J.P. Morgan loaned a good chunk of cash to General Motors as part of a $300 million synthetic loan. It also, in a completely unrelated agreement, joined other lenders in loaning GM $1.5 billion. When GM paid off the first loan, it prepared documents to release J.P. Morgan’s interest in GM property used to secure the $300 million. And that’s when this happened, according to the Second Circuit’s opinion:

"A Mayer Brown partner assigned the work to an associate and instructed him to prepare a closing checklist and drafts of the documents required to pay off the Synthetic Lease and to terminate the lenders’ security interests in General Motors’ property relating to the Synthetic Lease. One of the steps required to unwind the Synthetic Lease was to create a list of security interests held by General Motors’ lenders that would need to be terminated. To prepare the list, the Mayer Brown associate asked a paralegal who was unfamiliar with the transaction or the purpose of the request to perform a search for UCC‐1 financing statements that had been recorded against General Motors in Delaware."

"The paralegal’s search identified three UCC‐1s, numbered 2092532 5, 2092526 7, and 6416808 4. Neither the paralegal nor the associate realized that only the first two of the UCC‐1s were related to the Synthetic Lease. The third, UCC‐1 number 6416808 4, related instead to the Term Loan."

So you see where this is going. The associate and the partner accepted the paralegal’s search, because it’s hard to doublecheck three whole items, and prepared a UCC-3 statement releasing the interest securing the $1.5 billion loan too, which is going to become a thing when GM goes bankrupt and J.P. Morgan is told it’s just another schlub in the unsecured line.

So it looks like Mayer Brown screwed up here. But didn’t anyone else look at these documents? Why yes they did!

No one at General Motors, Mayer Brown, JPMorgan, or its counsel, Simpson Thacher & Bartlett LLP, noticed the error, even though copies of the Closing Checklist and draft UCC‐3 termination statements were sent to individuals at each organization for review.

http://abovethelaw.com/2015/01/mayer-brown-simpson-thacher-make-epic-screwup/

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27169662)

"Ryan Nice job on the documents."

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#28454788)

Like a white dude from Brooklyn Law?

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27171141)

Thanks/Sorry,

Junior Associate"

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27169836)

I think the real answer is that under 544(a) of the Bankruptcy Code the bankruptcy trustee has avoidance powers and the priority of a hypothetical lien creditor. Lien creditors > unperfected security interests, therefore JPM become unsecured creditors in bankruptcy.

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27169902)

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27169910)

http://www.foxrothschild.com/newspubs/newspubsArticle.aspx?id=4294970829

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27169901)

The reason it matters is because they were unsecured against old GM in bankruptcy where priority matters and all the other creditors said fuck that they can't just ignore the paper they filed, law is the law. They didn't find the error until it was too late. So the bankruptcy court has to take what JPMorgan was going to get based on the $1.5 and give it to the other creditors.

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27169963)

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27169959)

They didn't notice until 2000 other lawyers noticed first.

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27169969)

They're fucked.

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27169998)

What this means is that, although JP Morgan is saying otherwise, the esteemed bank and the group of investors it led could be out well over a billion dollars. But this is about much more than a big bank losing big money. This is about how the bank's lawyers may have made one grandiose oversight. Because although it was a different law firm that made the initial mistake, it was Simpson Thacher who signed off on it representing their client JP Morgan ("Nice job on the documents," one Simpson Thacher lawyer wrote). And in the world of legal malpractice, who is representing whom means everything.

Founded in 1884, Simpson Thacher & Bartlett is one of New York's famed "white-shoe" firms, with a client list that reads like a who's-who of the world's most important businesses. But now this firm is in a whale of a mess and could be in the position of shutting its doors for good. That's because when a lawyer's mistake leads to his client losing money, the client can sue, and in theory, every dollar of that loss comes out of the lawyer's pocket. There is no doubt among the experts we spoke to that despite Simpson's healthy profits, a $1.5 billion judgment against it could cause the firm to shut down, fire its lawyers and liquidate its assets.

That probably won't happen; law firms have malpractice insurance, and it's not in JP Morgan's interest to shut down Simpson Thacher. Plus, the fact that this case has been pending for a long time (our earliest documents date from March, 2010) means JP Morgan, the other creditors, and the government are probably working behind the scenes to negotiate a deal. Besides, when we talked to malpractice experts Bennett Wasserman and Krishna Shah, of the law firm Davis Saperstein & Salomon, they pointed out that recent case-law lets lawyers who make mistakes reduce their liability if their client has a lot of in-house lawyers reviewing everything. Few companies have more lawyers in-house than JP Morgan -- although at this point it's unclear to what degree JP Morgan's own lawyers signed off on Simpson Thacher's oversight. Still, the details as we have them don't look good for the law firm, even though nobody thinks that there is any fraud involved, just an honest mistake.

http://www.huffingtonpost.com/dan-rather/jp-morgan-15-billion_b_888016.html

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27170014)

http://www.pircher.com/attorneys-Ryan-Green.html

See second item: http://blog.bluestonelawfirm.com/cat-legal-malpractice-news.html

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27170020)

In an email dated September 30, 2008, a GM representative informed Robert Gordon (“Gordon”), a real estate partner at Mayer Brown, GM’s counsel, who was then responsible for the Synthetic Lease, that GM planned to repay the amount due under the Synthetic Lease. GM requested that Mayer Brown “prepare the documents necessary for [JPMorgan and the Lenders] to be paid off for the obligations on that synthetic lease and to release their interest in those properties.”15 Gordon assigned this work to Ryan Green (“Green”), a Mayer Brown real estate associate. Green was to draft the documents necessary for “the termination and payoff of the synthetic lease.”16 Gordon also asked Green to “put together [a] checklist draft”—referring to a checklist of the required documents for the release and transfer of the Synthetic Lease Properties, including “an initial draft of a brief checklist of required documents for the release and transfer.”

...

The three UCC-1 filing numbers listed on the Synthetic Lease Closing Checklist were derived from a UCC search Green had requested that a Mayer Brown paralegal, Michael Perlowski, perform.

....

Green had concluded his October 15 email with a line “Please contact me with any questions or comments you may have.” On Friday, October 17, 2008, Simpson Thacher’s Merjian responded, also by email, stating “Nice job on the documents” before continuing with “[m]y only comment,” and going on to state what that comment (which did not relate to the UCC-3s) was.35

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27170031)

The subject line of Green’s e-mail enclosing the draft documents was “GM/JPMorgan Chase - Synthetic Lease (Auto Facilities Real Estate Trust 2001-1)”; the documents attached to Green’s email included nearly a hundred pages of draft documents, including ten draft UCC-3 termination statements. But Green did not attach copies of any of the UCC-1 initial financing statements whose file numbers corresponded to the file numbers referenced on the ten draft UCC-3s that were circulated. Nor, once again, did anything in Green’s email or enclosures mention the words “Term Loan.”

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27170040)

LOL @ this "profession"

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27170041)

These lawyers were literally trying to save their clients asses as the world collapsed. Some failed, but JPMorgan would still have become JPMorganChase.

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27170168)

EDIT: Oh wait nevermind. For some reason I thought Mayer Brown was also representing JPM and STB was basically just signing off that they'd hit the appropriate docs in the closing checklist. Holy jesus how did STB let his happen. That's a huge mistake.

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27170204)

http://www.nysb.uscourts.gov/sites/default/files/opinions/233503_71_opinion.pdf

(http://www.autoadmit.com/thread.php?thread_id=2789519&forum_id=2#27170038)