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Longboat Key Wednesday, Oct. 2, 2013 4 years ago

Klauber to receive $3 million

by: Robin Hartill Managing Editor

The Colony Beach & Tennis Resort Association Board of Directors and longtime Colony owner Dr. Murray “Murf” Klauber signed an agreement Sept. 25 that will give Klauber $3 million over five years through a “Klauber Family Consulting Agreement.”

If unit owners and Judge K. Rodney May approve the settlement, it will end a more than six-year legal battle between the Association and the Colony’s longtime owner.

The settlement, which a U.S. bankruptcy trustee also signed off on, doles out $5.3 million and absolves the Association from a $25 million judgment for damages Klauber won in a bankruptcy appeals court last year.
If approved, it will end all legal issues with Klauber and transfer all of his Colony property to the Association.

The properties that will be transferred to the Association include everything, from Klauber’s shuttered restaurant and bar to the resort’s swimming pool and tennis courts.

But that won’t be the end of litigation surrounding the Colony.

The Association will then have to negotiate a settlement with Colony Lender LLC, which owns bank loans on Klauber’s property and is seeking to collect on a recent judgment of more than $13 million.

That settlement could involve an agreed-upon monetary amount or the Association handing over three acres that sit in the middle of the 18-acre property.

The settlement states that Colony Lender “shall receive either a cash payment for its property or such other consideration agreed to by the Association, the development partner and Colony Lender.”

Colony Lender principal David Siegal, though, said the settlement reached isn’t legal and Colony Lender plans to dispute its validity Oct. 10 in May’s courtroom.

Colony Lender is the largest creditor. Siegal said the other parties can’t leave out Colony Lender.

“We are confident Judge May will reject this settlement,” Siegal said. “An equity owner of a corporation can’t enter into bankruptcy, sell its assets in exchange for money and not pay off all of the creditors. They need to bring a developer with a checkbook to make offers that are accepted by all parties. This will not fly.”
The Klauber Family Consulting Agreement states “it’s intended to provide that a meaningful and continued relationship will exist with members of Dr. Klauber’s family to ensure the success of the project.”

As part of the agreement, Klauber and his daughter, longtime Colony General Manager Katie Klauber Moulton, “agree to support and assist the Association with respect to all zoning and development approval with the town and will assist with the development partner in presentations to the town regarding a (future) project.”

The settlement also states “the Association will memorialize as an integral and permanent aspect of the resort, an appropriate recognition of the contribution of the Klauber family to the development and vision of the resort and the town of Longboat Key community.”

The Association also agrees to pay U.S. bankruptcy trustee William Maloney $2.3 million to pay affected creditors involved with the lingering Colony bankruptcy since the resort closed its doors in 2010.

The agreement asks May to approve the settlement within 60 days. Unit owners must also vote to approve the settlement within 60 days.

All parties are set to review the settlement Oct. 10, in May’s courtroom.

Much work must be done, though, before the resort can be resurrected.

The settlement, Colony Association President Jay Yablon said, is contingent upon a favorable vote of the Colony unit owners that will be held in November. Condominium lawyers must determine the threshold needed for approval — whether it’s a simple majority or a 75% majority. Colony unit owner and developer Andy Adams, meanwhile, owns 25% of the units on site and his votes are crucial to any approval vote.

A development order with JHM Financial Group LLC hasn’t been signed yet, either. Klauber’s settlement cash over five years will be paid regardless whether the Association picks a developer.

If a developer isn’t selected to pay the settlement costs, unit owners will be responsible for paying approximately $25,000 each to fund the settlements with Klauber and the trustee.

Yablon said Sept. 26 that he doesn’t think that’s a concern.

“It’s envisioned the developer will pick up the cost,” he said. “At this time, we, as an association, are making the determination we need to take control and reach this settlement now. This is a monumental first step that needed to be made.”

When asked to respond to Siegal’s claim that the settlement reached isn’t valid, Yablon said: ““Colony Lender has every right to make its objections known to Judge May. It will be up to him to decide if Colony Lender’s consistent unbending refusal to accept fair value for their position gives legal basis for derailing the long-awaited settlement of almost seven years of litigation which has done nothing but hurt everybody involved and affected.”

Moulton told the Longboat Observer the Klauber family “is pleased progress is being made.”

“There are still several hurdles before any settlement is final, but we remain very optimistic we will be able to achieve the global resolution we have all been working toward,” Moulton said.

Colony unit owner and board member Blake Fleetwood also expressed optimism with the settlement Sept. 26.

“After six or seven years of having our hands tied in legality, we’ve signed an agreement that could get rid of all of our legal problems with Klauber,” Fleetwood said. “If this is approved, it’s that first big step we needed and we will finally have a chance to start doing real work at the Colony.”

Colony litigation
• April 2007 — Dr. Murray “Murf” Klauber sued the Colony Beach & Tennis Association in Sarasota County, seeking $14.1 million in damages for repairs and upgrades.

• November 2008 — The Association filed for Chapter 11 bankruptcy, citing the $14.1 million judgment as its largest unsecured debt.

• July 31, 2009 — U.S. Bankruptcy Judge K. Rodney May ruled in favor of the Association, finding that it wasn’t responsible for assessing unit owners $14.1 million. Klauber appealed the ruling.

• October 2009 — The hotel Partnership led by Klauber filed for Chapter 11 bankruptcy.

• February 2010 — Colony Lender LLC purchased overdue loans on key Klauber Colony properties from Bank of America for an undisclosed amount.

• Aug. 9, 2010 — Judge May converted the Partnership’s Chapter 11 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 ruling 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 — Judge Merryday remanded the case to Judge May and directed him to either order the return of units to the Partnership 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 — Judge May awarded damages of more than $20 million to Klauber, his Partnership with the Association and the resort’s limited partners.

• September 2013 — Colony Lender LLC won a judgment of more than $13 million in Sarasota County court.

• Sept. 30, 2013 — The Association’s board of directors approved a settlement with Klauber that includes a $3 million consulting agreement over five years. Siegal said Colony Lender will dispute the settlement’s validity in court.

10 Questions: The Colony Beach & Tennis Resort

Confused about the Colony? You’re not alone.
Get the basic facts with our Colony 101.

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 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 has purchased approximately 50 units at the Colony and made a push to purchase more units in March.

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 — would have to sign off on such a project.

A rehabilitation of the property could proceed with a lower majority voter threshold of 50%.

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.

Does the agreement between Klauber and the Association end the litigation surrounding the property?
No. Judge May, along with unit owners, have to approve the settlement.

(Condo attorneys are still determining whether 75% of unit owners need to approve the settlement or a simple majority vote .)

If approved, it will end all legal issues with Klauber and transfer all of his Colony property to the Association. The Association will then have to negotiate a settlement with Colony Lender.

Colony Lender principal David Siegal, however, believes the settlement isn’t legal and describes it as “an attempt to circumvent creditors and pay Klauber without paying creditors” and plans to challenge it Oct. 10, when the parties report back to Judge May.

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