Police v. Mayer Brown, LLP
| Decision Date | 22 June 2016 |
| Docket Number | Case No. 15 C 6742 |
| Parties | OAKLAND POLICE AND FIRE RETIREMENT SYSTEM, THE CITY OF OAKLAND, AND THE EMPLOYEES' RETIREMENT SYSTEM OF THE CITY OF MONTGOMERY, individually and on behalf of all others similarly situated, Plaintiffs, v. MAYER BROWN, LLP, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER
Plaintiffs Oakland Police and Fire Retirement System, the City of Oakland, and the Employees' Retirement System of the City of Montgomery filed a two-count putative class action consolidated complaint against defendant Mayer Brown, LLP ("Mayer Brown") for negligent misrepresentation (Count I) and legal malpractice (Count II). Defendant filed the instant motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6).1 For the reasons discussed below, the court grants defendant's motion.
In 2001, General Motors ("GM") entered into a secured financing arrangement (the "Synthetic Lease") in which it obtained approximately $300 million in financing from a syndicate of lenders. Pursuant to the arrangement, GM sold twelve of its real estate properties to the syndicate of lenders and then leased those properties back from the lenders. Accordingly, the Synthetic Lease was "essentially a loan by the lender syndicate to General Motors, secured by the specific real estate properties owned by General Motors."3
GM's obligation to repay the Synthetic Lease was secured by liens on the real estate property. The security interests on the properties were perfected by UCC-1 financing statements filed in the various counties in which the properties were located. These security interests were also recorded in UCC-1 statements filed with the Delaware Department of State. JPMorgan Chase Bank ("JPMorgan") was a "significant lender participant in the Synthetic Lease," and also acted as the administrative agent for the Synthetic Lease. Defendant law firm represented GM in connection with the negotiation, documentation, and consummation of the lease.
In 2006, GM borrowed $1.5 billion (the "Term Loan") from a different syndicate of lenders. Plaintiffs and the putative class members - more than 400 entities - participated in the Term Loan syndication. "The security interest in substantially all of the collateral for the Term Loan was recorded in a UCC-1 financing statement filed in 2006 with the Delaware Department of State." The security interest for the loan was held by JPMorgan as administrative agent forthe Term Loan. "The Term Loan and the Synthetic Lease were completely unrelated to each other and were secured by completely different properties of General Motors."
Pursuant to the terms of the Synthetic Lease, JPMorgan, as administrative agent, was to receive from GM the amount still due under the lease at the time the lease matured on October 31, 2008 (the "Synthetic Lease payoff"). "As consideration, General Motors was entitled to receive title to the Synthetic Lease Properties, which would be unencumbered by the UCC-1 financing statements that had been filed with respect to the Synthetic Lease Properties." Of the $150 million still due under the Synthetic Lease at the time it matured, JPMorgan was to retain $55 million as its share of the Synthetic Lease payoff proceeds as a participant in the lease.
According to the consolidated complaint, GM informed defendant on September 30, 2008, that it planned on paying off the Synthetic Lease, and requested that defendant "prepare the documents [(the "Synthetic Lease closing documents")] necessary for General Motors to pay JPMorgan the amount due (about $150 million) on the Synthetic Lease." The consolidated complaint alleges that "General Motor's primary purpose and intent in engaging Mayer Brown to prepare the Synthetic Lease Closing Documents was to effect the Synthetic Lease Payoff by influencing JPMorgan to execute and/or approve the Synthetic Lease Closing Documents prepared by Mayer Brown." "In connection with the Synthetic Lease Payoff," JPMorgan and GM were allegedly not adversaries, but instead had a "common interest in the proper, timely, and orderly payoff of the Synthetic Lease in accordance with the unambiguous terms of the" parties' agreement.
As a part of its role in the Synthetic Lease payoff, defendant prepared a closing checklist and drafted documents necessary to complete the transaction. "The closing documents that[defendant] was tasked with preparing included the documents that JPMorgan would have to sign or authorize in order to receive the $150 million from the Synthetic Lease Payoff." The consolidated complaint alleges that the closing checklist prepared by defendant inadvertently included the unrelated Term Loan UCC-1, which secured the unrelated $1.5 billion Term Loan, as one of the UCC financing statements that needed to be terminated to effect the Synthetic Lease payoff.
Defendant also prepared draft UCC-3 termination statements - the UCC filings required to terminate a security interest perfected by a UCC-1 filing - necessary for the Synthetic Lease payoff. One of the UCC-3 termination statements prepared by defendant was for the Term Loan UCC-1. Defendant emailed various drafts of the closing checklist, which indicated that defendant was the responsible party for the UCC termination filings and the corresponding closing documents, including the erroneous Term Loan UCC-3 termination statement, to Simpson Thacher & Bartlett, LLP ("Simpson Thacher"), counsel for JP Morgan for the Synthetic Lease payoff. "As Mayer Brown intended, Simpson Thacher forwarded the Synthetic Lease Closing Checklist [and closing documents] to JPMorgan." Defendant also prepared Escrow Instructions, listing each of the documents to be filed and/or signed to effect the Synthetic Lease payoff. The Escrow Instructions included the UCC-3 termination statement for the Term Loan as one of the documents defendant would file in connection with the Synthetic Lease payoff.
According to the consolidated complaint, "[i]n light of Mayer Brown's reputation and JPMorgan's longstanding attorney/client relationship with Mayer Brown [on other matters] and in reliance on Mayer Brown's repeated misrepresentations" with respect to what documents were necessary to file to effect the Synthetic Lease payoff, "JPMorgan authorized the filing of theUCC-3 termination statement concerning the unrelated" Term Loan UCC-1. The Synthetic Lease payoff closed on October 30, 2008, at which time defendant filed the UCC-3 termination statement concerning the unrelated Term Loan UCC-1 with the Delaware Department of State, "thereby terminating substantially all of the $1.5 billion security interest for the Term Loan."
In June 2009, GM filed for protection under Chapter 11 of the United States Bankruptcy Code. Later that month, it was discovered that the Term Loan UCC-3 had been filed with the Delaware Department of State. Thereafter, the Bankruptcy Court "approved repayment of the Term Loan in full with interest, subject to the Creditors' Committee's right to investigate and challenge the perfection of the Term Loan security interest."
In compliance with the Bankruptcy Court's order, GM repaid the Term Loan, in full with interest, to JPMorgan in July 2009. JPMorgan subsequently distributed the principal and interest to the Oakland Police and Fire Retirement System, the Employees' Retirement System of the City of Montgomery ("the retirement plaintiffs"), and the other Term Loan lenders. In January 2015, the Second Circuit held that the Term Loan security interest had been terminated upon the inadvertent filing of the Term Loan UCC-3. As a result, the retirement plaintiffs and the other Term Loan lenders are now subject to "claw back" proceedings in the bankruptcy court.
When ruling on a motion to dismiss for failure to state a claim, the court accepts the complaint's well-pleaded factual allegations as true and draws all reasonable inferences in the plaintiff's favor. Sprint Spectrum L.P. v. City of Carmel, Indiana, 361 F.3d 998, 1001 (7th Cir. 2004). The pleading must describe the claim in sufficient detail to give the defendant fairnotice of what the claim is and the grounds on which the claim rests. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). The allegations must plausibly suggest that the plaintiff has a right to relief, raising the possibility above the "speculative level." Id.
This standard demands that a complaint allege more than legal conclusions or "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.
Defendant argues that plaintiffs' consolidated complaint fails to state a claim for either malpractice or negligent misrepresentation because it did not owe plaintiffs a duty. "A complaint for negligence, to be legally sufficient, must set out facts that establish the existence of a duty owed by the defendant to the plaintiff . . . ." Pelham v. Griesheimer, 92 Ill.2d 13, 18 (1982). Under Illinois law, the traditional rule was that an attorney did not owe a duty to a non-client, and therefore was liable only to his client, not a third person. Id. at 19. However, as the parties agree, the Illinois Supreme Court articulated a new rule in Pelham, holding that a non-client may establish a duty owned to him by a defendant attorney by proving "that the primary purpose and intent of the attorney-client relationship itself was to benefit or influence the third party." Id. at 21 (...
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