In an opinion last week, the Second Circuit, reversing a decision by Judge Furman (covered here), held that Citibank could sue to recoup almost $500 million that it had sent, in error, to certain lenders of a struggling borrower, Revlon.

Citibank was the administrative agent for the loans, and, based on a technical error, wired the full principal balance (nearly $900 million) before the maturity date. Judge Furman applied the “discharge for value” defense to conclude that even a mistaken payment need not be returned where it pertains to a valid debt.

The Second Circuit concluded, however, that the defense is inapplicable so long as the recipient is on “inquiry notice” of the mistake. Inquiry notice was shown by the fact that there was no prior notice of any loan repayment, as the transaction documents required, and by the fact that Revlon was not expected to have the funds to repay:
Continue Reading Second Circuit: Citibank Can Recoup $500 Million Accidental Debt Repayment

Last week, Judge Furman ruled, following a bench trial, that some of the recipients of accidental wire payments of almost $900 million were entitled to keep the proceeds. Citibank, acting as the administrative agent for the loans, had intended to wire $7.8 million in interest payments to a series of lenders, but through an error had also sent an additional wire of almost $900 million – representing the entire principal amount of the underlying loan.

Judge Furman concluded that the lenders could keep the funds under New York’s “discharge-for-value” defense:
Continue Reading Judge Furman: Lenders Can Keep Accidental Loan Repayment Arising from Bank Error of “Perhaps Unprecedented Nature and Magnitude”