Parties make cases for damages

The return of possession of Colony Beach & Tennis Resort units plus $7,751,470: That’s what attorneys representing the Partnership that ran the resort — i.e. Dr. Murray “Murf” Klauber and other entities and the Partnership’s Chapter 7 bankruptcy trustee, William Maloney, argued would be the best damage award U.S. Bankruptcy Judge K. Rodney May could choose.

Nothing: That’s what attorney Jeffrey Warren argued the Colony Beach & Tennis Association should be required to pay in damages after its counterclaims were weighed against the scenarios.

The $7,751,470 award with return of possession was one of two damage scenarios U.S. District Judge Stephen D. Merryday directed May to consider. The alternative was $20,646,312 with no possession of units. Merryday also directed May to consider the Association’s counterclaims.

May heard from the parties in the dispute in three separate hearings Friday, July 13, but didn’t rule in any of the cases.

The first hearing focused on the 2010 ejectment order that returned possession of units to unit owners.

The second hearing was relatively short — less than a half-hour — centered on a recreational lease, which previously allowed unit owners to use the tennis courts when the resort was operating.

The third hearing addressed the two damage scenarios outlined for the Partnership.

There was significant overlap in the first and third hearings because the issue of possession was key to both.

Attorney Jordi Guso said that the Association doesn’t have the reserves to pay a $20,646,312 judgment, in arguing for the lesser award with return of possession.

“Taking possession of units at least gives the option to pursue a return of occupancy and allows the estate the possibility of recovery,” he said.

But Warren said that the right of the Partnership to use Colony units was contingent on “a number of factors.”

“A cornerstone of the problem is that unit owners have warranty deeds to the property, and you’re asking the court to say that someone with the deed to their property has to let someone else use it,” he said.

At several points during the hearings, Warren said that the Partnership had the obligation to maintain the Colony as a world-class resort.

But the ticking clock of a Dec. 31 deadline, by which the Colony must re-open as a tourism property or face losing its grandfathered status with the town, which could result in the loss of approximately 150 of its 237 units, loomed over the proceedings.

Attorney Charles Bartlett told the judge that if the Association does nothing with the property and it loses its zoning, the Partnership would forever lose the ability to restore it to what it once was.

Warren denied implications from Klauber’s and Maloney’s attorneys that the Association was “twiddling its thumbs” on restoring the property.

“There is a very serious debate about whether the units should be repaired or whether they should be torn down and rebuilt,” he said.

In addressing the Association’s counterclaims, Warren alleged mismanagement within the Colony, including what he described as “self-dealing tainted transactions” between Klauber entities.

He also denied the Association’s responsibility for common maintenance prior to the ejectment order.

“If the Association wanted to so much as drive a nail in the board before the ejectment, it couldn’t do so,” Warren said.

Warren argued that the amount of mismanagement totaled $7 million to $8 million but that the true damage was lost profit.

Bartlett, however, said that how the Partnership ran its businesses was irrelevant to the Association beyond what was dictated in a 1984 agreement. According to that agreement, the Partnership had no obligation to pay Association expenses beyond up to $45,000 per year, Bartlett said.

May said at the end of the first hearing that he would “take the matter under advisement and rule on it as quickly as I can.”