Former billionaire suing Montana over forced bankruptcy

By AMY BETH HANSON

Associated Press

HELENA, Mont. — A former billionaire has filed a lawsuit against Montana's Department of Revenue seeking hundreds of millions of dollars in damages along with attorneys fees after a federal judge ruled the state wrongfully tried to force him into bankruptcy to collect taxes the state said he owed.

The department's communications director, Jason Slead, said Thursday that agency attorneys were aware of Tim Blixseth's complaint but had not seen it and had no comment.

Blixseth and his third wife, Edra, founded the exclusive Yellowstone Club resort near Big Sky in the late 1990s. The private ski hill and golf course in the mountains near Yellowstone National Park attracts celebrities and other wealthy members.

The club spiraled into bankruptcy in 2008 following the couple's divorce. That launched a legal saga that pitted Blixseth against the club’s creditors, Montana tax authorities and banking giant Credit Suisse, which had loaned the club $375 million it was unable to fully repay.

Much of the 2005 loan went to Blixseth, who used it to bankroll a jet-setting lifestyle he said was part of efforts to create an international luxury vacation club modeled after his Montana resort, which eventually emerged from bankruptcy in 2009 under a new owner.

In 2006, Blixseth purchased the Tamarindo Resort in Mexico for $40 million and a residence on a private island in Turks and Caicos for $28 million, his complaint states, in listing the financial losses he suffered by having to sell the properties to pay his legal fees.

Blixseth consistently denied wrongdoing despite a string of court rulings that found he fraudulently transferred the loan to enrich himself.

The Yellowstone Club's creditors suspected Blixseth had hidden assets. They spent years pursuing him, but collected only a small fraction of the $286 million they once sought. Federal courts had issued judgements against Blixseth totaling $525 million.

The club's creditors settled for $3 million in 2018. Oregon real estate developer Martin Kehoe made the payment in exchange for Blixseth transferring to Kehoe the right to the proceeds of his planned lawsuit against Montana’s Department of Revenue. Blixseth has since repaid Kehoe, Blixseth's attorney John Doubek said Thursday, but he declined to say how.

In June, a U.S. Bankruptcy Court judge in Nevada upheld lower court rulings that said the state of Montana did not have the legal standing to file its involuntary bankruptcy petition against Blixseth in 2011. Montana was seeking to collect about $219,000 in taxes, but also hoped to use the bankruptcy filing to force payment of another $56 million in taxes that Blixseth had contested, then-Revenue Director Dan Bucks said in 2011.

Under federal law, involuntary bankruptcies can be pursued to collect debts if at least three entities file the petition and the amounts owed are not in dispute. California and Idaho initially joined the petition, but settled with Blixseth about two weeks after the case was filed.

Montana refused to settle, Blixseth's attorneys have said.

Blixseth argued the amounts owed were in dispute, noting that California and Idaho settled for reduced payments, and that he was still disputing the amount Montana was seeking in hearings before the State Tax Appeal Board when the petition was filed.

The lawsuit Blixseth filed on Dec. 23 in U.S. Bankruptcy Court in Nevada, and first reported by the Independent Record, seeks a jury trial and argues for $300 million in damages from Montana because he was forced to sell resorts and other properties, including an airplane and a yacht, at financial losses to fund his legal battles. He's also seeking $500 million in damages for lost financial opportunities, Doubek said.

His attorney fees over the involuntary bankruptcy total about $10 million, Doubek said. The ongoing legal battle also harmed Blixseth's personal and professional reputation and his health, led him to being jailed and harmed his philanthropic efforts, the complaint states.

Blixseth was jailed for 14 months, starting in 2015, for violating a bankruptcy judge's order not to sell the Tamarindo Resort, and then refusing to say what he did with the $13.8 million in proceeds. A federal appeals court eventually ordered his release.

Blixseth is also seeking punitive damages and sanctions against the state.

AP reporter Matthew Brown in Billings, Montana, contributed to this story.