In re Yellowstone Mountain Club, LLC

• Decision Date: 11 June 2009
• Docket Number: Bankruptcy No. 08-61570-11.,Adversary No. 09-00014.
• Citation: 415 B.R. 769
• Parties: In re YELLOWSTONE MOUNTAIN CLUB, LLC, Debtor. Credit Suisse and Timothy L. Blixseth, Plaintiffs. v. Official Committee of Unsecured Creditors, Yellowstone Mountain Club, LLC, Yellowstone Development LLC, Big Sky Ridge, LLC, and Yellowstone Club Construction Company LLC, Defendants.
• Court: U.S. Bankruptcy Court — District of Montana

415 B.R. 769

In re YELLOWSTONE MOUNTAIN CLUB, LLC, Debtor.

Credit Suisse and Timothy L. Blixseth, Plaintiffs. v. Official Committee of Unsecured Creditors, Yellowstone Mountain Club, LLC, Yellowstone Development LLC, Big Sky Ridge, LLC, and Yellowstone Club Construction Company LLC, Defendants.

Bankruptcy No. 08-61570-11.

Adversary No. 09-00014.

United States Bankruptcy Court, D. Montana.

June 11, 2009.

COPYRIGHT MATERIAL OMITTED

Brian D. King, Mark S. Chehi, Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, DE, Charles W. Hingle, Shane P. Coleman, Joel E. Guthals, Billings, MT, Edward J. Meehan, Gary A. Rubin, Skadden, Arps, Slate, Meagher & Flom LLP, Washington, DC, Evan R. Levy, George A. Zimmerman, Jeremy M. Falcone, Skadden, Arps, Slate, Meagher & Flom, New York, NY, Joseph M. Grant, Grant Law Firm, Houston, TX, Michael J. Flynn, Boston, MA, for Plaintiffs.

Chris P. Wangsgard, Cory D. Sinclair, Mark W. Dykes, Michael W. Young, David P. Billings, Derek Langton, J. Thomas Beckett, Sean D. Reyes, Parsons, Behle & Latimer, Salt Lake City, UT, James H. Cossitt, Jeffrey Keith Greenwell, James H. Cossitt, PC, Kalispell, MT, Connie Sue Martin, Lawrence R. Ream, Richard G. Birinyi, Stephen Deatherage, Troy Greenfield, Bullivant Houser Bailey PC, Seattle, WA, David A. Ernst, Thomas L. Hutchinson, Bullivant Houser Bailey PC, Portland, OR, James A. Patten, Billings, MT, for Defendants.

MEMORANDUM of DECISION

RALPH B. KIRSCHER, Bankruptcy Judge.

At Butte in said District this 11th day of June, 2009.

In this Adversary Proceeding, trial was originally scheduled to commence at 09:00 a.m. on Wednesday, April 22, 2009. However, after considering Timothy L. Blixseth's ("Blixseth") Expedited Motion to Bifurcate and Continue Trial of Claims Regarding Blixseth filed April 21, 2009, at docket entry no. 203, the Court continued the trial date to Wednesday, April 29, 2009. The Debtors were represented at the trial in this Adversary Proceeding by Tom Hutchinson, Troy Greenfield, Connie Sue Martin and David A. Ernst of Seattle, Washington, and James A. Patten of Billings, Montana; Credit Suisse was represented by Mark S. Chehi, Robert S. Saunders and Joseph O. Larkin of Wilmington, Delaware, George A. Zimmerman, Evan R. Levy and Jeremy M. Falcone of New York, New York, Edward J. Meehan of Washington, D.C. and Shane Coleman of Billings, Montana; the Official Committee of Unsecured Creditors was represented by J. Thomas Beckett, Chris P. Wangsgard, Derek Langton, Sean D. Reyes and Mark W. Dykes of Salt Lake City, Utah, and James H. Cossitt of Kalispell, Montana; and Blixseth was represented by Michael J. Flynn of Boston, Massachusetts, Joseph M. Grant of Houston, Texas, and Joel E. Guthals of Billings, Montana.

The Court heard expert testimony from David Abshier, John Hekman, Kent Mordy and Christopher Donaldson. The Court heard fact testimony from Blixseth, Michael W. Doyle, Stephen R. Brown, Moses Moore, Brad Foster, Samuel T. Byrne, Edra Blixseth, Steve Yankauer, and Robert Sumpter. The testimony of the following witnesses was submitted through deposition transcript:¹ Jeff Barcy, Dean R. Paauw and William G. Griffon.

Prior to commencement of trial on April 29, 2009, the Official Committee of Unsecured Creditors ("Committee"), the Debtors and Credit Suisse filed a proposed Final Pretrial Order on April 27, 2009, at docket entry no. 238. Blixseth participated in drafting the aforementioned proposed Final Pretrial Order but then proposed additional changes that could not be timely reviewed and approved by the Committee, Debtors and Credit Suisse. Thus, Blixseth instead filed his own proposed Final Pretrial Order on April 27, 2009, at docket entry no. 241. After hearing comments from counsel and after considering both proposed Final Pretrial Orders, the Court made some of Blixseth's proposed adjustments to the proposed Final Pretrial Order submitted by the Committee, Debtors and Credit Suisse and entered a Final Pretrial Order on April 29, 2009, at docket entry no. 257. The Final Pretrial Order approved by the Court supercedes the pleadings filed by the parties and governed the course of the trial.² Following the trial in this matter, the Court entered a Partial and Interim Order on May 12, 2009, and following entry of the Partial and Interim Order, Credit Suisse, the Debtors, the Committee and Cross Harbor Capital Partners, and its affiliates, entered into a global settlement that negates many claims in this Adversary Proceeding and also vacates the Court's May 12, 2009, Partial and Interim Order.

With respect to the claims by or against Blixseth, the Final Pretrial Order provides generally as follows:

II. Nature of the Action.

This is a declaratory-judgment and avoidance action arising out of the September 30, 2005, $375 million pre-petition secured loan (the "Credit Suisse Loan") by Credit Suisse and other prepetition lenders to the debtors Yellowstone Mountain Club, LLC, Yellowstone Development, LLC, and Big Sky Ridge, LLC (collectively, the "Borrowers," and, together with their affiliate Yellowstone Club Construction Company, LLC, the "Debtors").

On February 12, 2009, the Official Committee of Unsecured Creditors of the Debtors ("Committee") filed a "Motion for Authorization to File Complaint Against Credit Suisse, Notice of Claims, and Objections to Claims of Credit Suisse." The Committee sought authorization to file and prosecute its complaint "on behalf of and for the benefit of the Debtors, their estates, and the creditors of those estates" on the grounds that "the Debtors are not the proper parties to do so as the litigation implicates the Debtors' former and present owners."

Credit Suisse then commenced its adversary proceeding on February 25, 2009, by filing a complaint against the Debtors and the Committee, Adversary Proceeding #: 09-00014-RBK.

After the Court granted the Committee's motion for authorization to file a complaint on February 27, 2009, the Committee filed its complaint against Credit Suisse on March 3, 2009, which the Court immediately consolidated into Adversary Proceeding #: 09-00014-RBK (hereafter the "Consolidated Adversary Proceeding").

The Debtors are defendants/counterclaimants in the Consolidated Adversary Proceeding. Timothy L. Blixseth, formerly the controlling shareholder of Blixseth Group, Inc. ("BGI"), is the plaintiff-in-intervention in the Consolidated Adversary Proceeding, asserting claims against the Debtors and the Committee, and is the counterclaim-defendant to claims by the Committee and the Debtors against Mr. Blixseth in the Consolidated Adversary Proceeding.

D. The Claims of Mr. Blixseth.

In his complaint-in-intervention, Mr. Blixseth seeks declaratory judgments:

1. That the Committee's and the Debtors' claims are barred by the statute of limitations;

2. That the Credit Suisse Loan was not a fraudulent transfer;

3. That Mr. Blixseth did not breach any fiduciary duties;

4. That Mr. Blixseth did not have a fiduciary duty to the Debtors' creditors; and

5. That the loan of a portion of the Credit Suisse Loan proceeds to BGI was not a fraudulent transfer.

E. The Committee's and Debtors' Counterclaims Against Mr. Blixseth.

The Committee and Debtors claim as follows:

1. In directing the Debtors to enter into the Credit Suisse Loan, Mr. Blixseth breached his fiduciary duties to the Debtors, entitling the Committee to damages;

2. Mr. Blixseth was the alter-ego of BGI;

3. Pursuant to 11 U.S.C. § 544(b), the transfer of proceeds from the Credit Suisse Loan to BGI and Mr. Blixseth or for the benefit of Mr. Blixseth was a constructively fraudulent transfer under Mont.Code. Ann. 31-2-333(1)(b), and can be avoided pursuant to section 550 of the Bankruptcy Code and Mont.Code. Ann. 31-2-339(a); and

4. The Committee and the Debtors are entitled to a judgment against BGI and Mr. Blixseth for the value of the transfers and to any mediate transferees, in an amount to be proven at trial, and attorney's fees.

F. Additional Defenses Asserted by the Parties.

4. In his reply to the Committee's counterclaim, Mr. Blixseth denies the Committee's counterclaims and further asserts that the Committee's counterclaims are barred in whole or in part by failure to state a claim upon which relief can be granted; statute of limitations; waiver; release; estoppel; laches; unclean hands; accord and satisfaction; payment; Committee's lack of standing because its creditors were not creditors at the time of the Credit Suisse loan transactions; assumption of risk by creditors who advanced credit after the Credit Suisse loan transactions; Blixseth's lack of proximate cause for the Committee's claims and damages; proximate causation by the conduct of other persons; causation by unforeseen and unforeseeable events over which Blixseth had no control; Blixseth's conduct and transactions are protected by the business judgment rule; Blixseth's conduct and transactions were based upon Blixseth's reasonable reliance on advice of qualified professionals, including legal and accountant opinions. In addition, Blixseth asserts that the Committee's counterclaim should be dismissed due to breaches of Blixseth's attorney-client confidences and privileged communications.

III. Jurisdiction and Venue.

These adversary proceedings arise under title 11, and arise in and relate to the Debtors' jointly administered bankruptcy cases, which are pending in this Court. This Court has jurisdiction over these proceedings under 28 U.S.C. § 1334. These are core proceedings under 28 U.S.C. § 157(b)(2). Venue is proper under 28 U.S.C. § 1409.

* * *

V. Agreed Facts.

The following facts are agreed upon and require no proof:

1. Each of the Debtors is a limited-liability company organized under Montana law.

2. Debtor Yellowstone Club Construction Company, LLC, was not a party to the Credit Agreement.

3. On and before September 30, 2005, Mr. Blixseth was the controlling shareholder of BGI, an Oregon corporation that owned a majority interest in...