- 2015 U.S. App. LEXIS 859 (2nd Cir. Jan. 21, 2015)
- A secured party's authorization to file a UCC-3 termination statement of a UCC-1 Financing Statement filed under the Article 9 of the Uniform Commercial Code (UCC) is all that is required to effectuate a termination of the filed Financing Statement; the subjective intent of the secured party is irrelevant
- Procedural context:
- Direct appeal pursuant to 28 U.S.C. § 158(d)(2) from an order of the United States Bankruptcy Court for the Southern District of New York (Gerber, U.S.B.J.) holding that a mistaken UCC‐3 termination statement was unauthorized and therefore not effective to terminate a secured lender’s interest in a debtor’s property. The Second Circuit certified a direct question to the Delaware Supreme Court asking the Delaware Court to rule on a secured creditor must "intend" to terminate a particular security interest on a UCC-3 when it authorizes a filing. Based on the decision o the Delaware Supreme Court that subject intent is not a consideration, the Second Circuit concluded that although the termination statement at issue was 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 reversed and remanded.
- Prior to General Motors filing for bankruptcy in 2009, GM sought to repay one of 2 loans in which JP Morgan Chase served as agent for a number of participating lenders. The loan that was to be repaid was a $300,000,000 synthetic lease financing facility. At the time this loan was in the process of being paid off, another term loan for $1.5 billion was outstanding in which JP Morgan Chase also served as agent for a number of participating lenders. As part of the payoff of the synthetic lease loan, JP Morgan Chase authorized the filing of a UCC-3 termination statement that mistakenly referred to the financing statements covering the term loan. The UCC-3 was filed prior to GE filing for bankruptcy. After the bankruptcy was filed, it became known that the UCC-3 had mistakenly been filed. The Official Committee of Unsecured Creditors filed a complaint against JP Morgan Chase, as agent, and the participating lenders seeking to avoid any security interest they had on account of the term loan. JP Morgan Chase argued that the UCC-3 was not effective because the filing was not intended to terminate the term loan security interest. The Delaware Supreme Court in response to a certified question from the Second Circuit held if a secured party authorizes the filing of a UCC-3 termination statement, then that filing is effective regardless of whether the secured party subjectively intends or understands the effect of that filing. The Delaware Supreme Court concluded that the integrity of the UCC filing system compelled this result as the secured party was in the best position to ensure it did not make a mistake in authorizing a termination it did not intend. The Second Circuit, based on the Delaware Supreme Court's ruling, reversed the bankruptcy court judgment holding otherwise and remanded the case for entry of partial summary judgment against JP Morgan Chase and the participating lenders.
- Winter, Wesley and Carney
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