11/02/2010 1:58PM

Defendant in mare-lease suit enters settlement

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One of the defendants in the complex, $500 million ClassicStar mare-lease series of lawsuits has entered into a settlement totaling more than $21 million with seven plaintiffs.

ClassicStar filed for bankruptcy in 2007, facing dozens of lawsuits and about 200 creditors seeking $1.4 billion. Under terms filed Friday in Lexington, Ky., defendant Gastar Exploration – an energy company spinoff from ClassicStar’s parent company, GeoStar – will pay $21.15 million to the plaintiffs. Those include ClassicStar’s U.S. bankruptcy appointee, James Lyon, who will get $7.75 million on behalf of the bankrupt ClassicStar estate in exchange for dropping Gastar from his lawsuit, currently scheduled for trial in Lexington on April 12. The settlement’s remaining $13,375,000 will be paid out among six groups of mare-lease investors who had sued. Receiving largest single amount, $9 million, is a group known as the West Hills plaintiffs.

Gastar said in a statement that it “denies the allegations made by the plaintiffs in the cases” but “entered into the settlement to avoid the risk and expense of continued litigation.”In his filings, Lyon wrote, “The trustee is of the firmly-held view that his claims against Gastar would prevail at trial,” but added that the settlement “provides the debtor’s estate with the safety and assurance of cash in hand.”The litigation began in 2006 after Internal Revenue Service investigators raided ClassicStar’s Versailles, Ky., farm and two investor groups sued its principals for fraud, claiming that ClassicStar fraudulently had sold its complicated mare-lease programs as a tax shelter. ClassicStar co-founders David and Spencer Plummer pleaded guilty to conspiracy to commit tax fraud last October.

The settlement is subject to bankruptcy court approval. The U.S. bankruptcy trustee’s lawsuit against 52 remaining defendants will continue.

– Glenye Cain Oakford