Our View: Smackdown. Vindication.

Whoa. That was a big-time smackdown.

Reading and interpreting the rulings of federal judges in complex civil suits is often a scramblegram of Latin legalese, so much so that you … well … you need a law professor to translate what the judge is saying.

But in the two federal lawsuits of the Colony Beach & Tennis Club Association Inc., Colony Beach & Tennis Club Ltd, Resorts Management Inc and Colony Beach & Tennis Club Inc. versus Colony Beach & Tennis Club Association Inc., there is absolutely no equivocation.

U.S. District Court Judge Steven Merryday, the same judge who awarded Dr. Murray “Murf” Klauber $9 million from the taxpayers of Longboat Key in the mid-1990s, said, as we read his rulings, that U.S. Bankruptcy Judge K. Rodney May was wrong — wrong all the way around in his rulings last year.

If you cut to the quick, Merryday’s rulings said the Colony’s incorporating documents gave the Colony Beach & Tennis Club Inc. (the company Klauber operated) the authority to require the Colony’s unit owners to pay for repairs and maintenance to the Colony’s common elements.

Merryday further ruled that Klauber and his two partners’ 99-year recreation lease, which gave them the right to charge unit owners for use of the Colony’s tennis courts, swimming pool and other amenities, was indeed valid as well.

These two rulings were the opposite of what the unit owners’ board argued and what the bankruptcy judge ruled.

Put another way, by taking the position that it did, the unit owners’ board was legally wrong and now sits in the position of being primarily responsible for what exists today — a shuttered, dilapidated, fast deteriorating resort that was once one of the crown jewels of Longboat Key and Greater Sarasota.

Read through Judge Merryday’s rulings (see YourObserver.com, Longboat Key tab), and you will see 30 specific instances in which he wrote that Judge May erred. And his language in many of those instances was brutally explicit and expressing his incredulousness at May’s lack of reasoning and judgment. See some of the examples we cited in the accompanying box. It’s not often you read one judge use such critical words of another judge as “startles,” “inexplicably,” “fundamentally flawed,” “utterly foreign” and “slightly bizarre.”

Altogether, it’s a message that will likely raise concerns about potential damages among the Colony unit owners. Indeed, at one point in his ruling, Merryday implied that all Colony unit owners should have known what they were getting into. “Someone interested in becoming a unit owner in the Colony enjoyed full disclosure — guaranteed by Florida’s condominium laws — of the governing documents. A buyer saw exactly what a buyer would get.”

Vindication of Klauber

Of particular note in Merryday’s rulings to Longboat Key residents who have followed the Colony’s saga should be the judge’s comments about Klauber’s alleged mismanagement and fiscal malfeasance.

Wrote Merryday: “Another assumption floating ominously yet indeterminately in the background of the bankruptcy court’s decision is that the Association deserves release from the obligation to pay for repairs because the governing documents are unfair.”

But “the portrayal of the unit owners as trapped in an onerous agreement is unfounded,” he wrote.

“… [U]nrebutted evidence shows that between 1987 and 2008 the Partnership contributed over $27 million of hotel revenue toward repair of the common elements and nearly $5 million toward the real estate taxes of the units. (Ex. 38) Overall, from 1987 to 2008 the unit owners received $33.76 million in distributions. Over the same period, the general partner [Klauber] received $4.59 million. (Ex. 38)

“For decades, a unit owner effectively received a free 30-day stay at a beachfront condominium each year plus the appreciation in value of the initial investment in the Colony … About this component of the arrangement — the value of the Colony to the unit owners throughout past decades — the bankruptcy court said not a word.”

Merryday went on to say the unit owners, even when the Colony hotel operations began to lose money in 2006 and 2007, “continued each year to enjoy 30 days use of a unit at the Colony (plus the appertinent benefits) for dramatically less than cost … “[T]he general partner managed the hotel and received a few hundred thousand dollars while each unit owner contributed nothing and received heavily subsidized use of a beachfront condominium … ”

Concluded Merryday: “Given the historical value figures and the fact that the revenue for maintaining the Colony for decades came entirely from the effort of the Partnership, where is the unfairness?”

What’s next

What happens next has grown more complicated. All involved know this:

• Judge Merryday has set an Aug. 11 hearing date to hear both sides’ suggested remedies and likely order them into mediation.

• The association board, in the wake of Merryday’s rulings, has been weighing whether to appeal.

• The association board says it is proceeding with plans to select this month finalists to redevelop the Colony.

• Klauber’s side is sorting whether to sue the association for damages. If you are a Colony unit owner, the prospect of this may be unnerving. Klauber has grounds to argue the board’s refusal to pay for maintenance and repairs led directly to his mortgage defaults, lost income and pain and suffering.

Just when it began to look as if the options for Klauber were a Longboat Key sunset sinking into the Gulf, there’s new light. He has new hope and, it would appear, new leverage.

Longboaters are well aware of the animus that exists between Klauber and the association board. And at this point, no one knows if everyone involved can possibly work together for a mutually beneficial outcome. Asked Monday about the notion of seeking damages, Klauber dismissed the topic: “I want to get the Colony back to its original form. I want this for the island.”

Next week: The man to resurrect the Colony.
 

THE MERRYDAY SMACKDOWNS

Here are excerpts of Judge Steven Merryday’s rebukes of the bankruptcy court (italics added):

• “… The bankruptcy court erroneously (and inexplicably) declared that, with the 1984 Agreement and the Tenth Amendment, ‘[t]he Partnership became directly responsible for payment of all … expenses related to the common elements.”

• “The Association and the bankruptcy judge overlook the conspicuous and inescapable ‘solely to the extent cash is available’ qualification that dramatically controls the meaning of the 1984 Agreement.”

• “The bankruptcy court’s interpretation of the 1984 Agreement is therefore fundamentally flawed and untenable.” Judge Merryday wrote: “The Declaration manifestly commands that ‘maintenance and operation of the common elements … shall be the responsibility of the Association as a common expense.’ Nothing presented to the bankruptcy court overcomes this plain and obvious mandate.”

• On page 16 of his ruling, Merryday rebukes Judge May for claiming the Colony’s founding documents provide no specific obligations or standards to the unit owners. Merryday quotes from Webster’s dictionary four times to point out what it means to keep the facilities “in a state of repair or efficiency: care, upkeep.” Merryday said the language in the documents is “unambiguous.”
“The bankruptcy court’s conclusion is utterly foreign …”

• On whether an assessment for the maintenance and repair of the Colony must be put to a vote of the unit owners, Merryday wrote: “This conclusion is wholly erroneous and unsupportable.”

“Without support in law or logic” … “This reasoning, like the conclusion that the unit owners may vote to rescind a binding obligation, is untenable.”

“In sum, each matter the bankruptcy court found important was a mischievous distraction because Florida law requires the Association to pay for maintenance of the common elements.”

• On the matter of whether Klauber has rights to seek damages, Merryday wrote: “The bankruptcy court rejected the Partnership’s claim for damages on many grounds, each of which is flawed.” … “The bankruptcy court’s rejection of damages due to ‘the Hotel’s history of being unprofitable’ was clear error.”

• “As for the assumption that the Association could obtain a loan, the bankruptcy court’s faulting the Partnership for assuming the Association could pay for repair of the common elements is slightly bizarre.”

• In the suit over the recreation lease, Judge Merryday wrote: “ … the bankruptcy judge ignored without explanation pertinent facts and relied on no evidence reliably and lawfully … ”