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Lukoil To Pay $93M To Settle Getty Transfer Claims

July 17, 2013 | By Daniel Wilson | Law360

Russian oil giant OAO Lukoil on Wednesday agreed to pay $93 million to settle a dispute with the trustee for bankrupt Getty Petroleum Marketing Inc. over a 2009 gas station transfer deal, ending a trial over the dispute in New York bankruptcy court.

Under the terms of the deal, Lukoil will pay $93 million to Getty's bankruptcy trust, ending claims that its American unit Lukoil Americas Corp., then Getty's owner, had in November 2009 fraudulently transferred all of Getty's profitable gas stations, subleases and subsidiaries to its sister company Lukoil North America LLC in exchange for a $120 million payment, allegedly far below what the assets were worth.

Alfred Giuliano, liquidating trustee for Getty, urged U.S. Bankruptcy Judge Shelley C. Chapman to approve the deal, which was reached during an adjournment 17 days into a planned 29-day trial and also resolves a dispute over a $6.3 million income tax receivable payment allegedly owed to Getty by LAC when it was sold to Cambridge Petroleum Holding Inc. in February 2011, according to court documents.

Despite his belief that evidence introduced during the trial had shown Lukoil's liability to Getty over the disputed deal, "substantial and complex" legal issues and factual disputes between the parties meant that the outcome of the case was unpredictable and would result in a "costly and extended" process before any litigated resolution, Giuliano claims.

"Given the uncertainty and the enormous expense of continued litigation, it is the trustee's considered business judgment that ending the litigation and entering into the settlement is in the best interests of all of the debtors' creditors," Giuliano said.

Not only would the settlement result in a meaningful recovery for Getty's creditors after a "hard-fought" case and trial, it will also allow the trust to promptly repay a loan from real estate investment trust Getty Realty Corp. - one of Getty Petroleum's largest creditors - used to finance the litigation against Lukoil, therefore facilitating the quick wind-up of the liquidation trust and minimizing costs to the trust, according to Giuliano.

A representative for Lukoil didn't immediately respond to a request for comment Wednesday.

Getty filed for Chapter 11 bankruptcy protection in December 2011 in the wake of being ordered to pay ethanol fuel company Bionol Clearfield LLC more than $227 million following an arbitration dispute, with the company also facing claims over alleged environmental contamination.

Shortly after filing its bankruptcy petition, it filed its adversary claim against LAC and LNA, with Giuliano adding claims against OAO Lukoil and several of LAC's current and former executives, alleging breach of fiduciary duty, after taking over the case following approval of Getty's liquidation plan last August.

As part of a so-called restructuring of Getty, Lukoil had siphoned out all of its valuable assets without paying fair value for those assets, with the express purpose of removing them from the reach of Getty's creditors, knowing it was insolvent at the time, according to the claim.

Giuliano is represented by Andrew N. Goldman, Charles C. Platt and Michael G. Bongiorno of WilmerHale LLP.

Lukoil is represented by Abid Qureshi and Joseph L. Sorkin of Akin Gump Strauss Hauer & Feld LLP.

LAC's executives are represented by Susheel Kirpalani and Christopher D. Kercher of Quinn Emanuel Urquhart & Sullivan LLP.

The case is In re: Getty Petroleum Marketing Inc. et al., case number 1:11-bk-15606, in the U.S. Bankruptcy Court for the Southern District of New York.

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