Citi asks appeals court to reverse ruling on errant US$500m Transfer

[METUCHEN] Citigroup urged a federal appeals court to overturn a ruling allowing a group of disgruntled Revlon creditors to keep more than a half-billion dollars they were accidentally sent by the bank last summer.

The bank said in papers filed Thursday that the court should reverse US District Judge Jesse Furman's surprise ruling, saying the February decision "sent shockwaves through the markets and generated outcry across the financial industry."

The ruling expanded "far beyond historical bounds" an exception to an industry standard that the recipient of mistaken transfers should return the money, Citi argued.

The bank said the judge mistakenly found that the so-called discharge-for-value defense - allowing an entity to keep funds that were accidentally sent if it had no notice they were sent in error - "applies regardless of whether a creditor is entitled to the funds when they arrive."

"And - even though defendants had every reason to suspect a mistake had occurred - the district court held that a reasonably prudent inquiry would not have led defendants to discover that Citibank's payment was a mistake," the bank said in a 60-page filing with the federal appeals court in Manhattan.

"These errors led the district court to the inequitable result below: defendants' clients received over US$500 million three years ahead of schedule from Citibank, which owed no money to any of the lenders on Revlon's loan."

Citi also pointed out that the discharge-for-value defense recognises that "(w)hen 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."

This ensures that "business operations" do not face a level "of risk and uncertainty which no enterprise could bear" by subjecting routine, expected transactions to potential recall, the bank argued.

"All of Citi's arguments are rehashes of arguments considered and thoughtfully rejected by the District Court and in fact, prior thereto, by New York's highest court and, consistent with the New York court's ruling, the Court of Appeals for the Second Circuit," said Benjamin Finestone, a lawyer for Quinn Emanuel Urquhart & Sullivan LLP representing the creditors.

Oral arguments in the appeal will be held in August or September.

BLOOMBERG