October 7, 2021 - by Elliot Ganz.  As widely reported, in August 2020 Citibank made a mistaken $900 million payment to the lenders in a loan to Revlon that covered the entire outstanding amount of principal and interest.  Several of the lenders did not return the payments and Citi sued.  The defendants claimed they were entitled to the money under the doctrine of “discharge for value” and the district court ruled in their favor.  Citi appealed to the 2nd Circuit (and the LSTA filed an amicus brief). After an expedited briefing schedule, Citibank and the lenders’ counsel presented their oral arguments last week to a panel of three judges of the 2nd Circuit Court of Appeals. 

Even before Citi’s counsel could begin addressing any of its substantive arguments, one of the judges suggested that the case should be “certified” to the New York State Court of Appeals (New York’s highest court).  Certification is a process by which a federal appellate court sends specific questions to a state’s highest court .  This occurs when the federal court believes that the issues under review hinge on state law that is not clear or developed.  In this case, the judge noted that each of the principles upon which Citi was relying were issues of New York policy that were not adequately addressed in “Banque Worms”, the seminal case on discharge for value, and suggested that they be decided by New York’s court.  Citi’s lawyer argued in parallel; while asserting that this case could be decided in favor of Citi based on Banque Worms without certification, he agreed that, if the court could not get comfortable with ruling in favor of Citi without certification, it should do so.  In contrast, the defendant’s lawyer pushed hard that the law was clear and Banque Worms supported their position.  They argued that the court should rule in their favor without certifying to the Court of Appeals.  The lawyers spent most of their remaining time skillfully making their cases on the merits of their respective positions and the court was very engaged.  Indeed, the argument lasted for an hour even though only 20 minutes had been allotted.

What’s next?  While making predictions based on oral arguments is fraught (and borderline foolish) the most likely outcome is that the 2nd Circuit will certify several policy questions to the New York Court of Appeals.  If they do so, that will likely occur in the next few weeks.  That court is not required to accept the certification, but they almost undoubtedly would.  Certification would mean another round of briefing and a decision by the Court of Appeals on the questions could take about a year.  The case would then be returned to the 2nd Circuit which would rule based on the Court of Appeals’ answers to the certified questions.  The LSTA will continue to follow and report on this case as it develops.

Become a Member

Membership in the LSTA offers numerous benefits and opportunities. Chief among them is the opportunity to participate in the decision making process that ultimately establishes loan market standards, develops market practices, and influences the market’s direction.

View Current Members

Our Partners

CUSIPFitch Group logoRefinitiv-(March-2019)SP-Global-Market-Intelligence
Total Results: 

Sort by:

Playing SOFR-doku

October 14, 2021 - This week, we saw ARRC exhortations to move off LIBOR, more SOFR loans emerge and extensive price discovery around the SOFR…