Case for Colony settlement challenged in Federal Court
Editor & Publisher
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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