Dive Brief:

• Lawyers representing the trustee in the Mountain Express Oil bankruptcy case have accused an executive of Oak Street Capital of engaging in “wrongful conduct” alongside the c-store retailer’s former co-CEOs Lamar Frady and Turjo Wadud, according to a May 3 filing with the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division.
• John Elrod, co-chair for law firm Greenberg Traurig’s Atlanta Financial Restructuring Group, representing trustee Janet Northup,  alleged in a December letter that Jared Sheiker, principal and chief of staff for Oak Street and a former member of Mountain Express’ board of directors, as well as Frady and Wadud, “breached their fiduciary duties, breached their duties of good faith and fair dealing, engaged in self-dealing, converted [Mountain Express’] assets, and/or engaged in otherwise improper transfers and conveyances.”
• Elrod has demanded a “minimum of $250 million in damages” from Sheiker, Frady and Wadud in connection with these claims. This comes several weeks after the bankruptcy trustee said she was investigating Frady and Wadud for the “the potential siphoning of millions of dollars” related to Mountain Express’ c-store transactions.

Dive Insight:

Although Frady and Wadud have been under a microscope the past year amid the collapse of Mountain Express, this marks the first time anyone from Oak Street has been publicly tied to the mishandlings of the once-promising convenience store retailer.

The May 3 court document revealed a letter sent to Sheiker, Frady and Wadud last December demanding $250 million in damages. That letter also stated that Sheiker, Frady and Wadud cannot use their directors and officers liability insurance policy to fund the damages.

According to a separate document filed on May 3, the attorneys representing that insurance company have requested court permission to reverse that rule. A hearing will take place on May 14 to decide that outcome.

“Blue Owl rejects any allegations of wrongdoing against it or Mr. Sheiker with respect to Mountain Express and its bankruptcy proceedings or otherwise,” a spokesperson from Blue Owl Capital, Oak Street’s parent company, said in a statement to C-Store Dive. “Blue Owl is confident it will prevail on these matters in court, and will have no further comment while the legal process is pending.”

Sheiker joined Mountain Express’ board of directors in December 2021, about five months after the two companies entered into a $1 billion agreement in which Oak Street would finance Mountain Express’ acquisitions of c-stores and travel centers via sale-leaseback transactions.

Between 2021 and 2022, Oak Street funded Mountain Express’ acquisitions of 286 properties across 60 sale-leaseback deals totalling more than $825 million.

When Mountain Express’ trustee revealed in March that she was investigating Frady and Wadud for siphoning millions from the company, a court document noted that Sheiker and Oak Street had “unique and important knowledge” of the “facts and circumstances” underlying Mountain Express’ financials from its sale-leaseback transactions. This made Sheiker and Oak Street “two of the most important witnesses in this bankruptcy proceeding,” the filing said.

When brought in for their respective “examinations” in February with the trustee to answer questions related to Mountain Express’ activity over the past few years, Oak Street and Sheiker initially participated, but then refused to continue. As of late April, Northrup had requested the court require them to recommence the examinations