Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. JP Morgan Chase Bank, N.A. (In re Motors Liquidation Co.)

• Decision Date: 17 June 2014
• Docket Number: Docket No. 13–2187–bk.
• Citation: 755 F.3d 78
• Parties: In re MOTORS LIQUIDATION COMPANY, et al., Debtor, Official Committee of Unsecured Creditors of Motors Liquidation Company, Plaintiff–Appellant v. JP Morgan Chase Bank, N.A., individually and as Administrative Agent for various lenders party to the Term Loan Agreement described herein, Defendant–Appellee.
• Court: U.S. Court of Appeals — Second Circuit

755 F.3d 78

In re MOTORS LIQUIDATION COMPANY, et al., Debtor,

Official Committee of Unsecured Creditors of Motors Liquidation Company, Plaintiff–Appellant

v.JP Morgan Chase Bank, N.A., individually and as Administrative Agent for various lenders party to the Term Loan Agreement described herein, Defendant–Appellee.

Docket No. 13–2187–bk.

United States Court of Appeals,Second Circuit.

Argued: March 25, 2014.

Question Certified: June 17, 2014.

Eric B. Fisher (Barry N. Seidel, Katie L. Weinstein, Jeffrey Rhodes, on the brief), Dickstein Shapiro LLP, New York, N.Y., for Plaintiff–Appellant.

John M. Callagy (Nicholas J. Panarella, Martin A. Krolewski, on the brief), Kelley Drye & Warren LLP, New York, N.Y., for Defendant–Appellee.

Before: WINTER, WESLEY, and CARNEY, Circuit Judges.

WESLEY, Circuit Judge:

In October 2001, General Motors entered into a synthetic lease financing transaction (the “Synthetic Lease”), by which it obtained approximately $300 million in financing from a syndicate of financial institutions. The proceeds were used to acquire and construct facilities on several properties. General Motors' obligation to repay the Synthetic Lease was secured by liens on twelve pieces of real estate. The lenders' security interests in General Motors' properties were perfected by filing UCC–1 financing statements in the counties in which the properties were located and with the Delaware Secretary of State. JPMorgan served as administrative agent for the Synthetic Lease and was identified on the UCC–1s as the secured party of record.

Five years later, in November 2006, General Motors and then-subsidiary Saturn Corporation entered into a separate term loan facility (the “Term Loan”). The Term Loan was entirely unrelated to the Synthetic Lease and provided General Motors with approximately $1.5 billion in financing from a different syndicate of financial institutions. To secure the loan, the lenders took security interests in a large number of General Motors' assets, including all of General Motors' equipment and fixtures at forty-two facilities throughout the United States. JPMorgan served as administrative agent and secured party of record for the Term Loan and caused the filing of twenty-eight UCC–1 financing statements to perfect the lenders' security interests in the collateral. The Main Term Loan UCC–1 was filed with the Delaware Secretary of State and bore file number “6416808 4.”

A. Termination of the Synthetic Lease

The Synthetic Lease was scheduled to mature on October 31, 2008. In September 2008, General Motors contacted Mayer Brown LLP, its counsel responsible for the Synthetic Lease, and explained that it planned to repay the amount due under the Synthetic Lease. General Motors requested that Mayer Brown prepare the documents necessary for JPMorgan and the lenders to be repaid and to release the interests the lenders held in General Motors' property.

Mayer Brown Partner Robert Gordon assigned the work to an associate and instructed him to prepare a closing checklist and drafts of the documents required to pay off the Synthetic Lease and to terminate the lenders' security interest in General Motors' property. Over the next two weeks, the associate prepared (1) a Closing Checklist that identified the actions required to unwind the Synthetic Lease; (2) a Termination Agreement by which General Motors formally exercised its option to repay the amount due under the Synthetic Lease and be released from the related liens against General Motors' properties; (3) a set of UCC–3 termination statements to terminate liens held against General Motors' properties; and (4) an Escrow Agreement governing title company LandAmerica's role in closing the transaction.

1. The Closing Checklist

The Mayer Brown associate prepared a closing checklist that included several dozen actions and documents required to unwind the Synthetic Lease. Among the items on the Closing Checklist was a list of security interests held by General Motors' lenders that would need to be terminated. To prepare the list of security interests, the associate asked a paralegal, unfamiliar with the transaction or the purpose of the request, to perform a search for UCC–1 financing statements that had been recorded against General Motors in Delaware. The paralegal's search identified three UCC–1s, numbered 2092532 5, 2092526 7, and 6416808 4. Neither the paralegal nor the associate realized that only two of the UCC–1s were related to the Synthetic Lease transaction. The third UCC–1, number 6416808 4, related to the 2006 Main Term Loan UCC–1. Not noticing that one of the UCC–1s was unrelated to the Synthetic Lease, the associate placed all three for termination in the Closing Checklist:

Termination of UCCs (central, DE filings) Blanket-type financing statements as to real property and related collateral located in Marion County, Indiana (file number 2092532 5, file date 4/12/02 and file number 2092526 7, file date 4/12/02) financing statement as to equipment, fixtures and related collateral located at certain U.S. manufacturing facilities (file number 6416808 4, file date 11/30/06)

On the afternoon of October 15, 2008, Mayer Brown circulated a draft of the checklist to JPMorgan's counsel, Simpson Thacher. A largely identical draft was distributed later that evening and another on October 21. No one at General Motors, Mayer Brown, Simpson Thacher, or JPMorgan recognized that one of the UCC–1s identified in the checklist for termination was filed in 2006 rather than 2002 and was entirely unrelated to the Synthetic Lease.

2. The Termination Agreement

The Mayer Brown associate also prepared a Termination Agreement, which he also circulated to Simpson Thacher on October 15, 2008. The Termination Agreement stated that General Motors was exercising its option to repay the amount due under the Synthetic Lease, that the Operative Agreement underlying the Synthetic Lease was terminated, and that JPMorgan and the Lessor were releasing all of their related liens against General Motors' properties. To that end, the Termination Agreement expressly authorized General Motors to terminate the Synthetic Lease liens:

[T]he Administrative Agent [JPMorgan] and the Lessor do hereby (x) release all of their Liens ... against the Properties created by the Operative Agreements [of the Synthetic Lease], (y) acknowledge that such Liens and Lessor Liens are forever released, satisfied and discharged and (x) [ sic ] authorize Lessee to file a termination of any existing Financing Statements relating to the Properties [of the Synthetic Lease].

All parties agree that the Synthetic Lease Termination Agreement does not relate to the Term Loan or to the properties and liens securing it.

3. The UCC–3 Termination Statements

Along with the Termination Agreement, Mayer Brown also circulated to Simpson Thacher three draft UCC–3 statements to terminate the three UCC–1 security interests set out for termination in the Closing Checklist. One of the draft statements was a UCC–3 to terminate 6416808 4, the Main Term Loan UCC–1. As explained above, this UCC–1 was connected with the Term Loan and entirely unrelated to the Synthetic Lease.

On October 15, 2008, the Mayer Brown associate e-mailed all three draft UCC–3s to Simpson Thacher, along with the Termination Agreement and a copy of the Closing Checklist. Simpson Thacher attorney Mardi Merjian responded two days later as follows: “Nice job on the documents. My only comment, unless I am missing something, is that all references to JPMorgan Chase Bank, as Administrative Agent for the Investors should not include the reference ‘for the Investors.’ ”

4. The Escrow Agreement & Transaction Closing

After preparing the required documents, the parties relied on the title company LandAmerica to complete the transaction by serving as escrow agent, recording agent, and title insurance issuer. On behalf of General Motors, Mayer Brown drafted an agreement (the “Escrow Agreement”) providing LandAmerica with instructions to effectuate the closing. Pursuant to the Escrow Agreement, LandAmerica would receive funds from General Motors along with numerous documents executed by the parties. LandAmerica would then close the transaction and disburse the funds to General Motors' creditors, thereby accomplishing General Motors' repayment and terminating the Synthetic Lease.

Among other things, the Escrow Agreement specified that the parties would deliver various documents to LandAmerica in preparation for closing. Then, at the time of closing, LandAmerica would handle those documents in accordance with the Escrow Agreement's instructions. One category of required documents was the set of UCC–3 statements that would be filed to terminate liens against General Motors' properties. The Escrow Agreement provided that LandAmerica was to receive final sets of the three “Termination of UCC Financing Statements” (which it identified by file number) and that immediately following closing, LandAmerica was to forward copies of these and other escrow documents to General Motors' counsel, who would then file them on General Motors' behalf.

On October 24, 2008, the Mayer Brown associate e-mailed a draft of the Escrow Agreement to JPMorgan's counsel, Simpson Thacher attorney Mardi Merjian. He concluded the e-mail by requesting that Merjian review the document and respond with any comments. On October 27 the associate e-mailed Merjian again, explaining that he would send a package of documents for JPMorgan and the lenders to execute. He concluded the e-mail by again asking whether Merjian had any comments on the draft Escrow Letter, to which Merjian responded, “it was fine.”

General Motors repaid the amount due on the Synthetic Lease on October 30, 2008. As outlined in the Escrow Agreement, LandAmerica thereafter forwarded copies of the UCC–3 termination statements to General Motors' counsel, Mayer Brown. Mayer Brown then caused all three UCC–3s to be filed with the Delaware...