Sanctions on the docket for Colony Lender

Colony Lender LLC doesn’t care that U.S. Bankruptcy Judge K. Rodney May is ruling that it violated an automatic bankruptcy stay. 

At a March 10 hearing, May announced he would issue a memorandum no later than March 12 announcing the ruling and would hold an April 14 hearing for parties to argue for or against appropriate sanctions against Colony Lender before officially issuing an order.

The memorandum was issued Wednesday morning and states "Colony Lender was paid in full through the foreclosure sale and has no further lien....and willfully violated the automatic stay by interfering with real estate assets."

But Colony Lender Principal David Siegal told the Longboat Observer Monday none of that matters.

“We will appeal, ask for a stay and wait for a decision from the district judge,” Siegal said. “Judge May has been reversed in each one of the last five decisions, and we don’t see that trend changing. Frankly, we see May as a stepping stone to the district judge who  will ultimately make decisions in this case.”

Colony Lender sent demand letters to unit owners in August, telling them they could face millions of dollars in liabilities if they do not sell their units to Orlando-based Unicorp National Development Inc., which has an agreement in place to purchase Colony Lender’s resort assets. 

In October, Colony Lender filed lawsuits against unit owners seeking more than $5 million in damages for unpaid rent plus interest on a disputed recreational facilities lease. 

Colony Lender, which purchased overdue bank loans from longtime Colony owner Dr. Murray “Murf” Klauber, including an 80% interest in loans on the 2.3-acre recreational property, plus a 15% interest in the same property, argues that the recreational facilities lease is attached to the land. It’s a claim the Colony Beach & Tennis Resort Association denies. 

“I think what Judge May said is, when we pursued our right to collect rent on the rec lease from owners, we violated an automatic stay,” Siegal said. “But he didn’t explain why or how we violated it. We didn’t pursue the bankrupt debtors or any of the debtors’ assets. It’s like saying a bank that forecloses on a shopping center still can’t collect rent from tenants. We’re confused.”

Colony Beach & Tennis Resort Association President Jay Yablon, meanwhile, called May’s announcement “good news for people that want to see a Colony come together faster.”

“This has the potential to short circuit two years of litigation,” Yablon said.

Yablon said even with Colony Lender’s probable appeal to the District Court, the association will take May’s pending order to state court and ask for a motion to dismiss the lawsuits against unit owners. 

“We now can take what May is going to write to stop the state court action and pull the plug on a two-year litigation process for driving people off the property and scaring them into selling their units,” Yablon said. 

Yablon said the association is also likely to ask for millions of dollars in damages from Colony Lender for its actions and ask May to bar Colony Lender from participating in any future auctions. 

“Nothing happens quickly, but this was real good news,” Yablon said. “The court is simply calling them out on their behavior.”

Yablon said the lawsuits are prolonging litigation that needs to end before parties can work on a future development.

Unicorp President Chuck Whittall told the Longboat Observer “we will continue to appeal, unfortunately, because a lot of the arguments on this case have been on emotion and not law. 

“We’re looking for a strict interpretation of the law,” Whittall said. “We don’t think his possible findings will stand up on appeal.”

The association, meanwhile, doesn’t appear likely to work with Whittall as a development partner.

“We have made the association two proposals and continue to work our way through a redevelopment process,” Whittall said. “We would welcome a sit-down with the association. I would love for them to come to my office. The ball is in their court. I always answer my phone. I don’t find it productive to negotiate against myself though. There’s got to be some movement and some back and forth.”

Siegal said he, too, would like to have a discussion.

“They owe themselves at least a sit-down with a guy who has an agreement with Colony Lender and is most likely going to be the developer,” Siegal said. “Whittall has the assets, a lot of ability and time to sit and wait things out. They should talk to the man instead of doing this Mexican standoff.”

Contact Kurt Schultheis at [email protected].