MISSOULA – An attorney who led negotiations on a $375 million loan to the Yellowstone Club says the transaction was legal — refuting claims that the club should not be held liable for the transaction.
The legality of the loan, arranged through Credit Suisse, is at the center of a federal trial linked to the Chapter 11 bankruptcy of the club, a posh mountain resort for the rich.
Members of the private ski resort saw $88 million vanish when the club declared bankruptcy in November.
The club’s members and creditors want the loan voided so the money does not have to be paid back to Credit Suisse. But attorney Michael Doyle, who worked for the club’s former owner, testified Thursday that the transaction was legal under Montana law.
Most of the loan was later moved into private accounts for Edra and Tim Blixseth, the club’s divorced founders. Edra Blixseth owns the bankrupt club now, but Tim was in control when the loan was made in September 2005.
Edra and a committee of the club’s creditors contend the loan was fraudulent, while Tim argues his wife engineered the bankruptcy to lower the price for a sale.
Doyle also testified that the chairman of the creditors’ committee filing the suit over the loan approved its legality, including the transfer of money to Blixseth, in his role as lawyer for the club in 2005.
But Stephen Brown, the creditors’ chairman, rejected those claims when he took the stand later in the afternoon.
Brown said he was never “expressly” asked to consider whether the loan was fraudulent in an opinion letter he wrote, and that he would not have been qualified to make such a determination.
Brown represented Blixseth in past court cases filed by shareholders and in the 2008 divorce settlement that led to Edra’s control of the club.
Mike Flynn, attorney for Tim Blixseth, aggressively grilled Brown Thursday about his legal work for Tim and the club, forcing the judge to intervene and call for a less hostile approach.
Flynn is arguing that attorney-client privilege, between Brown and Tim, should prohibit Brown from working with the creditors on their suit.
“It’s an obvious conflict of interest, obvious compromise and obvious taint on the trial,” said Flynn, who is pushing the judge to force the creditors’ attorneys to hand over copies of their private communications with Brown.
Brown testified that he is no longer a lawyer for Tim Blixseth and that he filed papers to formally withdraw from that position on April 14.
“For all intensive purposes, I’m just a committee member like anybody else, with some organizational duties that not every else may have,” Brown said.
Bankruptcy Judge Ralph Kirscher said he is unlikely to order that all of Brown’s communications with the creditors’ attorneys be released.
“We can’t just bring this to a halt,” Kirscher said. “I’m not going to allow it over a request like this.”
After the loan in question was made to the Yellowstone Club, $209 million was transferred to BGI, a holding company that was at the time owned by Tim Blixseth but now belongs to his wife. Then $190 million of that was moved into Blixseth’s personal accounts.
At least $27 million of it was used to immediately payoff existing debts on luxury jets and estates, including Porcupine Creek, a huge estate near Palm Springs, Calif., with a 30,000-square-foot house and a private championship golf course.
Most of the rest was put into certificate deposits with three- and six-month notes.
On a side note, Judge Kirscher banned Twittering in his courtroom, saying it could give witnesses access to evidence they should not know about.
The order follows his discovery on Wednesday that New West reporter Jonathan Weber was twittering — sending brief text messages from the courtroom — about trial proceedings.