A U.S. judge in New York said he will rule by April on whether Terra Firma Capital Partners Ltd.’s suit accusing Citigroup Inc. of tricking it into buying EMI Group Ltd. belongs in London, reports Business Week today. “This is not an obvious slam-dunk decision for either side,” U.S. District Judge Jed Rakoff in Manhattan said yesterday at a hearing on Citigroup’s argument that the suit should be dropped because the U.K. has jurisdiction over it. “I have no idea where I’m coming out on any of this yet.”
Terra Firma said Citigroup misrepresented that another private-equity firm, Cerberus Capital Management LP, was bidding on the record company, according to a complaint filed Dec. 11 in New York Supreme Court. The case was later moved to federal court. Rakoff said he will issue a ruling on the location question by the end of this month. Terra Firma sued to recover “lost equity of billions of dollars” and obtain punitive damages from Citigroup, which stood to garner substantial fees as investment adviser and lender to EMI and sole financier to the private-equity firm, according to the complaint. Terra Firma bought EMI in 2007.
When other private-equity firms dropped out of the 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, according to the complaint.
Terra Firma said it paid an inflated price for EMI, also based in London, because of Citigroup’s misrepresentation. The private-equity firm paid 4 billion pounds ($6.02 billion). “Had Citi not misrepresented Cerberus’s participation in the bidding process, among other matters, Terra Firma would not have bid for EMI,” the firm said in court papers. The bank also interfered with Terra Firma’s investment by rejecting efforts to restructure EMI and attempting “to soften the markets” for EMI in a bid to take control of the record company by pushing it into insolvency, according to the complaint.
Terra Firma’s purchase of EMI, at the height of the leveraged-buyout boom, gave the firm control of the record label of the Beatles, Coldplay and Norah Jones. EMI last month denied it put its Abbey Road Studios in London, where the Beatles recorded many of their albums, up for sale. Jay Cohen, a lawyer for Citigroup, told Rakoff yesterday that documents in the deal said any dispute should be handled in the U.K. courts. “We have the right to enforce the jurisdiction clause,” said Cohen, a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP in New York. Jonathan Sherman, a lawyer for Terra Firma, said his client isn’t required to sue in London. The deal documents don’t “give us the obligation to sue them in the U.K.,” said Sherman, a partner at Boies, Schiller & Flexner LLP in Washington.
While saying he was undecided on the question, Rakoff said it would be unfortunate for the case to be split, with some counts remaining in New York and others adjudicated in London, which may be possible under the law. “It just maximizes the opportunity not only for the parties to be left with uncertainty but, in my experience,” allowing them to “play one court” off the other, the judge said.
Even if Rakoff decides the deal documents allow the case to remain in New York, he could drop it on the ground that New York is an inconvenient forum for Citigroup. A trial is set for Oct. 18, according to Terra Firma’s court papers. Terra Firma said in court papers it also brought the case on behalf of limited partners, more than 100 of which reside in the U.S. One of them, Sungate Securities LLLP, a Colorado limited partnership, filed a separate lawsuit against Citigroup in state court in Florida. Sungate said Citigroup didn’t disclose its conflicts on the deal.
Guy Hands, Terra Firma’s founder and chairman, stepped down as chief executive officer last year after the firm wrote off about half its EMI investment. Last month, the label posted a 1.5 billion pound loss for the year ended March 31, 2009, amid a continued drop in album sales.
Last year, Hands moved to low-tax Guernsey in the Channel Islands from the U.K., where in April the highest marginal tax rate will rise to 50 percent from 40 percent on incomes of more than 150,000 pounds. In court papers, he said moving the Citigroup case to England would threaten his non-resident tax status if he’s required to return to Britain to testify. He said he hasn’t gone back to his native country since leaving.
Pictures of Coldplay at Parque Simon Bolivar, Bogota, Colombia (4th March 2010):
Photos by ivandgaona
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