January 28, 2015

Mind Your Ps and Qs

The United States Court of Appeals for the Second Circuit recently ruled that the documents we attorneys sign will be interpreted based on their plain meaning, even if it's plain we didn't mean what we wrote. The case has nothing to do with criminal defense or civil rights litigation, but it serves as a useful reminder to attorneys of all sizes and stripes to pay attention to the details.

The short version? Attorneys filing papers that they thought were terminating a lease agreement, deliberately but mistakenly included a document that terminated an unrelated $1.5 billion dollar deal. The bankruptcy court said, no problem, you didn't mean it. The Second Circuit, however, said: you read the document and you then filed the document, so you are stuck with the consequences.

For those that care, the slightly longer version can be found in In Re Motors Liquidation Company, 13-2187, and the details are as follows: during the 2000s, General Motors had entered into various lending agreements with JP Morgan. In 2008, GM closed out a lease agreement, and instructed it's counsel at Mayer Brown to file the proper termination statements.  The partner at Mayer Brown delegated an associate the task of identifying GM's prior UCC filing statements relating to the lease. The associate found three such filings, and prepared termination statements for each one. The problem? The first two were for the lease, the third was for an entirely separate $1.5 billion loan secured by specific GM assets.

The associate drafted the papers, and they were sent to various attorneys and senior folks at GM and JP Morgan, all of whom signed off on the proposed filing. None of these people realized that by filing these documents, GM would be terminating it's initial filing statement concerning the $1.5 billion loan. 

This was a colossel mistake, to put it mildly. By all accounts, neither GM nor JM Morgan intended to terminate the loan or untether the identified assets that secured the loan. But, these sophisticated parties, through their highly trained counsel, drafted documents that expressly and plainly did just that. These professionals reviewed these documents and then executed and published them. In other words, they plainly meant to execute and publish these termination statements, which contained language they expressly approved.

A SDNY Bankruptcy Court determined that the parties should be forgiven for their mistake, because they did not intend to terminate the filing of the $1.5b secured loan statement. The unsecured creditors, who suddenly realized that there was another $1.5b that might be available to them, appealed to the Second Circuit, which certified the matter to the Delaware high court. Delaware, in turn, ruled, "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 their UCC filings."

Based on this logical bit of reasoning, the Second Circuit opined, that "It is clear that although JPMorgan never intended to terminate the Main Term Loan UCC-1, it authorized the filing of a UCC-3 termination that had that effect. . . .Nothing more is needed."

Now this has nothing to do with any area of law in which I practice or claim to have more than a slight understanding. But, as a lawyer who routinely drafts pleadings and discovery responses, and as an attorney who counsels clients on their public statements, and drafts and executes releases, settlement agreements, and all sorts of stipulations and proposed orders, it is a reminder to pay attention to detail.

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