The University of Chicago 2/16/2019 Class 19 Secured Transactions, Fall, 2018 Changes: Financing Statements Randal C. Picker James Parker Hall Distinguished Service Professor of Law The Law School The University of Chicago Copyright © 2014-18 Randal C. Picker. All Rights Reserved.

The (UCC) Terminator Hypo What do you do? With what legal effect? You get up one day and decide that that day would be a good day to terminate some financing statements. You actually aren’t a secured creditor, but that isn’t a problem for you. What do you do? With what legal effect? February 16, 2019

9-513(d) (d) Effect of filing termination statement. Except as otherwise provided in Section 9-510, upon the filing of a termination statement with the filing office, the financing statement to which the termination statement relates ceases to be effective. February 16, 2019

Sec. 9-510. Effectiveness of filed record. (a) Filed record effective if authorized. A filed record is effective only to the extent that it was filed by a person that may file it under Section 9-509. February 16, 2019

Sec. 9-509. Persons entitled to file a record. (d) Person entitled to file certain amendments. A person may file an amendment other than an amendment that adds collateral covered by a financing statement or an amendment that adds a debtor to a financing statement only if: (1) the secured party of record authorizes the filing; or February 16, 2019

Sec. 9-509. Persons entitled to file a record. (2) the amendment is a termination statement for a financing statement as to which the secured party of record has failed to file or send a termination statement as required by Section 9-513(a) or (c), the debtor authorizes the filing, and the termination statement indicates that the debtor authorized it to be filed. February 16, 2019

9-509 Off. Comm. 2 No Signatures Means “Under these sections, the identity of the person who effects a filing is immaterial. The filing scheme contemplated by this part does not contemplate that the identity of a ‘filer’ will be a part of the searchable records. This is consistent with, and a necessary aspect of, eliminating signatures or other evidence of authorization from the system.”

9-509 Off. Comm. 2 Understanding Authorization “As long as the appropriate person authorizes the filing, or, in the case of a termination statement, the debtor is entitled to the termination, it is insignificant whether the secured party or another person files any given record. The question of authorization is one for the court, not the filing office.” 

9-509 Off. Comm. 3 on Unauthorized Filings Sorting Authorization “A person who files an unauthorized record in violation of subsection (a)(1) is liable under section 9-625(b) and (e) for actual and statutory damages. Of course, a filed financing statement is ineffective to perfect a security interest if the filing is not authorized. See section 9-510(a).”

9-509 Off. Comm. 3 on Unauthorized Filings Sorting Authorization “Law other than this article, including the law with respect to ratification of past acts, generally determines whether a person has the requisite authority to file a record under this section. See sections 1-103 and 9-502, comment 3.”  

9-509 Off. Comm. 4 on Ipso Facto Authorization Automatic Authorization Given a Security Agreement “Under subsection (b), the authentication of a security agreement ipso facto constitutes the debtor’s authorization of the filing of a financing statement covering the collateral described in the security agreement. The secured party need not obtain a separate authorization.”  

Subsequent Searchers and Termination Statements Hypo You run a search and find a termination statement. How do you tell whether or not it was effective to terminate the referenced financing statement? February 16, 2019

Fixtures and Article 9: Definitions 9-102(a)(41): “Fixtures” means goods that have become so related to particular real property that an interest in them arises under real property law. February 16, 2019

Fixtures and Article 9: Definitions 9-102(a)(40): “Fixture filing” means the filing of a financing statement covering goods that are or are to become fixtures and satisfying Section 9-502(a) and (b). The term includes the filing of a financing statement covering goods of a transmitting utility which are or are to become fixtures. February 16, 2019

Fixtures and Article 9: Special Filing Rules 9-501(a) Filing offices. Except as otherwise provided in subsection (b), if the local law of this State governs perfection of a security interest or agricultural lien, the office in which to file a financing statement to perfect the security interest or agricultural lien is: February 16, 2019

Fixtures and Article 9: Special Filing Rules (1) the office designated for the filing or recording of a record of a mortgage on the related real property, if: (A) the collateral is as-extracted collateral or timber to be cut; or (B) the financing statement is filed as a fixture filing and the collateral is goods that are or are to become fixtures; February 16, 2019

GM Timeline Oct 2001: GM Synthetic Lease Deal $300 Million Mix of real estate and Article 9 collateral UCC-1 financing statements filed in real estate records and with Delaware Secretary of State JP Morgan (?) as administrative agent and secured party February 16, 2019

GM Synthetic Lease (10-31-2001) February 16, 2019 GM Synthetic Lease (10-31-2001)

Why 2002 and not 2001? February 16, 2019 GM FS (2092526 7) (4-12-2002)

February 16, 2019 GM FS (2092526 7) (4-12-2002)

GM Timeline Nov 2006 Term Loan Facility $1.5 billion loan from lending syndicate Security interests in equipment and fixtures at forty-two facilities in U.S. JP Morgan as administrative agent and secured party 28 UCC 1s, including key one in Del: 6416808 4 February 16, 2019

February 16, 2019 GM FS (6416808 4) (11-30-2006)

February 16, 2019 GM FS (6416808 4) (11-30-2005)

February 16, 2019 GM FS (6416808 4) (11-30-2005)

February 16, 2019 GM FS (6416808 4) (11-30-2005)

February 16, 2019 GM FS (6416808 4) (11-30-2005)

February 16, 2019 GM FS (6416808 4) (11-30-2005)

GM Timeline Oct 2008: Repayment on Synthetic Lease Closing Checklist Termination Agreement UCC 3 Termination Statements Escrow Agreement February 16, 2019

Draft Closing Checklist (10-15-2008) February 16, 2019 Draft Closing Checklist (10-15-2008)

Draft Closing Checklist (10-15-2008) February 16, 2019 Draft Closing Checklist (10-15-2008)

Draft Closing Checklist (10-15-2008) February 16, 2019 Draft Closing Checklist (10-15-2008)

Draft Closing Checklist (10-15-2008) February 16, 2019 Draft Closing Checklist (10-15-2008)

Draft Closing Checklist (10-15-2008) February 16, 2019 Draft Closing Checklist (10-15-2008)

Termination Agreement (10-30-2008) February 16, 2019 Termination Agreement (10-30-2008)

Termination Agreement (10-30-2008) February 16, 2019 Termination Agreement (10-30-2008)

Termination Agreement (10-30-2008) February 16, 2019 Termination Agreement (10-30-2008)

Escrow Instructions (10-29-2008) February 16, 2019 Escrow Instructions (10-29-2008)

Escrow Instructions (10-29-2008) February 16, 2019 Escrow Instructions (10-29-2008)

Escrow Instructions (10-29-2008) February 16, 2019 Escrow Instructions (10-29-2008)

February 16, 2019 GM TS (6416808 4) (10-30-2008)

GM Timeline 2009: Developments June 2009: GM files under Chapter 11 June 19: JP Morgan emails unsecured creditors committee about mistaken filing of termination July 31: Unsecured creditors committee files action in bankruptcy re JP Morgan security interest February 16, 2019

February 16, 2019 Gordon Affidavit (6-19-2009)

February 16, 2019 Gordon Affidavit (6-19-2009)

February 16, 2019 Gordon Affidavit (6-19-2009)

February 16, 2019 Gordon Affidavit (6-19-2009)

Certified Question from 2nd Cir. The Question “Under UCC Article 9, as adopted into Delaware law by Del. Code Ann. tit. 6, art. 9, for a UCC-3 termination statement to effectively extinguish the perfected nature of a UCC-1 financing statement, is it enough that the secured lender review and knowingly approve for filing a UCC-3 purporting” February 16, 2019

Certified Question from 2nd Cir. The Question “to extinguish the perfected security interest, or must the secured lender intend to terminate the particular security interest that is listed on the UCC-3?” February 16, 2019

Del Sup Ct Reponse The Answer “Based on that understanding and for reasons we explain more fully, the unambiguous provisions of Delaware’s UCC dictate that the answer is that ‘it [is] enough that the secured lender review and knowingly approve for filing a UCC-3 purporting to extinguish the perfected security interest.’” February 16, 2019

Authorization? Which document should we examine? The Termination Agreement? The Escrow Instructions? Something else? February 16, 2019

February 16, 2019 Oakland Police (CA7 6-28-2017)

February 16, 2019 Oakland Police (CA7 6-28-2017)

Fixtures Opinion (Bankr. S.D.N.Y. 9-26-2017), appeal pending February 16, 2019 Fixtures Opinion (Bankr. S.D.N.Y. 9-26-2017), appeal pending