Judge Defers Decision in Lawsuit Against Tim Blixseth

By Jonathan Weber, 6-11-09

In a mixed decision that answers some questions but leaves many others open, U.S. Bankruptcy Court Judge Ralph B. Kirscher on Thursday threw out a key portion of Tim Blixseth’s defense in the Yellowstone Club bankruptcy court lawsuit, but at the same time re-opened the trial and set an August date for the proceedings to continue.

The lawsuit by the club and the committee representing unsecured accused Blixseth and investment bank Credit Suisse of engaging in a “fraudulent transfer” and breach of fiduciary duty in connection with a $375 million loan to the club in 2005. Kirscher last month issued a partial ruling against Credit Suisse, putting the claims of its lender group at the back of the line due to what he characterized as the “predatory” and irresponsible nature of the loan. That ruling prompted a settlement of the main bankruptcy case, with CrossHarbor Capital Partners buying the club for $115 million in a complex deal that assured that all unsecured trade creditors would get paid.

The settlement called for the court to vacate its ruling against Credit Suisse. But the claims again Tim Blixseth, who could ultimately be forced to repay more than $200 million, remain unresolved.

In the unusual ruling Thursday, Kirscher states that “the evidence to date is not favorable for Blixseth,” and fully rejects Blixseth’s argument that the case should be dismissed due to an alleged conflict of interest on the part of his former lawyer, Stephen Brown, who is now chairman of the creditors committee. Kirscher also disparaged the claim that the bankruptcy was the result of a plot by Edra Blixseth and Sam Byrne, the principal of CrossHarbor Capital.

“The Court is not persuaded by Blixseth’s attempts to paint himself as a victim in these proceedings, particularly where Blixseth was at the center of the Debtors’ financial woes,” Kirscher wrote in the ruling.

At the same time, though, the Judge said “this Court is very cognizant of how fast this matter went to trial, and thus, the Court will keep the record open and will set a further scheduling conference in August. At that time, the Court will schedule a continued trial date at which the parties will be afforded additional time to present additional evidence for and against Blixseth.”