Judge Blocks Citibank Offer to Recover $ 500 Million in Erroneous Payments to Revlon Lenders
A Manhattan federal judge ruled on Tuesday that 10 investment firms could keep more than $ 500 million that Citibank mistakenly transferred to them last year, in what he called a “banking error of a kind and of perhaps unprecedented magnitude “.
U.S. District Judge Jesse M. Furman of the Southern District of New York said in a 105-page review that asset managers believed in “good faith and with ample justification” that the transfers were actually repayments of a loan to cosmetics company Revlon Inc.
This belief, Furman said, allowed lenders to invoke the so-called “discharge for value” defense under New York banking law, which prevented Citibank from recovering payments on the basis of unjust enrichment.
Citibank, which acted as Revlon’s loan agent, intended to send the lenders an interest payment of $ 7.3 million on the loan, which was not due until 2023. As of instead, the bank wired $ 893 million of its own money, which was “the penny,” the amount that businesses were to receive on their loan.
Citibank blamed the blunder on human error, and some lenders chose to return the funds after Citibank realized their mistake. Some lenders, however, refused to confiscate the money, prompting Citibank to sue the errant transfers.
Citibank had argued that companies including Brigade Capital Management, HPS Investment Partners and Symphony Asset Management knew or should have known that the transfer was sent incorrectly and Revlon could not afford such a large payment.
Furman, however, rejected Citibank’s claims that a series of “red flags” should have warned lenders of the mistake. As surprising as a prepayment might have been, Furman wrote, this explanation was “much more plausible than the alternative explanation (although it turned out to be correct): that Citibank or Revlon had wired close to $ 1 billion. dollars by mistake “.
“Citibank is one of the most sophisticated financial institutions in the world. So the defendants and their clients could assume – and, in fact, assumed – that the bank had effective internal controls in place to avoid material errors, ”Furman said.
“In the face of these circumstances, unreturned lenders believed, and had reason to believe, that the payments were intentional. Indeed, to believe the opposite – to believe that Citibank, one of the most sophisticated financial institutions in the world, had made a mistake that had never happened before, to the tune of almost $ 1 billion – would have been wrong. the limit of irrationality, ”he declared.
The decision, which followed a virtual lawsuit in December, however, left in place an earlier order prohibiting companies from spending their money, given Citibank’s expected appeal.
Adam Abensohn, a Quinn Emanuel Urquhart & Sullivan partner who represented the lenders, said in a brief statement that he and his team were “extremely pleased with Judge Furman’s detailed and thoughtful decision.”
Citibank said in a statement that “we strongly disagree with this decision and intend to appeal.”
“We believe that we are entitled to the funds and will continue to pursue their full recovery,” the bank said.