Citigroup Inc. is entitled to recover about $500 million of its own money, which it accidentally transferred to creditors of Revlon Inc. three years earlier, the US Court of Appeals said Thursday.
Overturning the lower court decision, the 2nd U.S. Circuit Court of Appeals in Manhattan said it would be wrong to give creditors “a huge windfall” by allowing them to keep the money to Citigroup and that they were warned that the wiring was a mistake.
The case highlights the risks in the banking industry, which transfers about $5.4 trillion daily.
Citigroup, acting as Revlon’s loan agent, intended to pay $7.8 million in interest on a loan to billionaire Ronald Perelman’s failed cosmetics company in August 2020, but instead paid off the $894 million loan when it shouldn’t have been repaid until 2023.
Citi sues Revlon over lender status after $900 million mistake
Some lenders returned what they received, but 10 asset managers, including Brigade Capital Management, HPS Investment Partners and Symphony Asset Management, whose clients included Revlon lenders, did not.
They said that Citigroup paid exactly what was due, and they had no reason to believe that a sophisticated bank could be so horribly wrong. They also noted that Perelman had previously bailed out Revlon.
In February 2021, U.S. District Judge Jesse Furman in Manhattan ruled against Citigroup after a non-jury trial, stating that the prepayment was “a cost payment”.
But in a 3-0 decision on Thursday, District Judge Pierre Leval dismissed that conclusion.
“Here, a debt that Citibank mistakenly made a payment on is not due for another three years,” Leval wrote in the 93-page conclusion. “Defendants cannot invoke the redeem-by-value rule as a defense against Citibank’s restitution claims.”
Lawyers for Revlon’s creditors did not immediately respond to requests for comment.
Citigroup praised this decision.
“Today’s decision confirms our long-standing belief that these erroneously transferred funds must be returned legally and ethically,” Citigroup said in a statement. He also said he took steps to avoid a repeat.
Industry groups have warned that a decision against Citigroup could expose banks to excessive liability risks and destabilize the US syndicated loan market by about $1.2 trillion.
Revlon filed for Chapter 11 creditor protection on June 15, and Thursday’s decision could see asset managers get involved in restructuring talks.
Shares in the New York-based company fell about 10 percent within minutes of Citibank’s decision, but made up for those losses.
Citigroup appealed its appeal on September 29 last year.
Leval said it took the court a long time to reach a decision, in part because it originally planned to go to New York State’s highest court for guidance on a complex case before deciding it would take even longer and that Citigroup’s arguments were convincing.
“Finding the best match between the goals of speed and legal validity is not always easy,” Leval wrote.
The fact In re Citibank August 11, 2020 Wire Transfers, 2nd U.S. Circuit Court of Appeals, no. 21-487.
Do you want to be in the know?
Get the latest insurance news
sent directly to your inbox.