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Equitable Subordination and Recharacterization: Looming Threats in Bankruptcy Strategies for Lenders Creditors and Private Equity Sponsors to Avoid presents Strategies for Lenders, Creditors and Private Equity Sponsors to Avoid Claim Loss and Maintain Preference Status presents A Live 90-Minute Teleconference/Webinar with Interactive Q&A Today's panel features: Ronald A. Landen, Senior Associate, Weil Gotshal & Manges, Boston J. Thomas Beckett, Shareholder, Parsons Behle & Latimer, Salt Lake City, Utah Tuesday, April 13, 2010 The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific CLICK ON EACH FILE IN THE LEFT HAND COLUMN TO SEE INDIVIDUAL PRESENTATIONS. You can access the audio portion of the conference on the telephone or by using your computer's speakers. Please refer to the dial in/ log in instructions emailed to registrations. If no column is present: click Bookmarks or Pages on the left side of the window. If no icons are present: Click V iew, select N avigational Panels, and chose either Bookmarks or Pages. If you need assistance or to register for the audio portion, please call Strafford customer service at 800-926-7926 ext. 10

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Page 1: Equitable Subordination and Recharacterization: Looming ...media.straffordpub.com/products/equitable... · 13/04/2010  · Equitable Subordination and Recharacterization: Looming

Equitable Subordination and Recharacterization: Looming Threats in Bankruptcy

Strategies for Lenders Creditors and Private Equity Sponsors to Avoidpresents Strategies for Lenders, Creditors and Private Equity Sponsors to Avoid Claim Loss and Maintain Preference Status

presents

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Today's panel features:Ronald A. Landen, Senior Associate, Weil Gotshal & Manges, Boston

J. Thomas Beckett, Shareholder, Parsons Behle & Latimer, Salt Lake City, Utah

Tuesday, April 13, 2010

The conference begins at:1 pm Easternp12 pm Central

11 am Mountain10 am Pacific

CLICK ON EACH FILE IN THE LEFT HAND COLUMN TO SEE INDIVIDUAL PRESENTATIONS.

You can access the audio portion of the conference on the telephone or by using your computer's speakers.Please refer to the dial in/ log in instructions emailed to registrations.

If no column is present: click Bookmarks or Pages on the left side of the window.

If no icons are present: Click View, select Navigational Panels, and chose either Bookmarks or Pages.

If you need assistance or to register for the audio portion, please call Strafford customer service at 800-926-7926 ext. 10

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CHARLES W. HINGLE (#1947)SHANE P. COLEMAN (#3417)HOLLAND & HART LLP401 NORTH 31st STREET, SUITE 1500BILLINGS, MONTANA 59101(406) 252-2166 (PHONE)(406) 252-1669 (FAX)[email protected] (EMAIL)[email protected] (EMAIL)

MARK S. CHEHI SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLPONE RODNEY SQUAREP.O. BOX 636WILMINGTON, DELAWARE 19899(302) 651-3000 (PHONE)[email protected] (EMAIL)Admitted Pro Hac Vice

ATTORNEYS FOR PLAINTIFF, CREDIT SUISSEAdditional Counsel listed on signature page

IN THE UNITED STATES BANKRUPTCY COURTFOR THE DISTRICT OF MONTANA

In re:

YELLOWSTONE MOUNTAIN CLUB, LLC, et al.,

Debtors.

Case No. 08-61570-11-RBK

Jointly Administered with 08-61571, 08-61572, and 08-61573

Chapter 11

CREDIT SUISSE, CAYMAN ISLANDS BRANCH,

Plaintiff,

vs.

OFFICIAL COMMITTEE OF UNSECURED CREDITORS, YELLOWSTONE MOUNTAIN CLUB, LLC, YELLOWSTONE DEVELOPMENT, LLC, BIG SKY RIDGE, LLC, and YELLOWSTONE CLUB CONSTRUCTION COMPANY, LLC,

Defendants.

Adversary No. _______

COMPLAINT

(DECLARATORY JUDGMENT)

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Credit Suisse, Cayman Islands Branch on behalf of itself and as agent for the

Prepetition Lenders (as defined below) ("Credit Suisse), by and through its undersigned counsel,

herein states its causes of action and claims for relief against The Official Committee of

Unsecured Creditors (the "Committee"), Yellowstone Mountain Club, LLC ("YMC"), and its

debtor affiliates, Yellowstone Development, LLC ("YD"), Big Sky Ridge, LLC ("BSR") and

Yellowstone Club Construction Company, LLC (collectively, the "Debtors"), as follows:

INTRODUCTION

1. By this action, Credit Suisse seeks an expedited declaratory judgment

confirming the validity of the secured claim of Credit Suisse and other Prepetition Lenders

against the Debtors in the principal amount of $309,021,984.26, together with interest, fees and

expenses thereon, arising out of a $375 million pre-petition secured loan (the "Prepetition Loan")

to YMC, YD, and BSR under a Credit Agreement dated as September 30, 2005 (the "Loan

Agreement") from Credit Suisse, as administrative agent and collateral agent, for a group of

lenders (the "Prepetition Lenders").

2. On February 11, 2009, the Committee moved for leave to file a

Complaint against Credit Suisse to disallow and subordinate Credit Suisse's claim. According to

the Committee's proposed Complaint, Timothy and Edra Blixseth (the "Blixseths") were the

owners of the Debtors, controlled the Debtors, and caused the Debtors to enter into the Loan

Agreement and grant liens on nearly all of the Debtors' assets to enable the Blixseths to use the

Prepetition Loan proceeds for purposes unrelated to the Debtors' business. The proposed

Complaint charges, among other things, that (i) the Loan Agreement was a fraudulent transfer, (ii)

entering into the Loan Agreement constituted a breach of the Blixseths' fiduciary duties to the

Debtors and their creditors, and (iii) Credit Suisse knowingly aided and abetted the Blixseths'

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breach of their fiduciary duties; and seeks relief disallowing the claims of Credit Suisse and the

other Prepetition Lenders, equitably subordinating these claims, and avoiding the liens, security

interests, and mortgages granted in connection with the Loan Agreement.

3. There is no merit to the Committee's proposed Complaint. The proposed

fraudulent transfer claims, on their face, are fatally flawed because the Debtors were solvent at

the time the Prepetition Loan was made, and remained solvent thereafter. The Debtors received

unqualified audit opinions, thus attesting to their solvency at the time the Prepetition Loan was

made and thereafter. Indeed, this Court's Memorandum of Decision granting a priming lien in

connection with the Debtors' application for post-petition financing expressly adopted the

“credible expert” appraisal establishing that collateral securing the Prepetition Loan was worth a

minimum of $310 million – and excluding from this figure the value of 107 excluded dwelling

unit rights, and existing neighborhoods with completed plats and infrastructure, including

Andesite Ridge, Miller Point Duplexes, Mountain Chalets and the Warren Miller Lodge.

(Memorandum of Decision, dated December 17, 2008, at 8; [Docket No. 139 at 53; 65]). It

bears emphasis that the real estate market was significantly better in 2005 when the loans were

originally issued. Moreover, as recently as March 2008, the Debtors were party to a sale contract

to sell most of their assets for $470 million. [Docket No. 341, Exh. 12 at 16; Exh. K]. As the

Debtors were solvent at the time the Prepetition Loan was made and remained solvent thereafter,

the Committee's fraudulent transfer claim cannot stand. Furthermore, as the directors of solvent

entities owe no fiduciary duties to creditors, the Committee's claims against Credit Suisse for

aiding and abetting breaches of fiduciary duty to creditors falls of its own weight.

4. As set forth below, the remaining claims for aiding and abetting breaches

of fiduciary duties are equally baseless -- and the Committee knows it. Indeed, while the

Committee alleges that “[t]he Blixseths represented themselves and their personal interests in the

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loan negotiations [and] [t]he Yellowstone Club was unrepresented in those negotiations”

(Proposed Compl. ¶9), in truth the Chairman of the Committee and his law firm represented the

Debtors as special Montana counsel in the very Loan Agreement which the Committee now

claims was unlawful; and the Committee Chairman's firm issued a legal opinion that the Debtors'

entering into the Loan Agreement “does not . . . violate any laws”, and that the liens granted to

Credit Suisse and the Prepetition Lenders, once properly recorded, were valid and enforceable

liens. (A copy of this legal opinion is annexed hereto as Exhibit A). The Opinion was

personally signed by the Committee Chairman himself. (Exh. A at 6).

5. As set forth below, the Committee Chairman was right -- the Loan

Agreement was a valid transaction, and the liens granted to Credit Suisse and the Prepetition

Lenders were, and are, valid and enforceable in all respects.

6. Despite the utter absence of merit to the Committee's proposed Complaint,

the Debtors have proposed a Plan of Reorganization which is premised largely upon the

unfounded assumption that the Committee's position is correct, and therefore unilaterally strips

Credit Suisse of its full secured claim. Moreover, the Debtors seek confirmation of their Plan no

later than April 30, 2009. Given the foregoing, the Committee clearly has no incentive to pursue

the unfounded allegations in their proposed Complaint, since the proposed Plan of

Reorganization, if confirmed, may moot the Committee's need to expeditiously attempt to prove

its charges. Therefore, Credit Suisse brings this declaratory judgment action to vindicate its

status and the status of the other Prepetition Lenders as secured creditors with an allowed

secured claim in the principal amount of $309,021,984.26, plus interest, fees and expenses, and

seeks such declaratory judgment on an expedited basis to ensure they receive fair and just

treatment in the ultimate plan of reorganization confirmed by the Court.

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PARTIES

7. Plaintiff Credit Suisse is a financial services company and secured creditor

of YMC, YD and BSR.

8. Defendant the Committee is the statutory representative of the unsecured

creditors of the Debtors, pursuant to section 1102 of the United States Bankruptcy Code, 11

U.S.C. §§ 101, et. seq. (the "Bankruptcy Code"). The Committee has sought leave to file a

Complaint against Credit Suisse, on behalf of and for the benefit of the Debtors, their estates, and

the creditors thereof, captioned Official Committee of Unsecured Creditors v. Credit Suisse,

Cayman Islands Branch, and John Does 1-15, in connection with case number 08-61570-11-

RBK (the “Unfiled Complaint”).

9. BGI is an Oregon Corporation and the majority owner of YMC and YD.

10. The Debtors filed a petition for relief under Chapter 11 of title 11 of the

United States Code, 11 U.S.C. §§ 101, et. seq., as amended, and continue to operate their

business and manage their properties as debtors and debtors-in-possession pursuant to Sections

1107(a) and 1108 of the Bankruptcy Code.

11. YCW is a Washington State limited liability company. It was majority

owned by Timothy Blixseth until August of 2008, when it was turned over to Ms. Blixseth. An

involuntary petition for relief under section 303 of the Bankruptcy Code is pending against YCW.

JURISDICTION AND VENUE

12. This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §

1334 and as a core proceeding pursuant to 28 U.S.C. § 157(b)(2).

13. Venue is proper in this Court pursuant to 28 U.S.C. § 1409.

14. This action is brought as an adversary proceeding in In re Yellowstone

Mountain Club, LLC, et al., chapter 11 cases, procedurally consolidated under case number 08-

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61570-11-RBK, currently pending in the United States Bankruptcy Court for the District of

Montana. This action is directly related to the Unfiled Complaint.

GENERAL ALLEGATIONS

A. Factual Background.

The Pre-Petition Loan Agreement

15. Pursuant to the Loan Agreement, the Debtors entered into a $375 million

credit facility with the Prepetition Lenders headed by Credit Suisse as Administrative Agent,

Collateral Agent, Paying Agent, Sole Lead Arranger and Sole Bookrunner. In conjunction with

the Loan Agreement, the Debtors also: executed a Security Agreement, dated September 30,

2005, granting Credit Suisse and the Prepetition Lenders mortgages, security interests and liens

on nearly all of the Debtors' properties; and executed and caused to be recorded a Mortgage,

Security Agreement, Assignment of Rents and Leases, dated September 30, 2005, covering

nearly all of the Debtor's properties (collectively, the "Security Documents").

16. There was nothing hidden or unusual about the Prepetition Loan. The

loan was similar to more than $140 Billion in commercial loans that were rated by Standard &

Poor's rating service since 2000 that funded equity distributions or payments to business owners

or the millions of home equity loans that are funded each year allowing homeowners to realize

the value of their assets. Nothing required Debtors to develop the Yellowstone Club without

construction financing and nothing restricted them from realizing on the equity value they

funded and created.

The Post-Petition Financing Proceedings

17. By motion dated November 10, 2008, the Debtors moved for an Order (the

“DIP Motion”) authorizing them to obtain post-petition financing from Credit Suisse, as

administrative agent and collateral agent for a syndicate of lenders. On November 13, 2008, the

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Court entered an Interim Order Authorizing the Debtors to Obtain Post-Petition Financing (the

“Interim Order”).

18. Pursuant to the Interim Order, the Debtor irrevocably admitted, stipulated

and agreed as follows with respect to their obligations and Credit Suisse's rights under the Loan

Agreement:

(a) “As of the Petition Date, (i) the Debtors were truly and justly indebted and liable to (i) the Prepetition Lenders, without defense, counterclaim or offset of any kind, in the aggregate principal amount of approximately $307,000,000 in respect of [the Loan Agreement] plus, accrued and unpaid interest thereon . . .”

(b) “[T]he Prepetition Secured Obligations constitute the legal, valid and binding obligations of the Debtors, enforceable in accordance with their terms . . .”

(c) “[N]o portion of the Prepetition Secured Obligations are subject to avoidance, recharacterization, recovery or subordination pursuant to the Bankruptcy Code or applicable nonbankruptcy law;”

(d) "[T]he Debtors do not have, and hereby forever release, any claims, counterclaims, causes of action, defenses or setoff rights, . . ., against the Prepetition Agent, the Prepetition Lenders and their affiliates, . . . with respect to the Prepetition Secured Obligations,” and

(e) “[T]he liens and security interests granted to the Prepetition Agent and the Prepetition Lenders . . . are (i) valid, binding, perfected, enforceable first priority liens on and security interests in the Prepetition Collateral, [and] (ii) not subject to avoidance, recharacterization or subordination pursuant to the Bankruptcy or applicable nonbankrupty law . . .”

(Interim Order at Docket No. 40, ¶ 4)

19. Under the terms of the Interim Order, the aforesaid stipulations and

admissions are “binding upon the Debtors in all circumstances.” (Id. at 20, ¶ 18).

The Committee's Moves to File a Complaint Against Credit Suisse

20. On February 11, 2009, the Committee filed a Notice of Claim Against

Credit Suisse, Objection to Claim of Credit Suisse and Motion for Authorization to File

Complaint Against Credit Suisse, which attached as an exhibit the "Unfiled Complaint." The

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Unfiled Complaint challenges the validity of the Loan Agreement and the liens granted pursuant

to the Security Documents, and purports to assert claims against Credit Suisse for Aiding and

Abetting Breach of Fiduciary Duty, Avoidance of Fraudulent Transfer, Disallowance of Claims,

Subordination of Claims, Turnover, and Declaratory Judgments.

21. The gravamen of the Unfiled Complaint is that the Blixseths, as the

owners and controlling persons of the Debtors, caused the Debtors to enter into the Loan

Agreement for the purpose of borrowing $375 million and using the loan proceeds for purposes

unrelated to the Debtors. According to the Unfiled Complaint, by granting liens in the Debtors'

properties as security for a loan whose proceeds would be used for purposes unrelated to the

Debtors, the transaction was a breach of the Blixseths' fiduciary duties, and Credit Suisse's

participation in the transaction aided and abetted this breach of fiduciary duty. The Unfiled

Complaint also alleges that the loan transaction was a fraudulent transfer under the Montana

Uniform Fraudulent Transfer Act. MONT. CODE ANN. § 31-2-339(a) (2007). In addition, the

Unfiled Complaint seeks to recharacterize the loan as only a $67 million loan to the Debtors

which has been repaid, and the remaining $208.8 million loan as an unsecured personal loan to

the Blixseths.

22. On February 13, 2009 , the Debtors filed a Joint Plan of Reorganization

(the "Proposed Plan"). The Proposed Plan is premised entirely on the theory that the

unsubstantiated assertions in the Unfiled Complaint are valid. As such, the Proposed Plan

provides for treatment of Credit Suisse and the Prepetition Lenders as unsecured creditors rather

than secured creditors with respect to $208.8 million owed under the Loan Agreement.

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FIRST CLAIM FOR RELIEF

[Declaratory Judgment that the Committee is Barred From Pursuing the Unfiled ComplaintUnder the Doctrine of In Pari Delicto]

23. Credit Suisse repeats and realleges the allegations of the preceding

paragraphs as if fully set forth herein.

24. The gravamen of the Unfiled Compliant is that the Blixseths acted

wrongfully and in breach of their fiduciary duties by causing the Debtors to enter into the Loan

Agreement and, in conjunction therewith, causing the Debtors to grant liens, security interests,

and mortgages to Credit Suisse on virtually all of the Debtors' properties.

25. In addition, according to the Unfiled Complaint, Timothy and/or Edra

Blixseth dominated and controlled the Debtors at all relevant times, and was the controlling

shareholder and sole decision maker of the Debtors. Specifically, the Committee alleges that

“Timothy Blixseth . . . was the controlling shareholder of BGI and . . . YCW through August of

2008. As such, he controlled BGI, YMC, YD and YCW” (Unfiled Comp. ¶ 21); and “Edra

Blixseth . . . was Chief Operating Officer of YMC until she resigned in late 2005 or early

2006 . . . in August, 2008, Ms. Blixseth became the majority owner of BGI and YCW. As such,

she now controls BGI, YMC, YD and YCW." (Id. ¶¶22-23). In addition, this Court has

explicitly determined that “Blixseth, through an entity known as Blixseth Group or BGI, owns

the Debtors.” (Memorandum and Decision, dated November 26, 2008, at 3); see also

Memorandum and Decision, dated December 17, 2008 at 4 (“Blixseth . . . owns and is the

managing member of the Debtors”); In re Yellowstone Mountain Club, et al., 08-61570-11, 8 n.2

(Bankr. D. Mont. Feb. 18, 2009) ("Edra Blixseth is the President and 100% equity owner of BLX

Group, Inc." which "owns substantially all the interests in the Debtors").

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26. As a result of the foregoing allegations and findings of the Court, the

conduct and knowledge of the Blixseths, as the controlling persons and sole decision makers of

the Debtors, is imputed to the Debtors as a matter of law. Therefore, the Debtors are barred by

the doctrine of in pari delicto from asserting claims against third parties for aiding and abetting

the Blixseths' alleged breach of their fiduciary duty.

27. In addition, as a matter of law, anyone who stands in the shoes of the

Debtors is subject to the same defenses, obligations and infirmities that can be asserted against

the Debtors. As the Committee has asserted the claims in the Unfiled Complaint “not for itself,

but on behalf of and for the benefit of the Debtors . . .,” it is subject to all defenses, obligations

and infirmities that can be asserted against the Debtors. Accordingly, the Committee is barred

from asserting any claims on behalf of, or for the benefit of the Debtors, that the Debtors

themselves would be barred from asserting.

28. Credit Suisse is entitled to a declaratory judgment that the Committee is

barred from pursuing the Unfiled Complaint under the doctrine of in pari delicto.

SECOND CLAIM FOR RELIEF

[Declaratory Judgment that the Loan Agreement and Liens Granted in Connection Therewith were Not Fraudulent Transfers]

29. Credit Suisse repeats and realleges the allegations of the preceding

paragraphs as if fully set forth herein.

30. Pursuant to the Montana Uniform Fraudulent Transfer Act, "[a] debtor is

insolvent if the sum of the debtor's debts is greater than all of the debtor's property at a fair

valuation and the debtor is generally not paying his debts as they become due." MONT. CODE

ANN. § 31-2-321 (2007).

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31. In addition, pursuant to the Montana Uniform Fraudulent Transfer Act, the

party seeking to rescind a transaction must show that the transferee "was engaged . . . in a

business or a transaction for which the remaining assets of the debtor were unreasonably small in

relation to the business or transaction" or "intended to incur . . . debts beyond his ability to pay as

they became due." MONT. CODE ANN. § 31-2-333 (2007).

32. The Debtors were solvent at the time the Prepetition Loan was made and

at all relevant times thereafter, based on their receipt of unqualified audit opinions attesting to

their status as going concerns.

33. In its Memorandum of Decision, dated December 17, 2008, the Court,

after reviewing the evidentiary record, including “credible expert witness” testimony, accepted

an expert appraisal of $310 million as the low-end, going concern value of the Debtors' assets

securing Credit Suisse's lien as of November 10, 2008 for purposes of the Decision. In re

Yellowstone Mountain Club, et al., 08-61570-11, at 8 (Bankr. D. Mont. Dec. 17, 2008). Notably,

this appraisal did not include the value of numerous assets, including Andesite Ridge, Miller

Point Duplexes, Mountain Chalets, and the Warren Miller Lodge. [Docket No. 139, at 53; 65].

Furthermore, as the real estate market had significantly deteriorated since the Prepetition Loan

was originally made, these same assets were worth even more than this appraised amount at the

time the parties entered into the Prepetition Loan.

34. This same credible expert witness also prepared a Total Net Proceeds

evaluation of the Debtors' properties securing Credit Suisse's liens as of August 26, 2008. This

evaluation estimated the total net proceeds, a figure that included the "aggregate sum of master

development net cash flows" and excluded certain items, to be $1.114 billion dollars, more than

sufficient cash flows to pay debts as they matured. In re Yellowstone Mountain Club, et al., 08-

61570-11, at 8 (Bankr. D. Mont. Dec. 17, 2008). In this connection, following the closing, the

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Debtors sold more than 124 residential lots, generating hundreds of millions of dollars in income.

[Docket No. 341, Exh. 12].

35. Further, the Court noted that the Appraisal did "not appear" to include the

Promissory Notes in an amount of roughly $275 million "owed to the Debtors by BGI, Blixseth

and/or Timothy Blixseth." In re Yellowstone Mountain Club, et al., 08-61570-11, at 21 (Bankr.

D. Mont. Dec. 17, 2008).

36. As late as March 2008, the Debtors were party to a sale contract to sell

most of their assets for $470 million. [Docket No. 341, Exh. 12 at 16; Exh. K].

37. Based on the foregoing, the Debtors were solvent at the time of, and

remained solvent for at least some three years after, entering into the Loan Agreement.

38. Credit Suisse is entitled to a declaratory judgment that the Loan

Agreement and the granting of liens in connection therewith, were not fraudulent transfers, and

that the liens, security interests and mortgages granted under the Loan Agreement and the

Security Documents are not subject to avoidance and are valid and enforceable against the

Debtors and their estates.

THIRD CLAIM FOR RELIEF

[Declaratory Judgment for Allowance of Claims]

39. Credit Suisse repeats and realleges the allegations of the preceding

paragraphs as if fully set forth herein.

40. Credit Suisse is entitled to a declaratory judgment allowing the claims of

Credit Suisse and the Prepetition Lenders in the amount of $309,021,984.26, plus interest, fees,

and expenses, and such claims are not subject to equitable subordination.

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PRAYER FOR RELIEF

WHEREFORE, Credit Suisse prays for the following judgments against the Committee:

1. That the Court declare that Credit Suisse has an allowed secured claim is

in the principal amount of $309,021,984.26, plus interest, fees and expenses;

2. That the Court declare that the Loan Agreement and the granting of liens

in connection therewith were not fraudulent transfers;

3. That the Committee is barred from pursuing the Unfiled Complaint by the

doctrine of in pari delicto; and

4. That the liens, security interests, and mortgages of Credit Suisse and the

Prepetition Lenders are valid and enforceable and not subject to avoidance or equitable

subordination.

Dated: Billings, MontanaFebruary 25, 2009

_/s/ Charles W. Hingle_______Charles W. HingleShane P. ColemanHOLLAND & HART LLP401 North 31st StreetSuite 1500Billings, Montana 59101(406) 252-2166 (Phone)[email protected] (Email)[email protected] (Email)

Of Counsel:Evan R. Levy (NY No. 2720068)George A. Zimmerman (NY No. _____ , pro hac vice pending)SKADDEN, ARPS, SLATE, MEAGHER

& FLOM LLPFour Times SquareNew York, New York 10036(212) 735-3000

– and –

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Mark S. Chehi (Del. Bar No. 2855)SKADDEN, ARPS, SLATE, MEAGHER

& FLOM LLPOne Rodney SquareP.O. Box 636Wilmington, Delaware 19899(302) 651-3000

Attorneys for Credit Suisse,sole administrative agent and collateral agent

4459526_1.DOC

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1

UNITED STATES BANKRUPTCY COURTFOR THE DISTRICT OF MONTANA

In re

YELLOWSTONE MOUNTAIN CLUB,LLC,

Debtor.

Case No. 08-61570-11

CREDIT SUISSE and TIMOTHY LBLIXSETH,

Plaintiffs.

-vs-

OFFICIAL COMMITTEE OFUNSECURED CREDITORS,YELLOWSTONE MOUNTAIN CLUB,LLC, YELLOWSTONEDEVELOPMENT LLC, BIG SKYRIDGE, LLC, and YELLOWSTONECLUB CONSTRUCTION COMPANYLLC,

Defendants.

Adv No. 09-00014

Partial & InterimORDER

At Butte in said District this 13 day of May, 2009.th

In this Adversary Proceeding, trial was originally scheduled to commence at 09:00 a.m.

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Blixseth listed George Mack as a trial witness in his Amended List of Witnesses filed1

April 27, 2009. Blixseth testified at trial that George Mack was in Missoula at the time of trialand available to testify. However, Blixseth did not call George Mack as a witness. After trial, aquestion arose regarding the admission into evidence of George Mack's deposition. BecauseGeorge Mack was available to testify, but was not called, the Court declines to consider GeorgeMack's deposition under Fed.R.Civ.P. 32(a), made applicable to this proceeding by F.R.B.P.7032. For the reasons just stated, and because Stephen R. Brown testified, the Court will

2

on Wednesday, April 22, 2009. However, after considering Timothy L. Blixseth's (“Blixseth”)

Expedited Motion to Bifurcate and Continue Trial of Claims Regarding Blixseth filed April 21,

2009, at Docket Entry No. 203, the Court continued the trial date to Wednesday, April 29,

2009. The Debtors were represented at the trial in this Adversary Proceeding by Tom

Hutchinson, Troy Greenfield, Connie Sue Martin and David A. Ernst of Seattle, Washington,

and James A. Patten of Billings, Montana; Credit Suisse was represented by Mark S. Chehi,

Robert S. Saunders and Joseph O. Larkin of Wilmington, Delaware, George A. Zimmerman,

Evan R. Levy and Jeremy M. Falcone of New York, New York, Edward J. Meehan of

Washington, D.C. and Shane Coleman of Billings, Montana; the Official Committee of

Unsecured Creditors was represented by J. Thomas Beckett, Chris P. Wangsgard, Derek

Langton, Sean D. Reyes and Mark W. Dykes of Salt Lake City, Utah, and James P. Cossitt of

Kalispell, Montana; and Blixseth was represented by Michael J. Flynn of Boston,

Massachusetts, Joseph M. Grant of Houston, Texas, and Joel E. Guthals of Billings, Montana.

The Court heard expert testimony from David Abshier, John Hekman, Kent Mordy, and

Christopher Donaldson. The Court heard fact testimony from Blixseth, Michael W. Doyle,

Stephen R. Brown, Moses Moore, Brad Foster, Samuel T. Byrne, Edra Blixseth, Steve

Yankauer, and Robert Sumpter. The testimony of the following witnesses was submitted

through deposition transcript: Jeff Barcy, Dean R. Paauw and William G. Griffon. Exhibit A1

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similarly not consider the deposition testimony of Stephen R. Brown.

The Court noted that the Final Pretrial Order could be subsequently modified to prevent2

manifest injustice.

3

attached hereto identifies the Exhibits that were offered and admitted into evidence.

Prior to commencement of trial on April 29, 2009, the Official Committee of Unsecured

Creditors (“Committee”), the Debtors and Credit Suisse filed a proposed Final Pretrial Order on

April 27, 2009, at Docket Entry No. 238. Blixseth participated in drafting the aforementioned

proposed Final Pretrial Order but then proposed additional changes that could not be timely

reviewed and approved by the Committee, Debtors and Credit Suisse. Thus, Blixseth instead

filed his own proposed Final Pretrial Order on April 27, 2009, at Docket Entry No. 241. After

hearing comments from counsel and after considering both proposed Final Pretrial Orders, the

Court made some of Blixseth's proposed adjustments to the proposed Final Pretrial Order

submitted by the Committee, Debtors and Credit Suisse and entered a Final Pretrial Order on

April 29, 2009, at Docket Entry No. 257. The Final Pretrial Order approved by the Court

supercedes the pleadings filed by the parties and governed the course of the trial.2

This Order is abbreviated and limited, and serves only as an interim ruling for purposes

of facilitating the upcoming auction of the Debtors' assets. This Order will be followed by a

subsequent detailed Memorandum of Decision and Order that will decide all matters heard at

trial.

HISTORICAL BACKGROUND

Various pleadings introduced in this Adversary Proceeding and in the main bankruptcy

case state that in 1992, Plum Creek Timber Co., a subsidiary of Northern Pacific Railroad

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Cushman & Wakefield's appraisal as of July 1, 2005, states that the Yellowstone Club3

“appeals to ultra-wealthy families as a second-home (or third-home) location for its privaterecreational facilities (particularly the ski area), views, and proximity to winter and summerrecreation. Prospective buyers are required to have a net worth of over $3 million, but based onthe costs of membership and housing, we would expect nearly all buyers to have investable assetsof at least $5 million, if not $10 million. The membership price for residents is $250,000 for a30-year refundable deposit. The price is expected to be increased during the sell-out period. Annual dues . . . were recently raised from $10,600 to $16,000 per year. Property ownersassociation (POA) dues are currently $5,100 per year.”

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Company sold its land in the Gallatin National Forest to Blixseth and the McDougal brothers,

foresters from Oregon. Blixseth consolidated his land holdings with three deals with the federal

government to swap 100,000 acres he had just bought for the acreage that now encompasses the

Debtors’ real estate holdings known as the Yellowstone Club located in Madison County,

Montana. The deal with the government also included additional land in several other Montana

counties, plus 250 million feet of salable timber. The land swaps required two separate acts of

Congress. The first, known as the Gallatin Preservation Act of 1993, covered 38,000 acres and

was President Clinton’s first major piece of environmental legislation. The second act, in 1998,

is known as Gallatin II and involved another 54,000-acre swap. The public acquired another

8,100 acres in a third swap that was not subject to Congressional approval. Soon after the

assemblage was completed, Blixseth and the McDougals dissolved their partnership. The

timberland was distributed to the McDougal brothers and Blixseth retained the acreage that

could be developed.

Blixseth and his former wife, Edra Blixseth (“Edra”), formed the Debtor corporations

and on the land that Blixseth retained from his partnership with the McDougal brothers, began

development in late 1999 of the world’s only private ski and golf community, commonly

referred to as the Yellowstone Club. The Yellowstone Club is a membership only master-3

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planned unit development, situated on 13,500 acres of private land in Madison County,

Montana near the northwest corner of Yellowstone National Park.

The Blixseths originally contemplated that the Yellowstone Club would consist of seven

planned residential areas or neighborhoods comprised of roughly 864 fee dwelling units in

2,700 acres of development pods. To get the Yellowstone Club off the ground, the Blixseths

sold equity interests in the Yellowstone Club to various persons, who were referred to as

Pioneer and Frontier Members. The 25 Pioneer and 15 Frontier memberships were sold at

substantially reduced prices.

FACTS

On September 30, 2005, the Debtors were controlled by Blixseth as the sole Class A

Shareholder through his holding company, Blixseth Group, Inc. ("BGI"). Approximately 13%

of the Club was owned by Class B Members who were referred to as the Class B Shareholders

or the "Bs” in this litigation. BGI was an Oregon sub-S corporation, which was solely owned

by Blixseth as President and CEO from 1999 to mid-August of 2008.

In or around December of 2004, Jeffrey Barcy (“Barcy”), a Director in Credit Suisse's

Investment Banking Division, made several attempts to send Blixseth and his secretary or

assistant emails that contained a two to three-page teaser, providing Blixseth with a brief

overview of Credit Suisse and its new loan product referred to as a syndicated term loan, which

was described to Blixseth as something akin to a “home-equity loan.” Blixseth eventually

responded to Barcy's emails by calling Barcy on the telephone. Blixseth and Barcy had a brief

phone conversation and following the telephone conversation, the “next marketing step [for

Barcy and his team] was a trip up to the Yellowstone Club[.]” Following the initial meeting at

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the Yellowstone Club, Barcy testified that although he could not remember exact details, he and

Blixseth “had a number of phone conversations and probably emails back and forth as to why it

would be interesting for [Blixseth] to potentially do a loan on the Club.”

Credit Suisse was specifically trying to "break new ground with a product by doing real

estate loans in the corporate bank loan market." Through its new syndicated term loans, Credit

Suisse was able to offer a loan product the size of which had previously been unavailable to

borrowers. Barcy testified that Credit Suisse's syndicated loan product had previously been

marketed to other master-planned residential and recreational communities such as Tamarack

Resort, Promontory, Ginn, Turtle Bay, and Lake Las Vegas. Each of the above entities received

a syndicated loan from Credit Suisse's Cayman Islands branch, which allowed the equity

holders in said entities to take sizeable distributions from all or part of the Credit Suisse loan

proceeds. According to Steve Yankauer (“Yankauer”), a Managing Director at Credit Suisse,

Credit Suisse's Cayman Islands branch was created in 2005 to facilitate the syndicated loan

product and to Yaunkauer's knowledge, Credit Suisse never had a physical presence in the

Cayman Islands.

Blixseth originally declined Credit Suisse's loan offer, but then contacted Barcy a couple

months later and “said that he might have a use of the proceeds for the loan and would be

interested in talking again.” Following Blixseth's call, Barcy and another person from Credit

Suisse met Blixseth at Blixseth's home in Palm Springs, California. Blixseth initially agreed to

take a loan of only $150 million. After several months of negotiations between Credit Suisse

First Boston and Blixseth, the proposed amount of the loan grew from $150 million to $375

million.

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Credit Suisse, Cayman Islands Branch, and Blixseth, on behalf of the Debtors,

eventually entered into a credit agreement dated September 30, 2005 ("Credit Agreement"). In

the time leading up to September 20, 2005, Barcy testified that Credit Suisse did “a fair amount

of due diligence.” Such due diligence included doing a background check on Blixseth and

hiring an appraisal firm to provide an “independent assessment” of the Yellowstone Club's cash

flows and a law firm to “do a separate legal investigation into the Club to make sure that the

entities we were financing against truly held the assets that we believed we were financing.”

Curiously, Credit Suisse never requested audited financial statements from the Debtors

and in fact, appears to have relied exclusively on the historical and future projections provided

by Blixseth and the Debtors. Credit Suisse's financial due diligence instead consisted, as stated

above, of commissioning Cushman & Wakefield to do an analysis of the Debtors' cash flows.

Cushman & Wakefield was originally hired to do a fair market appraisal of the Debtors.

However, the terms of engagement were eventually altered to provide that Cushman &

Wakefield would perform a total net value analysis of the Debtors. Barcy explained that Credit

Suisse's capital market group suggested and then developed, in conjunction with Cushman &

Wakefield, a new form of appraisal methodology, which Credit Suisse termed “total net value”.

The Total Net Value methodology was first developed when Credit Suisse was selling its

syndicated loan product to Lake Las Vegas. Credit Suisse's Total Net Value methodology does

not comply with the Financial Institutions Recovery Reform Act of 1989 (“FIRREA”), but that

was not important to Credit Suisse because Credit Suisse was seeking to sell its syndicated

loans “to non bank institutions.”

Barcy also testified that he was aware of a prior limited appraisal of the Debtors'

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property that Cushman & Wakefield did on behalf of American Bank. In that limited appraisal,

as of September 21, 2004, Cushman & Wakefield determined that the “as-is market value” of

those assets that later served as collateral for Credit Suisse's $375 million loan was $420

million. The $420 million as-is valuation was based on a discount rate of 18.5 percent. Barcy

and Credit Suisse apparently gave little, if any, regard to Cushman & Wakefield's September

21, 2004, appraisal and instead placed their reliance solely on Credit Suisse's newly created

Total Net Value valuation.

Similar to the syndicated loans to Tamarack Resort, Promontory, Ginn, Turtle Bay and

Lake Las Vegas, the Yellowstone Club Credit Agreement was originally drafted to provide that

the proceeds of the loan would be used, in part, for “distributions” to members of the Borrower

for purposes unrelated to the Yellowstone Development. During the same period of time that

Blixseth was negotiating with Credit Suisse for his loan, Blixseth was also attempting to buy

the interests of the B shareholders under the guise that Blixseth wanted to repurchase the “B”

shares for estate planning purposes and to involve his children in ownership of the Yellowstone

Club. Not all the B shareholders agreed to Blixseth's proposed purchase and thus, Blixseth

purchased none of the B shareholders' interests because his offer was an all or nothing deal.

Coincidentally, in late August of 2005 or early September of 2005, about the same time

that Blixseth was unsuccessful in buying the B shareholders' interests, Blixseth was allegedly

advised by his attorneys and accountants that he would have to take the Credit Suisse loan

proceeds as a loan rather than a distribution. The reasoning was two-fold. First, Blixseth

would have tax consequences on a distribution. Second, recording such a large distribution on

the Debtors' books would result in negative owners' equity accounts.

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Barcy testified that Credit Suisse knew that “there were a number of minority investors

in the Club.” However, Barcy was not concerned when Blixseth contacted Credit Suisse

sometime between August 22, 2005, and September 4, 2005, and requested that the Credit

Agreement be modified to provide that the loan proceeds could be used: “(I) for distribution or

loans up to [$ ____] to affiliates of the borrower for purposes unrelated to the Yellowstone

Development[.]” Between September 4, 2005, and September 30, 2005, the recitals were once

again amended to finally provide that the proceeds of the loan would be used “(I) for

distribution or loans up to $209,000,000 to members of the Borrower for purposes unrelated to

the Yellowstone Development, (ii) for investments up to $142,000,000 into Unrestricted

Subsidiaries for purposes unrelated to the Yellowstone Development, (iii) to pay the

Transaction Costs, (iv) to refinance the Existing Indebtedness, (v) to finance a portion of the

development and construction costs associated with the Yellowstone Development in

accordance with the Financial Plan[.]” Barcy testified that it was Blixseth's “responsibility to

figure out what he had to do internally to make those distributions or not make those

distributions. And as a controlling shareholder of the Yellowstone Club, that was in his court.”

Nothing in the record suggests that the loan between Credit Suisse and Blixseth

(disregarding, however, the minority shareholders) was not at arm’s length. For instance,

Credit Suisse originally sought a transaction fee of 3 percent, but Blixseth wanted the

transaction fee reduced to 2 percent. Credit Suisse, via Barcy, and Blixseth ultimately agreed

to "flip a coin" to decide the rate. Credit Suisse lost the toss, and Blixseth was thus successful

in reducing the transaction fee to 2 percent.

After several months of negotiations, Credit Suisse and Blixseth finally came to an

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From what the Court understands, EBITDA can be used to analyze and compare4

profitability between companies and industries because it eliminates the effects of financing andaccounting decisions. However, this is a non-GAAP measure that allows a greater amount ofdiscretion as to what is, and is not, included in the calculation. EBITDA is a good metric toevaluate profitability, but not cash flow.

10

agreement on the terms of the Credit Agreement and executed the same. The Credit Agreement

provided for the disbursement of $375 million in loan proceeds to be distributed in two

significant ways after payment of $7.5 million in fees to Credit Suisse and other expenses

attributable to the loan. First, the Credit Agreement designated up to $209 million of the loan

proceeds to be used as "distributions or loans" for "purposes unrelated" to the Yellowstone

Club. Additionally, up to $142 million was authorized to be used for investments into

"unrestricted subsidiaries" for "purposes unrelated" to Yellowstone Club development. Thus,

the bulk of the loan proceeds, up to $351 million, were designated to be used for purposes

outside of, and unrelated to, the Yellowstone Club.

In the years leading up to the Credit Agreement, the Yellowstone Club carried a debt

load ranging from a low of approximately $4 to $5 million to a high of approximately $60

million on a revolving line of credit. The day before the Loan Transaction, the Yellowstone

Club carried approximately $19 to $20 million in debt on its books, consisting of a combination

of a revolving line of credit and a term loan with American Bank. The majority of this debt was

related to the construction of the Warren Miller Lodge, which was already underway.

The Debtors had also experienced negative cash flows in several of the years leading up

to the Credit Agreement with Credit Suisse. Several of the witnesses made reference to

EDITDA, which is earnings before interest, taxes, depreciation and amortization. Kent Mordy4

(“Mordy”), a certified public accountant and a certified insolvency and reorganization advisor,

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calculated that the Debtors' Cash EBITDA was a negative $15,701,772 in 2002, a positive

$20,369,766 in 2003, and a negative $45,910,598 in 2004. According to Mordy, the Debtors

projected Cash EBITDA of $83,500,000 in 2005 but realized Cash EBITDA of only $19

million. Dr. John S. Hekman (“Hekman”), who has a Ph.D in economics and is employed by

LECG to provide expert witness testimony in the area of real estate and real estate finance, also

did an EBITDA calculation. Hekman's EBITDA calculation for 2005 was $39 million. Mordy

explained that his Cash EBITDA numbers were different from Hekman's EBITDA calculations,

which were positive for 2003, 2004 and 2005, because Hekman did not subtract capital

expenditures and development costs. Yankauer disputed Hekman's and Mordy's EBITDA

calculations for 2005, arguing that such figure was closer to $55,610,953. Whatever the

accurate number, it is clear that even though the Debtors' had nine months of operations under

their belt before the September 30, 2005, Credit Agreement, they missed their profitability

projections by a substantial amount. Such numbers show that Debtors' projections for the

future, upon which Credit Suisse relied without question, had no foundation in historical reality.

Hekman also testified that the Federal Reserve aggressively lowered interest rates in

2001 to counteract the 2001 recession. As a result of the low interest rates, Hekman

characterized 2003 and 2004 as the peak years for real estate. However, due to concerns about

the housing bubble, the Federal Reserve began raising interest rates in 2005, which caused the

beginning of a slowdown in the real estate markets.

Despite all the red flags, the Credit Agreement was consummated and $342,110,262.53

was wired to the Yellowstone Club. This amount reflected the total loan amount of $375

million less fees, administrative costs, and a $24,241,910.98 takeout to payoff preexisting debt.

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On the same date that $342,110,262.53 was transferred to the Debtors, approximately $209

million was transferred out of the Yellowstone Club by Blixseth to BGI. As previously noted,

the transfer of loan proceeds out of the Yellowstone Club was a key feature of the product that

Credit Suisse used to sell the loan. Yankauer testified that the cornerstone of this loan product

was that it allowed preferred resort owners, such as Blixseth, to capitalize on the value of their

asset.

The immediate transfer of funds out of the Yellowstone Club to BGI and then to

Blixseth was not memorialized in any contemporaneous loan documents but was simply

reflected on the Debtors' books with a journal entry. Blixseth, right around the time the B

shareholders were threatening suit against Blixseth and the Yellowstone Club, drafted a

two-page promissory note in the amount of $209 million. The $209 million unsecured demand

note, payable by BGI to the Debtors, was created in May 2006, and backdated to September 30,

2005.

Roughly all of the $209 million proceeds that were transferred to BGI were then

disbursed to various personal accounts and payoffs benefitting Tim and Edra Blixseth

personally. Blixseth testified that the Debtors had no interest in any of these accounts or

payoffs. The Debtors, under Blixseth' direction, never made demand of BGI on the demand

notes, even when the Yellowstone Club needed cash.

From 2005 through the filing of the bankruptcy, the Yellowstone Club was persistently

behind in its accounts payable. When the need for cash would become imperative, Moses

Moore (“Moore”), who worked as a Senior Accountant and then later Comptroller for the

Yellowstone Club, would request money from George Mack (“Mack”), who served at that time

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as the Yellowstone Club's outside accountant. Mack was a go-between between Blixseth and

Moore when Moore needed money to pay the bills at the Yellowstone Club. After Moore

would make a request for funds, Moore testified that money may or may not appear in the

Yellowstone Club's accounts. Moore testified that it was not uncommon to have to shuffle the

Yellowstone Club's accounts payables due to a lack of money, and creditor and vendor invoices

would often go unpaid for 90 days or more.

When funds were tight, rather than make a demand on the BGI promissory note,

Blixseth would instead seek to obtain operating funds from various members of the

Yellowstone Club. One such member that Blixseth approached was Samuel T. Byrne

(“Byrne”). Byrne, the founder and managing partner of CrossHarbor, first visited the

Yellowstone Club in 2004 or 2005 as a guest of another Yellowstone Club member. As a result

of his visit, Byrne purchased two Yellowstone Club lots in 2005. Blixseth approached Byrne

and asked whether he would be interested in making a bulk purchase of Yellowstone Club lots

at a substantially reduced price. Byrne made his first bulk purchase in 2006 by taking over the

58 unit Sunrise Ridge Condominium Development for a price of $60 million. In August of

2007, Blixseth again approached Byrne to purchase 31 lots on the golf course. That sale was

consummated in August of 2007 at a price of $54 million.

The foregoing facts form the basis for the Court's decision regarding the Debtors' and

the Committee's equitable subordination claim. The Court has carefully reviewed the case law

under 11 U.S.C. § 510(c), and concludes that equitable subordination is an appropriate remedy

in this case. Under § 510(c), a court may, based upon equitable considerations, subordinate for

purposes of distribution all or a part of a claim or interest to all or part of another. 11 U.S.C. §

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510(c). This Court's decision to grant the Debtors and the Committee equitable relief is

reviewed for an abuse of discretion. See Grosz-Salomon v. Paul Revere Life Ins. Co., 237 F.3d

1154, 1163 (9th Cir.2001).

In the Ninth Circuit:

The subordination of claims based on equitable considerations generallyrequires three findings: “(1) that the claimant engaged in some type of inequitableconduct, (2) that the misconduct injured creditors or conferred unfair advantageon the claimant, and (3) that subordination would not be inconsistent with theBankruptcy Code.” Feder v. Lazar (In re Lazar), 83 F.3d 306, 309 (9th Cir.1996)(citing Benjamin v. Diamond (In re Mobile Steel Co.), 563 F.2d 692, 699-700 (5thCir.1977)).

In re First Alliance Mortg. Co., 497 F.3d 977, 1006 (9 Cir. 2006). When the remedy ofth

equitable subordination involves a non-insider, non-fiduciary, “the level of pleading and proof

is elevated: gross and egregious conduct will be required before a court [can] equitably

subordinate a claim.” Id.

The court in Waslow v. MNC Commercial Corp. (In re Paolella & Sons, Inc.), 161 B.R.

107, 119 (E.D. Pa. 1993), recognized that equitable subordination is seldom used in a non-

insider, non-fiduciary scenario because,

[a]s Judge Easterbrook pointed out in Kham & Nate's Shoes No. 2, Inc. v. FirstBank, 908 F.2d 1351, 1356 (7th Cir.1990), “[c]ases subordinating the claims ofcreditors that dealt at arm's length with the debtor are few and far between.” Thedearth of cases subordinating the claims of non-insiders is readily explained by thehigh threshold of misconduct that must be established by the objectant innon-insider cases. In In re Osborne, 42 B.R. 988, 996 (W.D.Wis.1984), the courtdiscussed the conduct required for equitable subordination in non-insider cases:

[The degree of misconduct] has been variously described as “verysubstantial” misconduct involving “moral turpitude or some breach of dutyor some misrepresentation whereby other creditors were deceived to theirdamage” or as gross misconduct amounting to fraud, overreaching orspoliation.

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Accord In re Mayo, 112 B.R. 607, 650 (Bankr.D.Vt.1990) (“There are few casesin which gross misconduct has actually been applied to non-insiders, and evenfewer where inequitable misconduct has caused a claim to be subordinated.”); Inre Dry Wall Supply, Inc., 111 B.R. 933, 938 (D.Colo.1990) (noting that “when[the fiduciary] relationship is absent, the party seeking equitable subordination ofa claim must demonstrate even more egregious conduct by the creditor”).Although courts have struggled to articulate the misconduct that must beestablished to subordinate non-insider claims, it is clear that the non-insider'smisconduct must be “gross or egregious.” See Benjamin Weintraub & Alan N.Resnick, BANKRUPTCY LAW MANUAL ¶ 5.15 at 5-96 (3d ed. 1992); see also In reOsborne, 42 B.R. at 997 (stating that “plaintiffs are required to make a showing ofgross or egregious misconduct”). Thus, “[a] mere statement that the creditor isguilty of ‘inequitable conduct’ will not suffice.” In re W.T. Grant, 4 B.R. 53,75-76 (Bankr.S.D.N.Y.1980), aff'd, 699 F.2d 599 (2d Cir.1983). Rather, theplaintiff must prove gross misconduct tantamount to “fraud, overreaching orspoliation.” Id.; see also In re Fabricators, Inc., 926 F.2d 1458, 1465 (5thCir.1991) (“If a claimant is not an insider, then evidence of more egregiousconduct such as fraud, spoliation or overreaching is necessary.”); In re Dry WallSupply, Inc., 111 B.R. 933, 938 (D.Colo.1990) (“The degree of misconduct whichthe plaintiff must show in the case of a noninsider has been variously described asgross misconduct tantamount to fraud, misrepresentation, overreaching orspoliation.”); In re Teltronics, 29 B.R. at 173 (holding that “it is incumbent uponthe [objectant] to demonstrate that [the non-insider] engaged in very substantialmisconduct tantamount to fraud, overreaching or spoliation, which caused othercreditors of [the debtor] to suffer damages”); In re Pinetree Partners, Ltd., 87B.R. 481, 488 (Bankr.N.D.Ohio 1988) (“Where the claimant is a non-insider,egregious conduct must be proven with particularity. It is insufficient for theobjectant in such cases merely to establish sharp dealings; rather, he must provethat the claimant is guilty of gross misconduct tantamount to fraud, overreachingor spoliation to the detriment of others.”). In summary, the “gross or egregiousmisconduct” needed to subordinate claims of non-insiders is much greater thanthe “inequitable conduct” that warrants subordination of insiders and fiduciaries.

Credit Suisse's actions in the case were so far overreaching and self-serving that they shocked

the conscience of the Court.

In Cushman & Wakefield's July 1, 2005, appraisal, the Debtors had purportedly sold

243 lots or units, and another 42 lots were listed under contract. The lot sales for 2000 through

2005 are summarized by closing date, lot number, price and type in Addendum B to the

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appraisal. Dean R. Paauw (“Paauw”), a certified Member of the Appraisal Institute (“MAI”)

who prepared Cushman & Wakefield's July 1, 2005, appraisal of the Yellowstone Club, states

on page 65, in discussing an overview of the Yellowstone Club's current and recent real estate

pricing, that there were five remaining lots in inventory in Pine Ridge, a subdivision at the

Yellowstone Club. The five remaining Pine Ridge Lots were listed for sale at asking prices

ranging from $1,950,000 to $4,000,000. Paauw went on to state that “[t]he developer typically

achieves his asking price on his inventory, and [the Pine Ridge] lots are expected to be sold

within the next 12 months.” Paauw's July 1, 2005, appraisal also concludes that “[a]bsorption in

Yellowstone Club has historically been hurt by limited availability in product.”

In 2005, Credit Suisse was offering a new financial product for sale. It was offering the

owners of luxury second-home developments the opportunity to take their profits up front by

mortgaging their development projects to the hilt. Credit Suisse would loan the money on a

non-recourse basis, earn a substantial fee, and sell off most of the credit to loan participants.

The development owners would take most of the money out as a profit dividend, leaving their

developments saddled with enormous debt. Credit Suisse and the development owners would

benefit, while their developments – and especially the creditors of their developments – bore all

the risk of loss. This newly developed syndicated loan product enriched Credit Suisse, its

employees and more than one luxury development owner, but it left the developments too

thinly capitalized to survive. Numerous entities that received Credit Suisse's syndicated loan

product have failed financially, including Tamarack Resort, Promontory, Lake Las Vegas,

Turtle Bay and Ginn. If the foregoing developments were anything like this case, they were

doomed to failure once they received their loans from Credit Suisse.

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Credit Suisse, Barcy, Yankauer and others on the Credit Suisse team only earned fees if

they sold loans. Credit Suisse thus devised a loan scheme whereby it encouraged developers of

high-end residential resorts, such as Blixseth, to take unnecessary loans. The higher the loan

amount, the fatter the fee to Credit Suisse. This program essentially puts the fox in charge of

the hen house and was clearly self-serving for Credit Suisse.

The fee structure was undoubtedly the catalyst that led to the most shocking aspect of

Credit Suisse's newly developed loan product. As noted earlier, Credit Suisse's new loan

product was marketed to developers on grounds that developers were authorized to take a

substantial portion of their Credit Suisse loan proceeds as a distribution, or as Blixseth argues, a

loan. In this case, Credit Suisse had not a single care how Blixseth used a majority of the loan

proceeds, and in fact authorized Blixseth to take $209 million and use it for any purpose

unrelated to the Yellowstone Club. Blixseth, however, had a problem in this case because he

was not the sole owner of the Yellowstone Club and he did not want to share the loan proceeds

with the B shareholders. Thus, Blixseth booked the $209 proceeds that he took from the

Yellowstone Club as a loan months after he actually took the proceeds. Blixseth claims he

always intended to repay the $209 million BGI note, but Blixseth's former wife Edra testified to

the contrary.

Blixseth testified that he always intended to take the $209 loan proceeds as a loan rather

than a distribution because booking the transaction as a distribution would have caused his

owner's equity account to have a negative balance. The negative owner's equity would have

appeared as a qualification on the Debtors' audited financial statements and may have caused

the Debtors' to be out of compliance with the Credit Agreement. A sophisticated lender such as

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Credit Suisse had to have known what a distribution would do to the Debtors' financial

statements, and in particular, their balance sheets, yet Credit Suisse proceeded with the loan,

and thus earned its large fee.

In addition to turning a blind eye to Debtors' financial statements, Credit Suisse's due

diligence with respect to the $375 million loan was almost all but non-existent. Credit Suisse

spent a fair amount of money on legal bills to ascertain that the Debtors did in fact own the

property at the Yellowstone Club, and Credit Suisse also spent a fair amount ensuring that it

was not violating any laws with its loan product. Credit Suisse, however, did little financial

due diligence. Barcy testified that Credit Suisse was aware that Cushman & Wakefield had

appraised Debtors' assets in 2004 and thus either knew or should have known that the collateral

that Blixseth proposed for the Credit Suisse loan had a fair market value of $420 million in

2004. The Court highly doubts that Credit Suisse could have successfully syndicated the

Yellowstone Club loan if the loan to value ratio was 90 percent. Thus, Credit Suisse instead

commissioned Cushman & Wakefield to employ its newly devised valuation methodology. In

applying the new valuation methodology, Credit Suisse relied almost exclusively on the

Debtors' future financial projections, even though such projections bore no relation to the

Debtors' historical or present reality.

Moreover, the Debtors’ past debt had bounced between $4 to $5 million on the low end

to $60 million on the high end. Credit Suisse proposed to increase the Debtors' debt load by at

least six times. Barcy, Yankauer and the rest of the Credit Suisse syndicated loan team could

not have believed under any set of circumstances that the Debtors could service such an

increased debt load, particularly when the Debtors had several years of net operating losses,

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mixed with a couple years of net operating revenues.

The only plausible explanation for Credit Suisse's actions is that it was simply driven by

the fees it was extracting from the loans it was selling, and letting the chips fall where they

may. Unfortunately for Credit Suisse, those chips fell in this Court with respect to the

Yellowstone Club loan. 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 resort communities. Credit Suisse lined its pockets on the backs of the unsecured

creditors. The only equitable remedy to compensate for Credit Suisse's overreaching and

predatory lending practices in this instance is to subordinate Credit Suisse's first lien position to

that of CrossHarbor's superpriority debtor-in-possession financing and to subordinate such lien

to that of the allowed claims of unsecured creditors.

The Debtors have provided for the membership claims in their proposed Chapter 11

plan. Accordingly, the Court declines to equitably subordinate Credit Suisse's secured claim to

those of the members, including members of the Ad Hoc Committee of Yellowstone Club

Members or the Ad Hoc Group of Class B Unit Holders.

For purposes of the upcoming auction of Debtors’ assets scheduled for May 13, 2009,

Credit Suisse shall be allowed to submit a credit bid for the amount of its allowed secured claim

of $232 million. However, because Credit Suisse’s claim is equitably subordinated, Credit

Suisse must provide, as a component of its credit bid, sufficient funds to pay the CrossHarbor

debtor-in-possession financing, the administrative fees and costs of the Debtors’ bankruptcy

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estate and the allowed unsecured claims of non-member creditors. For the reasons discussed

herein,

IT IS ORDERED that a separate and final memorandum of decision and judgment will

follow this partial and interim order, wherein judgment will be entered in favor of the Debtors

and the Committee and against Credit Suisse; and pursuant to 11 U.S.C. § 510(c), Credit

Suisse's allowed secured claim of $232 million is equitably subordinated to: (1) CrossHarbor's

debtor-in-possession financing; (2) approved administrative fees and costs of the bankruptcy

estate; and (3) the allowed claims of unsecured creditors. Credit Suisse's $232 million secured

claim is not subordinated with respect to the claims of members resulting from their

membership agreements and is not subordinated to any claims of the Class “B” minority

shareholder members.

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John S. Hekman EXHIBIT 1 550 South Hope Street Suite 2150 Los Angeles, California 90071 Tel. (424) 204-8872 Fax (213) 243-3710 E-mail: [email protected] EDUCATION Ph.D., Economics, University of Chicago M.B.A., Finance, University of Chicago BA, History, Valparaiso University EMPLOYMENT Principal, LECG, LLC, 2004-present.

Lecturer, MBA program, University of Southern California, 1989-present. Department of Finance and Business Economics.

Past Positions:

Principal, Economic Analysis LLC, 2000-03.

Principal, LECG, LLC, 1998-2000.

Director, Altschuler, Melvoin and Glasser LLP, 1996-98.

Vice President (1993-96), Senior Economist (1992), Economic Analysis Corporation.

Senior Economist, Micronomics, Inc., 1990-92.

Executive Vice President and Director of U.S. Economic Forecasting, Claremont Economics Institute, 1986-90. Editor, The Main Street Journal Investment letter.

Associate Professor of Finance, University of North Carolina, Chapel Hill 1981-86, (academic tenure granted, 1985).

Visiting Scholar, Federal Reserve Bank of Atlanta, 1981-84.

Economist, Federal Reserve Bank of Boston, 1980.

Research Associate, Harvard-MIT Joint Center For Urban Studies, 1978.

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Assistant Professor of Economics, Boston College, 1975-81.

Instructor, University of Chicago, 1974-75.

TESTIMONY

Morton v. Morton. California Superior Court for the County of Los Angeles. Retained by Thomas Nolan of Skadden, Arps, Meagher & Flom. Deposition March 2009. Bullock v. Philip Morris, Inc. California Superior Court for the County of Los Angeles. Retained by Robert McCarter of Arnold & Porter. Deposition March 2009. Gartner, Inc. v. Parikh, et al. United States District Court for the Central District of California. Retained by Thomas Mackey of Jackson Lewis, August 2008. Deposition October, 2008. Beth Robbins v. Essex Management Corp., et al. California Superior Court for the County of Los Angeles. Retained by Jeremy Dwork of Daley & Heft. Deposition September, 2008. Catherine Blaylock, et al. v. First American Title Insurance Company. United States District Court, Western District of Washington. Retained by Stephen Rummage of Davis Wright Tremaine. Declaration filed January, 2008. Janice Howland v. First American Title Insurance. United States District Court, Northern District of Illinois, Eastern Division. Retained by Douglas Mansfield of Jones, Day. Declaration filed January, 2008. United National Maintenance Inc. v. San Diego Convention Center Corp. California Superior Court, County of San Diego. Retained by Jeffrey Leon of Ungaretti & Harris, LLP. Testimony filed December 2007. Julius Chang and Howard Chen v. Charles Schwab & Company, California Superior Court, County of San Francisco. Retained by Daniel Newland of Seyfarth Shaw LLP. Deposition October, 2007.

Eric Seiken, et al. v. Pearle Vision, Inc., et al. California Superior Court, County of San Diego. Retained by Kevin Quinn of Thorsnes Bartolatta McGuire. Class Certification Declaration submitted September, 2007; deposition November 2007. Tim Wood, SFG Financial Corp. et al. v. Mark Boucher, Investment Research Associates, et al, California Superior Court, County of San Mateo. Retained by Joel Wolosky of Hodgson Russ. Deposition April 2007.

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Dwight W. Crawford. v. Debra S. Katz, et al., Superior Court for the District of Columbia. Retained by Glenn M. Young of the Young Law Firm. Deposition April 2007. James Ripley v. Wyoming Medical Center et al. United States District Court for the District of Wyoming. Retained by Stephen Kline of Kline Law Office PC. Deposition April 2007. American Medical Response v. City of Stockton United States District Court Eastern District of California. Retained by Michael Higgins of Wulfsberg Reese Colvig & Firstman. Deposition February 2007. Breakdown Services Ltd. v. Now Casting, Inc. California Superior Court, County of Los Angeles. Retained by Stephen P. Krakowsky. Deposition October 2006. RitterRanch Development LLC, debtor. Los Angeles County Waterworks District No. 40 v. Robbin Itkin et al., United States District Court Central District of California. Retained by Parry Cameron of Stephan, Oringher, Richman, Theodora & Miller. Deposition June 2006. Pamela Cunningham and Reet Caldwell v. Mattel, Inc. Circuit Court, Third Judicial Circuit, Madison County, Illinois. Retained by Gerald Hawxhurst of Quinn Emanuel Urquhart Oliver & Hedges. Deposition February 2005. In re Cioffi, California Superior Court, County of Santa Clara. Retained by William Russell of Lakin, Spears. Deposition and trial testimony January 2004. Ederel Sport, Inc. v. Gotcha International, L.P. U.S. Bankruptcy Court, Central District of California. Retained by Michael Adele of Albert, Weiland & Golden. Deposition and trial testimony May 2003. In Re Fuqua Industries Shareholder Litigation, Delaware Chancery Court Civil Action No. 11974. Retained by Lowell Sachnoff of Sachnoff & Weaver. Deposition March 2003. SPC/PomomaLLC v. Medianews Group, Inc. Superior Court of California, County of Los Angeles. Retained by Steven Gardner of Cohon and Gardner. Deposition February 2003; trial testimony April 2003. MGM v. Midway Games, Inc. U. S. District Court, Central District of California, Western Division. Retained by John Williams of Lord, Bissell & Brook. Report submitted October 2002. Freeman Industries LLC v. Eastman Chemical Company, et al., In the Law Court for Sullivan County at Kingsport, Tennessee. Retained by Aton Arbisser of Kaye Scholer. Class Certification Affidavit submitted September 2002.

Keep v. State of California, Superior Court of California, County of Los Angeles. Retained by Vladimir Shalkovich, Deputy Attorney General. Deposition October 2002.

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IMAX, LTD. v. Krikorian Premiere Theatres, U.S. District Court for the Central District of California. Retained by Glenn Dassoff of Paul, Hastings, Janofsky & Walker. Deposition September 2002.

Betty Bullock v. Phillip Morris, Inc. et al.; California Superior Court, Los Angeles. Retained by Thomas Stoever of Arnold & Porter on behalf of defendant. Deposition May 2002.

International Paper and Masonite v. Affiliated FM Insurance Co, et al.; California Superior Court, San Francisco. Retained by Adam Murray of Howrey, Simon, Arnold & White. Deposition May 2001; trial testimony November 2001.

Copley Press, et al. v. Gray Davis, et al; Tony Strickland, et al. v. Gray Davis, et al.; California Superior Court, San Diego County; retained by Timothy Muscat, Deputy Attorney General. Declaration in Support of Defendant's Opposition Brief submitted May 2001.

Fitzgerald v. Silcott, et al. California Superior Court, County of Los Angeles. Retained by Law Offices of J. Jeffrey Long. Deposition January 2000; trial October 2001.

Formal Complaint of Tesoro Alaska Petroleum Against Amerada Hess, et al., Federal Energy Regulatory Commission and Regulatory Commission of Alaska. Retained by John Donovan of Skadden, Arps, Slate Meagher & Flom. Testimony submitted November 2000.

Alavi v. Kaiser Foundation Hospitals. Retained by Walter Weiss. Arbitration testimony November 2000.

Seguritan v. State of California, et al. Los Angeles County Superior Court. Retained by Anne Hunter, Deputy Attorney General. Deposition July 2000.

Lenehan v. Maryland Casualty. California Superior Court, County of Los Angeles. Retained by Law Offices of J. Jeffrey Long. Deposition May 2000.

Hearing on Green Coke Pricing Issue for TAPS Quality Bank. Federal Energy Regulatory Commission. Retained by John Donovan of Skadden, Arps, Slate, Meagher & Flom. Testimony May 2000.

Tash v. Aviara Land Associates, L.P., et al. San Diego Superior Court. Retained by Jerry Phillips of Richman, Mann, Chizever, Phillips & Duboff. Deposition April 2000; Trial testimony May 2000.

First Pension Corp/Murray v. Belka. California Superior Court, County of Orange. Retained by William Meeske of Latham & Watkins. Deposition February 2000.

Rhonda Jalali v. Assembly of God, Teen Challenge et al. California Superior Court. Retained by George Buehler of Howrey & Simon. Deposition and trial testimony July 1999.

4/1/2009 www.lecg.com Page 4 of 8

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Alfred Martino, Jr. v. Northbrook Property and Casualty Company and St. Paul Fire and Marine Insurance Company, Arbitration. Retained by Law Offices of J. Jeffrey Long. Testimony June 1999.

Hugo Valdivia v. MCE Corporation, et al., California Superior Court for the County of Los Angeles. Retained by Andrew Jacobs of the Law Offices of Andrew Hoffman (CNA Insurance). Deposition November 1997; trial January 1998.

Louisville Bedding Company v. Pillowtex Corporation, United States District Court for the Western District of Kentucky. Retained by Hartwell Morse of Welsh & Katz. Deposition November, December 1997.

Infant and Nutritional Products, et al. v. BJ Family Food Center, et al, California Superior Court for the County of Los Angeles. Retained by Farhad Novian of Novian & Novian. Deposition September 1997.

William Gene Norman v. Herbalife International, et al., California Superior Court for the County of Los Angeles. Retained by Ward Benshoof of McClintock Weston Benshoof Rochefort Rubalcava MacCuish. Deposition April 1997.

Jeffrey Alpert v. Gerald Busch, et al, California Superior Court for the county of Los Angeles. Retained by Law Offices of Daniel Hoffman (CNA Insurance). Trial testimony November 1997.

Janelle Flores v. Dapo Popoola, MD, et al., California Superior Court for the County of Los Angeles. Retained by Henry Tovmassian of Kehr, Crook, Tovmassian & Fox. Deposition September 1997.

Ridgecrest Homeowners Association v. Nihon Lancre America, Inc., et al., California Superior Court for the County of Los Angeles. Retained by Ronald Caswell of Richmond, Lawrence, Mann, Greene, Chizever, Friedman & Phillips. Deposition June 1997.

Harvey W. Stuart, et al. v. Kraft Foods, Inc. et al., United States District Court for the Eastern District of Wisconsin. Retained by Michael Freed of Much Shelist Freed Denenberg Ament Bell & Rubenstein. Affidavit November 1996; deposition and court testimony December 1996.

Albert and Estelle Binder, et al. v. Thomas Gillespie, et al., United States District Court for the District of Idaho. Retained by Robert Bretz of Robert H. Bretz, PC. Affidavit December 1996.

Ernst Paul Lehmann Patentwerk v. San-Val Discount, Inc., United States District Court, Central District of California. Retained by Douglas Adler of Skadden, Arps, Slate, Meagher & Flom. Affidavit submitted March 1996.

4/1/2009 www.lecg.com Page 5 of 8

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JAR-PR Associates v. Unocal, Superior Court of the State of California, County of Los Angeles. Retained by George Crook of Kehr, Crook, Tovmassian & Fox. Deposition and trial testimony, March 1996.

Sarkis v. State of California, California Superior Court, County of Kern. Retained by Deputy Attorney General Daniel Helfat. Deposition, January 1996.

Casper Boso v. Chicago Bears. Retained by Steven Wolf of Wolf & Ouimet to testify regarding the average career length of NFL players. Arbitration testimony November 1994.

Styling Research Company v. Conair Corporation, Superior Court of the State of California, County of Los Angeles. Retained by Phillip Belleville of Latham & Watkins. Deposition August 1992.

Medical Designs, Inc. v. Donjoy, Inc., United States District Court, Southern District of California. Retained by Paul C. Van Slyke of Pravel, Gambrell, Hewitt, Kimball & Krieger. Deposition October 1991.

California Grocers Association v. Bank of America, Superior Court of the State of California for the County of Alameda, Northern District. Retained by Arne Wagner of Bank of America. Deposition May 1991.

CONSULTANT

Simpson Thatcher & Bartlett, New York, NY, Kenneth Logan; Ronald Cleveland, et al. v. Viacom, Blockbuster, et al. United States District Court for the Western District of Texas, 2002. In Re Maguire Thomas Partners – Grand Place Tower, Ltd. United States Bankruptcy Court, Central District of California. Retained by Bennett Silverman of Gibson, Dunn & Crutcher on behalf of Sumitomo Bank, 1999.

Howrey & Simon, Washington, DC, Thomas Heyer; Litton Systems, Inc. v. Honeywell, Inc., 1995-1996.

Thelen, Marrin, Johnson & Bridges, San Francisco, Steven V. O’Neal; IBM v. Fasco Industries, 1994-1995.

Packard Bell Electronics, Inc. v. Teledyne Industries, Inc., Superior Court of the State of California, County of Los Angeles. Retained by Ronald M. St. Marie of Ervin, Cohen & Jessup. August 1995.

O’Melveny & Myers, Los Angeles, Charles Diamond, Randy Oppenheimer; Exxon Valdez Oil Spill Litigation, 1993-1994; 2000; 2002.

4/1/2009 www.lecg.com Page 6 of 8

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PUBLICATIONS

“California Under Siege: A Call for Perspective” (with Ken Agid, et al.), California Real Estate Roundtable, April 1991.

“Should We Reform Deposit Insurance?” Los Angeles Times, March 11, 1990, D3.

“New England’s Economy in the 1980s” (with Lynn Browne), in The Massachusetts Miracle, David R. Lampe (ed.), The MIT Press: Cambridge, MA, 1988.

“Real Estate Returns and Inflation” (with David Hartzell and Mike Miles), American Real Estate and Urban Economics Association Journal (AREUEA), Spring 1987.

“Factors Affecting Manufacturing Location in North Carolina,” in Dale Whittington (ed.), High Hopes for High Tech: Microelectronics in North Carolina, University of North Carolina Press, 1987.

“Diversification Categories in Investment Real Estate” (with David Hartzell and Mike Miles), AREUEA Journal, Summer 1986.

Land Supply Monitoring: A Guide for Improving Public and Private Urban Development Decisions (with D. Godshalk, S. Bollens, and M. Miles), Oelgeschlager, Gunn & Hain: Boston, 1985.

“Rental Price Adjustment and Investment in the Office Construction Market,” AREUEA Journal, Spring 1985.

“Branch Plant Location and the Product Cycle in Computer Manufacturing,” Journal of Economics and Business, May 1985.

“Venture Capital and Economic Development in the Southeast” (with Mike Miles), Economic Review, Federal Reserve Bank of Atlanta, July 1983.

“Optimal Allocation of Economic Development Funds” (with Mike Miles, et al.), N.C. Department of Natural Resources and Community Development, January 1983.

“What are Businesses Looking for? A Survey of Industrial Firms in the South,” Economic Review, Federal Reserve Bank of Atlanta, June 1982.

“Behind the Sunbelt’s Growth: Industrial Decentralization” (with Alan Smith), Economic Review, Federal Reserve Bank of Atlanta, March 1982.

“Impact of Environmental Regulations on Industrial Development in North Carolina” (with Raymond Burby, et al.), North Carolina Department of Natural Resources and Community Development, February 1982.

4/1/2009 www.lecg.com Page 7 of 8

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4/1/2009 www.lecg.com Page 8 of 8

“The Evolution of New England Industry” (with John Strong), New England Economic Review, March-April 1981.

“New England’s Economy in the 1980s” (with Lynn Browne), New England Economic Review, January-February 1981.

“Income, Labor Supply and Urban Residence,” American Economic Review, September 1980.

“Is there a Case for Plant Closing Laws?” (with John Strong), New England Economic Review, July-August 1980.

“The Product Cycle and New England Textiles,” Quarterly Journal of Economics, June 1980.

“Can New England Hold Onto its High Technology Industry?” New England Economic Review, April 1980.

“Regions Don’t Grow Old, Products Do,” The New York Times, Sunday Business, November 4, 1979.

“What Attracts Industry to New England?” New England Economic indicators, December 1978.

“An Analysis of the Changing Location of Iron and Steel Production in the Twentieth Century,” American Economic Review, March 1978.

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Exhibit 2 Report of John S. Hekman

Exhibit 2

List of Materials Reviewed

1. Complaint: Official Committee of Unsecured Creditors, Plaintiff vs. Credit Suisse, Cayman Islands Branch, et al., in the United States Bankruptcy Court for the District of Montana, March 3, 2009.

2. Committee’s Answers to Credit Suisse’s Interrogatories.

3. Credit Suisse Cayman Islands LLC Credit Agreement with Yellowstone Mountain Club, et al., September 30, 2005 (RKM000389-483); GLR000434-39; Exhibits: GLR000676-809; Schedules GLR000840-869; Security Agreement GLR000881-919.

4. Yellowstone Mountain Club Appraisal, August 2005, by Cushman & Wakefield of

Colorado, Inc., transmittal letter (CSVC00002975-3092)

5. “Paradise Lost”, Fortune, February 6, 2008.

6. Yellowstone Mountain Club Appraisal by Cushman & Wakefield, September 2004 (CSVC00000332-393).

7. Cushman & Wakefield of Oregon, Inc. Appraisal June 2006 (RKM000267-325)

8. November 10, 2008 Appraisal of Yellowstone Club (YUCC2023040-2023145)

9. emails: CSVC00003440; CSVC00012907-12908; CSVC00026895.

10. Loan amount and term sheet drafts and related emails: CSVC00000001-07; CSVC00000013-19; CSVC00000152; 156-161.

11. Engagement letter drafts and related emails: CSVC00000473-476; CSVC00000139.

12. Internal memorandum to “Bank and High Yield Finance Committee” of Credit Suisse First Boston from Jeff Barcy, Jeff Tuckel, Jeremy Rogers and Akira Okubo dated January 6, 2005 (CSVC00110291-98)

13. “Credit Suisse Resort Loans Default From Beverly Hills to Idaho” www.bloomberg.com, March 5, 2009

14. Yellowstone Mountain Club and Yellowstone Development Financial Statements, 2001 (CSVC00000234-251); 2002 (CSVC00000252-269); 2003 (CSVC00000270-288); 2004 (CSVC00000289-306); 2007 (KPMG).

15. Yellowstone Mountain Club, LLC and Subsidiary, Yellowstone Development, LLC and subsidiaries and Big Sky Ridge, LLC Combined Financial Statements, December 31, 2006 and 2005 (RKM000135-173).

16. Yellowstone Mountain Club Lot sales data (Excel sheet).

17. Engagement letter May 2, 2005, from Cushman & Wakefield of Colorado, Inc. to Mr. Jeff Barcy, Credit Suisse First Boston LLC, re: appraisal of Yellowstone Club, Madison County, Montana (CVSC00000116-120)

18. Private rating letter, Moody’s Investor’s Service (CSVC00017353-55)

19. Private rating letter, Standard & Poor’s to Chris Campbell, Vice President of Finance,

1

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Exhibit 2 Report of John S. Hekman

2

Yellowstone Club, rating $375 million Senior Secured First Lien Credit Facility, dated September 27, 2005 (CVSC00015551-15555)

20. Confidential Information Memorandum re: $330,000,000 Senior Secured Credit Facility for Yellowstone Mountain Club, LLC, prepared by Credit Suisse First Boston, dated September 2005. (CSSU00090-140)

21. Investment Offering Memorandum re: offering of 100% ownership in the equity of the reorganized debtor entity, real estate and all assets involved with the operation of Yellowstone Club, prepared by CB Richard Ellis, Inc.©2009.

22. “Up to $230.0 Million Senior Secured Credit Facility Engagement Letter” by and between Credit Suisse First Boston and Yellowstone Mountain Club LLC and Yellowstone Development LLC dated May 6, 2005. (CSSU 00001- CSSU00014)

23. “Yellowstone Club $330,000,000 Senior Secured Credit Facility”, prepared by Syndicated Loan Group. (CSVC00041548)

24. “Project Powder” analysis CSVC00000177-206.

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Official Committee of Unsecured Creditors v. Credit Suisse Cayman Islands Branch

EXHIBIT 3YELLOWSTONE CLUB APPRAISAL2006 CUSHMAN AND WAKEFIELD

Report of John S. Hekman

2006 2007 2008 2009 2010 2011 2012 TotalsTotal Land Sales Revenues $117,500,000 $164,550,000 $226,877,050 $198,167,234 $203,448,777 $210,344,741 $251,976,145 $1,372,863,947Less Expenses/Profit -$33,420,000 -$50,642,000 -$51,894,534 -$26,864,650 -$17,613,399 -$15,047,579 -$12,224,092 -$207,706,254Cash Flow $84,080,000 $113,908,000 $174,982,516 $171,302,584 $185,835,378 $195,297,162 $239,752,053 $1,165,157,693Discount Factor 15% 0.86957 0.75614 0.65752 0.57175 0.49718 0.43233 0.37594discounted cash flow $73,113,043 $86,130,813 $115,053,845 $97,942,808 $92,393,027 $84,432,353 $90,131,677 $639,197,566NPV cash flows $639,197,566

rounded $639,000,000

Source: April 2006 Appraisal of Yellowstone Mountain Club, Cushman & Wakefield, Exhibit B

Prepared by LECG

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Official Committee of Unsecured Creditors v. Credit Suisse Cayman Islands Branch

EXHIBIT 4ACTUAL AND PROJECTED LOT/UNIT SALES

Report of John S. Hekman

Actual ProjectedLot/Unit Lot/Unit

Sales Sales2000 19 2006 412001 40 2007 602002 28 2008 892003 52 2009 872004 56 2010 852005 48 2011 85

2012 66

Total 243 513

Average2000-2005 40.5 2006-2012 73.32001-2005 44.8

source: August 2005 Appraisal of Yellowstone Club, pages 68, 70

Preared by LECG

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Official Committee of Unsecured Creditorsv. Credit Suisse Cayman Islands Branch

EXHIBIT 5LOT SALES 2000-2005

YELLOWSTONE CLUB

Report of John S. Hekman

Year Units Lot Sales Average Price2000 19 23,945,000$ 1,260,263$ 2001 37 20,480,000 553,514 2002 28 28,030,000 1,001,071 2003 51 65,447,500 1,283,284 2004 52 82,900,000 1,594,231 2005 47 108,270,000 2,303,617

234 329,072,500$ 1,406,293$

Source: August 2005 Appraisal by Cushman & WakefieldAddendum B: Summary of Lot Sales

Prepared by LECG Draft prepared by LECG, LLC 4/1/2009 11:23 AM

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Official Committee of Unsecured Creditorsv. Credit Suisse Cayman Islands Branch

EXHIBIT 6AUGUST 2005 APPRAISAL

CASH FLOW PROJECTIONS

Report of John S. Hekman

Revenues Fiscal YearPrice 1 2 3 4 5 6 7

# Lots Unit/Lot 2006 2007 2008 2009 2010 2011 2012 Total Revenues

Improved ProductPioneer Mtn. Condos - land value 70 $1,000,000 $0 $0 $10,609,000 $16,390,905 $16,882,632 $17,389,111 $17,910,784 $79,182,432Beginner Lift Condos - land value 30 $1,000,000 0 0 0 10,927,270 11,255,088 11,592,741 0 $33,775,099Big Springs Suites - land value 24 $1,000,000 0 0 12,730,800 13,112,724 0 0 0 $25,843,524Golf Course Chalets - land value 60 $1,500,000 0 0 15,913,500 16,390,905 25,323,948 26,083,667 17,910,784 $101,622,804Rainbow Pointe Chalets - land value 90 $1,500,000 0 23,175,000 23,870,250 24,586,358 25,323,948 26,083,667 26,866,177 $149,905,400

Lot SalesAndesite Ridge - South 1 $1,500,000 1,500,000 0 0 0 0 0 0 $1,500,000Big Sky Ridge 72 $2,500,000 62,500,000 64,375,000 58,349,500 0 0 0 0 $185,224,500Pine Ridge (Phase 3) 5 $2,750,000 13,750,000 0 0 0 0 0 0 $13,750,000Yellow mule Ridge (Golf Course Lots) 60 $3,000,000 30,000,000 61,800,000 63,654,000 32,781,810 0 0 0 $188,235,810Eglise Ridge 101 $2,500,000 0 0 0 40,977,263 84,413,161 86,945,556 77,613,399 $289,949,379TOTAL 513

Total Land Sales Revenues $107,750,000 $149,350,000 $185,127,050 $155,167,235 $163,198,777 $168,094,742 $140,301,144 $1,068,988,948# Lots Sold 41 60 89 87 85 85 66 513

# Lots Remaining 472 412 323 236 151 66 0

Net Income from Club Operations -5,500,000 -4,800,000 -3,500,000 0 1,000,000 3,000,000 3,000,000 (6,800,000)

Reversion from Sale of Club to Members 74,175,000 74,175,000

Membership Deposit Revenue 15,250,000 20,000,000 45,250,000 43,000,000 39,250,000 39,250,000 34,500,000 236,500,000

Total Gross Revenues $117,500,000 $164,550,000 $226,877,050 $198,167,235 $203,448,777 $210,344,742 $251,976,144 $1,372,863,948

Development Costs and Expenses

Reimburse Pioneer and Frontier Members $2,500,000 $2,500,000 $4,750,000 $9,750,000Community/Club Infrastructure 14,300,000 26,059,000 26,840,770 4,261,635 787,856 72,249,261Neighborhood Infrastructure 2,500,000 4,635,000 4,243,600 3,059,636 1,969,640 16,407,876Cost of Sales/Closing Costs 8% 8,620,000 11,948,000 14,810,164 12,413,379 13,055,902 13,447,579 11,224,092 85,519,116Admin./Taxes/Overhead/Misc. 8,000,000 5,500,000 3,500,000 2,200,000 1,800,000 1,600,000 1,000,000 23,600,000

Total Expenses and Profit $33,420,000 $50,642,000 $51,894,534 $26,684,650 $17,613,398 $15,047,579 $12,224,092 $207,526,253

Cash Flow $84,080,000 $113,908,000 $174,982,516 $171,482,585 $185,835,379 $195,297,163 $239,752,052 $1,165,337,695

TOTAL NET VALUE INDICATION $1,165,337,695Rounded to $1,165,000,000

AssumptionsTotal # Lots/Units 513 $2,270,955 per unit/lot (513)Total Retail value of Lots $976,750,000Total Retail Value of Club Memberships $310,675,000Expense Inflation 3%Lot/Unit Appreciation 3%

2006 Average Assumed Price per Lot $2,628,048.78

Source: August 2005 Appraisal, Cushman & Wakefield, CW1432; and LECG calculations

Prepared by LECG

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Official Committee of Unsecured Creditorsv. Credit Suisse Cayman Islands Branch

EXHIBIT 7YMC AND YD OPERATING INCOME

2001-2004

Report of John S. Hekman

Operating Income (Loss)

YellowstoneYellowstone MountainDevelopment Club Total

2004 29.50$ (12.97)$ 16.53$ 2003 4.85$ 18.30$ 23.15$ 2002 (1.57)$ 1.16$ (0.41)$ 2001 (1.43)$ 1.35$ (0.08)$

Source: 2001 (CSVC00000234-251); 2002 (CSVC00000252-269); 2003 (CSVC00000270-288); 2004 (CSVC00000289-306)

Prepared by LECG

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Official Committee of Unsecured Creditorsv. Credit Suisse Cayman Islands Branch

EXHIBIT 8AUGUST 2005 APPRAISAL

2003-2004 PRICES

Report of John S. Hekman

Revenues Fiscal YearPrice 1 2 3 4 5 6 7

# Lots Unit/Lot 2006 2007 2008 2009 2010 2011 2012 Total Revenues

Improved ProductPioneer Mtn. Condos - land value 70 $1,000,000 $0 $0 $10,000,000 $15,000,000 $15,000,000 $15,000,000 $15,000,000 $70,000,000Beginner Lift Condos - land value 30 $1,000,000 - - - 10,000,000 10,000,000 10,000,000 - $30,000,000Big Springs Suites - land value 24 $1,000,000 - - 12,000,000 12,000,000 - - - $24,000,000Golf Course Chalets - land value 60 $1,500,000 - - 15,000,000 15,000,000 22,500,000 22,500,000 15,000,000 $90,000,000Rainbow Pointe Chalets - land value 90 $1,500,000 - 22,500,000 22,500,000 22,500,000 22,500,000 22,500,000 22,500,000 $135,000,000

Lot SalesAndesite Ridge - South 1 $1,438,758 1,438,758 - - - - - - $1,438,758Big Sky Ridge 72 $1,438,758 35,968,939 35,968,939 31,652,666 - - - - $103,590,543Pine Ridge (Phase 3) 5 $1,438,758 7,193,788 - - - - - - $7,193,788Yellow mule Ridge (Golf Course Lots) 60 $1,438,758 14,387,575 28,775,151 28,775,151 14,387,575 - - - $86,325,452Eglise Ridge 101 $1,438,758 - - - 21,581,363 43,162,726 43,162,726 37,407,696 $145,314,512TOTAL 513

Total Land Sales Revenues $58,989,059 $87,244,089 $119,927,817 $110,468,939 $113,162,726 $113,162,726 $89,907,696 $692,863,052# Lots Sold 41 60 89 87 85 85 66 513

# Lots Remaining 472 412 323 236 151 66 0

Net Income from Club Operations -5,500,000 -4,800,000 -3,500,000 0 1,000,000 3,000,000 3,000,000 (6,800,000)

Reversion from Sale of Club to Members 74,175,000 74,175,000

Membership Deposit Revenue 15,250,000 20,000,000 45,250,000 43,000,000 39,250,000 39,250,000 34,500,000 236,500,000

Total Gross Revenues $68,739,059 $102,444,089 $161,677,817 $153,468,939 $153,412,726 $155,412,726 $201,582,696 $996,738,052

Development Costs and Expenses

Reimburse Pioneer and Frontier Members $2,500,000 $2,500,000 $4,750,000 $9,750,000Community/Club Infrastructure 14,300,000 26,059,000 26,840,770 4,261,635 787,856 72,249,261Neighborhood Infrastructure 2,500,000 4,635,000 4,243,600 3,059,636 1,969,640 16,407,876Cost of Sales/Closing Costs 8% 4,719,125 6,979,527 9,594,225 8,837,515 9,053,018 9,053,018 7,192,616 55,429,044Admin./Taxes/Overhead/Misc. 8,000,000 5,500,000 3,500,000 2,200,000 1,800,000 1,600,000 1,000,000 23,600,000

Total Expenses and Profit $29,519,125 $45,673,527 $46,678,595 $23,108,786 $13,610,514 $10,653,018 $8,192,616 $177,436,181

Cash Flow $39,219,934 $56,770,562 $114,999,221 $130,360,152 $139,802,212 $144,759,708 $193,390,080 $819,301,871

TOTAL NET VALUE INDICATION $819,301,871

NET PRESENT VALUE FACTOR: 15% 1 0.869565 0.756144 0.657516 0.571753 0.497177 0.432328

NET PRESENT VALUE $39,219,934 $49,365,706 $86,955,933 $85,713,916 $79,932,369 $71,971,159 $83,607,869 $496,766,886

AssumptionsTotal # Lots/Units 513Total Retail value of Lots $692,863,052Total Retail Value of Club Memberships $310,675,000Expense Inflation 3%Lot/Unit Appreciation 0%

Source: August 2005 Appraisal by Cushman & WakefieldCW1432 adjusted by LECG

Prepared by LECG

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Official Committee of Unsecured Creditorsv. Credit Suisse Cayman Islands Branch

EXHIBIT 9AUGUST 2005 APPRAISAL

2003-2004 PRICES AND LOT SALES

Report of John S. Hekman

Revenues Fiscal YearPrice 1 2 3 4 5 6 7 8 9 10

# Lots Unit/Lot 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total Revenues

Improved ProductPioneer Mtn. Condos - land value 70 $1,000,000 $0 $0 $5,000,000 $10,000,000 $9,000,000 $9,000,000 $12,000,000 $12,000,000 $13,000,000 $0 $70,000,000Beginner Lift Condos - land value 30 $1,000,000 - - - 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 - - $30,000,000Big Springs Suites - land value 24 $1,000,000 - - 12,000,000 12,000,000 - - - - - - $24,000,000Golf Course Chalets - land value 60 $1,500,000 - - 4,500,000 7,500,000 15,000,000 15,000,000 12,000,000 12,000,000 15,000,000 9,000,000 $90,000,000Rainbow Pointe Chalets - land value 90 $1,500,000 - 18,000,000 12,000,000 13,500,000 13,500,000 13,500,000 18,000,000 15,000,000 19,500,000 12,000,000 $135,000,000

Lot SalesAndesite Ridge - South 1 $1,438,758 1,438,758 - - - - - - - - - $1,438,758Big Sky Ridge 72 $1,438,758 48,917,756 34,530,181 20,142,606 - - - - - - - $103,590,543Pine Ridge (Phase 3) 5 $1,438,758 7,193,788 - - - - - - - - - $7,193,788Yellow mule Ridge (Golf Course Lots) 60 $1,438,758 20,142,606 25,897,636 17,265,090 8,632,545 8,632,545 5,755,030 - - - - $86,325,452Eglise Ridge 101 $1,438,758 - - - 8,632,545 20,142,606 23,020,121 23,020,121 25,897,636 25,897,636 18,703,848 $145,314,512TOTAL 513

Total Land Sales Revenues $77,692,907 $78,427,817 $70,907,696 $66,265,090 $72,275,151 $72,275,151 $71,020,121 $70,897,636 $73,397,636 $39,703,848 $692,863,052# Lots Sold 54 54 54 54 54 54 54 54 54 27 513

# Lots Remaining 459 405 351 297 243 189 135 81 27 0

Net Income from Club Operations -5,500,000 -4,800,000 -3,500,000 0 1,000,000 3,000,000 3,000,000 0 0 0 (6,800,000)

Reversion from Sale of Club to Members 0 0 0 0 0 0 74,175,000 0 0 0 74,175,000

Membership Deposit Revenue 15,250,000 20,000,000 45,250,000 43,000,000 39,250,000 39,250,000 34,500,000 0 0 0 236,500,000

Total Gross Revenues $87,442,907 $93,627,817 $112,657,696 $109,265,090 $112,525,151 $114,525,151 $182,695,121 $70,897,636 $73,397,636 $39,703,848 $996,738,052

Development Costs and Expenses

Reimburse Pioneer and Frontier Members $2,500,000 $2,500,000 $4,750,000 $9,750,000Community/Club Infrastructure 14,300,000 26,059,000 26,840,770 4,261,635 787,856 72,249,261Neighborhood Infrastructure 2,500,000 4,635,000 4,243,600 3,059,636 1,969,640 16,407,876Cost of Sales/Closing Costs 8% 6,215,433 6,274,225 5,672,616 5,301,207 5,782,012 5,782,012 5,681,610 5,671,811 5,871,811 3,176,308 55,429,044Admin./Taxes/Overhead/Misc. 8,000,000 5,500,000 3,500,000 2,200,000 1,800,000 1,600,000 1,000,000 23,600,000

Total Gross Revenues $31,015,433 $44,968,225 $42,756,986 $19,572,478 $10,339,508 $7,382,012 $6,681,610 $5,671,811 $5,871,811 $3,176,308 $177,436,181

Cash Flow $56,427,475 $48,659,591 $69,900,710 $89,692,612 $102,185,643 $107,143,139 $176,013,511 $65,225,825 $67,525,825 $36,527,540 $819,301,871

TOTAL NET VALUE INDICATION $819,301,871

NET PRESENT VALUE FACTOR: 15% 1 0.869565 0.756144 0.657516 0.571753 0.497177 0.432328 0.375937 0.326902 0.284262

NET PRESENT VALUE $56,427,475 $42,312,688 $52,854,980 $58,974,348 $58,424,973 $53,269,076 $76,095,498 $24,520,804 $22,074,312 $10,383,407 $455,337,559.89

AssumptionsTotal # Lots/Units 513Total Retail value of Lots $692,863,052Total Retail Value of Club Memberships $310,675,000Expense Inflation 3%Lot/Unit Appreciation 0%

Source: August 2005 Appraisal by Cushman & WakefieldCW1432 adjusted by LECG

Prepared by LECG

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Official Committee of Unsecured Creditorsv. Credit Suisse Cayman Islands Branch

EXHIBT 10AUGUST 2005 APPRAISAL

2005 PRICES AND LOT SALES

Report of John S. Hekman

Revenues Fiscal YearPrice 1 2 3 4 5 6 7 8 9 10 11

# Lots Unit/Lot 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total Revenues

Improved ProductPioneer Mtn. Condos - land value 70 $1,000,000 $0 $0 $5,000,000 $7,000,000 $8,000,000 $8,000,000 $9,000,000 $11,000,000 $12,000,000 $7,000,000 $3,000,000 $70,000,000Beginner Lift Condos - land value 30 $1,000,000 - - - 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 - - - $30,000,000Big Springs Suites - land value 24 $1,000,000 - - 11,000,000 11,000,000 2,000,000 - - - - - - $24,000,000Golf Course Chalets - land value 60 $1,500,000 - - 4,500,000 4,500,000 9,000,000 9,000,000 9,000,000 9,000,000 12,000,000 21,000,000 12,000,000 $90,000,000Rainbow Pointe Chalets - land value 90 $1,500,000 - 16,500,000 9,000,000 9,000,000 12,000,000 13,500,000 15,000,000 13,500,000 18,000,000 18,000,000 10,500,000 $135,000,000

Lot SalesAndesite Ridge - South 1 $2,303,617 2,303,617 - - - - - - - - - - $2,303,617Big Sky Ridge 72 $2,303,617 69,108,511 48,375,957 27,643,404 16,125,319 4,607,234 - - - - - - $165,860,426Pine Ridge (Phase 3) 5 $2,303,617 11,518,085 - - - - - - - - - - $11,518,085Yellow mule Ridge (Golf Course Lots) 60 $2,303,617 27,643,404 36,857,872 25,339,787 11,518,085 13,821,702 13,821,702 9,214,468 - - - - $138,217,021Eglise Ridge 101 $2,303,617 - - - 6,910,851 23,036,170 29,947,021 29,947,021 36,857,872 36,857,872 34,554,255 34,554,255 $232,665,319TOTAL 513

Total Land Sales Revenues $110,573,617 $101,733,830 $82,483,191 $72,054,255 $78,465,106 $80,268,723 $78,161,489 $76,357,872 $78,857,872 $80,554,255 $60,054,255 $899,564,468# Lots Sold 48 48 48 48 48 48 48 48 48 48 33 513

# Lots Remaining 465 417 369 321 273 225 177 129 81 33 0

Net Income from Club Operations -5,500,000 -4,800,000 -3,500,000 0 1,000,000 3,000,000 3,000,000 0 0 0 0 (6,800,000)

Reversion from Sale of Club to Members 0 0 0 0 0 0 74,175,000 0 0 0 0 74,175,000

Membership Deposit Revenue 15,250,000 20,000,000 45,250,000 43,000,000 39,250,000 39,250,000 34,500,000 0 0 0 0 236,500,000

Total Gross Revenues $120,323,617 $116,933,830 $124,233,191 $115,054,255 $118,715,106 $122,518,723 $189,836,489 $76,357,872 $78,857,872 $80,554,255 $60,054,255 $1,203,439,468

Development Costs and Expenses

Reimburse Pioneer and Frontier Members $2,500,000 $2,500,000 $4,750,000 $9,750,000Community/Club Infrastructure 14,300,000 26,059,000 26,840,770 4,261,635 787,856 72,249,261Neighborhood Infrastructure 2,500,000 4,635,000 4,243,600 3,059,636 1,969,640 16,407,876Cost of Sales/Closing Costs 8% 8,845,889 8,138,706 6,598,655 5,764,340 6,277,209 6,421,498 6,252,919 6,108,630 6,308,630 6,444,340 4,804,340 71,965,157Admin./Taxes/Overhead/Misc. 8,000,000 5,500,000 3,500,000 2,200,000 1,800,000 1,600,000 1,000,000 23,600,000

Total Gross Revenues $33,645,889 $46,832,706 $43,683,025 $20,035,611 $10,834,705 $8,021,498 $7,252,919 $6,108,630 $6,308,630 $6,444,340 $4,804,340 $193,972,294

Cash Flow $86,677,728 $70,101,123 $80,550,166 $95,018,644 $107,880,402 $114,497,226 $182,583,570 $70,249,243 $72,549,243 $74,109,915 $55,249,915 $1,009,467,174

Net Present Value Factor @ 15% 1 0.8696 0.7561 0.6575 0.5718 0.4972 0.4323 0.3759 0.3269 0.2843 0.2472Present Value of Cash Flows $86,677,728 $60,957,499 $60,907,498 $62,476,301 $61,680,970 $56,925,357 $78,935,916 $26,409,292 $23,716,476 $21,066,663 $13,656,934 $553,410,633

AssumptionsTotal # Lots/Units 513Total Retail value of Lots $899,564,468Total Retail Value of Club Memberships $310,675,000Expense Inflation 3%Lot/Unit Appreciation 0%

Source: August 2005 Appraisal by Cushman & WakefieldCW1432 adjusted by LECG

Prepared by LECG

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In re YMC, LLC Chapter 11 # 08-61570 Official Committee v. Credit Suisse, AP 09-___ Complaint Page 1 of 25

J. THOMAS BECKETT (UTAH #5587) DAVID P. BILLINGS (UTAH #11510) PARSONS BEHLE & LATIMER Admitted Pro Hac Vice (Docket # 156) One Utah Center 201 South Main Street, Suite 1800 Salt Lake City, UT 84111 Telephone: (801) 532-1234 Facsimile: (801) 536-6111 Email: [email protected] [email protected] Counsel to the Official Committee

JAMES H. COSSITT (MONT. # 4773) JAMES H. COSSITT, PC 40 – 2nd East Suite 202 Kalispell, MT 59901-6112 Telephone: (406) 752-5616 Email: [email protected]

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MONTANA

In re: YELLOWSTONE MOUNTAIN CLUB, LLC, et al., Debtors.

Case No. 08-61570-11-RBK Jointly Administered with 08-61571, 08-61572, and08-61573 Chapter 11

OFFICIAL COMMITTEE OF UNSECURED CREDITORS,

Plaintiff,

vs.

CREDIT SUISSE, CAYMAN ISLANDS BRANCH, and JOHN DOES 1-15,

Defendants.

COMPLAINT

(AIDING AND ABETTING BREACH OF FIDUCIARY DUTY, AVOIDANCE

OF FRAUDULENT TRANSFER, DISALLOWANCE OF CLAIMS, SUBORDINATION OF CLAIMS,

TURNOVER, AND DECLARATORY JUDGMENTS)

Adv. Pro. No.

Judge: Ralph B. Kirscher

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The Official Committee of Unsecured Creditors (the “Committee”) of Yellowstone

Mountain Club, LLC (“YMC”) and its debtor affiliates, Yellowstone Development, LLC

(“YD”), Big Sky Ridge, LLC (“BSR”) and Yellowstone Club Construction Company, LLC

(collectively, the “Debtors”), by and through its undersigned counsel, herein states its causes of

action and claims for relief against Credit Suisse, Cayman Islands Branch and John Does 1-15,

as follows:

INTRODUCTION

1. In 2005, Credit Suisse was offering a new financial product for sale.

2. It was offering the owners of luxury second-home developments the opportunity

to take their profits out early by mortgaging their development projects to the hilt. Credit Suisse

would loan the money on a non-recourse basis, earn a substantial fee, and sell off most of the

credit to loan participants. The development owners would take most of the money out as a

profit dividend, leaving their developments saddled with enormous debt.

3. Credit Suisse and the development owners would benefit, while their develop-

ments – and especially the creditors of their developments – bore all the risk.

4. This new financial product enriched Credit Suisse and more than one luxury

development owner, but it left those developments too thinly capitalized to survive.

5. In August, 2005, Credit Suisse made one of these deeply-flawed loans to YMC,

YD and BSR. Those entities, which were controlled by the Blixseths, owned one of Montana’s

most spectacular ski and golf resort communities, the Yellowstone Club.

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6. The loan enriched the Blixseths (who took most of the proceeds) and Credit

Suisse (which earned a seven-figure fee, plus interest). But it saddled the Yellowstone Club with

an enormous burden – a debt for which it received almost no benefit.

7. The architects and proponents of this loan were Credit Suisse and Blixseth. But

the very structure of the loan created a deep conflict for the Blixseths: On the one hand, they

wanted to withdraw a profit dividend; on the other hand, they owed fiduciary duties to the

Yellowstone Club and its members, minority owners and unsecured creditors.

8. Enticed by the riches available from Credit Suisse, the Blixseths chose to breach

their fiduciary duties, abandon the Yellowstone Club, and participate in a loan transaction that

gave windfalls to them and Credit Suisse, at the expense of the Yellowstone Club.

9. The Blixseths represented themselves and their own personal interests in the loan

negotiations. The Yellowstone Club was effectively unrepresented in those negotiations; it truly

did not participate in any meaningful way.

10. Credit Suisse knew the Blixseths were breaching their fiduciary duties. It

approved of and supported the Blixseths’ decision. And it assisted the Blixseths in concealing

their breaches from the beneficiaries of their duties.

* * * * *

11. In its very first sentence, Credit Suisse’s loan agreement baldly acknowledges that

the loan was a secured, non-recourse loan being made primarily “for purposes unrelated” to the

Yellowstone Club. That is, for mortgaging nearly everything it owned, the Yellowstone Club

would receive very little benefit. All it received, in fact, was the risk.

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12. The inevitable failure of this loan drove the Yellowstone Club into bankruptcy.

That failure inflicted substantial harm on the Club’s unwitting members and unsecured creditors.

13. This lawsuit invokes the statutory and common laws of the United States and the

States of Montana and New York and seeks:

a. A judgment of this Court that Credit Suisse knowingly aided and abetted a breach of fiduciary duties by the Blixseths. To remedy that injustice, Credit Suisse must be held to account for the damages suffered by the Blixseths’ breach, or the loan documents must be reformed to reflect the original and actual intent of the parties: that Credit Suisse made a substantial loan to the Blixseths and a much smaller loan to the Yellowstone Club.

b. In the alternative, a judgment by this Court that the loan was a fraudulent transfer that must be avoided to return those involved or effected to their original positions, with all the legal consequences that that entails.

14. This lawsuit seeks redress for the substantial damages suffered by the unwitting

unsecured creditors of the Yellowstone Club who were harmed by this loan transaction,

including hundreds of trade vendors who have not been paid for goods and services they

provided to the Yellowstone Club, and including the Club’s other owners and members whose

interests, membership deposits and real estate investments are now unnecessarily at grave risk.

PARTIES

15. The Committee is the plaintiff.

16. Pursuant to section 1102 of the United States Bankruptcy Code, 11 U.S.C. §§ 101,

et seq. (the “Bankruptcy Code”), the Committee is the statutory representative of the unsecured

creditors of the Debtors.

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17. The Committee is authorized to bring this action virtue of an order of this Court

dated February 27, 2009. The Committee prosecutes the claims herein, not for itself, but on

behalf of and for the benefit of the Debtors, their estates, and the creditors thereof.

18. Defendant Credit Suisse is a financial services company that purports to be a

secured creditor of YMC, YD and BSR. Credit Suisse is headquartered in Zurich, Switzerland.

19. Defendants John Does 1-15 are parties who breached duties as complained of

herein, aided and abetted in the breaches of those duties, or who hold property of the Debtors’

estates pursuant to avoidable transfers.

20. Blixseth Group, Inc. n/k/a/ BLX Group, Inc. (“BGI”) is an Oregon corporation. It

is the majority owner of YMC and YD.

21. Timothy L. Blixseth (“Blixseth”) is a resident of the State of Washington. He was

the controlling shareholder of BGI and Yellowstone Club World, LLC (“YCW”) through August

of 2008. As such, he controlled BGI, YMC, YD and YCW.

22. Edra E. Blixseth (“Ms. Blixseth”; together with Blixseth, the “Blixseths”) was

Chief Operating Officer of YMC until she resigned in late 2005 or early 2006. She resigned, in

large part, because of her concerns about the Credit Suisse loan.

23. Upon her divorce from Blixseth in August, 2008, Ms. Blixseth became the

majority owner of BGI and YCW. As such, she now controls BGI, YMC, YD and YCW. She is

a resident of the State of California.

24. Until January 2007, she was paid a six-figure salary as Chief Operating Officer of

YMC. She was reinstated to that position in August, 2008, after the divorce was finalized.

25. BGI and the Blixseths are insiders of the Debtors.

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26. YCW is a Washington State limited liability company. It was majority owned by

Blixseth. Since the divorce, YCW has been majority owned by Ms. Blixseth, although

Washington State records still reflect that it is majority owned by her ex-husband. YCW was

conceived by Blixseth as a world-wide corollary of the Yellowstone Club. But it never got off

the ground.

27. An involuntary petition for relief under section 303 of the Bankruptcy Code is

pending against YCW. YCW presently enjoys the protections of the automatic stay of section

362 of the Bankruptcy Code.

JURISDICTION AND VENUE

28. This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334, and

as this is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2). Pursuant to Rule

7008(a) of the Federal Rules of Bankruptcy Procedure, if any claims are determined to be non-

core, Plaintiff consents to the entry of final orders by the Bankruptcy Court.

29. Venue is proper in this court pursuant to 28 U.S.C. § 1409.

30. This action is brought as an adversary proceeding in in re Yellowstone Mountain

Club, LLC, et al., chapter 11 cases, procedurally consolidated under case number 08-61570,

currently pending in the United States Bankruptcy Court for the District of Montana.

GENERAL ALLEGATIONS

A. The Yellowstone Club.

31. The Blixseths conceived of and developed the Yellowstone Club.

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32. The Club is a 13,500 acre exclusive membership resort comprising, among other

things, a 2,200 acre private ski resort, a championship golf course, second homes, sold lots

awaiting development, unsold platted and unplatted inventory and open space land, and the

125,000 square foot Warren Miller Lodge.

B. The Credit Suisse Loan Transaction.

33. As of September 29, 2005, the Yellowstone Club’s properties carried less than

$25 million of secured debt.

34. On September 30, 2005, Credit Suisse purported to loan $375 million to YMC,

YD and BSR in a loan transaction (the “Loan Transaction”) pursuant to which Credit Suisse

purported to obtain mortgages, liens and security interests in nearly all these entities’ properties.

35. But the Loan Transaction was not made for the benefit of the Yellowstone Club; it

was made for unrelated purposes. The credit agreement evidencing the Loan Transaction (the

“Credit Agreement”) provided that nearly all the proceeds of the loan were intended to be used

“for purposes unrelated” to the Yellowstone Club. Indeed, the first recital of the Credit

Agreement expressly provides:

WHEREAS, the Borrower desires that the Lenders extend certain senior term loans to the Borrower hereunder, the proceeds of which will be used:

(i) for distribution or loans up to $209,000,000 to [BGI] for purposes unrelated to the Yellowstone [Club],

(ii) for investments up to $142,000,000 into Unrestricted Subsidiaries for purposes unrelated to the Yellowstone [Club],

(iii) to pay the Transaction Costs,

(iv) to refinance the Existing Indebtedness, and

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(v) to finance a portion of the development and construc-tion costs associated with the Yellowstone [Club] in accordance with the Financial Plan.

36. Remarkably, on the face of the Credit Agreement – in the very first recital – the

parties admitted that up to $351 million of the $375 million loan (94%) was intended “for

purposes unrelated to” the Yellowstone Club.

37. Section 2.6 of the Credit Agreement, which is substantially identical to the very

first recital of the Credit Agreement, in fact required that up to 94% of the face amount of the

loan would be used “for purposes unrelated” to the Yellowstone Club.

38. All the Credit Agreement required of the Yellowstone Club, and its unsecured

creditors and members, was that they shoulder all the risk.

39. The Loan Transaction was not intended to benefit the Yellowstone Club. The

Club was supposedly represented in the Loan Transaction negotiations by the Blixseths. But the

Blixseths were representing only their own interests in those negotiations. The Club did not

really participate in the Loan Transaction negotiations at all.

40. Consequently, as set forth in more detail below, the Loan Transaction was

intended to benefit, and it did in fact benefit, only Credit Suisse and the Blixseths.

C. Nearly all the Proceeds of the Loan Transaction were used “for Purposes Unrelated” to the Yellowstone Club.

41. As explained in some detail below, a vast majority of the Loan Transaction pro-

ceeds were used, as required by paragraphs 2.6(i) – (v) of the Credit Agreement, “for purposes

unrelated” to the Yellowstone Club.

42. As agent bank, Credit Suisse knew or should have known that a vast majority of

the Loan Transaction proceeds were used “for purposes unrelated” to the Yellowstone Club.

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Loan Transaction Proceeds Distributed Pursuant to Paragraph 2.6(i) of the

Credit Agreement

43. Paragraph 2.6(i) of the Credit Agreement provided that up to $209 million of the

Loan Transaction proceeds were required to be “distributed or loaned to [BGI] for purposes

unrelated” to the Yellowstone Club.

44. Pursuant to that provision, YMC immediately distributed $208,831,158.45 of the

Loan Transaction proceeds for “purposes unrelated to” the Yellowstone Club, as follows:

a. $25,000,000 certificate of deposit at First Bank in BGI’s name.

b. $11,939,495 payoff to First Bank for the Blixseth’s primary residence at Porcupine Creek in Rancho Mirage, California.

c. $17,000,000 certificate of deposit at Palm National Bank in the Blixseths’ name.

d. $14,016,227.87 deposit into a money-market account at Palm Desert National Bank in Blixseth’s name.

e. $4,133,623.50 payoff to Palm Desert National Bank for the following debts:

(1) $3,169,118.75 for charges related to “Desert Ranch,” Blixseth’s personal housing development near Palm Springs, California.

(2) $79,629.54 payoff of “Edra’s Condo,” a condo owned by Ms. Blixseth in Palm Desert, California.

(3) $402,546.02 payoff of the Blixseths’ personal line of credit.

(4) $482,329.19 payoff of Ms. Blixseth’s personal line of credit.

f. $15,000,000 certificate of deposit at Jackson State Bank in Blixseth’s name.

g. $3,068,749.99 payoff to American Bank for unknown purposes.

h. $975,908.57 payoff to American Bank for unknown purposes.

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i. $1,515,250 payoff to American Bank for unknown purposes.

j. $896,423.28 payoff to American Bank for unknown purposes.

k. $977,894.92 payoff to American Bank for unknown purposes.

l. $100,000,000 certificate of deposit at U.S. Bank in the Blixseths’ name, from which $28,000,000 was used to purchase a private island in Turks and Caicos.

m. $5,000,000 certificate of deposit at Pacific Western Bank in the Blixseths’ name.

n. $2,971,443.02 payoff of a personal note to Pacific Western Bank.

o. $160,765.83 payoff to Union Bank for a rental home owned by Blixseth.

p. $175,376.23 payoff to Union Bank for a rental home owned by Blixseth.

q. $2,007,930.55 payoff to Commercial Bank for unrelated purposes.

r. $1,403,547 payoff to GECC for an airplane owned by a Blixseth owned company in which neither Yellowstone Mountain Club nor Yellowstone Development have an interest.

s. $2,484,774 payoff to GECC for an airplane owned by a Blixseth owned company in which neither Yellowstone Mountain Club nor Yellowstone Development have an interest.

t. $272,590 payoff to World Savings for a rental home owned by the Blixseths.

45. In respect of the funds disbursed pursuant to paragraph 2.6(i) of the Credit Agree-

ment, and although it received little benefit therefrom, BGI executed an unsecured demand note

(dated as of September 30, 2005, but prepared months thereafter) (the “First BGI Note”) in favor

of YMC in the amount of $208,831,158.45.

46. It has been alleged that BGI has made up to $90 million of interest and principal

reduction payments to YMC in respect of the First BGI Note. The Committee has not at this

time been able to verify whether these amounts were in fact paid or credited.

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47. The First BGI Note was hardly consideration to YMC for the benefits conferred

on the Blixseths for the funds they received from the Loan Transaction proceeds.

48. BGI ultimately received little if any benefit from the $208,831,158.45 of funds

disbursed by YMC.

49. In addition, the First BGI Note was made payable on demand by YMC (controlled

at that time by Blixseth) from BGI (also controlled at that time by Blixseth). Obviously, it was

unlikely that Blixseth’s YMC would ever make a demand on Blixseth’s BGI.

50. The First BGI Note was never intended by any of the parties to be collectable or

collected.

51. The First BGI Note’s real value may be inconsequential in comparison to its face

value because BGI is insolvent.

52. The Blixseths breached their fiduciary duties to the Yellowstone Club when they

allowed Credit Suisse to place $208,831,158.45 of liens on Club properties, for expenditures

made pursuant to paragraph 2.6(i) of the Credit Agreement.

53. The Debtors received less than reasonably equivalent value – in fact no value

whatsoever – for the $208,831,158.45 of liens placed upon their properties pursuant to paragraph

2.6(i) of the Credit Agreement.

Loan Transaction Proceeds Distributed Pursuant to Paragraph 2.6(ii) of the

Credit Agreement

54. Paragraph 2.6(ii) of the Credit Agreement provided that up to $142 million of the

Loan Transaction proceeds would be invested by others, “for purposes unrelated” to the

Yellowstone Club.

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55. Pursuant to paragraph 2.6(ii) of the Credit Agreement, $133,110,262.53 of Loan

Agreement proceeds were disbursed to YD as follows:

a. $100 million was placed in a six-month certificate of deposit at U.S. Bank in YD’s name;

b. $30 million was placed in a six-month certificate of deposit at American Bank in YD’s name; and

c. $3,110,262.53 remained in YD’s checking account, although at least $225,000 of those funds were used for marketing YCW.

56. $80 million of the $130 million that was placed in the two certificates of deposit

referred to above was further disbursed as follows:

a. $28 million was used to purchase Chateau de Farcheville located in France;

b. $40 million was used to purchase a resort known as Tamarindo located in Mexico;

c. $12 million was used to purchase and improve a golf property located in St. Andrews, Scotland.

57. Pursuant to the Credit Suisse loan agreement, these properties were purchased

“for purposes unrelated” to the Yellowstone Club. And only the Farcheville and St. Andrews

properties are currently owned indirectly by YD. YD sold Tamarindo to Ms. Blixseth in August,

2008, for a $40 million unsecured note, $31.2 million of which remains outstanding. She

thereafter transferred it to Blixseth for unknown consideration.

58. The Committee has not yet traced the $50 million balance from the certificates of

deposit referred to above, but, on information and belief, it alleges that the Yellowstone Club

received less than reasonably equivalent value for the $50 million of liens placed on Club

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properties, in respect of such expenditures, pursuant to paragraph 2.6(ii) of the Credit Agree-

ment.

59. The Blixseths breached their fiduciary duties to the Yellowstone Club when they

allowed Credit Suisse to place $133,110,262.53 of liens on Club properties pursuant to paragraph

2.6(ii) of the Credit Agreement.

60. The Debtors received less than reasonably equivalent value for the

$133,110,262.53 of liens placed upon its properties pursuant to paragraph 2.6(ii) of the Credit

Agreement.

Loan Transaction Proceeds Distributed Pursuant to Paragraph 2.6(iii) of the

Credit Agreement

61. Paragraph 2.6(iii) of Credit Agreement provided that Loan Transaction proceeds

would be spent for “transaction costs.”

62. Approximately $7.4 million of the Loan Transaction proceeds were paid in fees to

Credit Suisse. An additional $1.2 million were paid to other parties in fees.

63. The Blixseths breached their fiduciary duties to the Yellowstone Club when they

allowed Credit Suisse to place $8.6 million of liens on Club properties for expenditures made

pursuant to paragraph 2.6(iii) of the Credit Agreement.

64. The Debtors received less than reasonably equivalent value for the $8.6 million of

liens placed upon their properties pursuant to paragraph 2.6(iii) of the Credit Agreement.

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Loan Transaction Proceeds Distributed Pursuant to Paragraph 2.6(iv) of the

Credit Agreement

65. Paragraph 2.6(iv) of the Credit Agreement provided that Loan Transaction pro-

ceeds would be spent “to refinance the Existing Indebtedness.”

66. At most, $24.2 million of Loan Transaction proceeds were used to refinance exist-

ing secured indebtedness owed by YMC, YD and/or BSR.

67. The Debtors received no incremental benefit from the refinancing of the Existing

Indebtedness. In fact, the refinancing inured principally to the benefit of Credit Suisse inasmuch

as it provided Credit Suisse with a first mortgage, remedy-controlling, position on the Debtors’

assets.

Loan Transaction Proceeds Distributed Pursuant to Paragraph 2.6(v) of the

Credit Agreement

68. Paragraph 2.6(v) of the Credit Agreement provided that Loan Transaction pro-

ceeds would be spent “to finance a portion of the development and construction costs associated

with the Yellowstone [Club] in accordance with the Financial Plan.”

69. Only $258,579.10 of Loan Transaction proceeds remained, after the expenditures

referenced above, but not including those unaccounted for, to finance development and construc-

tion costs associated with the Yellowstone Club.

D. The Debtors did Not Receive Reasonably Equivalent Value in Consideration for the $375 million of Liens Placed on their Properties.

70. With respect to paragraph 2.6(i) of the Credit Agreement, the Debtors received no

value for the $208,831,158.45 of liens placed on Club properties in connection with the Loan

Transaction.

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71. With respect to paragraph 2.6(ii) of the Credit Agreement, the Debtors received

less than reasonably equivalent value for the $133,110,262.53 of liens placed on Club properties

in connection with the Loan Transaction.

72. With respect to paragraph 2.6(iii) of the Credit Agreement, the Debtors received

less than reasonably equivalent value for the $8,600,000 of liens placed on Club properties in

connection with the Loan Transaction.

73. Even assuming that the Debtors did receive reasonably equivalent value with

respect to the $24.2 million and $258,579.10 disbursed pursuant to paragraphs 2.6(iv) and 2.6(v)

of the Credit Agreement, it presently appears the Debtors only received between $67,343,841.53

(the value of the refinance, plus the purchase prices of St. Andrews and Farcheville, plus the

amount remaining for operations, plus the amount remaining in YD’s bank account) (17.9%) and

$166,168,841.55 (all disbursements excepting the $208,831,158.45 disbursed to the Blixseths)

(44.3%) of value in consideration for the $375 million of liens placed on the Club’s properties in

connection with the Loan Transaction.

74. In either event, the Debtors received far less than reasonably equivalent value –

between 17.9% and 44.3% – in consideration for the $375 million of liens placed on the Club’s

properties by Credit Suisse in connection with the Loan Transaction.

E. Payments Made by the Debtors to Credit Suisse Pursuant to the Loan Transaction.

75. Pursuant to the Credit Agreement, the Debtors have paid Credit Suisse approxi-

mately $139 million since August, 2005. Approximately $68 million of that has reduced the

principal amount outstanding under the Credit Agreement. Approximately $71 million of that

has been paid as interest on the entire outstanding loan balance.

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F. The Yellowstone Club’s Inevitable Bankruptcy.

76. By November, 2008, the Debtors were unable to make the interest payments

required by the Credit Agreement.

77. But for numerous “bail-out” land purchases made by interested parties prior to

that time, the Debtors may have been unable to meet their interest expense obligations long

before.

78. As a consequence of the Loan Transaction, the Debtors were rendered insolvent

and required to seek Bankruptcy protection.

G. Additional Promissory Notes Constituting Indebtedness of BGI to the Debtors.

79. BGI executed another unsecured demand note (dated as of September 30, 2005,

but prepared months thereafter) in favor of YD in the amount of $55,798,796.68 (the “Second

BGI Note”).

80. BGI executed a third unsecured demand note (dated as of September 30, 2005,

but prepared months thereafter) in favor of YMC in the amount of $7,800,000 (the “Third BGI

Note”).

81. Demand has properly been made in respect of the Second and Third BGI Notes.

82. Neither the Second nor the Third BGI Notes pertain to any obligation to repay

funds disbursed pursuant to the Loan Transaction.

H. Damages Suffered by the Debtors’ Creditors.

83. Presently, the Debtors’ unsecured creditors hold an estimated $25 to $50 million

of extant claims against the Debtors and the defendants herein for unpaid-for goods and services

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and other legal obligations. Those claims are directly attributable to the failure of the Loan

Transaction.

84. If their Club membership agreements are not assumed pursuant to section 365 of

the Bankruptcy Code, the Yellowstone Club’s members will hold an additional $80 million of

claims against the Debtors and the defendants herein on account of their Club membership

deposits. Those contingent claims, if they matured, would also be directly attributable to the

failure of the Loan Transaction.

85. If the Yellowstone Club amenities cease to be provided, the Yellowstone Club’s

members’ individual claims against the Debtors and the defendants will be titanic.

86. Ultimately, the quantum of the claims of the unsecured creditors of the Yellow-

stone Club – claims that are attributable to the failure of the Loan Transaction – will not be

known until the Debtors either successfully reorganize under chapter 11 of the Bankruptcy Code

or fail.

87. Those claims will be minimized when the Yellowstone Club’s members’

membership agreements are assumed, and when Club amenities are guaranteed, in a successful

reorganization.

88. But those claims will metastasize if the reorganization effort fails.

FIRST CAUSE OF ACTION

(Against Credit Suisse)

Aiding and Abetting the Blixseths’ Breaches of Fiduciary Duty

89. The Committee incorporates by reference all the prior allegations of this

Complaint.

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90. As the owners of YMC, YD and BSR, the Blixseths owed fiduciary duties to

YMC, YD BSR, the minority owners of those entities, and the Club and its members, to protect

their interests in connection with the Loan Transaction.

91. The Blixseths breached those duties in connection with the Loan Transaction by

abandoning the Yellowstone Club and allowing it to be effectively unrepresented in the

negotiations leading up to the Loan Transaction, and by allowing it to participate in that

transaction, which benefited only the Blixseths and Credit Suisse.

92. Credit Suisse induced the Blixseths to breach their fiduciary duties.

93. Credit Suisse knowingly participated in the Blixseth’s breach of fiduciary duty by

encouraging and affirmatively assisting the Blixseth’s breach of that duty.

94. Credit Suisse helped the Blixseths conceal their breach of fiduciary duty from

YMC, YD, BSR, the minority owners of those entities and the Club’s members and other

unsecured creditors.

95. The Credit Agreement should and must be reformed to reflect the actual intent of

the parties and actual consequences of the Loan Transaction. To wit,

a. Credit Suisse made a loan of between $67,343,841.53 and $166,168,841.55 to YMC, YD and BSR; and

b. Credit Suisse made a loan of between $208,831,158.55 and $307,656,158.53 to the Blixseths, and that loan is secured by the First BGI Note, which Credit Suisse and/or its loan participants may seek recovery on.

96. The Debtors have made $68 million of principal payments pursuant to the Loan

Transaction.

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97. Upon such reformation, therefore, the Court should and must find that Credit

Suisse’s loan to YMC, YD and BSR has been substantially repaid or repaid in its entirety.

98. If the Loan Transaction is not reformed as described above, then Credit Suisse

must be held to account for the full measure of damages, including interest, suffered by those

who should have been the beneficiaries of the Blixseth’s fiduciary duties.

SECOND CAUSE OF ACTION

(Against Credit Suisse)

Turnover of Excess Interest Payments Made

99. The Committee incorporates by reference all the prior allegations of this

Complaint.

100. If the Loan Transaction is reformed as described above, then YMC, YD and BSR

have substantially overpaid Credit Suisse’s interest charges pursuant to the Loan Transaction.

101. In that case, the Committee is entitled to a judgment compelling Credit Suisse,

under section 541 of the Bankruptcy Code, to turn over to the Debtors’ estates the amount of the

Debtors’ overpayment of interest, approximately $39 and $59 million.

THIRD CAUSE OF ACTION

(Against all Defendants)

Avoidance of Loan Transaction Pursuant to Montana Uniform Fraudulent Transfer Act

102. The Committee incorporates by reference all the prior allegations of this

Complaint.

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103. YC, YD and BSR did not receive reasonable equivalent value in exchange for the

mortgages, liens and security interests given to Credit Suisse in connection with the Loan

Transaction.

104. Those Debtors were engaged in a real estate venture for which their remaining

assets, after the Loan Transaction, were unreasonably small.

105. In connection with the Loan Transaction, those Debtors knew or should have

known they were incurring a debt they would not be able to repay.

106. In connection with the Loan Transaction, each of the defendants knew or should

have known that those Debtors were incurring a debt they would not be able to repay.

107. Pursuant to section 544(b) of the Bankruptcy Code, the Loan Transaction was a

constructively fraudulent transfer under Mont. Code. Ann. 31-2-333(1)(b). As such, it can be

avoided pursuant to section 550 of the Bankruptcy Code and Mont. Code. Ann. 31-2-339(a).

108. Upon such avoidance, Credit Suisse must release the mortgages, liens and

security interests it obtained from the Debtors in connection with the Loan Transaction.

109. Upon such avoidance, Credit Suisse must turn over to the Debtors the $139

million paid to it by the Debtors for interest expenses and principal reductions, as well as the

$7.4 million paid by the Debtors for Credit Suisse’s fee.

FOURTH CAUSE OF ACTION

(Against all Defendants)

Declaratory Judgment that the Yellowstone Club Received Less Than Reasonably Equivalent Value in

Connection with the Loan Transaction

110. The Committee incorporates by reference all the prior allegations of this

Complaint.

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111. The Committee is entitled to a declaratory judgment that the Debtors did not

receive reasonably equivalent value in connection with the Loan Transaction.

FIFTH CAUSE OF ACTION

(Against Credit Suisse)

Declaratory Judgment that Credit Suisse’s Bankruptcy Claim Should be Disallowed Pending its Release of all Mortgages and its Return of all

Cash Received in Connection with the Loan Transaction

112. The Committee incorporates by reference all the prior allegations of this

Complaint.

113. The Committee is entitled to a declaratory judgment that, pursuant to section

502(d) of the Bankruptcy Code, any and all claims that are made in these Bankruptcy cases by

Credit Suisse in connection with the Loan Transaction must be disallowed until Credit Suisse

releases the mortgages, liens and security interests it obtained on the Debtors’ property and

returns the approximately $146.4 million it has been paid in connection with the Loan Transac-

tion.

114. The Committee is entitled to a declaratory judgment that Credit Suisse’s

bankruptcy claim should be disallowed pending its release of all mortages, liens and security

interests, and its return of all cash it received in connection with the Loan Transaction.

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SIXTH CAUSE OF ACTION

(Against Credit Suisse)

Declaratory Judgment that Credit Suisse’s Claims are to be Equitably Subordinated to the Claims of

Debtors’ General Unsecured Creditors

115. The Committee incorporates by reference all the prior allegations of this

Complaint.

116. Credit Suisse was a knowing and willing participant in (i) the Blixseths’ breaches

of fiduciary duty, and/or (ii) the Loan Transaction that was a fraudulent transfer.

117. In either event, Credit Suisse cannot equitably participate in the recoveries sought

herein for the damages caused by their participation until the Debtors’ unsecured creditors, who

suffered from that participation, are recompensed in full.

118. Consequently, the Committee is entitled to a declaratory judgment that Credit

Suisse’s bankruptcy claim, if and when allowed under subsections 502(a) and 502(d) of the

Bankruptcy Code, must be equitably subordinated to the claims of general unsecured creditors

pursuant to subsection 510(c) of the Bankruptcy Code.

SEVENTH CAUSE OF ACTION

(Against Credit Suisse)

Declaratory Judgment that the Credit Suisse Liens are in Bona Fide Dispute

119. The Committee incorporates by reference all the prior allegations of this

Complaint.

120. The Committee is entitled to a declaratory judgment that, by virtue of this lawsuit,

the purported interest of Credit Suisse in the Debtors’ properties is in bona fide dispute.

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121. Consequently, until the Committee’s contentions herein are resolved, such proper-

ties may be sold free and clear of Credit Suisse’s purported mortgages, liens and security

interests pursuant to section 363(f)(4) of the Bankruptcy Code, and Credit Suisse may not be

allowed to credit bid at any such sale.

122. Furthermore, Credit Suisse, and the loan participants for whom it acts as agent,

may be disallowed from making any election under section 1111(b) of the Bankruptcy Code or

credit bidding at any sale conducted pursuant to sections 363 or 1123 of the Bankruptcy Code.

EIGHTH CAUSE OF ACTION

(Against all Defendants)

Attorneys Fees

123. The Committee incorporates by reference all the prior allegations of this

Complaint.

124. To the extent allowed by any of the applicable contracts, or otherwise by law, the

Committee is entitled to recover its attorneys fees from the defendants.

PRAYER FOR RELIEF

WHEREFORE, the Committee prays for the following judgments against Credit Suisse

and John Does 1-15:

1. That Credit Suisse aided and abetted the Blixseths in a breach of their fiduciary duties and must account for the damages suffered thereby;

2. That the Loan Transaction be reformed to reflect the parties’ actual origi-nal intent: that Credit Suisse made (i) a relatively small loan to the Debtors that has been paid down substantially or paid off in full, and (ii) a substantially larger loan to BGI and/or the Blixseths, secured by the First BGI Note, or else Credit Suisse must be held to account for the damages suffered;

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3. That, if the Loan Transaction is so reformed, Credit Suisse must turn over to the Debtors’ estates the amount that the Debtors have overpaid in interest charges, plus interest;

4. That the Court declare that the Debtors did not receive reasonably equiva-lent value in connection with the Loan Transaction;

5. That the Loan Transaction be annulled, terminated, avoided and unwound, as having been a fraudulent transfer;

6. That Credit Suisse be required to release all its mortgages, liens and secu-rity interests in the Debtors’ properties to the extent obtained in connection with the Loan Transaction;

7. That Credit Suisse be required to turn over to the Debtors the $146.4 million it received from the Debtors in connection with the Loan Transaction;

8. That the Court declare that Credit Suisse’s bankruptcy claims shall be disallowed pending its release of such mortgages and security interests, and its return of approximately $146.4 million in cash to the Debtors;

9. That the Court declare that Credit Suisse’s bankruptcy claims, if and when allowed, shall be equitably subordinated to the claims of the Debtors’ general unsecured creditors;

10. That the Court declare that, by virtue of this lawsuit, Credit Suisse’s purported claims against and interests in the Debtors’ properties are in bona fide dispute;

11. For interest, costs, and attorneys’ fees; and

12. For such other and further relief as the Court deems just or as warranted by Rule 7054(c) of the Federal Rules of Bankruptcy Procedure.

DATED this 3rd day of March, 2009.

PARSONS BEHLE & LATIMER __/s/ J. Thomas Beckett ________ J. Thomas Beckett David P. Billings 201 S. Main Street, Suite 1800 Salt Lake City, Utah 84111

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JAMES H. COSSITT, PC __/s/ James H. Cossitt _________ James H. Cossitt

40 – 2nd East Suite 202 Kalispell, MT 59901-6112 Attorneys for the Official Committee Plaintiff’s Address: Official Committee of Unsecured Creditors c/o J. Thomas Beckett Parsons Behle & Latimer 201 South Main St. Suite 1800 Salt Lake City Utah 84111 L:\Clients\YMC\FT Lawsuit\09 03 03 Final from Beckett.doc

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