Wednesday, January 21, 2015

A $1.5 Billion Clerical Error

In 2001, General Motors obtained a $300 million loan from a group of lenders that included J. P. Morgan Chase Bank. J. P. Morgan obtained a security interest in real estate owned by GM. J. P. Morgan then perfected its security interest by properly filing two separate UCC-1 financing statements, making it a secured lender. 

In 2003, General Motors needed another $1.5 billion. GM borrowed the money from a different group of lenders that also included J.P. Morgan. This time, J.P. Morgan obtained a security interest in a significant portion of GM's equipment and fixtures at forty-two facilities throughout the United States. Again, J.P. Morgan perfected its security interest by properly filing one UCC-1 financing statement, making it a secured lender for purposes of the larger loan.

In 2008, GM decided to pay off the $300 million dollar loan. GM contacted its attorneys at Mayer Brown LLP to prepare documents that would release the liens on GM's real estate once the loan was paid off. Apparently, a partner at Mayer Brown assigned this work to an associate, who then assigned the work to a paralegal. The paralegal obtained a UCC lien search which revealed all three UCC-1s, the two for the $300 million loan and the one for the $1.5 billion loan.

You can probably guess what happened next. Mayer Brown prepared a closing checklist and proposed UCC termination statements for all three liens. The closing checklist and draft documents were circulated to J.P. Morgan and its counsel, Simpson Thacher & Bartlett LLP. No one who reviewed the documents noticed anything out of the ordinary. After the $300 million loan was paid in full, all three UCC termination statements were filed with the Delaware Secretary of State, including a termination statement on the $1.5 billion loan.

In 2009, GM filed bankruptcy. As part of the scramble for assets, the Official Committee of Unsecured Creditors discovered that J. P. Morgan was not secured on the $1.5 billion like it thought it was. The Committee then filed suit to declare J. P. Morgan unsecured. J. P. Morgan argued that the UCC termination statement was ineffective because UCC Section 9-509(d)(1) provides that termination statements are only effective if "the secured party authorizes the filing." J. P. Morgan argued that it could not have "authorized" the filing of the release on the $1.5 billion loan because it did not intend to terminate that security interest, nor did it instruct anyone else to do so on its behalf.

The case eventually made it to the Second Circuit Court of Appeals. The Second Circuit pointed out that what J. P. Morgan intended to accomplish was not the relevant issue when determining whether it "authorized" the filing. The relevant inquiry was what actions J. P. Morgan had authorized to be taken on its behalf. The Court found that J. P. Morgan, directly and through counsel, had plenty of opportunities to review the closing documents. Each time, it consented to the closing checklist and all three UCC termination statements. Therefore, the incorrect UCC termination statement was effective because it was "authorized" by the secured party as required by the Uniform Commercial Code.

The Second Circuit's opinion can be found HERE.  

Sunday, January 18, 2015

DuPage County Register Cited in U.S. Supreme Court Opinion

The Supreme Court opinion released last week in Whitfield v. United States (here) cites articles from the New York Times, the Washington Post, and the DuPage County Register. Pretty good company for a local newspaper. Unfortunately, it will not help the Register’s circulation since the paper went out of business in 1970. (The DuPage County Register and several other weekly papers merged to become the Arlington Heights Herald and later the Daily Herald (here)). The Whitfield case provided the Court with the opportunity to interpret 18 U.S.C. § 2113(e) which enhances the penalty for bank robbery when the offender “forces any person to accompany him” (emphasis added) in the course of committing or fleeing from a robbery.

After a botched bank robbery, Whitfield fled into the home of Mary Parnell. Once inside, he guided Ms. Parnell from the hallway to a computer room, a distance of between 4 and 9 feet. Whitfield argued that the word “accompany” as used in § 2113(e), required substantial movement and that his short trip with Ms. Parnell did not qualify. The Fourth Circuit Court of Appeals disagreed concluding that, “[a]lthough Whitfield required Mrs. Parnell to accompany him for only a short distance within her own home, and for a brief period, no more is required to prove that a forced accompaniment occurred.” The Supreme Court agreed, observing that it is “natural to speak of accompanying someone over a relatively short distance, for example: from one area within a bank ‘to the vault.’” For this proposition the Court cited a story titled, “Addison State Bank Robbed” that appeared in the April 6, 1928, issue of the DuPage County Register. The article stated that the “bandit accompanied [the teller] to the vault.”

Justice Scalia and his clerks deserve credit for finding this 87 year old story in an obscure and defunct newspaper. But with the internet not much stays hidden. The 1928 article is here.

Tuesday, December 30, 2014

New Laws Effective January 1, 2015

I just wanted to pass along THIS succinct chart that outlines each of the new laws take take effect in Illinois on Thursday. I've seen several news articles that highlight three or four interesting laws, but this chart lists each of the more than 150 new laws for 2015. 

I am especially in favor of SB 2015, which increases the interstate and tollway speed limit to 70 miles per hour. But long-time Blog readers already know about my driving habits, as I more fully explained in THIS classic post from January 2012.

Saturday, December 27, 2014

Legal Writing 201 by Judge Mark P. Painter

I was browsing the law blogs this morning when I saw a link to Judge Mark P. Painter's 30 Suggestions to Improve Readability. HERE is a link. This document is brilliant. Please print it out, read through it, and keep it sitting on your desk for the next couple of months. 

The 30 suggestions cover a lot of material, but you can read through the entire document in about 15 minutes. It is presented very simply. Judge Painter makes it look easy.

Pay particular attention to the Words and Phrases chart contained on pages 25-27. I will be referring to this chart the next time that I draft a motion or pleading. And I might personally serve that chart on my opposing counsel before the response is due. 

Saturday, December 20, 2014

Less Jurors, More Pay

Beginning on June 1, 2015, Illinois jurors will receive $25 for their first day of service and $50 for each subsequent day of service. Senate Bill 3075 (here), signed by Governor Quinn yesterday, further provides that all civil juries will consist of 6 persons regardless of the nature of the case.

Depending on population, 55 ILCS 5/4-11001 currently requires counties to pay jurors from $4 to $10 per day unless a county sets a higher rate. Cook County jurors now earn $17.20 a day (here), Will County jurors earn $10 a day (here), Winnebago County jurors earn $13 per day (here), and Du Page jurors earn $10 for their first day of service and  $15 thereafter (here). The main criticism of this part of the new law comes from counties because they must fund the pay increase.

Currently, 735 ILCS 5/2-1105 provides for 12 person civil jury trials unless the plaintiff seeks $50,000 or less in which case the jury consists of 6 persons. But the current statute permits a party to demand a jury of 12 in any civil case regardless of the amount claimed. Senate Bill 3075 amends section 5/2-1105(b) by requiring that all civil juries consist of 6 persons and by eliminating the provision permitting a litigant to increase the jury size to 12 persons. This change has been criticized by the Chicago Tribune (here) and the Chicago Council of Lawyers (here). The criticisms vary but include claims that smaller juries reduce minority representation, reduce debate, and reduce the tolerance for dissenting voices on the jury. Proponents argue that 6 person juries will shorten voir dire, reduce litigation costs, and disrupt the lives of fewer citizens.

It is unclear how much research and discussion preceded the enactment of these significant changes to the jury system.

Monday, December 1, 2014

Mutual and Correlative Orders of Protection

Section 215 of the Illinois Domestic Violence Act (here) flatly prohibits a judge from entering mutual orders of protection. While discouraging the entry of correlative orders of protection, Section 215 allows for the entry of such orders if the statutory requisites are met. In re Marriage of Kiferbaum, (here) provided the appellate court with its first opportunity to discuss the difference between the two types of orders of protection.

Two years after an acrimonious divorce including allegation of threats, sexual abuse, and damaging automobiles with urine, feces, and vomit, Judith and Hanan Kiferbaum filed petitions seeking orders of protection against each other. The trial judge set the “cross-petitions” for hearing on January 30, 2013. The judge conducted a hearing on Hanan’s petition first because he filed it two weeks earlier than Judith. After granting Hanan’s petition, the judge dismissed Judith’s petition considering it a request for mutual orders of protection which were barred by Section 215. On appeal, Judith claimed that she requested a “correlative” order of protection, not a “mutual” order of protection.

In siding with Judith, the appellate court first noted that no court had previously considered the difference between mutual and correlative orders and that neither term was defined in the Illinois Domestic Violence Act. The court when on to characterize mutual orders as typically appearing in a single document, based on a single petition, and entered even if one party did not seek an order of protection. The court found good reason for strictly prohibiting mutual orders because they tend to violate due process, exacerbate violence, and are difficult for the police to enforce.

The court did not find the same drawbacks with correlative orders because under the statute they can only be obtained when separate written petitions are filed, both parties prove past abuse,  both parties give prior notice (unless excused), and  the trial court enters separate orders justifying each  remedy granted. The court concluded by stating that if the “clear roadmap” set out by Section 215 is followed, correlative orders of protection, while disfavored, remain an available remedy.

Sunday, November 16, 2014

Deposition Tweeting

Everyone knows that Illinois prohibits tweeting while operating a motor vehicle. 625 ILCS 5/12-610.2 (here) bans the use of any electronic communication device when driving. Avid cyclists also know that a Chicago ordinance (here) prohibits tweeting while operating a bicycle. Going a step further, one judge believes that lawyers should not tweet while conducting a deposition.

According to an ABA Journal article (here), a Texas state court judge has barred live tweets during the deposition of a former county sheriff who is being sued for allegedly receiving illegal campaign contributions. Lamenting the lack of guidance on the live-tweeting issue, the judge accurately observed that “[o]ur technology is far out pacing our ability to formulate rules.”

If an Illinois judge allowed the tweeting of deposition testimony, Illinois Rule of Professional Conduct 1.6(a) would require that the tweeting lawyer first obtain her client’s informed consent. Rule 1.6(a) prohibits an attorney from revealing information relating to the representation of a client without the client’s informed consent. That prohibition applies to all information regarding the representation and is not limited to secret or confidential information, or information received from the client.  And even if an Illinois judge does permit deposition tweeting and a client is willing to consent, hopefully counsel will devote his time and energy at the deposition to adequately representing his client rather than to keeping his “followers” updated or entertained.

Monday, November 3, 2014

Election Ballot "Selfies"

In the late 1800s, New Hampshire enacted legislation prohibiting voters from showing their completed ballots to anyone for the purpose of proving how they voted. The statute sought to address the apparently widespread problem of politicians purchasing votes for their candidates. Effective September 1, 2014, the New Hampshire legislature updated the law to specifically prohibit persons from “taking a digital image or photograph of his or her marked ballot and distributing or showing the image via social media or by any other means.” The American Civil Liberties Union has filed suit claiming that the law violates the First Amendment.

Illinois does not have a similar statute. Section 29-9 of the Illinois Election Code makes it a Class 4 felony for a person to “knowingly mark[] his ballot or cast[] his vote on a voting machine or voting device so that it can be observed by another person.” Section 29-9 also prohibits anyone from knowingly observing a voter marking a ballot. And while a Peoria Journal Star article  indicates that it might be a violation of this statute to take a photograph of a completed ballot and then post it on social media, that interpretation seems strained.  The statute is clearly intended to prevent a person from standing in such proximity to a voter in the polling place so as to allow observation of the actual act of voting. The law does not mention displaying a completed ballot after the fact. Even a New York law that specifically prohibits showing a marked ballot to another has reportedly been interpreted by lawyers of the New York State Board of Elections as not prohibiting the posting of a ballot photograph on Facebook.

Whether legal or illegal under the Election Code, people might consider the advisability of displaying their voting record on the internet in perpetuity.

Friday, October 24, 2014

Don't get hit in the head with a brick!

I just signed up for my park district 35+ basketball league. All participants must sign a "Waiver and Release of all Claims and Assumption of Risk." The form contains the following language, under the heading "Warning of Risk":
"Basketball is intended to challenge and engage the physical, mental and emotional resources of each participant. Despite careful and proper preparation, instruction, medical advice, conditioning and equipment, there is still a risk of serious injury. All hazards and dangers cannot be foreseen. Certain risks include, but are not limited to, the acts of shooting, passing, and catching the ball, being struck by errant balls, being struck by another player's body, running, jumping, stretching, sliding, diving, collisions with other players and with stationary objects, acts of God, horseplay, unsportsmanlike conduct, dangerous playing conditions, poor floor conditions, defective equipment, equipment failure, premises defects, slips and falls, failure in supervision and officiating, and all other circumstances inherent to the sport of basketball. In this regard, it is impossible for the Naperville Park District to guarantee absolute safety."
Shooting?! I have been playing basketball since before I could walk, but I never knew there was such a huge risk from shooting the basketball. Now, when OTHER people shoot the basketball, there is a huge risk of being hit in the head with a brick, such as Ryan Holmes, Andy Honaker, Brian Moore, Dexter Evans, etc., but I never knew that shooting the ball by oneself was such a risk.  (Just kidding guys....just checking to see who's reading!!)