UPDATED: Bionol wins $230 million arbitration case against Getty

By Holly Jessen | August 23, 2011

Bionol Clearfield LLC recently came out on top in an arbitration case with Getty Petroleum Marketing Inc. The 110 MMgy facility—the only commercial-scale ethanol plant in Pennsylvania—was awarded $47 million in damages incurred to-date and more than $180 million in future damages, according to McDermott Will & Emery LLP, the law firm that represented the ethanol plant.

Bionol, which has been in hot idle since early June, filed for Chapter 7 bankruptcy protection on June 20 and indicated it hoped the plant would be sold to a new owner within six months. The contract dispute with Getty was identified as the source of Bionol’s financial troubles.

Employees are still working at the plant while it is in hot idle, according to Fred Giuliano, a Chapter 7 bankruptcy lawyer for Bionol. The company is working with a broker to sell the facility and has fielded many calls about it, he said. The $230 million award is positive news for the ethanol plant. “We plan on pursing it vigorously,” he told EPM.  

In 2007, Bionol and Getty entered into a five-year off-take agreement with a commodity-based pricing formula that required the petroleum marketing company to purchase essentially all the ethanol produced at the ethanol plant, according to a press release from the law firm. Getty challenged the pricing mechanisms of the contract after the plant came online in early 2010, following a drop in the commodities market. Last summer Getty filed a demand for arbitration before the American Arbitration Association against Bionol and Bionol responded with counterclaims against Getty. “While the ethanol markets have fluctuated greatly over the past few years, Bionol and Getty had a deal on this commodity-based pricing formula, “ said McDermott lead partner Anthony Bongiorno. “McDermott never waivered on the principal that ‘a deal is a deal’ and that this contract was legally binding regardless of subsequent market fluctuations.”

A panel of arbitrators heard evidence over four weeks and ultimately adopted all of McDermott’s legal theories on liability and damages as well as the damage model developed by the company and its expert witnesses, the law firm stated. One difficulty was that after the first six days of testimony Getty, then a wholly owned subsidiary of Lukoil Americas, was sold. “This forced Bionol to file a motion for interim relief, which the panel allowed, ordering an attachment on all of the assets of Getty in the amount of $47 million,” the law firm stated. “This was an important benchmark for our trial team, providing us with momentum to keep this complex case moving forward toward the final award providing for all damages sought.”

Pennsylvania State Rep. Camille “Bud” George released a statement saying he considered Getty’s actions despicable and a blatant breach of contract from the beginning. “However, as noted to me, there is a wide gulf between winning a ruling and collecting the award,” he said. “I fear more legal wrangling­—perhaps years of maneuvering—may transpire before Getty/Lukoil begin to pay for all the damage they have caused.”

The good news is that Clearfield County still has an ethanol plant. Daring investors knew that corn ethanol was just the first step and planned to move into cellulosic production at some point. “I fear the reprehensible actions by Getty/Lukoil may have snuffed those plans, and it is a shame,” George said. “… However, I remain convinced that the Clearfield Bionol plant will play an integral part in energy production for many years to come.”

Editor's note: A paragraph about the employees and the sale of the plant was added to the story.

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