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Longboat Key Wednesday, Aug. 3, 2011 6 years ago

Colony: What happens next?

by: Kurt Schultheis Senior Editor

Longtime Colony Beach & Tennis Resort owner Dr. Murray “Murf” Klauber called a federal bankruptcy appeals court judge’s reversal rulings “nothing short of a miracle” and says he’s been vindicated after eight years of fighting with unit owners.

Colony Beach & Tennis Resort Association President Jay Yablon downplayed what he called “non-final rulings,” and wrote in an email to unit owners that the Association is already working to renovate the resort.

The differences of opinion don’t end there.

Klauber believes the rulings should allow Tampa-based U.S. District Judge Steven D. Merryday to reinstate the Partnership agreement between him and the unit owners and allow a recreation lease between the unit owners and several lessors to be reinstated.

“This should be the ruling that fuels my rights to move ahead,” Klauber said.

Klauber’s longtime Sarasota attorney, Charles Bartlett, agrees with his client’s assessment.

“The judge could very well direct the bankruptcy court to pull the partnership out of Chapter 7 liquidation and convert it back to a Chapter 11 bankruptcy to allow it to reorganize and continue as an organizing entity,” Bartlett said. “The (rulings mean the) Partnership is now in position to float a (renovation) plan or have its bankruptcy dismissed entirely.”

Yablon and Association attorney Jeffery Warren disagree with those assessments. Warren called the comments by the opposing side “a lot of spin-doctoring.”

“Until Merryday determines what he thinks he should do, it’s premature for anyone to be talking about much of anything,” Warren said.

Warren said Merryday cannot change a previous order that dissolved the Partnership and allowed the unit owners to have complete control of their units. Warren also said the recreation lease cannot be reinstated.

“There’s no legal authority Judge Merryday has that can reverse the ejectment of the partnership,” Warren said. “The only thing we are talking about here is the possibility of damages.”

The only thing the two sides agree upon is that the reversal rulings have opened the door for Klauber and lessors of a recreation lease to seek damages for the Association’s failure to assess its unit owners to pay for the upkeep of the resort’s grounds.

Warren said his client would appeal any judgment request for damages being issued by the 11th Circuit United States Court of Appeals.

The judge’s decision also allows the Association to move forward with counter claims seeking damages from Klauber. The Association alleges it doesn’t owe the Partnership any money, because Klauber mismanaged the resort over the years and funneled Association funds into his on-site resort businesses.
What happens next, however, all depends on what the judge decides at an Aug. 11 hearing.

Merryday could direct the Association to begin immediately assessing its members again, with the money being used to pay for a damages amount he selects or for a future renovation project.

Merryday might also hold off on setting a monetary judgment for damages until both parties hold another mediation session.

The mediation session could involve a potential buyout of Klauber or a willingness to move forward with a renovation project that involves the longtime owner and the property on which Colony Lender LLC currently has a lien.

“Reasonable resolutions require reasonable, rational requests and discussions by all parties,” Warren said. “That hasn’t been the case in four past mediation sessions.”

Warren also notes that any judgments paid to the Partnership, he believes, will be used to pay off Klauber’s unpaid creditors.

If the Association does appeal Merryday’s rulings and judgment orders, a three-judge panel will issue a ruling that can only be appealed if the U.S. Supreme Court decides to take the appeal case.

“Eventually, if there is no agreement among parties, the court will make a final decision,” Warren said.
David Siegal, of Colony Lender, meanwhile, hopes it doesn’t come to that.

“I am hopeful this (mediation) will help the parties to resolve matters, because it’s in their best interest to get this now grossly underutilized asset constructive again,” Siegal said. “Nobody benefits from more litigation.”

Colony unit owner Gregory Rusovisch agreed.

“We need to find a mediated solution quick, so I can sit in a nice unit and watch my kids playing on the beach again,” Rusovich said. “I just want the Colony back.”

What about the recreation lease?

A federal bankruptcy judge’s reversal ruling means that lessors of a Colony Beach & Tennis Resort recreational lease that was previously rejected are now able to seek damages, because 65 years of the lease still remained.

Although the lease itself has not been reinstated, bankruptcy law permits the lessors to recover up to three years of revenue for the lease.

The lease, which collected $650,000 a year from unit owners, would allow lessors to collect approximately $2 million to be split among the current leaseholders.

The current lessors for the recreation lease, which previously allowed the unit owners to use the tennis courts when the resort was operating, include Andy Adams, Colony Lender LLC and Dr. Murray “Murf” Klauber.

Klauber’s 80% interest in the recreation property, however, is part of collateral for $10 million overdue bank loans that are owned by Colony Lender LLC principals David Siegal and Randy Langley.

Morgan Bentley, attorney for Carolyn Field, told the Longboat Observer that the 15% interest his client sold to Colony Lender had a contingency clause that allowed Field to sell her interest but retain her rights to pursue any potential damages from the recreation lease.

“If you are going to give the court the power to terminate the valid lease, it’s only fair to pay rejection damages,” Bentley said. “We are very happy with the judge’s decision.”

But other parties are unclear whether the lease should be reinstated.

“I think they (unit owners) should be paying for the recreation lease still,” Klauber said. “Without the legal use of that property, all they have is condominiums.”

All parties are looking for more direction from U.S. District Judge Steven Merryday at an Aug. 11 hearing and at a future mediation session.


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