CHICAGO (CN) - Entities that lent General Motors $1.5 billion before it went bankrupt told a federal judge that attorney malpractice put their claims in jeopardy.
The allegations appear in separate class actions filed Friday by the Employees' Retirement System of the city of Montgomery and the Oakland Police and Fire Retirement System.
Both entities claim that they belonged to the syndicate of more than 400 entities that lent GM $1.5 billion in 2006, secured by GM's equipment at all its U.S. facilities.
Bankruptcy law provides for the payment of secured creditors before unsecured creditors, but the pension plans their claims are now unsecured because of improper filing by one of GM's attorneys at the prestigious law firm Mayer Brown.
When GM filed for bankruptcy in 2009, according to the new complaints in Illinois, it became apparent a Mayer Brown attorney had improperly drafted a termination statement that mistakenly released their collateral.
The plans filed suit now on the heels of January 2015 decision by the Second Circuit in Manhattan finding that their security interest in GM's property was terminated.
"As a result of the filing of the erroneous termination statement, caused by Mayer
Brown's negligence, gross negligence, and negligent misrepresentations, the value of plaintiff's and the other term loan lenders' investment in the $1.5 billion term loan has been substantially lost," the 27-page complaint from the Montgomery plan states.
As unsecured creditors, the pension plans note that they face a lawsuit from GM's remaining secured creditors to claw back money paid to them under the Chapter 11 reorganization.
A Mayer Brown associate and a paralegal set the error in motion, according to the complaints, in drafting the closing checklist to terminate an unrelated, $150 million GM loan that was nearing maturity in 2008.
The pension plans note that the attorneys' search for financing statements known as UCC-1s that GM's creditors filed to give notice about their interests in GM's property produced three hits.
One of these was the statement listing all equipment, fixtures and related material located at GM's U.S. manufacturing facilities - the collateral for the $1.5 billion loan, according to the complaint.
Though JPMorgan was the administrator of both loans, the pension plans note that they involved different lender syndicates. Furthermore the Mayer Brown attorney ignored concerns about the breadth of the properties covered by the inappropriately cited UCC-1 sheet.
Mayer Brown circulated the draft closing statement to other attorneys, but none caught the mistake, according to the complaints.
The creditors seek damages for negligent misrepresentation and professional malpractice.
Michael Freed with Freed, Kanner, London & Millen in Bannockburn, Ill., is the lead counsel in both actions.
Mayer Brown declined to comment on the lawsuits.
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