Yellowstone Club Bankruptcy Ruling Leaves Credit Suisse, Ginn-LA, Other Developers Exposed

Judge Kirschner continues to set the standard for cases against Credit Suisse and developers who took profit distributions from CS loans, causing their company’s subsequent bankruptcy.

Palm Coast, FL – September 1, 2010 – Montana Judge Marc S. Kirchner’s recent decision in the Yellowstone Club bankruptcy case found that Credit Suisse and club founder Tim Blixseth shared culpability for the club’s spectacular bankruptcy. At the heart of the case was a $375 million syndicated loan arranged by Credit Suisse which allowed Blixseth to receive $209 million from the loan’s proceeds, leaving the club with massive debt and little ability to repay the loan.
The decision sends a strong warning to Credit Suisse and other developers who signed up for similar equity distribution loans. It will bolster current lawsuits against Credit Suisse and Florida-based developer Ginn-LA (Bobby Ginn and financial partner Lubert-Adler) and likely spawn additional suits against other developers.


Credit Suisse began marketing a syndicated "equity recapitalization" loan package that would allow owners of high-end master-planned luxury communities to realize their anticipated profits before actually earning them. Several developers signed up for the product, including Lake Las Vegas, Yellowstone Club, and Ginn. The lenders were not actually Credit Suisse but a syndication of "foreign’ investors. The Yellowstone loan was oversubscribed by 400% as eager investors competed to become participants.
The loan product had two unique features:  
  1. Inflated appraisal values: The value of the target developments was inflated through an appraisal method that did not conform to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). Credit Suisse attempted to circumvent those requirements by issuing the loans through a sham Credit Suisse branch in the Cayman Islands. The loans, however, were marketed by Credit Suisse First Boston. September 21, 2004, Cushman & Wakefield determined that the "as-is-market value" of Yellowstone Club was $420 million. One year later, Cushman & Wakefield used the non-FIRREA-compliant "total net value" method to establish the value of the club at $1,165 million.
  2. Equity distribution directly from loan proceeds: Borrower/owners were encouraged to take equity distributions directly from loan proceeds. Blixseth took $209 million (55.7%) while Ginn-LA distributed nearly half of its $675 million CS loan.


Saddled with massive debt and with no prospects to repay the loan, Yellowstone Club filed for bankruptcy, leaving Credit Suisse as the secured creditor. Usually in such cases, unsecured creditors are simply collateral damage. But Kirschner found otherwise writing the following in his Partial and interim order on May 12, 2009.
"The naked greed in this case combined with Credit Suisse’s complete disregard for the Debtors or any other person or entity who was subordinated to Credit Suisse’s first lien position, shocks the conscience of this Court. While Credit Suisse’s new loan product resulted in enormous fees to Credit Suisse in 2005, it resulted in financial ruin for several residential communities. Credit Suisse lined its pockets on the backs of the unsecured creditors. The only equitable remedy to compensate for Credit Suisse’s overreaching an predatory lending practices in this instance is to subordinate Credit Suisse’s first lien position to…..that of the allowed claims of unsecured creditors."
While that Order was later vacated, the referenced text was reinstated as an inclusion in the present Decision. A June 29, 2009 Order "dismissing all claims brought by or against Credit Suisse in this consolidated Adversary Proceeding.

Current Trial

The Yellowstone Club Liquidating Trust (YCLT) replaced the Committee of Debtors. YCLT represents unsecured creditors as well as Credit Suisse. The current action was an attempt to recover $286.4 million from Blixseth’s breach of fiduciary duties and alleged fraudulent transfers.

Decision Summary

Although Blixseth breached his fiduciary duties and the distribution was fraudulent, only the secured creditors will recover. Credit Suisse and the prepetition lenders (those investors who provided the money for the CS loan) will get nothing. Kirschner writes,
"In this case, Credit Suisse and the Prepetition Lenders are just as culpable as Blixseth." Further, "Blixseth and Credit Suisse have done a lot of finger pointing in this case, but in the end, their conduct prompted Debtors’ bankruptcies. Following Part I of the trial in this matter, the Court was not inclined to enter an order that would benefit the people who took the funds out or the Debtor entities and the Court will not at this time enter an order that would in any way benefit Credit Suisse, the Prepetition Lenders or other parties who have speculated on a monumental award against Blixseth. The parties who suffered compensable damages in this case are the parties who have legitimate claims against the Debtors and who did not participate in the Credit Suisse loan debacle."
"…the Court is not apportioning liability between Blixseth and Credit Suisse. Rather, the Court is precluding Credit Suisse and the Prepetition Lenders from benefitting from their participation in the Yellowstone Club loan. More importantly, the Court is prohibiting Credit Suisse and the Prepetition Lenders from converting a monrexourse loan into a recourse loan through crafty legal negotiations…."
Blixseth will have to pay an estimated $40 million, but avoids judgment on $240 million sought by Credit Suisse.


A finding of fact and matter of law is binding on other lawsuits, I’m told.
Credit Suisse – Credit Suisse was found to have caused the bankruptcy of Yellowstone Club. This determination was made primarily upon the nature of the loans made to Yellowstone Club. The Yellowstone Club loan structure was repeated over and over with nearly a dozen other developers. Kirschner’s decision will weigh heavily on current and future lawsuits, especially those seeking recovery of alleged fraudulently transferred funds on behalf of unsecured creditors. The decision also suggests that Credit Suisse and Prepetition Lenders have little hope of recovering funds from the developers.
Ginn and other developers – Ginn and Lubert-Adler, and by extension, Lubert-Adler investors are at risk of being judged as was Blixseth: breach of fidicary responsibility and fraudulent transfer. On the surface, their distributions are no different. Trustee Drew Dillworth, on behalf of creditors in Ginn’s Quail West/Tesoro bankruptcy has already filed a lawsuit against Ginn, Lubert-Adler and LA investors to recover funds he alleges were transferred fraudulently.
The outcome of two other lawsuits against Ginn (Liles, and Bailey) may also be affected by the outcome of the Yellowstone Club Decision. Another lawsuit against Credit Suisse, Gibson v. Credit Suisse, seeks treble damages for Credit Suisse’s tortious interference with the developers contractual obligations to property owners. Kirschner’s decision will likely help plaintiffs on that case.

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4 replies
  1. John
    John says:

    Who wins?

    If a trial is won against Ginn/LA, Credit Suisse, LA’s investors, etc. Would that provide relief for some off the property owners that were duped into buying? Would it just go to the club and pay off the vendors? Who would actually win?

  2. John
    John says:

    Re: Toby

    Toby, thanks for the response. That is such a tough pill for the property owners to swallow. Only the people who had a claim at the time of BK will be paid back meanwhile all of the people that got sold a bill of goods continue to get taken to the cleaners. All the remaining money can continue to be spent on NASCAR teams, mansions, yachts, etc.

    What an amazing system we live in.

  3. Toby
    Toby says:

    Reply to John

    John, I’m not a lawyer, but here is my opinion.

    The Montana case found that Credit Suisse shared the blame for the Yellowstone Club bankruptcy. They have ”unclean hands,” meaning that they were unable to receive a share of the any recovery from Blixseth.

    The current lawsuit against Ginn and Lubert-Adler is brought by the Tesoro – Quail West bankruptcy trustee on behalf of creditors. Presumably, Credit Suisse is included as a creditor but based on the Montana case will likely be excluded from receiving any recovered funds.

    Based on the Montana outcome, Dillworth will prevail. The amount recovered cannot exceed the remaining creditors’ claims. Creditors are limited to those with valid claims at the time the bankruptcy was filed. This list presumably includes some property owners. No other claims well be paid through this lawsuit. Like Blixseth, Ginn and LA will get to keep the rest of the ”fraudulent distribution,” at least for a while.

    Additional lawsuits against the defendants will be easier to prosecute since the culpability of Ginn, LA, and Credit Suisse will have been established in the Dillworth and Montana cases. I assume there is a possibility of criminal investigations as well.

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