Samson v. Cincinnati Ins. Co. (In re Blixseth)

• Decision Date: 12 March 2012
• Docket Number: Bankruptcy No. 09–60452–7.,Adversary No. 11–00014.
• Citation: 470 B.R. 871
• Parties: In re Edra D. BLIXSETH, Debtor. Richard Samson and Ross P. Richardson, Plaintiffs v. Cincinnati Insurance Company, Defendant.
• Court: U.S. Bankruptcy Court — District of Montana

470 B.R. 871

In re Edra D. BLIXSETH, Debtor.Richard Samson and Ross P. Richardson, Plaintiffs

v.Cincinnati Insurance Company, Defendant.

Bankruptcy No. 09–60452–7.

Adversary No. 11–00014.

United States Bankruptcy Court, D. Montana.

March 12, 2012.

David B. Cotner, Joslin E. Monahan, Datsopoulos MacDonald & Lind PC, Missoula, MT, Ford Elsaesser, Elsaesser, Jarzabek, et al., Sandpoint, ID, John L. Amsden, Beck & Amsden, PLLC, Bozeman, MT, for Plaintiffs.

Eric Edward Nord, Harlan B. Krogh, Crist, Krogh & Nord LLC, Billings, MT, Nancy K. Tordai, Peters & Nye LLP, South Barrington, IL, for Defendant.

MEMORANDUM of DECISION

RALPH B. KIRSCHER, Bankruptcy Judge.

In this Adversary Proceeding, after due notice, trial was held December 1 and 2, 2011, in Butte and on December 12, 2011, in Missoula. Plaintiff Richard Samson (“Samson”) was represented at trial by David B. Cotner (“Cotner”) and Joslin E. Monahan of Missoula, Montana; Plaintiff Ross P. Richardson (“Richardson”) was represented at trial by Ford Elsaesser of Sandpoint, Idaho; and Defendant Cincinnati Insurance Company (“Cincinnati” or “CIC”) was represented at trial by Nancy K. Tordai of South Barrington, Illinois and Eric E. Nord of Billings, Montana. In addition to the issues asserted in the Pretrial Order filed November 18, 2011, there is also pending in this Adversary Proceeding Cincinnati's Motion in Limine to Preclude Evidence of Attorneys' Fees Damages filed November 1, 2011, at docket entry no. 112, Cincinnati's Motion in Limine to Preclude Evidence Relating to Estoppel filed November 1, 2011, at docket entry no. 113, and Cincinnati's Motion for Partial Summary Judgment filed November 1, 2011, at docket entry no. 115. Prior to trial, the Court denied the parties' competing motions for summary judgment and also denied various motions in limine. In Orders entered November 30, 2011, the Court granted requests for judicial notice filed by the Plaintiffs and Cincinnati.

During the Plaintiffs' case-in-chief, the Court heard testimony from: (1) Stephan Garden, the financial consultant to Richardson, the Chapter 7 trustee of the Yellowstone Club World estate. Garden also sat as an alternate advisory member of the Yellowstone Club Liquidating Trust board; (2) Debtor Edra Blixseth (“Debtor”); (3) Richardson's counsel John Amsden (“Amsden”); (4) Cincinnati's counsel Victor Peters (“Peters”); (5) attorney James Murray; (6) attorney Michael Black; (7) Samson, the Chapter 7 Trustee appointed in Debtor's bankruptcy case; and (8) Richardson. Following Plaintiffs' case-in-chief, Cincinnati called Peters, Constance Hennigan and Robert Phillips. During rebuttal, Plaintiffs again called Amsden. A record of the exhibits admitted into evidence can be found in the Court's records at docket entry no. 185. At the conclusion of trial on December 12, 2011, the Court granted the parties through December 30, 2011, to submit proposed findings of fact and conclusions of law. Upon request of the parties, the Court extended the deadline for filing proposedfindings of fact and conclusions of law to January 6, 2012. The Plaintiffs and Cincinnati filed proposed findings of fact and conclusions of law on January 6, 2012. Supplements and responses filed after the January 6, 2012, deadline were not considered by the Court.

Jurisdiction over this adversary proceeding is based on 28 U.S.C. § 157(a) and (c) because this proceeding is related to a case under Title 11. Venue in this case is proper pursuant to 28 U.S.C. § 1409(a). Plaintiffs further contend that 28 U.S.C. § 1334, Bankruptcy Rule 7001, and 11 U.S.C. §§ 510(c), 544(b), 548, 550 and 105(a), confer jurisdiction and that this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (G), and (O). At trial, all parties consented to this Court issuing a final judgment on the claims asserted. This Memorandum of Decision includes the Court's findings of fact and conclusions of law.

BACKGROUND

Debtor and her former spouse, Timothy L. Blixseth (“Blixseth”) were the founders of a complicated web of corporations, real estate holdings and operating companies, including Yellowstone Mountain Club, LLC (“YMC”), Yellowstone Development, LLC (“YD”), Big Sky Ridge, LLC, and Yellowstone Club Construction Company, LLC (collectively the “Yellowstone Club entities”). Through the Yellowstone Club entities, Blixseth and Debtor began development in the late 1990's of the Yellowstone Club on land that Blixseth acquired through various transactions. The Yellowstone Club was, and still is, an ultra-exclusive, members only master-planned development that has been touted as the World's only private ski and golf community.

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”). Yellowstone Club Construction Company, LLC was formed in 2006 and was owned by YD.

In September of 2005, BGI owned 82.6532 percent of the Class A stock in YMC and YD. The remaining 17.3468 percent ownership interest in YMC and YD was held by Blixseth Family Investments, LLC ¹ and the Class B Shareholders. The Class B Shareholders consisted 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. The Class B Shareholders each owned 1.0204 percent of YMC and YD. In total, the Class B Shareholders owned 12.25 percent of YMC and YD.

In September of 2005, Blixseth, on behalf of YMC, YD and Big Sky Ridge, LLC entered into a $375 million First Lien Credit Agreement (“Credit Agreement”) with Credit Suisse, Cayman Islands Branch (“Credit Suisse”). The Credit Suisse Credit Agreement provided YMC, YD and Big Sky Ridge, LLC with a $375 million Senior First Lien Credit Facility that was funded in its entirety on September 30, 2005.

Prior to securing the loan from Credit Suisse and in an attempt to eliminate the issues attendant to the Class B Shareholders, Blixseth, during the spring and summer of 2005, sought to buy the interests of the Class B Shareholders. Not all Class B Shareholders were receptive to Blixseth's offer of purchase and Blixseth ultimately purchased none of the Class B Shareholders' interests because the offer was an all or nothing deal.

Because Blixseth was not able to purchase the stock of the Class B Shareholders, Blixseth successfully negotiated with Credit Suisse for modification of the loan documents to provide that $209 million of the Credit Suisse loan proceeds could be used for either distributions or loans to members of YMC and YD for purposes unrelated to the Yellowstone Club.² As a result of Blixseth's negotiations with Credit Suisse, YMC, YD and Big Sky Ridge, LLC could use the proceeds of the Credit Suisse Credit Agreement in two significant ways. First, the Credit Agreement provided that up to $209 million of the loan proceeds could be used as “distributions or loans” for “purposes unrelated” to the Yellowstone Club. Additionally, YMC, YD and Big Sky Ridge, LLC could use up to $142 million of the loan proceeds for investments in “unrestricted subsidiaries” for “purposes unrelated” to Yellowstone Club development. Upon securing the Credit Suisse loan proceeds on September 30, 2005, Blixseth transferred $209 million to BGI and the remainder of approximately $133,110,262.53 stayed with YMC.

During the time Blixseth was negotiating with Credit Suisse, Blixseth was also working on a plan to take the Yellowstone Club concept worldwide. Blixseth's new concept came to be known as Yellowstone Club World. To facilitate his vision, Blixseth formed Yellowstone Club World, LLC (“YCW”) and on October 1, 2005, in his capacity as President of YD, YMC and BGI and as Manager of Big Sky Ridge, LLC and YCW, executed a “Five–Party Agreement.” The Five–Party Agreement that reads in part:

[YCW] will enter into a standard access agreement with [YMC, YD and Big Sky Ridge, LLC] to provide use of the Resort Property by the members of [YCW].

4. Option. In connection with each Resort Property acquired by Yellowstone, it shall grant to YCW an option to acquire such Resort Property (“Option”). The Option price shall be the acquisition price of the Resort Property paid by Yellowstone, plus 10% per annum of such acquisition price, together with 0all of the transaction costs incurred by Yellowstone in acquiring the Resort Property. The Option shall have a term of ten (10) years from the date the Resort Property is acquired by Yellowstone.

Resort Property was defined in the Agreement as follows: “As allowed by the Yellowstone/CSFB credit facility, Yellowstone will invest in one or more resort locations identified by YCW as properties it wishes to acquire (‘Resort Property’). Yellowstone will acquire the Resort Property identified by YCW up to the sum of $142,000,000, inclusive of acquisition and transaction costs and fees. The Resort Property will either be owned by Yellowstone directly or by a wholly owned subsidiary of Yellowstone.”

As explained by Stephan Garden:

[T]he Yellowstone Club World concept ... was an expansion of the mountain club. One of the key things was that the membership deposits, which were refundable membership deposits, the way the business was initially thought out ...—these membership deposits were supposed to be held in trust. And the Yellowstone Club World, not owning of the properties but having those properties available to its members, was supposed to be more of the operational and marketing arm of it. And what I mean by that is Yellowstone Club World was supposed to maintain the...