May 13, 2019, New York – JPMorgan Chase Bank, N.A., and other financial institutions have finally agreed to settle with Wilmington Trust Company, solely in its capacity as trust administrator and trustee of the Motors Liquidation Company Avoidance Action Trust (the “AAT”), as established under the Debtor General Motors’ second amended joint Chapter 11 Plan. The global settlement agreement aims to resolves all claims and cross- claims asserted in the General Motors adversary proceeding (the “Term Loan Avoidance Action”) in a $1.5 billion lawsuit stemming from General Motors’ 2009 bankruptcy.
The litigation trust created in GM’s bankruptcy case had been pursuing JPMorgan and the other defendants to recover the money they received under an early order approving post-bankruptcy financing. As per the documents filed in the court earlier this month, various lenders and hundreds of investors agreed to pay $231 million to end their decade-long legal fight over a clerical error in a $1.5 billion loan to General Motors that was administered by JPMorgan Chase & Co. The settlement payment appears to benefit the unsecured creditors of General Motors’ 2009 bankruptcy, as well as the U.S. and Canadian governments, which helped finance GM’s Chapter 11 case.
By way of background, the dispute stemmed from the unintentional release of a lien on GM equipment due to a paperwork error. More than 400 entities had lent GM $1.5 billion in 2006, a loan secured by GM’s equipment at all its U.S. facilities. The loan was facilitated by JPMorgan acting as an agent for the lenders. In 2008, GM’s attorneys while drafting a closing checklist to terminate an unrelated $150 million GM loan, mistakenly terminated the collateral securing the $1.5 billion loan. Nobody noticed the error until GM filed for bankruptcy in 2009. As a result, GM’s lenders substantially lost their investment in the $1.5 billion loans, and they faced a lawsuit from GM’s remaining secured creditors to clawback money paid to them under the Chapter 11 reorganization.
Now, the proposed settlement aims to act as a global resolution of all claims, asserted or that could be asserted, against all parties with potential exposure arising from the filing of the 2008 termination statement. The parties to the settlement agreement include – the AAT, most of the Non-JPMorgan term lenders, and JPMorgan—as well as the General unsecured creditors’ trust and JP Morgan’s counsel, Simpson Thacher & Bartlett LLP At the core of the proposed settlement is the payment of $231 million to the AAT to resolve its claims in the term loan avoidance action. The proposed settlement would allow the parties to avoid what could be years of further litigation in the Court and appellate courts, as well as the associated risks and costs of continued litigation.