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Case Number: 08-61570-JDP
Judge: Mike N. Nakagawa
Court: United States Bankruptcy Court for the District of Montana (Silver Bow County)
Description: Butte, Montana bankruptcy lawyers represented the Yellowstone Mountain Club, LLC, which was forced into bankruptcy by the States of Montana.
Timothy Blixseth and Edra Blixseth, his wife at the time, founded the Yellowstone Club in 2000 as an “exclusive ski and golf community” in Big Sky, Montana. In 2005, representing that he was planning to take the Yellowstone Club global, Blixseth borrowed $375 million from Credit Suisse and other lenders. See Blixseth v. Kirschner (In re Yellowstone Mountain Club, LLC), 436 B.R. 598, 607, 609–13. (Bankr. D. Mont. 2010), amended in part by No. 08-61570-11, 2010 WL 3504210 (Bankr. D. Mont. Sept. 7, 2010). To secure the loan, Blixseth offered the assets of companies related to the Club—Yellowstone Mountain Club, LLC; Yellowstone Development, LLC; Big Sky Ridge, LLC; and Yellowstone Club Construction Company, LLC. Id. at 608–13.
Blixseth and Edra Blixseth divorced in 2008. As a result of the divorce proceedings, Edra Blixseth became the indirect owner of the Yellowstone companies. Id. at 632. The BLIXSETH V.CREDIT SUISSE5 companies had entered “a downward spiral,” id. at 618, largely because Blixseth mismanaged and misused the money from the 2005 loan, see id. at 613–15. As a result, repayment of that loan was no longer viable. Id. at 620. Edra Blixseth decided to take the companies (collectively, the “Debtors”) through Chapter 11 bankruptcy proceedings, with the intention of selling the Debtors’ assets to CrossHarbor Capital Partners, LLC, a real estate management company that had purchased residential lots in the Yellowstone Club and had offered to buy the Club. Id.at 619–21, 630–31.
The bankruptcy proceedings were contentious. The Debtors, Blixseth, CrossHarbor, Credit Suisse—the Debtors’ largest creditor—and a committee of unsecured creditors battled over the companies’ assets. As the bankruptcy court noted, “litigation and the threat of litigation is and was plentiful in this case.” In re Yellowstone Mountain Club, LLC, 460 B.R. 254, 274 (Bankr. D. Mont. 2011).
Settlement negotiations narrowed the scope of the litigation. On April 3, 2009, the Debtors filed a Second Amended Reorganization Plan and Disclosure Statement, which included an exculpation clause releasing certain non-debtors from liability for acts or omissions arising out of the Chapter 11 proceedings. Credit Suisse was not included as an exculpated party. It objected to the plan and, specifically, the Clause, on the ground that “such releases are strictly forbidden in the Ninth Circuit and grounds for denial of confirmation of the Plan.” Blixseth, who was also not included as an exculpated party, adopted and joined Credit Suisse’s objections.
We remain bound by our earlier decision that Blixseth’s challenge to the Exculpation Clause is not equitably moot. Considering the merits of Blixseth’s challenge, we hold that § 524(e) does not prohibit the Exculpation Clause at issue, because the Clause covers only liabilities arising from the bankruptcy proceedings and not the discharged debt. Perhaps we have reached the end of this matter.
Outcome: A U.S. bankruptcy judge has upheld court decisions that the state of Montana lacked legal standing to file an involuntary bankruptcy petition nearly a decade ago against Yellowstone Club co-founder Tim Blixseth.