{4653\00\00152806.DOC / 1} 1 Charles W. Hingle (1947) Shane P. Coleman (3417) HOLLAND &HART LLP 401 North 31st Street, Suite 1500 P.O. Box 639 Billings, Montana 59103-0639 (406) 252-2166 (telephone) (406) 252-1669 (facsimile) [email protected][email protected]ATTORNEYS FOR MARC S. KIRSCHNER, AS TRUSTEE OF THE YELLOWSTONE CLUB LIQUIDATING TRUST IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MONTANA ) In re: ) ) Chapter 11 Yellowstone Mountain Club, LLC, ) Case No. 08-61570-11-RBK et al ., 1 ) Debtors. ) ) ) TIMOTHY BLIXSETH, ) ) Adversary No. 09-00014 and Plaintiff/Counterclaim Defendant, ) consolidated with Adversary No. v. ) 09-00017-RBK ) MARC S. KIRSCHNER, AS ) TRUSTEE OF THE YELLOWSTONE ) YCLT’S PRETRIAL CLUB LIQUIDATING TRUST, ) MEMORANDUM ) Defendant/Counterclaimant. ) ) Marc S. Kirschner (“Trustee ”), as Trustee of the Yellowstone Club Liquidating Trust (“Trust ”), pursuant to this Court’s August 12, 2009 Order, hereby files the following Pretrial Memorandum: 1 The Debtors are the following entities: Yellowstone Mountain Club, LLC, Yellowstone Development Club, LLC and Big Sky Ridge, LLC, which entities are substantively consolidated and Yellowstone Club Construction Co., LLC, which is jointly administered with the other Debtors. 09-00014-RBK Doc#: 550 Filed: 02/22/10 Entered: 02/22/10 16:50:51 Page 1 of 30
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{4653\00\00152806.DOC / 1} 1
Charles W. Hingle (1947)Shane P. Coleman (3417)HOLLAND & HART LLP401 North 31st Street, Suite 1500P.O. Box 639Billings, Montana 59103-0639(406) 252-2166 (telephone)(406) 252-1669 (facsimile)[email protected]@hollandhart.com
ATTORNEYS FOR MARC S. KIRSCHNER, ASTRUSTEE OF THE YELLOWSTONE CLUBLIQUIDATING TRUST
IN THE UNITED STATES BANKRUPTCY COURTFOR THE DISTRICT OF MONTANA
Plaintiff/Counterclaim Defendant, ) consolidated with Adversary No.v. ) 09-00017-RBK
)MARC S. KIRSCHNER, AS )TRUSTEE OF THE YELLOWSTONE ) YCLT’S PRETRIALCLUB LIQUIDATING TRUST, ) MEMORANDUM
)Defendant/Counterclaimant. )
)
Marc S. Kirschner (“Trustee”), as Trustee of the Yellowstone Club Liquidating
Trust (“Trust”), pursuant to this Court’s August 12, 2009 Order, hereby files the
following Pretrial Memorandum:
1 The Debtors are the following entities: Yellowstone Mountain Club, LLC, Yellowstone Development Club, LLC and Big Sky Ridge, LLC, which entities are substantively consolidated and Yellowstone Club Construction Co., LLC, which is jointly administered with the other Debtors.
Timothy Blixseth (“Blixseth”) took hundreds of millions of dollars from the
Debtors in breach of his fiduciary duties and pursuant to several constructive fraudulent
conveyances. His conduct can only be described as looting, and he should be held
accountable for his actions. The evidence during the first phase of the Consolidated
Adversary Proceeding conclusively established that Blixseth breached his fiduciary duty
to the Debtors by entering into the loan transaction with Credit Suisse (“CS”) on
September 30, 2005, and then immediately thereafter transferring $209 million to an
intermediary he controlled and ultimately to himself for his own personal benefit. This
transaction in turn left the Debtors doomed to failure, having inadequate capital on a
consolidated balance sheet, cash flow and working capital basis. Blixseth further
depleted the assets of the Debtors by causing them to use in the first half of 2006 over
$80 million of the CS loan proceeds to purchase property for the benefit of third parties
that he controlled. All of these transfers were also fraudulent transfers that should be set
aside.
Blixseth urges this Court to accept his looting of these entities as lawful and
acceptable. He bases this untenable argument on various defenses, none of which have
any merit.2 These defenses include advice of counsel, statute of limitations, the releases
granted pursuant to the MSA and the alleged lack of authority of Edra Blixseth to
prosecute and confirm the Plan of Liquidation for the Debtors. Blixseth also contends
2 In fact, the Court has rejected many of Blixseth’s defenses as a matter of law in its Memorandum of Decision denying Blixseth’s motion for summary judgment, and in its Memorandum denying Blixseth’s motion for reconsideration of his motion to dismiss, and its Memorandum of February 22, 2010 denying Blixseth’s motion for sanctionsrelating to alleged spoliation of evidence.
transferred out of the Yellowstone Club by Blixseth to BGI. (See, e.g., Docket 292,
Memorandum of Decision of 6/11/2009, at 27-28.)
5. The immediate transfer of funds out of the Yellowstone Club to BGI and
then to Blixseth was not memorialized in any contemporaneous loan documents but was
simply reflected on the Debtors' books with a journal entry. Blixseth, right around the
time the B shareholders were threatening suit against Blixseth and the Yellowstone Club,
drafted a two-page promissory note in the amount of $209 million. The $209 million
unsecured demand note, payable by BGI to the Debtors, was created in May 2006, and
backdated to September 30, 2005. (See, e.g., Docket 292, Memorandum of Decision of
6/11/2009, at 28.)
6. Roughly all of the $209 million proceeds that were transferred to BGI
were then immediately disbursed to various personal accounts and payoffs benefiting
Tim and Edra Blixseth personally. Blixseth testified that the Debtors had no interest in
any of these accounts or payoffs. The Debtors, under Blixseth' direction, never made
demand of BGI on the demand notes, even when the Yellowstone Club needed cash.
(See, e.g., Docket 292, Memorandum of Decision of 6/11/2009, at 28.)
7. At the foregoing times, Blixseth was the controlling member of the
Debtors. (See, e.g., Docket 292, Memorandum of Decision of 6/11/2009, at 22.)
8. As the controlling shareholder of BGI,3 Blixseth effectively distributed
$209 million of that loan to himself.
3 Blixseth and BGI were alter egos of each other. During the time that he was the controlling shareholder of BGI, Timothy Blixseth dominated and controlled the affairs of BGI to such an extent that BGI had no separate corporate identity apart from Timothy Blixseth.
10. In addition to the $209 million distribution, Blixseth caused Debtors to use
$80 million of the CS loan proceeds to purchase properties for the benefit of third parties,
including himself. These properties included Chateau de Farcheville, in France ($28
million); Tamarindo, a resort in Mexico ($40 million); and a golf property in St.
Andrews, Scotland ($12 million). (See Financial Statements, submitted to the Court as
Credit Suisse Exhibit 35 and YCLT Exhibit 81.)
11. Debtors did not receive reasonably equivalent value for the transfer of
these assets to Blixseth. Despite entering into the promissory notes,4 the Debtors
(controlled by Blixseth) never intended to call upon these demand notes, even when they
were in hopeless need of cash. As a result of these transactions, the Debtors were
rendered insolvent. Further, these transactions left the Debtors with unreasonably small
assets compared to its business operations. Indeed, the Court has already found that
Yellowstone Club was rendered insolvent on a cash flow/inadequate capital basis when
the CS loan was obtained on September 30, 2005. The Court found that Yellowstone
Club was “doomed” by the CS loan.5 There is ample evidence in the record to support
this finding, including, but certainly not limited to, the following.
12. From 2005 through the filing of the bankruptcy, the Yellowstone Club was
4 The promissory notes Blixseth relies upon were unsecured, only matured upon demand, had no term and gave no economic benefit to the Debtors. In order for these “notes” to be paid by BGI, Blixseth would have had to essentially make a demand upon himself. Moreover, upon receipt of the proceeds from the CS loan, Blixseth for the most part purchased illiquid assets, and could have never satisfied a demand for payment from himself personally.5 These findings are contained in the Court’s Interim and Partial Order dated May 12, 2009 (Dkt. No. 289). Although this order was vacated pursuant to the settlement reached with CS after the first phase of the trial, there is no reason for the Court to change its mind regarding these underlying facts. This Court, in fact, ruled on June 11, 2009, that Blixseth would only be permitted to raise at this trial new evidence, not cumulative evidence, from the first trial that began last April.
constantly behind on its accounts payable. When the Yellowstone Club needed cash,
Moses Moore (“Moore”), who worked as a Senior Accountant and then later Comptroller
for the Yellowstone Club, would request money from George Mack (“Mack”), who
served at that time as the Yellowstone Club’s CFO. Mack was a go-between between
Blixseth and Moore when Moore needed money to pay the bills at the Yellowstone Club.
After Moore would make a request for funds, Moore testified that money may or may not
appear in the Yellowstone Club’s accounts. Moore testified that it was not uncommon to
have to shuffle the Yellowstone Club’s accounts payables due to a lack of money, and
creditor and vendor invoices would often go unpaid for 90 days or more. (See, e.g.,
Docket 292, Memorandum of Decision of 6/11/2009, at 28-29.)
13. When funds were tight, rather than make a demand on the BGI promissory
notes, Blixseth would instead seek to obtain operating funds from various members of the
Yellowstone Club. One such member that Blixseth approached was Sam Byrne
(“Byrne”). Byrne was the founder and managing partner of Cross Harbor. Blixseth asked
Byrne whether he would be interested in making a bulk purchase of Yellowstone Club
lots at a substantially reduced price. Byrne made his first bulk purchase in 2006 with the
58 unit Sunrise Ridge Condominium Development purchase for a price of $60 million.6
In August of 2007, Blixseth again approached Byrne to purchase 31 lots on the golf
course. That sale was consummated in August of 2007 at a price of $54 million. (See,
e.g., Docket 292, Memorandum of Decision of 6/11/2009, at 29.)
14. Blixseth and Edra separated sometime in 2006 and Blixseth retained sole
control of the Debtors and the Yellowstone Club until August of 2008, when Edra was
6 Sunrise Ridge was not part of the security package for the CS loan and the Trust will prove at trial that Tim Blixseth personally benefited enormously from this transaction.
17. During the course of his divorce proceedings, Blixseth sought legal advice
from the law firm of Thornton Byron for alleged estate planning purposes, but the
invoices from that firm indicate he actually sought a means to avoid any liability to the
Debtors for his many breaches of fiduciary duty, including but not limited to the CS loan
transaction and subsequent transfers.7 The Thornton Byron invoice is replete with
references to analyzing ways to shield Blixseth from potential liability of Debtors and
BGI. For example, one entry on the Thornton invoice provides:
Analysis of Closing Agreement received from Steve Kolodny’s office to refine initial analysis of tax and economic concerns presented by same; draft correspondence to Mr. Blixseth and representatives regarding concerns raised by Closing Agreement from tax liability perspective; discussion with George Mack regarding particular concern regarding Mr. Blixseth’s possible liability to creditors of Mrs. Blixseth, Blixseth Group, Inc. or the Yellowstone Club entities i[f] Mrs. Blixseth were to assume liabilities of business entities and the marital community on which Mr. Blixseth is currently obligated; revise correspondence to client and representatives regarding same; analysis of documentation and transactional steps to limit MR. Blixseth’s exposure on subsequent efforts with respect to liabilities assumed by Mrs. Blixseth; discussion to analyze same; draft correspondence regarding recommendation for limiting Mr. Blixseth’s liability after Mrs. Blixseth’s assumption of debt; draft multiple correspondence responding to questions and concerns raised by Mr. Blixseth and other representatives regarding same.
(Emphasis added.)
18. As will be shown at trial, the Thornton invoice also contains several
references to consideration of placing Blixseth’s assets into a holding company to protect
them from liabilities. Blixseth followed this advice by placing all of his assets into
7 These other breaches, as will be shown at trial, involve Blixseth’s dealing with a Porcupine Lease Agreement, Big Sky Ridge, Sunrise Ridge, the LeMond Settlement, the sale of lots 90 and 147, the Overlook lots, and WML Units 303 and 304.
Desert Ranch, LLLP, a Nevada limited liability limited partnership initially began by his
son, Beau Blixseth, which was transferred to Blixseth shortly before he executed the
MSA, as set out in Tim Blixseth’s recent deposition on January 26, 2010 and in greater
detail below.
19. In an effort to cover up his intent to further defraud the Debtors, Blixseth
denied obtaining this advice. As currently as last month, Blixseth testified as follows:
Q. [I]n June and July 2008, you had no earthly reason to fear liabilities passing through Yellowstone entities and BGI to you?
A. None whatsoever, or we wouldn’t be here today because I would own the club.
Q. So there’s no relationship whatsoever between the creation of the Desert Ranch, LLLP, and a concern on your part that Edra would go bankrupt in the near, near future after she took over the club?
A. Absolutely not.
(Blixseth Dep. of 1/26/2010, at 226.)
20. However, Blixseth did have concerns about potential liability as evidenced
by the Thornton bills and the fact that he obtained releases from Edra Blixseth and the
Debtors. As part of the MSA, Blixseth sought releases from Edra Blixseth and the
Debtors for all claims against him, including, but not limited to (a) breach of fiduciary
duty, (b) breach of corporate business opportunities, (c) any similar type of potential
liability based on failure to act properly on behalf of said entity or (d) any document
signed by Blixseth. These releases were not supported by any consideration. Similar to
the “loans” to Blixseth from the CS transaction, Debtors did not receive reasonably
equivalent value for entering into these releases. The Debtors were not parties to the
Blixseth divorce litigation. Neither the Debtors nor the Trust were represented by
manner the director or officer reasonably believes is in the companies’ best interests.
Trifad Entertainment, Inc. v. Anderson, 306 Mont. 499, 508, 36 P.3d 363 (2001).
The vast majority of the proceeds from the Loan Transaction were transferred to
entities other than the Debtors for the benefit of Timothy Blixseth, yet the Debtors were
left with the obligation to repay the loans resulting from the Loan Transaction and with
liens on their property intended to secure that obligation. The Debtors did not receive
reasonably equivalent value in exchange for these transfers and liens. As a result of the
Loan Transaction and these transfers and liens, the Debtors were left with an
unreasonably small amount of assets with which to continue their business. As a result of
the Loan Transaction and these transfers and liens, Blixseth knew or should have known
that the Debtors were incurring a debt they would not be able to repay.
B. Constructive Fraudulent Transfer
Pursuant to section 544(b) of the Bankruptcy Code, Blixseth’s misappropriation
of the CS loan proceeds for his own use and directing the Debtors to purchase assets with
the CS loan proceeds for the benefit of himself and related third parties were
constructively fraudulent transfers under Mont. Code. Ann. 31-2-333(1)(b), and can be
avoided pursuant to section 550 of the Bankruptcy Code and Mont. Code. Ann. 31-2-
339(a).
A transfer is deemed fraudulent under Montana law when:
(1) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:
(a) with actual intent to hinder, delay, or defraud any creditor of the debtor; or
(b) without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor:
(i) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
ii) intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.
Mont. Code Ann. § 31-2-333(1).
Transactions where the Debtor takes all of the risk but gets little of the benefit,
such as occurred with the CS loan and subsequent conveyances to Blixseth are deemed
fraudulent. See Gough v. Titus (In re Christian & Porter Aluminum Co.), 584 F.2d 326,
337 (9th Cir. 1978) (transaction that benefits a third party does not constitute reasonably
equivalent value for the debtor); see also, Frontier Bank v. Brown (In re Northern
transfers to BGI and then to himself would be repaid to Debtors. These notes, however,
were not worth the paper they were written on because Blixseth never intended to have
them repaid. As shown, Blixseth, for the most part, purchased highly illiquid assets,
thereby leaving him with insufficient cash to repay or service the loan. Further, there is
no evidence that he ever tried to call on the loan. (See, e.g., Docket 292, Memorandum of
Decision of 6/11/2009, at 28.) Accordingly, the Debtors failed to receive reasonably
equivalent value for the transfer and never had the cash to meet a real demand. Instead,
the Debtors were saddled with all of the responsibility and none of the benefit because of
Blixseth’s actions. The net result was that the Debtors’ remaining assets were
unreasonably small in relation to this transaction and the Debtors had incurred debts that
were beyond their ability to pay.8
C. Conversion and Unjust Enrichment
Blixseth’s illegal use of the CS loan proceeds constitutes conversion. Conversion
requires ownership of property, a right of possession, and unauthorized dominion over
the property by another resulting in damages. Love v. United States, 844 F. Supp. 616,
623 (D. Mont. 1994) (citing Lane v. Dunkle, 231 Mont. 365, 368 (1988)). Blixseth
converted the rightful property of the Debtors for his own use through fraudulent
transfers and unjust means. Blixseth’s conduct has deprived Debtors from utilizing the
CS loan proceeds for their benefit.
Additionally, he has been unjustly enriched by these transactions to the detriment
of the Debtors. Unjust enrichment is an obligation created by law in the absence of an
8 Although already dealt with at the first phase of the trial, whether the transfers are deemed a dividend or a loan does not matter. Either way, the Debtors did not receive any value.
Blixseth relies heavily on the purported release given as part of the MSA deal.
There is little doubt that the MSA releases were intentional and/or constructive fraudulent
transfers. Debtors were insolvent or rendered insolvent in the cash flow and balance sheet
sense when these transfers were made for no equivalent consideration.9 Evidence to
support this position will come from, among other sources, the deposition testimony of
Edra Blixseth which will be submitted at trial and which is attached hereto as Exhibit A.10
This testimony will prove that the Debtors were hopelessly insolvent at the time of the
MSA, as the following reflects:
Q. So the day of the MSA, the day it was signed, you were on a cash-flow basis not solvent; right?
A. Correct. . . .
(Ex. A, Edra Blixseth Dep., at 332.)
Likewise, Edra Blixseth also testified as follows:
Q. So on the day of the MSA, Yellowstone Club - - by that I mean Yellowstone Club, Yellowstone Development, BSR, the entities I represent - -
A. Correct.
Q. - - were all insolvent on a cash-flow basis to meet their debts as they came through over the next couple of months without some infusion; right?
A. Correct. . . .
9 Section 31-2-328 of the Montana Code provides: “‘Transfer’ means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset and includes payment of money, release, and creation of a lien or other encumbrance.” (Emphasis added).10 The Trust does not believe that Edra Blixseth will be available to testify per the Federal Rules of Evidence, and thus it is appropriate for the Trust to offer her prior sworn deposition testimony as evidence at the time of trial.
As this Court recently noted, the MSA is to be construed under California law
which permits the release to be set aside if it is determined to be a fraudulent transfer.
Mejia v. Reed, 74 P.3d 166 (Cal. 2003) and In re Beverly, 374 B.R. 221 (9th Cir. BAP
2007), aff’d, 551 F.3d 1092 (9th Cir. 2008); see also, In re Beverly, 374 B.R. 221, 223
(9th Cir. BAP 2007)(“[i]t is settled California law that a transfer accomplished through
an MSA can be avoided as a fraudulent transfer pursuant to UFTA.”). Thus, based on the
evidence that the MSA releases were fraudulent transfers, Blixseth’s reliance on this
defense is misplaced.
Further, there is ample evidence that Blixseth intended to defraud the Debtors by
entering into these transactions, as will be demonstrated at trial. Intent is determined by
considering, among other things, whether:
(a) the transfer or obligation was to an insider;11
(b) the debtor retained possession or control of the property transferred after the transfer;
(c) the transfer or obligation was disclosed or concealed;
(e) the transfer was of substantially all the debtor’s assets;
(h) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
(i) the debtor was insolvent or became insolvent12 shortly after the transfer was made or the obligation was incurred;
11 An insider of a corporation is defined as a director, officer or person in control of the debtor. Mont. Code Ann. 31-2-328. As the majority owner of the Yellowstone Club, Blixseth clearly qualifies as an insider for purposes of the statute. In fact, this Court has already found that Blixseth controlled the Debtors from September 30, 2005 until mid-August 2008 when the MSA was executed. June 11, 2009 Memorandum of Decision (Dkt. No. 292) at 22 and 30.
(j) the transfer occurred shortly before or shortly after a substantial debt was incurred; or
(k) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
Mont. Code Ann. § 31-2-333(2); Montana National Bank v. Michels, 631 P.2d 1260,
1263 (Mont. 1981). Moreover, the Trust’s expert witness, Harry Potter, is expected to
testify that the transfers discussed herein evidence many of the badges of fraud listed
above.
Blixseth, as the controlling member for each of the entities involved, qualifies as
an insider. The Debtors were saddled with all of the responsibility and none of the
benefit because of Blixseth’s actions. After placing the Debtors in a precarious financial
situation, and knowing full well that there was a risk of bankruptcy and unpaid unsecured
claims, Blixseth further defrauded the Debtors by seizing upon the opportunity to obtain
purported releases from the Debtors in the divorce proceedings without consideration to
the Debtors and his ex-wife. The releases were secretly obtained without any notice to
creditors of the Debtors. The entries contained in the Thornton law firm’s bills clearly
illustrate that Blixseth had a plan to walk away from the obligations he created without
returning one penny. His own deposition testimony is also illustrative of his intent to
conceal this plan when he denied seeking advice to protect himself from these liabilities.
After implementing his plan, he took the extra step of placing all of his ill begotten assets
into an LLLP, which he purports not to control, in order to further isolate what rightfully
belongs to the Debtors. This will be demonstrated at trial by, inter alia, Blixseth’s own
12 “A debtor is insolvent if the sum of the debtor’s debts is greater than all of the debtor’s property at a fair valuation and the debtor is generally not paying the debtor’s debts as they become due.” Mont. Code Ann. 31-2-329.
testimony, the testimony of expert witness Harry Potter, and various documentary
exhibits. These facts clearly establish that the transfers were fraudulent.
2. Statute Of Limitations
Blixseth maintains that the Trust’s claims for breach of fiduciary duty, conversion
and violation of § 35-8-604 are barred by the applicable statute of limitations. Blixseth is
wrong. The Trust has alleged several tolling doctrines that conclusively postpone the
commencement of the statute of limitations.
11 USC § 108 provides in relevant part:
(a) If applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period within which the debtor may commence an action, and such period has not expired before the date of filing the petition, the trustee may commence such action only before the later of --
(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
(2) two years after the order for relief.
The Debtors in this case filed bankruptcy on November 10, 2008. Thus, if
limitations had not expired on claims by November 10, 2008, then the claims have been
timely asserted because two years had not passed since the filing of bankruptcy before
these claims were asserted. Blixseth, however, attempts to date Debtors’ claims to the
closing date of the CS loan. Blixseth’s argument is not supported by the facts of this
case. The facts will establish that Blixseth’s breaches of fiduciary duty were concealed
until May 2006. Between September 30, 2005 and May 2006, the transfer of funds from
Yellowstone to BGI was recorded as a journal entry on Yellowstone’s books. It was not
until the B Shareholders threatened litigation in May 2006 that Blixseth had the two page
unsecured promissory demand note prepared. Despite the fact that it was prepared in
May 2006, the document was backdated to September 30, 2005.
Because the transfers from Yellowstone to BGI and Blixseth were not
documented until May 2006, the facts forming the basis of the claim against Blixseth
were concealed. As such, the statute of limitations is tolled “until the facts constituting
the claim have been discovered or, in the exercise of due diligence, should have been
discovered by the injured party . . . .” Mont. Code Ann. § 27-2-102(3). Montana Code
section 27-2-204 provides a three-year statute of limitations on claims for breach of
fiduciary duty. Since the fiduciary duty claims did not accrue before May 2006,
limitations had not expired when the Debtors filed bankruptcy on November 10, 2008.13
Moreover, the doctrine of adverse domination tolls the statute of limitations
period on a cause of action against a corporation while wrongdoers control the
corporation. United States v. First National Bank & Trust, 1994 WL 775440, *5 (D.
Montana 1994). “Under the doctrine of adverse domination, a statute of limitations is
tolled on an action against director/officer misconduct so long as a majority of the board
is controlled by the alleged wrongdoers. The doctrine rests on the theory that if the
wrongdoers control the corporation through a majority of stock ownership and control the
directorate[,] there [would] consequently [be] no one to sue them.” Id. (internal citations
omitted). Here, there is no question that Blixseth remained in control of Debtors until
August 13, 2008, a fact this Court found in its June 11, 2009 Memorandum of Decision.
Based upon Blixseth’s total control and domination of the Debtors, the statute of
13 Additionally, Blixseth transferred more than $70 of the CS loan proceeds in April/May 2006 in order to purchase various foreign assets. These transfers also constitute a breach of his fiduciary duties and are within three years of the Debtors’ bankruptcy filing.
financial need. Blixseth has presented zero evidence of this massive four party
conspiracy.14
More fundamentally, Blixseth cannot rely upon superseding and intervening
causes in defense of the intentional tort claims against him. Montana law clearly
provides that the superseding and intervening cause defense is only applicable to
negligence claims. Jimison v. United States, 267 F. Supp. 674, 676 (D. Mont. 1967)
(noting that Montana follows the Restatement (Second) of Torts in analyzing the
defense). Section 440 of the Restatement (Second) of Torts defines superseding cause as
“an act of a third person or other force which by its intervention prevents the actor from
being liable for harm to another which his antecedent negligence is a substantial factor
in bringing about.” (Emphasis added.) Likewise, section 441 states that “an intervening
force is one which actively operates in producing harm to another after the actor's
negligent act or omission has been committed.” (Emphasis added.) The subsequent
sections, §§ 442-453, determine whether an intervening force prevents the actor’s
antecedent negligence from constituting a legal cause. Restatement (Second) of Torts, §
441(2). Based on the plain reading of these rules that have been adopted in Montana,
superseding and intervening cause is not a defense to an intentional tort. Similarly, this
defense has no impact on the disgorgement remedy and is irrelevant to the fraudulent
transfer claims.
14 The YCLT believes that some of the Cross Harbor financial accommodations to BGI at the date of the MSA were themselves fraudulent transfers; however, this does not mean that there was a conspiracy between Cross Harbor and Edra Blixseth because most of the funds loaned to Edra to consummate the MSA were paid to and for the benefit of Tim Blixseth.
/s/ Charles W. HingleCharles W. HingleShane P. ColemanHOLLAND & HART LLP401 North 31st Street, Suite 1500P.O. Box 639Billings, Montana 59103-0639(406) 252-2166 (telephone)(406) 252-1669 (facsimile)
ATTORNEYS FOR MARC S. KIRSCHNER, TRUSTEE OF THE YELLOWSTONE CLUB LIQUIDATING TRUST
CO-COUNSEL:
Brian A. GlasserAthanasios BasdekisBAILEY & GLASSER, LLP209 Capitol StreetCharleston, WV 25301
Steven L. HoardJohn G. Turner, IIIRobert R. BellMULLIN HOARD & BROWN, LLP500 South Taylor, Suite 800, LB# 213P.O. Box 31656Amarillo, Texas 79120-1656
CERTIFICATE OF SERVICE
I, the undersigned, certify under penalty of perjury that on February 22, 2010, or as soon as possible thereafter, copies of the foregoing pleading were served electronically by the Court’s ECF notice to all persons/entities requesting special notice or otherwise entitled to the same and that in addition service by mailing a true and correct copy, first class mail, postage prepaid, was made to the following persons/entities who are not ECF registered users: none.