Citibank has lost a court battle to reclaim almost $0.5 billion in money transfers that were wrongly sent to creditors of the struggling cosmetics company Revlon. Citibank mistakenly wired, in addition to Revlon's $7.8 million, almost $900 million of its own money as well.
Although some lenders repaid the money they were sent, at least ten fund managers failed to cooperate, prompting Citi to take legal action in an effort to reclaim its damages.
The law generally treats a failure to return money that is wired by mistake as unjust enrichment or conversion and requires that the recipient return such money to its sender.
The judgment called the debacle, "one of the biggest blunders in banking history."
As the New York Court of Appeals explained the exception: "When a beneficiary receives money to which it is entitled and has no knowledge that the money was erroneously wired, the beneficiary should not have to wonder whether it may retain the funds; rather, such a beneficiary should be able to consider the transfer of funds as a final and complete transaction, not subject to revocation."
Given a choice between assuming that Revlon had paid off the 2016 Term Loan early -- as borrowers sometimes do -- and assuming that Citibank or Revlon had mistakenly transferred over $900 million -- something no bank may have ever done before, it would have borderline irrational to choose the latter," Furman said.
In spite of the application of the discharge-for-value protection, the Court finds that Citibank is not entitled to its money back. Instead, the clients of the Defenders are entitled to retain the money, Judge Jesse M. Furman of the U.S. District Court in Manhattan wrote in his ruling.