TOP STORY, AUG.: Overturned

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ORIGINALLY PUBLISHED AUG. 4, 2011

“Vindication” is the word Dr. Murray “Murf” Klauber uses to describe what he is feeling.

Tampa-based U.S. District Judge Steven D. Merryday, in two orders released July 27, reversed the actions and rulings on August 2009 Colony Beach & Tennis Resort bankruptcy rulings made by U.S. Bankruptcy Judge K. Rodney May.

Klauber appealed the August 2009 bankruptcy rulings, rulings that eventually led to the eradication of his hotel Partnership with the resort’s 232 unit owners (the Colony Association) and forced him to close his 45-year-old resort.

In essence, Merryday sided with Klauber on the fundamental argument Klauber has with the Association: Klauber has always maintained the Association was required to pay for repairs and make assessments to keep up the common elements of the property.

The Association disagreed, which led Klauber to file an April 2007 lawsuit seeking $14 million from the Association. That started years of legal battles that led to the resort’s closure in August 2010.

Merryday cites in his appeal ruling that the Association was still liable to make assessments to the property’s common elements, even if it voted not to pay for two separate emergency repair assessments that came before unit owners.

“Miracles do happen,” Klauber said. “I’m ecstatic. Honesty and justice has survived in this great country.”
Merryday stated several times in his appeal rulings that “the bankruptcy court erred” and went above and beyond its power when it ruled to dissolve the Partnership and claim unit owners who made their units available for hotel use didn’t need to pay assessments.

Sarasota attorney Morgan Bentley, who represents former Colony recreation leaseholder Carolyn Field, called the reversal rulings surprising.

“There are valid arguments on both sides,” Bentley said. “It was surprising to me to see the initial order, and, now, the reversal.”

Merryday’s rulings also mean Klauber may be able to seek damages from the Association’s rejection of Klauber’s previous proposals for resort redevelopment. The rulings also mean that lessors of a recreational lease that May rejected may be able to seek damages because 65 years of the 99-year lease still remain.

Both sides have differing opinions on what the rulings mean.

Klauber and Colony General Manager Katie Moulton released a joint statement to the Longboat Observer, expressing that they felt vindicated by the appeal rulings.

“The orders speak for themselves and obviously vindicate our operation of the Colony Beach and Tennis Resort and our claims against the association,” the release states. “Sadly, the Colony was closed wrongly as we claimed from the start of the legal disputes. We are eager to hear the decision on remedies to us as a result of the reversals, and are committed to continuing our efforts toward a rehabilitation of The Colony.”

Colony Association President Jay Yablon declined to comment, but sent an email to unit owners Thursday, calling the rulings “disappointing” but “not final.”

“These non-final rulings do not deter the Association from continuing forward with our efforts to revitalize the Colony,” Yablon wrote. “If anything, the remedy that the judge suggests in his ruling to get the Colony fixed is exactly what we have been intently focused upon already.”

Yablon, meanwhile, told unit owners they still intend to select a development proposal by the end of August and allow owners to vote on the proposal by early October. Any development chosen, however, could not move forward until the legal appeals are exhausted.

UPDATE: Judge Steven D. Merryday ordered a bankruptcy court judge to the Partnership that ran the Colony Beach & Tennis Resort, along with Dr. Murray “Murf” Klauber and other lessors involving a recreational lease while also allowing the judge to consider the Colony Beach & Tennis Resort Association’s counterclaims. Merryday also ordered the parties into mediation, which has not resulted in resolution.

Timeline: The case for the Colony
1969 — Dr. Murray “Murf” Klauber and a business partner purchased the Colony for $3.5 million with plans to turn it into a “tennis-centric” resort.

1972 — Klauber formed the first condominium/hotel-rental partnership agreement in the state. According to the arrangement, unit owners would be both members of the Association and a limited partner in the Partnership; Klauber would serve as the general partner in the Partnership.

1984 — An agreement that would become key to the dispute between the Association and Partnership permitted the Partnership to commit the portion of the hotel’s profit that is owed to the limited partners to pay for repairs to common elements, which the Association is required to maintain.

December 2004 — The Association’s board of directors discussed the need for approximately $10 million in repair to the resort’s common elements.

December 2005 — Unit owners voted to reject a $10.6 million emergency assessment for repair and improvement of common elements.

December 2006 — Unit owners rejected a second proposed assessment and elected three new board members. The new board then audited the Partnership and stopped repaying the Partnership for operational expenses that were the Association’s responsibility.

April 2007 — The Partnership sued the Association in state court, seeking damages and a determination that the governing documents compel the Association to assess unit owners $2.1 million that the Partnership spent on repair, and an injunction compelling the Association to assess unit owners. The Association claimed that the 1984 agreement is ultra vires and that the partnership had violated the agreement.

November 2008 — The Colony Association filed for Chapter 11 bankruptcy in Tampa. A federal bankruptcy judge made the final decision on a two-year-old disagreement between the unit owners and resort operators.

April 2009 — Bank of America filed a foreclosure suit against Klauber and seven of his corporations.

July 2009 — A federal bankruptcy judge ruled in favor of the Association.

August 2009 — A federal bankruptcy court ruled in favor of the Association, finding the 1984 agreement ultra vires and the Partnership’s calculations “prohibitively speculative.” The motion denied the partnership relief and declared “moot” the Association’s other counterclaims and third-party claims.
October 2009 — The Colony’s hotel-operating entity filed for Chapter 11 bankruptcy, putting the resort’s debts on hold.

Sept. 22, 2009 — Klauber and Katie Moulton announced hotel operations would be suspended until further notice.

November 2009 — The bankruptcy court found the 1984 agreement ultra vires, the Partnership’s damage calculation prohibitively speculative, denied the Partnership relief and declared moot the Association’s other counter-claims and third-party claims.

December 2009 — Bankruptcy Court Middle District of Florida Judge K. Rodney May approved the re-opening of 100 rooms at the Colony and a $175,000 loan to Murf Klauber.

April 2010 — The Colony Association asked May to convert the case from a Chapter 11 bankruptcy filing to a Chapter 7 liquidation, which would make the Colony into a condominium association instead of a hotel resort.

August 2010 — May converted the Colony Chapter 11 bankruptcy reorganization to a Chapter 7 liquidation, giving the resort’s 232 unit owners complete control of their units. As a result, the Colony hotel closed.

July 2011 — A federal bankruptcy appeals court judge ruled in favor of Klauber in his appeal of the August 2009 bankruptcy rulings.

Click here to view what Judge Merryday said.

Click here to view the Colony key players.