Clients sometimes exaggerate or have high hopes about  their damages.  They sometimes  do so in order to interest attorneys in taking their legal malpractice case.  Often, they will inform the potential attorney that the damages are in the MILLIONS!  Sometimes it’s true.  However, this story from the New York Law Journal today eclipses any of those calls.  It’s in the BILLIONS!  One never wants to read a story which starts, " A filing error…"

Mark Hamblett writes about the GM Bankruptcy and a filing mistake which renders a $2.5 Billion loan no longer secured.  In this setting, recovery may be entirely gone.  No matter what, it’s going to cost a lot to regain some of the secured assets…a lot.

"A filing mistake by attorneys that rendered a secured loan from JP Morgan to General Motors unsecured has left a group of creditors free to pursue a clawback of some $1.5 billion in the GM bankruptcy case.   The U.S. Court of Appeals for the Second Circuit held Wednesday that it did not matter that neither GM, nor its counsel at Mayer Brown, nor JP Morgan or its counsel at Simpson Thacher & Bartlett, intended a mistake that changed the secured status of a $1.5 billion loan to GM when preparing for and making a filing under the Uniform Commercial Code.
"We conclude that although the termination statement mistakenly identified for termination a security interest that the lender did not intend to terminate, the secured lender authorized the filing of the document, and the termination statement was effective to terminate the security interest," the Second Circuit said in In Re Motors Liquidation Company, 13-2187.
 

Judges Ralph Winter (See Profile), Richard Wesley (See Profile) and Susan Carney (See Profile) reversed Southern District Bankruptcy Judge Robert Gerber (See Profile), but only after having certified questions on intent under the Uniform Commercial Code, (UCC), answered by the Delaware Supreme Court.

General Motors had entered into a synthetic lease to obtain $300 million in financing from a syndicate that included JPMorgan in 2001. The lease was secured by liens on 12 pieces of real estate.

In 2006, GM obtained an unrelated term loan for about $1.5 billion that was secured by GM assets, including equipment and fixtures at 42 facilities in the United States.
In 2008, GM told its counsel responsible for the 2001 synthetic lease, now-retired Mayer Brown partner Robert Gordon, to prepare the documents to repay the lease and terminate the security interests associated with it. Gordon assigned some of the work to Mayer Brown associate RyanGreen, who, in turn, asked a paralegal at the firm to perform a search of UCC-1 initial financing statements that had been recorded against General Motors in Delaware.
The paralegal came up with three security interests that ultimately ended up on the closing checklist. The problem was that only two of the security interests applied to the synthetic lease and the third applied to the $1.5 billion term loan. So when Mayer Brown prepared draft UCC-3 amendment termination statements, it included a draft termination statement for the term loan, even though the unrelated UCC-3 statement never used the words "term loan.""