## Facts

- Business Alliance Capital Corp. (BACC) provided revolving credit and asset-based lending to Ocean Petroleum, Inc. (Ocean).
- Ocean deposited receivables collections into a blocked account maintained at Fleet Bank, N.A. (Fleet).
- Using that blocked-account structure, BACC (through its bank, First Union) initiated ACH and wire transfers to sweep funds from the Fleet blocked account to BACC’s accounts.
- Ocean requested advances by sending certificates listing collections it claimed it had deposited (or would deposit) into the blocked account; BACC advanced funds based on those representations even though deposits could not be confirmed until the next business day.
- On November 20, 1998, BACC initiated an ACH debit of about $5.8 million from the blocked account, but the account lacked sufficient collected funds to cover the debit.
- Fleet’s system reversed the transaction internally as uncollected, but a computer glitch prevented the reversal from being processed through the Federal Reserve/ACH system, so the debit became final in the ACH system.
- Ocean filed for bankruptcy on November 23, 1998, and BACC initiated additional transfers after the filing.
- In total, BACC received more than $7.3 million from Fleet even though the blocked account held only about $5.9 million; roughly $1.4 million came from Fleet’s own Federal Reserve account rather than Ocean’s funds.
- On December 14, 1998, Fleet notified BACC that the $5.8 million debit should have been returned for insufficient funds because some of Ocean’s prepetition deposits had not cleared.
- Fleet demanded return of the approximately $1.4 million overpayment; BACC returned about $741,000 but refused to return the balance.
- Fleet sued BACC in an adversary proceeding within Ocean’s bankruptcy case to recover the remaining funds, and both sides moved for summary judgment.
- BACC argued Fleet’s claims were barred by NACHA rules because Fleet did not return the ACH entry within two business days.
- Fleet argued it could recover under New York common-law restitution theories despite missing the NACHA return deadline.
- In discovery, a BACC officer testified that by November 23, 1998, he knew that over $500,000 in deposits made on November 20 had not cleared.

## Issues

1. Do NACHA Operating Rules—including the two-business-day deadline to return ACH entries—bar a receiving bank from seeking recovery of a mistaken ACH overpayment under New York common-law restitution/unjust enrichment?
2. If New York restitution principles apply, can the payee keep the funds based on a change-of-position (detrimental reliance) defense?

## Decision

- The court treated the dispute as an adversary proceeding between Fleet and BACC arising in Ocean’s bankruptcy case.
- The court rejected BACC’s argument that NACHA rules supplied an exclusive remedy that foreclosed Fleet’s common-law claims once the two-day return window elapsed.
- The court held Fleet could pursue recovery under New York common law to reclaim money paid by mistake.
- Applying restitution/unjust enrichment principles, the court concluded BACC was not entitled to retain the mistaken overpayment.
- The court’s resolution of the cross-motions favored Fleet’s effort to recover the remaining mistaken payment.

## Legal Principles

- NACHA Operating Rules are private operating/contractual rules for ACH participants; absent clear displacement, they do not eliminate otherwise available state-law restitution remedies for mistaken payments.
- Under New York law, a party that pays money by mistake may recover it in restitution/unjust enrichment unless the recipient proves a sufficiently equitable defense, such as a good-faith detrimental change of position.
- A change-of-position defense requires more than showing the recipient used the funds in the ordinary course; the recipient must show reliance that makes repayment unfair under the circumstances.
- Summary judgment may be granted where there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law, including on restitution claims.

## Conclusion

In *In re Ocean Petroleum, Inc.*, Fleet sought to recover an ACH overpayment caused by a processing error that made a deficient debit appear final in the ACH/Federal Reserve system, resulting in BACC receiving about $1.4 million beyond what was in Ocean’s blocked account. The bankruptcy court held NACHA’s two-day return deadline did not bar Fleet’s New York common-law restitution claim and concluded BACC could not keep the mistaken overpayment, rejecting BACC’s reliance-based defense.


In re Ocean Petroleum, Inc., 252 B.R. 25 (2000)