Last year the District Court of the Southern District of NY dismissed a claim by Citibank to recover an $893 million mistaken payment. In my posting I commented ‘they go fast in US federal courts!’

Yes and no. Earlier this month, the 2d CCA allowed the appeal unanimously, although with some disagreement about the proper reasoning. Park J notes “In my view, this is a straightforward case that many smart people have grossly overcomplicated.” and registers a complaint that the court has taken too long to issue its judgment.

The Court cites some scholarship including both Restatements and also Maytal Gilboa and Yotam Kaplan, “The Cost of Mistakes” (2022) 122 Colum. L. Rev. F. 61.

The judgement is available here. This transcript however has the strange feature that it does not tell you where one judgment begins and the next ends, nor who wrote which (except by inference). By looking at Lexis I can tell you that you should read “Leval J” at the very beginning, with whom Sack J agreed; then when you get to “Addendum” after “Conclusion”, read Leval J again (who alone wrote the addendum); and then when you see a paragraph that begins, “When people receive money by mistake, the law usually requires them to give it back.” this is the beginning of the judgment of Park J.

Can’t wait to see what the bill is for pre-judgment interest.

Lionel

In August, Fred Wilmot-Smith mentioned a US case in which Citibank made enormous mistaken payments to creditors of Revlon, on Revlon’s behalf—money the creditors were owed by Revlon. It seems they had wanted to pay an instalment of interest, but paid the whole debts with interest. The creditors would not have otherwise been fully paid because of Revlon’s insolvency. The defendant creditors relied on the articulation of the ‘discharge-for-value’ defence that was articulated in the 1991 decision of the NYCA in the memorably named case of Banque Worms v BankAmerica.

As mentioned on the ODG, Citibank’s action to recover has now been dismissed by the SDNY, applying Banque Worms and with reference to both Restatements of Restitution:  In re Citibank August 11, 2020 Wire transfers.

The judgment is 105 pages but the headings of the table of contents show that the judge concluded that the creditors satisfied the defence. One heading is “Defendants Credibly and Persuasively Testified that They Reasonably Believed the Payments Were Intentional Prepayments of the 2016 Term Loan”. It was apparently more rational to believe that the loans were paid early than that a bank had mistakenly transferred over $900 million: ‘something no bank may have ever done before (and may never do again)’.

Enjoy the chat messages among members of the industry that are quoted at pp. 73 ff following the discovery of the mistake, e.g. ‘Downside of work from home. Maybe the dog hit the keyboard.’

Payment was made on 11 August and the trial decision has already been rendered..they go fast in US federal courts!

Lionel