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Meadville Tribune: Appeals judge says Conneaut Lake Park Beach Club operator entitled to $611,000 in fire insurance money

ERIE — A federal appeals judge has ruled the former operator of the Beach Club at Conneaut Lake Park is entitled to all of the $611,000 in insurance proceeds from a 2013 fire that destroyed the night club.

Senior U.S. District Judge Barbara Rothstein overturned a lower court ruling that gave Park Restoration LLC approximately one-fifth of that amount.

In December 2015, Chief Judge Jeffrey Deller of U.S. Bankruptcy Court for Western Pennsylvania ruled $478,260.75 of the insurance money would go to taxing authorities — Conneaut School District, Crawford County and Summit Township — for past real estate taxes and interest and penalties owed on the property by Trustees of Conneaut Lake Park. Trustees of Conneaut Lake Park, the nonprofit corporation that oversees amusement park operations, filed for federal bankruptcy protection 18 months ago.

Deller had ruled the remainder of the insurance money — approximately $132,739.25 — was to go to Park Restoration LLC, which had operated the night club since 2008 under a long-term lease with Trustees, rather than Trustees. Rothstein did uphold Deller's ruling that no money go to Trustees of Conneaut Lake Park.

Trustees filed for bankruptcy protection in December 2014 to reorganize its debts, including about $1.03 million in back real estate taxes, interest and penalties owed to Conneaut School District, Crawford County, and Summit and Sadsbury townships. Sadsbury was not included in the court action over the insurance proceeds because none of Beach Club property is located in that township.

Park Restoration had paid for the fire insurance policy on the Beach Club property, even though it didn’t own the property. It appealed Deller’s ruling.

John Mizner, an attorney for Park Restoration, claimed Deller’s ruling violated the Fifth Amendment of the U.S. Constitution, which protects against the confiscation of private property.

Mizner argued Park Restoration’s property — the $611,000 in insurance proceeds — was taken to pay the debt of another — the back property taxes owed by Conneaut Lake Park.

Rothstein's ruling found the Pennsylvania law requiring insurance proceeds must be used to pay any outstanding property taxes to be ambiguous.

Park Restoration did not agree to assume Trustees of Conneaut Lake Park's tax liability simply by purchasing an insurance policy on the Trustees' property, Rothstein ruled. She also ruled that property taxes were the responsibility of the property owner, not that of someone leasing the property.

"Judge Rothstein affirmed what we have always said, namely that a fundamental underpinning of our legal system is that individuals generally are not held responsible for the debt of others," wrote John Mizner, attorney for Park Restoration LLC, in an emailed statement. "And that is exactly what these taxing authorities tried to do to cover up their own failure to collect these taxes for almost two decades and the Trustees' failure to get insurance as ordered by a judge."

Tribune phone and email messages seeking comment from Lawrence Bolla, attorney for the taxing authorities, weren't returned Thursday.

Mark Turner, executive director of Trustees of Conneaut Lake Park, said he was disappointed by Rothstein's ruling and expected an appeal to be filed with the U.S. Third Circuit Court of Appeals.

"Likely there will be a group effort to appeal," Turner said. "We'll consult with the taxing authorities."

Trustees of Conneaut Lake Park, and the four real estate tax creditors — Conneaut School District, Crawford County and Sadsbury and Summit townships — plan to submit a joint reorganization for the park to U.S. Bankruptcy Court by June 3. The two sides previously had competing reorganization plans.

Trustees’ proposed reorganization plan used insurance proceeds from the 2013 fire at Conneaut Lake Park’s Beach Club night club fire and the sale of excess land not deemed core to the park’s operations to settle its debt, while the taxing bodies’ plan called for the entire park and its assets to be sold at auction to satisfy the debt.

Originally published by: Keith Gushard, Meadville Tribune - can be reached at 724-6370 or by email at kgushard@meadvilletribune.com.