Ex-billionaire takes on Montana tax authorities

AP News
Posted: May 19, 2011 8:29 PM
Ex-billionaire takes on Montana tax authorities

After beating Montana authorities in a $57 million tax dispute, former billionaire Tim Blixseth is going on the offensive against officials and business adversaries he says conspired to force him into bankruptcy.

The founder of the ultra-posh Yellowstone Club on Thursday said his attorneys intend to depose Montana Gov. Brian Schweitzer and others in pursuit of sanctions in the case.

A federal judge in Las Vegas threw out Montana's forced bankruptcy petition against Blixseth on Wednesday, saying it was not filed in the proper venue. A September trial is scheduled for sanctions sought against the state and its attorneys.

The petition could have forced Blixseth to liquidate his assets if it had been successful.

"The state of Montana, the Montana Department of Revenue and their partners were in cahoots," Blixseth said in a Thursday interview. "It's completely and absolutely provable, and we will be bringing all the facts out shortly."

Blixseth said that the petition was nothing more than a "desperate move" to derail pending litigation related to the Yellowstone Club's 2008 bankruptcy and a separate lawsuit Blixseth is pursuing against Credit Suisse. The latter case involves a $375 million loan the banking industry giant made to the club in 2005.

Montana Department of Revenue's attorney in the case, Lynn Butler said the move for sanctions would be fought "tooth and nail." He characterized Wednesday's ruling from U.S. Bankruptcy Judge Bruce Markell as a narrow one that did not directly address the state's legitimate tax claims.

"Those issues are still alive, and once we see the order entered, we probably have an idea of what we're going to do next," said Butler, a bankruptcy attorney based in Austin, Texas.

Schweitzer spokeswoman Sarah Elliot said the governor had no involvement in the bankruptcy petition because of tax confidentiality laws. Elliot did not directly address whether the governor would willingly submit to a deposition.

"The Department of Revenue pursued this matter independently of any other part of Montana government," she said. "Any theories or suggestions to the contrary have no factual basis."

Under federal bankruptcy law, sanctions against the state could include a monetary award. Blixseth attorney Mike Flynn said those could total hundreds of thousands of dollars and entail damages from the wide publicity the case has received case.

The 60-year-old Blixseth is a resident of Washington state.

Last month, he paid $1.9 million in back taxes to California and Idaho to get them to withdraw as co-plaintiffs with Montana in the forced bankruptcy petition. As a condition of those settlements, Blixseth agreed not to seek sanctions against authorities in the two states.

Montana authorities led the petition against Blixseth, going after him in Nevada because he put most of his assets into a family trust registered in that state several years ago.

Forbes once pegged Tim Blixseth's net worth at $1.3 billion. Court documents recently put the figure at roughly $230 million.

He 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.

There's also an outstanding case against Blixseth before the Montana State Tax Appeals Board. That litigation was put on hold after the federal case was filed.

Authorities and creditors claimed he drained hundreds of millions of dollars from the Yellowstone Club, leading to its bankruptcy. The club has since emerged from bankruptcy under new owners.

Most of the money that Blixseth took out of the private ski and golf resort near Big Sky came through the 2005 Credit Suisse loan.

The money bankrolled a lavish lifestyle for Blixseth and his ex-wife, Edra Blixseth, that included a fleet of cars, two luxury jets, millions of dollars in jewelry and furniture and estates in France, Mexico, California, Scotland and elsewhere.

Montana authorities contended the money should have been counted as income on which Tim Blixseth owed taxes. The states' claims spanned a five-year period, 2002 to 2006, and included more than $36 million in taxes and almost $21 million in penalties and interest.

Tim Blixseth has said the Internal Revenue Service ruled years ago that the Credit Suisse money was a legitimate loan to the club. And he contends that any liabilities against the club became the responsibility of Edra Blixseth, when she took control of the resort as part of the couple's 2008 divorce.

Edra Blixseth later went into personal bankruptcy. Her case was discharged earlier this year after most of her assets had been sold off under court order.

After the bankruptcy petition was filed on April 4, Tim Blixseth alleged it had been engineered by state authorities, including Schweitzer, in collusion with Credit Suisse and the club's new owners, CrossHarbor Capital Partners, of Boston.

CrossHarbor attorney Paul Moore on Thursday dismissed the claim.

"As Mr. Blixseth and his counsel well know, and as representative of the Montana Department of Revenue testified under oath, CrossHarbor had nothing whatsoever to do with the filing of the involuntary petition," Moore said. "This is yet another of their baseless allegations against CrossHarbor and others."