The $900 million payment error committed by Citibank cannot be fixed. The bank has lost the case it brought against several firms that received money as a result of the mistake.
Earlier today, 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.
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.
Today’s decision by the Court is a heavy hit for Citi.
The Judge explained that:
“At its heart, this case involves a clash between two basic intuitive principles. On the one hand, if one party sends money to another by mistake, the latter should generally be required to give it back. On the other hand, if one party owes money to another and pays that money back to the penny, the latter should generally be allowed to keep and use the money as it wishes, without fear that the former will develop a case of borrower’s remorse and claim that the payment was by mistake. How to reconcile these principles would be hard enough in the abstract”.
The Court concluded that the Non-Returning Lenders are entitled to keep the money that Citibank indisputably transferred by mistake on August 11, 2020. That is, the Court finds that the Non-Returning Lenders were not on notice of Citibank’s mistake when they received the transfers. The transfers matched to the penny the amount of principal and interest outstanding on the loan.
The accompanying notices referred to interest being “due,” and the only way in which that would have been accurate was if Revlon was making a principal prepayment. And it appears that no mistake of the size or nature of Citibank’s had ever happened before. Faced with these circumstances, the Non-Returning Lenders believed, and were justified in believing, that the payments were intentional.
“Indeed, to believe otherwise 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 nearly $1 billion would have been borderline irrational”, the Judge said.
Accordingly, the Court rules that the August 11th wire transfers at issue were “final and complete transactions, not subject to revocation.”
The Clerk of Court was directed to enter judgment in favor of the defendants and to close this case. That said, Defendants and their clients are not yet necessarily free to do with the money what they want. Given the possibility of appeal, Defendants agreed on the record at the close of trial that, in the event of a ruling in their favor on the merits, the temporary restraining orders currently in effect should remain in place until the parties could brief, and the Court could decide, what impact the ruling has on them.