Some of the
Revlon Inc. creditors who were accidentally sent more than $900 million by
Citigroup Inc. asked a federal appeals court for a rehearing, after it ruled that they had to give the money back.
The lenders — which include
Brigade Capital Management LP,
HPS Investment Partners LLC and
Symphony Asset Management — asked the 2nd US Circuit Court of Appeals on Thursday to have a larger group of judges review the decision by a three-judge panel this month. That decision reversed a lower-court ruling that they could keep $504 million the bank mistakenly wired them in 2020. Some of the lenders had given the money back.
Read More: Citigroups $500 Million Blunder Ends in Victory for the Bank
The panels decision, in a case that became the talk of Wall Street, was a redemptive win for Citigroups main banking unit in its efforts to redress the embarrassing blunder, which forced the bank to explain to regulators how such a failure was possible.
Discharge for Value
The legal dispute turns on the discharge for value defense, established by a 1991 New York court ruling that creditors can keep money sent to them in error if they didnt realize the payment was a mistake. The lenders said the appellate panels decision unsettled previously established New York law, such that parties in financial transactions can only wonder whether the New York state courts will adopt this courts newly crafted exceptions to the discharge-for-value rule.
Citigroup said the panel got it right.
The Second Circuits unanimous and highly detailed decision is supported by strong legal analysis and reaffirms our long-held belief that these mistakenly transferred funds should be returned as a matter of law, as well as ethics, spokeswoman Danielle Romero-Apsilos said in a statement.
Lawyers for the lenders didnt immediately respond to messages seeking comment.
Bloomberg Intelligence senior litigation analyst Elliott Stein said he would be surprised if the appeals court grants the lenders request for an en banc, or fuller court, review.
I cant see a majority of judges on the 2nd Circuit disagreeing with the panel, Stein said. And even if the circuit would normally consider reviewing this en banc in light of the importance of the issues, its unlikely to want to lengthen the case even more in light of Revlons bankruptcy proceedings.
Read More: Citi Loses Bid to Recoup Massive Mistake in Surprise Ruling
Citigroup, which was acting as administrative agent on the loan in question, was trying to send an interest payment to Revlon lenders but instead accidentally paid off all the creditors on the loan. It managed to recover almost half the funds, but others refused to give their sums back, saying Revlon had already defaulted and should have repaid them.
The case is Citibank NA v. Brigade Capital Management LP, 21-487, 2nd US Circuit Court of Appeals (Manhattan).
With assistance by Jennifer Surane, and Katherine Doherty