Oakland Police & Fire Retirement System, et al., Plaintiffs-Appellants,
Mayer Brown, LLP, Defendant-Appellee.
March 30, 2017
from the United States District Court for the Northern
District of Illinois, Eastern Division. No. 15 C 6742 -
Robert W. Gettleman Judge.
Posner, Manion, and Hamilton, Circuit Judges.
Hamilton, Circuit Judge.
appeal began with a $1.5 billion (with a "b")
mistake in documenting a commercial transaction. The central
question is who might be held legally responsible for that
mistake. General Motors, represented by the Mayer Brown law
firm, entered into two separate secured transactions in which
the JP Morgan bank acted as agent for two different groups of
lenders. The first loan (structured as a secured lease) was
made in 2001 and the second in 2006. In 2008, the 2001
secured lease was maturing and needed to be paid off. The
closing for the 2001 payoff required the lenders to release
their security interests in the collateral securing the
transaction. The big mistake was that the closing papers for
the 2001 deal accidentally also terminated the lenders'
security interests in the collateral securing the 2006 loan.
No one noticed-not Mayer Brown and not JP Morgan's
after General Motors filed for bankruptcy protection several
months later in 2009, General Motors and JP Morgan noticed
the error. Although the security for the plaintiffs' 2006
loan had been terminated, the plaintiffs in this case
(members of the consortium of lenders on the 2006 loan) were
not informed until years later. These lenders brought this
suit asserting legal malpractice and negligent
misrepresentation. But they sued not JP Morgan or its law
firm, who would seem to be the most obvious defendants under
the circumstances, but borrower General Motors' law
district court dismissed for failure to state a claim,
holding that Mayer Brown did not owe a duty to plaintiffs,
who are third-party non-clients. Oakland Police &
Fire Retirement System v. Mayer Brown, LLP, No. 15 C
6742, 2016 WL 3459714, at *6 (N.D. 111. June 22, 2016).
Plaintiffs appealed, arguing that Mayer Brown owed them a
duty of due care. Plaintiffs offer three theories: (a) JP
Morgan was a client of Mayer Brown in unrelated matters and
thus not a third-party non-client; (b) even if JP Morgan was
a third-party non-client, Mayer Brown assumed a duty to JP
Morgan by drafting the closing documents; and (c) the primary
purpose of the General Motors-Mayer Brown relationship was to
influence JP Morgan. We agree with Judge Gettleman that Mayer
Brown did not owe a duty to plaintiffs under any of these
theories. We affirm the judgment dismissing the case.
Factual and Procedural History
begin with the terms of the two transactions that led to this
case and the mistake that might cost plaintiffs a great deal
of money. We then review briefly the relevant portions of
other lawsuits associated with this case.
The 2001 Synthetic Lease
syndicate of lenders represented by JP Morgan entered into a
secured financial agreement with General Motors in 2001 for
$300 million. We call this transaction the 2001 Synthetic
Lease. General Motors was represented by Mayer Brown in
negotiating, documenting, and closing the deal. JP Morgan was
represented by the Simpson, Thacher, and Bartlett law firm.
The arrangement required General Motors to sell twelve real
estate properties to the lenders, who then leased those same
properties back to General Motors. In essence, General Motors
secured a loan with its real estate properties. The security
interests were perfected by UCC-1 financing statements. On
October 31, 2008, the lease matured, and General Motors was
scheduled to pay the remaining balance of the lease-$150
The 2006 Term Loan
2006, General Motors borrowed $1.5 billion from a different
group of over 400 lenders, including plaintiffs Oakland
Police and Fire Retirement System and the Employees'
Retirement System of the City of Montgomery. Again, JP Morgan
acted as agent and held the security interests. The
collateral for the loan was recorded in a UCC-1 financing
statement. We refer to this as the 2006 Term Loan. The 2001
Synthetic Lease and 2006 Term Loan were secured by different
real estate properties for the benefit of two different
groups of lenders.
Mayer Brown's Mistake
month leading up to the maturity date, General Motors
instructed Mayer Brown to prepare the documents to pay off
the 2001 Synthetic Lease. At closing, when General Motors
paid the $150 million balance, JP Morgan, as agent for the
lenders, would release the real estate serving as security.
Mayer Brown prepared a closing checklist and drafted the
relevant documents, including a UCC-3 termination statement.
A termination statement is a filing required to terminate a
security interest that has been perfected by a UCC-1 filing.
See 6 Del. Code §§ 9-509 & 9-513 (Delaware
enactment of Uniform Commercial Code §§ 9-509 &
9-513). According to plaintiffs' complaint, Mayer Brown
mistakenly included the unrelated 2006 Term Loan UCC-1
document as one of the financing statements to be terminated
in paying off the 2001 Synthetic Lease.
Brown thus prepared a UCC-3 termination statement for the
collateral for the $1.5 billion Term Loan. Mayer Brown
provided the draft to JP Morgan's counsel to review.
Without catching the error, JP Morgan authorized the release
of the collateral. Consequently, the $1.5 billion security
interest for the plaintiff's 2006 Term Loan was ...