10 Questions: The Colony Beach & Tennis Resort

Do you have questions about the Colony Beach & Tennis Resort?
Join the club. Here, we answer 10 common questions about the shuttered resort and its future.

Why is the Colony Beach & Tennis Resort closed?
The Colony closed in August 2010, after U.S. Bankruptcy Judge K. Rodney May converted the Colony’s Chapter 11 bankruptcy reorganization with its unit owners to a Chapter 7 liquidation.
The rulings ultimately forced the Colony to close by dissolving the partnership led that ran the Colony (led by Dr. Murray “Murf” Klauber), converting the Colony from a hotel resort to a condominium association and giving unit owners control of their units.

How did the parties wind up in court?
Klauber’s partnership operated and managed the hotel, while owners of the 232 units had access to their units 30 days a year and allowed the hotel partnership to rent the units for the remaining 335 days a year.
In 2004, Klauber and unit owners became enmeshed in a legal dispute over who was responsible for paying for approximately $14.1 million in repairs.
Klauber sued the Colony Beach & Tennis Resort Association in 2007 in Sarasota County.

Why wasn’t the case handled in Sarasota County court?
In 2008, the association filed for Chapter 11 bankruptcy, citing the $14.1 million assessment as its largest unsecured debt. That brought the dispute to the U.S. Bankruptcy Court’s Middle District of Florida.
Judge May ruled in favor of the association in August 2009, finding that it wasn’t responsible for paying the assessment.
Klauber’s hotel-operating entity filed for Chapter 11 bankruptcy in October 2009 in a separate case.
The association then asked Judge May to convert the Colony partnership Chapter 11 bankruptcy reorganization to a Chapter 7 liquidation, which he did.

Wasn’t Judge May’s ruling overturned?
Yes. Klauber and his entities appealed Judge May’s 2009 rulings in which the judge found the association wasn’t liable for paying the assessment.
U.S. District Judge Steven D. Merryday ruled in Klauber’s favor in July 2011, concluding that the association had always been required to maintain the property’s common elements. He remanded the case back to bankruptcy court and directed Judge 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.
Judge May chose the latter last October. He also recommended a $2.2 million judgment for owners of a recreational lease.

Wasn’t Klauber in Merryday’s courtroom before the dispute with unit owners?
Yes. Merryday ordered Klauber and the town into mediation in 1996, after a federal jury awarded Klauber $8.9 million.
The suit stemmed from the town’s revocation of Klauber’s building permits for his planned Reserve resort spa that Klauber alleged occurred because some members of the Town Commission and the town opposed him and his political views.
The town agreed to pay Klauber $6.5 million in 1997.

Why did settlement discussions continue after Klauber and his entities won a judgment of more than $20 million?
First off, attorneys involved in the case disagreed about how much of that money would actually go to Klauber and how much would go to creditors and even unit owners, who were limited partners in the hotel partnership.
Association representatives vowed they wouldn’t let a $22 million judgment stand but said it was in everyone’s best interest to try to settle the disputes rather than beginning the appeals process, which would likely take two years.

What is Colony Lender?
David Siegal and Randy Langley are principals of Colony Lender LLC, which purchased overdue bank loans in 2010 for key Klauber-owned Colony property — the tennis courts, the Colony restaurant, the swimming pool and Klauber’s penthouse office.
Colony Lender LLC is seeking to collect on a judgment of more than $13 million.

Who is Andy Adams?
Adams is a longtime unit owner and former board members who, with his family and entities, owns 58 units at the Colony.
Because 75% of unit owners would need to approve a teardown and rebuild of the property, Adams — or any other unit owner who purchased approximately 60 units, or 25% of the 237 units — had to sign off on such a settlement.
Adams’ block of 58 approval votes were subject to a list of conditions, which caused Colony Lender attorney Michael Assaf to question whether they could be counted as approval votes.
Association attorney Jeff Warren announced in court Dec. 3 that the association and Adams, his entity Breakpointe LLC and his family have agreed on an amendment to the proposed settlement.

What is the town’s role in this mess?
The town can’t force resolution of legal disputes at the Colony, but many residents and commissioners have expressed frustrations.
Still, the commission has one ace up its sleeve:
The property has approximately 134 nonconforming units that it could lose without its tourism use.
The town would have deemed property’s tourism use abandoned Aug. 15, 2011 — one year after the resort closed — if the commission hadn’t granted an extension. The commission voted to extend the deadline last year to Dec. 31, 2013.
Commissioners have discussed the possibility of taking away the 134 nonconforming units as well or condemning the property if the parties don’t reach an agreement.
The town is also responsible for law enforcement as well as enforcement of its property and building codes at the Colony — and any other property with within its jurisdiction.

Klauber and the association reached an agreement. So why is the case still in court?
May still has to decide whether to approve the settlement — which would give Klauber $3 million over five years through a consultant agreement and dole out $2.3 million to creditors over the same period, while absolving the association of the judgment of more than $20 million. Colony Lender opposes that agreement.
Assaf has urged May to convert the case from Chapter 11 to Chapter 7 liquidation and allow a sale of resort assets.
May said in court Dec. 4 that he’s wrestling with confirming a settlement plan gives $3 million to Klauber while leaving issues with Colony Lender, the case’s largest creditor, unsettled. He postponed a foreclosure sale that was scheduled for Dec. 6, and plans to rule in January.

 Contact Robin Hartill at [email protected].