Klauber wins $23 million award

STEVE REID
Editor & Publisher
sreid@lbknews.com

Colony founder and former Chairman Dr. Murray “Murf” Klauber and the limited partners were awarded a total of almost $25 million in a US Bankruptcy Court proceeding Friday afternoon in damages to be paid by the Association of Unit Owners. The award amounts to an obligation of more than $100,000 per unit to be paid over five years.

Klauber was jubilant and at the same time troubled that it had to come to this outcome.

“I feel terrifically elated. The outcome had to soak in,” said Klauber from outside his temporary residence on Longboat Key. “This Association board caused their fellow investors to come up with more than $23 million. You think they should be pleased with them?” added Klauber.

Judge Rodney May followed the instructions of US District Court Judge Steven Merryday, May’s superior, who ruled last year that May had erred and ordered May to reverse his rulings and award Klauber and the General Partners, which Klauber controlled, extensive damages for the Association of Unit Owners failure to pay for renovations which led to the shuddering of the once-internationally renowned resort.

May was given two options by the superior court judge to consider at the hearing: award Klauber the total damages of nearly $25 million, or award Klauber about $7 million in damages and return control of the units to Klauber and the General Partner. May said he was going to decline returning control of the units to Klauber.

May said returning control of the Colony to Klauber and the General Partnership was not feasible due to several factors including that the unit owners hold warranty deeds to their properties. He also said the General Partner and Klauber are in Chapter 7 liquidation and the partnership could not comply with articles of the management agreement. He also said the trustee was not able to successfully take the General Partner into Chapter 11 was another reason.

That is when May said he is bound to comply with the instructions of the superior court, which found that the Association of Unit Owners is responsible for the repairs and the assessments to repair. He then awarded what he called the beginning claim of $20,646,312 in damages to be paid by the unit owners to Klauber and the General Partner.

Association President Jay Yablon said the award was unfortunate, but expected.

“This is no more or less than expected. I would have been shocked if he reversed the ejectment and gave control of the units back to Klauber. But between giving back control or keeping control, we vastly preferred keeping control,” said Yablon.

May said he also reconsidered his prior ruling and found that the Association of Unit Owners is not entitled to any offsets or counterclaims against Klauber or the General Partner.

The Association claimed damages due to loss of use of the units and a fundamental argument that it was Klauber’s actions that caused his own damages. The judge said even if true, there is no discernable or demonstrated way to assess those claims. He then denied all counterclaims and offsets.

Another award May granted is for the Association of Unit Owners violating the Recreational Lease at the Colony. That lease created a contract for use of the tennis facilities and recreational facilities at the Resort. The damages awarded by May to the four Recreation Lease interests are $2,223,391.71.

Judge May said an additional $2 million will also be awarded in pre-petition expenses incurred by Klauber and the General Partner for expenses paid on the Association’s behalf before the lawsuits were filed.

Klauber said May had to swallow a lot of pride to come up and admit his judgments were completely wrong when he first ruled last year. He added that he felt for the owners and wished they had not listened to the Association board.

“I am really excited, but feel so sorry for these people who listened to people who have no experience in hospitality, building, designing or creating,” said Klauber.

Klauber said his goal is to help bring the Colony back to life.

“I am going to try and find a way to cure the ills at the Colony shortly. This brings them to their senses. All I want to do is bring it back to what should be here for people on the island and for people who should not be injured they way they have been injured. This is a financial injury. They still do not have their units — they need to be rebuilt. We have the right ingredients for this property and I am going to try and see if these people will make sense,” said Klauber.

May said the final order will be entered next week. At that time the Association of Unit Owners will have the option to appeal to the 11th District Court. Also, at that time, the trustee for the General Partner and Klauber in their bankruptcy proceeding will start assessing the unit owners.

Klauber says the 11th Circuit will likely not consider the issue.

“They will take it to an appeals court that probably will not even hear it because of the conclusions the district appellate judge gave,” said Klauber.

Yablon disagrees. He said a recent 11th Circuit case is on-point and could substantiate reversing Merryday and upholding the Unit Owners’ position. But he says that process could take years.

As it stands, the award is ordered to be paid over five years at 6% interest.

The award simply is for damages and recreation lease payments. The unit owners will still be responsible for all costs associated with renovating or redeveloping their units.