132187

InRe:MotorsLiquidationCo.

UNITEDSTATESCOURTOFAPPEALS
FORTHESECONDCIRCUIT

AugustTerm,2013

(Argued:March25,2014
QuestionCertified:June17,2014
QuestionAnswered:October17,2014
AppealDecided:January21,2015)

DocketNo.132187

InRe:MOTORSLIQUIDATIONCOMPANY,etal.,

Debtor,

OFFICIALCOMMITTEEOFUNSECUREDCREDITORSOFMOTORS
LIQUIDATIONCOMPANY,

PlaintiffAppellant,

v.

JPMORGANCHASEBANK,N.A.,individuallyandasAdministrativeAgent
forvariouslenderspartytotheTermLoanAgreementdescribedherein,

DefendantAppellee.

Before:

WINTER,WESLEY,ANDCARNEY,CircuitJudges.

Directappealpursuantto28U.S.C.158(d)(2)fromanorderoftheUnitedStates
BankruptcyCourtfortheSouthernDistrictofNewYork(Gerber,U.S.B.J.)
holdingthatamistakenUCC3terminationstatementwasunauthorizedand
thereforenoteffectivetoterminateasecuredlendersinterestinadebtors
property.Weconcludethatalthoughtheterminationstatementmistakenly
identifiedforterminationasecurityinterestthatthelenderdidnotintendto
terminate,thesecuredlenderauthorizedthefilingofthedocument,andthe
terminationstatementwaseffectivetoterminatethesecurityinterest.
REVERSEDandREMANDED.

ERICB.FISHER(BarryN.Seidel,KatieL.Weinstein,Jeffrey
Rhodes,onthebrief),DicksteinShapiroLLP,NewYork,NY,
forPlaintiffAppellant.

JOHNM.CALLAGY(NicholasJ.Panarella,MartinA.Krolewski,
onthebrief),KelleyDrye&WarrenLLP,NewYork,NY,for
DefendantAppellee.

PERCURIAM:

Weassumefamiliaritywithourpriorcertificationopinion,Official
CommitteeofUnsecuredCreditorsofMotorsLiquidationCo.v.JPMorganChaseBank,
N.A.(InreMotorsLiquidationCo.),755F.3d78(2dCir.2014),andtheresulting
decisionoftheDelawareSupremeCourt,OfficialCommitteeofUnsecuredCreditors


ofMotorsLiquidationCo.v.JPMorganChaseBank,N.A.,___A.3d___,2014WL
5305937(Del.Oct.17,2014).Werestatethemostsalientfacts.1

BACKGROUND
InOctober2001,GeneralMotorsenteredintoasyntheticleasefinancing
transaction(theSyntheticLease),bywhichitobtainedapproximately$300
millioninfinancingfromasyndicateoflendersincludingJPMorganChaseBank,
N.A.(JPMorgan).GeneralMotorsobligationtorepaytheSyntheticLeasewas
securedbyliensontwelvepiecesofrealestate.JPMorganservedas
administrativeagentfortheSyntheticLeaseandwasidentifiedontheUCC1
financingstatementsasthesecuredpartyofrecord.

Fiveyearslater,GeneralMotorsenteredintoaseparatetermloanfacility

(theTermLoan).TheTermLoanwasentirelyunrelatedtotheSyntheticLease
andprovidedGeneralMotorswithapproximately$1.5billioninfinancingfrom
adifferentsyndicateoflenders.Tosecuretheloan,thelenderstooksecurity
interestsinalargenumberofGeneralMotorsassets,includingallofGeneral
MotorsequipmentandfixturesatfortytwofacilitiesthroughouttheUnited

TheseundisputedfactsaredrawnfromtherecordandfromtheBankruptcyCourts
decisionbelow,OfficialComm.ofUnsecuredCreditorsofMotorsLiquidationCo.v.
JPMorganChaseBank,N.A.(InreMotorsLiquidationCo.),486B.R.596(Bankr.S.D.N.Y.
2013).


States.JPMorganagainservedasadministrativeagentandsecuredpartyof
recordfortheTermLoanandcausedthefilingoftwentyeightUCC1financing
statementsaroundthecountrytoperfectthelenderssecurityinterestsinthe
collateral.Onesuchfinancingstatement,theMainTermLoanUCC1,was
filedwiththeDelawareSecretaryofStateandborefilenumber64168084.It
covered,amongotherthings,alloftheequipmentandfixturesat42GM
facilities,[and]wasbyfarthemostimportantofthefinancingstatementsfiled
inconnectionwiththeTermLoan.OfficialComm.ofUnsecuredCreditorsofMotors
LiquidationCo.v.JPMorganChaseBank,N.A.(InreMotorsLiquidationCo.),486B.R.
596,603n.6(Bankr.S.D.N.Y.2013).

InSeptember2008,astheSyntheticLeasewasnearingmaturity,General

MotorscontactedMayerBrownLLP,itscounselresponsiblefortheSynthetic
Lease,andexplainedthatitplannedtorepaytheamountdue.GeneralMotors
requestedthatMayerBrownpreparethedocumentsnecessaryforJPMorganand
thelenderstoberepaidandtoreleasetheintereststhelendersheldinGeneral
Motorsproperty.

AMayerBrownpartnerassignedtheworktoanassociateandinstructed

himtoprepareaclosingchecklistanddraftsofthedocumentsrequiredtopay


offtheSyntheticLeaseandtoterminatethelenderssecurityinterestsinGeneral
MotorspropertyrelatingtotheSyntheticLease.Oneofthestepsrequiredto
unwindtheSyntheticLeasewastocreatealistofsecurityinterestsheldby
GeneralMotorslendersthatwouldneedtobeterminated.Topreparethelist,
theMayerBrownassociateaskedaparalegalwhowasunfamiliarwiththe
transactionorthepurposeoftherequesttoperformasearchforUCC1financing
statementsthathadbeenrecordedagainstGeneralMotorsinDelaware.The
paralegalssearchidentifiedthreeUCC1s,numbered20925325,20925267,and
64168084.Neithertheparalegalnortheassociaterealizedthatonlythefirsttwo
oftheUCC1swererelatedtotheSyntheticLease.Thethird,UCC1number
64168084,relatedinsteadtotheTermLoan.

WhenMayerBrownpreparedaClosingChecklistoftheactionsrequired

tounwindtheSyntheticLease,itidentifiedtheMainTermLoanUCC1for
terminationalongsidethesecurityintereststhatactuallydidneedtobe
terminated.AndwhenMayerBrownprepareddraftUCC3statementsto
terminatethethreesecurityinterestsidentifiedintheClosingChecklist,it
preparedaUCC3statementtoterminatetheMainTermLoanUCC1aswellas
thoserelatedtotheSyntheticLease.

NooneatGeneralMotors,MayerBrown,JPMorgan,oritscounsel,

SimpsonThacher&BartlettLLP,noticedtheerror,eventhoughcopiesofthe
ClosingChecklistanddraftUCC3terminationstatementsweresentto
individualsateachorganizationforreview.OnOctober30,2008,General
MotorsrepaidtheamountdueontheSyntheticLease.AllthreeUCC3swere
filedwiththeDelawareSecretaryofState,includingtheUCC3thaterroneously
identifiedforterminationtheMainTermLoanUCC1,whichwasentirely
unrelatedtotheSyntheticLease.
A.

GeneralMotorsChapter11BankruptcyFiling

ThemistakewentunnoticeduntilGeneralMotorsbankruptcyin2009.

AfterGeneralMotorsfiledforchapter11reorganization,JPMorganinformedthe
CommitteeofUnsecuredCreditors(theCommittee)thataUCC3termination
statementrelatingtotheTermLoanhadbeeninadvertentlyfiledinOctober
2008.JPMorganexplainedthatithadintendedtoterminateonlyliensrelatedto
theSyntheticLeaseandstatedthatthefilingwasthereforeunauthorizedand
ineffective.

OnJuly31,2009,theCommitteecommencedtheunderlyingactionagainst

JPMorganintheUnitedStatesBankruptcyCourtfortheSouthernDistrictof


NewYork.TheCommitteesoughtadeterminationthat,despitetheerror,the
UCC3terminationstatementwaseffectivetoterminatetheTermLoansecurity
interestandrenderJPMorgananunsecuredcreditoronparwiththeother
GeneralMotorsunsecuredcreditors.JPMorgandisagreed,reasoningthatthe
UCC3terminationstatementwasunauthorizedandthereforeineffective
becausenooneatJPMorgan,GeneralMotors,ortheirlawfirmshadintended
thattheTermLoansecurityinterestbeterminated.Oncrossmotionsfor
summaryjudgment,theBankruptcyCourtconcludedthattheUCC3filingwas
unauthorizedandthereforenoteffectivetoterminatetheTermLoansecurity
interest.InreMotorsLiquidationCo.,486B.R.at64748.
B.

PriorCertificationOpinion

OnappealtothisCourt,thepartiesofferedcompetinginterpretationsof

UCC9509(d)(1),whichprovidesthataUCC3terminationstatementis
effectiveonlyifthesecuredpartyofrecordauthorizesthefiling.JPMorgan
reasonedthatitcannothaveauthorize[d]thefilingoftheUCC3that
identifiedtheMainTermLoanUCC1forterminationbecauseJPMorganneither
intendedtoterminatethesecurityinterestnorinstructedanyoneelsetodosoon
itsbehalf.Inresponse,theCommitteecontendedthatfocusingontheparties


goalmissesthepoint.ItinterpretedUCC9509(d)(1)torequireonlythatthe
securedlenderauthorizetheactoffilingaparticularUCC3termination
statement,notthatthelendersubjectivelyintendtoterminatetheparticular
securityinterestidentifiedforterminationonthatUCC3.TheCommittee
furtherarguedthatevenifJPMorganneverintentionallyinstructedanyoneto
terminatetheMainTermLoanUCC1,JPMorgandidliterallyauthorize[]the
filingevenifmistakenlyofaUCC3terminationstatementthathadthat
effect.

Inourpriorcertificationopinionwerecognizedthatthisappealpresents

twocloselyrelatedquestions.First,whatpreciselymustasecuredlenderof
recordauthorizeforaUCC3terminationstatementtobeeffective:Mustthe
securedlenderauthorizetheterminationoftheparticularsecurityinterestthat
theUCC3identifiesfortermination,orisitenoughthatthesecuredlender
authorizetheactoffilingaUCC3statementthathasthateffect?InreMotors
LiquidationCo.,755F.3dat84.Second,[d]idJPMorgangranttoMayerBrown
therelevantauthoritythatis,alternatively,authorityeithertoterminatethe
MainTermLoanUCC1ortofiletheUCC3statementthatidentifiedthat
interestfortermination?Id.

RecognizingthatthefirstquestionwhatisitthattheUCCrequiresa

securedlendertoauthorizeseemedlikelytorecurandpresentedasignificant
issueofDelawarestatelaw,wecertifiedtotheDelawareSupremeCourtthe
followingquestion:
Under UCC Article 9, as adopted into Delaware law by Del. Code
Ann. tit. 6, art. 9, for a UCC3 termination statement to effectively
extinguishtheperfectednatureofaUCC1financingstatement,isit
enough that the secured lender review and knowingly approve for
filing a UCC3 purporting to extinguish the perfected security
interest, or must the secured lender intend to terminate the
particularsecurityinterestthatislistedontheUCC3?
Id.at86.ThesecondquestionwhetherJPMorgangrantedtherelevant
authoritywereservedforourselves,explainingthat[t]heDelawareSupreme
Courtsclarificationastothesenseinwhichasecuredpartyofrecordmust
authorizeaUCC3filingwillenableustoaddress...whetherJPMorganinfact
providedthatauthorization.Id.at8687.
C.

TheDelawareSupremeCourtsAnswer

Inaspeedyandthoroughreply,theDelawareSupremeCourtanswered

thecertifiedquestion,explainingthatifthesecuredpartyofrecordauthorizes
thefilingofaUCC3terminationstatement,thenthatfilingiseffectiveregardless
ofwhetherthesecuredpartysubjectivelyintendsorunderstandstheeffectof
thatfiling:
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[F]oraterminationstatementtobecomeeffectiveunder9509and
thustohavetheeffectspecifiedin9513oftheDelawareUCC,itis
enough that the secured party authorizes the filing to be made,
which is all that 9510 requires. The Delaware UCC contains no
requirementthatasecuredpartythatauthorizesafilingsubjectively
intendsorotherwiseunderstandstheeffectoftheplaintermsofits
ownfiling.
OfficialComm.ofUnsecuredCreditorsofMotorsLiquidationCo.,2014WL5305937,
at*5.Thatconclusion,explainedthecourt,followsbothfromtheunambiguous
termsoftheUCCandfromsoundpolicyconsiderations:
JPMorgansargumentthatafilingisonlyeffectiveiftheauthorizing
party understands the filings substantive terms and intends their
effect is contrary to 9509, which only requires that the secured
partyofrecordauthorize[]thefiling.
...
Even if the statute were ambiguous, we would be reluctant to
embraceJPMorgansproposition.Beforeasecuredpartyauthorizes
the filing of a termination statement, it ought to review the
statement carefully and understand which security interests it is
releasing and why.... If parties could be relieved from the legal
consequences of their mistaken filings, they would have little
incentive to ensure the accuracy of the information contained in
theirUCCfilings.
Id.at*34(firstalterationinoriginal)(footnoteomitted).

DISCUSSION

TheDelawareSupremeCourthasexplainedthesenseinwhichasecured

partymustauthorize[]thefilingofaUCC3terminationstatement.What
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remainsistoanswerthequestionwereservedforourselvesinourprior
certificationopinion:DidJPMorganauthorizethefilingoftheUCC3
terminationstatementthatmistakenlyidentifiedforterminationtheMainTerm
LoanUCC1?

InJPMorgansview,itneverinstructedanyonetofiletheUCC3in

question,andtheterminationstatementwasthereforeunauthorizedand
ineffective.JPMorganreasonsthatitauthorizedGeneralMotorsonlyto
terminatesecurityinterestsrelatedtotheSyntheticLease;thatitinstructed
SimpsonThacherandMayerBrownonlytotakeactionstoaccomplishthat
objective;andthatthereforeMayerBrownmusthaveexceededthescopeofits
authoritywhenitfiledtheUCC3purportingtoterminatetheMainTermLoan
UCC1.

JPMorgansandGeneralMotorsaimsthroughouttheSyntheticLease

transactionwereclear:GeneralMotorswouldrepaytheSyntheticLease,and
JPMorganwouldterminateitsrelatedUCC1securityinterestsinGeneral
Motorsproperties.TheSyntheticLeaseTerminationAgreementprovidedthat,
uponGeneralMotorsrepaymentoftheamountdueundertheSyntheticLease,
GeneralMotorswouldbeauthorizedtofileaterminationofanyexisting

11


FinancingStatementrelatingtotheProperties[oftheSyntheticLease].J.A.
2151.And,torepresentitsinterestsinthetransaction,JPMorganreliedon
SimpsonThacher,itscounselformattersrelatedtotheSyntheticLease.Noone
atJPMorgan,SimpsonThacher,GeneralMotors,orMayerBrowntookaction
intendingtoaffecttheTermLoan.

WhatJPMorganintendedtoaccomplish,however,isadistinctquestion

fromwhatactionsitauthorizedtobetakenonitsbehalf.MayerBrownprepared
aClosingChecklist,draftUCC3terminationstatements,andanEscrow
Agreement,allaimedatunwindingtheSyntheticLeasebuttaintedbyone
crucialerror:ThedocumentsincludedaUCC3terminationstatementthat
erroneouslyidentifiedforterminationasecurityinterestrelatednottothe
SyntheticLeasebuttotheTermLoan.Thecriticalquestioninthiscaseis
whetherJPMorganauthorize[d][MayerBrown]tofilethattermination
statement.
AfterMayerBrownpreparedtheClosingChecklistanddraftUCC3
terminationstatements,copiesweresentforreviewtoaManagingDirectorat
JPMorganwhosupervisedtheSyntheticLeasepayoffandwhohadsignedthe
TermLoandocumentsonJPMorgansbehalf.MayerBrownalsosentcopiesof

12


theClosingChecklistanddraftUCC3terminationstatementstoJPMorgans
counsel,SimpsonThacher,toensurethatthepartiestothetransactionagreedas
tothedocumentsrequiredtocompletetheSyntheticLeasepayofftransaction.
NeitherdirectlynorthroughitscounseldidJPMorganexpressanyconcerns
aboutthedraftUCC3terminationstatementsorabouttheClosingChecklist.A
SimpsonThacherattorneyrespondedsimplyasfollows:Nicejobonthe
documents.Myonlycomment,unlessIammissingsomething,isthatall
referencestoJPMorganChaseBank,asAdministrativeAgentfortheInvestors
shouldnotincludethereferencefortheInvestors.J.A.921.
Afterpreparingtheclosingdocumentsandcirculatingthemforreview,
MayerBrowndraftedanEscrowAgreementthatinstructedthepartiesescrow
agenthowtoproceedwiththeclosing.Amongotherthings,theEscrow
Agreementspecifiedthatthepartieswoulddelivertotheescrowagentthesetof
threeUCC3terminationstatements(individuallyidentifiedbyUCC1financing
statementfilenumber)thatwouldbefiledtoterminatethesecurityintereststhat
GeneralMotorsSyntheticLeaselendersheldinitsproperties.TheEscrow
AgreementprovidedthatonceGeneralMotorsrepaidtheamountdueonthe
SyntheticLease,theescrowagentwouldforwardcopiesoftheUCC3

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terminationstatementstoGeneralMotorscounselforfiling.WhenMayer
BrownemailedadraftoftheEscrowAgreementtoJPMorganscounselfor
review,thesameSimpsonThacherattorneyrespondedthatitwasfineand
signedtheagreement.
FromthesefactsitisclearthatalthoughJPMorganneverintendedto
terminatetheMainTermLoanUCC1,itauthorizedthefilingofaUCC3
terminationstatementthathadthateffect.Actualauthority...iscreatedbya
principalsmanifestationtoanagentthat,asreasonablyunderstoodbytheagent,
expressestheprincipalsassentthattheagenttakeactionontheprincipals
behalf.Restatement(Third)ofAgency3.01(2006);accordDemarcov.Edens,390
F.2d836,844(2dCir.1968).JPMorganandSimpsonThachersrepeated
manifestationstoMayerBrownshowthatJPMorgananditscounselknewthat,
upontheclosingoftheSyntheticLeasetransaction,MayerBrownwasgoingto
filetheterminationstatementthatidentifiedtheMainTermLoanUCC1for
terminationandthatJPMorganreviewedandassentedtothefilingofthat
statement.Nothingmoreisneeded.

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CONCLUSION
Fortheforegoingreasons,weREVERSEtheBankruptcyCourtsgrantof
summaryjudgmentfortheDefendantandREMANDwithinstructionstothe
BankruptcyCourttoenterpartialsummaryjudgmentforthePlaintiffastothe
terminationoftheMainTermLoanUCC1.

15