Colony president responds to ruling

For Colony Beach & Tennis Resort Chairman Dr. Murray “Murf” Klauber and President and General Manager Katie Moulton, a federal bankruptcy judge’s rulings Friday contained victory and defeat.

Moulton said Saturday she and her father were disappointed with U.S. bankruptcy Judge A. Rodney May’s ruling denying the Colony damages from the Colony Beach & Tennis Resort Association to pay for, among other things, $14.1 million in past costs for operations, repairs, maintenance at the 234-unit, historic Longboat Key resort.

But she said: “We are very pleased the court dismissed all counterclaims by the association” against her father and his affiliated companies. The association board had countersued Klauber and his corporations in the two-year-old dispute, seeking more than $10 million in damages.

Klauber and the association board of directors have been embroiled in litigation since April 2007, when Klauber sued the association, alleging it did not live up their partnership agreement, which requires the association to pay for the operations, repair and maintenance of the Colony’s condo-resort buildings. The dispute reached a climax Friday, July 31, in Tampa when Judge May announced his rulings.

Klauber and Moulton were counting on a favorable decision to be able to obtain funds from the resort’s owners to cover postponed maintenance, repairs and renovations. In addition, Klauber and Moulton previously had said the dispute with the association has inhibited the Colony’s ability to stay current on three loans with Bank of America. The bank filed foreclosure proceedings in April against the Colony and seven of Klauber’s resort corporations, alleging they have defaulted on loans whose outstanding amounts total about $8 million.

On Sunday, Moulton called the foreclosure a separate issue that’s an ongoing process, which has no effect on the judge’s ruling.

Moulton said she and her father are currently reviewing their options, including an appeal — “which we believe may overturn [Friday’s] ruling on the issue of damages,” Moulton said in a prepared statement.
Despite the rulings, Moulton said, “The action by the court does not affect the operations of the resort and all services available to our resort guests and others who come to enjoy the dining, shopping and recreational facilities.”

In his ruling, Judge May rejected a key argument by Klauber and the Colony about the validity of a 1984 partnership agreement that May said  obligated the association to pay for partnership shortfalls. May sided with the association, saying unit owners never approved the 1984 agreement, nor was it incorporated into the association documents. May said there was no breach of contract.

With that agreement declared void, Moulton said Sunday the two sides still are obligated by the Colony and association’s original condominium documents. Those documents say the association has the obligation to pay the maintenance and operating expenses of the common elements, buildings and recreational facilities.
The documents, however, do not specify how much money the association is obligated to spend, Moulton said. To that point, Judge May said Friday at the hearing: “It’s the association’s call whether they want to spend money to renovate the resort.”

Moulton said the Colony is likely to meet in mediation with the association “to discuss the results of the ruling and how it affects both parties moving forward.”

Jay Yablon, vice president of the association, declined to comment on Moulton’s assessment of the original documents and their relation to repair and maintenance obligations. “The board and its counsel will carefully review Miss Moulton’s press release once it is issued and will respond appropriately,” he said.

Discussing the history between the two groups during Friday’s hearing, May said shortfalls were never an issue in the past because hotel revenues were substantial enough to cover costs.

Referring to testimony that stated $14 million was needed to pay for damages from the 2004 hurricane season, May pointed to a $200,000 insurance claim that was paid that year.

“The bottom line is the Colony suffered minimal effects from storms and the fully-insured resort was paid for their damages,” May said.

In an e-mail, however, Moulton said the $14.1 million requested was not a result of hurricane damage alone. “Damage from the hurricanes accelerated the deterioration of the building components,” Moulton wrote.
The association’s board of directors, May said, voted twice on the renovation plan proposed by the resort, and neither election garnered enough votes to move forward with building upgrades.

The judge also said that, in 2004, the resort’s renovation costs for the buildings were $1.2 million, while reserves were requested in the amount of $190,808.

“But by 2006, the general partner was asking for $13,650,000 for building replacements and $13 million in reserves,” May said.

During this time, May said, the general partner was only funding $28,000 of the $45,000 in quarterly payments required by the governing documents.

May also mentioned various accounting issues.

“It’s only important to say accounting issues, even though they were rectified, were discovered,” said May. The judge explained that Klauber used association funds to pay for hotel laundry expenses and for the installation of a new roof at his restaurant.

The judge said he did not see any correlation between the hotel’s lost profits and the association’s refusal to assess its unit owners, explaining that accounting records indicate that the Colony had “a very good year” in 2005.

May is expected to rule next week on whether the association is liable for payments on a recreation lease on Colony property, totaling about $2 million.

Despite the expected ruling next week, Colony Association attorney Jeffrey Warren persuaded the judge to issue a reorganization plan for the association, essentially bringing the dispute to a close.

Warren said that the association will reorganize by assessing its unit owners, explaining that only 27 unit owners have mortgages on their more than 30-year-old condominiums. Warren also said the association has continued to collect more than $1 million per year in assessments.

Attorneys for the resort argued that if unit owners wouldn’t pay for improvements before, they likely wouldn’t pay under the terms of a reorganization plan.

But Warren argued that unit owners continue to pay $1,250 each in quarterly assessments and more than 150 unit owners agreed to a reorganization plan when they thought they might have to pay back as much as $17 million ($14.1 million in possible assessments, $2 million for the recreation lease and $1 million in legal fees).

If after the judge’s ruling on the recreation lease the association owes money, both sides agreed to a five-year repayment plan with a 6% interest rate.

Said Warren after Friday’s hearing: “A reorganization plan has been approved, and significant claims have been denied."

Meantime, another lawsuit against Klauber and the Colony is pending. In that one, filed in Sarasota County Circuit Court in February, 16 Colony unit owners are seeking dissolution of the partnership, alleging the partnership can no longer be operated profitably.

Contact Kurt Schultheis at [email protected].