Subscribe for 17¢ / day
Billionaire Club Investigation
In this April 30, 2009 file photo, Tim Blixseth arrives at the federal courthouse in Missoula, Mont., as part of bankruptcy proceedings related to The Yellowstone Club. (AP Photo/Mike Albans, File)

Attorneys for Yellowstone Club founder Tim Blixseth have asked a federal judge to dismiss a forced bankruptcy petition based on the real estate baron's unpaid tax bills in three states.

Court documents show California and Idaho withdrew from the case Wednesday after Blixseth paid $1.9 million in back taxes. Montana tax authorities contend Blixseth still owes $57 million.

The first hearing in the case was held Friday in U.S. Bankruptcy Court in Nevada. It focused on whether the case should be moved to another state. No decision was made, but attorneys said Judge Bruce Markell set another hearing for May 18. Markell will take arguments on both the change of venue question and Blixseth's motion for dismissal.

A trust holding most of Blixseth's assets is registered in Nevada. The court has questioned if that state is the appropriate venue because Blixseth is a resident of Washington.

Authorities and creditors say Blixseth drained hundreds of millions of dollars from the Yellowstone Club in the years before its finances abruptly collapsed. It has since emerged from bankruptcy under new ownership.

Blixseth developed the millionaires-only ski and golf near Big Sky, Mont., then gave it up to former wife and co-developer Edra Blixseth during their divorce. He contends the bankruptcy case is based on bogus tax claims and should be thrown out.

Prior to the federal case being filed, Blixseth had challenged Montana's $57 million claim before the Montana Tax Appeal Board. The bill from California's franchise tax board also was disputed by Blixseth, and he said Friday he expects to receive a refund of "several hundred thousand dollars" from the state.

Blixseth's attorneys contend Montana's Department of Revenue filed the Nevada bankruptcy petition in bad faith as a way to "skip over" the tax appeal board proceedings and proceed straight to collecting the alleged unpaid taxes.

The appeal board case is still pending, but if the forced bankruptcy petition succeeds, Blixseth could force be forced to liquidate his assets to pay off any debts validated by the court.

Separately, Blixseth still faces a $40 million civil judgment handed down last year by federal bankruptcy judge in Montana, over claims related to the Yellowstone Club's 2008 bankruptcy. That order is on appeal.

Most of the money that Blixseth took out of the Yellowstone Club came through a $375 million loan to the resort from banking industry giant Credit Suisse. Montana authorities say that money should rightfully be counted as income on which Blixseth owes taxes.

Blixseth says the Internal Revenue Service ruled years ago that the money was a legitimate loan.

Documents show the withdrawal of Idaho and California from the forced bankruptcy case was a condition of settlement agreements they reached this week with the former billionaire.

The states' attorneys requested the withdrawals be effective with the date of the initial filing of the Nevada petition.

That appeared to be an attempt to undermine Montana's remaining claim since the petition was filed under bankruptcy court rules that say at least three creditors must be part of the petition.

But one of Montana's attorneys in the case, Lynn Butler of Austin, Texas, said he believes the tactic won't hold up in court. And if it does, Butler added, "we can still go out and try to find other creditors. And we will do that, I guarantee you."