United States District Court, D. Colorado
TIMOTHY L. BLIXSETH, an individual, Plaintiff,
CREDIT SUISSE AG, a Swiss corporation, CREDIT SUISSE GROUP AG, a Swiss corporation, CREDIT SUISSE SECURITIES (USA), LLC, a Delaware limited liability company, CREDIT SUISSE (USA), INC., a Delaware corporation, CREDIT SUISSE HOLDINGS (USA), INC., a Delaware corporation, CREDIT SUISSE CAYMAN ISLAND BRANCH, an entity of unknown type, and DOES 1-100, Defendants
[Copyrighted Material Omitted]
Timothy L. Blixseth, an individual, Plaintiff: Michael John
Ferrigno, LEAD ATTORNEY, Law Office of Michael J Ferrigno
PLLC, Boise, ID; Michael James Flynn, Michael J. Flynn,
Attorney at Law, Rancho Santa Fe, CA.
Credit Suisse AG, a Swiss corporation, Credit Suisse
Securities (USA), LLC, a Delaware limited liability company,
Credit Suisse (USA), Inc, a Delaware corporation, Credit
Suisse Holdings (USA), Inc., a Delaware corporation, Credit
Suisse Cayman Island Branch, an entity of unknown type; DOES
1-100, Defendants: David Jason Lender, Kevin Francis Meade,
LEAD ATTORNEYS, Weil Gotshal & Manges, LLP-New York, New
York, NY; Thomas Ray Guy, LEAD ATTORNEY, Weil Gotshal &
Manges, LLP-Dallas, Dallas, TX; Kathleen E. Craigmile, Pryor
Johnson Carney Karr Nixon, P.C., Greenwood Village, CO.
Credit Suisse Group AG, a Swiss corporation, Defendant: Kevin
Francis Meade, LEAD ATTORNEY, Weil Gotshal & Manges, LLP-New
York, New York, NY; Kathleen E. Craigmile, Pryor Johnson
Carney Karr Nixon, P.C., Greenwood Village, CO.
A. BRIMMER, United States District Judge.
matter is before the Court on the Motion for Summary Judgment
[Docket No. 117] filed by Credit Suisse AG, Credit Suisse
Securities (USA), LLC, Credit Suisse (USA) Inc., Credit
Suisse Holdings (USA) Inc., and Credit Suisse Cayman Islands
Branch (collectively, " Credit Suisse." )
Blixseth and his former wife, Edra Blixseth, founded the
Yellowstone Mountain Club, LLC (" Yellowstone Club"
), a master-planned golf and ski resort development
in Montana. Docket No. 115 at 1-2, ¶ 1. Cushman &
Wakefield of Colorado, Inc. (" Cushman" ) appraised
the Yellowstone Club, valuing it at $1.165 billion as of July
2005. Docket No. 123 at 7, ¶ 51. Plaintiff was the sole
shareholder of Blixseth Group, Inc. (" BGI" ),
later known as BLX Group, Inc. (" BLX" ), until
August 2008. Docket No. 115 at 2, ¶ ¶
2-3. BGI was the majority owner of the
Yellowstone Club, Yellowstone Development, LLC ("
YD" ), and Big Sky Ridge, LLC (" BSR" )
(collectively, the " borrowers" ). Id. at
1-2, ¶ ¶ 1, 2.
2005, Credit Suisse arranged a $375 million loan to the
borrowers, the terms of which were set forth in the Credit
Agreement dated September 30, 2005. Id. at 2, ¶
4. Plaintiff signed the Credit Agreement on behalf of the
Yellowstone Club as president of BGI. Id. at 2,
¶ 6. Credit Suisse signed the Credit Agreement as
administrative agent, collateral agent, paying agent, sole
lead arranger, and sole bookrunner. Id. at 2, ¶
5. Section 9.20 of the Credit Agreement stated:
No Recourse to Partners. Notwithstanding anything in any of
the Loan Documents to the contrary, no partner or member or
managing member in the Borrower shall be personally liable
for the payment of the Obligations; provided, however,
nothing contained herein shall release, diminish or impair
the obligations of the Borrower to pay in full when due all
Obligations in accordance with the provisions of the Loan
No. 28-2 at 47, § 9.20 (the " no recourse
provision" ). On September 28, 2005, the Yellowstone
Club, YD, BSR, and Credit Suisse executed a Mortgage,
Security Agreement, Assignments of Rents and Leases and
Fixture Filing (the " Security Agreement" ). Docket
No. 115 at 3, ¶ 9. Pursuant to the Credit Agreement and
the Security Agreement, repayment of the Credit Suisse loan
was secured by a majority of the borrowers' assets (the
" collateral" ). Docket No. 123-1 at 4.
to the Credit Agreement, Credit Suisse transferred
approximately $342 million to the borrowers. Docket No. 123
at 2, ¶ 6. The Yellowstone Club transferred
approximately $209 million of those funds to BGI, who in turn
distributed approximately $199 million directly to plaintiff
in the form of notes (the " BGI notes" ). Docket
No. 115 at 3, ¶ 11; Docket No. 117 at 5, ¶ ¶
2006, plaintiff and Ms. Blixseth began divorce proceedings.
Docket No. 115 at 3, ¶ 12. On June 26, 2008, plaintiff
and Ms. Blixseth settled their divorce and agreed to divide
their marital assets pursuant to the Martial Settlement
Agreement (" MSA" ). Id. at 3, ¶ 14;
see also Docket No. 123-15. Pursuant to the MSA,
plaintiff transferred ownership of BGI to Ms. Blixseth.
Docket No. 115 at 3, ¶ 15. In her capacity as president
of BGI, Ms. Blixseth executed the Assumption Agreement, which
stated, in relevant part, " BGI hereby releases [Mr.
Blixseth] from any and all claims, obligations or liabilities
associated with the BGI Indebtedness. Simultaneously
herewith, BGI is delivering the original [Promissory Notes]
to [Edra Blixseth] to be marked 'Superceded by
Replacement Note.'" Docket No. 123-13 at 3, ¶
4; see also Docket No. 115 at 4, ¶ ¶ 16,
18. Pursuant to the Assumption Agreement,
the BGI notes were marked " Superseded by
Replacement Note." Docket No. 117 at 5, ¶ 11. As
part of the MSA and in conjunction with the Assumption
Agreement, plaintiff and Ms. Blixseth executed the Mutual
Waiver and Release Agreement (the " releases" ).
Docket No. 115 at 4, ¶ 21; see also Docket No.
123-11. The releases state: " each of the Edra Entities
hereby fully and absolutely releases and discharges Timothy
and each of the Timothy Entities (collectively, the "
Timothy Released Parties" ), from any claim, right or
demand that any such Edra Entity has, or may have against any
of the Timothy Released Parties . . . ." Docket No.
123-11 at 3. On July 3, 2008, as part of the Blixseths'
divorce, the California Superior Court approved the releases.
Docket No. 115 at 4, ¶ 22; see also Docket No.
123-12 at 2.
November 10, 2008, the Yellowstone Club, YD, BSR, and
Yellowstone Club Construction Company, LLC (collectively, the
" debtors" ) filed for Chapter 11 bankruptcy
protection (the " Yellowstone Club bankruptcy" ) in
the United States Bankruptcy Court for the District of
Montana (the " bankruptcy court" ). Docket No. 115
at 5, ¶ 24; see also In re Yellowstone Mountain
Club, LLC (" YMC Bankruptcy " ), No.
08-61570-RBK (Bankr. D. Mont. Nov. 10, 2008) (Docket No.
2009, Credit Suisse, in its capacity as an agent for the
prepetition lenders (" prepetition agent" ), the
Official Unsecured Creditors Committee (" UCC" ),
the debtors, and CrossHarbor Capital Partners, LLC negotiated
and executed the Settlement Term Sheet [Docket No. 123-21].
The Settlement Term Sheet, among other things, released the
UCC's and debtors' claims against Credit Suisse and
provided for the creation of the Yellowstone Club Liquidating
Trust (" Liquidating Trust" or " YCLT" ),
which would hold the debtors' claims, causes of action,
and other assets. Docket No. 123-21 at 4-5, 8-9; Docket No.
115 at 8, ¶ 51. The Settlement Term Sheet provided that
the Liquidating Trust would be governed by a seven member
board. Id. at 8, ¶ 46. Credit Suisse had the
right to appoint four members to the Liquidating Trust board.
Id. The Settlement Term Sheet provided that board
would be made by majority vote, with the exception of
retaining new counsel, which required a unanimous vote, and
the settlement of certain claims, which required at least
five votes. Id. at 8, ¶ 47. On May 22, 2009,
the debtors filed a Third Amended Joint Plan of
Reorganization (" Third Amended Plan" ) [Docket No.
123-23], which incorporated the Settlement Term Sheet and
provided for the resolution " of the outstanding claims
against and interests in the Debtors." YMC
Bankruptcy (Docket No. 947 at 9); Docket No. 123-23 at
52, § 9.2.5. Credit Suisse was among those entities that
helped to draft and voted in support of the Third Amended
Plan. Docket No. 123 at 9, ¶ 59. On June 2, 2009, the
bankruptcy court confirmed the Third Amended Plan. Docket No.
115 at 8, ¶ 49. Marc S. Kirschner was appointed trustee
of the Liquidating Trust. YMC Bankruptcy (Docket No.
1065). On July 17, 2009, the Third Amended Plan took effect
and the debtors' claims were assigned to the Liquidating
Trust. Docket No. 115 at 9, ¶ 52; YMC
Bankruptcy (Docket No. 1119 at 1).
asserts that the Third Amended Plan and Settlement Term Sheet
made him the sole target in funding the Yellowstone Club
bankruptcy plan, while releasing Credit Suisse from
liability. Docket No. 123 at 8-9, ¶ ¶ 57, 59-60. He
further contends that Credit Suisse asserts control over the
Liquidating Trust because
(1) CS is a beneficiary of the YCLT as an recipient of
allowed claims 3 and 8; (2) CS appoints 4 of 7 members on the
YCLT Board with a majority vote; (3) the Board advises and
directs the trustee; (4) Majority vote appoints the Trustee;
(5) Trust Board Advises, instruction and direction [sic] on
administration and assists in the pursuit of Trust Claims, as
requested; (6) CS-appointed members['] votes must 
approve any settlement with Mr. Blixseth (5 of 7 votes to
settle); and (7) CS' local counsel in YMC bankruptcy,
Holland & Hart, is designated as counsel for the YCLT, and
cannot be removed absent unanimous approval.
Id. at 8-9, ¶ 58 (citations omitted).
February 25, 2009, before the Settlement Term Sheet was
agreed to, Credit Suisse filed an adversary proceeding
(" AP-14" ) against the debtors and the UCC in the
bankruptcy court. Docket No. 115 at 5, ¶ 26; see
also Blixseth v. Kirschner (" AP-14 "
), AP No. 09-00014-RBK (Bankr. D. Mont. Feb. 25, 2009)
(Docket No. 1). The UCC then filed a complaint against Credit
Suisse and John Does 1-15 in a separate adversary proceeding,
which was consolidated with AP-14 on March 3, 2009.
AP-14 (Docket No. 20). On March 24, 2009, plaintiff
filed a complaint in intervention against the debtors and the
UCC in AP-14. AP-14 (Docket No. 38). On April 3,
2009, the UCC filed an answer asserting counterclaims against
plaintiff for breach of fiduciary duty, alter ego, and
recovery of fraudulent transfers. Id. (Docket No. 98
of the trial in AP-14 was held over the course of six days in
late April and early May 2009. Docket No. 115 at 6, ¶
36. The UCC claimed that Credit Suisse aided and abetted
plaintiff's breach of fiduciary duties, that the Credit
was a fraudulent transfer, and that Credit Suisse's
claims should subordinated. AP-14 (Docket No. 257-1
at 3-4). The UCC claimed that plaintiff breached his
fiduciary duty to the debtors, was the alter-ego of BGI, and
that transfer of the Credit Suisse loan proceeds to BGI and
plaintiff was a fraudulent transfer. Id. (Docket No.
257-1 at 6). Through its complaint, Credit Suisse sought,
among other things, a declaratory judgment that its loan to
the borrowers was not a fraudulent transfer and that its
liens on the debtors' property securing the loan were
valid, enforceable, and not subject to avoidance or
subordination. Id. (Docket No. 257-1 at 4).
Plaintiff sought declaratory judgments that transfer of the
Credit Suisse loan proceeds was not a fraudulent transfer,
that the releases barred all claims brought by the debtors,
and that he did not breach his fiduciary duties to the
debtors. Id. (Docket No. 38 at 14). On May 12, 2009,
the bankruptcy court issued a partial order, ruling that
Credit Suisse's claims should be equitably subordinated
pursuant to 11 U.S.C. § 510(c). Id. (Docket No.
289 at 20). On June 11, 2009, the bankruptcy court deferred
ruling on the remaining claims in AP-14 to give the parties
time to present additional evidence and to permit plaintiff
an opportunity to further develop the merits of his case.
Id. (Docket No. 292 at 34). On June 29, 2009,
pursuant to the Settlement Term Sheet, the claims brought by
or against Credit Suisse were dismissed. Id. (Docket
No. 297-298). The bankruptcy court vacated its May 12, 2009
interim order. Id. (Docket No. 299).
September 18, 2009, the Liquidating Trust was substituted for
the debtors and the UCC as a party in AP-14, leaving the
Liquidating Trust and plaintiff as the only parties to AP-14.
Docket No. 115 at 9, ¶ 53. On January 25, 2010, the
Liquidating Trust filed an amended answer and counterclaims.
AP-14 (Docket No. 487). On February 17, 2010, the
bankruptcy court entered the Amended Final Pretrial Order.
AP-14 (Docket No. 538; Docket No. 542). The final
pretrial order stated that the two central issues in the case
(i) whether Mr. Blixseth breached his fiduciary duties to the
Debtors by causing the Borrowers to enter into the Credit
Suisse Loan and by subsequently using the proceeds for his
personal benefit and for the benefit of third parties, and
the damage, if any, caused by the alleged breaches; and (ii)
whether the Credit Suisse Loan and the subsequent transfers
of those loan proceeds were fraudulent transfers under
Montana state law.
Id., Docket No. 538 at 3. Plaintiff sought a
declaratory judgment that, among other things, (1) he had
been released from liability for any claim asserted by the
debtors, (2) the loan or portion of the Credit Suisse loan
transferred to BGI was not a fraudulent transfer, (3) the
debtors' claims were barred as a matter of law, and (4)
that " the real party in interest of said Trust is
Credit Suisse, which is contractually prohibited from
pursuing claims against Timothy Blixseth on a non-recourse
loan." Id. (Docket No. 538 at 3-4). The
Liquidating Trust sought, among other things, (1) a
determination that the transfer of the Credit Suisse loan
proceeds to plaintiff was a fraudulent transfer under Montana
law, and (2) a determination that the releases executed in
conjunction with the MSA constituted a fraudulent transfer.
Id. (Docket No. 538 at 25-26). Plaintiff asserted
multiple defenses, including that the Liquidating Trust's
claims were barred due to " the Trust's lack of
standing because it is controlled by a party who participated
in the allegedly bad behavior." Id. (Docket No.
538 at 7). The Liquidating Trust also asserted multiple
defenses, including that it had standing to assert its claims
by virtue of the Third Amended plan and the arguments it
advanced in its
response to plaintiff's motion for summary judgment.
Id. (Docket No. 538 at 6). The amended final
pretrial order listed the legal issues the parties
anticipated arguing at trial, which included whether the
releases may be set aside as a fraudulent transfer and
whether the Liquidating Trust's counterclaims against
plaintiff were barred by the Trust's lack of standing
because it is controlled by a party who participated in the
allegedly bad behavior. Id. (Docket No. 538 at
February 2010, the bankruptcy court held Part II of the AP-14
trial over the course of three days. Id. (Docket No.
557). Both parties submitted post-trial briefs, addressing,
among other things, plaintiff's argument that Credit
Suisse controlled the Liquidating Trust and was attempting to
circumvent the no recourse provision of the Credit Suisse
loan. Id. (Docket No. 569 at 50-53; Docket No. 571
August 16, 2010, the bankruptcy court issued a memorandum of
decision resolving AP-14. AP-14, 436 B.R. 598
(Bankr. D. Mont. 2010). The bankruptcy court ruled that
plaintiff's use of the Credit Suisse loan proceeds was a
fraudulent transfer. Id. at 656. The bankruptcy
court next considered whether the releases were actually and
constructively fraudulent transfers pursuant to Mont. Code.
Ann. § 31-2-333(1). Id. at 661. The bankruptcy
court construed the releases under California law, ruling
that plaintiff " obtained the Release with the actual
intent to hinder, delay and defraud his creditors, including
the Debtors. As such, the Release is, for purposes of this
Adversary Proceeding, voidable pursuant to MCA §
31-2-333(1)(a)." Id. at 664. The bankruptcy
court ruled that the Liquidating Trust established that
" none of the Debtors received reasonably equivalent
value in exchange for the Release" and that " the
Debtors were insolvent upon consummation of the
release." Id. at 665-67. The bankruptcy court
also ruled that the releases were constructively fraudulent
transfers pursuant to § 333(1)(b). Id. at 668.
The bankruptcy court sustained the Liquidating Trust's
breach of fiduciary duty claims against plaintiff, ruling
that such breaches caused substantial harm to the debtors.
Id. at 671.
bankruptcy court then turned to plaintiff's remaining
defenses. The court rejected plaintiff's argument that,
at all times relevant, he was acting on the advice of counsel
and should not therefore bear any liability. Id. at
671. The court next considered plaintiff's unclean hands
and in pari delicto defense, namely, " that
[plaintiff] is not getting a fair shake because YCLT is
controlled by Credit Suisse." Id. at 673.
The bankruptcy court noted that this defense stemmed from
Credit Suisse's involvement in the Third Amended Plan,
which it negotiated on behalf of itself and the prepetition
lenders, the UCC, and debtors. Id. Under the plan,
the prepetition lenders released their claims against Credit
Suisse. Id. at 674. The Third Amended Plan also
allowed approximately $229 million for the prepetition
lenders' claims to the debtors' assets, to be divided
between Class 3 and Class 8 claims. Id. at 673-74.
The Third Amended Plan provided for the creation of the
Liquidating Trust, which would take possession of all
property and assets of the debtors. Id. at 673. The
bankruptcy court noted that, pursuant to the Settlement Term
Sheet, Credit Suisse, as the Prepetition Agent, could appoint
four of the Liquidating Trust's seven board members and
that the Liquidating Trust would appoint Holland & Hart LLP
-- Credit Suisse's previous legal counsel -- as its
counsel. Id. at 674. The bankruptcy court noted that