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Case for Colony settlement challenged in Federal Court

STEVE REID
Editor & Publisher
sreid@lbknews.com

Federal Bankruptcy Judge Rodney May heard the various legal entanglements and arguments of the warring parties over the former Colony Beach & Tennis Resort on Friday as he considered a global settlement agreement proffered by the Association of Unit Owners.

And that settlement, which was championed to bring resolution to the many Colony cases in court, came under attack by Colony Lender, the largest creditor  — owed about $15 million — in the now defunct resort’s legal mess.

And the Judge foreshadowed the hearing as he started the day in saying he had reserved the courtroom for the following Monday and a week from Monday if it needs more time. And that is exactly what happened.

Judge May opened the hearing asking the counsel what the order of business ought to be and the Counsel for the Association, Jeffrey Warren, said the approval of the settlement agreement in the Chapter 7 and Chapter 11 cases. Warren added that if the settlement is approved, it “subsumes Colony Lender’s lien right claims and they are mooted.”

In fact, the day was spent with the Association making its case and putting on several witnesses including former General Manager Katie Moulton and Association President Jay Yablon on the witness stand along with Trustee William Maloney.

The day ended with the terms and case being made for the global settlement along with several attacks on the legality of the settlement from Colony Lender.

 

Vote of owners

Warren opened by stating that more 75%, a total of 209 of the 228 unit owners — more than the amount needed by condominium rules — approved of a settlement that he said would end the litigation between the principal parties including Klauber and his entities.

The General Partnership is in a Chapter 7 proceeding while three other Klauber-controlled entitles are in various stages of Chapter 11 bankruptcy.

The settlement would extinguish the threat of the $25 million award that the appeals court handed Klauber against the Association for its failure to pay assessments for repairs and forcing the closing of the resort. It would also resolve all of the counterclaims — totaling upwards of $15 million that the Association has made against Klauber. And part of the settlement is it would pay the trustee $2 million, with another $3 million going to Murf Klauber as a consultant agreement for his support and assistance in the eventual redevelopment.

Warren said the settlement is needed to secure a developer and that the Association has found that no developer is interested in the undertaking with the legal liabilities.

“It became a chicken or egg — no developer without a resolution and no resolution without a developer,” said Warren.

Warren added, “Before the court today is a settlement that resolves with finality all disputes.”

 

Cram down of debt?

At odds is Colony Lender. Colony Lender, owned by Longboater Randy Langley and Longboat Key homeowner David Siegal, holds the bank note that they bought from Bank of America, which is collatoralized by 2.2 acres of the Colony including the restaurant and various recreational amenities.

Part of the Association’s Global settlement that they are asking Judge May to approve is the “cramming down” of that debt and conveyance of that collateral to the group of owners.

Warren told Judge May, “The court has to determine that benefits to the state outweighs the benefits to the co-owner (Colony Lender).”

Warren said Colony Lender made it their purpose to “buy a distressed loan” and that it allows the controlling of the property.

Part of what Colony Lender attorney Michael Assaf has argued is that the entire proceeding is a liquidation and that there is nothing to reorganize and that by law May cannot collateral in that way.

 

Improper vote argued

Colony Lender Attorney Assaf also argued that the vote of the Association of Unit Owners approving the Global Settlement is flawed in several regards.

“There is no 75% vote,” said Assaf.

At issue is the owner of the most Colony units is Andy Adams. He owns 59 Units and therefore a controlling or veto vote. On his ballot, he checked ‘yes’ in approval of the global settlement but attached an addendum — a list of conditions that must be met for his votes to count. That list includes that the Association Attorney, Warren, must render a written opinion that the vote and entire proceeding is legal. Secondly, Adams required that the Field interest be purchased and lastly a condition that the settlement agreement not be altered or changed.

Warren said he could not agree to write an opinion for Adams, but Yablon said that the votes count nonetheless.

The Association argued that the “Yes” box was checked and that is what counts in an Association vote as far as the court is concerned and that all the other terms are “scratch notes” not to be considered by the court but are of internal importance for the Association.

“We consider these as Yes votes and it is an internal issue for the Association. There is no doubt that Adams voted in favor of the resolution, ” said Warren.

Association President Jay Yablon said on the stand that without the Adams vote they do not have an approved settlement and the threshold is not reached. Yablon also said the Association could not meet Adams’ conditions, but that was an internal issue he contends.

There was also debate on the issue that Adams submitted his votes with the checked “Yes” box two days after the vote was closed according to the proxy. He submitted on time his list of conditions, but two days after the vote ended he checked the “Yes” box.

Assaf also argued that approving a settlement that excludes a creditor creates a right the Association does not have and denies due process.

Bankruptcy Court appointed Trustee William Maloney said he thought the payment of $3 million to Murf Klauber was “Critically important to the resurrection of the Colony. His Rolodex and connections can be critical to the successful rebuilding of the Colony.”

Maloney said he signed off on the settlement as the trustee for Klauber’s General Partnership entitles, which are in bankruptcy, because he felt it superior to other offers or going to auction due to the extinguishing of what he said were more than $50 million in claims.

On Monday, at 9 a.m., the saga continues in front of Judge May with Colony Lender making arguments in opposition to the settlement proposal.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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8 Responses for “Case for Colony settlement challenged in Federal Court”

  1. Georgie McFarland says:

    No matter which way judge May decides there will be further appeals on the issue of Colony Lender unless enough money is offered for Colony Lender’s position along with Marlyn Field’s. Jeffrey Warren, the attorney representing the Association of homeowners,will continue to milk this case for more legal fees during the appeals process as no Developer will step forward without an end to the litigation and the ability to get a clean title report.

  2. Blake Fleetwood says:

    Judge May will deliver the whole package… Nobody will be happy… But rest assured Colony Lender will not get $14 million for their 2.3 acres ,,,, Judge May will insist that they get fair market value, more like two or three million per acre, which is what vacant land is selling for and more in line with the $4.5 million they paid paid for the land.

    They are going to take what they can get. And the Town needs to extend the grandfathered zoning to provide the inconomic incentive that a new project will bring to the town.

    Enough greed and fooling around.

    But the town has to do its part.

  3. Who's on First says:

    This might make one nostalgic for the days during World War II, when the island (and part where the Colony is now located) was a bombing and gunnery range. That war DID come to an end, but the courts and lawyers were not as powerful then. Will this war of words ever end? If the town were to once again back down and extend the density exclusion (“grand-fathering” the exemption), it simply extends this story. What price, victory?

  4. Georgie McFarland says:

    How soon Blake forgets that the Federal District Court reversed Judge May’s last major decision by 180 degrees and gave Klauber the 25 Million judgement that Jeffrey Warren and the Association is now trying to circumvent to preclude Colony Lender from getting a hold of this pot of gold. Judge May does not want to render a decision to again be reversed.

  5. my head is spinning says:

    Can someone briefley summarize this saga? What are the potential outcomes here, consider bullet points…haha….thanks

  6. laserles says:

    As an association member who is currently with a similar situation in Federal Bankruptcy Court…and with Jeffery Warren as the association lawyer…:

    ‘What would you folks have done different before this all blew well out-of proportion…?

  7. Georgie McFarland says:

    The Soap Opera is now continued into January; meanwhile the grandfathered use of the Colony Property expires December 31st. What will the Commissioners do?

  8. Georgie McFarland says:

    To laserles: The Colony Association should have, could have, bought Colony Lender’s defaulted note and Mtg by assignment, paid the price, and eventually wiped out any Judgement that was awarded to Klauber by deficiency in the eventual foreclosure auction which Judge May has postponed from December 6th to after the New Year while he continues to scratch his head over the dilemma that no matter what he decides he will be appealed.

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