Official Committee of Unsecured Creditors of Motors Liquidation Co. v. JP Morgan Chase Bank, N.A.
755 F.3d 78
2d Cir.2014Background
- In 2001 GM obtained financing via a Synthetic Lease secured by liens on multiple real properties; JPMorgan was administrative agent and was listed as secured party on UCC-1s filed in Delaware.
- In 2006 GM obtained a separate Term Loan (unrelated to the Synthetic Lease) secured by equipment and fixtures; the Main Term Loan UCC-1 was filed in Delaware as file no. 64168084, with JPMorgan as secured party of record.
- In October 2008 GM elected to pay off the Synthetic Lease; Mayer Brown prepared closing documents including a Termination Agreement (authorizing termination of the Synthetic Lease liens) and three UCC-3 termination statements intended to terminate only the Synthetic Lease UCC-1s.
- A paralegal’s Delaware search mistakenly included the 2006 Main Term Loan UCC-1 (64168084) among filings to be terminated; the erroneous UCC-3 terminating that Term Loan UCC-1 was circulated, approved for filing workflow, and ultimately filed with the Delaware Secretary of State at closing.
- The error was discovered after GM’s June 2009 chapter 11 filing; the Committee sued JPMorgan seeking a declaration that the UCC-3 effectively terminated the Term Loan security interest, while the bankruptcy court held the UCC-3 was unauthorized and ineffective to terminate JPMorgan’s security interest.
- The Second Circuit certified to the Delaware Supreme Court the threshold statutory question whether a secured lender must authorize the act of filing a UCC-3 or must specifically authorize termination of the particular security interest identified on the UCC-3; resolution of that question will determine whether JPMorgan actually authorized the relevant action under agency principles.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What must a secured lender "authorize" under UCC Article 9 for a UCC-3 to be effective? — authorize the filing act or the termination of the specific interest? | Authorization need only cover the act of filing a UCC-3 that (even if mistakenly) identifies a particular UCC-1 for termination. | Authorization must be to effect the legal result: specifically authorize termination of the particular security interest listed. | Question certified to Delaware Supreme Court as an issue of first impression. |
| Was JPMorgan’s review/approval sufficient authorization to make the UCC-3 effective? | GM/Committee: JPMorgan reviewed/approved the UCC-3s and thus authorized the filing that extinguished the UCC-1. | JPMorgan: It never intended or authorized termination of the Term Loan UCC-1; any approval was limited to Synthetic Lease liens. | Deferred pending Delaware Supreme Court’s answer to the certified question; circuit court will decide scope-of-authority/agency issue afterward. |
| Does Revised Article 9 permit third parties to file UCC-3s without secured-party signature? | Plaintiff: 2001 amendments accept authorization (not signature); focus should be on whether secured party authorized the filing. | Defendant: Even with authorization-to-file language, authorization must align with lender’s intended legal consequence. | Court recognizes Article 9 requires authorization but its precise scope (filing act vs. legal effect) is unresolved under Delaware law — certified question. |
| Are prior case authorities dispositive on interpretation of "authorize" under Article 9? | Plaintiff: Some courts (e.g., Ward) focused on whether filer was authorized to file the record. | Defendant: Existing cases are sparse and distinguishable; facts and agency relationships matter. | Court found existing authorities inconclusive and insufficient—hence certification to Delaware Supreme Court. |
Key Cases Cited
- In re Motors Liquidation Co., 486 B.R. 596 (Bankr. S.D.N.Y. 2013) (bankruptcy court held the UCC-3 filing was unauthorized and ineffective)
- Ward v. Bank of Granite (In re Hickory Printing Group, Inc.), 479 B.R. 388 (Bankr. W.D.N.C. 2012) (court treated authorization inquiry as whether filer was authorized to file the UCC-3 record)
- Kidney v. Kolmar Labs., Inc., 808 F.2d 955 (2d Cir. 1987) (standards for certifying questions to state supreme courts)