A simple clerical mistake could cost a company around $1.5 billion. This was learned by JPMorgan Chase & Co. that hard way after a federal appeals court in Manhattan recently that the company, while it was not intended, clearly authorized its law firm to file papers in 2008 that unsecured much of a loan provided to General Motors.
At the end of 2008, GM was getting ready pay off a $300 million financing and had the Mayer Brown law firm ready the documents. Mayer Brown, however, accidentally included a lien that secured the $1.5 billion loan in the list of security interests that was terminated following the repayment of the $300 million.
Following GM’s bankruptcy protection filing in 2009, the official committee of unsecured creditors requested for a court ruling that the JP Morgan-administered $1.5-billion syndicated loan was unsecured due to the mistake.
JPMorgan, however, argued the loan's security interest was unintentionally terminated and was therefore still in effect. United States Bankruptcy Judge Robert Gerber ruled in favor of JPMorgan in 2013, saying that JPMorgan had not expressly authorized the termination of the loan's security interest.
GM’s unsecured creditors then appealed to the US Court of Appeals for the Second Circuit in Manhattan, which granted their appeal and reversed Gerber's ruling.
According to the appeals court, while JPMorgan never intended to terminate the main term loan’s security interest, it had effectively given its authorization.
The appeals court also took noted the filings ending the security interest were reviewed by the JPMorgan managing director in charge of the $1.5 billion-loan and Simpson Thacher & Bartlett, the law firm that the company tapped to do the paperwork. JPMorgan said it was reviewing the decision and its options.