Tim Blixseth arrives at the federal courthouse in Missoula, Mont., on Thursday, April 30, 2009 as part of bankruptcy proceedings related to The Yellowstone Club.
Part Two of the dismissed involuntary bankruptcy case against developer Tim Blixseth is under way in Las Vegas – and it looks to be contentious.
Blixseth, known for founding the luxury Yellowstone Mountain Club development in 1999 in Big Sky, Mont., was hit in Las Vegas April 5 with an involuntary bankruptcy petition by state tax authorities in Montana, Idaho and California.
The case seeking to recover $2.3 million in taxes was filed in Nevada because Blixseth had transferred his assets to a Nevada holding company he had formed.
At one point, Blixseth was reported to be worth $1.3 billion, but has likely seen his net worth decline because of the tangled bankruptcy of the Yellowstone Club and his 2008 divorce from then-wife Edra Blixseth.
U.S. Bankruptcy Judge Bruce Markell in Las Vegas dismissed the bankruptcy petition May 18 for improper venue after Blixseth settled with California and Idaho and his attorneys argued Montana’s petition was improper.
They said it was improper since it involved tax claims that were disputed and because Blixseth and his Nevada company had no tangible assets in Nevada.
Blixseth has said the principal assets of his Nevada company are real estate holdings in Idaho, Washington, California, Mexico and the nation of Turks & Caicos.
In a court declaration, Blixseth said he lives in Medina, Wash., in the Seattle area, and conducts no business in Nevada and has no home, property or assets in Nevada.
With the bankruptcy petition dismissed, attorneys for Blixseth this week filed motions to recover from the Montana Department of Revenue $814,000 in legal fees and costs he’s incurred so far fighting the involuntary petition.
These fees are likely to escalate as Blixseth’s legal team includes one of the top – and most expensive – bankruptcy attorneys in Las Vegas, Brett Axelrod, managing partner of the Las Vegas office of the law firm Fox Rothschild LLP.
The $814,000 includes work by nine Fox Rothschild attorneys and three paralegals/research assistants at a blended hourly rate of $464.40. It also includes a $250,000 ``success fee’’ Blixseth agreed to pay to Fox Rothschild should the judge rule in his favor on May 18. Blixseth won that ruling and made that payment, records show.
Blixseth’s attorneys also are seeking punitive damages against the Montana Department of Revenue based on what they call the agency’s lack of a good faith basis to believe that the involuntary petition satisfied the requirements of federal law.
``Mr. Blixseth will ask the court to donate any award of punitive damages, or will himself donate any punitive damages he is awarded, to an organization providing legal defense for indigent persons, such as Legal Aid Center of Southern Nevada, the Constitutional Rights Foundation, or Bet Tzedek (which provides free legal assistance),’’ his attorneys wrote in their filing.
Blixseth also is seeking sanctions against the Montana Department of Revenue, its director, Dan Bucks; agency attorneys Lynn Butler and Keith Jones; the agency’s lead law firm in the case Brown McCarroll LLP of Austin, Texas; and the agency’s local Las Vegas law firm, Lionel Sawyer & Collins, which is one of the largest and most influential law firms in Nevada.
These motions for costs, punitive damages and sanctions will likely be contested, the Montana agency’s lead attorney said Friday.
Butler, of the Brown McCarroll law firm, said the Montana tax agency also is considering an appeal of Markell’s ruling dismissing the involuntary bankruptcy petition.
``There are some appealable grounds,’’ he said.
An appeal would make the motions for costs, damages and sanctions moot for now, he said.
If there is no appeal, Butler said the Montana Department of Revenue will likely specifically challenge the $250,000 ``success fee’’ paid by Blixseth to Fox Rothschild, as he said the bankruptcy code only allows for the recovery of reasonable expenses and this doesn’t appear to be reasonable.
``I’ve never seen anything like that,’’ he said.
Regardless of whether there’s an appeal, the legal wrangling is just beginning.
The Montana tax agency and its attorneys may have the opportunity to take the deposition of Blixseth – and both sides will be conducting discovery -- in preparation for a two-day hearing set to begin Sept. 1 in Las Vegas on Blixseth’s motions for damages and sanctions.
One of the issues will be contentions by Blixseth that the involuntary petition was filed in bad faith by the Montana agency for a $219,000 tax claim that Blixseth says is part of a much larger $56 million tax dispute with the state – and that the state hoped to pressure him into settling the larger claim with the involuntary filing.
Blixseth also believes the bankrupt Yellowstone Club’s liquidating trustee worked with the Montana Department of Revenue to have the involuntary bankruptcy petition filed against him to gain a litigation advantage against him in the Yellowstone Club case.
Blixseth, who for the past few years has been mired in litigation tied to the Yellowstone Club bankruptcy, issued a statement Thursday about his plan to donate any punitive damages to an organization assisting people needing legal help.
"I grew up on welfare in Roseburg, Ore., and remember how impossible it was for my parents to afford legal aid when they and our neighbors were the victims of a financial scam," Blixseth said in the statement. "I have never forgotten how my mom stood up for all of us, even though she had no money. All she had was justice on her side. In her honor, I am pledging to donate any and all punitive damages awarded in my case to legal aid organizations in Nevada. Hopefully those funds will help defend people like my family when I was growing up.
"The Montana Department of Revenue tried to use a forced bankruptcy to gain a litigation advantage over me. It was a crude bullying attempt, and nothing more," Blixseth said. "Now, hopefully something good will come out of their conduct and we will be able to donate some much-needed funds to legal aid organizations in Nevada."