JPMorgan Chase & Co. lost a court case on Wednesday with unsecured creditors of the bankrupt predecessor of General Motors over a $1.5 billion loan.
The appeals court ruled in Manhattan that, even though it wasn't JPMorgan's intention, it authorized its law firm to file papers seven years ago that unsecured a lot of a loan to the Detroit automaker.
The difference was big since the automaker soon filed for bankruptcy. During GM's bankruptcy, secured lenders were repaid, while unsecured ones lost out big time. The paperwork error might now allow creditors left unpaid from GM's bankruptcy to ask the bank and its syndicated to return the money they collected when the loan was paid off, according to Reuters.
The ruling reverses a decision from 2013 by U.S. Bankruptcy Judge Robert Gerber. The judge said that, while it was "tempting" to force lenders to live with their mistakes, he determined JPMorgan hadn't expressly authorized the termination of the loan's security interest.
The unsecured creditors appealed to the U.S. Court of Appeals for the Second Circuit in Manhattan, which reversed the initial ruling. A three judge panel determined that the bank had effectively given its authorization, even if it was by mistake.
JPMorgan managing director responsible for the $1.5 billion loan looked over the security interest along with the law firm JPMorgan hired for the paperwork, Simpson Thacher & Barlett.
JPMorgan said after the announcement that it will review the decision and consider all of its options.
"We're still reviewing the decision and looking at our options," Andrew Gray, a spokesman for JPMorgan, said in an interview Wednesday with The Detroit News.
The case is Official Committee of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank NA, 13-2187, U.S. Court of Appeals for the Second Circuit (Manhattan).
JPMorgan closed Wednesday's trading at $55.89, up $0.18 on a volume of 21.84 million shares, according to Reuters.
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