[pjanoman]

Here's the distinction though: $400 out of the $900 million was returned. Thus, it seems like we can't get past your part A) in this case, as hedge funds had enough reason to think the payment was a mistake that they returned it. I doubt the creditors in this case are so heterogeneous such that one creditor has no reason at all to think it was a mistake while another does.

[avalys]

The question the law asks is whether they knew it was a mistake at the time they received it. Not whether anyone later decided to be a nice guy upon learning it was a mistake.

In this case, what happened was, Citibank sent out these payments on August 11. Each creditor received a payment in the exact amount (down to the cent) of what they would be owed if Revlon had actually intended to pay down the debt in full, with interest.

On August 12 they told all the hedge funds “oops, send it back.” Some of them said “Hey, no problem, it happens to the best of us, here you go!”, and returned the money. Some of them said “Uh, we’re not going to do that.” And this latter group are the ones who just won in court.