In re Citibank August 11, 2020 Wire Transfers
- Jesse Furman
- 1:20-cv-06539
- U.S. District Court · Southern District of New York
- 3
In re Citibank Wire Transfers: Judge Furman ruled that lenders could keep mistaken payments because they reasonably believed Citibank intended them.
Citibank, the lenders who did not return the mistaken transfers, and the defendants covered by the judgment and continuing temporary restraining orders.
What happened
In re Citibank August 11, 2020 Wire Transfers concerned payments Citibank mistakenly sent to lenders. The transfers exactly matched the principal and interest owed on a loan, and the lenders believed the payments were intentional.
The court applied New York and Second Circuit decisions requiring it to consider whether the lenders knew about the mistake when they received the money. It found that they were not on notice because the payments and accompanying notices appeared to be an intentional loan prepayment.
Judge Furman held that the transfers were final and could not be revoked, entered judgment for the defendants, and closed the case. Temporary restraining orders will remain in effect unless the court orders otherwise.
The detailed version
- In re Citibank August 11, 2020 Wire Transfers · No. 1:20-cv-06539
- Jesse Furman
- Feb. 16, 2021
Background
Citibank transferred money to lenders on August 11, 2020, but the court found that Citibank made the transfers by mistake. The transfers matched, to the penny, the principal and interest outstanding on the loan. The notices accompanying the transfers referred to interest being "due," which the court said would have been accurate if Revlon were making a principal prepayment. Citibank recognized the error and notified the lenders within one day.
Some lenders did not return the money. The judgment refers to them as the "Non-Returning Lenders." The court stated that the lenders believed the payments were intentional and that the belief was justified because the transfers looked like a complete payment and a mistake of this size and nature had apparently never occurred before.
Legal standard
The court explained that New York Court of Appeals and Second Circuit decisions in Banque Worms controlled the dispute. Under those decisions, lenders who receive what appears to be payment of a genuine debt do not have to prove that they detrimentally relied on the payment in order to keep it. The relevant time for deciding whether a lender was on notice of a mistaken payment is when the payment is received.
Ruling
The court held that the Non-Returning Lenders were not on notice of Citibank's mistake when they received the transfers. It therefore concluded that the wire transfers were "final and complete transaction[s], not subject to revocation." Judgment was entered in favor of the defendants, and the case was closed.
The court also stated that the defendants and their clients were not necessarily free to use the money immediately. Because an appeal was possible, the defendants had agreed that the temporary restraining orders already in effect would remain in place while the parties briefed, and the court decided, what effect the ruling had on those orders. Unless the court ordered otherwise, the specified temporary restraining orders remained in effect by the defendants' consent.
Read the full 3-page opinion on CourtListener, the free public archive maintained by the Free Law Project.