In Re Motors Liquidation Company

777 F.3d 100 (2nd Cir 2015)

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Nature of the Case

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Facts

In October 2001, General Motors (P) entered into a synthetic lease financing transaction where it obtained approximately $300 million in financing from a syndicate of lenders including JPMorgan Chase Bank, N.A. (D). P's obligation to repay the Lease was secured by liens on twelve pieces of real estate. D served as administrative agent for the Lease and was identified on the UCC-1 financing statements as the secured party of record. Five years later, P entered into a separate term loan. The Loan was entirely unrelated to the Lease and provided P with approximately $1.5 billion in financing from a different syndicate of lenders. the lenders took security interests in a large number of P assets, including all of P's equipment and fixtures at forty-two facilities throughout the United States. D 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, filed with the Delaware Secretary of State covered 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. In September 2008, P planned to repay the amount due. P requested that Mayer Brown, its counsel, prepare the documents necessary for D and the lenders to be repaid and to release the interests the lenders held in P property. A list of security interests held by the lenders had to be prepared. 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 P in Delaware identified three UCC-1s, numbered 2092532 5, 2092526 7, and 6416808 4. Only the first two were related to the Lease. The third, UCC-1 number 6416808 4, related to the Term Loan. Thus, the Main Term Loan UCC-1 was listed for termination. Mayer Brown prepared draft UCC-3 statements to terminate the three security interests identified in the Closing Checklist. No one 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. P repaid the amount due on the Lease. All three UCC-3s were filed. The mistake went unnoticed until P's bankruptcy in 2009. D informed the Committee of Unsecured Creditors that a UCC-3 termination statement relating to the Term Loan had been inadvertently filed in October 2008. D stated that the filing was therefore unauthorized and ineffective. On July 31, 2009, the Committee commenced the underlying action against D seeking a determination that, despite the error, the UCC-3 termination statement was effective to terminate the Term Loan security interest and render P an unsecured creditor on par with the other unsecured creditors. 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. P appealed. On appeal, 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.' P 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 court certified in part the following question to the Delaware Supreme Court. 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?