Blixseth v. Cushman & Wakefield of Colorado, Inc et al

Filing 90

ORDER. ORDERED that Credit Suisses Motion to Dismiss Plaintiff's Claim for Breach of the Covenant of Good Faith and Fair Dealing [Docket No. 73] is DENIED by Judge Philip A. Brimmer on 09/26/14.(jhawk, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 12-cv-00393-PAB-KLM
TIMOTHY L. BLIXSETH, an individual,
Plaintiff,
v.
CREDIT SUISSE AG, a Swiss corporation,
CREDIT SUISSE GROUP AG, a Swiss corporation,
CREDIT SUISSE SECURITIES (USA), LLC, a Delaware limited liability company,
CREDIT SUISSE (USA), INC., a Delaware corporation,
CREDIT SUISSE HOLDINGS (USA), INC., a Delaware corporation,
CREDIT SUISSE CAYMAN ISLAND BRANCH, an entity of unknown type, and
DOES 1-100,
Defendants.

ORDER

This matter is before the Court on the Motion to Dismiss Plaintiff’s Claim for
Breach of the Covenant of Good Faith and Fair Dealing [Docket No. 73] filed by Credit
Suisse.1
I. BACKGROUND2
On September 30, 2013, the Court found that plaintiff failed to state a claim for
breach of the covenant of good faith and fair dealing. Docket No. 61 at 25-26. W ith
regard to plaintiff’s allegations that Credit Suisse misrepresented the value of the
1

Terms used in this order have the meaning set forth in the Court’s Order on
defendants’ motions to dismiss. See Docket No. 61.
2

The relevant background facts have been set forth at length elsewhere and will
not be restated here except as relevant to resolving the present motion. See Docket
No. 61 at 2-10.

Yellowstone Club before execution of the Credit Agreement, the Court found that such
allegations were based upon non-actionable pre-contractual misrepresentations. Id.
With regard to plaintiff’s allegations that Credit Suisse’s participation in the Third
Amended Plan of Reorganization (“Third Amended Plan”) was in an attempt to
wrongfully seek reimbursement for the subject loan, the Court found that plaintiff failed
to allege that Credit Suisse had engaged in an unreasonable banking practice. The
Court granted plaintiff leave to amend his claim.
On October 21, 2013, plaintiff filed an amended complaint, asserting claims
against Credit Suisse for tortious interference with contractual relations and breach of
the covenants of good faith and fair dealing. Docket No. 68. Plaintiff’s claim for breach
of the covenant of good faith and fair dealing3 alleges that Credit Suisse (1) improperly
exercised its discretion under the Credit Agreement in conducting post-execution
appraisals and (2) improperly participated in the Third Amended Plan in contravention
of the Credit Agreement’s provision releasing Yellowstone Club members and
managing members from personal liability for payment of the subject loan (the “no
recourse provision”). Docket No. 68 at 66-68, ¶ 145. On November 14, 2013, Credit
Suisse filed the present motion, seeking dismissal of plaintiff’s claim for breach of the
covenant of good faith and fair dealing pursuant to Federal Rule of Civil Procedure
12(b)(6). Docket No. 73.
II. STANDARD OF REVIEW
To survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil
3

All references to the “claim” are to plaintiff’s claim for breach of the covenant of
good faith and fair dealing unless otherwise indicated.
2

Procedure, a complaint must allege enough factual matter that, taken as true, makes
the plaintiff’s “claim to relief . . . plausible on its face.” Bryson v. Gonzales, 534 F.3d
1282, 1286 (10th Cir. 2008) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). “[W]here the well-pleaded facts do not permit the court to infer more than the
mere possibility of misconduct, the complaint has alleged–but it has not shown–that the
pleader is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (internal
quotation marks and alteration marks omitted). Thus, even though modern rules of
pleading are somewhat forgiving, “a complaint still must contain either direct or
inferential allegations respecting all the material elements necessary to sustain a
recovery under some viable legal theory.” Bryson, 534 F.3d at 1286 (alteration marks
omitted ); see also Mein v. Pool Co. Disabled Int’l Emp. Long Term Disability Benefit
Plan, Pool Co., Inc., 989 F. Supp. 1337, 1344 (D. Colo. 1998) (considering preemption
argument in resolving Fed. R. Civ. P. 12(b)(6) motion to dismiss).
III. ANALYSIS
A. Appraisal
The first aspect of plaintiff’s claim concerns Credit Suisse’s actions under the
Credit Agreement in arranging appraisals. Plaintiff alleges that Credit Suisse, per the
terms of the Credit Agreement, maintained sole discretion over the identity of the
appraiser, what constituted a “Qualified Appraisal,” and what constituted “Appraised
Value.” Docket No. 68 at 64-65, ¶ 142. Plaintif f also alleges that Credit Suisse was
required to exercise its discretion in accordance with the “Applicable Laws” provision.
Id. at 63-64, ¶ 141. Plaintiff claims that Credit Suisse abused its discretion by

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permitting each quarterly Qualified Appraisal Update and Appraised Value to violate
various laws and professional standards governing appraisals. Id. at 66, ¶ 145.
Credit Suisse argues that any obligations it owed under the Credit Agreement
with respect to appraisals were owed to the Yellowstone Club, not to plaintiff. Docket
No. 73 at 6. As such, Credit Suisse asserts that this aspect of plaintiff’s claim is an
attempt to enforce the rights of the corporation in violation of the shareholder standing
doctrine. Id. (citing Bixler v. Foster, 596 F.3d 751, 757 n.4 (10th Cir. 2010)). In general,
“conduct which harms a corporation confers standing on the corporation, not its
shareholders.” Bixler, 596 at 756. A shareholder lacks standing if his or her losses are
“only derivative of a corporation’s – when the individuals’ losses come about only
because of the firm’s loss.” Niemi v. Lasshofer, 728 F.3d 1252, 1260 (10th Cir. 2013).
However, any shareholder with “a direct, personal interest in a cause of action” may
bring suit “even if the corporation’s rights are also implicated.” Franchise Tax Bd. of
Cal. v. Alcan Aluminium Ltd., 493 U.S. 331, 336 (1990). In order to satisf y this
exception, the plaintiff must “show some way in which his or her losses are not
derivative of the corporation’s losses.” Niemi, 728 F.3d at 1260. Plaintiff does not
directly rebut Credit Suisse’s argument on this point. Instead, plaintiff asserts that
Credit Suisse’s actions with respect to appraisals “had the effect of Mr. Blixseth
believing (erroneously) that the . . . loan to him . . . was fully supportable” and
“conceal[ed] from Mr. Blixseth that the loan amount was grossly and improperly inflated
in the initial, and in each and every subsequent quarterly appraisal.” Docket No. 79 at

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9, 13.4 As noted in the Court’s Order, because any statements made by Credit Suisse
regarding the appraisals were made to plaintiff in his capacity as president and
manager of the Yellowstone Club, he cannot show a direct injury that is separate from
the injury suffered by the Yellowstone Club. Docket No. 61 at 19-20. Moreover,
“because it was the Yellowstone Club that secured the loan, the Yellowstone Club that
had an obligation to repay the loan, and the Yellowstone Club’s properties that suffered
as a result of plaintiff’s personal use of the loan proceeds, plaintiff’s injury is derivative.”
Id. at 16 (citing Bixler, 596 F.3d at 758-59). To the extent plaintiff’s claim is based upon
Credit Suisse’s actions with respect to appraisals conducted pursuant to the Credit
Agreement, the Court will dismiss this aspect of plaintiff’s breach of the duty of good
faith and fair dealing claim for failure to state a claim.
B. No Recourse Provision
The Credit Agreement’s no recourse provision provides, in relevant part, that “no
partner or member or managing member in the Borrower shall be personally liable for
the payment of the Obligations.” Docket No. 73-1 at 4, ¶ 9.20. Plaintif f does not assert
that Credit Suisse attempted to recover directly from plaintiff in contravention of the no
recourse provision; rather, plaintiff argues that Credit Suisse acted through the
Liquidating Trust effectively violating the no recourse provision by “choosing to pursue

4

To the extent plaintiff’s claim is based upon actions conducted prior to the
execution of the Credit Agreement, that aspect of his claim is dismissed because, as
noted in the Court’s Order, “the implied covenant of good faith and fair dealing focuses
on the performance of the contract, and not on pre-contractual misrepresentations.”
Docket No. 61 at 25 (citing Story v. City of Bozeman, 791 P.2d 767, 775 (Mont. 1990),
overruled in part on other grounds, Arrowhead Sch. Dist. No. 75 v. Klyap, 79 P.3d 250
(Mont. 2003)).
5

Plaintiff through [Credit Suisse’s] membership in and control of the Liquidating Trust.”
Docket No. 68 at 67, ¶ 145; Docket No. 79 at 11. Plaintif f’s amended complaint alleges
that Credit Suisse appointed four of the seven members of the Liquidating Trust’s board
“to direct the actions of the [Liquidating trust]” and pursued plaintiff personally “through
the sham of the [Liquidating Trust].” Docket No. 68 at 41-42, ¶¶ 103, 104. In def ending
an adversary proceeding (“AP-14”) instituted against him in the Yellowstone Club
bankruptcy, plaintiff argued that Credit Suisse controlled the Liquidating Trust. In re
Yellowstone Mountain Club LLC, 436 B.R. 598, 673 (Bankr. D. Mont. 2010). In
resolving plaintiff’s argument that the Liquidating Trust had unclean hands, the court
stated that, “while Credit Suisse was permitted to appoint four of the seven members to
the Trust Advisory Board, the Court is not convinced that Credit Suisse controls YCLT.”
Id. at 675. However, the bankruptcy court also described Credit Suisse’s conduct as
follows: “In a clever legal maneuver, counsel for Credit Suisse negotiated to insulate
Credit Suisse from claims by the Prepetition Lenders and also negotiated a position that
allowed YCLT to step in and seek payment on behalf of Credit Suisse on a nonrecourse
loan.” Id. 677-78. As a result, the bankruptcy court found that Credit Suisse was not
entitled to an order that would allow it to benefit on speculation regarding an award
against plaintiff. Id.5

5

For the reasons stated below, the Court will not judicially notice as true the
bankruptcy court’s findings of fact.
6

1. Preclusion and Preemption 6
Credit Suisse’s primary argument is that plaintiff’s claim that Credit Suisse
directed or controlled the liquidating trust fails because the bankruptcy court in AP-14
rejected plaintiff’s argument that Credit Suisse exerted control over the Liquidating
Trust. Docket No. 73 at 7-8. Although it does not explicitly mention issue preclusion,
Credit Suisse’s argument is a veiled assertion that preclusive effect should be given to
the bankruptcy court’s finding on the issue of Credit Suisse’s control over the
Liquidating Trust. In order to establish issue preclusion, however, Credit Suisse must
show that (1) the issue presented in the current case is identical to an issue actually
litigated and necessarily adjudicated in the prior proceeding; (2) the prior action reached
a final adjudication on the merits; (3) the party against whom the doctrine is raised was
a party, or in privity with a party, to the prior adjudication, and (4) the party against
whom the doctrine is raised had a full and fair opportunity to litigate the issue in the
prior action. Bebo Constr. Co. v. Mattox & O’Brien, P.C., 990 P.2d 78, 84-85 (Colo.
1999). Credit Suisse fails to address any of the four elements and makes no attempt to
explain the circumstances under which plaintiff’s argument regarding control over the
Liquidating Trust was raised and adjudicated in AP-14. Moreover, the necessary
information to meet these elements is not contained in the complaint.7 See Miller v.

6

Credit Suisse invokes the terms “preclusion” and “preemption” interchangeably
to argue that the bankruptcy court’s orders bar plaintiff’s claim. Collateral estoppel and
preemption, however, describe two different doctrines. The Court will therefore
separately determine whether collateral estoppel or preemption bars plaintiff’s claim.
7

Credit Suisse argues that this problem can be solved by taking judicial notice of
the bankruptcy court’s decision in AP-14, arguing that the Court can take judicial notice
of matters of public record. Docket No. 82 at 3 n.2. Credit Suisse appears to
7

Shell Oil Co., 345 F.2d 891, 893 (10th Cir. 1965) (“Shell properly raised the defense of
res judicata by motion, but we cannot say that the facts which would make the defense
good appear plainly upon the face of the complaint.”). The Court declines to convert
this motion into a motion for summary judgment. Cf. Prospero Assoc. v. Burroughs
Corp., 714 F.2d 1022, 1025 (10th Cir. 1983) (af firming trial court’s decision to convert
Rule 12(b)(6) motion asserting res judicata into motion for summary judgment
appropriate where both parties treated motion to dismiss as motion for summary
judgment).8 Thus, for the foregoing reasons, Credit Suisse’s issue preclusion argument
fails.

misunderstand the concept of judicial notice. Fed. R. Evid. 201 permits courts to
judicially notice court documents to “establish the fact of such litigation and related
filings,” but “[f]acts adjudicated in a prior case do not meet either test of indisputability
contained in Rule 201(b).” Int’l Star Class Yacht Racing Ass’n v. Tommy Hilfiger
U.S.A., Inc., 146 F.3d 66, 70 (2d Cir. 1998) (quotations omitted). Thus, the bankruptcy
court’s finding of fact that Credit Suisse did not control the Liquidating Trust cannot be
judicially noticed for its truth. Credit Suisse also claims that, because of the bankruptcy
court’s finding, the Court is no longer required to accept as true plaintiff’s allegations
that Credit Suisse controlled the Liquidating Trust. Docket No. 82 at 6. The Court
rejects this argument for the same reason.
8

To the extent that Credit Suisse’s argument that the bankruptcy court’s orders
“preclude[ plaintiff] from relitigating claims and defenses he brought or could have
brought in the bankruptcy proceeding,” Docket No. 73 at 8, can be construed as
invoking the doctrine of claim preclusion, Credit Suisse’s argument fails for a similar
lack of support. See Burlington Ditch Reservoir & Land Co. v. Metro Wastewater
Reclamation Dist., 256 P.3d 645, 668 (Colo. 2011) (holding that defendant seeking to
assert claim preclusion must show that “(1) the first judgment is final, (2) there is identity
of subject matter, (3) there is identity of claims for relief, and (4) there are identical
parties or there is privity between parties to the two actions”). There is some
suggestion that the bankruptcy court prohibited plaintiff from bringing claims directly
against Credit Suisse. See In re Yellowstone Mountain Club, LLC, No. 08-61570-11
(Bankr. D. Mont. Dec. 5, 2012). However, neither party identifies when such a ruling
may have occurred, if at all, and, if it did occur, the circumstances under which the
ruling was made. As such, the Court cannot determine to what extent the bankruptcy
court proceeding has preclusive or, as discussed below, preemptive effect.
8

Credit Suisse also argues that plaintiff’s claim is preempted by the Bankruptcy
Code, claiming that any action that the Liquidating Trust took was authorized by the
bankruptcy court’s approval of the Third Amended Plan. Docket No. 73 at 8. Credit
Suisse does not cite any authority in support of its argument, instead referring to its
briefs in support of its motion for reconsideration. See Docket No. 73 at 8 (citing
Docket No. 70 at 3-4). Credit Suisse focuses on the otherwise legal actions taken by
the Liquidating Trust, but plaintiff’s claims are instead based upon Credit Suisse’s
actions to induce the Liquidating Trust to take otherwise legal action in furtherance of
Credit Suisse’s improper objective to circumvent the no recourse provision. In other
words, although the Liquidating Trust was unquestionably authorized to take action
against plaintiff, Credit Suisse is allegedly liable to the extent it used the Liquidating
Trust as a mechanism to further its own improper goal in contravention of the no
recourse provision. Credit Suisse fails to squarely address whether a claim based upon
its own conduct is expressly or impliedly preempted by the Third Amended Plan, the
bankruptcy court, or the Bankruptcy Code, which, by itself, is a sufficient reason to
reject Credit Suisse’s argument on this point. 9 See Cook v. Rockwell Int’l Corp., 618
F.3d 1127, 1143 (10th Cir. 2010) (“Because Def endants advocate preemption, they
bear the burden of showing that federal and state law conflict.”). To the contrary, the
Third Amended Plan contained an exculpation clause releasing liability for all claims,
9

Credit Suisse also relies on the fact that the bankruptcy court ruled that Credit
Suisse would not be repaid out of the Liquidating Trust’s recovery from plaintiff. Docket
No. 73 at 8. However, plaintiff’s claim is based on actions taken to recover from plaintiff
in violation of the no recourse provision, not on what Credit Suisse may or may not
recover in the course of the bankruptcy proceeding. See generally Docket No. 68 at
66-68.
9

with the exception of those based upon “willful misconduct or gross negligence,” which
contemplates that Credit Suisse can arguably be liable for the acts alleged in support of
plaintiff’s claim. See Docket No. 28-12 at 48, § 8.4. Moreover, Credit Suisse fails to
identify information relevant to its bankruptcy preemption analysis. State law claims
related to abuse of the bankruptcy process brought by a creditor or debtor are, in many
circumstances, impliedly preempted by the Bankruptcy Code. See Glannon v. Garrett
& Assoc., Inc., 261 B.R. 259, 265 (D. Kan. 2001) (collecting cases); Leonard v.
McMorris, 106 F. Supp. 2d 1098, 1115 (D. Colo. 2000) (considering whether Wage Act
claim brought against non-debtor was preempted and concluding that “defendants have
not cited any language in the Bankruptcy Code which extends the Bankruptcy Code’s
protection to individuals or entities which have not filed a bankruptcy petition . . . [h]ad
Congress intended that bankruptcy protection extend beyond the entity filing the
bankruptcy petition, it could have drafted the Bankruptcy Code to so provide”), reversed
on state law grounds, 320 F.3d 1116 (10th Cir. 2003). Although Congress has provided
remedies designed to prohibit misuse of the bankruptcy process, Credit Suisse does
not identify which remedies are applicable to the present case or explain why the
present claim is properly encompassed by the Yellowstone Club bankruptcy. Thus, to
the extent Credit Suisse argues that plaintiff’s claim is somehow barred by “Bankruptcy
preemption,” Credit Suisse’s argument fails for lack of support.10

10

Nonetheless, the Court finds the preemptive effect of the Yellowstone
Bankruptcy, if any, to be a threshold issue. As such, Credit Suisse is f ree to file a
motion for summary judgment on this issue.
10

2. Allegations in the First Amended Complaint
Credit Suisse interprets Paragraph 9.20 of the Credit Agreement as releasing
Yellowstone Club partners or managing members from personal liability for repayment
of the loan to Credit Suisse. Docket No. 73 at 7. Credit Suisse asserts that, because
an implied covenant cannot add to or contradict a contract’s express terms, plaintiff
cannot claim that Paragraph 9.20 protects him from suit by the Liquidating Trust – an
entity separate from Credit Suisse. Id. Plaintiff responds that he does not seek to
create a new contractual term, but to hold Credit Suisse liable because it “knew, or
knew with substantial certainty, that its course of conduct would deprive Mr. Blixseth of
his reasonable expectations in the ‘No Recourse to Partners’ provision of the Credit
Agreement while at the same time give Credit Suisse more than what it was entitled to
under the Credit Agreement” and that, because Credit Suisse is a benef iciary of the
Liquidating Trust, the Liquidating Trust “is seeking to collect the Credit Suisse nonrecourse loan proceeds from Mr. Blixseth individually, for the benefit of Credit Suisse.”
Docket No. 79 at 8, 11. The issue then becomes whether Credit Suisse’s actions in
influencing the Liquidating Trust violated a reasonable expectation created by the terms
of the Credit Agreement.
The duty of good faith and fair dealing does not “inject substantive terms into the
parties’ contract. Rather, it requires only that the parties perform in good faith the
obligations imposed by their agreement.” Wells Fargo Realty Advisors Funding, Inc. v.
Uioli, Inc., 872 P.2d 1359, 1363 (Colo. App. 1994). “W hen one party uses discretion
conferred by the contract to act dishonestly or to act outside of accepted commercial
practices to deprive the other party of the benefit of the contract, the contract is
11

breached.” Id. (citing Simmons Oil Corp. v. Holly Corp., 852 P.2d 523, 529 (Mont.
1993)). Stated differently, “[t]he conduct required by the implied covenant of good faith
and fair dealing is honesty in fact and the observance of reasonable commercial
standards of fair dealing in the trade.” Mont. Code Ann. § 28-1-211; see also Story,
791 P.2d at 775 (citing § 28-1-211).
The amended complaint most squarely addresses the issue of reasonable
commercial standards by alleging that the implied covenant was violated by Credit
Suisse
voluntarily electing to not foreclose on its security as a secured creditor and
being repaid on its loan through foreclosure of its security instruments but
instead choosing to treat its loan as almost completely unsecured knowing
with substantial certainty that repayment of its unsecured debt would be
accomplished, if at all, through litigation and collection pursued against
Plaintiff.
Docket No. 68 at 67-68. The effect of this was that Credit Suisse transformed “the
$375 million non-personally guaranteed predatory loan into a Reorganization Plan in
which it created the YCLT to sue plaintiff to obtain all marital community he received out
of his divorce, while leaving CrossHarbor/Byrne and [Credit Suisse] with ownership
interests in the Yellowstone Club.” Docket No. 68 at 58, ¶ 122. Plaintif f argues that
such allegations are sufficient because
a fully secured lender breaches reasonable commercial standards when it
chooses to forego repayment of its loan through foreclosing on its oversecured collateral, and chooses instead to create an ‘unsecured’ deficiency
and collect on its deficiency through litigation from a person who was not
legally obligated to satisfy the loan in the first place, while also obtaining an
ownership interest in its collateral.
Docket No. 79 at 7. In arguing that these allegations show that Credit Suisse did not
observe reasonable commercial standards, plaintiff cites two cases. In Uioli, a lender
12

was found liable for breach of the covenant of good faith and fair dealing for
“deliberately delay[ing] the foreclosure process in order to increase the [underlying] debt
through the accrual of default interest and to realize its ultimate goal of taking all of the
borrower’s collateral.” 872 P.2d at 1364. In Merrill Lynch Bus. Fin. Servs. Inc. v.
Plesco, Inc., 859 F. Supp. 818 (E.D. Pa. 1994), a debtor asserted a counterclaim for
breach of the duty of good faith and fair dealing against a lender for allegedly liquidating
collateral in a careless manner. Id. at 825-26. The lender contended that, because it
had no contractual obligation to seek payment from its first security interest in the
debtor’s collateral, it was not precluded from first pursing payment from the guarantors.
Id. at 827-28. The court found logic in the lender’s argument, but rejected it for lack of
citation to binding legal authority. Id. at 828. Neither case cited by plaintiff is entirely
analogous. However, in light of the allegation that Credit Suisse chose to forego
traditional foreclosure and proceed as an unsecured creditor knowing that repayment
was likely to come from plaintiff – a party who it had contractually released from liability
– while retaining an ownership interest in the Yellowstone Club, the Court finds that,
although a close case, plaintiff has sufficiently alleged that Credit Suisse’s decision to
join the Third Amended Plan was not commercially reasonable. As a result, the Court
does not find that the alleged implied covenant is “in direct contradiction of the written
term contract.” See Farris v. Hutchinson, 838 P.2d 374, 376-77 (Mont. 1992). T he
Court finds that plaintiff has sufficiently alleged his claim for breach of the duty of good
faith and faith dealing.11

11

The Court does not reach plaintiff’s remaining arguments.
13

IV. CONCLUSION
For the foregoing reasons, it is
ORDERED that Credit Suisse’s Motion to Dismiss Plaintiff’s Claim for Breach of
the Covenant of Good Faith and Fair Dealing [Docket No. 73] is DENIED.

DATED September 26, 2014.
BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge

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