Yellowstone Club Bankruptcy Reorganization Overturned

Part of Yellowstone Club’s bankruptcy reorganization was overturned by a judge because the ski resort for millionaires settled a lawsuit against Credit Suisse Group AG without giving creditors a chance to object.

In an order issued yesterday, U.S. District Judge Sam E. Haddon in Butte, Montana, invalidated the settlement and sent it back to a bankruptcy judge for reconsideration. That settlement ended court battles among Credit Suisse, lower-ranking creditors and CrossHarbor Capital Partners LLC, the Boston-based private-equity firm that bought the resort out of bankruptcy.

Attorneys on both sides of the appeal disagreed about what the ruling will mean for Credit Suisse and the other creditors and investors involved in the bankruptcy case.

“They are between a rock and a hard place,” Michael J. Flynn, a lawyer for the club’s former owner, said today in a phone interview, referring to Credit Suisse. Flynn said the ruling means the bank can be sued by his client, Yellowstone co-founder Tim Blixseth, and noteholders who lost money on their investment in the club.

Yellowstone Club is a private ski resort in Montana whose members included Chairman Bill Gates and hotelier Barry Sternlicht, along with financiers and hedge-fund managers, according to court records.

$375 Million Loan

Blixseth, 60, and his former wife, Edra Blixseth, founded the resort in 2000, with members paying $205 million for 72 properties in 2005 alone. The couple took cash for their personal use from a $375 million loan arranged by Credit Suisse in 2005, according to a court ruling by U.S. Bankruptcy Judge Ralph Kirscher. Finances at the club deteriorated thereafter, Kirscher wrote.

The club sought protection from creditors in November 2008 as real estate sales slowed.

Under the terms of the settlement with Credit Suisse, the bank was given legal immunity for any actions it took related to the bankruptcy. Duncan King, a Credit Suisse spokesman, declined to comment.

The bank wasn’t a party to the appeal, which was filed by Blixseth.

Andy Patten, a lawyer for the club, said the legal errors related to the approval of the reorganization plan are limited and shouldn’t affect the ownership of the resort or its creditors.

The ruling “overturns the settlement with Credit Suisse purely on procedural grounds, which can be easily rectified,” Patten said in a phone interview.

Trust Target

Tim Blixseth became a target of a trust set up for Yellowstone’s creditors under the reorganization plan.

He was ordered to pay $40 million to the club’s creditors under a September ruling by Kirscher. That judgment should be vacated, Flynn said.

“We’re taking the position that anything to do with the liquidating trust is now moot and null and void,” Blixseth said in an interview.

The ruling salvages his reputation, he said.

“For the last two years of my life, I have endured attacks on me in business and personally for a bankruptcy that now has been overturned,” Blixseth said.

“Now they have to put the toothpaste back in the tube.”

The case is In re Yellowstone Mountain Club LLC, 08-61570, U.S. Bankruptcy Court, District of Montana (Butte).

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