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Judge explains why Terra Firma’s Citigroup litigation can take place in the US

By CMU Editorial | Published on Wednesday 28 July 2010

The US judge who dismissed efforts by Citigroup to move a lawsuit launched against them by Terra Firma, over their EMI acquisition, from New York to London has issued a statement explaining his decision.

As previously reported, Team Terra Firma are suing Citigroup with regards to the advice the crazy bankers gave the equity group while they orchestrated their bid to buy EMI in 2007. They allege the US bank had a conflict of interest because, through different divisions of the firm, they were working for both Terra Firma and EMI.

The key allegation is that Citigroup gave Terra Firma misleading advice at the crucial moment, which made the equity group rush its purchase of the record company. Had that not happened, Terra Firma say, they may not have bought EMI, or at least not at the price they paid for it. 

Terra Firma and their top man, Gary ‘The Guy’ Hands, had previously enjoyed a long and good relationship with Citigroup, but that relationship has turned sour in recent years, mainly – it would seem – because of the EMI venture, which, I think it’s fair to say, hasn’t worked out quite as groovily as they hoped.

Hands is known to be annoyed that Citigroup have refused to restructure EMI’s multi-billion pound loan arrangement, a by-product of his purchase of the music company. The equity chief hoped the bank would follow Terra Firma’s lead and take a hit to help buy EMI bosses more time. Terra Firma sued Citigroup not long after it became clear the bankers would not play ball in this regard.

Terra Firma sued in the US, but Citigroup argued that any legal battle should take place in London. They justified that argument by saying the EMI acquisition was a UK deal, so any disagreement relating to it should be heard in the UK court. And they added that a pre-deal agreement between the two companies said as much. Though some commentators on the sideline reckon Citigroup were really trying to piss Hands off by asking for the case to be moved to Britain, because he no longer lives in the UK for tax reasons, making it hard for him to come back to London for long periods of time.

Anyway, as previously reported, Citigroup’s efforts to have the case moved to the UK were scuppered in March when US District Judge Jed Rakoff said Terra Firma’s lawsuit could, indeed, be heard in a New York court. The judge’s reasoning for that decision has only just been published this week.

In his reasoning, Rakoff dismissed the relevance of pre-deal agreements between Terra Firma and Citigroup that said the latter could only sue the former in relation to the deal – should they ever want to – through the London courts. That arrangement, Rakoff said, was not mutual, and only put obligations on Citigroup, not the equity firm.

He added that while the EMI deal may have been done in London, because Citigroup was an American bank Terra Firma’s allegations against it were of interest to the American people, and their courts. He wrote: “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”.

A spokesman for Citigroup, Danielle Romero-Apsilos, told Bloomberg yesterday: “We continue to believe that the plaintiff’s lawsuit is entirely without merit and we intend to seek its dismissal”.

The case is now scheduled to reach court on 18 Oct. Should be interesting.