In re Colony Beach & Tennis Club Ass'n, Inc.
| Decision Date | 15 January 2010 |
| Docket Number | Bankruptcy No. 8:08-bk-16972-KRM.,Adversary No. 8:08-ap00568KRM. |
| Citation | 423 B.R. 690 |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
| Parties | In re COLONY BEACH & TENNIS CLUB ASSOCIATION, INC., Debtor. Colony Beach & Tennis Club Association, Inc., Plaintiff, v. Colony Beach & Tennis Club, Inc., Colony Beach, Inc., William W. Merrill, Trustee of the William W. Merrill Revocable Trust, and Carolyn L. Field, Trustee of the Carolyn L. Field Family Trust, Defendants. |
Adam L. Alpert, Jeffrey W. Warren, Shane G. Ramsey, Bush Ross, P.A., Tampa, FL, for Debtor.
THIS PROCEEDING came before this Court for trial on May 18 and 19, 2009. In this Chapter 11 case, the Court must determine whether the claims asserted against the Debtor, Colony Beach & Tennis Club Association, Inc. (the "Association" or the "Debtor"), relating to a controversial Recreational Facilities Lease (the "Lease") should be allowed. If any claims are allowed, the Court must also determine the allowed amount of the claims.
The Association, a not-for-profit corporation, never actually made any payments of rent under the Lease. (5/18/09 Tr. 74:20-75:6.) The Association does not have the right to exercise, and it has never exercised, any control over the use of the leased premises under the Lease (the "Property"). Instead, the Property has always been controlled, used and occupied as an integral part of the hotel (the "Hotel") operated by Colony Beach & Tennis Club, Ltd. (the "Partnership"). The Partnership paid, out of the Hotel revenues, all lease payments under the Lease until October 2008. (5/18/09 Tr. 74:20-75:6.) With the consent of the lessors, the Partnership has remained in control of and has continued to use the Property throughout these proceedings in the operation of the Hotel. The Partnership is controlled by Dr. Murray J. Klauber ("Dr. Klauber"). (Ex. 6; 5/18/09 Tr. 20:20-22.)
Dr. Klauber also owns and controls Colony Beach, Inc. ("CBI"), the owner of a 35% interest in the Lease, and Colony Beach & Tennis Club, Inc. (the "Manager"), the owner of a 45% interest in the Lease. (Ex. 6.) The remaining interest in the Lease is owned 5% by William W. Merrill, Trustee of the William W. Merrill Revocable Trust ("Merrill") and 15% by Carolyn L. Field, Trustee of the Carolyn L. Field Family Trust ("Field"). CBI, the Manager, Merrill and Field are collectively referred to as the "Lessors."
On February 19, 2008, the Association commenced a state court action (the "Recreational Lease Action"), filing a complaint against the Lessors seeking (a) declaratory judgment that the Lease is unconscionable as a matter of law, (b) declaratory relief that the rent escalation clause in the Lease is void and unenforceable, and (c) damages from the Lessors for breach of the Lease. On November 5, 2008, the Association removed the Recreational Lease Action to this Court as Adversary Proceeding No. 8:08-ap-568-KRM. (Doc. No. 1.)
The Association filed a motion to reject the Lease at the outset of this case. (Doc. No. 23.) This Court entered an order approving and authorizing the Debtor's request to reject the Lease (Doc. Nos. 75 and 106), and establishing January 20, 2009, as the bar date for entities to file proofs of claim for any claims arising out of the rejection of the Lease. By further order of the Court, the bar date for filing claims arising out of the rejection of the Lease was extended until February 4, 2009. (Doc. No. 107.)
The following claims were filed asserting damages as a result of the Debtor's rejection of the Lease (collectively, the "Claims"): (a) Claim No. 16 of CBI; (b) Claim No. 19 of Merrill; (c) Claim No. 20 of Field; (d) Claim No. 21 of CBI and the Manager; and (e) the Motion for Allowance and Payment of Administrative Rent Claim filed by Field and Merrill (Doc. No. 134). The Claims seek (i) an aggregate amount of $2,228,487 for damages arising out of the Debtor's rejection of the Lease, based on the computation of annual rent of approximately $653,000 per year for three years, together with certain amounts for taxes and insurance, and (ii) amounts for rent due for the period between the filing of this case and the Association's rejection of the Lease. On April 13, 2009, the Association filed an amended complaint in this adversary proceeding (the "Amended Complaint") objecting to the allowance of the Claims.
For the reasons stated orally and recorded in open court on August 10, 2009, which shall constitute the decision of the Court, as supplemented by the following written findings of fact and conclusions of law, the objections to Claim No. 16, Claim No. 19, Claim No. 20 and Claim No. 21 are sustained, the Claims of the Lessors are disallowed in their entirety, and the declaratory relief sought by the Association that the Lease is unconscionable and unenforceable is granted.
The Association is a not-for-profit corporation formed in 1973. (Ex. 10.) The Association was established as a condominium association pursuant to the Declaration of Condominium of Colony Beach & Tennis Club, dated November 29, 1973 (the "Declaration"). (Ex. 16.) The Association's membership consists of the owners of 237 condominium units (the "Unit Owners") at the condominium identified as Colony Beach & Tennis Club, a Condominium Resort Hotel ("The Colony"). (Ex. 10 at § 4. 1.) The Unit Owners have no right to use or occupy their units or the Property except as guests of the Hotel and then only for up to thirty days each year. (Ex. 19 at §§ 10.1 and 10. 2.)
Concurrently with the establishment of the condominium, the Partnership was formed to operate and manage the condominium units at The Colony as rental accommodations in the operation of the Hotel. (Ex. 19 at § 10. 1.) Dr. Klauber is the president and principal of Resorts Management, Inc., the general partner of the Partnership (the "General Partner"). (Ex. 6 and 7.) All but five Unit Owners are limited partners in the Partnership and are required to make their units at The Colony available for occupancy by third parties as rental accommodations for the Hotel. (Ex. 19 at § 10.1.) All management decisions respecting the Hotel are made by the General Partner. (Ex. 19 at § 7.1.) The Declaration provides that the Unit Owners, who have made the use of their units available to the Partnership, will be relieved of paying assessments to the extent that the Partnership makes such payments and assumes all other responsibilities of such Unit Owners. (Ex. 16 at § 7.2.) A similar provision is in the Bylaws of the Association. (Ex. 11 at § 6.5.)
Colony Beach Associates, Ltd. ("CBA") was formed in 1972 by Dr. Klauber and his then partner, Joseph Penner ("Penner"). (Ex. 21 at 5-6.) CBA initially sold the condominium units at The Colony together with limited partnership interests in the Partnership. (Ex. 21 at 1, 5.) In the sales literature, Dr. Klauber promoted that the General Partner would bear a fiduciary responsibility to the limited partners and that the General Partner would "be bound to act in the highest good faith to the [l]imited [p]artners," and would "not obtain any advantage over them by misrepresentation, concealment, threat or adverse pressure of any kind." (Ex. 21 at 7-8, 29 at 14, 35 at 14, 37 at 14.)
On September 30, 1975, after defaulting on its loans to acquire and develop The Colony, CBA conveyed its interest in The Colony to CBI. (Ex. 29 at 6.) At the time, CBI was a Florida corporation formed by First City Federal Savings & Loan Association and First Federal Savings & Loan Association of Tarpon Springs (the "S & L's"). Id. The new owner/developer, CBI, thereafter began selling the remaining condominium units at The Colony. Id.
Dr. Klauber and certain other individuals then formed Colony Investors, Inc. ("Investors"), a Michigan corporation, to reacquire The Colony by purchasing the S & L's equity in CBI. This was accomplished on September 8, 1977. (Ex. 37 at 5-6.)
On September 12, 1972, CBA acquired approximately eighteen acres of real estate located on the Gulf of Mexico at Longboat Key, Florida from Herbert and Rebecca Field. (Ex. 248.) When The Colony was formed, Dr. Klauber intentionally excluded from the Declaration four separate, non-contiguous parcels of the land, aggregating 3.186 acres (the "Land") comprising Parcel A (improved then and now with a pool area), Parcel B (intended for development of tennis courts, but then containing certain buildings now used by the Hotel), Parcel C (intended to become and became tennis courts), and Parcel D (intended to become and became tennis courts). (Ex. 15; Ex. 247.)
CBA also retained ownership of certain of the accessory units within The Colony that were included as part of the Declaration. (Ex. 8.) Two of these accessory units are described as (a) the Locker Room Unit B and Meeting Room (collectively, "Unit B") and (b) the Club House Unit D ("Unit D"). Dr. Klauber combined the Land, Unit B and Unit D, all owned by CBA, to assemble the Property. (Ex. 8 and 9.) Dr. Klauber then made the Property available for exclusive use by the Hotel pursuant to the Lease. (Ex. 15.)
The original lessor, CBA, has not held any interest in the Lease for decades. Dr. Klauber, through a series of transactions, assigned undivided interests in the Lease and the Property to two...
To continue reading
Request your trial