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Getty Trustee Settles With Feds Over $700M Cleanup Bill

October 21, 2014 | By Andrew Scurria | law360.com

Getty Petroleum Marketing Inc.'s Chapter 11 trustee will allow the federal government a $16 million claim against its estate as a settlement of Getty's potential $700 million liability connected to environmental contamination at a Long Island City, New York, site, according to court papers entered Tuesday.

The deal unveiled in Getty's New York bankruptcy case calls for establishing the unsecured claim in resolution of the demands for environmental cleanup costs asserted by the U.S. Environmental Protection Agency, the U.S. Department of the Interior and the U.S. Department of Commerce.

While the proofs of claim against the estate were unliquidated - meaning they did not demand a specific dollar figure - the feds had warned that Getty's liability could reach as high as $700 million, according to the trustee.

"Given the uncertainty and expense of continued litigation - as well as the threat of judgment in favor of the United States - it is the trustee's considered business judgment that entering into the settlement is in the best interests of all of the debtors' creditors," the settlement motion said.

The government's claims sought reimbursement for the cost of remediating releases, real or threatened, of hazardous substances from a facility along New York City's Newtown Creek. The facility, which Getty had leased from an affiliate, sits adjacent to a Superfund site on the border between New York City's Brooklyn and Queens boroughs.

As part of the settlement, the government agreed not to bring any subsequent actions related to the Newtown Creek site under the Comprehensive Environmental Response, Compensation and Liability Act or the Oil Pollution Act. The government's claim will sit on equal footing with those of other unsecured creditors.

Getty's liquidating trust was established under its Chapter 11 plan, which was confirmed in August 2012 by U.S. Bankruptcy Judge Shelley C. Chapman. Getty 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.

During the case, Getty was embroiled in a feud with former owner OAO Lukoil over claims that 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 paid $93 million to the estate. Lukoil has since sued Allied World Assurance Co. U.S. Inc. for $5 million in coverage of that deal.

The trustee subsequently went after the two men who bought Getty from Lukoil in 2011 for a token $1. In a December complaint, the trustee alleged that Bjorn Aaserod and Joseph Scott Karro drained $6.5 million from the company when it was already undercapitalized, before placing it into bankruptcy.

Negotiations between the defendants and the trustee collapsed in August. Last month, the men went on the offensive against their former counsel at Akin Gump Strauss Hauer & Feld LLP, alleging the firm gave them questionable advice while representing parties on both sides of the deal and must cover any judgment in favor of the trustee.

The trustee is represented by Andrew N. Goldman and Marc M. Allon of WilmerHale.

The bankruptcy 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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