Citi suffers another bitter blow in Court over $900M payment error
Citibank was dealt another heavy blow in Court today in the case about a $900 million payment error. Some three months after the New York Southern District Court ruled against the bank and in favor of the firms that refused to return the funds they got due to the payment mistake, Citi’s hopes that it could at least prevent the firms from using the money they received “by mistake” were dashed.
Let’s recall that the lawsuit concerns wire transfers from August 11, 2020 regarding Revlon’s 2016 Loan. In 2016, Revlon acquired Elizabeth Arden, Inc. The deal was partially facilitated by a seven-year, $1.8-billion loan. Citibank serves as the administrative agent and collateral agent for the loan.
On August 11, 2020, several months of accrued interest came due under a credit agreement. The interest payment was to be processed by Citibank in its capacity as administrative agent. No other amount was due at the time, and Revlon transferred no additional funds to Citibank.
The interest payment was processed by Citibank on August 11, 2020. Due to issues with the loan-processing system, the payment to each lender was on average more than 100 times the interest that was actually due.
This operational mistake caused Citibank to transfer approximately $900 million of its own money to parties that were not entitled to it. When Citibank discovered the mistake, it promptly asked the recipients to return its money. Some recipients did return the money, but some did not. The bank brought the lawsuit in an attempt to get the money back.
On February 16, 2021, Judge Jesse M. Furman of the New York Southern District Court signed an order stating that the payments Citibank made on August 11, 2020, were final. Put otherwise, the firms that got the money Citibank sent will not have to return it.
As Citi appealed from the ruling, it stated that it wants the freeze of funds to remain in place according to the same terms and conditions as the existing restraining orders. The defendants disagreed. The fight shift edto access to the money allegedly sent by mistake.
Now, Citi’s attempt to maintain the status quo, that is, to keep the funds sent by mistake frozen, has been nixed by the District Court.
Today, Judge Jesse M. Furman of the New York Southern District Court signed an opinion and order denying Citi’s motion for an injunction pending appeal. Put otherwise, the entities that received the money due to Citi’s mistake will be able to access the money and use it as they see fit.
The Judge noted Citibank’s request that, if its motion were denied, the Court “extend the existing temporary restraining orders (TROs) until the Second Circuit decides whether to issue its own injunction pending appeal. Accordingly, assuming Citibank moves for a stay from the Second Circuit within the next seven days, the TROs will remain in effect pending a ruling on that motion. Absent such a motion within the next seven days, the TROs will no longer be in effect.
This means that Citi’s actions in the next seven days, as well as the Second Circuit ruling will be decisive.