Down to the Wire: Citibank Wins Big in Revlon Appeal

September 13, 2022


In a long-anticipated decision, on September 8, 2022, the United States Court of Appeals for the Second Circuit (the “Second Circuit”) vacated the judgment of the Southern District of New York (the “District Court”) in, In re Citibank August 11, 2020 Wire Transfers and remanded the case for further proceedings.1 The Second Circuit held that the case did not fall within the scope of the discharge-for-value defense and that the Defendants were not “shielded” from Citibank’s claims for restitution.


This case is the latest decision in protracted litigation involving hundreds of millions of dollars in erroneously wired payments to lenders involved in a $1.8 billion syndicated seven-year loan (the “Loan”) to Revlon, Inc. (“Revlon”). Citibank served as the Administrative Agent responsible for collecting interest and principal payments from Revlon and transmitting the payments to the various loan managers.

On August 11, 2020, Revlon directed Citibank to execute a rollup transaction with certain of its lenders that involved payment of accrued interest to all lenders. In administering the payments, Citibank mistakenly wired the full amount of Revlon’s outstanding principal balance three years before the repayment on the Loan was due. While many lenders who received the mistaken payments returned the funds to Citibank, a group of ten asset managers whose clients received a roughly $500 million payment refused to return the funds.2 Thus, Citibank brought suit to recover the funds.

On February 16, 2021, the District Court held that the Defendants did not have to return the erroneous payments based on the discharge-for-value defense. The District Court reasoned that because the lenders were not on constructive notice of the agent’s mistake at the moment they received the wire transfers and did not make any misrepresentations to receive the funds, they were entitled to the discharge-for-value defense. Section 14 of the Restatement of Restitution, which is adopted by the New York Court of Appeals, defines the discharge-for-value defense as when:

[a] creditor of another or one having a lien on another’s property who has received from a third person any benefit in discharge of the debt or lien, is under no duty to make restitution therefor, although the discharge was given by mistake of the transferor as to his interest or duties, if the transferee made no misrepresentation and did not have notice of the transferor’s mistake.

In holding that the Defendants were entitled to the discharge-for-value defense, the District Court relied on Banque Worms v. BankAmerica International and Section 14 of the Restatement of Restitution to not require the outstanding debt be “due” when it is received and that constructive notice of the mistaken payment at the moment it is received is required to “defeat” the discharge-for-value defense.  The District Court, however, did not decide on a prevailing formulation of the constructive notice standard.3

The Second Circuit’s Decision

The Second Circuit vacated the District Court’s decision and remanded the case for further proceedings, holding that the instant case did not fall within the scope of Banque Worms and that the Defendants could not avail themselves of the discharge-for-value defense.

First, the Second Circuit rejected the Defendant’s argument that they were entitled to the discharge-for-value defense because the Defendants were on inquiry notice of the erroneous payments. In rejecting the District Court’s ruling that constructive notice4 is the applicable standard, the Second Circuit held that the discharge-for-value does not “shield the beneficiary of a mistaken transfer from claims for restitution if the beneficiary is on inquiry notice of the mistake.” In supporting this conclusion, the Second Circuit pointed to the various recall notices that Citibank sent to the lenders which explained that the funds had been transmitted erroneously. The Second Circuit noted that the facts were “sufficiently troublesome that a reasonably prudent investor would have made reasonable inquiry [after receiving the Recall Notices], and a reasonable inquiry would have revealed that the payment was made in error.”

Second, the Second Circuit rejected the Defendant’s arguments that they were entitled to the erroneous payments under Banque Worms because the Defendants were not entitled to money when it was received, as Revlon’s debt was not due for another three years. The Second Circuit rejected the District Court’s interpretation of Banque Worms and read the case to require that the transferee be entitled to the funds when received to avail themselves of the discharge-for-value defense. The Second Circuit noted further that Banque Worms makes clear that the “rule operated in favor of a recipient of a mistaken payment who was entitled to the money.”

In Banque Worms, a bank mistakenly transferred nearly $2 million to a creditor’s agent.  Unlike the Revlon loan, the underlying loan in Banque Worms matured on the erroneous payment date, and the bank notified the recipient that the funds were sent in error nearly two hours after the payment. Here, however, the Defendants were not entitled to receive payment for the loan for another three years. In support of this conclusion, the Second Circuit stated that “every precedential ruling on which the Banque Worms opinion relied in support of denying restitution of a mistaken payment involved present entitlement of the payee to the money it received” and that the discharge-for-value rule was for “circumstances in which the money was “due” to the recipient of the funds.”

Lastly, the Second Circuit concluded that in “New York, a creditor may not invoke the discharge-for-value defense unless the debt at issue is presently payable.” The Court noted that the cases cited as precedent for such requirement and the precedent’s “continued espousal of New York’s general rule that mistaken payments should be returned” supported such a conclusion. As Citibank mistakenly made a payment that was not due for another three years, the Defendants were not entitled to avail themselves of the discharge-for-value defense “as a shield against Citibank’s claims for restitution.”


Over the past year, the District Court’s ruling has had a major impact on the lending industry and the capital markets generally, but the Second Circuit’s reversal can be seen as narrowing the discharge-for-value defense to a very specific set of facts. Namely, that the debt must be presently payable and the recipient must not be on inquiry notice of the mistaken payment. While the Second Circuit’s opinion may bring things back to the old status quo, administrative agents and paying agents should not yet throw away the page in their notebooks that contains the now market adopted erroneous payment provisions, as those provisions are likely here to stay irrespective of the Second Circuit’s ruling.

If you would like further information about this or any other matter, please contact any member of the Global Bank and Institutional Finance & Restructuring Group.


1 520 F. Supp. 3d 390 (S.D.N.Y. 2021)

2 In re Citibank August 11, 2020 Wire Transfers, 520 F. Supp 3d at 396.

3 The Defendants argued that constructive notice means that they “reasonably should have known . . . that the funds had been sent by mistake.” On the other hand, Citibank argued that inquiry notice was the standard which would mean that “the facts known to the defendants would make it prudent to conduct further inquiry that would reveal the mistake.”

4 Under New York Law, Inquiry Notice means:

One who has reasonable grounds for suspecting or inquiring ought to suspect, ought to inquire, and the law charges him with the knowledge which the proper inquiry would disclose . . .. If a person has knowledge of such facts as would lead a fair and prudent man, using ordinary thoughtfulness and care, to make further accessible inquiries, and he avoids the inquiry, he is chargeable with the knowledge which by ordinary diligence he would have acquired. Knowledge of facts, which, to the mind of a man of ordinary prudence, beget inquiry, is actual notice, or, in other words, is the knowledge which a reasonable investigation would have revealed. Id. at 42.