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Ex-Getty Owners Reach Impasse In Trustee's $6.5M Suit

August 13, 2014 | By Andrew Scurria | law360.com

The men who bought Getty Petroleum Marketing Inc. from a unit of OAO Lukoil for $1 in 2011 will not reach a mediated settlement of the Getty liquidation trustee's adversary suit claiming they drained $6.5 million from the company to line their own bank accounts, a New York bankruptcy judge said Tuesday.

Seven good-faith mediation sessions have not produced a solution to the adversary complaint accusing Bjorn Aaserod and Joseph Scott Karro of grabbing millions of dollars from GPMI's coffers in compensation to pay for personal expenses before putting the company into bankruptcy, according to a brief report from U.S. Bankruptcy Judge Martin Glenn.

"The parties have reached an impasse making further mediation at this time unproductive," the judge said, terminating further talks.

In the December complaint, trustee Alfred T. Giuliano alleged that in the nine months between the time Aaserod and Karro bought GPMI - in a deal that also included a $25 million equity infusion from Lukoil to prop the company up post-closing - the men transferred nearly $4 million from the "woefully insolvent" company into accounts under their control to take care of their own bills.

Some went to pay their personal tax bills, and another chunk, nearly $68,000, was charged to GPMI's American Express account for Aaserod and his family to take trips across Europe while the company was in dire financial straits, according to the complaint.

Aaserod and Karro approved top-level executive positions for each other that included above-market base salaries - a total of $100,000 per month split between the two men, which Giuliano is not currently seeking to recover - with generous bonuses and a GPMI prefunded lump sum pension contribution, the trustee alleged.

To "add insult to injury," the complaint said, the men awarded themselves a "success fee" of $900,000 paid for from GPMI's coffers for buying the company. After GPMI filed for Chapter 11 protection in December 2011, the men allegedly siphoned nearly $191,000 from the company to pad their pension funds and had a nondebtor subsidiary of GPMI that they controlled, Cambridge Petroleum Headquarters LLC, pay nearly $2.6 million directly to them.

The law firm that counseled the men, Eisenberg & Carton, is also named as a defendant.

GPMI was pushed into bankruptcy by an arbitration ruling that ordered it to pay ethanol company Bionol Clearfield LLC $227 million in damages connected to a plant in Pennsylvania, according to court records.

U.S. Bankruptcy Judge Shelley C. Chapman confirmed the debtors' liquidation plan in August 2012.

During the case, GPMI was embroiled in a feud with former owner Lukoil over claims its U.S. unit fraudulently transferred all of Getty's profitable gas stations, subleases and subsidiaries in 2009 to its sister company Lukoil North America LLC in exchange for an allegedly much-undervalued $120 million payment.

The dispute was brought to a close in July 2013, when Lukoil agreed to pay $93 million to settle, according to court records.

The trustee is represented by Andrew Goldman of Wilmer Cutler Pickering Hale & Dorr LLP.

The defendants are represented by George A. Zimmerman of Skadden Arps Slate Meagher & Flom LLP.

The adversary case is Alfred T. Giulliano as trustee of The Getty Petroleum Liquidating Trust v. Cambridge Securities LLC, et al, case number 1:13-ap-01720, in the U.S. Bankruptcy Court for the Southern District of New York. The bankruptcy is In re: Getty Petroleum Marketing Inc. et al., case number 1:11-bk-15606, in the same court.

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