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Blixseth v. Credit Suisse AG

United States District Court, D. Colorado

September 4, 2015

TIMOTHY L. BLIXSETH, an individual, Plaintiff,
v.
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

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[Copyrighted Material Omitted]

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          For 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.

         For 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.

         For 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.

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         ORDER

         PHILIP A. BRIMMER, United States District Judge.

         This 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." )

         I. BACKGROUND[1]

         Timothy Blixseth and his former wife, Edra Blixseth, founded the Yellowstone Mountain Club, LLC (" Yellowstone Club" ), a master-planned golf and ski resort development

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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.[2] 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.

         In 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 Documents.

         Docket 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.

         Pursuant 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, ¶ ¶ 6-7.

         A. Divorce Proceedings

         In 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.[3] Pursuant to the Assumption Agreement, the BGI notes were marked " Superseded by

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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.

         B. Bankruptcy[4]

         On 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. 1).[5]

         In May 2009, Credit Suisse, in its capacity as an agent for the prepetition lenders[6] (" 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 decisions

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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).[7]

         Plaintiff 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).

         C. AP-14

         On 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 at 21-25).

         Part I 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 Suisse loan

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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).

         On 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 were

(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

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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 27-28).[8]

         In 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 at 41-49).

         On August 16, 2010, the bankruptcy court issued a memorandum of decision resolving AP-14. AP-14, 436 B.R. 598 (Bankr. D. Mont. 2010).[9] 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.

         The 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.

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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 ...


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