Official Committee of Unsecured Creditors v. JPMorgan Chase Bank, N.A. (In re Motors Liquidation Co.), Appeal No. 13-2187 (2nd Cir. Jan. 21, 2015)
Second Circuit Decision Reminds Us to Double-Check Documents
In a decision that sent a shiver down the spine of attorneys and lenders alike, on January 21, 2015, the U.S. Court of Appeals for the Second Circuit (the “Second Circuit”) ruled that JPMorgan Chase Bank, N.A. (“JPMorgan”) had released its security interest on a $1.5 billion loan to General Motors (“GM”) by inadvertently filing a UCC-3 termination statement. The Second Circuit held that although JP Morgan and GM did not intend to terminate the security interest at issue, the termination was effective because JP Morgan authorized the filing of the UCC-3 termination statement.
In October 2001, GM entered into a synthetic lease financing transaction (“Synthetic Lease”), by which it obtained approximately $300 million in financing from a syndicate
By now, every secured lender and attorney that represents secured lenders should be familiar with the opinion from the Second Circuit Court of Appeals styled Official Committee of Unsecured Creditors of Motors Liquidation Company v. JP Morgan Chase Bank, N.A. (In Re Motors Liquidation Co.) Covered in articles with titles such as “JP Morgan Loses $1.5 Billion Feud with Creditors of GM Forerunner,” the opinion sent a shock wave through the lending community. As our finance colleagues have rightly noted, this case is a stark reminder that best practices require transactional attorneys to “measure twice, cut once.” However, the case also offers important lessons for workout and restructuring professionals, who are often in the position to correct documentation mistakes before a subsequent bankruptcy filing makes the mistakes devastatingly permanent.
To recap the Motors Liquidation/General Motors case, in September 2008, the lender and
A Memorandum of Decision recently entered in In re 56 Walker, LLC, Case No. 13-11571 (ALG), Bankr. S.D.N.Y. (Mar. 25, 2014), provides clear guidance as to the effect of a state court decision granting summary judgment in favor of a secured lender in a foreclosure action prior to the Debtor’s bankruptcy filing. The collateral estoppel, res judicata and Rooker-Feldman doctrines each separately served as grounds for the Bankruptcy Court’s finding that it was unable to review the prior state court decision.
In 56 Walker, the Debtor’s sole asset was a six-story mixed-use building in New York, New York. The property was pledged as security for a mortgage loan with Broadway Bank. The Debtor defaulted, and Broadway Bank commenced a foreclosure action against the Debtor in the Supreme Court of New York, New York County. After a first chapter 11 case was dismissed, MB Financial Bank, N.A. (having acquired the loan
The 11th circuit is becoming easier on lenders who forget to continue financing statements post-bankruptcy, thanks to a recent Middle District of Florida Bankruptcy Court ruling in March in the Colony Resort bankruptcy. In re Colony Beach & Tennis Club Association, Inc., Case No. 13-00348, Bankr. M.D. Fla. (March 21, 2014). Colony Resort is a development in Longboat Key on the Gulf of Mexico, built in 1973. The resort had fallen on hard times, due in large part to condominium owner refusals to pay assessments, which in turn prevented needed renovations. The resort closed in 2010, followed by the bankruptcy filings of the resort’s related entities.
The entity that ran the resort was Colony Beach and Tennis Club, Ltd (the “Club”). The Club’s primary asset is a potential recovery in a pending lawsuit against the home owners’ association (the “Association”) for refusing to pay assessments. The Club’s primary secured creditor