Citi loses bid to overthrow Terra case

Citigroup has lost its bid to overthrow an American lawsuit which accuses the company of tricking Terra Firma into buying the EMI Group, after a judge ruled the case could continue in the US.

Citi had argued that the dispute belonged in the UK courts, but US District Judge Jed Rakoff, who denied Citigroup’s request to dismiss the case in March, has now explained his reasoning behind the decision.

“As to the public factors, there is a legitimate US interest in learning whether Citi, a major American bank, may be liable for fraudulent inducement, and thus subject to substantial damages,” Rakoff writes.

Terra Firma accuses Citigroup of misleading them when they led the company to believe another private-equity firm, Cerberus Capital Management LP, was still bidding on the music recording and publishing company when they were not.

According to the complaint, when other private-equity firms dropped out of the EMI bidding, Citigroup misrepresented that New York-based Cerberus was actively participating in the auction and that London-based Terra Firma would lose the EMI bid unless it raised its offer.

Terra Firma said it paid an inflated price for EMI which it brought in 2007 because of Citigroup’s misrepresentation. The private-equity firm paid £4 billion ($6.19 billion). It said it wouldn’t have bid for the music company had it known that Cerberus wasn’t participating.

Citigroup argued that documents in the deal said any dispute should be handled in UK courts. Terra Firma said the documents didn’t obligate it to sue there, and for both private and public reasons, Rakoff rejected Citigroup’s argument that New York, its headquarters city, is an inconvenient forum.

According to Terra Firma’s court papers a trial is set for October 18.

Source: Music Week