A federal judge rejected attempts by the founder of the ultra-exclusive Yellowstone Club to get a $40 million fraud judgment against him thrown out Tuesday to undo the forced sale of the private ski resort south of Bozeman.
U.S. Bankruptcy Judge Ralph Kirscher ripped into lawyers for Tim Blixseth, a real estate mogul who founded the club before it went bankrupt in 2008, for contending the judge may have helped facilitate the sale of the property. Attorneys for Blixseth allege that Blixseth's ex-wife Edra Blixseth conspired with Sam Byrne, a Boston real estate investor, to buy the 13,600-acre property for cheap after bankruptcy.
Kirscher has already shot down the argument that the original 2008 bankruptcy filing was made in bad faith as part of a ploy between Edra Blixseth to take over the club and sell it at a lower cost to alleged co-conspirator Byrne. Tim Blixseth's lawyers have argued the 2009 sale of the property was tainted and Kirscher's subsequent civil fraud judgment against him should be wiped out.
Tim Blixseth's lawyers were back in Butte federal court Tuesday to make their case. They argued in court records that Gov. Brian Schweitzer had met with Byrne before the bankruptcy and put pressure on Kirscher to facilitate the sale through the bankruptcy court.
"The notion that there's been any political influence on this court is wrong," Kirscher said. "I have not had any discussion with the governor on any of these matters; that would be totally inappropriate.
"I take these roles very seriously."
The millionaires-only club that counts Bill Gates and former vice president Dan Quayle among its members went bankrupt following a bitter divorce between Tim and Edra Blixseth. Kirscher has largely blamed Tim Blixseth for the club's failures throughout the bankruptcy case.
Banking giant Credit Suisse issued a $375 million loan to the club in 2005, with most of the money diverted to Tim and Edra Blixseth's personal use with the bank's approval. The draining of those funds from the club later helped prompt Kirscher to issue a $40 million fraud judgment against Tim Blixseth.
Kirscher on Tuesday reaffirmed that ruling, while leaving the door open for creditors to come back and ask for more. Creditors have a claim for up to $234 million against Tim Blixseth and are still trying to recover those funds.
Mike Flynn, a Boston lawyer representing Tim Blixseth, argued that the $40 million judgment against his client needed to be reconsidered. He said there is proof that Edra Blixseth and Sam Byrne contacted each other well before the bankruptcy was filed as Byrne was negotiating to buy the club for a higher price.
"Edra Blixseth is a clear conspirator with Sam Byrne to use these bankruptcy proceedings to steal $800 million in assets," Flynn said. "This court excluded all evidence of bad faith by Mr. Byrne."
Flynn also said there was "political machinery" at work to help move the case through bankruptcy court. He said he's submitted a complaint to both chambers of Congress to look into how the court handled the case.
"We believe that it is inappropriate for this court to sit any further in these proceedings with Mr. Blixseth," Flynn said.
But Kirscher said he has ruled on the materials in the case and he stood behind his decisions.
"I don't know what you've submitted to Congress; I only know what's been submitted to this court," he said.