(Bloomberg) — Some of Revlon Inc.’s creditors who were inadvertently wired more than $900 million from Citigroup Inc. asked a federal appeals court for a rehearing after ruling they needed to return the money.
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The lenders — which include Brigade Capital Management LP, HPS Investment Partners LLC and Symphony Asset Management — petitioned the U.S. Second Circuit Court of Circuit Thursday for a larger panel of judges to review a three-member panel’s decision this month. That decision overturned a lower court ruling that allowed them to keep $504 million that the bank erroneously transferred to them in 2020. Some of the lenders had repaid the money.
The panel’s decision in a case that became a talking point on Wall Street was a redeeming victory for Citigroup’s main banking unit in its efforts to redeem the embarrassing mistake that forced the bank to explain to regulators how such a failure could have happened was.
The litigation revolves around the “value relief” introduced by a 1991 New York court ruling that allows creditors to withhold funds sent to them in error if they do not realize the payment was a mistake. The lenders said the appellate panel’s decision “unsettles previously established New York law, leaving parties involved in financial transactions only to wonder whether New York state courts will accept this court’s newly drafted exceptions to the dismissal rule.”
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The trial court was right from the start, said Robert Loigman, an attorney for the lenders.
“New York law states that if a bona fide creditor receives payment on an outstanding loan without knowing that the payment was made in error, he has no obligation to return the money,” Loigman said in an emailed statement. “That’s what happened here, and we believe that at least the New York State courts should decide for themselves whether the additional requirements announced in this appeal should apply.”
Citigroup said it was the Appellate Body that made the right decision.
“The Second Circuit’s unanimous and highly detailed decision is supported by strong legal analysis and reinforces our longstanding belief that these erroneously transferred funds should be returned for both legal and ethical reasons,” spokeswoman Danielle Romero-Apsilos said in an E -Mail statement.
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Elliott Stein, senior litigation analyst at Bloomberg Intelligence, said he would be surprised if the appeals court granted the lenders’ request for an en banc, or full judicial review.
“I don’t see a majority of the 2nd Circuit judges disagreeing with the panel,” Stein said. “And while the court would normally consider reviewing this en banc, given the importance of the matter, it is unlikely that, given Revlon’s bankruptcy proceedings, it would wish to extend the case any further.”
Citigroup, which acted as administering agent on the loan in question, attempted to remit an interest payment to Revlon’s lenders, but instead inadvertently paid off all of the loan’s creditors. He managed to recover nearly half the funds, but others refused to return their amounts, saying Revlon was already in default and should have paid them back.
The case is Citibank NA v Brigade Capital Management LP, 21-487, 2nd US Circuit Court of Appeals (Manhattan).
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(Attorney’s statement added to lenders in second section.)
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