Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. JP Morgan Chase Bank, N.A. (In re Motors Liquidation Co.)
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
| Citation | 777 F.3d 100 |
| Docket Number | No. 13–2187.,13–2187. |
| 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. |
| Decision Date | 21 January 2015 |
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.
We assume familiarity with our prior certification opinion, Official Committee of Unsecured Creditors of Motors Liquidation Co. v. JP Morgan Chase Bank, N.A. (In re Motors Liquidation Co.), 755 F.3d 78 (2d Cir.2014), and the resulting decision of the Delaware Supreme Court, Official Committee of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, N.A., 103 A.3d 1010 (Del.Supr.2014). We restate the most salient facts.1
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 lenders including JPMorgan Chase Bank, N.A. (“JPMorgan”). General Motors' obligation to repay the Synthetic Lease was secured by liens on twelve pieces of real estate. JPMorgan served as administrative agent for the Synthetic Lease and was identified on the UCC–1 financing statements as the secured party of record.
Five years later, General Motors 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 lenders. 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 again served as administrative agent and secured party of record for the Term Loan and caused the filing of twenty-eight UCC–1 financing statements around the country to perfect the lenders' security interests in the collateral. One such financing statement, the “Main Term Loan UCC–1,” was filed with the Delaware Secretary of State and bore file number “6416808 4.” It “covered, among other things, all of the equipment and fixtures at 42 GM facilities, [and] was by far the most important” of the financing statements filed in connection with the Term Loan. Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, N.A. (In re Motors Liquidation Co.),
486 B.R. 596, 603 n. 6 (Bankr.S.D.N.Y.2013).
In September 2008, as the Synthetic Lease was nearing maturity, General Motors contacted Mayer Brown LLP, its counsel responsible for the Synthetic Lease, and explained that it planned to repay the amount due. 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.
A Mayer Brown partner 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 interests in General Motors' property relating to the Synthetic Lease. One of the steps required to unwind the Synthetic Lease was to create a list of security interests held by General Motors' lenders that would need to be terminated. To prepare the list, the Mayer Brown associate asked a paralegal who was 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 the first two of the UCC–1s were related to the Synthetic Lease. The third, UCC–1 number 6416808 4, related instead to the Term Loan.
When Mayer Brown prepared a Closing Checklist of the actions required to unwind the Synthetic Lease, it identified the Main Term Loan UCC–1 for termination alongside the security interests that actually did need to be terminated. And when Mayer Brown prepared draft UCC–3 statements to terminate the three security interests identified in the Closing Checklist, it prepared a UCC–3 statement to terminate the Main Term Loan UCC–1 as well as those related to the Synthetic Lease.
No one at General Motors, Mayer Brown, JPMorgan, or its counsel, Simpson Thacher & Bartlett LLP, noticed the error, even though copies of the Closing Checklist and draft UCC–3 termination statements were sent to individuals at each organization for review. On October 30, 2008, General Motors repaid the amount due on the Synthetic Lease. All three UCC–3s were filed with the Delaware Secretary of State, including the UCC–3 that erroneously identified for termination the Main Term Loan UCC–1, which was entirely unrelated to the Synthetic Lease.
The mistake went unnoticed until General Motors' bankruptcy in 2009. After General Motors filed for chapter 11 reorganization, JPMorgan informed the Committee of Unsecured Creditors (the “Committee”) that a UCC–3 termination statement relating to the Term Loan had been inadvertently filed in October 2008. JPMorgan explained that it had intended to terminate only liens related to the Synthetic Lease and stated that the filing was therefore unauthorized and ineffective.
On July 31, 2009, the Committee commenced the underlying action against JPMorgan in the United States Bankruptcy Court for the Southern District of New York. The Committee sought a determination that, despite the error, the UCC–3 termination statement was effective to terminate the Term Loan security interest and render JPMorgan an unsecured creditor on par with the other General Motors unsecured creditors. JPMorgan disagreed, reasoning that the UCC–3 termination statement was unauthorized and therefore ineffective because no one at JPMorgan, General Motors, or their law firms had intended that the Term Loan security interest be terminated. On cross-motions for summary judgment, the Bankruptcy Court concluded that the UCC–3 filing was unauthorized and therefore not effective to terminate the Term Loan security interest. In re Motors Liquidation Co., 486 B.R. at 647–48.
On appeal to this Court, the parties offered competing interpretations of UCC § 9–509(d)(1), which provides that a UCC–3 termination statement is effective only if “the secured party of record authorizes the filing.” JPMorgan reasoned that it cannot have “authorize[d] the filing” of the UCC–3 that identified the Main Term Loan UCC–1 for termination because JPMorgan neither intended to terminate the security interest nor instructed anyone else to do so on its behalf. In response, the Committee contended that focusing on the parties' goal misses the point. It interpreted UCC § 9–509(d)(1) to require only that the secured lender authorize the act of filing a particular UCC–3 termination statement, not that the lender subjectively intend to terminate the particular security interest identified for termination on that UCC–3. The Committee further argued that even if JPMorgan never intentionally instructed anyone to terminate the Main Term Loan UCC–1, JPMorgan did literally “authorize[ ] the filing”—even if mistakenly—of a UCC–3 termination statement that had that effect.
In our prior certification opinion we recognized that this appeal presents two closely related questions. First, what precisely must a secured lender of record authorize for a UCC–3 termination statement to be effective: “Must the secured lender authorize the termination of the particular security interest that the UCC–3 identifies for termination, or is it enough that the secured lender authorize the act of filing a UCC–3 statement that has that effect?” In re Motors Liquidation Co., 755 F.3d at 84. Second, “[d]id JPMorgan grant to Mayer Brown the relevant authority—that is, alternatively, authority either to terminate the Main Term Loan UCC–1 or to file the UCC–3 statement that identified that interest for termination?” Id.
Recognizing that the first question—what is it that the UCC requires a secured lender to authorize—seemed likely to recur and presented a significant issue of Delaware state law, we certified to the Delaware Supreme Court 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?
Id. at 86. The second question—whether JPMorgan granted the relevant authority—we reserved for ourselves, explaining that “[t]he Delaware Supreme Court's clarification as to the sense in which a secured party of record must authorize a UCC–3 filing will enable us to address ... whether JPMorgan in fact provided that authorization.” Id. at 86–87.
In a speedy and thorough reply, the Delaware Supreme Court answered the certified question, explaining that if the secured party of record authorizes the filing of a UCC–3 termination statement, then that filing is effective regardless of whether...
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