, Lehman Brothers was forced to lay off 136 workers who had been kept on to help maintain the property and keep it from deteriorating.
Lehman Brothers, which stepped in to secure its assets after Driftwood became financially paralyzed, insists that as the financier it is not legally obligated to pay the debts of Driftwood.
In a letter written to Grand Bahama Power Company’s attorney, Fred Smith, on October 11, 2005, Lehman’s attorney, Damian Gomez, said, “Lehman Brothers Holdings Inc. is the mortgagee of the subject properties and as such owes no duty to Grand Bahama Power Co. Ltd. to pay the indebtedness owed to it by the mortgagor or anyone acting on the mortgagor’s behalf.”
Mr. Gomez also wrote, “-your client is through its misconduct flouting its public duty and threatening to deprive our client of its property right. All of this is taking place in the context of your client being a related company of the Grand Bahama Port Authority, which raises serious constitutional issues of major public importance.
“It is hoped that your client will relent from its stated position or provide legal authority to support its position.”
Mr. Gomez also wrote that Lehman Brothers is “mystified” by Grand Bahama Power Company’s refusal to provide power supply to the resort.
Lehman claims that the power company is violating its (Lehman’s) constitutional right not to be deprived of its property. Lehman exercised its right under the mortgage and debenture and assumed control of the Royal Oasis Resort.
The group is trying to sell the property and Prime Minister Perry Christie says his government is facilitating interested investors and would step in to purchase the resort if necessary.
Lehman is seeking a declaration from the Supreme Court that the Grand Bahama Power Company has a public duty to supply electricity under the terms of the Hawksbill Creek Agreement and the Out Islands Electricity Act.
It is also asking the court to declare that by refusing to supply electricity unless the bill is paid is in fact unlawful because Lehman is not obligated to pay the bill.
Lehman has appealed to Grand Bahama Power Company for the supply of electricity to the Royal Oasis Resort in order to ensure that the property is properly maintained so as to be capable of being sold at an optimal selling price.
Lehman said that should the power company refuse to supply electricity to the property the irrigation system of the Royal Oasis would remain inoperable thereby causing irreparable damage to the greens of the golf course.
The group points out in court documents that the supply of electricity is essential to prevent mould spores from multiplying and dispersing throughout the resort in its air condition ducts thereby rendering the hotel less attractive to potential purchasers.
Minister of Tourism Obie Wilchcombe recently told The Bahama Journal that the government was trying to get the power supply to the property turned back on so that the 136 workers can get their jobs back.
The Journal has been able to secure a series of correspondence between officials of Lehman, Driftwood, and Grand Bahama Power Company addressing the issue.
In a letter dated September 30, 2005, Anthony Lopez, the power company’s vice president of finance, wrote to Driftwood executive, David Buddemeyer, informing him that it had received a letter from Joseph Flannery of Lehman Brothers requesting to apply to take over future payments of the property.
Mr. Lopez said the power company cannot accept a new customer application for Driftwood’s accounts unless they are paid in full.
In a letter dated October 10, David Dunbar, president and CEO of Grand Bahama Power, wrote to Mr. Flannery telling him the same.
“Please note that we require payment of the outstanding balances on this property before allowing a new customer to take over the delinquent account going forward,” Mr. Dunbar wrote.
“We have already paid for oil, [and] our employees and other businesses on the island to produce the electricity that was used by the Oasis.”
He said, however, that, “In the interest of the community, [Grand Bahama Power Company] is willing to accept a reasonable payment plan for the amount owed that includes a substantial down payment and credit-worthy security for the remainder.
“After payment of the outstanding amount, or acceptance of a payment plan acceptable to [Grand Bahama Power Company], we will be happy to accept your deposit and return service to the property. In anticipation of that event, and to keep from any further delays, you should know that Lehman Brothers would be required to become a licensee of the Grand Bahama Port Authority.”
Mr. Smith, the power company’s attorney, told The Bahama Journal on Monday that he was not aware of the lawsuit and expressed surprise that one had been filed.
By: Candia Dames, The Bahama Journal
