Tim vs. Edra
Yellowstone Club Chronicles: The Edra Blixeth Bankruptcy
Tim and Edra Blixseth settled their divorce almost a year ago. But as a new court filing from Tim Blixseth shows, their legal battle is only getting nastier.By Jonathan Weber , 6-11-09
Edra Blixseth outside the Missoula courthouse in May.
The Yellowstone Club bankruptcy may be all but over, but lest the lawyers - or the journalists for that matter - worry that they’ll be out of work, we now have what might be called Yellowstone Club 2: The Edra Blixseth Bankruptcy.
Like the original Yellowstone Club case, this is anything but a normal bankruptcy proceeding, with Edra Blixseth initially filing a Chapter 11 bankruptcy that showed personal debts of more than $500 million. Earlier this month, Judge Ralph B. Kircher - the same federal bankruptcy judge who heard the Yellowstone Club case - converted her Chapter 11 filing to a Chapter 7 liquidation - a decision Blixseth is now trying to get reversed.
In a court filing late last week, Edra Blixseth outlined how she hoped to reorganize her affairs and get people paid, namely by developing (and then selling) her Porcupine Creek estate in Palm Springs as a residential golf club, reviving her highly controversial software company, Blxware, and pursuing legal claims against her ex-husband Tim and others. (A PDF of her affidavit is here).
On Thursday, Tim Blixseth fired back in spectacular fashion, filing a court declaration that lays out in great detail his argument that his ex-wife’s wild spending and “dishonest tactics” were actually the cause of all the problems. (PDF here) The affidavit offers lurid details of Edra’s alleged excesses - including a supposed “divorce celebration” party which cost $90,000 and included “invitations in the shape of a parking meter which, when opened, revealed my face and read ‘your time has expired’.”
More substantively, Tim Blixseth in the declaration rejects in great detail the notion that Edra had been kept in the dark about the club’s - and the couple’s - financial affairs, and accuses her of sabotaging an earlier deal to sell the club to Sam Byrne, the CrossHarbor Capital principal who eventually gained ownership of the club in the bankruptcy. It also advances the allegation - also made repeatedly by Credit Suisse in the Yellowstone Club case but consistently rejected by the Judge - that the bankruptcy was a plot by Byrne and Edra to get the club on the cheap. Her motive, he says, was to ruin him - the same motive that she attributes to him.
Tim Blixseth also says that the reorganization plan Edra proposes will not yield the best recovery for creditors - dismissing as not viable her plans for Porcupine Creek, discussing in great detail why the software company was allegedly a fraud and will yield no value, and arguing why her various other claims, including the ones against him relating to the divorce settlement, are not valid.
Edra Blixseth, for her part, says a reorganization will yield between $131 million and $176 million more than an abrupt liquidation of her assets, which in addition to the Porcupine Creek estate and the software company also include choice property at the Yellowstone Club. But even without Tim Blixseth’s allegations, she faces numerous obstacles in getting Kirscher to reverse his decision to hand everything over to a court-appointed Chapter 7 Trustee.
The judge, in converting the case, was quite critical of some of Edra Blixseth’s actions, especially her failure to protect key assets (mostly real estate and cars) with appropriate insurance. She argues that the Yellowstone Club bankruptcy effectively prevented her from tending diligently to her personal bankruptcy, but as one of her most aggressive creditors, Western Capital of Colorado, points out in its opposition to her plan, the Yellowstone Club case certainly had plenty of lawyers on hand.
Even in a case involving an incredibly tangled web of big-dollar loans from a wide variety of institutions, numerous properties in the U.S. and abroad, and a host of issues relating to the divorce settlement and how money from the Credit Suisse loan flowed, the Blxware situation stands out as the most convoluted. To keep a very long story short: Blxware was founded by Edra and a software developer named Dennis Montgomery in 2006 after Montgomery had a falling out with his previous partner, the well-connected Nevada businessman Warren Trepp. Blxware’s key product is software designed to recognize patterns and objects in video streams, and the company had obtained a government contract to develop it for national security applications.
But Trepp and Montgomery were engaged in an extraordinarily nasty legal battle, which included allegations that Trepp had bribed then-congressman and now Governor of Nevada Jim Gibbons to get the government contract (Trepp and Gibbons were later cleared). There was also an FBI raid on Montgomery’s home and office that was later denounced as illegitimate in a scathing ruling from a federal judge. The litigation, which was fundamentally a dispute about ownership of the technology, was eventually settled last year, with Blxware and Blixseth and Montgomery agreeing to pay $25 million to Trepp and his company, eTreppid Technologies. But the settlement payments were missed, and several weeks ago eTreppid seized computers and other assets from all-but-defunct Blxware’s offices to satisfy that obligation.
Blixseth says in her court filing that if Blxware can just get its gear back from Trepp, it can finish its current Department of Defense contract and will then be in line for another long-term government contract. A story this week in the Las Vegas Review Journal repeats court allegations questioning the legitimacy of the technology, and quotes two government officials saying they are no longer interested in it (though it’s possible that other government agencies might remain interested.) And Wachovia Bank this week filed suit in bankruptcy court alleging that $8 million in loans it made to Blxware were obtained under false pretenses—i.e., that the litigation with Trepp was never disclosed—and thus the Blxware assets should not be entitled to bankruptcy court protection.
Montgomery’s attorney through much of the Blxware litigation was none other than Michael Flynn, who now represents Tim Blixseth.
Flynn was the lead lawyer for Tim Blixseth in the bankruptcy court lawsuit in which the club and the creditors committee accused Blixseth and Credit Suisse of fraudulent transfer and breach of fiduciary connection with the infamous $375 million loan to the club. Judge Kirscher issued a partial ruling against Credit Suisse, which led to a settlement in the main bankruptcy case and the sale of the club to CrossHarbor. On Thursday Kirscher issued a ruling re-opening the case against Tim—rejecting key aspects of his defense and making it clear that he was skeptical, but at the same time acknowledging that the fast-track trial created some issues and thus giving Tim Blixseth a chance to make further arguments.
And you thought the Yellowstone Club bankruptcy saga was over?
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Tim, however, is right in the stew where he thrives. It is never over for Tim, only for his "partners" or the people he has done "business" with. Sort of.
The saga with continue. and continue. Good students will graduate law school, pass the bar, and the saga will Energizer Bunny itself into the sunset sometime in the far, far, future.
It is not over until it is over. The Blixeth Cliche'.
His attack on Edra may even be factual, but here is a scared little man frantically worried about the legal express train heading his way. Must be nerve wracking sitting on the only assets left to chase...