In re: Citibank August 11, 2020

21-487
In re: Citibank August 11, 2020
UNITED STATES COURT OF APPEALS 1
FOR THE SECOND CIRCUIT 2
3
August Term, 2021 4
5
(Argued: September 29, 2021 Decided: September 8, 2022) 6
7
Docket No. 21-487 8
9
10
_____________________________________ 11
12
C ITIBANK , N.A., 13
14
Plaintiff-Appellant, 15
16
v. 17
18
B RIGADE C APITAL MANAGEMENT, LP, HPS INVESTMENT P ARTNERS, LLC, 19
SYMPHONY ASSET MANAGEMENT LLC, BARDIN HILL L OAN MANAGEMENT 20
LLC, GREYWOLF L OAN MANAGEMENT LP, ZAIS GROUP LLC, ALLSTATE 21
INVESTMENT M ANAGEMENT C OMPANY, M EDALIST PARTNERS C ORPORATE 22
FINANCE LLC, T ALL T REE INVESTMENT M ANAGEMENT LLC, NEW 23
GENERATION ADVISORS LLC, 24
25
Defendant-Appellees, 26
27
INVESTCORP C REDIT M ANAGEMENT US LLC, HIGHLAND C APITAL 28
M ANAGEMENT FUND ADVISORS LP, 29
30
Defendants. 31
_____________________________________ 32
33
Before: LEVAL, SACK, and PARK, Circuit Judges. 34

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1
2
Plaintiff Citibank, N.A, the Administrative Agent for the lenders on 3
a $1.8 billion seven-year syndicated loan to Revlon Inc., appeals from the 4
judgment of the United States District Court for the Southern District of 5
New York (Jesse M. Furman, J.) in favor of Defendants, the Loan 6
Managers for certain lenders, who received and refused to return 7
Citibank’s accidental, unintended early repayment of the loan. The 8
district court, after a bench trial, relying on Banque Worms v. BankAmerica 9
International, 570 N.E.2d 189 (N.Y. 1991), ruled that the rule of discharge- 10
for-value provided a defense against Citibank’s suit for restitution. Held, 11
because the Defendants had notice of the mistake and because the lenders 12
were not entitled to repayment at the time, the rule of Banque Worms does 13
not protect the Defendants. The judgment is VACATED and the case is 14
REMANDED to the district court. 15
Judge Park concurs in a separate opinion. 16
17
18
19
NEAL KUMAR K ATYAL (Sean Marotta, 20
Reedy C. Swanson, Erin Chapman, 21
Nathaniel A.G. Zelinsky, Hogan 22
Lovells US LLP, Washington D.C.; 23
Nicole A. Saharsky, Mayer Brown 24
LLP, Washington D.C.; Matthew D. 25
Ingber, Christopher J. Houpt, Mayer 26
Brown LLP, New York, N.Y., on the 27
brief), Hogan Lovells US LLP, 28
Washington, D.C., for Plaintiff- 29
Appellant. 30
31
K ATHLEEN M. SULLIVAN (Adam M. 32
Abensohn, David M. Cooper, 33
Benjamin I. Finestone, Robert S. 34
Loigman, Quinn Emmanuel Urquhart 35

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& Sullivan, LLP, New York, N.Y., on 1
the brief), Quinn Emmanuel Urquhart 2
& Sullivan, LLP, Los Angeles, CA, for 3
Defendant-Appellees. 4
5
LEVAL, Circuit Judge: 6
This case raises the question whether, under New York law, the 7
recipients of an accidental, unintended payment of approximately $500 8
million were required, under the circumstances, to return the payment. 9
Citibank N.A. is the Plaintiff-Appellant. Citibank served as 10
Administrative Agent for the lenders of a $1.8 billion syndicated seven- 11
year loan to Revlon, Inc. (“the Loan” or “the Debt”), with responsibility 12
to collect interest and principal payments from Revlon and transmit them 13
to the Loan Managers for the lenders. Citibank appeals from the 14
judgment of the United States District Court for the Southern District of 15
New York (Jesse M. Furman, J.) in favor of the Defendant-Appellees,1 16
who were Loan Managers for lenders of the majority of the loan. 17
1 Defendant-Appellees are Brigade Capital Management, LP (“Brigade”),
HPS Investment Partners, LLC (“HPS”), Symphony Asset Management
LLC (“Symphony”), Bardin Hill Loan Management LLC (“Bardin Hill”),

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In undertaking to transmit accrued interest to the lenders’ Loan 1
Managers, Citibank had made a ministerial error in administering a 2
computer program, which caused the unwitting transfer by wire of 3
Citibank’s funds in the full amount of Revlon’s outstanding principal 4
balance, three years before Revlon’s loan repayment was due, and, at a 5
time when, because Revlon was understood to be deeply insolvent, loan 6
participations were trading at 20% to 30% of the face amount. The next 7
day, when Citibank discovered that the accidental transmission had 8
occurred, it demanded the return of the portion representing principal. 9
Upon the Defendants’ refusal, Citibank brought this action for restitution. 10
Based on a ruling of the New York Court of Appeals in Banque 11
Worms v. BankAmerica International, 570 N.E.2d 189 (N.Y. 1991), the district 12
court decided that Defendants were not obligated to return the money. In 13
Greywolf Loan Management LP (“Greywolf”), ZAIS Group LLC
(“ZAIS”), Allstate Investment Management Company (“Allstate”),
Medalist Partners Corporate Finance LLC (“Medalist”), Tall Tree
Investment Management LLC (“Tall Tree”), and New Generation
Advisors LLC (“New Generation”).

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re Citibank August 11, 2020 Wire Transfers, 520 F. Supp. 3d 390 (S.D.N.Y. 1
2021). In Banque Worms, the Court of Appeals had ruled in favor of a 2
lender’s right to retain a bank’s mistaken repayment of a loan to the 3
bank’s client that was due and payable. Id. at 190-91. The Court of 4
Appeals had explained that its ruling was based on the American Law 5
Institute’s “discharge-for-value” rule, published at Section 14 of the 6
RESTATEMENT (FIRST) OF RESTITUTION (Am. Law Inst. 1937) (“First 7
Restatement”). The rule of Section 14 specified circumstances that excuse 8
the recipient of a payment made in discharge of a debt pursuant to a 9
mistake of the payor as to his rights or duties from the customary 10
obligation to return mistaken payments. 11
We conclude that that this case does not fall within the scope of the 12
New York Court of Appeals’s Banque Worms ruling. We accordingly 13
VACATE the judgment of the district court and REMAND this case to the 14
district court for further proceedings consistent with this opinion. 15

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BACKGROUND 1
The great majority of the complex facts are not in dispute. This 2
recitation of the facts is largely taken, nearly verbatim, from Judge 3
Furman’s clear, fastidious, and scholarly exposition.2 4
A. The 2016 Loan 5
In 2016, pursuant to a credit agreement, Revlon took out the seven- 6
year, $1.8 billion syndicated, collateralized Loan. In re Citibank, 520 F. 7
Supp. 3d at 397. 8
Citibank serves as the Administrative Agent for the lenders in 9
administering the Loan. Its duties, set forth in the Amended Loan 10
Agreement (“the Agreement”), included receipt of payments of principal 11
and interest from Revlon to be transmitted to the lenders (the 12
“Debtholders” or “Lenders”). Agreement, § 2.8. 13
The Defendants are Loan Managers for those Debtholders that 14
refused to return the mistakenly transmitted funds. The outstanding 15
2 The few changes made are not intended to alter the substance of Judge
Furman’s findings.

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principal and accrued interest on these Debtholders’ loans was 1
$558,558,375.74 on August 11, 2020, the date of Citibank’s mistaken 2
payment. In re Citibank, 520 F. Supp. 3d at 398. 3
The Loan was not payable for three more years – until September 7, 4
2023 (seven years after the closing date). That maturity date was subject 5
to acceleration if any notes representing an unsecured senior debt (a set 6
of notes due in early 2021 – the “2021 Notes”) remained outstanding on 7
November 16, 2020, in which case the Loan would also mature on 8
November 16, 2020.3 Id. 9
Several provisions of the Agreement are pertinent. First, the 10
Agreement provides that it is to be “governed by, and construed and 11
interpreted in accordance with, the laws of the state of New York.” 12
Agreement, § 10.11 (capitalization and emphasis omitted). Second, to the 13
extent relevant here, it defines the “Interest Payment Date” — that is, a 14
date on which an interest payment is due — as either “the last day of” 15
3 Other preconditions were also necessary before the Accelerated
Maturity Date could take effect. Agreement, § 1.1.

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each “Interest Period” or “the date of any repayment or prepayment.” 1
Agreement, § 1.1. Finally, under Section 2.11(a), entitled “Optional 2
Prepayments,” Revlon was permitted to prepay any part of the Debt 3
“upon irrevocable written notice delivered to [Citibank] . . . three 4
Business Days prior thereto.” Agreement, § 2.11(a). Upon receipt of any 5
such notice Citibank was required to “promptly notify each relevant 6
Lender thereof.” Id. 4 The Agreement does not define the term 7
4 The full text of the prepayment provision is as follows:
The Borrower may at any time and from time to time prepay any
Tranche of Revolving Loans, the Swingline Loans or any Tranche
of Term Loans, in whole or in part, without premium or penalty
except as specifically provided in Section 2.11(b), upon irrevocable
written notice delivered to the Administrative Agent no later than
12:00 Noon, New York City time, (i) three Business Days prior
thereto, in the case of Eurocurrency Loans that are Revolving
Loans, Swingline Loans or Term Loans, (ii) one Business Day prior
thereto, in the case of ABR Loans that are Term Loans and (iii) on
the date of prepayment, in the case of ABR Loans that are
Revolving Loans or Swingline Loans, which notice shall specify
(x) the date and amount of prepayment, (y) whether the
prepayment is of a Tranche of Revolving Loans or Swingline
Loans or a Tranche of Term Loans and (z) whether the
prepayment is of Eurocurrency Loans or ABR Loans; provided,
that if a Eurocurrency Loan is prepaid on any day other than the

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“promptly.” 1
B. The May 2020 Transaction and UMB Bank Litigation 2
In the spring of 2020, Revlon’s “liquidity position” was “extremely 3
last day of the Interest Period applicable thereto, the Borrower
shall also pay any amounts owing pursuant to Section 2.21. Upon
receipt of any such notice the Administrative Agent shall
promptly notify each relevant Lender thereof. If any such notice is
given, the amount specified in such notice shall be due and
payable on the date specified therein (provided, that any such
notice may state that such notice is conditioned upon the
occurrence or non-occurrence of any transaction or the receipt of
proceeds to be used for such payment, in each case specified
therein (including the effectiveness of other credit facilities), in
which case such notice may be revoked by the Borrower (by
written notice to the Administrative Agent on or prior to the
specified effective date) if such condition is not satisfied), together
with (except in the case of Revolving Loans that are ABR Loans)
accrued interest to such date on the amount prepaid. Partial
prepayments of Term Loans, Revolving Loans or Swingline Loans
shall be in an aggregate principal amount of (i) $1,000,000 or a
whole multiple of $100,000 in excess thereof (in the case of
prepayments of ABR Loans) or (ii) the Borrowing Minimum or a
whole multiple of the Borrowing Multiple in excess thereof (in the
case of prepayments of Eurocurrency Loans), and in each case
shall be subject to the provisions of Section 2.18.
Agreement, § 2.11(a).

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tight,” and the company sought to raise additional capital.5 In re Citibank, 1
520 F. Supp. 3d at 399. Revlon accomplished this through a series of 2
transactions in May 2020 (together, “the May 2020 Transaction”). Revlon 3
entered into a credit agreement with a subset of the 2016 Lenders (or their 4
affiliates), using collateral that had originally secured the 2016 Loan to 5
secure instead new loans extended by these Lenders.6 In re Citibank, 520 6
F. Supp. 3d at 399. 7
As part of the May 2020 Transaction, Revlon issued a senior secured 8
term loan facility in an aggregate principal amount of $815 million, plus 9
the amount of certain fees and accrued interest that had been capitalized. 10
5 According to a complaint (discussed in detail below) which all
Defendants except Tall Tree authorized UMB Bank to file against Revlon
and Citibank, “Revlon reported an operating loss of $186.2 million and
net loss of $213.9 million in the first quarter of 2020. Its reported net
sales in the first quarter of 2020 declined $18.1 from the same prior-year
period and adjusted EBITDA decreased 26.8%.” J.A. 174 [Comp. ¶ 167,
UMB Bank, N.A. v. Revlon, Inc., No. 1:20-cv-06352 (S.D.N.Y. Aug. 12,
2020) (“UMB Bank Complaint”)].
6 The UMB Bank Complaint stated that the May 2020 transaction would
“siphon away substantially all of the collateral from the 2016 Term
Lenders.” UMB Bank Comp. ¶ 11.

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J.A. 1132. Of that $815 million, Revlon used (i) $65 million to repay a 1
revolving credit facility, id., which it had obtained the previous month, 2
J.A. 1135, (ii) approximately $246 million to pay outstanding principal, 3
interest, and other fees on a Term Loan obtained in 2019 and due in 2023, 4
J.A. 1134, and (iii), $112.8 million to repurchase and cancel a portion of 5
the 2021 Notes, id. 6
The May 2020 Transaction also included an amendment to the 7
Agreement that granted a subset of Lenders that participated in the 8
refinancing (“BrandCo Lenders”) what are called “roll-up” rights – the 9
right to exchange their position in the 2016 Term Loan for a position in 10
new term loans scheduled to mature in 2025. In re Citibank, 520 F. Supp. 11
3d at 399. The aggregate principal amount that could be “rolled-up” from 12
the 2016 Term Loan to the new loans was $953 million. J.A. 1132. 13
The aggregate result is that the May 2020 Transaction enabled 14
Revlon to issue a new $1.7 billion debt facility, of which over $800 million 15
was “new financing.” In re Citibank, 520 F. Supp. 3d at 399. 16
As part of the May 2020 Transaction, Revlon issued a “solvency 17

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certificate” asserting “that the company is solvent and would be able to 1
meet [its] liabilities or service those liabilities as they come due.” Id. 2
As previously noted, the May 2020 Transaction included an 3
amendment to the 2016 Loan Agreement making some collateral that had 4
previously secured the 2016 Loan serve instead as collateral for new 5
loans. Id. Several of the Debtholders, including Defendants’ clients, 6
objected to the May 2020 Transaction, contending that it violated the 7
terms of the 2016 Loan Agreement, and labeling it an effort to “siphon 8
away collateral that was providing essential security for payment of the 9
2016 Loans.” Id. Nonetheless, Revlon executed the transaction in May 10
2020, asserting that it had secured the approval of a sufficient number of 11
the holders of the 2016 Loan to allow that withdrawal of collateral. 12
This dispute gave rise to litigation in which a number of 13
Debtholders — including those associated with all Defendants here 14
except Tall Tree — authorized UMB Bank, the designated successor to 15
Citibank as their Administrative Agent on the 2016 Loan, to file a lawsuit 16
against Revlon and Citibank, asserting a variety of claims stemming from 17

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the May 2020 Transaction. Id. at 409. 1
Several allegations in the UMB Bank Complaint are pertinent here. 2
First, the UMB Bank Complaint alleged inter alia that, in the May 2020 3
Transaction, Revlon improperly siphoned collateral away from the 2016 4
Debtholders, such as the trademarks and other intellectual property 5
associated with Revlon’s most famous brands including Elisabeth Arden, 6
the value of which was “enormous relative to the value of the entire 7
Revlon enterprise.” UMB Comp. ¶ 2. Second, it alleged that Citibank and 8
Revlon had improperly manipulated the voting provisions of the 2016 9
Loan Agreement to gain approval of an amendment that permitted 10
Revlon to strip collateral backing the 2016 Loan. In re Citibank, 520 F. 11
Supp. 3d at 446-47. Third, the UMB Bank Complaint alleged that an event 12
of default had already occurred on the 2016 Loan, and sought to 13
accelerate payment of the Debt. Id. at 409. Finally, it also alleged that 14
Revlon was insolvent by as much as $1.71 billion, UMB Comp. ¶ 170, and 15
was “facing a severe liquidity crisis compounded by the global COVID- 16
19 pandemic.” In re Citibank, 520 F. Supp. 3d at 409. 17

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The UMB Bank Complaint was filed on August 12, 2020, at 1
approximately 2:06 p.m. — roughly twenty hours after the August 11 wire 2
transfers. Id. The 117-page complaint had, however, been under 3
discussion for some time, and the Defendants bringing the suit had 4
authorized the filing of the Complaint between July 30 and August 10, 5
2020, just before the August 11 wire transfers. Id.7 6
C. Revlon Offers to Exchange the 2021 Notes 7
As noted above, the maturity date on the Loan was subject to 8
acceleration if the 2021 Notes remained outstanding on November 16, 9
2020. On August 7, 2021, four days prior to Citibank’s accidental 10
payment, Revlon offered to exchange the 2021 Notes for new notes due 11
in 2024. J.A. 1359. Revlon’s purpose in making the exchange offer was to 12
avoid the acceleration of the 2016 Loan. J.A. 861 [Tr. 889-90]; J.A.867 [Tr. 13
913]. Needless to say, none of Revlon’s disclosures with regard to the 14
exchange mentioned anything about raising funds to pay off the 2016 15
Term Loan, as Revlon was giving no consideration to making such a 16
7 The UMB Bank action was voluntarily dismissed on November 6, 2020.

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payment. J.A. 867-68 [Tr. 914-917]. 1
D. The Events of August 11, 2020 2
On August 2, 2020, five of the Debtholders, all managed by Angelo 3
Gordon and Co. (“Angelo Gordon”), were exchanging their positions in 4
the 2016 Loan for positions in the new Revlon credit facility via a “roll- 5
up” transaction. Id. at 400. As part of a “roll-up” transaction, the borrower 6
pays the exchanging debtholder interim interest accrued as of the date of 7
the transaction, but does not pay the outstanding principal; instead, the 8
borrower delivers notes for the principal amount of the new loan. Id. at 9
399. For reasons of administrative convenience in effectuating the Angelo 10
Gordon roll-up, Revlon decided to pay accrued interest to all of the 2016 11
Debtholders, even though no interim interest payment was due to those 12
not participating in the Angelo Gordon roll-up. Id. at 400. To that end, on 13
August 11, 2020, Revlon sent Citibank a direction letter instructing 14
Citibank to effectuate the repurchasing of the Angelo Gordon 15
Debtholders’ interests in the 2016 Loan as part of the roll-up transaction, 16
specifying August 11, 2020, as the repurchase date. Citibank did not 17

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notify other Debtholders that it would be rolling up the Angelo Gordon 1
debt. The other 2016 Debtholders thus had no awareness that they would 2
receive accrued interest on the date of the Angelo Gordon roll-up. 3
Citibank’s Asset-Based Transitional Finance (“ABTF”) team, a 4
subgroup of Citibank’s Loan Operations group that is focused on 5
processing and servicing asset-based loans, was tasked with executing 6
the roll-up. This would be done on Flexcube, a software application and 7
loan processing program, which Citibank used for initiating and 8
executing wire payments. Id. at 400. On Flexcube, the easiest (or perhaps 9
only) way to execute the transaction — to effectuate the roll-up, paying 10
interim interest accrued as of August 11, 2020, and reconstitute the 2016 11
Loan with only the remaining Debtholders — was to enter it in the system 12
as if paying off the loan in its entirety, thereby triggering accrued interest 13
payments to all Debtholders, while directing the principal portion of the 14
payment to a “wash account” — an internal Citibank account used to 15
account for internal cashless fund entries, ensuring that the money does 16
not leave the bank. Id. at 400-01. At around 4:00 p.m. on August 11, 2020, 17

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the ABTF team was informed that there would be a “Roll-up Repurchase 1
for Revlon TL 2016 scheduled to close either 8/11/2020 or 8/12/2020” and 2
was told to “pay the Principal to the Wash Account when accrued interest 3
is processed effective 8/11/2020.” Id. at 401. 4
At 4:54 p.m., Citibank received from Revlon the funds needed to 5
make the interest payments to the Debtholders, and the ABTF team was 6
instructed to proceed. Id. Several members of the ABTF team, including 7
some of those involved in processing the August 11 wire transfers, were 8
employees of Wipro Limited (“Wipro”), an entity based in India. These 9
Wipro employees worked exclusively on Citibank matters and 10
maintained Citibank email addresses. Id. After receiving the 4:54 p.m. 11
email, Arokia Raj, a Wipro team manager and member of Citibank’s 12
ABTF team, directed Santhosh Kuppusamy Ravi, another Wipro 13
employee, to begin processing the transaction according to the 14
instructions the ABTF team had received. Id. The ABTF team understood 15
that it was expected to remit interest payments to the Debtholders and to 16
move an amount equal to the outstanding principal — approximately 17

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$894 million — into Citibank’s internal wash account. The principal was 1
not to be sent to the Debtholders or to leave the bank at all. Id. Placing the 2
principal into the wash account would allow the loan to then be rebuilt 3
to reflect a slightly smaller remaining principal balance following the roll- 4
up of the Angelo Gordon Debt. 5
To process a transaction of this type, the ABTF team needed to 6
undertake a number of steps including creating an interest schedule, 7
drafting invoices (“Calculation Statements”) to be sent to Debtholders, 8
and inputting payment instructions in Flexcube. Id. The transaction was 9
subject to Citibank’s “six-eye” approval procedure, which requires that 10
three people review and approve a transaction before it is executed. 11
Under this procedure, (1) the “maker” — in this case, Ravi — first inputs 12
the payment information into Flexcube; (2) the “checker” — here, Raj — 13
then reviews and verifies the transaction; and finally (3) the “approver” 14
— here, Vincent Fratta, a Citibank senior manager based in Delaware — 15
serves as a final check on the maker and checker’s work. Id. 16
Because the vast majority of wire transactions that Citibank 17

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processed using Flexcube involved the payment of funds to third parties, 1
the default option, unless suppressed, causes any payment entered into 2
the system to be transferred as a wire payment. Id. Citibank’s internal 3
Fund Sighting Manual provided instructions for suppressing Flexcube’s 4
default. When entering a payment, the employee would be presented 5
with a menu with several boxes that could be checked along with an 6
associated field to input the account number. Id. The Fund Sighting 7
Manual explained that, in order to suppress payment of a principal 8
amount, “ALL of the below field[s] must be set to the wash account: 9
FRONT [;] FUND [; and] PRINCIPAL” — meaning that the employees 10
were required to check all three of those boxes and input the wash 11
account number into the relevant fields. Id. at 402. Notwithstanding these 12
instructions, Ravi, Raj, and Fratta all believed — incorrectly — that a wire 13
transfer of the principal could be properly suppressed by setting only the 14
“PRINCIPAL” field to the wash account. Id. Accordingly, when Ravi built 15
out the transaction between 5:15 and 5:45 p.m., he checked off only the 16
PRINCIPAL field, and did not check the FRONT and FUND fields. 17

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At 5:45 p.m., Ravi emailed Raj for approval of the transaction, 1
explaining that “Princip[al] to Wash A[ccount] & Interest to DDA 2
[Demand Deposit Account].” Id. After reviewing the transaction, Raj 3
believed — incorrectly — that the principal would be sent to the wash 4
account and only the interest payments would be sent out to the 5
Debtholders. Raj then emailed Fratta, seeking final approval under the 6
six-eye review process, explaining, “NOTE: Principal set to Wash and 7
Interest Notice released to Investors.” Id. Fratta, also believing incorrectly 8
that the default instructions were being properly overridden, responded 9
to Raj via email, “Looks good, please proceed. Principal is going to wash.” 10
Id. at 402-03. 11
Raj then proceeded with the final steps to approve the transfers, 12
which prompted a warning on his computer screen — referred to as a 13
“stop sign” — stating: “Account used is Wire Account and Funds will be 14
sent out of the bank. Do you want to continue?” Id. at 403. But the "stop 15
sign" indicated neither the amount that would be "sent out of the bank," 16
nor whether it constituted the amount of the interest payment (which was 17

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intended to be sent out of the bank), the amount of the outstanding 1
principal on the loan, or a total of both. Id. Because Raj intended to release 2
the interim interest payment to the Debtholders, he clicked “YES.” Id. 3
Shortly after 6:00 p.m., Raj emailed confirmation of the transaction to the 4
team: “Principal set to wash and Interest paid to investors with Invoice.” 5
Id. At 6:53 p.m., following standard procedure, Ravi sent Raj the back-up 6
documentary support for the transaction, including the approval emails, 7
a record of receipt of the interest payment from Revlon, and screenshots 8
from Flexcube showing that the payments had been made. Although 9
these screenshots showed both $7.8 million in interest and $894 million in 10
principal under the “Amount Paid” field, Ravi did not perceive anything 11
to be amiss because he believed — incorrectly — that the system reflected 12
the principal as having been paid to Citibank’s internal wash account. Id. 13
The ABTF team was also responsible for generating and sending to 14
the Debtholders the Calculation Statements, which provided notice of the 15
payment of interest. Id. The Calculation Statements, of course, made no 16
mention of a payment of principal. They were sent to the Debtholders 17

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through custodians, administrators, or trustees at approximately 5:30 1
p.m. on August 11, 2020 — shortly before the payments themselves. Id. 2
Each Calculation Statement stated: “Please be advised that Interim Libor 3
Interest will be paid on the LIBOR outstanding under the above 4
referenced facility,” i.e., the 2016 Loan. Id. Each Calculation Statement 5
then explained that “[i]nterim interest is due as per the detailed 6
calculation below.” Id. The “Interest Due Period” was listed as “29-MAY- 7
2020 to 11-AUG-2020.” Id. After listing the applicable interest rate and 8
number of days, each Calculation Statement included a “Total Due,” 9
followed by a dollar amount — the amount of accrued interest being paid 10
to the particular Debtholder. Next, each Calculation Statement explained, 11
“We will credit your account representing the above Interim Interest 12
based on the following instructions,” listing a “Credit Date” of “11-AUG- 13
2020”; a “Total Due,” followed by the same dollar amount; a deduction 14
for tax withholding; and finally a “Credit Amount” (the amount of 15
interest being paid). Id. 16

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In total, Citibank paid out $894 million in principal and $7.8 million 1
in interim interest. The amount received by the Debtholders matched to 2
the penny the amount of principal and accrued interest outstanding on 3
the 2016 Loan for each Debtholder. Id. at 432. The $894 million principal 4
payment was made with Citibank’s own funds, as Revlon, of course, had 5
no intention of making that payment. At the time, the 2016 Loan was 6
trading between 20-30 cents on the dollar. See J.A. 778, 815, 890 [Tr. 559, 7
704, 1004-05]. 8
E. Citibank’s Response to the August 11 Wire Transfers 9
Around 9:00 a.m. the following day, August 12, 2020, Raj, as part of 10
his normal responsibilities, began reviewing the “cash break manager 11
application” to identify any “cash breaks” — that is, discrepancies 12
between credits and debits from the previous day’s transactions. In re 13
Citibank, 520 F. Supp. 3d at 404. This type of reconciliation activity is an 14
important back office function at most financial institutions and is 15
undertaken to ensure that anticipated incoming and outgoing payments 16
match the actual banking activity. Id. Raj quickly discovered significant 17

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discrepancies in surprisingly large amounts and realized that, in addition 1
to the intended interest payments, amounts equal to the outstanding 2
principal balance on the 2016 Loan had gone to the Debtholders, instead 3
of going to the wash account. Id. At 9:37 a.m., Raj emailed Fratta that 4
“Principal was set to wash and only Interest was set to DDA. But, it looks 5
like funds ha[ve] gone out . . . . Can you please review and advi[s]e if this 6
need[s] to be raised to tech.” Id. Fratta expressed surprise and suggested 7
in a chat with Raj that the principal payment could have been the result 8
of a “tech issue.” Id. 9
At 9:52 a.m., Fratta broke the news to his supervisor, Vincent 10
Farrell, head of Citibank’s North American Loan Operations, in a Skype 11
chat. “[B]ad news,” he wrote. “[P]rincipal to wash, wires look[ ] like they 12
went out the door.” Id. Fratta followed up a few minutes later: “[Y]up, 13
confirmed. [P]rincipal out the door when it was supposed to be sent to 14
wash for Revlon restructure.” Id. At 10:26 a.m., Fratta emailed Citibank’s 15
technology support group: 16

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25
Yesterday we processed a payment with Principal to the 1
wash and Interest to be sent to noteholders. All details in the 2
front end screens yesterday le[d] us to believe that the 3
payment would be handled in that manner . . . . Screenshots 4
provided below indicating that the wash account . . . is 5
present and boxes checked appropriately for the principal 6
components. 7
Id. Fratta then forwarded the same email to members of his team, with 8
the subject line “Urgent Wash Account Does not Work.” Id. He stated: 9
“Flexcube is not working properly, and it will send your payments out 10
the door to noteholders/borrowers. The wash account selection is not 11
working. This led to ~1BN going out the door in error yesterday for an 12
ABTF Deal, Revlon.” Id. 13
At 10:46 a.m., Ravi also emailed the technical support team, 14
attaching screenshots of the Flexcube options that had been selected and 15
explaining that “[w]e have processed principal to wash and Interest to 16
DDA[,] however funds ha[ve] gone out along with principal in the . . . 17
transaction.” Id. Over the course of the day, Fratta learned that the 18
principal payments were not caused by a system failure, but by human 19
error: the failure to select the FRONT and FUND fields when inputting 20

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26
the default override instructions in Flexcube. Id. at 404-05. Around 1:53 1
p.m., Fratta emailed his front office colleagues working on the 2016 Loan 2
and explained: 3
During our processing and internal rebooking of this 4
Agented deal, we had a processing error, which [led] to the 5
full principal amount of the loan outstanding being sent via 6
wire to all of the noteholders in the deal. Each of the 315 7
noteholders received their pro rata share of 893,944,008.52 as 8
of 8/11/20 of the full amount of the loan, which is incorrect. 9
We intended to only remit their share of interest and not the 10
principal. We will be contacting the lenders asking them to 11
return their share of this erroneous payment as soon as 12
possible. 13
Id. at 405. 14
At approximately 2:25 p.m., Citibank began sending Recall Notices 15
to the Debtholders explaining that funds had been transmitted 16
erroneously. Id. The first set of Recall Notices informed recipients that 17
“we have paid Interest accrual from May 29th to August 11th. Your share 18
of Principal amount was also released erroneously.” Id. After listing the 19
recipient’s share of the principal payment, each Recall Notice in the first 20
tranche requested that the recipient “[p]lease return the principal portion 21

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27
of the payment you received . . . as soon as possible.” Id. At 1
approximately 6:00 p.m. on August 12th, Citibank sent out a second set 2
of Recall Notices, similarly listing an “Amount Paid in Error” and 3
advising each recipient that “we have paid Interest accrual from May 29th 4
to August 11th. An additional amount was included in your interest 5
payment in error and you were overpaid. Please return the amount listed 6
below as soon as possible.” Id. Citibank distributed a third set of Recall 7
Notices the next day, August 13th, largely identical to the second set of 8
notices sent out the previous day. Id. Finally, Citibank sent additional 9
follow-up Recall Notices a few days later, stating that “on August 11, 10
2020, Citibank funds were mistakenly remitted to you. To be clear, those 11
funds belong solely to Citibank; they are not borrower or Revlon 2016 12
Loan facility funds. In view of this mistaken transfer, you are legally 13
obligated to return those funds and, as is standard industry practice when 14
fund transfers occur mistakenly, we expect that you will return those 15
funds to Citibank immediately.” Id. Throughout this period, Citibank also 16
made other efforts to contact the Debtholders and their related entities, 17

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including Defendants, regarding return of the erroneous transfers. Id. 1
F. Defendants’ Responses to the August 11 Wire Transfers 8 2
3
Managers representing approximately two hundred Debtholders 4
honored Citibank’s Recall Notices and returned about $385 million to 5
Citibank. However, the ten Defendants representing 126 Debtholders 6
with approximately $500 million in debt refused to return the funds. 7
Six of the ten Defendants did not become aware that their clients 8
had received payments exceeding accrued interest until their receipt of 9
notification from Citibank that the payment had been made in error. Id. 10
at 406 (Bardin Hill), 407 (Greywolf), 408 (New Generation and Medalist), 11
and 409 (ZAIS and Tall Tree). 12
The four remaining Defendants became aware of the principal 13
payment prior to receipt of the Recall Notices: 14
(i) Allstate learned of the transaction on the morning of August 12 15
and raised the question in-house, “Could this be a mistake?” but made 16
8 The responses of the Defendants are laid out in further detail in the
district court’s opinion.

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29
no effort to learn the answer other than by checking to see whether the 1
principal payment had gone to its Debtholder-clients. Id. at 406. At trial, 2
the author of the message testified that "her reference to a ‘mistake’ 3
. . . was not to Citibank or Revlon, but to the possibility that the report of 4
funds received had been mistaken." Id. at 438. Allstate was sent a Recall 5
Notice by 3:05. Id. at 406. 6
(ii) Brigade received an email from an administrator for several of 7
its clients, attaching a cash flow statement indicating the payment. Id. at 8
407. It received the email at 11:29. Id. at 436. By around 2:30 p.m., Jeffery 9
Frusciante, a bank debt manager at Brigade, messaged Brigade’s internal 10
counsel, asking: “Revlon full paydown?” Id. at 407. Shortly thereafter, 11
Frusciante noted that Citibank “just . . . sent a notice” advising that the 12
share of principal was “released erroneously.” Id. 13
(iii) Symphony took steps to determine from administrators and 14
custodians for its Debtholder-clients whether each of them had received 15
similar payments of principal, and on learning that each had received 16
such payments, it instructed a custodian to apply the funds on its books 17

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30
as a loan paydown. Citibank sent Symphony a recall notice at 2:23 p.m. 1
On receipt of Citibank’s Recall Notice advising of the error, it instructed 2
its custodians not to comply. Id. at 408. 3
(iv) At HPS, early on the morning of August 12, a fund 4
administrator sent management an email expressing surprise that “there 5
was a full princip[al] repayment on this instrument . . . as the [Calculation 6
Statement sent by Citibank] does not indicate it.” Id. at 407. By that 7
afternoon, HPS learned from the administrators of its funds that the full 8
amount of principal and interest had been received from Citibank the day 9
before. Around 2:30 p.m., it received Citibank’s Recall Notice. Id. 10
In no instance did any Defendant call Citibank or Revlon or make 11
any other inquiry (other than ascertaining the receipt by its Lender clients 12
of payments equaling the outstanding balance on their loans). 13
G. Procedural History 14
Citibank commenced this litigation on August 17, 2020 by filing suit 15
against Brigade, bringing claims of unjust enrichment, conversion, 16
money had and received, and payment by mistake. 17

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31
The next day, Citibank filed a second lawsuit alleging substantially 1
identical claims against HPS and Symphony. Finally, on August 20, 2020, 2
Citibank filed a third lawsuit bringing the same claims against the 3
remaining Defendants. The district court promptly issued temporary 4
restraining orders (“TROs”) barring the Defendants and their “agents, 5
servants, employees, officers and all persons and entities in active concert 6
and participation with them” from “removing, withdrawing, 7
transferring, assigning, or otherwise disposing of” the funds in 8
contention. The district court also consolidated the three cases pursuant 9
to Federal Rule of Civil Procedure 42(a)(2). On consent of the parties, the 10
consent of the Defendants to extensions of the TROs, and a finding of 11
good cause, the district court consolidated the hearing on any motion for 12
a preliminary injunction with trial on the merits, as expressly authorized 13
by Federal Rule of Civil Procedure 65(a)(2).9 14
9 We express special admiration for the district court’s handling of
Citibank’s motion for a preliminary injunction to freeze the funds it had
accidentally paid. The court, after granting TROs, secured the consent of
the Defendants (excepting one which did not yet have counsel but

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thereafter, upon obtaining counsel, made no objection) to an extension
of the TROs through trial. The court then consolidated the hearing on
the preliminary injunction motion with trial and conducted trial without
unnecessary delay, after allowing the parties the time needed for
discovery. In circumstances where the non-moving parties will not
suffer excessive harm resulting from such an extension of a TRO
through trial, this procedure substantially serves the interests of all
concerned, potentially saving very substantial time and money without
adverse consequences.
Many preliminary injunction rulings, including appeal from the
district court’s grant or denial of relief, take close to a year, or more, to
resolve. In addition, in many cases the ultimate ruling on preliminary
injunction will fail to make clear which side will ultimately prevail, thus
still requiring trial on the merits. This can be for many reasons,
including that the standard for grant of a preliminary injunction turns
not on entitlement to final relief but only on likelihood of success on the
merits, that the trial evidence will not be limited to the preliminary
injunction evidence, and that at trial there may be a new factfinder (the
jury). In short, separate proceedings on the preliminary injunction
motion can consume vast amounts of time and money with very little
benefit. We of course recognize that in many cases the imminence of
irreparable harm to one side or the other requires immediate, separate
litigation of the motion, but in other cases, the procedure adopted by the
district court can vastly improve the efficiency and value of the judicial
process. See FED R. C IV. P. 65, advisory comm. note to 1966 amendment
(“The authority [to consolidate the preliminary injunction hearing with
a trial on the merits] can be exercised with particular profit when it
appears that a substantial part of evidence offered on the application
will be relevant to the merits and will be presented in such form as to
qualify for admission on the trial proper . . . . It is believed that
consolidation can be usefully availed of in many cases.”).

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33
In December 2020, the district court held a bench trial. Due to the 1
ongoing COVID-19 pandemic, with agreement of the parties, the bench 2
trial was conducted remotely using a Zoom-based video-conferencing 3
platform with direct testimony taken largely by affidavit. 4
Following the trial, the district court ruled that the Defendants were 5
entitled to keep the funds mistakenly paid. Relying on the Banque Worms 6
decision of the New York Court of Appeals, Banque Worms v. BankAmerica 7
Int’l, 570 N.E.2d 189 (N.Y. 1991), the court concluded that Defendants had 8
“established the elements of the discharge-for-value defense,” id. at 415, 9
reasoning that on the date of the mistaken payment, the Debtholders 10
were creditors of Revlon; each was owed – in principal and interest – the 11
exact amount of money that they received from Citibank; neither the 12
Debtholders nor the Defendants made misrepresentations to induce the 13
mistaken wire transfers; nor were the Debtholders or the Defendants on 14
notice of Citibank’s mistake. Id. at 431-39. Citibank brought this appeal. 15

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34
On June 15, 2022, while this appeal was under advisement, Revlon 1
filed for Chapter 11 bankruptcy. In re: Revlon, Inc., No. 22-10760 (DSJ) 2
(Bankr. S.D.N.Y.). 10 3
STANDARD OF REVIEW 4
“[A]fter a bench trial, we review the district court’s finding of fact 5
for clear error and its conclusions of law de novo. Mixed questions of law 6
and fact are also reviewed de novo.” Kreisler v. Second Ave. Diner Corp., 731 7
F.3d 184, 187 n.2 (2d Cir. 2013) (citation omitted). 8
DISCUSSION 9
I. The Banque Worms Exception 10
11
The traditional rule of New York law governing mistaken 12
payments generally calls for restitution of the mistaken payment unless 13
the recipient so significantly changed its position in reliance on the 14
mistake that it would be unjust to require repayment. The Court of 15
Appeals has explained, “In the area of restitution, New York has long 16
recognized the rule that ‘if A pays money to B upon the erroneous 17
10 The automatic bankruptcy stay does not apply to this appeal.

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35
assumption of the former that he is indebted to the latter, an action may 1
be maintained for its recovery.’” Banque Worms, 570 N.E.2d at 191. 2
This rule “is predicated upon the principle that a party who pays 3
money under a mistake of fact, to one who is not entitled thereto, must in 4
equity and good conscience be permitted to get it back. That is a well- 5
recognized principle of law . . . .”Ball v. Shepard, 95 N.E. 719, 721 (N.Y. 6
1911); see also Kingston Bank v. Eltinge, 40 N.Y. 391, 395 (1869) (“The 7
defendants have received the money, which should have been paid to the 8
plaintiffs, by their assent it is true, but which assent was based upon a 9
mistake of fact. The principles of law will not permit the defendants to 10
retain this money, unless there is something in the case to take it out of 11
the general rule.”). 12
The ruling of the New York Court of Appeals in Banque Worms 13
endorsed an exception to that traditional rule based on the First 14
Restatement’s discharge-for-value principle. 15
In Banque Worms, Security Pacific International Bank, acting on 16
behalf of its client Spedley Securities, had mistakenly sent nearly $2 17

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36
million by wire transfer to Banque Worms, intended as repayment of 1
Worms’s loan to Spedley. Banque Worms, 570 N.E.2d at 190. The mistaken 2
payment resulted from the following circumstances (in somewhat 3
simplified version). 4
Worms had extended a loan to Spedley that was due and payable. 5
Banque Worms v. Bank Am. Int'l, 726 F. Supp. 940, 940 (S.D.N.Y. 1989). 6
Worms called for repayment, and Spedley accordingly instructed its 7
bank, Security Pacific, to send its repayment using funds provided by 8
Spedley. Id. Spedley, however, then changed its mind and sent Security 9
Pacific a countermanding instruction, now directing that the funds be 10
paid to a different payee. Banque Worms, 570 N.E.2d at 190-191. In the 11
confusion arising from its client’s change of instructions, Security Pacific 12
mistakenly sent the repayment to Worms. Id. at 191. 13
Upon recognition of its mistake Security Pacific demanded that 14
Worms return the mistaken payment. Id. Worms refused to return the 15
mistaken payment. Id. In the ensuing litigation, initially brought in the 16

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37
United States District Court for the Southern District of New York, 1
Security Pacific sought restitution. 2
Upon appeal, our court certified to the New York Court of Appeals 3
the question whether “New York would apply the ‘Discharge for Value’ 4
rule as set forth at Section 14 of the [First] Restatement of Restitution or, 5
in the alternative, whether. . . New York would apply that rule that holds 6
money paid under a mistake may be recovered, unless the payment has 7
caused such a change in the position of the receiving party that it would 8
be unjust to require the party to refund.” Id. The Court of Appeals 9
concluded that “the discharge-for-value” rule would be applied, and that 10
Worms was entitled to keep the funds. Id. 11
The term discharge-for-value was first employed (so far as we know) 12
by the American Law Institute in its 1937 First Restatement of Restitution 13
as the caption for the principle set forth in Section 14. First Restatement § 14
14. The text of the rule set forth under that caption reads as follows: 15
A creditor of another or one having a lien on another’s 16
property who has received from a third person any benefit in 17

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38
discharge of the debt or lien, is under no duty to make 1
restitution therefor, although the discharge was given by 2
mistake of the transferor as to his interests or duties, if the 3
transferee made no misrepresentation and did not have 4
notice of the transferor’s mistake. 5
6
First Restatement § 14. The Restatement described that rule as “a specific 7
application of the underlying principle of bona fide purchaser,” the rule 8
covered at Section 13 of the First Restatement. First Restatement § 14 cmt. 9
a. 10
The Banque Worms court explained: 11
When a beneficiary receives money to which it is entitled and has no 12
knowledge that the money was erroneously wired, the beneficiary 13
should not have to wonder whether it may retain the funds; rather, 14
such a beneficiary should be able to consider the transfer of funds 15
as a final and complete transaction, not subject to revocation. 16
17
570 N.E.2d at 196 (emphases added). 18
The Court related its ruling to New York’s then recent adoption of 19
Article 4A of New York’s’ Uniform Commercial Code governing wire 20
transfers of funds. The Court noted in an extensive discussion that the 21
New York legislature, by adopting Article 4A, had accorded importance 22
to the “speed, efficiency, certainty [of wire transfers] (i.e. to enable 23

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39
participants in [wire] fund transfers to have better understanding of their 1
rights and liabilities), and finality.” Id. at 195. It reasoned that “[the] 2
discharge-for-value rule is consistent with and furthers the policy goals 3
of finality in business transaction and may appropriately be applied in 4
respect to electronic funds transfers.” Id. at 196. 5
In this litigation in the district court, the Defendants pleaded the 6
applicability of Banque Worms and the First Restatement’s discharge-for- 7
value rule. Citibank advanced three arguments in opposition: 8
(i) Under the Banque Worms opinion, the discharge-for- value 9
rule applies only when the recipient of the mistaken payment 10
is “entitled” to the funds. It has no application here as the 2016 11
Loan was not payable for another three years; 12
(ii) The Defendants did not receive value in satisfaction of the 13
discharge-for-value rule as none of them credited Revlon on 14
their books after receipt of Citibank’s apparent repayment of 15
Revlon’s loan; 16

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40
(iii) The Defendants had constructive notice, which qualifies as 1
“knowledge,” of the error, and therefore do not qualify under 2
the discharge-for-value rule for relief from the obligation to 3
make restitution. 4
The district court in a thorough and careful opinion rejected each of 5
these contentions. 6
Notwithstanding the district court’s impressive and scholarly 7
handling of the case, we respectfully disagree with some of its 8
conclusions. We conclude that Citibank is entitled to prevail under the 9
New York rule expressed in Banque Worms because (i) under the 10
standards of New York law, the Defendants had constructive notice of 11
Citibank’s error, and (ii) the Defendants were not entitled to the money 12
at the time of Citibank’s accidental payment, as required by the Banque 13
Worms ruling. 14
A. Defendants cannot claim the benefit of the discharge-for-value 15
rule because they were on notice of a mistake. 16
17
As we read the law of New York, the discharge-for-value rule does 18
not shield the beneficiary of a mistaken transfer from claims for 19

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41
restitution if the beneficiary is on inquiry notice of the mistake. We 1
conclude further, based on the facts available to the Defendants on 2
August 11, that the standard of inquiry notice was satisfied. The facts 3
were sufficiently troublesome that a reasonably prudent investor would 4
have made reasonable inquiry, and reasonable inquiry would have 5
revealed that the payment was made in error. 6
1. New York’s notice standard 7
8
The parties agree that in New York the recipient of a mistaken 9
payment does not receive the benefit of the discharge-for-value rule if it 10
has constructive notice that the payment resulted from a mistake. As 11
expressed in Section 14 of the First Restatement, the transferee of the 12
payment “is under no duty to make restitution therefor . . . if the 13
transferee made no misrepresentation and did not have notice of the 14
transferor’s mistake.” First Restatement § 14 (emphasis added). Although 15
in agreement that Section 14’s reference to “notice” and Banque Worms 16
reference “knowledge” mean constructive notice, the parties disagree as 17

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42
to how the standard of constructive notice is understood in New York 1
law. 2
Defendants contend that constructive notice is evaluated by asking 3
what the transferee “knew or should have known” of the transferor’s 4
mistake.11 Citibank contends that New York law applies the inquiry 5
notice standard, of which the New York Court of Appeals has written: 6
One who has reasonable grounds for suspecting or inquiring 7
ought to suspect, ought to inquire, and the law charges him 8
with the knowledge which the proper inquiry would 9
disclose. . . . . If a person has knowledge of such facts as 10
would lead a fair and prudent man, using ordinary 11
thoughtfulness and care, to make further accessible inquiries, 12
and he avoids the inquiry, he is chargeable with the 13
knowledge which by ordinary diligence he would have 14
acquired. Knowledge of facts, which, to the mind of a man of 15
ordinary prudence, beget inquiry, is actual notice, or, in other 16
words, is the knowledge which a reasonable investigation 17
11 Defendants argued below that, for the purpose of the discharge-for-
value rule, a transferee has notice of a transferor’s mistake only if he or
she has “actual knowledge” of the error. The district court rejected this
argument, finding that the discharge-for-value rule required application
of a constructive notice standard. In re Citibank, 520 F. Supp. 3d at 430.
Defendants do not challenge that conclusion on appeal, and instead
argue that constructive notice here means “knew or should have
known” rather than on inquiry notice.

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43
would have revealed. 1
Fidelity & Deposit Co. of Maryland v. Queens County Trust Company, 123 2
N.E.370, 372-73 (N.Y. 1919). 3
The district court did not decide that issue – finding that it was 4
unnecessary to do so because, in the district court’s view, the Defendants 5
lacked constructive notice under either standard, Citibank, 520 F. Supp. 6
3d at 431-440, and, in any event, if inquiry notice is the standard, this 7
would not negate the Defendants‘ entitlement to the discharge-for-value 8
defense because the Defendants conducted a reasonable inquiry which 9
did not reveal the error. Id. at 439-40. The district court reached the latter 10
conclusion on the basis that four of the ten Defendants – Allstate, Brigade, 11
HPS, and Symphony – ascertained that more than one of their Lender 12
clients had received payment of the outstanding principal amount of their 13
loans, supporting the inference that Citibank had paid to the penny the 14
outstanding principal and accrued interest, that this constituted 15
reasonable inquiry, and it did not reveal the error. Id. 16

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44
We believe Citibank has the better argument as to what constitutes 1
constructive notice in New York. Both New York law and the First 2
Restatement apply the inquiry notice standard and not a standard of 3
“knew or should have known.” As noted above, the Court of Appeals 4
endorsed the inquiry notice standard in Fidelity & Deposit Co. of Maryland. 5
It had previously adopted the same standard in Williamson v. Brown, 15 6
N.Y. 354, 362 (1857) (“where a purchaser has knowledge of any fact, 7
sufficient to put him on inquiry as to the existence of some right or title 8
in conflict with that he is about to purchase, he is presumed either to have 9
made the inquiry, and ascertained the extent of such prior right, or to 10
have been guilty of a degree of negligence equally fatal to his claim, to be 11
considered as a bona fide purchaser.”), and in Anderson v. Blood, 46 N.E. 12
493, 495 (N.Y. 1897. See also Majer v. Schmidt, 564 N.Y.S.2d 722, 725 (1st 13
Dep’t 1991) (“A person is chargeable with constructive notice of any fact 14
which would have been disclosed by a reasonably diligent inquiry if 15
circumstances are such as to indicate to a person of reasonable prudence 16

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45
and caution the necessity of making inquiry to ascertain the true facts and 1
he or she avoids such inquiry.”). 2
New York courts have applied this interpretation of constructive 3
notice in many different contexts. Bennett v. Buchan, 76 N.Y. 386, 390 4
(1879) (applying an inquiry notice standard in determining whether an 5
assignee of a judgment took the assignment with notice that the judgment 6
was worth less than the amount covenanted in the assignment); Claflin v. 7
Lenheim, 66 N.Y. 301, 305-07 (1876) (applying an inquiry notice standard 8
to determine whether the seller of goods was on notice that the purchaser 9
lacked authority to purchase goods on behalf of the defendant); Majer, 10
564 N.Y.S.2d at 725 (applying an inquiry notice standard to determine 11
whether recipients of funds were aware that the funds had been illegally 12
converted from an estate); Metro. Life Ins. Co. v. Morris, 507 N.Y.S.2d 713, 13
715 (2d Dep’t 1986) (applying an inquiry notice standard to determine 14
whether property owners had been aware of a court order permitting 15
them to redeem property). And in In re Brainard Hotel Co., 75 F.2d 481 (2d 16
Cir. 1935), this Court stated in a case governed by New York law that 17

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46
whether a hotel that had received funds stolen from a guest as repayment 1
for funds embezzled from the hotel could refuse to make restitution to 2
the guests on the grounds that it was a bona fide purchaser turned on 3
whether the hotel’s treasurer “should have suspected that [the money] 4
was improperly procured, and should have pressed his suspicions by 5
inquiry.” Id. at 482. 6
Conversely, we are aware of no New York cases where a party’s 7
liability turned on whether the party had constructive notice of a fact, but 8
the court declined to apply an inquiry notice standard. 9
The First Restatement also makes clear that inquiry notice is the 10
applicable standard to assess discharge-for-value under Section 14. 12 11
According to the First Restatement, the discharge-for-value rule “is a 12
specific application of the underlying principle of bona fide purchase.” § 13
12 The same standard of inquiry notice is also espoused by the Third
Restatement of Restitution and Unjust Enrichment, which states that “[a]
person has reason to know a fact if . . . other facts known to the person
would make it reasonable to infer the existence of the fact, or prudent to
conduct further inquiry that would reveal it.” RESTATEMENT (T HIRD) OF
RESTITUTION AND UNJUST E NRICHMENT (“Third Restatement”) § 69(3)(c).

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47
14, cmt. a. The bona fide purchaser rule is covered in Section 13 of the 1
First Restatement. Comment b to Section 13 tells that “the rules 2
determining when there is notice are stated in Section 174.” Section 174 3
in turn states that: 4
A person has notice of facts giving rise to a constructive trust 5
not only when he knows them, but also when he should 6
know them; that is when he knows facts which would lead a 7
reasonably intelligent and diligent person to inquire whether 8
there are circumstances which would give rise to a 9
constructive trust, and if such inquiry when pursued with 10
reasonable intelligence and diligence would give him 11
knowledge or reason to know of such circumstances. 12
First Restatement § 174, cmt. a (emphasis added).13 13
13 Defendants argue against this conclusion by pointing out that Section
14 explicitly states that “comment a on Section 13 is applicable,” but
makes no such statement about comment b, the comment which refers
to Section 174. We find no merit in the argument. Comment a to Section
13, which elaborates on the principle of bona fide purchases concludes
by saying the principle it describes “also operates under the
circumstances stated in Section 14.” Comment b to Section 13 makes
cross references to other sections covering several of the terms
employed in Section 13’s description of the bona fide purchase
principle. We find wholly unpersuasive the Defendants’ argument that
comment b of Section 13 has no application to Section 14,

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48
We are not persuaded by the arguments the Defendants advance 1
against application of the inquiry notice standard. They argue that “New 2
York courts have rejected an inquiry notice standard for cases involving 3
monetary transactions”, but the cases they cite in support of this 4
proposition – First Union Nat’l Bank v. A.G. Edwards & Sons, Inc., 691 5
N.Y.S.2d 491, 492 (1st Dep’t 1999), and Hartford Accident & Indem. Co. v. 6
Am. Express Co., 542 N.E.2d 1090, 1096 (N.Y. 1989) – are inapposite. In 7
both cases, victims of a fraud had sought to recover from those who had 8
received, through normal commercial transactions, some of the 9
fraudulently obtained funds. Under the circumstances, it was necessary 10
for the plaintiffs to demonstrate that the ultimate recipients had accepted 11
the funds in bad faith. Hartford Acc., 542 N.E.2d at 1094 (holding that UCC 12
§ 3-304(7), applicable to transactions involving negotiable instruments, 13
required a showing of bad faith to demonstrate notice); First Union Nat’l, 14
691 N.Y.S.2d at 492 (requiring subjective bad faith or dishonesty for 15
notwithstanding Section 14’s explicit reference to the bona fide
purchaser principle of Section 13.

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49
recovery, by analogy to cases involving commercial paper). Both courts’ 1
rulings in favor of the defendants turned not on the inapplicability of the 2
inquiry notice standard to issues of constructive notice, but on the fact 3
that inquiry notice was insufficient to establish bad faith as required. 4
Hartford Acc., 542 N.E.2d at 1096; First Union Nat’l, 691 N.Y.S.2d 492. 5
These cases do not suggest that constructive notice, in the context of the 6
discharge for value defense, turns on any standard other than inquiry 7
notice. 8
Defendants further contend that the inquiry notice standard is 9
incompatible with the Banque Worms decision. We reject the argument. 10
Banque Worms contained no discussion of the standard of notice because 11
Worms, the recipient of the mistaken payment, had no reason whatsoever 12
to suspect that there was a mistake. The standard of notice had no bearing 13
on that case. 14
Finally, Defendants argue that Banque Worms implicitly rejected 15
an inquiry notice standard by stating that the recipient of a wire transfer 16
“should not have to wonder whether it may retain the funds” and 17

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“should be able to consider the transfer of funds as a final and complete 1
transaction, not subject to revocation”. Banque Worms, 570 N.E.2d at 196. 2
We disagree. The quoted passage had nothing to do with the type of 3
notice utilized in determining whether the recipient of a mistaken 4
payment is entitled to the discharge-for-value defense. As noted above, 5
in the Banque Worms case, there was no issue of notice. The Court had no 6
reason to discuss it. The Defendants’ interpretation, furthermore, would 7
eliminate not only inquiry notice but all forms of notice. 8
In sum, we find it clear that inquiry notice is the applicable notice 9
standard in adjudicating a discharge-for-value defense in New York. 10
Implicit in the descriptions of the inquiry notice standard, although 11
not expressly stated, is the need in some instances in applying the 12
standard to hypothesize not only the reasonably prudent investor but 13
also certain facts providing an incentive to make inquiry. The 14
descriptions of the inquiry notice standard by New York courts quoted 15
above make frequent reference to “prudence,” to the proposition that the 16
hypothetical person “ought to inquire” so that failure to do so would 17

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make the person “guilty of a degree of negligence,” to the “necessity of 1
making inquiry to ascertain the true facts,” and to “the existence of some 2
right of title in conflict with that he is about to acquire.” All of these imply 3
that the hypothetical prudent person must be imagined to risk suffering 4
some loss or harm if the benefit received proves illusory, as well as that 5
the potential loss would be avoidable if the person learned the true facts. 6
Prudence does not impose a duty to learn the true facts when one is not 7
at risk of loss or when knowing the true facts would not help one avoid 8
the loss. One cannot be said to lack prudence, or to be negligent, in failing 9
to inquire when knowledge of the true facts would change nothing. 10
On the facts of this case, the lenders who received an unexpected 11
apparent early repayment of principal from an insolvent debtor, in 12
circumstances where there were visible red flags warning that the 13
payment may have resulted from a mistake, had no incentive to 14
investigate to ascertain the truth. Their investigations in the hope of 15
learning the true facts would not have helped them avoid adverse 16
consequences. If the Lenders or their Loan Managers had called Citibank 17

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and learned that the payments resulted from mistake, there is nothing 1
they could have done to change their circumstances. 2
In such circumstances, applying the inquiry notice rule requires 3
hypothesizing about the hypothetical prudent person that he faces a 4
circumstance akin to there being “some [unknown] right or title in 5
conflict with that he is about to acquire,” Anderson, 152 N.Y. at 293, such 6
that, by investigating the red flags to determine the true facts, he could 7
avoid the risk of loss that will arise if he fails to investigate. See also 8
Williamson, 15 N.Y. at 362; Third Restatement § 69 cmt. f (“The standard 9
that determines the inferences to be drawn and the inquiries to be made 10
is that of a reasonable and prudent person whose interests would be served 11
by obtaining the knowledge in question.”) (emphasis added). 12
In other words, to apply the inquiry notice test in these 13
circumstances, it is necessary to imagine that the hypothetical reasonably 14
prudent person, who, upon receiving the payments received by the 15
Defendants, and knowing the facts available to the Defendants, faces a 16
risk of loss if the payment turns out to be mistaken, a risk he could avoid 17

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by learning the true facts. If the suspicions and warnings raised by the 1
red flags are so remote and improbable that it is consistent with 2
reasonable prudence to ignore them without making inquiry, then the 3
person is not on notice of the facts that reasonable inquiry would have 4
revealed. On the other hand, if reasonable prudence on confronting those 5
suspicions and warnings would call for making inquiry in the interest of 6
avoiding a risk of the loss that would befall him if the payments proved 7
mistaken, the person is on notice of the facts that would be revealed by 8
reasonable inquiry. 9
2. The facts of the August 11 transfer exhibited red 10
warning flags that would have caused a reasonably 11
prudent person who faced an avoidable risk of loss to 12
make reasonable inquiry as to whether the transfer 13
resulted from mistake. 14
15
In our view, the Defendants are not shielded from Citibank’s claims 16
for restitution under the discharge-for-value rule because they were on 17
inquiry notice that the unexpected and surprising apparent repayment of 18
the full principal amount of their loans was attributable to mistake. On 19

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August 11, Defendants were aware of four red warning flags consisting 1
of facts suggestive of accident or mistake. 2
a) The absence of prior notice of a prepayment, to which the Lenders were 3
contractually entitled. As explained below, the 2016 Loan Agreement 4
required that Citibank give the Defendants prior notice if Revlon 5
undertook to prepay the principal of the Loan. Section 2.11(a) of the 6
Agreement, entitled “Optional Prepayments,” permitted Revlon to make 7
prepayments, but only “upon irrevocable written notice delivered to 8
[Citibank] . . . three Business Days prior thereto.” Agreement, § 2.11(a). 9
“Upon receipt of any such notice, [Citibank was required to] promptly 10
notify each relevant Lender thereof.” Id. (emphasis added). 11
The Defendants, however, had received no prior notice from 12
Citibank. In fact, they did not even receive such a notice of Revlon’s intent 13
to prepay together with the payment itself on August 11, at which time 14
Citibank sent them notice of the interest being paid without reference to 15
any payment of principal. The absence of prior notice from Citibank 16
raised a substantial red flag supporting suspicion. Why would Citibank, 17

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the Lenders’ agent, have failed to perform its contractually required 1
obligation to give the Lenders prior notice of Revlon’s huge 2
prepayment?14 3
In discussing the improbability of so gigantic a banking error, the 4
district court emphasized that Citibank was “one of the most 5
sophisticated financial institutions in the world.” In re Citibank, 520 F. 6
Supp. 3d at 433. That same factor supports the unlikelihood that Citibank 7
would have neglected to give its clients a contractually required 8
notification in a matter of such importance. 9
b) The apparent inability of the insolvent Revlon to make a near $1 billion 10
repayment. A hypothetical prudent investor, who suddenly received an 11
unannounced prepayment of the principal of the loan would have been 12
astonished, in light of Revlon’s apparent deep insolvency, that it could 13
14 This was all the more surprising in that, had Revlon intended to
prepay the Loan on August 11, it would have been contractually
obligated to notify the Citibank five calendar days before, on Thursday
August 6, three business days before the prepayment. Accordingly, five
days would have passed without Citibank performing its contractual
obligation to give its principals the prompt notice to which they were
entitled.

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find the resources to make a payment of nearly $1 billion. 15 The 1
Defendants believed at the time (as alleged on their behalf in the UMB 2
Bank Complaint filed on the day following the August 11 transfer) that 3
Revlon was insolvent by as much as $1.71 billion. The belief that Revlon 4
was deeply insolvent would have prompted substantial doubts on the 5
part of the hypothetical prudent investor of Revlon’s ability to make such 6
a huge cash payment. 7
Those doubts would have been heightened by the fact that, as the 8
UMB Bank Complaint filed on behalf of the Lenders explained, in May 9
2020, a few months previously, Revlon had committed as collateral assets 10
that were “enormous relative to the value of the entire Revlon 11
enterprise,” UMB Comp. ¶ 2, in part by withdrawing collateral it had 12
previously committed to the 2016 Loan, committing it instead to the May 13
2020 loan, in order to secure $800 million of new financing. Furthermore, 14
15 A reasonable person in the Defendants’ position, on seeing that one
or more of his client-Lenders received what appeared to be full
repayment of principal would assume that all Debtholders received a
full paydown, as the Agreement provided that optional prepayments
had to be made on a pro rata basis. Agreement § 2.11(c).

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the Defendants recognized (and the UMB Bank Complaint alleges) that 1
the COVID-19 pandemic, which was rampant in August 2020, had had 2
disastrous effects on Revlon’s make-up business, further restricting 3
Revlon’s access to funds. The UMB Bank Complaint, seeking to bar 4
Revlon from diverting collateral from the 2016 Loan, expressed the 5
Defendants’ fear that Revlon would be incapable of paying their loan 6
when it came due. To a prudent investor who knew what the Defendants 7
knew, Revlon’s sudden deployment of nearly a $1 billion to retire the 8
2016 Loan three years before it was due would have seemed 9
bewilderingly improbable. This was a second red flag that would have 10
stimulated doubt in the prudent investor as to whether the payment 11
resulted from mistake. 12
c) In view of the fact that the 2016 Loan was trading at 20-30 cents on the 13
dollar, it could have been retired far more cheaply than by paying its full value. 14
A third red flag arose from the fact that, by reason of Revlon’s perceived 15
inability to repay the 2016 Loan, loan participations were trading at 20-30 16
cents on the dollar. If Revlon wished to retire the 2016 Debt prematurely, 17

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it could do so far more cheaply by buying available participations on the 1
market (until Revlon’s purchases drove the price up to par) rather than 2
by paying the full-face amount of the entire debt. But there was no 3
evidence of rising market prices indicative of any sustained buying. It 4
would have seemed strange and improbable to a prudent investor for the 5
insolvent Revlon to pay much more than it needed to pay to retire the 6
Loan. 7
d) Revlon’s elaborate contrivance only four days earlier to avoid 8
acceleration of the 2016 Loan made no sense if Revlon was planning to retire that 9
debt a few days later. As recounted above, only four days prior to the 10
August 11 surprise payment, Revlon had made an exchange offer to 11
holders of the 2021 Notes. The apparent purpose of the exchange offer (as 12
confirmed by the testimony of Revlon’s former treasurer) was to avoid 13
accelerating the maturity of the 2016 Loan through failure to retire the 14
2021 Notes by November 16, 2020. 16 If Revlon had been planning a 15
16 J.A. 861 [Tr. 889] (testimony of Warren) ([Q.] Mr. Warren, was one of
the ways that Revlon was looking to address the springing maturity an

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voluntary acceleration of the 2016 Loan four days later, it had no reason to 1
engage in the elaborate maneuver of the exchange offer to avoid its 2
involuntary acceleration. 3
* * * 4
The district court never expressly stated a conclusion as to whether, 5
under an inquiry notice standard, the facts of the August 11 transaction 6
were suspicious enough to give rise to a duty to inquire. This was because 7
the court reasoned that, if there was such a duty, the Defendants had 8
discharged it by ascertaining that Citibank’s payment exactly matched 9
the outstanding principal plus accrued interest. However, the district 10
court did conclude that “most of [Citibank’s] purported red flags do not 11
withstand scrutiny. And even taking them together they do not add up 12
to notice of the mistake”. In re Citibank, 520 F. Supp. 3d at 440; id. at 439 13
(“it is far from clear that the facts known to any Defendant (or its agents) 14
exchange offer -- can you tell me publicly whether or not Revlon -- can
you tell me one of the ways that Revlon was looking to address the
springing maturity? A. Yes. . . . Revlon did launch an exchange offer
looking to exchange for new notes, as well as some cash considerations,
existing 2021 notes.).

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made it prudent to conduct further inquiry.”) (internal quotation marks 1
removed). To the extent that the district court’s conclusion included the 2
assessment that the facts of the August 11 transfer would not have 3
sufficiently aroused the suspicions of a reasonably prudent investor to 4
prompt further inquiry, we disagree. 5
What the district court found most persuasive was the fact that 6
Citibank’s payment matched to the penny the amount of outstanding 7
principal plus interest owed to each lender. The court reasoned that: 8
where, as here, a lender is minding her own business, and 9
receives an unexpected and unscheduled payment from a 10
borrower that matches exactly the amount of the borrower’s 11
outstanding debt, it is reasonable to assume that the 12
borrower has intentionally paid off the debt. In fact, it might 13
even be unreasonable to assume otherwise. 14
Id. at 433. 15
16
The court further found that the Defendants “believed, and were 17
justified in believing, that the payments were intentional” because of the 18
improbability “that Citibank, one of the most sophisticated financial 19

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institutions in the world, had made a mistake that had never happened 1
before, to the tune of nearly $1 billion.” Id. at 451. 2
In rejecting Citibank’s arguments regarding specific red flags, the 3
court reasoned as follows. 4
As to Citibank’s argument based on Citibank not having sent the 5
Defendants prior notice of Revlon’s intent to prepay, the district court 6
dismissed this as having no red-flag significance. According to the district 7
court’s reasoning, because the Agreement did not define the word 8
“promptly,” the Agreement “did not necessarily require” that Citibank 9
notify the Defendants before, or even together with, the actual 10
prepayment. Id. at 443 (internal citation removed). The district court 11
further relied on the fact that Citibank’s officer who signed the Amended 12
Loan Agreement conceded in his testimony that “he did not know if 13
Citibank's obligation to ‘promptly’ notify the Lenders had to be satisfied 14
prior to payment or could be satisfied up to seven days after . . . .” Id. 15
As for Citibank’s argument based on the Defendants’ belief that 16
Revlon was deeply insolvent and lacked means to make a payment of 17

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nearly $1 billion, the district court, while acknowledging that the 1
argument “would undoubtedly raise a red flag in most instances,” id. at 2
446, rejected it in the circumstances of this case for two reasons. The first 3
was that, in the May 2020 Transaction, “Revlon was known to have paid 4
off hundreds of millions of dollars in debt, some at par, even though its 5
‘liquidity position’ had been ‘extremely tight[.]’” Id. If Revlon had done 6
this in May, the district court reasoned, a reasonable investor would 7
conclude that Revlon could do it again in August. The district court’s 8
second reason was that “Revlon was known to have the financial backing 9
of billionaire Ronald Perelman and his holding company, MacAndrews 10
& Forbes Inc., an investment firm that owned approximately 85% of 11
Revlon's equity.” Id. Defense witnesses had testified to having been 12
“surprised many times over the years that [Revlon was] able to get some 13
sort of a refinancing or prop up one of their entities . . . in spite of a view 14
that it was going to be very difficult or impossible to do so.” Id. “Given 15
the reputations and history of Revlon and Perelman,” the district court 16
concluded that those beliefs “were not unreasonable.” Id. It added that 17

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the Defendants’ antagonisms that led to the August 12 filing of the UMB 1
Bank lawsuit made it “even more reasonable” for Defendants to believe 2
“that Revlon and Citibank, perhaps with the help of Perelman and 3
MacAndrews & Forbes, had figured out a creative way to” avert or 4
neutralize that threatened suit. See id. at 447. 5
We believe that the district court’s reasoning in deprecating 6
Citibank’s arguments based on these red flags depended on errors of law 7
primarily involving the application of the inquiry notice test. 8
The district court’s reasoning depended heavily on its factual 9
findings that the Defendants believed in good faith that the payments 10
they received were not the product of mistake, coupled with the court’s 11
conclusion that those beliefs were reasonable. We think this reasoning 12
represented a misunderstanding of the inquiry notice test. The test is not 13
whether the recipient of the mistaken payment reasonably believed that 14
the payment was genuine and not the result of mistake. The test is 15
whether a prudent person, who faced some likelihood of avoidable loss 16
if the receipt of funds proved illusory, would have seen fit in light of the 17

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warning signs to make reasonable inquiry in the interest of avoiding that 1
risk of loss. In other words, when the information available to the 2
recipient of an apparent repayment includes facts supporting a 3
reasonable suspicion of mistake, the question is not whether the recipient 4
reasonably believed the payment was valid. It is whether a reasonably 5
prudent investor, focusing on all the available information (some 6
supporting the validity, some supporting doubts) who would be at risk 7
of an avoidable loss if the payment proved illusory, would have found 8
the factors supporting doubt sufficiently troublesome in the mix to 9
warrant making reasonable inquiry, in which case the recipient would be 10
chargeable with the knowledge that such reasonable inquiry would have 11
revealed. It is an objective test, not dependent on what the actual recipient 12
believed. 17 13
17 Defendants argue that, under an inquiry notice standard, a court may
impute to a party that which would have been learned via a reasonable
inquiry only if, prior to the inquiry, the truth of the fact to be discovered
via the hypothetical inquiry would appear to a reasonable person to be
“probable, not merely possible.” Defs.’ Br. at 43. The only authority the
Defendants cite in support of this proposition did not concern the issue

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of notice in the context of a defense of bona fide purchaser for value.
The issue in Newman v. Warnaco Grp., Inc., 335 F.3d 187, 193 (2d Cir.
2003), was when the statute of limitations for federal securities fraud
claims will begin to run. Our court ruled that the statute begins to run
“when the circumstances would suggest to an investor of ordinary
intelligence the probability that she has been defrauded” and that “[t]he
fraud must be probable, not merely possible.” Id. We agree with the
Defendants that, under New York’s inquiry notice test, the likelihood of
fraud must be more than a mere possibility. It is always possible that the
facts are otherwise than as represented. But the Defendants’ argument
that it must be probable, i.e. more likely than not, is not consistent with
standard established by the New York Court of Appeals for notice in the
context of a bona fide purchaser defense. The standard, as explained
above, is neither “possible” nor “probable”: it is somewhere in between
and was defined by New York’s highest court as falling where a
hypothetical prudent investor would be prompted to make inquiry,
rather than simply assume that the facts are as represented. Reynolds v.
Com. Fire Ins. Co., 47 N.Y. 597, 604 (1872) (“[W]hatever is notice enough
to excite attention, and put a party upon his guard and call for inquiry,
is notice of everything to which such inquiry might have led.”); Miner v.
Edwards, 634 N.Y.S.2d 306, 307 (4th Dep’t 1995) (“[I]f the facts within the
knowledge of the purchaser are of such a nature, as . . .to excite the
suspicion of an ordinarily prudent person and he fails to make some
investigation . . . he will be chargeable with that knowledge which a
reasonable inquiry, as suggested by the facts, would have revealed”)
(internal quotation marks removed); see also Fid. & Deposit Co. of
Maryland, 123 N.E. at 372 (“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 . . . .”) (emphasis added).

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Thus, where, as here, there are numerous recipients of the mistaken 1
payment, the test comes out with the same result for each payee, 2
regardless of one optimistic recipient having believed in good faith that 3
the payment was valid, while another pessimistic recipient dwelled on 4
the reasons to doubt, and a third recipient, like a number of these 5
Defendants, having been oblivious to the issue. So long as the pertinent 6
available information was the same for each, the result of the test would 7
be the same for each. 8
With respect to several issues, the district court, we think 9
incorrectly, justified its conclusions on the grounds that the Defendants’ 10
belief that there was no mistake was reasonable under the circumstances. 11
A conclusion that those beliefs on the part of the Defendants were 12
reasonable does not, however, negate that a reasonably prudent investor, 13
to whom the red flag information was available, would have made a 14
simple inquiry to avoid a loss. Those red flags were not explained away 15
by the unlikelihood that a mistaken payment would have matched the 16
amount of the outstanding debt. 17

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Furthermore, we disagree with the district court’s reasoning in its 1
assessment of the extent to which the red flags would have raised the 2
suspicions of a hypothetical prudent investor. In particular, the court’s 3
analysis of the red flag consisting of Citibank’s failure to give the Lenders 4
notice suffered from legal error. As noted above, because Citibank’s 5
contractual obligation was to give the Lenders notice “promptly” upon 6
receipt of Revlon’s contractually mandated three days prior notice, and 7
because “promptly” was not defined in the Agreement, the district court 8
concluded that Citibank had no contractual obligation to give the Lenders 9
notice prior to the impending payment and could have waited for several 10
days until after the Lenders’ receipt of the payment without breaching its 11
contractual obligation. 12
We do not think that the Agreement’s requirement of prompt 13
notification could be reasonably interpreted as allowing delay of several 14
days so that the notice would not have arrived until after the payment. 15
Although it is true that “promptly” was not further defined by the 16
contract, that term is well understood to mean “without delay,” 17

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68
“immediately,” or “at once.” Oxford English Dictionary (3d ed. 2007 1
online version) (defining “promptly” as “in a prompt manner; readily, 2
quickly; at once, without delay; directly, forthwith, there and then.”); 3
American Heritage Dictionary of the English Language (5th ed. 2022 4
online version) (defining “promptly” as “[b]eing on time; punctual” or 5
“[c]carried out or performed without delay”); Merriam-Webster 6
Dictionary (https://www.merriam-webster.com/dictionary/promptly) 7
(defining “promptly” as “in a prompt manner; without delay; very 8
quickly or immediately”). We are aware of no evidence that could 9
support the conclusion that Citibank, by waiting more than five days to 10
inform the Lenders of an incoming full prepayment of the Loan, could 11
have been said to have acted “without delay”. Of course, how much delay 12
the term “promptly” can accommodate can vary in different 13
circumstances. But, for this circumstance, the district court’s 14
interpretation of the contractual term stripped that term of its contractual 15
purpose. The provision of the Agreement, first requiring Revlon to give 16
three days’ notice to Citibank, and then requiring Citibank to “promptly” 17

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notify the Lenders, had an obvious double purpose: first, to give Citibank 1
advance opportunity to prepare to discharge its obligations to receive and 2
pass on Revlon’s prepayment, and then to give the Lenders advance 3
opportunity to make provisions for advantageous immediate 4
reinvestment of the funds. If, in accordance with the district court’s 5
interpretation, Citibank’s obligation to pass along the notice “promptly” 6
permitted Citibank to wait three, or five, or more, days before bothering 7
to advise the Lenders, effectively depriving them of any opportunity to 8
plan in advance for the reinvestment of the funds, the clause requiring 9
Citibank to act “promptly” would lose its purpose. The Lenders had no 10
need to be told of Revlon’s intent to prepay after they had received the 11
prepayment. 12
We believe the district court also erred in the significance it 13
accorded to the testimony of Citibank officials to the effect that they did 14
not know whether the contractual requirement to act “promptly” 15
constituted a legal requirement of prior notification. For example, 16
Tichauer, the officer who signed the Loan Agreement on behalf of 17

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Citibank, testified (as summarized by the district court) that “he did not 1
know if Citibank’s obligation to ‘promptly’ notify the Lenders had to be 2
satisfied prior to payment[.]” In re Citibank, 520 F. Supp. 3d at 443. The 3
district court treated this testimony as effectively negating Citibank’s 4
argument that the Defendants’ nonreceipt of a prior notification from 5
Citibank was a red flag. We believe this was erroneous. The Defendants 6
had no awareness of Tichauer’s thinking on whether Citibank would 7
have been under legal obligation to give prior notice. Furthermore, the 8
reluctance of nonlawyers to give legal conclusions on the question 9
whether Citibank would have been in breach of contract had little bearing 10
on the significant question. The crucial question was whether a 11
hypothetical prudent investor who might have incurred avoidable loss if 12
the surprise payment proved illusory would have seen Citibank’s failure 13
to give notice as a factor supporting doubt, which, when taken together 14
with the other visible red flags, would have led the prudent investor to 15
make inquiry. While we cannot say that the testimony of Citibank’s lay 16
witnesses in response to questions about legal conclusions had no 17

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71
relevance whatsoever, it had little bearing on the significant question and 1
could not justify negating Citibank’s contention that the nonreceipt of 2
prior notice would have constituted a factor contributing to alerting the 3
suspicions of the hypothetical prudent investor. 4
Furthermore, we believe the district court erred in its two reasons 5
for minimizing the degree to which Revlon’s apparent insolvency would 6
raise doubts about its ability (or desire) to raise nearly $1 billion to prepay 7
a loan by three years: first that Revlon, despite similar liquidly issues, had 8
managed a few months before to execute the May 2020 transaction, 9
raising over $800 million in new funding and second, that Ronald 10
Perelman had a reputation for bailing out Revlon. 11
As for Revlon’s recent success in securing new funding despite its 12
dire financial condition, the fact that four months earlier Revlon had 13
managed, despite its insolvency, by pledging what the Lenders’ agent 14
described in the UMB Bank litigation as an enormous percentage of its 15
total assets, to borrow $800 million made it less likely, rather than more 16
likely, that Revlon would be able to do this again four months later in 17

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August 2020. The collateral used to enable the May 2020 borrowing was 1
no longer available to support a borrowing in August 2020 to prepay the 2
2016 Loan. And as for the Defendants’ deus ex machina hypothesis – that 3
Ronald Perelman had injected $1 billion of new money into Revlon -- 4
there had been no reports in the financial press of Revlon’s obtaining any 5
new financing.18 6
We also believe that the district court erred in giving weight to the 7
proposition that a hypothetical prudent investor was unlikely to be 8
troubled by these red flags if none of the recipients in the Lender- 9
Defendant camp found them troublesome. See In re Citibank, 520 F. Supp. 10
18 Citibank further argued in its opening brief that “[n]one of Revlon’s
disclosures for the 2021 Notes [Exchange] mentioned a simultaneous
effort to raise additional capital to pay the 2016 Term Loan, though
disclosure of such an effort would be expected as a matter of securities
law.” Citibank’s Br. at 46-47. Citibank supports its contention by
pointing to the fact that, Todd Eric Warren, Revlon’s former corporate
treasurer, on cross-examination agreed with the statement from
Citibank’s lawyer that “if Revlon was seeking to raise several hundred
million dollars to pay off the term loan at the same time that it had the
exchange offer open, that that would have had a material impact on the
exchange offer and that financing effort would have had to have been
disclosed?” J.A. 868 [Tr. 916-17]. Defendants have not argued to the
contrary.

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3d at 431-32, 435-39. That inference, however, does not follow under the 1
inquiry notice test because the circumstances of the hypothetical prudent 2
investor differ so substantially from those of the Defendants and Lenders. 3
First, the hypothetical prudent investor is charged with awareness 4
of all the information that was available to the recipients of the mistaken 5
payment. The Lenders and Defendants did not necessarily focus on the 6
oddity that, in spite of its contractual obligation, Citibank had not given 7
prior notice of the coming prepayment; the improbability that Revlon 8
could have found the money to make a near $1 billion prepayment in its 9
weakened financial condition; the unlikelihood that Revlon would have 10
made the August 7 exchange offer for the purpose of avoiding an 11
involuntary obligation to prepay the 2016 Loan if it was planning in any 12
event to prepay that Debt four days later; and the unlikelihood that 13
Revlon would pay par to retire the debt when a part of the debt could be 14
retired more cheaply by purchases in the marketplace. These thoughts 15
may not have crossed the minds of Lenders or Defendants at the moment 16
of receipt of payment. On the other hand, the hypothetical prudent 17

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74
investor is charged under the inquiry notice test with awareness of all the 1
information that was available to the recipients of the payments. The test 2
requires that he contemplate these concerns, of course giving them no 3
importance if he concludes they have no importance. 4
Second, the hypothetical prudent investor faces a risk of avoidable 5
loss if the payment proves illusory. His prudence in guarding against 6
such a loss gives him a motivation and obligation to evaluate whether the 7
red flags warn of a sufficient likelihood of loss to prompt inquiry. If that 8
likelihood is sufficiently high, his prudence requires that he inquire. The 9
Lenders and Defendants in contrast bore no risk of any loss that was 10
avoidable. They had no incentive to ponder the likelihood that the 11
payment would prove illusory. Making inquiry would not have 12
improved or changed their outcomes. 13
As a result, the reactions of the Lenders and Defendants afford little 14
or no basis for assessing the hypothetical reaction of the reasonably 15
prudent investor. 16

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Finally, Defendants and the district court identify several 1
additional facts that weigh in favor of a belief of the genuineness of the 2
transfer. These include the fact that the calculation statement received by 3
the Lenders described the interest being paid as “due”, a fact that would 4
be true only if Revlon was paying principal, In re Citibank, 520 F. Supp. 3d 5
at 443, and that the impending filing of the UMB Bank Complaint gave 6
Revlon a motivation to rid itself of troublesome lenders who were 7
threatening litigation. Id. at 446-47. We do not disagree that these facts 8
tend to weigh in favor of a belief that the payment was genuine. 9
Nonetheless, there remained troublesome red flags suggestive of doubts 10
that were not explained away by the facts pushing in the opposite 11
direction. The force of the factors supporting doubt need only be 12
sufficient to prompt a prudent investor to make inquiry. 13
Notwithstanding factors that tended to support genuineness, the factors 14
supporting doubt were sufficiently troublesome to prompt a prudent 15
investor at least to make a telephone call to Citibank. That is all that was 16
needed to satisfy inquiry notice. 17

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In sum, considering the factors correctly cited by the district court 1
as supporting a reasonable belief that the payment was genuine, together 2
with the factors identified by Citibank as red flags supporting doubt, we 3
conclude that a reasonably prudent investor who faced an avoidable risk 4
of loss if the payment proved mistaken and therefore subject to recall, 5
would have seen fit to make a telephone call to inquire of Citibank. 6
3. A reasonable inquiry would have revealed the 7
mistake. 8
9
The district court concluded that reasonable inquiry would not 10
have revealed the mistake. We respectfully disagree. 11
The court arrived at this conclusion through the following 12
reasoning. The court observed that John Byrne, an expert witness for 13
Citibank, testified as to how a financial institution would investigate a 14
circumstance in which it received from a bank more money than it 15
expected, a phenomenon known as a “cash break.” He testified that, 16
when you have a cash break, you then investigate why there is a 17
discrepancy, stating further: 18
Q. What does that investigation involve, in your opinion? 19

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1
A. It's a series of many things. It's third-party market data, it's 2
wisdom in some cases. And if the tools aren't available in-house or 3
immediately to you, then you go to the source and determine who 4
the source is representing, while typically there is an issuer or 5
paying agent, trustee, what have you. So in this case, you go back 6
to Citibank, ask for further clarification as to what the payment 7
represents, get some type of confirmation as to what the payment 8
represents. If you're unhappy with that response, then you contact 9
the issuer itself, in this case it would be Revlon. 10
11
J.A. 930 [Tr.1167]. The district court interpreted Byrne’s explanations to 12
mean that “a reasonable inquiry could involve ‘many things,’” including 13
“third-party market data” and “wisdom in some cases.” In re Citibank, 520 14
F. Supp. 3d at 439. According to Byrne, “your wisdom gives you the 15
ability to do a sanity check . . . as to whether the information that you are 16
being told is sufficient.” J.A. 940 (Tr. 1207). Then, in the district court’s 17
words, “[a]ccording to Byrne, it was only if the flags remained red after 18
consulting these sources – market data and ‘wisdom’ – that a reasonable 19
investor would have consulted the sender of the funds to confirm 20
whether the payments were intentional.” In re Citibank, 520 F. Supp. 3d at 21
439. The court then quoted Byrne, “[i]f the tools aren’t available in house 22
or immediately to you, . . . . then you go to the source.” Id. 23

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Based on this testimony, the district court concluded that a 1
reasonably prudent financial institution would not have necessarily gone 2
to the source to ask whether there was an error. The court pointed out 3
that some of the Defendants had taken the trouble to ascertain that “other 4
Lenders had received a full paydown”, and that the payments “matched 5
the outstanding principal and interest to the penny.” Id. at 440. 6
“[A]pplying their ‘wisdom’ and experience, [the Defendants] concluded 7
that the payments were intentional full prepayments of the loan.” Id. The 8
court relied on the testimony of Caraher, an executive of one of the 9
Defendants, that “when a borrower or its administrative agent pays the 10
exact amount owed in outstanding principal and interest, that is a clear 11
indication that the loan is being paid down” and that he had “never, in 12
almost 20 years in the industry, seen such a transfer made by accident.” 13
Id. (quoting J.A. 550 (Caraher Aff. ¶ 20)). The district court concluded that 14
“[o]n Byrne’s own view, that satisfied any duty of inquiry that a 15
reasonable investor may have had. It follows that, even if Defendants are 16
charged with the knowledge that a reasonable inquiry would have 17

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yielded . . . they were not on notice that the payments were made by 1
mistake.” Id. 2
The fulcrum of the district court’s reasoning was the proposition, 3
which the district court attributed to Byrne, that “it was only if the flags 4
remained red after consulting . . . market data and ‘wisdom’ that a 5
reasonable investor would have consulted the sender of the funds.” Id. at 6
439-40. The problem with the court’s conclusion that the reasonable 7
investor would not have inquired of the sender of the funds is that the 8
red flags representing the reasons for doubt did remain red 9
notwithstanding that the payments matched the amount of principal plus 10
accrued interest. 11
The low likelihood of error when the payment matches the amount 12
of the debt did nothing to explain away the four factors described above 13
that furnished reasons for doubt. Those factors remained troublesome. 14
The fact that the payment matched the amount of the debt did nothing to 15
explain or dispel these sources of doubt. Under Byrne’s formula, after 16
consultation of market data and wisdom, the flags would have remained 17

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red. The prudent investor, who, unlike these Defendants, ran a risk of 1
incurring an avoidable loss if the payment proved illusory, would have 2
placed a call to its agent Citibank to ask. 3
And beyond Byrne’s testimony, we do not believe that, as a matter 4
of New York law, an inquiry ascertaining that the payment matched the 5
amount of the debt would qualify as a “reasonable inquiry” as the term 6
is understood in the context of the inquiry notice standard. Under New 7
York law, if a party has ready access to information that will either 8
confirm or quiet their suspicions, a reasonable inquiry requires accessing 9
that information. Fid. & Deposit Co. of Maryland, 123 N.E. at 373 (a 10
reasonable inquiry by a bank into why checks cashed by one of its 11
customers were countersigned by a clerk of court would involve asking 12
the customer why the checkers were countersigned); Ward v. City Trust 13
Co. of New York, 84 N.E. 585, 588 (N.Y. 1908) (a reasonable inquiry by a 14
trust company into the propriety of a corporate officer’s use of corporate 15
funds to pay personal debts would have included an examination into 16
whether the company’s board of directors authorized the officer to so use 17

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the funds, where “[t]he minute book of the board was open to 1
examination by representatives of the trust company . . . .”). And if the 2
first inquiry fails to answer material questions that could have been 3
answered by a further inquiry that was not unreasonably onerous, and 4
that a reasonable person would have readily identified as a reasonable 5
inquiry, the first inquiry does not satisfy the obligation under New York 6
law to make inquiry, or be charged with the knowledge that the inquiry 7
would have produced. See Ward, 84 N.E. at 588 (a bank could not satisfy 8
the obligation of inquiry into why corporate officers were using corporate 9
funds to repay personal debts by simply asking the corporate officers 10
what they were doing because the officers could not be relied upon to 11
give a truthful answer as they were “acting in their own interest”, and 12
because a different inquiry – checking the minute book of the board – 13
would just as easily reveal if the officers were acting within the scope of 14
their authority). Here, a call to Citibank would have been an easy and 15
obvious inquiry which, unlike simply confirming internally that the size 16
of the payment matched the size of the debt, would have answered any 17

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suspicion that the August 11 payment resulted from mistake. A payee 1
who failed to call Citibank or Revlon, but relied instead on nothing more 2
than ascertaining that the payment matched the debt, could not be said 3
to have conducted a reasonable investigation. 4
In sum, while it was reasonable for the Defendants to begin their 5
inquiry to resolve the red flags by ascertaining that the payments equaled 6
the size of the debt, when that fact failed to explain away the red flags, 7
the inquiry notice test required them to take the easy further step of 8
placing a call to their agent Citibank, which had sent the payment. 9
Having failed to make that call, they were chargeable with notice of what 10
they would have learned. We conclude that the Defendants were on 11
notice of Citibank’s mistake and were thus ineligible to claim the 12
discharge-for-value defense. 13
B. Defendants are not protected by the Banque Worms ruling 14
because on August 11, they were not entitled to the money they 15
received from Citibank, as Revlon’s debt was not yet payable. 16
17
As we read the Banque Worms opinion, it made clear that the rule it 18
espoused operated in favor of a recipient of a mistaken payment who was 19

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“entitled” to the money. This is not only because the Court of Appeals 1
said so, but also because every precedential ruling on which the Banque 2
Worms opinion relied in support of denying restitution of a mistaken 3
payment involved present entitlement of the payee to the money it 4
received and two of the precedents expressly stated that that the rule was 5
for circumstances in which the money was “due” to the recipient of the 6
funds. In our case, the Defendants (and their Lenders) were not entitled 7
to receive repayment for the Loans. Repayment was not due for another 8
three years. 9
In undertaking to justify its ruling allowing Worms to keep the 10
moneys paid to it by mistake, the Court explained, 11
When a beneficiary receives money to which it is entitled and has no 12
knowledge that the money was erroneously wired, the beneficiary 13
should not have to wonder whether it may retain the funds; rather, 14
such a beneficiary should be able to consider the transfer of funds 15
as a final and complete transaction, not subject to revocation. 16
17
570 N.E.2d at 196 (emphasis added). 18

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Worms was entitled to the money. The Defendants in our case were 1
not. Worms’ loan to Spedley was payable, and Worms had demanded 2
payment. The Loan in our case was not payable for three more years. 3
The term “entitled” denotes “a legal right”, Oxford English 4
Dictionary (3d ed. 2013 online version) (defining “entitled” as “that has a 5
legal right or just claim to do, receive, or possess something”); American 6
Heritage Dictionary of the English Language (5th ed. 2022 online version) 7
(defining “entitle” in pertinent part as “[t]o furnish with a right or claim 8
to something.”); Black’s Law Dictionary (11th ed. 2019) (defining “entitle” 9
as “[t]o grant a legal right to or qualify for”). A creditor has a “legal right” 10
to funds loaned only when the debtor has an obligation to pay those 11
funds. Indeed, Defendants do not cite a case (and we are aware of none) 12
in which a Lender was described as “entitled” to funds, without 13
qualification, when the lender had no right to demand payment until a 14
future date.19 15
19 Defendants argue that the Court of Appeals held that the discharge-
for-value rule applied not because Spedley’s debt to Worms was

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Moreover, none of the New York precedents cited by the Banque 1
Worms Court as support for its ruling, so far as they revealed, involved a 2
debt that was not yet payable, Carlisle v. Norris, 215 N.Y. 400, 404-05 3
(1915); Stephens v. Bd. of Educ. of City of Brooklyn, 79 N.Y. 183, 185 (1879) 4
(converted funds); Southwick v. First Nat. Bank, 84 N.Y. 420 (1881) (debt 5
presently owed to a bank by its customer); White v. Cont'l Nat. Bank, 64 6
N.Y. 316, 317 (1876) (drawn bank draft); Smith & McCrorken v. Chatham 7
Phenix Nat. Bank & Tr. Co., 267 N.Y.S. 153, 3154-55 (1st Dep’t 1933) 8
(deposited check); State Farm Mut. Auto. Ins. Co. v. Stokos, 317 N.Y.S.2d 9
payable, but because Worms was a creditor of Spedley. Defs.’ Br. at 18-
19. Defendants claim this reading is supported by the Banque Worms
Court’s later statement that “[a]pplication of the ‘discharge for value’
rule to the circumstances presented here is particularly appropriate . . .
.[among other reasons because] as a creditor of Spedley, Banque Worms
was a beneficiary entitled to the funds who made no misrepresentation
and did not have notice of the transferor’s mistake.” 570 N.E.2d at 197-
98 (quotation marks removed). While it is true that Worms was entitled
to the money and had demanded repayment, if its loan to Spedley had
not been payable for another three years, as here, Worms would not
have been “entitled” to receive payment. We see no reason to doubt that
the court used the term “money to which it is entitled” with full
awareness of its meaning, and not to mean “money it has loaned but to
which it is not yet entitled.”

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86
706, 707 (Civ. Ct. 1970) (bill for auto repairs). Two of the cited precedents 1
described the rule that justified denial of restitution in terms of the payees 2
having received payment of a debt that was “due.” Carlisle, 215 N.Y. at 3
415 (“If defendants received the proceeds in good faith and without 4
notice of any wrong and credited them on an indebtedness due them, 5
plaintiff is not entitled to recover them back.”) (emphasis added); New 6
York Title & Mortgage Company v. Title Guarantee & Trust, 201 N.Y.S. 529, 7
531 (1st Dep’t 1923) (“The question now arises on this appeal whether the 8
plaintiff, New York Title and Mortgage Company, may recover from the 9
defendant Title Guarantee and Trust Company the money paid in 10
satisfaction of the debt due it by Stainton.”) (emphasis added). 11
Accordingly, we see no reason to believe that the Court of Appeals did 12
not mean what it said in characterizing the principle as applicable to a 13
beneficiary’s receipt of “money to which it is entitled.” 20 14
20 Defendants argue that the Court of Appeals did not treat these cases
as “stating the modern governing standard under New York law”, but
rather as “as an example of one of two ‘divergent’ lines of historical
authority.” Defs.’ Br. at 27. While Defendants are correct that the Court

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87
This reading of the discharge-for-value rule, furthermore, better 1
harmonizes with New York’s “general rule” covering the receipt of 2
mistaken payments, which is that a party receiving money as the result 3
of a mistake must return it. Ball, 95 N.E. at 721. The Ball court described 4
the rule as “predicated upon the principle that a party who pays money 5
under a mistake of fact, to one who is not entitled thereto, must in equity 6
and good conscience be permitted to get it back . . . .” Id.; see also Kingston 7
Bank, 40 N.Y. at 395; Nat'l Bank of Com. in New York v. Nat'l Mechanics' 8
Banking Ass'n, 55 N.Y. 211, 213 (1873) (“It is now settled, both in England 9
and in this State, that money paid under a mistake of fact may be 10
recovered back, however negligent the party paying may have been in 11
of Appeals did not claim that the rules applied in these cases was
identical to the rule applied in Banque Worms, the Court of Appeals
clearly viewed these cases as indicative of the nature of the discharge-
for-value rule. Specifically, the Court of Appeals identified Carlisle,
White, Smith & McCrorken, New York Title & Mortgage, and State Farm as
“cases that arguably lend[] support to the proposition that New York,
long ago, embraced the ‘discharge for value’ rule”, Banque Worms, 570
N.E.2d at 189. Furthermore, the Court of Appeals cited Southwick and
Stephens as cases applying rules motivated by the sort of finality
concerns that supported the Court to endorsement of the discharge-for-
value rule. Id. at 195-96.

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making the mistake, unless the payment has caused such a change in the 1
position of the other party that it would be unjust to require him to 2
refund.”); Union Nat. Bank v. Sixth Nat. Bank, 43 N.Y. 452, 455 (1871) (“If 3
the money is paid under the impression of the truth of a fact which is 4
untrue, it may, generally speaking, be recovered back, however careless 5
the party paying may have been in omitting to use due diligence to 6
inquire into the fact.”). This rule is rooted in “equity and good 7
conscience.” Ball, 95 N.E. at 721; Mfrs. Hanover Trust Co. v. Chem. Bank, 559 8
N.Y.S.2d 704, 707 (1st Dep’t 1990) (“The principle that a party who pays 9
money, under a mistake of fact, to one who is not entitled to it should, in 10
equity and good conscience, be permitted to recover it back is 11
longstanding and well recognized . . . . and rests ‘upon the equitable 12
principle that a person shall not be allowed to enrich himself unjustly at 13
the expense of another.’” (quoting Miller v. Schloss, 113 N.E. 337, 339 (N.Y. 14
1916)); see also Columbia Mem'l Hosp. v. Hinds, N.E.3d, No. 36, 2022 WL 15
1572408, at *6 (N.Y. May 19, 2022) (identifying whether “a benefit has 16
been conferred on the defendant under mistake of fact or law” as a factor 17

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89
in whether “it is against equity to permit a party to retain what is sought 1
to be recovered.”). In light of these principles, we see no reason to believe 2
that the Court of Appeals, confronting our facts, would expand the 3
exception represented by discharge-for-value beyond the scope that the 4
Court expressly delineated in Banque Worms, and beyond the scope of the 5
precedential authorities on which it relied. 6
A further reason that seems to us to favor a present entitlement 7
requirement is that it better supports the reasons for the rule. According 8
to the Reporters’ Notes to the First Restatement, the rule serves as an 9
administratively convenient way to allocate a loss between two parties 10
where “there is no reason in justice why one should suffer rather than the 11
other”. §§ 13-14 Reporters' Notes. That condition is generally present 12
when the mistaken payment is to one to whom the debt is due. On the 13
other hand, when as here, where a transferee receives a mistaken 14
payment on a debt not yet due, there often can be significant reasons why 15
the mistaken payment ought to be returned and denial of restitution can 16
result, as here, in a substantial disruption of the contractually adopted 17

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90
order, as well as substantial reason in justice why the transferee should 1
not be allowed to benefit from the mistake. This is illustrated by the 2
present facts. Application of the discharge-for-value rule to our facts 3
brings the Lenders a huge windfall over and above what they bargained 4
for, 21 while an order of restitution would leave them exactly where they 5
contracted to be. Cf. Deutsch Tane Waterman & Wurtzel, P.C. v. Hochberg, 6
890 N.Y.S.2d 755, 757 (App. Term 1st Dep’t 2009) (“In the absence of any 7
claim or showing that defendants detrimentally changed their position as 8
a result of the plaintiff's single, surplus tax payment, defendants may not 9
reap a windfall by retaining the payment, even if the payment may be 10
said to have resulted from negligence.”). 11
The district court rejected Citibank’s argument that, in order to 12
qualify for the benefit of the discharge-for-value rule the recipient of the 13
mistaken payment must be entitled to the funds. It justified that 14
21 It is true, of course, that prepayment is not always a windfall for
creditors. But in those instances when retaining mistakenly prepaid
funds is not in the creditor’s interest, the creditor can simply opt to
return the money.

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conclusion primarily on the grounds that Section 14 of the First 1
Restatement does not mention a requirement of present entitlement or 2
debt due, as well as the fact that what the district court characterized as 3
the “leading cases applying the discharge for value rule” do not mention 4
a present entitlement element. See In re Calumet Farm, Inc., 398 F.3d 555 5
(6th Cir. 2005), Gen. Elec. Capital Corp. v. Cent. Bank, 49 F.3d 280 (7th Cir. 6
1995), Qatar Nat'l Bank v. Winmar, Inc., 650 F. Supp. 2d 1, 10 (D.D.C. 2009), 7
and NBase Commc'ns, Inc. v. Am. Nat'l Bank & Tr. Co. of Chi., 8 F. Supp. 2d 8
1071 (N.D. Ill. 1998). In addition, the district court cited a case in which 9
the prevailing payee did not have a legal entitlement to the funds. See 10
Chase Manhattan Bank v. Burden, 489 A.2d 494, 497 (D.C. 1985). 11
We are not persuaded by the district court’s reasoning or its 12
precedents. While the district court is correct that Section 14 of the First 13
Restatement does not mention a present entitlement requirement, it is the 14
Banque Worms opinion, not the Restatement, that represents the law of 15
New York. As noted, the Banque Worms opinion expressly specifies 16
“entitlement” to the monies. 17

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92
With respect to the four cases described by the district court as, the 1
“leading cases,” which did not specify a requirement of entitlement, we 2
see two answers. First, none of them are New York cases. Second, while 3
it is correct that none of them specifies a requirement of entitlement, none 4
of them, so far as they reveal, involves a debt that was not yet due, and 5
none specifies that the rule applies to such a debt. Finally, as to Chase 6
Manhattan Bank v Burden, the beneficiary in that case was not a creditor 7
but a limited partner. Chase Manhattan Bank, 489 A.2d at 494. The rule 8
there enforced thus differed significantly from both Section 14 and Banque 9
Worms. Moreover, the District of Columbia court’s decision was 10
substantially motivated by considerations of equity and fairness, id. at 11
497, considerations which disfavor the Defendants here. 12
Defendants argue that Banque Worms should be read to reject a 13
present entitlement requirement on the grounds that it would contravene 14
Banque Worms’s emphasis on the importance of finality if wire transfers 15
require “a creditor who receives payment on an outstanding loan before 16

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93
it comes due . . . [to] wonder whether it may retain the funds.” Defs.’ Br. 1
at 26. 2
But while it is true that the Banque Worms court gave importance to 3
finality of wire transfers, it does not follow that the Banque Worms court 4
gave higher value to finality over all other values. To the contrary, the 5
Court explicitly left standing New York’s basic rule requiring return of 6
the mistaken payments, except where identified exceptions are 7
applicable. It also provided exceptions from denial of restitution based 8
on equitable factors that arise, for example, when the transferee made 9
misrepresentations or had notice of the mistake. There is no suggestion 10
in Banque Worms that all such disputes are to be resolved in favor of 11
finality, or that the undoubtedly significant factor favoring finality 12
necessarily prevails over all competing values. 22 13
22 Defendants also argue that interpreting Banque Worms to include a
present entitlement requirement would contravene the Court of
Appeals’s conclusion that “risk should be allocated to the bank
transferor responsible for a mistaken transfer.” Defs.’ Br. at 24. But that
sentence represented the Court’s response to the facts of that case. The
Court was not saying that, mistaken transferors should always bear the

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94
In summary, the Court of Appeals’s specified requirement of 1
entitlement to the money, combined with the cases it cited as precedents 2
for the rule, and its continued espousal of New York’s general rule that 3
mistaken payments should be returned, lead us to conclude that, in New 4
York, a creditor may not invoke the discharge-for-value rule unless the 5
debt at issue is presently payable. Here, the debt on which Citibank 6
mistakenly made a payment was not due for another three years. As a 7
result, Defendants may not invoke the discharge-for-value rule as a shield 8
against Citibank’s claims for restitution. 9
CONCLUSION 10
The judgment of the district court is VACATED and the matter is 11
REMANDED to the district court for further proceedings consistent with 12
this opinion. Defendants, their officers, agents, employees, successors, 13
and all those in active concert or participation with them are enjoined 14
loss. It was clear, furthermore, that in the Court’s assessment, Worms’
entitlement to the money was an important factor along with the
absence of equitable reasons for depriving Worms of the money it had
received.

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from removing, withdrawing, transferring, assigning, or otherwise 1
disposing of the funds in contention in this suit (except with the approval 2
of Citibank) until authorized by this court (or the Supreme Court) or by a 3
ruling of the district court from which no appeal is taken. 4
ADDENDUM 5
LEVAL, J. 6
Writing for myself alone and not for Judge Sack or the Court, I add 7
two short discussions, first questioning whether an accidental payment 8
of the sort made here by Citibank comes within the scope of the 9
Restatement’s discharge-for -value rule, and, second, responding briefly 10
to Judge Park. 11
A. Does the Restatement’s discharge-for-value rule apply to 12
monies transferred purely by accident? 13
14
Although this issue has not been raised in the briefing, I question 15
whether the facts of this case come within the discharge-for-value rule of 16
the Restatement. Under its formulation, the discharge-for-value rule 17
applies where a transferee “received from a third person any benefit in 18
discharge of the debt or lien . . . [where] the discharge was given by mistake 19

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96
of the transferor as to his interests or duties.” First Restatement § 14 1
(emphases added). 2
First, the defense is limited to the circumstance in which the 3
transferee “received from a third person any benefit in discharge of the debt 4
or lien.” It speaks of the understandings under which “the discharge was 5
given.” This clause refers to the transferor’s motivations and intentions 6
in making the payment. The payment must have been made with the 7
intention to discharge the debt or lien in question. The rule has no 8
application when the third-party transferor made the payment for a 9
different reason – without intention to discharge the debt or lien, as 10
would be the case if the payment was made as payment for a new 11
purchase of goods by the debtor (or for any other reason). 12
Citibank had no intention to discharge Revlon’s debt. Indeed, 13
it had no intention to make a payment at all. The payment was made by 14
accident and unintentionally, as the result of failing to check all the boxes 15
on Flexcube’s matrix necessary to override the default setting that would 16

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97
result in payment. The payment was not made “in discharge of a debt” 1
notwithstanding that Defendants so perceived it. 2
Second, the Restatement rule applies in circumstances where 3
the transferor’s payment resulted from his “mistake . . . as to his interests 4
or duties.” Citibank was not mistaken as to its interests or duties. It 5
understood all of these perfectly and intended to act in accordance with 6
a correct understanding of them. Its only mistake was its belief that 7
checking a single Flexcube box would ensure that the money would 8
remain in the bank. 9
Each of the illustrations to Section 14 of the First Restatement 10
involves a transferor making a payment with the intention to discharge a 11
debt or lien where the transferor made the payment based on either a 12
mistake as to the duty to make the payment, or a mistake as to what 13
would be received in return. The same is true of every precedent cited in 14
the Reporter’s Notes as an example of a consistent outcome. §§ 13–14 15
Reporters' Notes. 16

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98
In my view, the facts of this case simply do not conform to 1
those calling for the application of the rule of Section 14. 2
Banque Worms in contrast applied the rule in circumstances that fall 3
under the rule of Section 14. Security Pacific intentionally paid Worms 4
with the intention to discharge the debt owed by Spedley, in the mistaken 5
belief that Spedley’s specific instructions to do so remained effective. No 6
precedential case cited in the Banque Worms opinion fails to conform to 7
the fact pattern described in the Restatement version of the rule. Carlisle, 8
215 N.Y. at 404 (converted shares of stock deposited as payment on an 9
account by the debtor); Stephens, 79 N.Y. at 185 (proceeds of a forged 10
mortgage used as repayment for converted funds); Southwick, 84 N.Y. at 11
421 (drawn funds used, “with the assent of the drawers,” to pay the 12
balance on an overdrawn account); White, 64 N.Y. at 317 (payor bank 13
intentionally paid payee bank the amount of a forged draft); Smith & 14
McCrorken, 267 N.Y.S. at 154–55 (bank intentionally paid out a check that 15
it was previously ordered not to pay); New York Title & Mortgage Company, 16
201 N.Y.S. at 530–31 (creditor intentionally paid off debtor’s debt under a 17

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mistake of fact); Stokos, 317 N.Y.S.2d at 707 (insurance company paid for 1
auto repairs under the mistaken belief that it has an obligation to cover 2
the repairs). 3
It therefore appears to me that the discharge for value rule has no 4
application to the payment made in this case – an accidental payment 5
made without intent to pay, without intent to discharge a debt or lien, 6
and without mistake as to the transferor’s duties or interests. 7
Resolution of this question is of course unnecessary to deciding this 8
case. I include the discussion in case it may be helpful in the analysis of 9
future similar disputes. 10
B. The Time Taken to Produce this Judgment. 11
This judgment has taken a long time to produce. I take sole 12
responsibility for that. Judge Park’s complaint on that ground has some 13
merit. I truly regret that I did not get the job done faster. That issue, 14
nonetheless, calls for some discussion. The delay resulted in part from 15
our making a change of disposition. Judge Sack and I originally 16
determined to certify the question to the New York Court of Appeals. I 17

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100
wrote a draft opinion to that effect. We then decided against certification 1
-- primarily because certification ordinarily results in at least a year’s 2
further delay and because we became increasingly persuaded, despite 3
initial uncertainties, that the law of New York, for the reasons explained 4
above, favors Citibank’s position. 5
In addition, we have not found the answers to be as 6
straightforward, obvious, and easy as Judge Park does. The arguments 7
advanced for the parties by their exceptionally able counsel, raise 8
complex, subtle questions that required care and study. The district 9
court’s impressive 101-page ruling in favor of the Defendants also 10
required confrontation of numerous substantial arguments. The solutions 11
advocated by Judge Park were not advanced by Citibank or debated in 12
the parties’ briefing. Nor, in my view, do they reflect the law of New York. 13
A decision of a court of appeals must satisfy two requirements, 14
which pull it in different directions. It should, as rapidly as reasonably 15
possible, tell the parties who wins. At the same time, recognition that the 16
decision serves as precedential law requires that it rest on, and clearly 17

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101
explain, sound legal principles. In a money dispute, the parties ordinarily 1
care little for the precedential effect of the decision; their interest is to get 2
a rapid answer to who gets the money. A court, however, must pay 3
careful attention to the decision’s precedential function. This is because 4
unavoidably the decision will affect the resolution of future disputes and 5
influence public behavior and business planning. A decision of a 6
precedential court that rests on unsound, poorly reasoned, or poorly 7
explained, legal principles will therefore cause great future mischief. 8
Finding the best accommodation between the objectives of speed and 9
legal soundness is not always easy. 10

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21-487
In re: Citibank August 11, 2020
PARK , Circuit Judge, concurring in the judgment (amended):
When people receive money by mistake, the law usually
requires them to give it back. This commonsense rule allows
transferors to reclaim property that rightfully belongs to them—
whether misdirected funds,1 an accidental overpayment,2 or a credit
to the wrong bank account.3 An exception to the general rule can
sometimes protect a recipient who was owed the mistakenly paid
money. Under this narrow equitable defense, called “discharge for
value,” a creditor who receives a payment in discharge of a debt he is
owed can defeat restitution by invoking his own competing claim to
the disputed funds. But here, Defendants had no such claim—not
when they received Citibank’s money, and not when they were asked
to give it back—because they were not entitled to payment for another
three years after Citibank erroneously sent them half a billion dollars.
Allowing them to keep that money would turn equity on its head and
topple the settled expectations of participants in the multitrillion-
dollar corporate-debt market. It would also be brutally unfair.
1 E.g., Home Sav. Bank v. Rolando, 14 A.2d 822, 824 (R.I. 1940) (sum of
money paid by a bank to the executor of the late Francisco Marsicano was
erroneously drawn from an account that “in fact . . . belonged to another
man by the name of Francisco Marsicano”).
2 E.g., PaineWebber, Inc. v. Levy, 680 A.2d 798, 798–800 (N.J. Super. Ct.
Law Div. 1995) (seller of stock received proceeds for 100 times his number
of shares due to an unprocessed reverse stock split).
3 E.g., Citibank, N.A. v. Warner, 449 N.Y.S.2d 822, 823 (Sup. Ct. 1981)
(“[T]he bank inadvertently microencoded the defendant’s account number
010 22666 thereon, instead of the account number of the [intended recipient]
109 22666.”).

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2
In my view, this is a straightforward case that many smart
people have grossly overcomplicated. The Court ultimately arrives
at the correct conclusion but only after taking an unnecessary detour
through the factual record. I agree with the majority that the district
court clearly erred in concluding that there were insufficient red flags
to put Defendants on notice of Citibank’s mistake. I also agree that
the district court erred as a matter of law in its overreading of Banque
Worms. But Defendants’ case fails on a more basic level: A recipient
of mistakenly transferred funds cannot invoke the discharge-for-
value defense—a general legal rule incorporated by the Restatement
(First) of Restitution and the New York Court of Appeals—unless and
until it has a present entitlement against the debtor. Put simply, you
don’t get to keep money sent to you by mistake unless you’re entitled
to it anyway. I respectfully concur only in the judgment.
I. BACKGROUND
On August 11, 2020, Citibank set out to process a $7.8 million
interest payment to the lenders of its client Revlon, Inc., a global
cosmetics company. But instead, Citibank inadvertently wired the
entire principal balance of the loan—nearly $1 billion—from the
bank’s own account. Some recipients gave the funds back.
Defendants (“the Creditors”), managers who controlled over $500
million of the mistakenly transferred funds, did not. Citibank sued,
lost at a bench trial, and appealed to this Court.
A. Revlon’s Debt Dispute
In 2016, Revlon took out a $1.8 billion loan (the “2016 Term
Loan”) to finance its purchase of Elizabeth Arden, Inc., another
cosmetics brand. A syndicate of lenders agreed (under the “2016
Term Loan Agreement”) to provide the funds in exchange for

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3
periodic interest payments and a return of principal on September 7,
2023, the maturity date. Revlon offered certain intellectual property
(“IP”) as collateral.
In addition to Revlon and the lenders, Citibank was party to the
contract as the “Administrative Agent and Collateral Agent.” In
that role, Citibank was charged with receiving interest and principal
payments from Revlon and passing them along to the lenders.
Those lenders—investors and investment vehicles that took a variety
of corporate forms—were represented by portfolio managers,
including Defendants, who controlled the lenders’ funds.
By spring 2020, liquidity had become tight for Revlon in the
face of slumping sales numbers and the beginning of the COVID-19
pandemic. Revlon tried to raise additional capital to meet its
immediate financial obligations, and it again sought to put up its IP
as collateral. But to do so, it had to win majority approval of the 2016
Term Loan lenders, whose loans were secured by the same property.
So Revlon proposed a “roll-up” transaction: A lender who agreed to
the refinancing would convert its 2016 Term Loan position into a new
one in the 2020 loan. The consenting creditors would thus continue
to have their loans secured by Revlon’s IP, while those maintaining
their 2016 positions would effectively lose their priority.
Not all agreed. The objecting lenders—Defendants here
among them—campaigned to block the deal, fearing that the
restructuring would leave them holding the bag in the event of a
default if others acceded to Revlon’s plan and they did not. But
ultimately, Revlon prevailed, and the IP transfer took place in May
2020. Afterwards, some objectors, including Defendants, accused
Revlon of manipulating the vote. In an effort to accelerate the debt’s

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4
maturity and to demand repayment immediately, they planned a
lawsuit in which they would allege that Revlon was “deeply
insolvent.” Joint App’x at 177. By then, the value of the 2016 Term
Loan had fallen to roughly 25 to 30 cents on the dollar. The
Creditors’ lawsuit, naming Revlon and Citibank as defendants, was
eventually filed on August 12, 2020, at 2:06pm.
B. The Mistake
Just one day before then, however, the Creditors were suddenly
repaid in full. Notwithstanding Revlon’s dire financial straits, its
reputation for playing leveraged-finance hardball, 4 and the
impending lawsuit alleging its chronic insolvency, each creditor on
the 2016 Term Loan received, without notice or explanation, every
penny of its principal and interest balance three years early, for a total
of $893,944,008.52 in prepaid principal.
Of course, Revlon had not suddenly acquired the cash, or the
irrational impulse, to prepay all of its outstanding debt to the 2016
creditors at four times its market value. Instead, Citibank had paid
off the balances by mistake.
That day, August 11, 2020, Citibank was tasked with executing
a roll-up for a few of the 2016 lenders. This required Citibank (1) to
pay accrued interest to those lenders, and (2) to move their principal
balance to a new loan facility. Under the constraints of Citibank’s
“Flexcube” payments software, the best way to do that was
4 Revlon was at the time 85% owned by Ronald Perelman’s
MacAndrews & Forbes Inc., whose own battle to take over Revlon is one of
the most famous corporate-control fights in modern history. See Revlon,
Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986).

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5
apparently to pay all of the 2016 lenders their accrued interest. Then,
Citibank would synthetically pay all those lenders their principal by
routing it into a “wash account,” from which the principal could be
reallocated into the old and new tranches of loans.
Revlon agreed to pay accrued interest to all of the 2016 lenders
in this way, and Citibank delegated execution to an employee at its
contractor in India. In order to pay out interest but redirect the
principal into a wash account, that employee had to check three
cryptically named boxes in Flexcube: “FRONT,” “FUND,” and
“PRINCIPAL.” But the employee checked only “PRINCIPAL,” and
neither of the two supervisors charged with verifying the transaction
spotted the error. So, instead of booking a wash transfer, Flexcube
actually wired nearly $1 billion of Citibank’s own money out the door
to the 2016 Term Lenders.
The lenders each received a “Calculation Statement” showing
only a payoff of accrued interest. The dollar amounts they were
wired, however, were over 100 times larger. Per the 2016 Term Loan
Agreement, Revlon was permitted to prepay the loan, but it had to
give notice to Citibank three days in advance, and Citibank then had
to notify the lenders of the decision “promptly.” No lender received
notice that Revlon was prepaying any debt.
C. The Aftermath
The day after the transfer, on August 12, at around 2:25pm,
Citibank began sending “Recall Notices” to the lenders notifying
them of the mistake. Managers controlling about half of the total
sum quickly agreed to return the mistakenly wired funds.
Defendants decided not to do so.

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6
First came mockery. From one pair of employees:
[Employee A]: I feel really bad for the person that fat
fingered a $900mm erroneous
payment. Not a great career move
. . . .
[Employee B]: certainly looks like they’ll be looking
for new people for their Ops group
[Employee A]: How was work today honey? It was
ok, except I accidentally sent $900mm
out to people who weren’t supposed
to have it
[Employee A]: Downside of work from home.
maybe the dog hit the keyboard
[Employee B]: the song “Had a Bad Day” playing in
the background
Spec. App’x at 73.
Then came strategy. After receiving the Recall Notices, the
Creditors paused. There were calls and emails with counsel. There
were sudden reversals, instructions to stop payment. See, e.g., Joint
App’x at 1302–03 (“Sounds like we have a good bargaining chip with
Citi/revlon”; “Do not refund [the payment], I am on a call with
attorneys right now.”). And then, a few months later, there was
voluntary dismissal of the Creditors’ earlier lawsuit against Revlon.
After all, the Creditors already had more than what they wanted:
They could, as one employee put it, “take the money and run.” Id.
at 1295.

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7
Less than a week after the error, on August 17, 2020, Citibank
sued under theories of unjust enrichment, conversion, money had
and received, and payment by mistake. Citibank sought equitable
relief in the form of specific restitution of its identifiable funds.5 The
United States District Court for the Southern District of New York
granted a temporary restraining order freezing the funds,6 but after
a bench trial, the district court entered judgment for Defendants and
held that recovery was barred by the discharge-for-value defense. In
re Citibank Aug. 11, 2020 Wire Transfers, 520 F. Supp. 3d 390 (S.D.N.Y.
2021). Citibank appealed, arguing the defense does not apply for
three reasons: (1) Defendants were not yet entitled to payment, (2)
Defendants did not apply the funds to credit Revlon’s account before
receiving the Recall Notices, and (3) Defendants were on constructive
notice of the mistake even before those Recall Notices were issued.
II. MERITS
Mistaken payments generally must be returned to the payor.
See Ball v. Shepard, 95 N.E. 719, 721 (N.Y. 1911); Moses v. Macferlan
(1760) 97 Eng. Rep. 676, 680-81; 2 Burr. 1005, 1012 (“This kind of
equitable action, to recover back money, which ought not in justice to
5 Remedies for unjust enrichment are available both at law (typically
money damages) and at equity (typically specific enforcement of a
constructive trust). See Restatement (First) of Restitution § 160 cmt. e.
Citibank justifies its request for equitable relief in part based on the
organizational structure of the lenders and managers, which Citibank says
would make it difficult to trace and collect an unsecured money judgment.
Cf. John Morley, The Separation of Funds and Managers: A Theory of Investment
Fund Structure and Regulation, 123 Yale L.J. 1228, 1240–41 (2014).
6 The funds remained frozen pending our review and continue to be
frozen under the injunction this Court enters today.

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8
be kept . . . lies for money paid by mistake.”). The logic of this rule,
a fundamental part of the law of unjust enrichment, is obvious: People
do not lose all rights to their property merely because they mistakenly
gave possession of it to someone else.7
Citibank erroneously sent a billion dollars from its own account
to the creditors of Revlon three years before they were entitled to
payment. Citibank thus has an unquestionable claim to entitlement
under the law of unjust enrichment. See 3 George E. Palmer, Law of
Restitution § 14.1(a), at 173 (3d ed. 2020) (“[U]njust enrichment in one
of its clearest forms” exists when “because of plaintiff’s mistake, the
defendant received a money payment to which he was not entitled,
and his claim for its retention rests primarily on the fact that he has it,
or at least that he received it from the plaintiff.”). Defendants argue
that they are nevertheless entitled to keep the funds erroneously
transferred by Citibank based on the discharge-for-value defense, as
recognized by section 14 of the Restatement (First) of Restitution. See
Banque Worms v. BankAmerica Int’l, 570 N.E.2d 189, 198 (N.Y. 1991).
They clearly are not.
The majority correctly vacates the judgment of the district court
but only after conducting a detailed survey of the record and New
York caselaw on discharge for value. I do not disagree with that
7 For the preservation of property rights, see Restatement (First) of
Restitution § 163 (“Where the owner of property transfers it as a result of a
mistake of such a character that he is entitled to restitution, the transferee
holds the property upon a constructive trust for him.”). Accord
Restatement (Third) of Restitution § 1 cmt. b (explaining that transactions
that result in “[u]njustified enrichment . . . [are] ineffective to work a
conclusive alteration in ownership rights.”).

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9
analysis but would have reached the same result more directly by
applying basic principles of unjust enrichment as explained below.
A. Background Principles
The majority opinion might leave the impression that the
discharge-for-value defense was first conceived of by the American
Law Institute in the 1930s and then brought into existence by the New
York Court of Appeals in 1991. The majority treats the discharge-
for-value rule as an espousal of “New York’s general rule that
mistaken payments should be returned.” Maj. Op. at 94. But in
fact, the discharge-for-value defense, as defined by the Restatement
and then recognized in Banque Worms, is merely a “specific
application” of a traditional equitable defense: “the principle of bona
fide purchase.” Restatement (First) of Restitution § 14 cmt. a.
1. Bona Fide Purchase
The bona fide purchase defense protects a party who
“innocently has acquired the title to something for which he has paid
value.” Id. § 13 cmt. a. “Without notice of the circumstances” that
would have given rise to a restitution claim against the seller, such a
purchaser is insulated from restitution claims arising out of property
purchased for value in good faith. Id. § 13(a) (cleaned up). That is,
if B would owe A restitution over X, but C, without notice, gives value
to B in exchange for legal title to X, then A cannot claim restitution
from C. The buyer C is “protected, as well at law, as in equity, in
[his] purchase[] . . . since it would be impossible for him to guard
himself against such latent frauds.” 1 Joseph Story, Commentaries on
Equity Jurisprudence § 381, at 373 (1836); see also Simpson v. Del Hoyo,
94 N.Y. 189, 193–94 (1883); 3 John Norton Pomeroy, Equity
Jurisprudence § 738, at 8 (5th ed. 1941) (“[E]quity refuses to interfere

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10
and to aid the plaintiff in what he is seeking to obtain, because it
would be unconscientious and inequitable to do so.”).
Importantly, the bona fide purchase rule is distinct from the
alternative defense of mistake of fact or detrimental reliance. That
defense may “terminate[] or diminish[]” the “right of a person to
restitution from another because of a benefit received because of
mistake” through a “[c]hange of circumstances.” Restatement
(First) of Restitution § 69(1)–(2). That is, if a recipient reasonably
relies on a mistaken transfer to his detriment, he may be able to block
recovery to the extent of his justified reliance. But the good-faith
purchaser need not show any special change in circumstances. He
has done more than merely detrimentally rely on a mistake; he has
given value for a property interest, which protects the buyer not only
in his reliance, but in his justified expectations, and so fully insulates
him from any restitution claims that were viable against the seller.
See Henry E. Smith, Equity as Meta-Law, 130 Yale L.J. 1050, 1095 (2021)
(explaining that giving value is said to make the bona fide purchaser
“equity’s darling” but that “lack of value given means no reliance (or
change of position)”).
2. Discharge for Value
Discharge for value is a “specific application” of the bona fide
purchase rule. Restatement (First) of Restitution § 14 cmt. a. But a
discharge-for-value creditor is both the purchaser and the party who
would otherwise owe restitution, rather than a third party buying
from one who owed restitution to another.
The defense works like this: A creditor has a claim against a
debtor for unpaid debt, and a third party mistakenly sends money to
the creditor on behalf of the debtor. For example, the third party

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11
might mistakenly believe it is under a duty to do so,8 or it might
simply have made a clerical error.9 As a result, the sender may have
an unjust-enrichment claim against the creditor. See supra at 7-10.10
And if that were the end of the matter, the creditor would not be able
to defeat this claim through the defense of bona fide purchase because
he is the original recipient, not a subsequent purchaser. See 3 Palmer
§ 16.6(b), at 590 (“When relief depends merely upon a setting aside of
the payment itself, or upon rescinding an agreement pursuant to
which the payment was made, the usual rules governing restitution
will apply.”).
The way to square bona fide purchase with discharge for value
is the right of setoff. “The right of setoff . . . allows entities that owe
8 E.g., Restatement (First) of Restitution § 14 illus. 5 (“A, under the
erroneous belief that he has effectively promised B to pay C’s debt to him,
makes payment thereof to B. He is not entitled to restitution from B.”).
Judge Leval offers a discussion about the nature of mistake under the
discharge-for-value defense. See “Addendum” (Leval, J.) at 95-99. I am
doubtful that the inquiry he proposes, which would seem to turn on the
mental states of people making accidental payments, would be as
straightforward as he believes. But in any event, as Judge Leval
acknowledges, “[r]esolution of this question is of course unnecessary to
deciding this case.” Id. at 99.
9 E.g., Banque Worms v. BankAmerica Int’l, 570 N.E.2d 189 (N.Y. 1991).
10 Much of this analysis would apply if the debtor (rather than a
third party) were to erroneously pay the creditor directly. But in such a
case, there would likely be no unjust enrichment as between the two parties:
If the debtor pays a creditor a debt that is due, then the debtor is out what
he owes, and the creditor receives only what she is due. See 3 Palmer
§ 14.1(a), at 173 & n.20. The Restatement’s discharge-for-value rule, which
concerns claims between a mistaken third-party payor and a creditor,
presumes the prima facie availability of an unjust-enrichment claim.

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12
each other money to apply their mutual debts against each other,
thereby avoiding ‘the absurdity of making A pay B when B owes A.’”
Citizens Bank of Md. v. Strumpf, 516 U.S. 16, 18 (1995) (quoting Studley
v. Boylston Nat’l Bank, 229 U.S. 523, 528 (1913)); see Off. Comm. of
Unsecured Creditors v. Mfrs. & Traders Tr. Co. (In re Bennett Funding
Grp., Inc.), 146 F.3d 136, 138–39 (2d Cir. 1998) (New York law). Thus,
a creditor—usually a bank—in possession of funds in the account of
the debtor may apply (or “set off”) the debtor’s funds against a claim
for unpaid debt. See, e.g., Marine Midland Bank-N.Y. v. Graybar Elec.
Co., 363 N.E.2d 1139, 1142–43 (N.Y. 1977). In the case of discharge
for value, a creditor sets off funds that were sent by a third party for
the account of the debtor and on the debtor’s behalf. See Brief for
Amicus Curiae Loan Syndications and Trading Association in
Support of Plaintiff-Appellant and Reversal at 11–12 (highlighting the
parallel between setoff and discharge for value); cf. In re Awal Bank,
BSC, 455 B.R. 73, 93 (Bankr. S.D.N.Y. 2011) (sustaining a claim over
the discharge-for-value defense because plaintiff plausibly alleged
notice before setoff).
Through setoff, the creditor gives value by applying mistakenly
transferred funds to discharge an unpaid debt, thus taking title to the
funds in exchange for surrendering a valuable claim against the
debtor. Once that happens, “it would be inequitable to require
restitution from the transferee since, in the surrender of the
debt . . . he has given value and acquired title to the money or other
thing given in payment.” Restatement (First) of Restitution § 14 cmt.
b; see also id. § 13 cmt. a (“The principle that a person who innocently
has acquired the title to something for which he has paid value is
under no duty to restore it to one who would be entitled to reclaim it
if the one receiving it had not been innocent or had not obtained the

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13
title or had not paid value therefor . . . [is] [t]he same underlying
principle [operating] under the circumstances stated in § 14.”);
Restatement (Third) of Restitution and Unjust Enrichment § 67 cmt. a
(“The thought behind the expression ‘discharge for value’ is that the
protected recipient of a payment is treated as a bona fide purchaser of
the money, to the extent the payee gives value by accepting the
payment in discharge of an antecedent debt.”).11 In other words,
whereas the mistaken payment standing alone was subject to
restitution, setoff allows a creditor to assume the role of bona fide
purchaser—by giving “value” (in the form of relinquishing its claim
for debt) in exchange for funds received and applied in “discharge”
(or satisfaction) of a debt.
In short, equity protects the secured expectations of creditors
who have, without notice of a mistake, given value for the funds in
their possession.12 As Section 14 of the Restatement states:
11 The Third Restatement articulates a different defense called “bona
fide payee,” which is broader than the discharge-for-value defense.
Restatement (Third) of Restitution § 67; see id. § 67 cmt. a. It is thus not
dispositive of the scope of the discharge-for-value defense, see infra note 21,
but its characterization of the traditional rule remains persuasive.
12 One can question whether even this is enough to bring a creditor
under the bona fide purchase rule. In a typical bona fide purchase, a third-
party purchaser gives value to a recipient of the property and is usually a
stranger to the original owner. Here, the creditor is the direct recipient
and gives value to the original owner. See Restatement (First) of
Restitution § 13; see also 3 Palmer § 16.5, at 575 (further noting that, in other
contexts, forgiveness of an antecedent debt may not be value); 3 Pomeroy
§ 748, at 26 (same). Indeed, not all jurisdictions appear to accept the rule,
instead allowing for restitution in cases where Section 14 would bar
recovery. See Wilson v. Newman, 617 N.W.2d 318, 321 (Mich. 2000). But

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14
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 interests or
duties, if the transferee made no misrepresentation and
did not have notice of the transferor’s mistake.
Restatement (First) of Restitution § 14(1) (emphasis added).
B. The Present-Entitlement Requirement
As a form of bona fide purchase, the discharge-for-value
defense (1) requires a creditor to give “value” by setting off
mistakenly transferred funds against a debt, and (2) rests on the
premise that it would be inequitable to deprive a creditor of a
payment he fairly bargained for. Both these features of discharge for
value lead to the same conclusion: Discharge for value requires a
preexisting entitlement to mistakenly transferred funds.13 In Banque
Worms, the New York Court of Appeals correctly described the
Restatement rule it adopted when it said—without equivocation—that
in Banque Worms, the New York Court of Appeals held that New York
follows the discharge-for-value rule, and no party has suggested that it no
longer controls.
13 The majority opinion eventually reaches this conclusion in Section
I.B. See Maj. Op. at 82. In my view, the Creditors’ lack of entitlement to
the principal balance of the loan on August 11, 2020 is a sufficient basis to
reverse the district court. Even so, I diverge from the majority’s approach
to the present-entitlement requirement. The majority engages in a close
reading of caselaw on present entitlement and balances various policy
considerations. But, as described here, the present-entitlement
requirement is rooted in equity, not caselaw.

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15
the defense protects only a creditor who is “entitled to the funds” he
receives. 570 N.E. at 198.
1. Discharge, Value, and Setoff
Discharge for value requires giving value for mistakenly
transferred funds in the form of relinquishing a debt. But here, the
Creditors could not exercise setoff rights against Revlon’s debt
because that debt was not yet due.
“There is . . . no question that New York has long recognized a
common law right of setoff.” In re Bennett Funding Grp., 146 F.3d at
139 (citing Straus v. Tradesmen’s Nat’l Bank, 25 N.E. 372, 372 (N.Y.
1890)). And the first rule of common-law setoff is that, absent special
circumstances,14 a debt cannot be set off against unless the debt is
“due and payable” because only then can it be “presently enforced.”
De Camp v. Thomson, 54 N.E. 11, 12 (N.Y. 1899). Thus, a creditor
cannot unilaterally cleanse a payment of its mistaken character
through setoff—and so take a transferor’s money free of the payor’s
restitution claims—unless he has the power to apply the funds to
satisfy a debt because that debt is already due.15
14 See N.Y. Debt. & Cred. Law § 151; Jordan v. Nat’l Shoe & Leather
Bank of N.Y., 74 N.Y. 467, 473 (1878).
15 Defendants argue that a creditor gives value immediately upon
payment by the debtor, without any further action by the creditor. See
M’Crea v. Purmort, 16 Wend. 460, 474 (N.Y. 1836) (“The payment of the
money discharges or extinguishes the debt; a receipt for the payment does
not pay the debt, it is only evidence that it has been paid.”); see also 3 Palmer
§ 16.6, at 580 (“[R]eceipt of the plaintiff’s funds in payment of . . . the debt
of a third person is value.”); cf. Pittsburgh Nat’l Bank v. United States, 657 F.2d
36, 38 (3d Cir. 1981) (Under Pennsylvania law, “as soon as a debt owed to a

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16
For a matured debt, discharge for value tracks ordinary setoff
principles. If the mistakenly transferred funds were already in the
creditor’s possession in the account of the debtor, the creditor would
be entitled simply to collect. But the “self-help remedy in the form
of a setoff[] cannot be exercised until . . . the obligation is due an[d]
payable.” Marine Midland Bank-N.Y., 363 N.E.2d at 1143. That
maturity condition is essential because without it, a pledge to offer
credit for a defined term would be meaningless—a bank could, for
example, seize a customer’s deposits to offset them against her new
30-year home mortgage loan. So when a creditor holds an unmatured
debt, it cannot apply the debtor’s funds to satisfy an unripe claim,
even if those funds are already legitimately and unmistakenly in the
creditor’s possession. It would make no sense for a creditor
bank by a depositor matures, the bank’s right of setoff extinguishes the
depositor’s rights in the account.”). Citibank contends that giving value
within the scope of the defense instead requires the creditor affirmatively
to set off the debt by crediting the debtor’s account. See NBase Commc’ns,
Inc. v. Am. Nat’l Bank & Tr. Co. of Chi., 8 F. Supp. 2d 1071, 1077 (N.D. Ill.
1998); First Nat’l Bank & Tr. Co. v. Brant (In re Calumet Farm, Inc.), 398 F.3d
555, 559–60 (6th Cir. 2005); Qatar Nat’l Bank v. Winmar, Inc., 650 F. Supp. 2d
1, 10 (D.D.C. 2009) (mem.); see also Equilease Corp. v. Hentz, 634 F.2d 850, 853
(5th Cir. Jan. 1981) (“It is patently unfair to require an innocent payee who
has received and used the money to satisfy a debt to repay the money.”
(emphasis added)); cf. Strumpf, 516 U.S. at 19 (noting the majority setoff rule
requiring “(i) a decision to effectuate a setoff, (ii) some action accomplishing
the setoff, and (iii) a recording of the setoff” (citing Baker v. Nat’l City Bank
of Cleveland, 511 F.2d 1016, 1018 (6th Cir. 1975))). We need not decide
which rule applies. It does not matter whether the value in discharge for
value is given by force of law upon receipt and maturity or via an
affirmative action of the creditor because a creditor must at least be capable
of setting off a debt (and thus giving value) using the funds that have
mistakenly come into its possession. Before maturity, a creditor cannot do
so and, in any event, has received a pure windfall.

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17
suddenly to gain that right if, rather than holding the debtor’s assets
already, the creditor were instead to receive a payment made by
mistake. In other words, a creditor may not take a third party’s
money, even if sent in the name of the debtor, to cover a debt that isn’t
yet due, just because the creditor will become entitled to receive that
money from the debtor in the future.
Although the right of setoff can be expanded by contract, the
2016 Term Loan Agreement here unsurprisingly preserved this basic
constraint. See Revlon, Inc., Annual Report (Form 10-K) exhibit 4.6
(Mar. 3, 2022) (2016 Term Loan Agreement § 10.7(b)) (allowing
Revlon’s lenders to “set off” funds “held or owing by such
[l]ender . . . to or for the credit or the account of [Revlon],” but only
“upon any amount becoming due and payable” by Revlon (emphasis
added)). Neither the general common-law right of setoff nor the
specific contractual right here could be exercised because Revlon’s
debt was not due.
Without setoff, a creditor on an unmatured debt is not a “bona
fide purchaser of the money.” Restatement (Third) of Restitution
§ 67 cmt. a (citing Restatement (First) of Restitution § 14)). So the
ordinary rule of restitution applies.
2. The Creditors’ Windfall
Defendants’ argument also fails for a related, more basic
reason: The Creditors received a massive windfall by being paid in
full three years early. As the majority recognizes, “[a]pplication of
the discharge-for-value rule to our facts [would] bring[] the Lenders
a huge windfall over and above what they bargained for.” Maj. Op.
at 90. The bona fide purchaser is protected because it would be
unjust and inequitable to claw back property from one who

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18
innocently gave value for it. The defense does not apply to a
recipient who received a pure windfall—for example, a donee who
received the subject property for free. See Simonds v. Simonds, 380
N.E.2d 189, 194 (N.Y. 1978); Oliver v. Piatt, 44 U.S. 333, 401 (1845)
(Story, J.) (emphasizing the “full right to follow such property into the
hands of such third person, unless he stands in the predicament of a
bona fide purchaser, for a valuable consideration, without notice”); J.B.
Ames, Purchase for Value Without Notice, 1 Harv. L. Rev. 1, 3 (1887) (“If
he gave no value, though his acquisition was honest, his retention of
the title, after knowledge of the equity, is plainly dishonest.”); see also
Restatement (First) of Restitution § 13 cmt. a (noting that Section 14
“merely creates convenient rules for determining which of two
innocent persons should bear a loss” (emphasis added)). Without
entitlement, there would be no injustice in allowing recovery, and the
discharge-for-value defense does not apply.
At a minimum, a creditor invoking the defense must have
received only what he was owed. But the Creditors here received an
unearned gain—and will have suffered no loss after restitution—
because they were not yet entitled to be paid. To be sure, the Term
Loan Agreement provided for the possibility of prepayment, but only
if Revlon chose to do so. See Joint App’x at 1263 (2016 Term Loan
Agreement § 2.11(a)) (“[Revlon] may at any time and from time to
time prepay,” under certain conditions, any tranche of its loans.
(emphasis added)). By definition, prepayment is an option of the
debtor, not a right of the creditor. See Prepayment Clause, Black’s Law
Dictionary (11th ed. 2019) (“A loan-document provision that permits
a borrower to satisfy a debt before its due date.” (emphasis added)).

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19
The Creditors could not demand payment until 2023, and they were
not entitled to their principal until then.16
It does not matter, as the Creditors suggest, that they were
entitled to be paid eventually. A dollar today is not equal to a dollar
tomorrow. See generally Irving Fisher, The Theory of Interest (1930).
That is why debt contracts include detailed terms about the timing of
payments, and why repayment timing invariably affects other
elements of the bargain including the amount of interest, covenants
made by the debtor, and the like. The Creditors’ argument—that
there is no “time” in “entitlement”—defies the basic premise of debt
contracts, whose function is to exchange the time value of money: A
debtor becomes entitled to cash now; a creditor, to money plus
interest on a future date.
The windfall the Creditors received here is hard to overstate.
On August 11, 2020, the Creditors were entitled to nothing.
Moreover, they had just lost a bitter dispute with Revlon, held loans
that were trading for a fraction of their face value, and were on the
verge of filing a suit alleging a default.17 Then, out of the blue, they
16 If Revlon had decided to prepay its debt in full, and if Citibank
had provided the contractually required prepayment notice, then the debt
would have become “due and payable on the date specified therein.” See
Joint App’x at 1263 (2016 Term Loan Agreement § 2.11(a)); cf. Chase
Manhattan Bank v. Burden, 489 A.2d 494, 497 (D.C. 1985) (granting discharge
for value based on the equitable right to receive discretionary transfer once
that discretion is exercised). But absent such notice of prepayment, the
status quo remained unchanged and the debt was not due for three years.
17 The Creditors briefly suggest that they were in fact entitled to the
transferred funds by reason of Revlon’s default. Specifically, they say that
a notice of default issued on August 12, 2020 (the day after the mistaken

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20
received half a billion dollars in cash—a pure bank error in their
favor.18 Discharge for value protects only parties who received what
they bargained for. That does not include the Creditors here.
3. Banque Worms
In Banque Worms v. BankAmerica International, 928 F.2d 538 (2d
Cir. 1991), we asked the New York Court of Appeals whether it
follows the Restatement’s discharge-for-value rule. Id. at 539. The
court answered that it does, and both its conclusion and its
articulation of the rule were consistent with the Restatement—
including its implied present-entitlement requirement. Id. The
majority agrees that the present-entitlement requirement is “clear” in
Banque Worms and every precedent relied on therein (a reflection of
long-established principles of equity).
In Banque Worms, Spedley Securities (the debtor) had
maintained a revolving credit agreement with Banque Worms (the
transfer, but—apparently purely by coincidence—just before the Recall
Notices were sent) accelerated the debt and made it then due and payable.
That argument, which was asserted summarily, mentioned only in a
footnote, and raised for the first time on appeal, is forfeited. See Norton v.
Sam’s Club, 145 F.3d 114, 117 (2d Cir. 1998); Universal City Studios, Inc. v.
Corley, 273 F.3d 429, 445 (2d Cir. 2001) (“[W]e have repeatedly ruled that
arguments presented to us only in a footnote are not entitled to appellate
consideration.”); Greene v. United States, 13 F.3d 577, 585–86 (2d Cir. 1994).
18 Although I would not reach the issue, I agree with the majority
that the Creditors were on inquiry notice. See supra at 4–6. But I am
puzzled by the majority’s extensive discussion about the correct notice
standard, given that the Creditors (a) do not argue that anything other than
constructive notice applies, and (b) do not cite any authority defining
“constructive notice” under New York law as anything other than “inquiry
notice.”

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21
creditor). Banque Worms decided not to renew the agreement and
demanded payment of the outstanding debt on the due date, which
was in ten days. Id. At 12:36 am on the due date, Spedley initially
instructed Security Pacific (the agent) to send nearly $2 million to
Banque Worms. But three hours later, Spedley revoked that
instruction and told Security Pacific to pay a different creditor
instead. Id. at 539–40. Security Pacific mistakenly executed both
transfers that same day, leaving Spedley’s account in overdraft and
Security Pacific on the hook for the mistaken transfer to Banque
Worms. Banque Worms refused to return the money, which
reflected the sum that had become due just hours before the funds
were transferred. Litigation ensued, with Banque Worms and
Security Pacific both asserting claims to the funds. Id. at 540.
Citing Banque Worms’s argument based in the bona fide
purchase rule, the Court of Appeals answered that New York does
indeed recognize the defense. The Court of Appeals explained that
the defense “furthers the policy goal of finality in business
transactions.” Banque Worms, 570 N.E.2d at 196. After citing
several early cases concerning title to money, the Court of Appeals
noted that the rule was also consistent with the policy goals of the
newly enacted Article 4-A of the New York Uniform Commercial
Code. Id. at 195–97. Elaborating on the defense that it adopted, the
court explained that “[w]hen a beneficiary receives money to which it
is entitled and has no knowledge that the money was erroneously
wired . . . such a beneficiary should be able to consider the transfer of
funds as a final and complete transaction, not subject to revocation.”
Id. at 196 (emphasis added).

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22
In line with the principles underlying the bona fide purchase
rule, the Court of Appeals expressly held that Banque Worms was
protected by the discharge-for-value rule because it was “entitled to
the funds” it received. Id. at 198 (emphasis added); see also 82 N.Y.
Jur. 2d Payment and Tender § 107 & n.4 (citing Banque Worms for the
proposition that the discharge-for-value rule applies only for “a debt
which is due”); Credit Lyonnais N.Y. Branch v. Koval, 745 So. 2d 837,
841 (Miss. 1999) (explaining, by reference to the “preeminent case on
erroneous wire transfers” Banque Worms, that “the beneficiary
receiving the funds transfer must be entitled to receive money in
payment of a debt”); A.I. Trade Fin., Inc. v. Petra Bank, No. 89-cv-7987,
1997 WL 291841, at *4 (S.D.N.Y. June 2, 1997) (citing Banque Worms for
the point that “[t]he discharge for value rule contemplates that at the
time of the erroneous transfer the transferee/beneficiary have some
present entitlement to the funds”); 3 Palmer § 16.6, at 580–82 (“In
situations of endless variety, courts have denied restitution because
money paid by one party was received in good faith by the other, in
satisfaction of . . . a valid claim against a third person.” (emphasis
added)). The Creditors and the district court find ambiguity in
Banque Worms where there is none.19
Of course, the facts of Banque Worms are very similar to those of
this case. But there is one crucial difference: Unlike the Creditors
here, Banque Worms was entitled to the money it mistakenly
19 The majority implies that Banque Worms adds a present-
entitlement requirement not otherwise included in Section 14. Maj. Op. at
91 (“[T]he district court is correct that Section 14 of the First Restatement
does not mention a present entitlement requirement.”). As Citibank
correctly argues, Banque Worms explicitly states a requirement that the
Restatement necessarily implies. See Appellant’s Brief at 26.

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23
received. Indeed, it had just discontinued a revolving credit
agreement and demanded payment, which was received on the very
day it was due. The payment thus arrived exactly as expected and
exactly as owed. Banque Worms, 928 F.2d at 539. The Creditors here
received the principal amounts of their loans, which were not due
until 2023. They clearly lacked entitlement under any definition of
the term or reading of New York caselaw, as the majority observes.
This lack of entitlement is dispositive—Banque Worms had a
preexisting right to keep the money it received; the Creditors did not.
That should be the end of the matter.
C. The Creditors’ View
The Creditors contend that a lender not yet owed back its
money becomes entitled to be repaid early simply because a payment
was made by mistake. Under their theory, discharge for value
would operate as a kind of legal alchemy, transforming far-away debt
payments into cold hard cash. The Creditors’ view has no basis in
law, equity, or common sense.
1. Textual Arguments
Instead of addressing the legal content of the defense
incorporated by the Restatement and then adopted in Banque Worms,
the Creditors draw the wrong lessons from the text. They say that
Section 14 doesn’t mention a present-entitlement requirement, only a
“discharge” of the debt of a “creditor”; and that our Court, in
interpreting the decision of the Court of Appeals in Banque Worms,
found it important that Banque Worms was a “bona fide creditor.”
Banque Worms, 928 F.2d at 541.

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24
These arguments are misguided. The “discharge” in
discharge for value requires a discharge in exchange for value. See
supra Section II.B.1. And in Banque Worms, our Court referred to
Banque Worms as a “bona fide creditor” in passing only after
explaining in detail the timeline of events and Banque Worms’s
entitlement to the funds. 928 F.2d at 539–40. More broadly, the
Creditors’ style of argument—relying on cherry-picked, isolated
phrases taken out of context—is misplaced. “The language of an
opinion is not always to be parsed as though we were dealing with
the language of a statute.” Brown v. Davenport, 142 S. Ct. 1510, 1528
(2022) (cleaned up) (quoting Reiter v. Sonotone Corp., 442 U.S. 330, 341
(1979)). Neither the American Law Institute (in drafting the
Restatement) nor the New York Court of Appeals (in deciding Banque
Worms) acted as a legislature drawing up a new rule, requiring us to
evaluate the meaning of statutory language. Rather, both relied on
well-settled rules of law and equity, which we are bound to apply
even if doing so may require more effort than reading legal text.
Here, Defendants’ view—which effectively reads out “value”
from “discharge for value”—is unfounded. Ordinarily, a recipient
of mistakenly transferred funds must prove reasonable, detrimental
reliance on the other party’s mistake—and may keep transferred
property only to the extent that recovery would be unjust. See
Banque Worms, 570 N.E.2d at 192; Restatement (First) of Restitution
§ 69(1)–(2). Discharge for value, like the general defense of bona fide
purchase, deems giving value as a substitute for a special showing of
reliance. See supra Section II.A. There is thus an intuitive parallel
between these two defenses: Mistake of fact requires detrimental
reliance before a recipient is put on notice, and discharge for value
similarly requires giving value before a recipient is put on notice.

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25
The Creditors, like the district court, try to invert this principle by
contending that because a discharge-for-value creditor need not show
reliance, it also need not show value given. But bona fide purchase
excuses a separate showing of reliance because the purchaser has given
value. Simply being a creditor entitled to payment sometime in the
future, without reliance or value, is irrelevant.20
2. Policy Arguments
The Creditors also raise two unpersuasive arguments based on
policy concerns. First, they assert that forbidding restitution here,
even if it might result in injustice, would advance “finality.” But, as
the majority correctly points out, the Court of Appeals in Banque
Worms did not express any interest in ensuring that transactions are
“final,” in the sense that they cannot be undone, in all cases. To the
20 The Creditors claim to find support in the Third Restatement, which
allows for retention of funds even where a creditor has “something short of
an enforceable right.” Restatement (Third) of Restitution § 67 cmt. c. The
Creditors overread this language. See id. § 67 cmt. h (“The object of the
rule of § 67 is not the ‘finality’ of payment transactions without
more . . . but the security of expectations of ostensible ownership—
expectations that are reasonably formed on receipt of money to which the
payee is apparently entitled.” (emphasis added)). In any event, the Court of
Appeals explicitly adopted the rule of the First Restatement, the Third was
published twenty years after Banque Worms, and the latest edition
forthrightly admits that it seeks to “state[] the rule more broadly” than the
First Restatement to cover “a wide range of transactions.” Id. § 67 cmt. a;
see also Kansas v. Nebraska, 574 U.S. 445, 475 (2015) (Scalia, J., dissenting)
(noting that “modern Restatements—such as the Restatement (Third) of
Restitution . . .—are of questionable value, and must be used with caution”
given the authors’ increasing “abandon[ment] [of] the mission of describing
the law” and their “cho[ice] instead to set forth their aspirations for what
the law ought to be”).

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26
contrary, it held that “[w]hen a beneficiary receives money to which it
is entitled and has no knowledge that the money was erroneously
wired . . . such a beneficiary should be able to consider the transfer of
funds as a final and complete transaction, not subject to revocation.”
Banque Worms, 570 N.E. at 196 (emphasis added). This holding
echoes traditional equitable and commercial concerns, not a rule of
“finders, keepers.” If the court wanted to insist on the finality of all
errant transactions, it would have had to do away altogether with the
law of unjust enrichment, which provides for the unwinding of
otherwise-final transfers. See Andrew Kull, Rationalizing Restitution,
83 Calif. L. Rev. 1191, 1234 (1995). An erroneous transfer by itself
creates no new “final” entitlement: Discharge for value lets a creditor
keep mistakenly transferred funds if it was already entitled to those
funds, but it does not convert a mistake into a sudden acceleration of
maturity.
Second, drawing on the reasoning of the district court, the
Creditors suggest that, by penalizing transferors for their mistakes,
courts might encourage them to take greater care. But to what end,
and at what cost? If a transferor discovers its mistake and asks for
its money back before the transferee has either relied on or given
value for it, then there is no harm done—not to the transferee, and not
to anyone else. All that remains is the transferor’s own, internalized
cost of pursuing recovery, a cost that supplies the efficient deterrent.21
21 See J. Beatson & W. Bishop, Mistaken Payments in the Law of
Restitution, 36 U. Toronto L.J. 149, 150 (1986) (Where a “mistaken payment
is very quickly discovered . . . [a]ny such avoidance expenditure would be
wasted—a costly attempt to avoid a costless event.”); Dhammika
Dharmapala & Nuno Garoupa, The Law of Restitution for Mistaken Payments:

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27
The law thus allows mistaken transferors to recover even if they were
negligent. Ball, 95 N.E. at 721.
And even if we were permitted to modify the discharge-for-
value rule to achieve the policy ambitions articulated by the district
court, it would be bizarre to do so here. In particular, the district
court’s warning that “the banking industry could—and would be
wise to—eliminate the risk [of mistakes] altogether” is especially
inapt in the context of what it called a “Black Swan” event. 22
Citibank, 520 F. Supp. 3d at 451. Denying recovery would senselessly
induce loan agents to expend resources in a futile effort to prevent all
possible mistakes, no matter how unpredictable, and no matter how
An Economic Analysis (manuscript at 30) (Feb. 2022),
https://ssrn.com/abstract=3902607 (“[I]t is clear . . . that [full restitution] is
socially optimal whenever harm is unilateral—i.e., when a mistaken
payment imposes [harm] only on the payer (absent restitution).”); Maytal
Gilboa & Yotam Kaplan, The Cost of Mistakes, 122 Colum. L. Rev. F. 61, 67
(2022) (“[A]s long as the mistake is harmless, restitution should be available
to protect the payer.”); Peter K. Huber, Mistaken Transfers and Profitable
Infringement on Property Rights: An Economic Analysis, 49 La. L. Rev. 71, 83
(1988) (“[A]s long as the recipient has not disposed of the money, he
generally suffers no loss if he has to turn it over to the transferor-
claimant.”).
22 Indeed, the entire point of the “Black Swan” framework that the
district court invoked is that predicting extreme events is an impossible,
counterproductive task. See Nassim Nicholas Taleb, The Black Swan: The
Impact of the Highly Improbable 208 (2d ed. 2010) (“[D]o not try to predict
precise Black Swans . . . . Remember that infinite vigilance is just not
possible.”). Instead, the theory goes, systems should be “robust” in that
they can flexibly respond to errors when they inevitably occur. Id. at 322.
For example, perhaps rather than imposing on banks a duty to prevent all
possible errors, the law might allow them to recover mistakenly transferred
funds when a transferee has neither relied on nor given value for them.

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28
harmless. It should come as no surprise that the opinion below has
roiled the market for commercial debt, to the point where the type of
contract clause overriding the district court’s rule already has its own
name: “Revlon blocker.” See Brief of Professors of Law and
Economics as Amici Curiae at 27; Eric Talley, Discharging the
Discharge-for-Value Defense, 18 N.Y.U. J.L. & Bus. 147, 154 (2021)
(reporting a “veritable flood” of 150–200 such Revlon blockers per
month following the decision, compared to exactly one contract
affirmatively adopting the district court’s rule).
III. CONCLUSION
Although the Court has ultimately arrived at the correct
conclusion, our timing is unfortunate. Citibank filed suit within six
days of its mistake, the district court conducted a full bench trial and
published a detailed opinion six months later, and we set out to
expedite consideration of this case. But it has now been nearly a year
since oral argument and over two years since the mistaken transfer.23
In that time, Citibank has lost out on tens of millions of dollars in
returns on its frozen funds. Businesses and their lenders have
scrambled to negotiate various new terms into their agreements. See
Talley, supra, at 199–200. And the parties, as well as the market at
23 At oral argument, it was suggested that we might be amenable to
certifying questions to the New York Court of Appeals. Thankfully, no
one defends that path—and the months or years of additional litigation it
could entail—today. In fact, even the party that floated the possibility of
certification has since written to the Court that, in light of intervening
events, see infra at 29–30, the parties would instead “benefit from a prompt
resolution of this appeal.” Appellant’s Rule 28(j) Letter at 1 (June 22, 2022).

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29
large, have had to manage the uncertainty our indecision has caused
them.
This delay has had dire repercussions for Revlon, the company
at the center of this case. Both sides contend that through
subrogation, the district court’s judgment has put Citibank in the
shoes of the Creditors, obliging Revlon to pay Citibank instead and
transferring to Citibank the credit risk of Revlon’s distressed debt. A
company like Revlon—no stranger to restructuring its debts—would
normally try to negotiate with its creditors when struggling to meet
its obligations. But Revlon never recognized Citibank’s subrogation
claim, 24 and even if it had, Citibank would have been at best a
substitute creditor, whose claim (if any) would revert to Defendants
once Citibank finally reclaimed its funds. Revlon cannot secure
additional senior financing without the consent of a majority of the
2016 Term Creditors, but for the past two years, no one has been able
to agree on who would constitute such a majority. So Revlon
“effectively has had, since August 11, 2020, no 2016 Term Loan[]
counterparty with which it can negotiate,” and on June 15, 2022,
Revlon filed for Chapter 11 bankruptcy. Declaration of Robert M.
Caruso, Chief Restructuring Officer at 7, In re Revlon, Inc., No. 22-
10760 (Bankr. S.D.N.Y. June 16, 2022), ECF No. 30. Revlon, a
century-old American company, cited not just its business troubles,
but also “significant and unprecedented difficulty in managing its
capital structure out of court.” Id. at 37. That difficulty, Revlon
24 See Revlon, Inc., Quarterly Report (Form 10-Q), at 33 (May 4, 2022)
(“Citi has also asserted subrogation rights, but, as yet, there has been no
determination of those rights (if any) under the 2016 [Term Loan] and
Revlon has not taken a position on this issue.”).

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30
said, stemmed from the fact that “the Second Circuit ha[d] not yet
issued a decision” in this case. Id.
Respectfully, the correct conclusion in this case was clear from
the start. At bottom, Defendants received a payment to which they
were not entitled, for which they did not bargain, and on which they
did not rely. Their only real asserted justification for keeping
Citibank’s money is “finality”—the fact that they have it. But that is
not enough to claim ownership over someone else’s property.
Possession is not ten-tenths of the law.
I join only in the majority’s judgment.

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