Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, N.A.

Decision Date17 October 2014
Docket NumberNo. 325, 2014.,325, 2014.
Citation103 A.3d 1010
CourtUnited States State Supreme Court of Delaware
PartiesOFFICIAL COMMITTEE OF UNSECURED CREDITORS OF MOTORS LIQUIDATION COMPANY, Plaintiff–Appellant, v. JPMORGAN CHASE BANK, N.A., Individually and as Administrative Agent for various lenders party to the Term Loan Agreement described herein, Defendant–Appellee.

Norman M. Powell, Esquire, Elena C. Norman, Esquire, John J. Paschetto, Esquire, Richard J. Thomas, Esquire, Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware; Eric B. Fisher, Esquire (argued), Barry N. Seidel, Esquire, Katie L. Weinstein, Esquire, Dickstein Shapiro LLP, New York, New York; Jeffrey Rhodes, Esquire, Dickstein Shapiro LLP, Washington, District of Columbia, for PlaintiffAppellant.

Gregory P. Williams, Esquire (argued), Brock E. Czeschin, Esquire, Susan M. Hannigan, Esquire, Richards, Layton & Finger, P.A., Wilmington, Delaware; John M. Callagy, Esquire, Nicholas J. Panarella, Esquire, Martin A. Krolewski, Esquire, Kelley Drye & Warren LLP, New York, New York; Steven O. Weise, Esquire, Proskauer Rose LLP, Los Angeles, California, for DefendantAppellee.

Francis A. Monaco, Jr., Esquire, Ryan C. Cicoski, Esquire, Womble Carlyle Sandridge & Rice LLP, Wilmington, Delaware; Richard M. Kohn, Esquire, Jonathan N. Helfat, Esquire, Commercial Finance Association, for Amicus Curiae Commercial Finance Association.

Before STRINE, Chief Justice; HOLLAND and RIDGELY, Justices; LASTER, Vice Chancellor; * and COONIN, Judge,* constituting the Court en Banc.

STRINE, Chief Justice:

I. INTRODUCTION

The United States Court of Appeals for the Second Circuit (“Second Circuit”) has certified the following question of law important to a dispute pending before it:

Under UCC Article 9, as adopted into Delaware law by Del.Code Ann. tit. 6, art. 9, for a UCC–3 termination statement to effectively extinguish the perfected nature of a UCC–1 financing statement, is it enough that the secured lender review and knowingly approve for filing a UCC–3 purporting to extinguish the perfected security interest, or must the secured lender intend to terminate the particular security interest that is listed on the UCC–3?1

We more precisely answer by assuming that by the term “effectively extinguish,” the Second Circuit asks whether reviewing the termination statement and knowingly approving it for filing has the effect specified in § 9–513 of the Delaware's version of the Uniform Commercial Code (“UCC”), which is that “the financing statement to which the termination statement relates ceases to be effective.”2 Based on that understanding and for reasons we explain more fully, the unambiguous provisions of Delaware's UCC dictate that the answer is that “it [is] enough that the secured lender review and knowingly approve for filing a UCC–3 purporting to extinguish the perfectedsecurity interest.”3 Under the Delaware UCC, parties in commerce are entitled to rely upon a filing authorized by a secured lender and assume that the secured lender intends the plain consequences of its filing.

II. THE EVENTS LEADING TO THE CERTIFIED QUESTION

The dispute pending before the Second Circuit turns on the effect of a UCC termination statement—a UCC–3 termination statement”—filed with the Delaware Secretary of State on behalf of General Motors Corporation.4 That termination statement, by its plain terms, purported to extinguish a security interest on the assets of General Motors (“term loan security interest”) held by a syndicate of lenders, including JPMorgan Chase Bank, N.A. (JPMorgan). But neither JPMorgan nor General Motors subjectively intended to terminate the term loan security interest when General Motors filed the termination statement. General Motors' counsel for a separate “synthetic lease” financing transaction, Mayer Brown LLP, had inadvertently included the term loan security interest on the termination statement that it filed in the process of unwinding the synthetic lease. According to JPMorgan, no one at General Motors, Mayer Brown, or Simpson Thatcher Bartlett LLP (JPMorgan's counsel for the synthetic lease transaction) noticed this error, even though individuals at each organization reviewed the filing statement before the termination statement was filed on October 30, 2008. Under the stipulated question, we are also to assume that JPMorgan itself reviewed the termination statement and knowingly approved its filing.

After General Motors filed for reorganization under Chapter 11 of the Bankruptcy Code, JPMorgan informed the unofficial committee of unsecured creditors (Creditors Committee) that a UCC–3 termination statement relating to the term loan had been inadvertently filed. On July 31, 2009, the Creditors Committee commenced a proceeding against JPMorgan in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court), seeking, among other things, a determination that the filing of the UCC–3 termination statement was effective to terminate the term loan security interest and thus render JPMorgan an unsecured creditor on par with the other General Motors unsecured creditors. JPMorgan contested that argument, asserting that it had not authorized the termination statement releasing the term loan security interest, and that the statement was erroneously filed because no one at General Motors, JPMorgan, or the law firms working on the synthetic lease transaction recognized that the unrelated term loan security interest had been included on the statement.

On cross-motions for summary judgment, the Bankruptcy Court found for JPMorgan on various grounds, including that JPMorgan had not empowered Mayer Brown to act as its agent in releasing the term loan security interest in the sense that it had only authorized Mayer Brown to file an accurate termination statement that released security interests properly related to the synthetic lease transaction.5

Because neither JPMorgan nor General Motors intended the legal consequences of the UCC–3 termination statement, the Bankruptcy Court found that the UCC–3 filing was not authorized and therefore was not effective to terminate the term loan security interest.6

The Creditors Committee appealed to the Second Circuit, arguing, among other things, that Mayer Brown was authorized as JPMorgan's agent to file the UCC–3 termination statement. Most pertinent for present purposes, the Creditors Committee argued that the only issue is whether JPMorgan had authorized the filing of the UCC–3 termination statement. So long as JPMorgan had authorized the statement to be filed, the termination of all identified security interests, including the term loan security interest, would be effective.

The Creditors Committee also contended that JPMorgan's argument that a party can authorize a filing and then later claim that it had not authorized the filing because it failed to catch an error in the statement is inconsistent with the plain language of § 9–513 of Delaware's UCC. That language states in pertinent part that “upon the filing of a termination statement with the filing office, the financing statement to which the termination statement relates ceases to be effective.”7

By contrast, JPMorgan took the position that a party may authorize a specific document to be filed on its behalf, but that such authorization does not cause the termination statement to be effective if errors in the statement resulted in the release of a security interest that the party did not subjectively intend to release.

The Second Circuit has indicated that it would be helpful to have an answer from this Court regarding this aspect of the parties' dispute. That answer may avoid any need for the Second Circuit to address the parties' disagreement as to whether Mayer Brown was authorized to act as JPMorgan's agent to file the UCC–3 termination statement, or provide some useful clarity if the agency issue must be addressed. Accordingly, the Second Circuit has certified the following question:

Under UCC Article 9, as adopted into Delaware law by Del.Code Ann. tit. 6, art. 9, for a UCC–3 termination statement to effectively extinguish the perfected nature of a UCC–1 financing statement, is it enough that the secured lender review and knowingly approve for filing a UCC–3 purporting to extinguish the perfected security interest, or must the secured lender intend to terminate the particular security interest that is listed on the UCC–3?8

The question is precise, and we read it as asking us to assume what it literally says, which is that the secured party of record has itself reviewed and knowingly approved the termination statement for filing. In its briefs and at oral argument, JPMorgan attempted to reframe the certified question by asking us to consider the issues of agency law that come into play whenever an entity, such as JPMorgan, acts through agents, be they employees, outside lawyers, or UCC-filing-service representatives. JPMorgan argued about whether a filing would be authorized if a secured party granted authority to an agent to file a termination statement for one security interest but not another, but the agent mistakenly filed a termination statement for both. That is not the question we have been asked to address, and the Second Circuit has said it will consider the fact-based question of whether Mayer Brown had authority as JPMorgan's agent to file the termination statement after it receives our answer to its more precise question. The question certified to us assumes that the secured party of record “review[d] and knowingly approve[d] [the termination statement] for filing.” We will answer the question as our judicial colleagues have framed it.

III. ANALYSIS

“The most important consideration for a court in interpreting a statute is the words the General Assembly used in writing it.”9 The provisions of Delaware's UCC that are relevant to and support our conclusion are succinct. Section 9–513 of the UCC states:

(d) Effect of filing termination
...

To continue reading

Request your trial
26 cases
  • In re Motors Liquidation Co.
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
    • 15 Abril 2015
    ...(“GM–UCC–3 Opinion ”), question certified for determination by Delaware Supreme Court, 755 F.3d 78 (2d Cir.2014), question answered, 103 A.3d 1010 (Del.2014), rev'd and remanded, 777 F.3d 100 (2d Cir.2015), rehearing en banc denied, No.13–2187 ECF No. 179 (2d Cir. Apr. 13, 2015).When Old GM......
  • Bash v. Textron Fin. Corp. (In re Fair Fin. Co.), Case No. 10-50494
    • United States
    • United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio
    • 23 Febrero 2018
    ...set of rules to govern their transactions.Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, N.A., 103 A.3d 1010, 1016-17 (Del. 2014) (footnotes omitted). 105. Just as the parties were able to rely on the filing of a termination statement with respect to......
  • In re Motors Liquidation Co., Case No.: 09-50026 (REG)
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
    • 15 Abril 2015
    ...("GM-UCC-3 Opinion"), question certified for determination by Delaware Supreme Court, 755 F.3d 78 (2d Cir. 2014), question answered, 103 A.3d 1010 (Del. 2014), rev'd and remanded, 777 F.3d 100 (2d Cir. 2015), rehearing en banc denied, No.13-2187 ECF No. 179 (2d Cir. Apr. 13, 2015).When Old ......
  • In re Motors Liquidation Co., Case No.: 09-50026 (REG)
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
    • 15 Abril 2015
    ...("GM-UCC-3 Opinion"), question certified for determination by Delaware Supreme Court, 755 F.3d 78 (2d Cir. 2014), question answered, 103 A.3d 1010 (Del. 2014), rev'd and remanded, 777 F.3d 100 (2d Cir. 2015), rehearing en banc denied, No.13-2187 ECF No. 179 (2d Cir. Apr. 13, 2015).When Old ......
  • Request a trial to view additional results
1 firm's commentaries
  • Avoiding Nightmare Mistakes When Releasing Security Interests
    • United States
    • Mondaq United States
    • 31 Marzo 2015
    ...*3 (citation omitted). 3 Id. at *4 (quoting Official Comm. Of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, N.A., 103 A.3d 1010, 1014-1016 (Del. Supr. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should b......
3 books & journal articles
  • The Alteration of Ex Ante Agreements by the Bankruptcy Code.
    • United States
    • American Bankruptcy Law Journal Vol. 95 No. 4, December 2021
    • 22 Diciembre 2021
    ...(189) Id. at 103. (190) Id. at 103-4. (191) Official Committee of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase, N.A., 103 A.3d 1010, 1011-12 (Del. (192) Id. (193) In re Motors Liquidation Co., TH F.3d at 105-106. (194) In re Motors Liquidation Co., 552 B.R. at 277. Code [......
  • Equity as Meta-Law.
    • United States
    • Yale Law Journal Vol. 130 No. 5, March 2021
    • 1 Marzo 2021
    ...Co., 777 F.3d 100, 103-04 (2d Cir. 2015); Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, N.A., 103 A.3d 1010, 1012-14 (Del. 2014). For a summary of this saga and a skeptical bare mention of the possibility of reformation (and the fact that JPMorgan d......
  • EQUITY'S ATROPHY.
    • United States
    • Notre Dame Law Review Vol. 97 No. 5, May 2022
    • 1 Mayo 2022
    ...the court have seen no problem worth discussing? (61) Off. Comm. of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, 103 A.3d 1010, 1017-18 (Del. (62) In re Motors Liquidation Co., 777 F.3d 100, 105-06 (2d Cir. 2015). The ultimate windfall to the unsecured creditors was......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT