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Paws Up owner has varied business past

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David E. Lipson, the owner of the luxurious Resort at Paws Up in the Blackfoot Valley, is a Las Vegas businessman with stints at nationally known companies on his resume, as well as clashes in courtrooms and with regulatory agencies over his business practices.

Last month, Lipson drew attention from the Missoula City-County Health Department when Paws Up opened despite lacking necessary business licenses. The Health Department has ordered the resort to close, yet Paws Up won't shut its doors and has appealed the closure order.

Lipson said he has no choice but to stay open: If Paws Up closes, it may never reopen, he said. The primary obstacle to the resort's business license is an unapproved water supply.

In the 1990s, Lipson was found liable for securities fraud for insider trading in a case involving Supercuts, the nationwide chain of discount-haircutting salons; Lipson served for a time in the 1990s as the company's chief executive officer. In that case, he was ordered to pay more than $2.8 million in civil penalties, according to a 2001 statement from the U.S. Securities and Exchange Commission. Lipson declined to discuss this case with the Missoulian.

In Montana, Lipson is embroiled in a lawsuit with a Helena company over construction work done at the Paws Up resort. Lipson told the Missoulian that the case is a "typical" dispute.

In April, one of the two Lipson companies that's involved with Paws Up filed for bankruptcy in Nevada. Lipson said the bankruptcy is not related to the resort.

In the case before the Missoula Health Department, a spokesman for Lipson said, "We have made every effort to cooperate with the authorities and comply not only with the spirit of the law, but the letter of the law."

In an interview last week at his house on the Paws Up property, Lipson said the resort demands his attention day and night. But it is not his sole business concern. He also buys and sells companies, including manufacturers and other businesses.

According to legal documents, Lipson has a degree in law and is a certified public accountant. He spent 25 years with the Chicago-based accounting firm of Arthur Andersen & Co., where he was a tax partner, court records say.

He left Andersen for a position as vice president and chief financial officer of Beatrice Foods, a multibillion-dollar publicly traded company, according to SEC documents.

Lipson then became a "merchant banker," buying and selling various companies, including manufacturing firms and other concerns, according to Lipson and the SEC.

One company he bought in to was California-based Supercuts Inc. He became CEO of the company, took the business public and was later fired by the board, according to the SEC and news stories published in San Francisco in 1995 and 1996.

After his departure, the SEC investigated Lipson's dealings while at Supercuts and found him liable for securities fraud for insider training. Lipson declined to discuss the SEC case with the Missoulian.

According to SEC documents, the case hinged on claims that in March and April 1995, Lipson sold 365,000 shares of Supercuts stock. The SEC complaint alleged that Lipson was receiving confidential financial reports from the Supercuts accounting department showing that the company would fail to meet its own internal budget projections, which were below the earnings projected by analysts.

The SEC alleged that Lipson used the inside information to sell the stock and avoid losses that he would have suffered had he waited to sell until quarterly earnings were publicly announced in May 1995. The court hearing the case determined that Lipson avoided losses of $621,875 by selling shares earlier.

In 2001, a court ordered Lipson to "disgorge" all those losses, pay interest on that amount and also pay the maximum civil penalty allowed by law - in all, a total of more than $2.8 million.

Lipson's defense, according to court documents, was that he never read the internal financial reports prepared by the Supercuts accounting department because he found them unreliable. He also said that he had no information about the company's financial performance until shortly before results were released to the public. And he said that he intended to sell the stock through an account in his son's name as part of his estate planning and not because of inside information.

A judge called his defense testimony "implausible" and said the evidence against him was "overwhelming."

During the proceedings against Lipson, the SEC estimated his net worth at more than $100 million. The same SEC records say Lipson owns virtually no property directly, not even his own residence.

He treats "even his own living space as a partnership investment," SEC records say.

In 1999, Lipson moved his business operations to Nevada, he said. He and his wife, Nadine, have registered at least 22 companies there to the same Las Vegas address: 3993 Howard Hughes Parkway, according to the Nevada secretary of state.

By that time, Lipson had already owned the property that became Paws Up for about a year. He and his wife bought the land in 1998 through a company called Monroe Property LLC, Lipson said.

Lipson earlier owned a ranch in Colorado and another in Oklahoma, according to SEC records.

When Lipson came to Montana looking for a ranch to buy, he first looked at the Bitterroot Valley, he said, but found it too segmented and overdeveloped.

But the pristine landscape along the Blackfoot River looked great. He picked the 10,000 acres that became Paws Up because of its proximity to Missoula's airport. In addition, he said, there was little or no potential for development on adjacent lands, he said.

In the late 1990s, Lipson said, he bought 1,500 head of registered Black Angus cattle. But the ranching arrangement turned out to be a losing proposition, he said, so he decided in 2003 to transform the operation into a swanky, high-end resort.

"Cattle ranching is economical for old ranching families, not so for relative newbies," he said. "This has been an evolution."

In 2000, Lipson began contracting with Montana businesses to develop and improve the Paws Up property.

Lipson's agent for that work was Monroe Construction LLC, another Las Vegas-based business associated with the Paws Up property.

That company has no employees and doesn't build anything, say records filed in the Nevada bankruptcy case.

Monroe Construction is registered in Nevada and operates in Montana, as does Monroe Property Co., another of the Nevada companies registered by the Lipsons. Nadine Lipson and Dana Excavating LLC are listed as the managers of Monroe Construction by the Nevada secretary of state. Nevada lists DEL Investments Corp., another company owned by Lipson, as the manager of Monroe Property.

In 2000, Dick Anderson Construction of Great Falls and Helena was the primary contractor for Paws Up. Anderson contracted with Monroe Construction, whose only property was the improvements at Paws Up while they were being constructed. Upon completion, the company sold the improvements to Monroe Property, according to court documents filed in the bankruptcy case.

In May and June 2001, Lipson stopped paying bills from Dick Anderson Construction, Anderson's company alleges in court documents. That July, the contractor filed a lien against Monroe Property and Monroe Construction for $961,932, according to documents filed with Missoula County and in the Nevada bankruptcy case.

Thirty Montana companies, many of them small subcontractors, are parties to the case.

That fall, Dick Anderson Construction sued Lipson in Missoula District Court, and Lipson filed a counterclaim alleging breach of contract, fraud and negligence. Lipson also filed a defamation suit against Anderson in Missoula District Court, say court records.

Dick Anderson of Anderson Construction declined to comment on the case while the legal matters remain unresolved.

About Anderson's suit against Monroe Construction, Lipson said, "It is a typical conflict. We contend overcharges. They contend the last bill wasn't paid."

On May 3, 2004, the Montana trial court dismissed Lipson's initial claims. The Monroe companies then filed a motion to compel arbitration, say court records.

On April 6, 2005, before the arbitration could proceed, Monroe Construction sought Chapter 11 bankruptcy relief in U.S. Bankruptcy Court in Nevada. Chapter 11 bankruptcy frees a company from the threat of creditors' lawsuits while it reorganizes its finances.

The bankruptcy petition for Monroe Construction estimated the company's assets as between $0 and $50,000 and estimated its debts as between $1,000,001 and $10 million. It estimated its number of creditors as between 16 and 49. The bankruptcy case is pending.

On June 27, a judge in the Nevada Bankruptcy Court allowed arbitration in Montana to continue between Anderson Construction and Monroe Construction.

Meanwhile, there's no dispute that the Lipsons have commissioned only the most expensive and lavish materials and furnishings for their Blackfoot Valley resort, from etched glass in the guest houses to the feather beds in the Paws Up tent city, an area of the resort that features top-of-the-line tents for posh outdoor living.

Lanny Grossman of Small Luxury Hotels of the World - an organization of top-line resorts that now includes Paws Up - recently visited the resort and gave it rave reviews. He called the Paws Up experience "luxury, rugged living," and said it was an example of the newest and latest rage in top-caliber resorts.

That has been the goal, Lipson said. But he added that somehow, the marketing of the resort got ahead of the actual construction. That's why the Paws Up finally opened without the necessary licenses from Missoula County.

"We believe we hit a home run on our business model," Lipson told the Missoulian last week.

Reporter Robert Struckman can be reached at 523-5262 or rstruckman@missoulian.com

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