Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. Jpmorgan Chase Bank, N.A. (In re Motors Liquidation Co.)
| Decision Date | 01 March 2013 |
| Docket Number | Adversary No. 09–00504 (REG).,Bankruptcy No. 09–50026 (REG). |
| Citation | 486 B.R. 596 |
| Parties | In re MOTORS LIQUIDATION COMPANY, f/k/a General Motors Corporation, et al., Debtors. Official Committee of Unsecured Creditors of Motors Liquidation Company, Plaintiff, v. JPMorgan Chase Bank, N.A., et al., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
OPINION TEXT STARTS HERE
Dickstein Shapiro LLP, By: Barry N. Seidel, Esq., Eric B. Fisher, Esq. (argued), Katie L. Cooperman, Esq., New York, NY, for the Official Committee of Unsecured Creditors of Motors Liquidation Company.
Kelley Drye & Warren LLP, By: John M. Callagy, Esq. (argued), Nicholas J. Panarella, Esq., Martin A. Krolewski, Esq., New York, NY, for Defendant JPMorgan Chase Bank, N.A.
DECISION ON CROSS–MOTIONS FOR SUMMARY JUDGMENT
In this adversary proceeding under the umbrella of the chapter 11 case of Motors Liquidation Company, formerly known as General Motors Corporation (“GM”), plaintiff Official Committee of Unsecured Creditors (the “Committee”) 1 seeks a determinationthat the principal lien securing a syndicated $1.5 billion term loan (the “Term Loan”) that had been made to GM in November 2006 was terminated in October 2008, before the filing of GM's chapter 11 case—thereby making most of the $1.5 billion in indebtedness under the Term Loan unsecured. The defendants are the syndicate members who together made the Term Loan (the “Lenders”) and JPMorgan Chase Bank, N.A. (“JPMorgan”), the agent under the facility.2
The action presents issues as to Uniform Commercial Code (“UCC”) filings that are commonly used in secured financings: a UCC–1 initial financing statement (“UCC–1”), with which a security interest can be perfected, and a UCC–3 financing statement amendment (“UCC–3”), with which, among other things, 3 the effectiveness of an earlier UCC–1 may be brought to an end. Here, in connection with the payoff of a GM “synthetic lease” (the “Synthetic Lease”), which was one-tenth of the size of the Term Loan and wholly unrelated to it,4 the batch of several UCC–3s to be filed to terminate liens on Synthetic Lease collateral (and which thereafter were filed) mistakenly included one UCC–3 (the “Unrelated UCC–3”) which would terminate a UCC–1—referenced only by its 8–digit filing number—that did not have any connection to the Synthetic Lease.5 The UCC–1 was instead the principal UCC–1 securing the Term Loan (the “Main Term Loan UCC–1”).6
Without dispute, all of GM and its counsel (who drafted and caused to be filed the Unrelated UCC–3) and JPMorgan and its counsel (who were provided draft documents before the Unrelated UCC–3 was filed) were aware of the UCC–1 filing numbers shown on the various draft UCC–3s in connection with the Synthetic Lease payoff (including the Unrelated UCC–3). But none were aware of their potential significance. None of the counsel on the Synthetic Lease financing, or the counsel on the Term Loan (which at least for JPMorgan was different), or their respective clients, knew that the UCC–1 filing number shown on the Unrelated UCC–3 was actually that of a UCC–1 for the Term Loan. And without dispute, neither the borrower nor the lenders on the Synthetic Lease financing, nor the borrower nor the Lenders on the Term Loan, intended to affect the Term Loan in any way.
But because the UCC–1 whose filing number was referenced in the Unrelated UCC–3 related to the Term Loan, and not the Synthetic Lease, the Court must decide, notwithstanding the absence of anyone's intention to affect the Term Loan, whether the perfection of the principal lien securing the Term Loan nevertheless came to an end.
Both sides move for summary judgment, in whole or in part.7 Arguing that UCC filings are effective even when mistaken (and that a secured party's acquiescence in the filing of a UCC–3 making reference to a specified initial financing statement by file number alone, irrespective of intent, is sufficient to constitute any necessary authority), the Committee moves for summary judgment in part,8 seeking a ruling that the Unrelated UCC–3, notwithstanding the parties' intentions, brought the Main Term Loan UCC–1 to an end. JPMorgan moves for summary judgment in full, seeking a ruling to the opposite effect—that JPMorgan's authorization to terminate the Main Term Loan UCC–1 was required under the UCC; that JPMorgan did not provide the required authorization; and thus that the Main Term Loan UCC–1, and JPMorgan's resulting lien, remained in place.
It is initially tempting to regard the consequences of all UCC filings the same and as absolute (or, as one court put it, though under an earlier statutory regime, “dramatic and final”),9 or to speak, in generalterms, of parties living with their mistakes—with the result that JPMorgan and the Lenders would suffer the consequences of this extraordinary set of events. But having focused on the changes in UCC Article 9 that were put in place in 2001, and the more thoughtful caselaw and commentary, the Court believes that it cannot view the matter in such simplistic terms. The issues instead turn on the UCC's express requirement for authorization to terminate an initial financing statement, and on what is required to constitute the requisite authorization. Under the present Article 9, a UCC termination statement is not necessarily “dramatic and final.” And all mistakes are not the same. That a termination statement filing was made is only the start—and not the end—of the judicial inquiry.
Under Article 9 of the UCC as it was amended in 2001, the termination of a UCC–1 is ineffective unless...
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In re Motors Liquidation Co.
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