Blixseth v. Kirschner, Case No. 08-61570-11

CourtUnited States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Montana
PartiesTIMOTHY L BLIXSETH, Plaintiff. v. MARC S KIRSCHNER, TRUSTEE OF THE YELLOWSTONE CLUB LIQUIDATING TRUST,Defendant.
Docket NumberAdv No. 09-00014,Case No. 08-61570-11
Decision Date16 August 2010

TIMOTHY L BLIXSETH, Plaintiff.
v.
MARC S KIRSCHNER, TRUSTEE OF THE YELLOWSTONE CLUB LIQUIDATING TRUST, Defendant.

Case No. 08-61570-11
Adv No. 09-00014

United States Bankruptcy Court, D. Montana.

August 16, 2010


MEMORANDUM of DECISION
INTRODUCTION

Rule 9017, F.R.B.P., provides that the Federal Rules of Evidence apply in cases under the Bankruptcy Code. It is a commonly-accepted practice to take "judicial notice" of a court's records. See 3 J. Weinstein & M. Berger, Weinstein's Evidence ¶¶201 [03] at 201-35 to-40 (1992). The practice is particularly useful in bankruptcy litigation in which individual adversary

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proceedings and contested matters, each of which is procedurally distinct and has its own record, all occur within, and are affected by, the context of the parent bankruptcy case. See id. For the reasons discussed above, this Court takes judicial notice of the proceedings in the related bankruptcy cases and adversary proceedings discussed in this Memorandum of Decision for the purpose of providing additional background regarding the nature of the dispute and the relationship of the parties.

Timothy L. Blixseth ("Blixseth"), the plaintiff-in-intervention and the now captioned Plaintiff in this matter, and his former spouse, Edra Blixseth ("Edra"), were the founders of Yellowstone Mountain Club, LLC ("YMC"), Yellowstone Development, LLC ("YD"), Big Sky Ridge, LLC, and Yellowstone Club Construction Company, LLC. The four aforementioned limited liability companies comprise the Yellowstone Club and will be referred to generally as the Debtors or the Yellowstone Club entities. Through the Yellowstone Club entities, Blixseth and Edra began development in the late 1990's of the Yellowstone Club on land that Blixseth acquired through various transactions. The parties maintain that the Yellowstone Club is the world's only private ski and golf community. The Yellowstone Club is a members only masterplanned unit development, situated on 13, 500 acres of private land in Madison County near Big sky, Montana. At its conclusion, the Blixseths contemplated that the Yellowstone Club would consist of roughly 864 dwelling units situated in seven planned residential areas or neighborhoods.

Members join the Yellowstone Club because of its amenities, including the Warren Miller Lodge, 17 ski runs, equestrian center, Tom Weiskopf 18-hole golf course, kids' facilities

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and other various amenities such as food and retail shops.1 The Blixseths anticipated that the Yellowstone Club would eventually have in the neighborhood of 900 members. As of the Debtors' petition date, the Yellowstone Club had roughly 340 members. To get the Yellowstone Club off the ground, Blixseth sold equity interests in the Yellowstone Club to various persons who were referred to as Pioneer and Frontier Members. The 25 Pioneer and 15 Frontier Members were permitted to purchase their lots at the Yellowstone Club and their Yellowstone Club memberships at substantially reduced prices.

YMC was formed on November 7, 1997, and is primarily engaged in operating the Yellowstone Club. YD was formed on June 10, 1999, and is engaged primarily in the business of retail and land sales and development of residential lots in the Yellowstone Club. Big sky Ridge, LLC was formed in 2002 for the purpose of acquiring and developing land located outside but contiguous to the boundaries of the Yellowstone Club. YMC and YD had two classes of members; Class A members who had voting rights, and Class B members who had no voting rights. Yellowstone Club Construction Company, LLC is owned by YD and was formed in 2006 for the purpose of constructing various buildings within the boundaries of the Yellowstone Club. Each of the Debtors is a limited-liability company organized under Montana law.

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From its inception to August 12, 2008, Blixseth was the sole managing member of Big sky Ridge, LLC. From their inception to August 12, 2008, YMC and YD were controlled by Blixseth through his holding company, Blixseth Group, Inc. ("BGI"). Since August of 2001, BGI has owned 82.6532 percent of the Class A stock in YMC and YD, and Blixseth Family Investments, LLC has owned 5.1020 percent of Class A stock. The Class B Members, or Class B Shareholders consisting of the following twelve entities or individuals: Bankers Financial Corporation, Gregory C. Branch Family Limited Partnership, Blixseth Family Investments, LLC, Jorge V. Jasson, Greg LeMond, A.C. Markkula and Linda K. Markkula Trustees of the Arlin Trust, Mountain Vista Properties AG, David L. Morris and Sacia B. Morris, Sacia Enterprises, Inc., Michael L. Snow, Spano Yellowstone Holdings Limited Partnership and Robert P. Watson and Katharine M. Watson--each owned 1.0204 percent of YMC and YD, or a total of 12.25 percent of YMC and YD.

BGI, an Oregon sub-S corporation, was owned solely by Blixseth as President and CEO from 1999 to August 12, 2008. Blixseth and Edra separated in December of 2006, and effective August 12, 2008, Edra and Blixseth agreed, pursuant to a June 26, 2008, confidential Marital Settlement Agreement ("MSA"), that Edra would receive BGI and the Yellowstone Club entities. On August 19, 2008, just days after obtaining control of BGI, Edra changed the name of BGI to BLX Group, Inc. ("BLX").

Various creditors filed an involuntary Chapter 11 bankruptcy petition on behalf of BLX Group, Inc. on September 21, 2009. See Bankruptcy Case No. 09-61893. Edra filed a voluntary Chapter 11 bankruptcy petition on March 26, 2009. See Bankruptcy Case No. 09-60452. Edra's case was converted to Chapter 7 of the Bankruptcy Code on May 29, 2009.

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Blixseth and Edra were also the founders of Big Springs Realty, LLC and Yellowstone Club World, LLC, both of which were awarded to Edra under the couples' MSA. On January 31, 2001, Charles Callander ("Callander") went to work for Blixseth and Edra as the Director of Marketing and Sales at the Yellowstone Club. Callander explained that in 2005, Blixseth decided to split the marketing and sales departments at the Yellowstone Club, placing the sales department under Big Springs Realty, LLC. However, the sales department at the Yellowstone Club did not change its office, letterhead or business cards. According to Callander, the only change he noticed was the addition of a signature line for Big Springs Realty, LLC on resale listings and resale purchase and sale agreements. Because sales at the Yellowstone Club had grown from $10 million in 2001 to somewhere in the neighborhood of $150 million in 2005, Callander believed that Blixseth formed Big Springs Realty, LLC for the purpose of spreading his risk of liability. In Callander's words, Big Springs Realty, LLC "became a private bank account for someone, for Mr. Blixseth, that was segregated from other accounts at the [Yellowstone] Club."

Edra caused Big Springs Realty, LLC to file a voluntary Chapter 7 bankruptcy petition on June 5, 2009. See Bankruptcy Case No. 09-61079. The Chapter 7 Trustee in the Big Springs Realty, LLC bankruptcy filed a complaint against Blixseth on September 3, 2009, alleging that Blixseth took in excess of $5 million from Big Springs Realty, LLC between August of 2007 and June of 2008, which precluded Big Springs Realty, LLC from paying its other obligations as they became due.

Blixseth had a conceptual idea of Yellowstone Club World in 2005 but he did not have a functioning business plan. Blixseth formed Yellowstone Club World, LLC with the vision of

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taking the Yellowstone Club concept worldwide. High-wealth individuals who purchased memberships in Yellowstone Club World were promised "access to life's most luxurious amenities, activities and services." In particular, Yellowstone Club World members had access to "premier properties," including the Yellowstone Club, a castle near Paris, France (Chateau de Farcheville), a 30, 000 square foot mansion in the Turks and Caicos Islands, a golf course resort in Manzanillo, Mexico, Blixseth's private golf course estate in Rancho Mirage, California (Procupine Creek), a luxury ranch near Cody, Wyoming, and a Tom Weiskopf golf course in St. Andrews, Scotland, among others. The use of various yachts and private jets, and access to "[s]mall scale world class properties in exquisite locations" were also held out as benefits to members of Yellowstone Club World. Blixseth testified that Yellowstone Club World ended up with eight members who each paid a membership deposit of $1.5 million each.

An involuntary Chapter 7 bankruptcy petition was filed against Yellowstone Club World, LLC on January 25, 2009. See Bankruptcy Case No. 09-60061. The Chapter 7 Trustee in the Yellowstone Club World, LLC bankruptcy filed an action against Blixseth on October 20, 2009, alleging that Blixseth owed Yellowstone Club World, LLC at least $2.8 million for inappropriate transfers from Yellowstone Club World, LLC to Blixseth's personal accounts.

FACTUAL BACKGROUND
CREDIT SUISSE2 and the YELLOWSTONE CLUB

Sometime prior to 2004, a team at Credit Suisse First Boston crafted a new syndicated loan product that allowed Credit Suisse to offer a loan product the size of which had previously

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been unavailable to borrowers in the corporate bank loan market. The loan product was designed to allow owners of high-end master-planned residential and recreational communities to realize their anticipated future profits from their developments through distributions made possible by Credit Suisse's syndicated equity recapitalization loan. Credit Suisse's new loan product had several unique aspects. For instance, the loan product relied on an appraisal methodology that was based on future gross revenues, without any discount to current dollar value. The new loan product was not tied to an as-is appraisal that set forth the fair market value of the real estate securing the loan. To syndicate such loans, Credit Suisse targeted investors who were described as highly sophisticated parties who were more than...

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