Federal Judge Rejects Attempt to Force Developer Into Bankruptcy

May 18, 2011, 23:57 ET from Michael J. Flynn

LAS VEGAS, May 18, 2011 /PRNewswire/ -- A federal bankruptcy judge today rejected the state of Montana's attempts to force developer and Yellowstone Club founder Tim Blixseth into involuntary bankruptcy. United States Bankruptcy Judge Bruce A. Markell ruled that the Montana Department of Revenue had erred in bringing the action in the state of Nevada, where Mr. Blixseth does not live or work.

"No one should ever have to go through what I just went through," Mr. Blixseth said. "This attempt by Montana tax officials to force me into bankruptcy was devious and improper. Fortunately, Judge Markell wasn't duped by this Montana snow job--with its accompanying world-wide media campaign to extort money  from me--money which I do not owe."

On April 5, officials with the Montana Department of Revenue filed the involuntary bankruptcy petition in Nevada, and convinced California and Idaho to join them. Mr. Blixseth quickly satisfied all outstanding tax claims with California and Idaho, and both states withdrew their petitions. Montana plowed ahead alone with its bankruptcy petition, claiming that Mr. Blixseth owed the state $219,000 in state taxes. But in media interviews, Montana tax officials openly admitted that their legal tactics were really aimed at collecting a hotly disputed $56 million tax claim against Mr. Blixseth.  In an interview with the Associated Press on April 5, Montana Revenue Director Dan Bucks said: "Montana intends to use the bankruptcy filing to force payment on approximately $56 million in state taxes that Blixseth had contested. This is an action by our professional staff to make sure the tax debt is collected."

However, as Mr. Blixseth explained in legal filings, the $56 million purported tax debt is based on a legal theory already rejected by the IRS, which previously ruled in Mr. Blixseth's favor. "The Montana Department of Revenue tried to use this legal stunt to gain a litigation advantage over me, knowing the true facts as already determined by the IRS. It was a crude bullying attempt, and nothing more," Mr. Blixseth said.

Today, Judge Markell ruled that Montana brought its action in the wrong venue because Mr. Blixseth does not live or work in Nevada or hold assets there. The judge, however, reserved jurisdiction in the case and set an early September trial date on Mr. Blixseth's motion for sanctions and damages against the Montana Department of Revenue and related parties.

"Montana never should have tried to force a private citizen into bankruptcy in an attempt to collect a tax bill that is in dispute," Mr. Blixseth said. "Now, under federal law, I am entitled to seek damages against Montana for this outrageous legal action." All parties who played any role in the forced bankruptcy will now be subject to depositions, Mr. Blixseth said, including Montana Gov. Brian Schweitzer. "We will be pursuing sanctions for this bad-faith petition," he added.

Mr. Blixseth was represented in this case by attorneys Michael J. Flynn and Brett A. Axelrod. The case is 11-15010-bam, filed in US Bankruptcy Court in the District of Nevada.

Michael J. Flynn, Esq.

SOURCE Michael J. Flynn