A U.S. bankruptcy judge in Tampa Friday, Oct. 12, recommended leaving control of the Colony Beach & Tennis Resort units with its unit owners and their Association. He also awarded more than $20 million in damages to the Colony Partnership, which includes longtime Colony owner Dr. Murray “Murf” Klauber and the unit owners.
The decision is likely to lead to further appeals and two more years of court hearings, unless a settlement among Colony parties can be reached, according to parties involved in the dispute.
U.S. District Judge Stephen D. Merryday outlined Oct. 12, 2011, two damages options to U.S. Bankruptcy Judge K. Rodney May: Grant a $7,751,470 damages award that also came with restoring the Partnership that allowed Klauber to control the hotel and the units; or award $20,646,312 in damages without restoring the Partnership.
May chose the latter. The potential now exists for the Partnership, which includes Klauber as the general partner, along with the resort’s unit owners, to receive a damages award of about $23 million if May agrees to include a pre-petition expense claim of more than $2 million that Colony Partnership attorney Charles Bartlett asked the judge to consider.
A damages ruling pertaining to a Colony recreational-facilities lease — which May also issued Friday — could increase the damages pot to $25 million. May recommended a $2.2 million judgment for the owners of a recreational lease on the property, which is roughly three years’ rent that would be divided among three owners: 80% would be distributed to Klauber, 15% to Carolyn Field and 5% to Breakpointe LLC, which purchased the interest from a William Merrill trust in late 2010.
The damages money would be used to pay off a list of Colony creditors before Klauber and other limited partners could receive any money.
Katie Klauber Moulton, longtime president and general manager of the Colony, was pleased with the hearing.
“My father and my entire family are delighted,” Moulton said.
Bartlett told the Longboat Observer the ruling was expected.
“It was a great day for Dr. Klauber,” Bartlett said. “Frankly, the judge did everything he could have done and what we asked him to do.”
May’s recommended orders now must be sent back to Merryday to be reviewed and finalized. Merryday has the final say on May’s orders. That decision could take a couple of months.
Bartlett said May’s ruling means it’s now more important than ever for all parties to reach a settlement, because an appeal to the Atlanta-based U.S. Court of Appeal is coming from the Association.
“We won’t let a $22 million judgment stand,” said Colony Association President Jay Yablon, who said the Association expected May’s decision. “We will appeal, but it’s always been in all the parties’ best interests to settle this, and we will continue to try and do so.”
An appeal in Atlanta could take another two years and would most likely be the final decision rendered, unless the U.S. Supreme Court gets involved, which is unlikely, Bartlett said.
If the rulings were to be sustained by a final judgment from a higher court, it would cost unit owners more than $100,000 apiece to pay the damages over a five-year period, and this would only start to come due when and if the current orders are upheld after all appeals have been exhausted. Bartlett hopes May’s ruling brings all parties back to the table to reach a deal and get the resort revitalized.
“I don’t think there’s any way redevelopment of the property can go forward with $100,000 hanging over each Colony unit owner’s head, before unit owners can even consider financing a redevelopment,” Bartlett said. “Hopefully what this does is further reinforce the notion that unit owners and the Association need to get serious about trying to resolve disputes so everyone can move forward and the Colony can be redeveloped.”
Yablon called May’s ruling one that was “baked into the cake 15 months ago by Judge Merryday,” and one that will allow unit owners to get money back from damages, if they are ever assessed.
“As to a significant share of the $20 million, the dollars paid out would come right back to the unit owners, because under the Partnership agreement, the unit owners, as limited partners, receive the first $1.4 million per annum before Dr. Klauber sees a dime, and after that, there is a 50%-50% split,” Yablon said. “Part of the sad irony of the tangled set of interrelationships at The Colony is that for five-and-a half-years, our left pocket has been in litigation with our right pocket, and nobody has won anything expect for all the attorneys.”
HISTORY OF THE COLONY
1972 — Dr. Murray “Murf” Klauber formed the first condominium-hotel rental Partnership agreement in the state. A Unit owner under the agreement became both a member of the Association and a limited partner in the Partnership. According to the arrangement, Klauber was the general partner. Unit owners were allowed to use their units for 30 days annually, and the hotel partnership was permitted to rent units for the remainder of the year.
1984 — The Association and the Partnership allowed the Partnership to commit the portion of the hotel’s profit owed to the limited partners to directly pay the Association’s bill for repair to common elements. The “1984 Agreement” would became key in future legal disputes.
December 2006 — Unit owners voted for the second time to reject a $10.6 million proposed assessment, elected three new Association board members and audited the partnership. The new board then stopped repaying the Partnership for operational expenses that were the Association’s responsibility.
April 2007 — Klauber sued the Association in state court claiming breach of the Colony’s governing documents and that unit owners owed him $14.1 million.
November 2008 — The Association filed for Chapter 11 bankruptcy.
July 31, 2009 — U.S. Bankruptcy Judge K. Rodney May ruled in favor of the Association, finding the 1984 agreement ultra vires, which meant that the Association would not have to assess unit owners for $14.1 million.
Sept. 22, 2009 — Klauber and his daughter, Colony President and General Manager Katie Moulton, announced the suspension of hotel operations. At the time, Moulton said that her father had been paying for hotel operating expenses for three years and could no longer continue to do so.
October 2009 — The hotel partnership filed for Chapter 11 bankruptcy, putting the resort’s debts on hold.
Aug. 9, 2010 — May converted the Partnership’s Chapter 11 bankruptcy case to a Chapter 7 liquidation, giving unit owners possession of their units and dissolving the hotel partnership. The Colony shut down hotel/resort operations and all on-site businesses six days later.
July 27, 2011 — U.S. District Judge Steven D. Merryday reversed May’s August 2009 and essentially ruled in favor of Klauber in his claim that the Association had always been required to maintain the property’s common elements.
Oct. 12, 2011 — Merryday remanded the case back to bankruptcy court, directing May to determine whether the Association should return possession of units to the hotel partnership bankruptcy trustee and pay $7,751,470 in damages or pay $20,646,312 in damages to the partnership with no return of units.
Oct. 12, 2012 — May awarded more than $20 million in damages to Klauber, his Partnership with the Association and the resort’s limited partners.
— Robin Hartill