Blixseth v. ByrneBlixseth v. Byrne
MEMORANDUM AND ORDER ON DEFENDANTS’ MOTION TO DISMISS
This case is one of many involving the bankruptcy estate of the Yellowstone Club, a luxury property development near Big Sky, Montana, and its founders, Timothy Blixseth and Edra Blixseth, long since divorced. In this iteration, Timothy Blixseth alleges that defendants CrossHarbor Capital Partners, LLC, CIP Yellowstone Lending, and Samuel Byrne (CrossHarbor’s founder and managing partner) conspired with Edra Blixseth to ruin him financially. Defendants move to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), for want of a claim worthy of adjudicаtion.
BACKGROUND
The saga of this case is too involuted to warrant an attempt to improve on the rendering offered by Bankruptcy Judge Ralph Kirscher in Blixseth v. Kirschner (In re Yellowstone Mountain Club, LLC),
Timothy Blixseth,
The rеlationship between Blixseth and the defendants began almost immediately to sour. Blixseth blames the deterioration on a Byzantine conspiracy between Edra and Byrne to steal his interest in the Club in the Blixseths’ then-pending divorce proceeding. The conspiracy is alleged to have unfolded as follows. On March 21, 2008, Edra dispatched an unnamed agent to Boston to meet with Byrne. Five days later, on March 26, 2008, Byrne and Cross-Harbor terminated the asset purсhase agreement. To cast an aura of legitimacy on the termination, Byrne and Edra disseminated letters falsely naming Blixseth as the target of a grand jury investigation.
Blixseth and Edra reached a marital settlement agreement (MSA) on June 26, 2008. As part of the MSA, Edra released Blixseth from any liability for the numerous debts incurred by the business entities that were transferred to Edra, including those of the Club. The MSA also required Edra to make a multi-million dollar cash payment to Blixseth. On August 7, 2008, Edra took two bridge loans totaling $35 million from CIP Yellowstone Lending (a CrossHarbor subsidiary) and agreed that defendants would collaborate with her on development efforts at the Club.
According to Blixseth, these transactions gave CrossHarbor “total management and ownership control over the Yellowstone Club and Edra personally, to the extent that Byrne expressly prevented Edra from complying with provisions of the MSA.” Am. Compl. ¶ 69. Blixseth contends that Byrne knew that Edra could never repay the loans, and when she inevitably defaulted, forced her to put the Club into bankruptcy. The plot came to fruition when CrossHarbor purchased the Club in the bankruptcy proceedings at a fire sale price.
Blixseth filed this action in the Central District of California in April of 2010, asserting ten state-law claims. That court ordered the case transferred to the District of Massachusetts in November of 2010. After the filing of the defendants’
DISCUSSION
Defendants first argue that Blixseth’s claims are barred by the doctrine of issue preclusion (more commonly known as collateral estoppel). Specifically, they point out that in the bankruptcy proceeding, Blixseth claimed “that Edra, in the period of time between mid-August of 2008 and November 10, 2008, concocted a scheme with Byrne to drive the [Club] into bankruptcy so that Byrne could purchase the [Club] at a deep discount.” In re Yellowstone Mtn. Club,
As the parties recognize, with respect to issue preclusion, federal law applies. See Monarch Life Ins. Co. v. Ropes & Gray,
The dispositive issue here is whether the issues litigated in the Montana proceeding are, for all practical purposes, identical to those asserted in his Complаint. To be sure, Blixseth recycles many of the “facts” that he used to buttress his conspiracy theory in the bankruptcy proceeding. See, e.g., Am. Compl. ¶ 43 (“[Beginning in March 2008, Byrne and Edra created a scheme whereby Edra would insist on obtaining the Yellowstone Club from Mr. Blixseth as a condition of a marital settlement between them, and Byrne would arrange whatever financing would be needed to effectuate the Marital Settlement Agreement for Edra.”). But
The bankruptcy proceeding culminated in three conclusions of import to the issues at hand. First, the Bankruptcy Court found that Blixseth had engaged in a series оf fraudulent transfers, including the siphoning of over $200 million from the Club for his personal use. In re Yellowstone Mtn. Club,
To the extent that Blixseth’s claims in the present action rest on Edra’s purported failure to abide by the releases declared fraudulent in the bankruptcy action, they are clearly barred. But Blixseth’s present claims go beyond reliance on the releases by asserting the following: (1) that defendants aided and abetted Edra’s breach of her fiduciary duty to Blixseth arising from the divorce proceeding; (2) that defendants interfered with Blixseth’s contractual relations or prospective business relations arising from the MSA; and (3) that defendants breached fiduciary duties of disclosure to Blixseth regarding their dealings with Edra concerning the Club. These issues were not adjudicated in the bankruptcy proceeding, which focused on Blixseth’s personal culpability for the Club’s bankruptcy. The fact that the bankruptcy was not precipitated by a conspiracy among Edra and the defendants does not compel the conclusion that Edra and the defendants owed no duties to Blixseth.
The dispute, however, is ultimately one of limited aсademic interest. Blixseth’s Complaint is a hodgepodge of conspiratorial imaginings, conclusory and contradictory assertions of fact, and overheated rhetoric. To cross the plausibility threshold to defeat a motion to dismiss, a complaint must “plead[] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal,
Boiled down to its core, Blixseth’s Complaint relies on his efforts to portray Byrne as a master puppeteer orchestrating the actions of his puppet Edra. The faint outlines of this portrait come nowhere clearer in focus than in Count II, in which Blixseth contends that defendants breached a fiduciary duty thеy owed directly to him. In support of this contention, Blixseth argues that “[a]s a result of Byrne’s total control over Edra’s ability to pay her bills and meet her obligations,” a fiduciary duty arose “to Edra’s creditors, including Plaintiff.” Am. Compl. ¶ 113. The law, however, does not impose a fiduciary
A limited exception arises where a lender exercises unqualified control over a borrower. See FAMM Steel, Inc. v. Sovereign Bank,
The same is true of Blixseth’s claim that defendants exercised a degree of control sufficient to invoke the related “instrumentality” doctrine. Under this dоctrine, a lender may be liable for the debts of a borrower where “the lender exerts such a degree of control over the borrower that the borrower becomes a mere business conduit for the lender.” FAMM Steel,
Blixseth next attempts to hold defendants liable for Edra’s alleged breaches of duty by claiming that she effectively formed a de facto joint venture or partnership with defendants. See Cal. Corp. Code § 16306(a) (partners are liable for partnership debts); Orosco v. Sun-Diamond Corp.,
Because Blixseth cannot attribute Edra’s actions to defendants on the basis of any of his legal theories, several other counts of his Complaint collapse under the same load: to wit, Count V claims a fraud by the defendants based on asserted violations of an alleged fiduciary duty of disclosure. See Am. Compl. ¶¶ 128, 182. Similarly, Count I alleges that the defendants aided and аbetted Edra’s breach of her fiduciary duty to Blixseth arising from the divorce proceedings. Even assuming that the duty Blixseth invokes exists,
In a similar vein, Count III alleges that defendants intentionally interfered with Blixseth’s contractual relations stemming from the MSA by “specifically prohibiting” Edra from “making all of the payments called for in the [MSA].” Am. Compl. ¶ 119. But there is simply nothing alleged that would permit a detеrmination that Byrne prevented Edra from doing anything. See Pac. Gas & Elec. Co. v. Bear Stearns & Co.,
Count IV’s allegation of an intentional interference with Blixseth’s prospective business relations is equally hopeless. To establish the tort, a plaintiff must show, inter alia, that some actual relationship or expectancy rested with a third party, and that the defendant took some improper action to interfere with that relationship. See Edwards v. Arthur Andersen LLP,
Blixseth’s equitable claims are also easily dispatched. Count VII asserts a claim of unjust enrichment against defendants based on their “control” of Edra and their acquisition of the Yellowstone Club at an unfairly discounted price. Unjust enrichment, however, is an equitable recourse that is denied to a plaintiff like Blixseth whose fraudulent conduct and fiduciary breaches were the moving force in the Club’s near-death downward spiral. See Mass. Eye & Ear Infirmary v. QLT Phototherapeutics, Inc.,
Count VIII seeks equitable indemnification. Equitable indemnification attaches when parties share liability for a tort, see Stop Loss Ins. Brokers, Inc. v. Brown & Poland Med. Grp.,
That leaves only Count VI, which alleges that defendants defamed Blixseth by disseminating false grand jury target letters. Blixseth bases this claim on California law, which, as defendants note, imposes a one-year statute of limitations оn defamation actions. See Cal. Civ. Proc. Code § 340(c). An affirmative defense like the statute of limitations may, as a rule, only be raised by way of a motion to dismiss when the facts supporting the defense are apparent from the face of the pleadings. See Trans-Spec Truck Serv., Inc. v. Caterpillar Inc.,
Although this approach is appealing, Blixseth’s own pleadings, despite their crafted dodginess, exclude the possibility that the alleged defamatory publication took place in the year prior to the filing of the Complaint. Blixseth brought suit on April 23, 2010. The Complaint alleges that the defamatory letters were generated “[a]t the same time” as Blixseth and CrossHarbor were finalizing the failed agreement to purchase the Club in March of 2008, and that the letters were fabricated to “undermine [Blixseth’s] ability to close the sale,” as well as to diminish his support among Club members, thus clearing the way for his ultimate ouster by Edra and Byrne. Am. Compl. ¶ 47. Although the Complaint states that the letters were given to a Wall Street Journal reporter “[a]t times presently unknown,” id., it also alleges that “upon receipt of the false ‘Grand Jury Target Letters’ ... the Defendants disseminated copies of those false letters to third parties, including The Wall Street Journal.” Am. Compl. ¶ 137. The only sensible chronology to be wrung from these allegations dates the dissemination of the letters to March of 2008, prior to CrossHarbor’s termination of the purchase and sale agreement, or at thе latest in mid-August of 2008, when ownership of the Club was transferred by the MSA from Blixseth to Edra.
Blixseth attempts a final “Hail Mary,” citing the rule that every act of publication gives rise to a separate cause of action for defamation. Shively v. Bozanich,
Finally, Counts IX and X fail as purely derivative сlaims. Count IX asserts a claim for civil conspiracy. Civil conspiracy is not a generic cause of action, but must be based on a concerted effort by defendants to commit an underlying tort directed at a plaintiff. See Applied Equip. Corp. v. Litton Saudi Arabia Ltd.,
ORDER
For the foregoing reasons, defendants’ motion to dismiss is ALLOWED. The Clerk is directed to close the case.
SO ORDERED.
Notes
.The story did not end in 2010, but continues today as Blixseth and his creditors continue to battle over the disposition of his remaining assets, if any. See http://www.wsj.com/articles/ ex-real-estate-mogul-timothy-blixseth-ordered-to-pay-286-million-1475177977 (last visited Oct. 11, 2016). The Club, on the other hand, has survived hard times and is by all accounts prospering. See http://dealbook.njitimеs.com/ 2014/12/31/huge-ski-resort-for-the-rich-is-bouncing-back/?_r=0 (last visited Oct. 11, 2016).
. For ease of exposition, throughout the remainder of this opinion, "Blixseth” will refer to plaintiff Timothy Blixseth, while "Edra” will denote his ex-wife, Edra Blixseth.
. According to Judge Kirscher, the sale fell through when Byrne realized that Blixseth could not bring enough money to the closing to satisfy the Club’s current liabilities. In re Yellowstone Mtn. Club, 436 B.R.at 631.
. This echoed a conclusion reached by Judge ■ Kirscher two years earlier. See In re Yellowstone Mtn. Club,
. All of these conclusions were subsequently affirmed, first by the district court, see Blixseth v. Glasser (In re Yellowstone Mtn. Club, LLC),
. The parties engage in a running skirmish about whether California or Massachusetts law applies to many of the counts in the Complaint. Rather than engage in a choice-of-law analysis for claims doomed to fail regardless of which state's law is applied, the court will provide parallel citations, as necessary, throughout this opinion.
. Even if there were adequate allegations of control, the instrumentality doctrine would not result in a breach of fiduciary duty to Blixseth. The doctrine addresses liability for a ■ debtor corporation’s debts and does not create fiduciary duties. See FAMM Steel,
. Under California law, the parties to a divorce proceeding owe a fiduciary duty to one another with respect to community property "until such time as the assets and liabilities have been divided by the parties or by a court.” Cal. Fam. Code § 1100(e). It appears from Blixseth's Complaint that the MSA was approved by the California state court on July 3, 2008. Blixseth, however, asserts that the MSA did not become final until August 13, 2008, and that Edra’s fiduciary duties continued to that point. Because the MSA is not part of thе record, the court is unable to make a definitive determination about the duration of Edra's duties.
. In his opposition to the motion to dismiss, Blixseth argues that he had a prospective economic relationship with Edra attributable to the MSA releases and his "continuing participation in the Yellowstone Club.” Opp’n at 21. The releases, however, were determined to be fraudulent in the Montana bankruptcy proceeding, and cannot form thе basis of a legitimate expectancy. See In re Yellowstone Mtn. Club,
. Massachusetts will entertain a cause of action for civil conspiracy despite the absence of an underlying tort where a combination of defendants exercises a unique coercive power over a plaintiff. See Kurker,