Next chapter: Bankruptcy court

On Wednesday, May 2, U.S. Bankruptcy Judge K. Rodney May will hear arguments from the Partnership that ran the Colony — i.e., Dr. Murray “Murf” Klauber and other entities — and the Colony Beach & Tennis Resort Association in a Tampa courtroom in the Association’s appeal of U.S. District Judge Steven D. Merryday’s October rulings that favored the Partnership.

It’s unlikely that May will rule at Wednesday’s hearings.

Instead, he’ll hear arguments from various parties laid out in recent court filings.

U.S. Bankruptcy Court Trustee William Maloney filed a March 26 motion in which he argued in favor of restoring the Partnership and awarding damages of $7,751,470 — one of two damage scenarios outlined by Merryday. The alternative determined by Merryday was $20,646,312 for the Partnership with no return of units; Merryday also sent the Association’s counterclaims back to May. The motion states:

“The Trustee believes that the Association has failed to maintain the units and common elements even to the limited extent provided in the Association’s plan of reorganization. Upon information and belief, the units are essentially abandoned and most do not have electric power or other utilities.”

Maloney referred to town code-enforcement proceedings initiated against the property and the extension of the tourism use of the property to Dec. 31, 2012, that town commissioners have said they would be unlikely to extend without a compromise between parties.

“In the event that the favorable zoning of the property is lost through the inaction of the Association, the permissible zoning of the property will be reduced to less than 100 units from the current density of approximately 240 units, which would effectively foreclose any possibility of restoring the hotel operation forever,” he wrote.

But in an April 27 response, attorney Jeffrey Warren disputed Maloney’s assertions, describing them as an “impermissible and untimely collateral attack on the Association’s bankruptcy plan” and the court’s confirmation order. Warren wrote that as a Chapter 7 trustee, Maloney is charged with liquidating the Partnership and “has no authority to operate any business of the Partnership … ”

The response also challenges Maloney’s arguments about the maintenance of the property, stating that it “fails on the grounds that the Unit Owners have taken substantial and costly steps with respect to the restoration of The Colony since the Ejection Judgment was entered, including entering into a binding development agreement with a redevelopment partner. To disrupt such progress would be manifestly unfair and inequitable.”

Warren also raised issues with a March 23 letter to Town Attorney David Persson, in which Charles Bartlett, attorney for Klauber and other entities he owns and/or controls, wrote that he is also special counsel to Maloney, whom the response suggests is “seeking to benefit Dr. Klauber and not the actual creditors of the Partnership, including the Unit Owners whose filed claims exceed $15 million.”

To recap, in 2007, in the midst of a nearly two-year-old dispute over who should pay for the repair and improvement of the resort’s common elements, the Partnership sued the Association for damages.
The Association argued at the time that a 1984 agreement improperly ceded authorities to the general partnership and was, therefore, ultra vires.

The Association later filed for Chapter 11 bankruptcy, which brought the case to May’s Tampa courtroom. In August 2009, May ruled in favor of the Association, finding the 1984 agreement ultra vires and the Partnership’s damage calculations to be purely speculative, while also declaring moot other Association counterclaims and third-party claims.

The Partnership appealed those rulings. In a separate case, it also filed for Chapter 11 bankruptcy.
Then, in August 2010, May approved a request from the Association to convert the Partnership’s bankruptcy from Chapter 11 to Chapter 7, which ultimately dissolved the Partnership, converted the Colony from a hotel resort to a condominium association and gave unit owners control over their units.

Last October, Merryday outlined both damage scenarios for the Partnership and directed May to choose one and consider the Association’s counterclaims previously declared moot.

Klauber expressed optimism earlier this week in advance of the hearing.

“I feel that the bankruptcy judge has two choices written by Judge Merryday, I’m really waiting to find out which one they choose,” he said.

The Association, however, will pursue counterclaims that address the management and accounting of money at the Colony and could substantially impact any damage scenario.

The ongoing allegations highlight one obvious fact: A May 1 deadline set by unit owners present at their annual meeting last month has passed without any settlement regarding three acres at the center of the property controlled by Klauber and his entities.

According to Colony Beach & Tennis Resort Association Board President Jay Yablon, the Association will work to submit a 15-acre site plan for the 18-acre property to the town.

ON DOWN, MANY MORE TO GO
This isn’t an April Fools’ joke: A legal dispute involving the Colony Beach & Tennis Resort has been resolved.

The bad news is, the resolution of this dispute probably won’t open the doors to the resort and its 237 units any sooner.

Longtime Colony owner Dr. Murray “Murf” Klauber confirmed to the Longboat Observer that he and W. Andrew “Andy” Adams, whose Breakpointe I LLC was foreclosing on overdue bank loans for Klauber’s residential unit and beachfront Vagabond resort unit, reached a confidential settlement last week in mediation.

As of Monday night, Klauber remained listed as the owner of two high-rise Colony units and the beachfront unit in Sarasota County property records, and no transfer between the parties was recorded in circuit court records.

Klauber said that he couldn’t discuss terms of the settlement, citing confidentiality as the reason. But when asked whether he thinks he will be in his unit a year from now, he answered, “Yes.”

“That’s the only thing I can say,” he said.

Adams, whose Colony Beach Investors LLC purchased 19 Colony units in February and March, did not return a phone call Monday afternoon seeking comment.

Although the settlement doesn’t impact unit owners, Colony Beach & Tennis Resort Association Board President Jay Yablon, expressed optimism about the settlement.

“I’m glad that they were able to work out their differences, and I hope that this is the start of more good things,” he said.