Yellowstone Club Pays $6 Million to Local Creditors

By Jonathan Weber, 9-04-09

Nearly $6 million in checks were distributed this week by the Yellowstone Club, satisfying almost all the claims of more than 140 vendors and contractors who have been waiting almost a year for their money.

The payments came as a result of an unusual bankruptcy court settlement in which trade creditors are getting their money before the consortium of lenders led by Credit Suisse gets theirs. It is very rare in a bankruptcy case for unsecured creditors to get paid in full ahead of secured lenders.

In a letter accompanying the checks, Sam Byrne, managing partner of CrossHarbor Capital and the new owner of the club, said: “Yellowstone Club, its new owners, members and employees all recognize the delay in payment of these monies has caused significant financial hardship for many who provided goods and services to Yellowstone Club. We hope that full payment on your approved claims will provide some relief to his financial burden, and that this will be the beginning of a rebuilding of the reputation of the Yellowstone Club with vendors and service providers in the Big Sky and greater Bozeman communities and beyond.”

While most of the club’s trade debt has now been paid, considerable friction has emerged between the so-called Liquidating Trust - the entity charged with collecting money and paying it to those who are owed - and the committee representing unsecured creditors. The trust, which is being managed by New York-based attorney Mark S. Kirschner, has sought to disallow even some small claims on the grounds that they are the responsibility not of the club but of former club owners Tim and Edra Blixseth.

In one case, involving a flower shop called Big Sky Floral & Design, the Trustee objected to a portion of the $15,000 claim on the grounds that some of the flowers went to a Blixseth residence at the club and thus should be the responsibility of the Blixseths. Similarly, a costume rental company saw its claim reduced because some of the costumes provided for a party at the club were worn by Blixseth family members.

Kirschner declined to comment, and referred questions to attorney Charles Hingle. In a brief phone conversation, Hingle said some of the claims were really “claims against others” and not the responsibility of the bankruptcy estate. As a practical matter, though, it would be all but impossible for small creditors to recover monies from the Blixseths.

Tom Beckett, lead attorney for the Creditors Committee, stressed that the intention of the court-approved settlement was for the local trade creditors to get paid in full via the special trade creditor fund established by CrossHarbor.

In the case of the flower shop, which was in danger of going out of business, members of the Creditors Committee chipped in to loan the shop the money until the matter could be resolved.

Beckett said the committee intends to remain involved in the case even though its formal mandate expires in a couple of weeks. “The [committee] members feel very strongly that they have a job to complete,” he said.

The disputes over the small claims presage a much bigger fight over multi-million-dollar claims involving Greg LeMond, the former cycling great and minority owner of the club who has been involved in fierce litigation with Tim Blixseth since 2006. Also still at issue are the claims of Yellowstone Club World members, some of whom put down $1.5 million deposits to join the defunct vacation club, and employees of Big Springs Realty, including lead broker Eric Ladd, who claim millions in unpaid commissions.

The Liquidating Trust this week filed a lawsuit seeking to recover at least $40 million from Tim Blixseth relating primarily to the transfer of the Tamarindo resort property in Mexico from the club to Tim Blixseth in the months before the bankruptcy. (That transaction was part of the Blixseth’s divorce settlement.) The Trust is also now the party to the ongoing bankruptcy court lawsuit against Tim Blixseth relating to the use of proceeds from the $375 million Credit Suisse loan. The trial in that case will resume next February.

If the Trust recovers money from Blixseth, or from Greg LeMond, who is the target of a bankruptcy court lawsuit over $20 million in payments he received in a partial settlement of his litigation against the club and Blixseth, those funds would be used first to pay back CrossHarbor for the $15 million trade creditor fund, and then to satisfy the claims of the Credit Suisse lenders.