Motors Liquidation Co. v. JPMorgan Chase Bank, N.A. (In re Motors Liquidation Co.)

• Decision Date: 30 June 2016
• Docket Number: Adversary Proceeding Case No. 09–00504MG,Case No. 09–50026MG Jointly Administered
• Citation: 552 B.R. 253
• Parties: In re: Motors Liquidation Company, f/k/a General Motors Corporation, et al., Debtors. Motors Liquidation Company Avoidance Action Trust, by and through the Wilmington Trust Company, solely in its capacity as Trust Administrator and Trustee, Plaintiff, v. JPMorgan Chase Bank, N.A., et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

552 B.R. 253

In re: Motors Liquidation Company, f/k/a General Motors Corporation, et al., Debtors.Motors Liquidation Company Avoidance Action Trust, by and through the Wilmington Trust Company, solely in its capacity as Trust Administrator and Trustee, Plaintiff

v.JPMorgan Chase Bank, N.A., et al., Defendants.

Case No. 09–50026MG Jointly Administered

Adversary Proceeding Case No. 09–00504MG

United States Bankruptcy Court, S.D. New York.

Signed June 30, 2016

HAHN & HESSEN LLP, Attorneys for Certain Term Loan Investor Defendants, 488 Madison Avenue, New York, N.Y. 10022, By: Mark T. Power, Esq., Sarah M. Gryll, Esq.

BLANK ROME LLP, Attorneys for PNC Bank, National Association, 405 Lexington Avenue, New York, N.Y. 10174, By: Stanley B. Tarr, Esq., John E. Lucian, Esq.

PULLMAN & COMLEY, LLC, Attorneys for the State of Connecticut Retirement Funds and Trust, 850 Main Street, P.O. Box 7006, Bridgeport, CT 06601, By: Elizabeth J. Austin, Esq.,

WARNER NORCROSS & JUDD LLP, Attorneys for Defendant Alticor Inc., 900 Fifth Third Center, 111 Lyon Street, NW, Grand Rapids, MI 49503 By: Gordon J. Toering, Esq. and STARK & STARK, P.C., P.O. Box 5315, Princeton, NJ 08543, By: Joseph H. Lemkin, Esq.

MARSHALL DENNEHEY WARNER COLEMAN & GOGGIN, Attorneys for SEI Institutional Investments Trust–High Yield Bond Fund, SEI Institutional Managed Trust–High Yield Bond Fund, SEI Institutional Managed Trust–Core Fixed Income Fund, DE–SEI Instl Inv TR–Hi Yld BD, DE–SEI Instl Mgd TR–Hi Yld BD, SEI Inst Mgd TR Core Fxd Inc., DE–SEI Institutional Investment Trust—High Yield Bond Fund, DE–SEI Institutional Managed Trust—High Yield Bond Fund Wall Street Plaza, 88 Pine Street, 21st Floor, New York, N.Y. 10005, By: R. David Lane, Jr, Esq.

ICE MILLER LLP, Attorneys for Defendant Ohio Police & Fire Pension Fund, 250 West Street, Suite 700, Columbus, OH 43215, By: Daniel R. Swetnam, Esq.,

ELENIUS FROST & WALSH, Attorneys for Continental Casualty Company, 125 Broad Street, 7th Floor, New York, N.Y. 10004, By: William P. Lalor, Esq. and DAVID CHRISTIAN ATTORNEYS LLC, 2515 W. 75th Street, Suite 208, Prairie Village, KS 66208 By: David Christian, Esq.

BECKER, GLYNN, MUFFLY, CHASSIN & HOSINSKI LLP Attorneys for Wells Cap Mgmt—13923601 299 Park Avenue, 16th Floor, New York, N.Y. 10171, Phone: (212) 888–3033, By: Jordan E. Stern, Esq.

K & L GATES LLP, Attorneys for Sanford C. Bernstein Fund Inc.—Intermediate Duration Portfolio, Sanford C. Bernstein Fund Inc. II—Intermediate Duration Institutional Portfolio, and Ivy Funds, on behalf of its series, Ivy High Income Fund, 599 Lexington Avenue, New York, N.Y. 10022, By: Robert T. Honeywell, Esq.

ENTWISTLE & CAPPUCCI LLP, Attorneys for Teachers' Retirement System of the State of Illinois and TCW Illinois State Board of Investments, 299 Park Avenue, 20th Floor, New York, N.Y. 10171, By: Andrew J. Entwistle, Esq.

SHAPIRO HABER & URMY LLP, Attorney for the Employees' Retirement System of the City of Montgomery, Seaport East, Two Seaport Lane, Boston, MA 02210, By: Edward F. Haber, Esq.

SCHUBERT JONCKHEER & KOLBE LLP, Attorney for City of Oakland Police & Fire Retirement System, 3 Embarcadero Center, Suite 1650, San Francisco, CA 94111, By: Noah M. Schubert, Esq.

WACHTELL, LIPTON, ROSEN & KATZ, Attorneys for Defendant and Cross–Claim Defendant JPMorgan Chase Bank, N.A., 51 West 52nd Street, New York, N.Y. 10019, By: Harold S. Novikoff, Esq., Marc Wolinsky, Esq., Emil A. Kleinhaus, Esq. and KELLEY DRYE & WARREN LLP, 101 Park Avenue, New York, N.Y. 10178, By: John M. Callagy, Esq., Nicholas J. Panarella, Esq., Martin A. Krolewski, Esq.,

MUNGER, TOLLES & OLSON LLP, Attorney for Term Loan Lenders, 355 South Grand Avenue, 35th Floor, Los Angeles, CA 90071, By: John W. Spiegel, Esq., George M. Garvey, Esq., Bradley R. Schneider, Esq., Craig A. Lavoie, Esq., and 560 Mission Street, 27th Floor, San Francisco, CA 94105, By: Kristin Linsley Myles, Esq.

KASOWITZ, BENSON, TORRES & FRIEDMAN LLP, Attorney for Ad Hoc Group of Term Lenders, 1633 Broadway, New York, N.Y. 10019, By: Mark E. Kasowitz, Esq., Andrew K. Glenn, Esq., Paul M. O'Connor, Esq., Michele L. Angell, Esq., Michelle G. Bernstein, Esq.

BINDER & SCHWARTZ LLP, Attorneys for Plaintiff, 28 W. 44th Street, Suite 700, New York, N.Y. 10036, By: Eric B. Fisher, Esq., Neil S. Binder, Esq., Lindsay A. Bush, Esq., Lauren K. Handelsman, Esq.

MEMORANDUM OPINION AND ORDER DENYING MOTIONS TO DISMISS, FOR JUDGMENT ON THE PLEADINGS, AND TO VACATE PRIOR COURT ORDERS

MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE

Pending before the Court are the following motions to dismiss (collectively, the “Motions to Dismiss”) and motions for judgment on the pleadings (collectively, the “Judgment on the Pleadings Motions,” and together with the Motions to Dismiss, the “Motions”) in this adversary proceeding (the “Avoidance Action”):

1. The joint motion of certain Term Loan Investor Defendants¹ to dismiss the Plaintiff's Amended Complaint² (the “Term Loan Investors' Motion,” ECF Doc. # 226);³

2. The motion of Ad Hoc Group of Term Lenders⁴ to (1) vacate certain prior orders of the Court; and (2) dismiss the adversary proceeding (the “Ad Hoc Motion,” ECF Doc. # 262);

3. The motion of Defendant Continental Casualty Company(“Continental”) to dismiss the Plaintiff's Amended Complaint (the “Continental Motion,” ECF Doc. # 310, 311)⁵ ;

4. The motion of Term Loan Lenders⁶ for judgment on the pleadings (the “TLL Motion,” ECF Doc. # 377); and

5. The Moving Term Loan Lenders' Motion for judgment on the pleadings (the “Moving TLL Motion,” ECF Doc. # 390).

The Motors Liquidation Company Avoidance Action Trust (the “Trust” or “Plaintiff”) filed an omnibus opposition to the Motions (the “Opposition,” ECF Doc. # 427). Thereafter, the moving defendants submitted voluminous briefs in further support of the Motions. Other defendants filed joinders to the Motions.

The Avoidance Action was filed on July 31, 2009, in the General Motors Corporation's (“GM” or “General Motors”) chapter 11 cases pending before my then-colleague, Judge Robert E. Gerber. The Avoidance Action, naming approximately 500 defendants, seeks to avoid and recover transfers of $1.5 billion to the holders (or their transferees) of interests in a $1.5 billion term loan to General Motors. The term loan was originally fully secured, but it later turned out that—after the loan was repaid in full shortly after the General Motors bankruptcy cases were filed—the liens on much of the collateral had mistakenly been released. The Trust now seeks to recover the payments as avoidable preferences or constructively fraudulent transfers.

The Avoidance Action was actively litigated for many years in this Court, on direct appeal from this Court to the Second Circuit, on certification of a question of law from the Second Circuit to the Delaware Supreme Court, and then back to the Second Circuit, which based on the Delaware Supreme Court decision, reversed Judge Gerber's decision dismissing the case. The case was then remanded to this Court for further proceedings.

On January 5, 2016, in anticipation of Judge Gerber's retirement at the end of January 2016, the General Motors (now called “Motors Liquidation Company”) chapter 11 cases and the Avoidance Action were transferred to me. The Motions are now fully briefed and ready for decision. The Court heard argument on the Motions on April 18, 2016.

For the reasons explained below, all of the Motions are DENIED.

I. GENERAL BACKGROUND

A. Term Loan Agreement and Collateral Agreement

In 2006, GM obtained the $1.5 billion seven-year term loan (the “Term Loan”), evidenced by a note pursuant to the Term Loan Agreement.⁷ (Term Loan Investors' Mot. at 3 (citing Am. Compl. ¶¶ 571–72).) JPMC was the administrative agent under the Term Loan Agreement. (Opp'n at 4 (citing Fisher Decl. Ex. B (Term Loan Agreement)).) In addition to acting as the administrative agent, JPMC was also a Term Lender. (Id. ) To secure their obligations under the Term Loan, GM and Saturn granted to JPMC, pursuant to a November 29, 2006 collateral agreement, among GM, Saturn and JPMC, a first priority security interest in certain equipment, fixtures, documents, general intangibles, all books and records and their proceeds. (Term Loan Investors' Mot. at 3 (citing Am. Compl. ¶ 572).) On November 30, 2006, a UCC–1 financing statement (the “Financing Statement”) was filed with the Secretary of State of Delaware listing GM as “debtor” and JPMC as “administrative agent and secured party.” (Am.Compl. ¶ 581.) The collateral covered by the Financing Statement was comprised of the assets described on Annex 1 to the Financing Statement (the “Collateral”). (Id., Ex. 1.)

The Term Loan was a complex syndicated commercial financing, pursuant to which JPMC, Credit Suisse, Cayman Islands Branch, ABN AMRO Bank N.V., Barclays Bank PLC, The Bank of New York, and National City Bank (collectively, the “Bank Lenders”) committed upfront to fund the Term Loan. (Term Loan Investors' Mot. at 3 (citing Term Loan Agreement ¶ 2.01, Ex. 1).) The Bank Lenders then had the right to sell, typically through assignments, interests in the Term Loan and the accompanying note in the secondary market to a variety of investors. (Id. (citing Term Loan Agreement ¶ 10.06).) To facilitate trading in the secondary market, the Term Loan and accompanying note were registered and assigned CUSIP No. 37046GAF9. (Id. at 4.) The Bank Lenders ultimately assigned some or all of their interests in the Term Loan, and over 500 sophisticated entities became lenders under the Term Loan Agreement (the “Term Lenders”). (Id. at 4 (citing Am. Compl. ¶¶ 15–568).)

Prior to entering into the Term Loan Agreement, GM entered into a synthetic lease (the “Synthetic Lease”) on October 31, 2001, by which GM obtained up to approximately $300 million in financing from a syndicate of financial institutions. (Id. at 5.) The Synthetic Lease was documented by a Participation Agreement dated as of October 31, 2001, with JPMC acting as administrative agent. (Id. )...