(Diego M. Radzinschi/ALM)
A federal appeals court has cleared Mayer Brown of a proposed class action accusing the firm of negligence and malpractice over a mistake made in 2008 in connection with a $1.5 billion loan extended by JPMorgan & Co. to General Motors Corp.
Ruling on Wednesday, the U.S. Court of Appeals for the Seventh Circuit found that Mayer Brown couldn’t be held liable for putative class claims brought against the firm by a group of pension funds that participated in the GM loan as syndicate lenders.
“This 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,” Judge David Hamilton wrote in the opening of his opinion for a three-judge panel. “We agree … that Mayer Brown did not owe a duty to plaintiffs.”
The error at the heart of the lawsuit came in 2008 and started with a Mayer Brown associate and two paralegals, although it later went undetected by partners at Mayer Brown—which represented GM in the loan transaction—and at Simpson Thacher & Bartlett, which counseled JPMorgan, the administrative agent on the loan. In light of the uncaught mistake, a $1.5 billion term loan to GM was accidentally stripped of its secured status.
The issue was later detected and caused headaches when GM filed for Chapter 11 bankruptcy in 2009, exposing JPMorgan and the lenders to clawback claims from a group of unsecured creditors in the GM bankruptcy. In July 2015, pension funds that served as lenders filed lawsuits against JPMorgan and Simpson Thacher in Manhattan federal court and a parallel suit also brought against Mayer Brown in Chicago federal court. The funds accused the two law firms of negligence and malpractice.
The case against JPMorgan and Simpson Thacher was voluntarily dismissed just a few months later, in October 2015, according to a joint stipulation from the time. That filing didn’t provide any detail on why the two sides had agreed to resolve the case.
In the Mayer Brown case, the pension funds argued that the firm owed them a “duty of due care” and breached that duty, according to Wednesday’s Seventh Circuit ruling. A federal district court dismissed the case in June 2016 because the pension funds were effectively adversaries to GM during the loan transaction and, as a result, weren’t Mayer Brown’s clients.
On appeal to the Seventh Circuit, the pension funds pursued a few different theories to try to pin blame on Mayer Brown, including an argument that Mayer Brown represented JPMorgan in other matters, separate from the GM loan transaction. That would mean, in effect, that JPMorgan was not a “third-party non-client,” as the lower court found, according to court documents.
But the Seventh Circuit was unmoved by those arguments.
“Plaintiffs argue that Mayer Brown breached a duty it owed to JPMorgan as a client in other matters, despite the fact that the alleged harm resulted from a matter unrelated to the matters in which Mayer Brown actually represented JPMorgan,” Hamilton wrote. “That is an astonishing claim.”
Michelle Blauner of Shapiro Haber & Urmy, who argued at the Seventh Circuit on behalf of the investor plaintiffs, didn’t immediately respond to a request for comment on Friday.
Stephen Novack of Novack and Macey, who argued the appeal for Mayer Brown, said in an email, “My client is pleased that the Seventh Circuit has affirmed the lower court’s decision.”