Colony: The legal maze

THE $23 MILLION JUDGMENT

Four bidders are seeking the $23 million judgment against Colony Beach & Tennis Resort unit owners that U.S. Bankruptcy Trustee William Maloney seeks to sell. Longtime Colony owner Dr. Murray “Murf” Klauber won the judgment on appeal in 2012.

Why it matters: Developers need the judgment to assess unit owners for money owed and use the funds to redevelop the resort. The association needs the judgment to bury it and prevent other developers from using it to assess them. 

The latest: The following four bids will be reviewed 10 a.m. Sept. 8 in May’s courtroom:

•  Newcomer Bluewater Oceanfront Investments LLC, a new Windermere-based corporation formed July 17 by registered agent Robert Butler, submitted the highest bid at $4 million along with a $400,000 deposit.

• The Colony Beach & Tennis Resort Association submitted a $3 million cash bid with a $300,000 deposit.

• Unicorp submitted a $3.5 million bid with a $350,000 deposit.

• Naeco LLC, a New Hamshire-based corporation controlled by Delray Beach-based Ocean Properties, submitted a $3.7 million bid with a $370,000 deposit.

All offers except the association’s would still allow the winning bidder to assess unit owners for the $23 million judgment they are seeking as part of a redevelopment plan for the resort.

Parties will explain to Judge K. Rodney May why their offers should be approved and can raise cash bids at the auction.

THE REC LEASE JUDGMENT

Future development of the Colony Beach & Tennis Resort requires settlement of a long-disputed recreational lease, along with a $2.5 million recreational lease judgment that U.S. Bankruptcy Chapter 7 Trustee Douglas Menchise controls.

Why it matters: To develop the entire 18-acre Colony site, a developer needs approximately three acres of tennis courts, walking trails and other amenities that sit mostly in the middle of the property. When the resort was operational, Klauber collected $650,000 a year from unit owners for their right to use the amenities. The  99-year lease has approximately 60 years remaining, but payments haven’t been made in nearly a decade. The judgment for rec lease payments and the rights to use the property are crucial to future development. Unicorp already has an agreement in place with Colony Lender LLC, which has agreed to give Unicorp rights to the 95% interest it owns on the property it acquired from Klauber’s collateral on overdue bank loans and Carolyn Field.

The latest: Menchise was bringing forward a $600,000 settlement he reached with the Colony Beach & Tennis Resort Association to Judge May at 10 a.m. Aug. 28.

But the settlement offer won’t be presented to May as planned because Menchise filed a motion last week to withdraw the offer. Menchise noted in his Aug. 6 motion to rescind that the agreement expired and contained a mutual mistake of fact.

Why is he rescinding it?

Unicorp President Chuck Whittall announced Aug. 7 he’s reached an approximately $1.4 million cash settlement agreement with Menchise that acquires the rec lease judgment and provides more cash for Menchise to settle claims. The settlement also releases the liability of all claims involved with the rec lease estate.

Judge May will review the settlement Unicorp has reached with Menchise 10 a.m. Aug. 28.

Colony Beach & Tennis Resort Association President Jay Yablon, though, said the association will attempt to enforce its agreement.

“We already signed an agreement  that’s scheduled for approval,” Yablon said. “Behind the scenes, Whittall interfered with that and he’s trying to reach a separate agreement.”

PAYING ALL CREDITORS

The key to resolving the Colony Beach & Tennis Resort bankruptcy case, at its core, involves paying myriad creditors owed money when the resort closed its doors in 2010. Only after creditors are paid can the bankruptcy case be closed to pave the way for a future resort.

Why it matters: Becoming the largest affected creditor in the Colony bankruptcy case settles yet another legal issue because another party that expected a large payment has been paid and resolved. Settling all disputes and claims is what will end the bankruptcy case.

So who’s the largest affected creditor owed money in the Colony Beach & Tennis Resort bankruptcy case? It was Sarasota law firm Icard Merrill, which is owed $1,047,000 for legal fees involved with the case over the years.

Whittall filed a motion last week confirming that he paid Icard Merrill its amount owed, which now makes Unicorp the largest affected creditor in the case. The association intends to fight the settlement, though, because it says it reached its own three-way settlement with Icard Merrill and Menchise for the rec lease.

An agreement the association had in place to purchase the Icard Merrill claim, though, expired July 30. Icard Merrill filed an objection to the former association settlement of its claim because the amount listed it was owed was incorrect.

There are a variety of other claims from parties still seeking to be paid as part of the bankruptcy case.

WHAT DOES IT ALL MEAN?

It depends on whom you talk to.

All eyes are on Whittall to see if his settlement offer with Trustee Menchise for the rec lease is considered and approved.

If it’s approved and Whittall is able to put up enough cash at the all-day auction in September for the $23 million judgment controlled by Trustee William Maloney and convince Judge May that his offer comes along with resolving outstanding claims, Unicorp will have the pieces in place to resolve the bankruptcy case. Colony Lender has also agreed to settle litigation, damages and claims it believes it has if Unicorp controls the rec lease judgment.

“We’re excited,” Whittall said. “If Judge May approves our settlement with Menchise and awards the $23 million judgment to us, we will have all the pieces in place to turn dirt at the Colony, get the economic engine there going and eventually get people back on that beach.”

Yablon, though, said if Whittall acquires the two judgments instead of the association, the legal dispute will drag on.

“If he (Whittall) gets those two judgments, then unfortunately we go full force on litigation,” Yablon said. “We will fight him right through appeals and try to turn the judgments into zero. More time will be wasted, and lots of money will be spent on attorneys who will profit from it.”