Last week, Judge Furman ruled, following a bench trial, that some of the recipients of accidental wire payments of almost $900 million were entitled to keep the proceeds. Citibank, acting as the administrative agent for the loans, had intended to wire $7.8 million in interest payments to a series of lenders, but through an error had also sent an additional wire of almost $900 million – representing the entire principal amount of the underlying loan.
Judge Furman concluded that the lenders could keep the funds under New York’s “discharge-for-value” defense:
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. Under New York law (which applies here), however, there is an exception to this rule: The recipient is allowed to keep the funds if they discharge a valid debt, the recipient made no misrepresentations to induce the payment, and the recipient did not have notice of the mistake . . . .
[T]he evidence shows that the [defendants] believed — in good faith and with ample justification — that the payments they received were prepayments in full of the . . . loan. The real explanation for the payments — a banking error of perhaps unprecedented nature and magnitude — understandably did not occur to them until, nearly a day later, Citibank itself realized the error and sent notices demanding the money back.
Citi had cited to a large number of “colorful” emails and chats to suggest that the lenders were aware of the mistake, such as the following:
DFREY5: I feel really bad for the person that fat fingered a $900mm erroneous payment. Not a great career move . . . . JRABINOWIT12: certainly looks like they’ll be looking for new people for their Ops group DFREY5: How was work today honey? It was ok, except I accidentally sent $900mm out to people who weren’t supposed to have it DFREY5: Downside of work from home. maybe the dog hit the keyboard JRABINOWIT12: the song “Had a Bad Day” playing the background
But Judge Furman found that these communications cut against Citi’s position. The question of whether a defendant knew of the mistake is focused on when the payment is first received, and these emails and chats were only sent after Citi issued a “Recall Notice.” As Judge Furman explained, “the number and nature of these communications reinforce why the absence of such communications before the Recall Notices is so significant.”