What could be worse than a $900 million error? A $900 million error one cannot fix.
Citibank has been engulfed in a legal battle with a number of entities that were allegedly overpaid as a result of an operational error and now refuse to return the funds. The latest document filings with the New York Southern District Court reveal that these entities, including Brigade Capital Management, LP, are fighting Citibank’s claims.
The payment concerned Revlon’s 2016 Loan. Let’s recall that, in 2016, Revlon acquired Elizabeth Arden, Inc. The deal was partially facilitated by a seven-year, $1.8-billion loan. Brigade currently holds a portion of the loan. The Credit Agreement governs the term loans held by Brigade. 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. Brigade was one of the lenders that received an overpayment.
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.
According to Citibank, Brigade has unlawfully attempted to capitalize on the mistaken overpayment. It has refused to return its share and instead allegedly converted approximately $175 million for its own use.
In an e-mail to Citibank, Brigade gave the following rationale for refusing to return the funds:
“It is not at all clear that the funds were sent as a result of “clerical mistake”. Moreover, whether sent in error or not, the funds were sent for the credit and account of Revlon such that the Credit Agreement provides for setoff. Additionally, the law may provide for a discharge for value of the loans, upon receipt of the funds, regardless of any error”.
The response is largely incomprehensible, Citibank says. Among other things, the payments were accompanied by calculation statements that showed the correct (and substantially smaller) amount as the “Total Due.”
Brigade’s refusal to return money to which it is not entitled is unlawful, Citibank argues.
Earlier this week, Brigade submitted a response to Citibank’s complaint at the Court.
Brigade admits that Citibank transferred approximately $900 million to the 2016 Revlon Term Loan Lenders. Further, Brigade says it lacks knowledge or information sufficient to form a belief as to the allegation that Citibank’s transfer was intended to pass through an interest payment from Revlon and therefore denies the allegation.
“The 2016 Revlon Term Loan Lenders were creditors of Revlon, Plaintiff made voluntary and/or mistaken electronic payments to them in discharge of that debt, and the 2016 Revlon Term Loan Lenders and Brigade did not make misrepresentations or have notice of Plaintiff’s alleged mistake. Therefore, neither the 2016 Revlon Term Loan Lenders nor Brigade is under a duty to make restitution therefor”, Brigade states.
Plaintiff’s damages, if any, were caused by persons other than Brigade, including Plaintiff itself, according to the defendant.
Brigade argues that Citibank’s claim for conversion is “frivolous, unreasonable, and groundless, entitling Brigade to an award of attorneys’ fees and costs for defending against the claim”.