Terra Firma asks for new trial over EMI

Terra Firma asked a US appeals court yesterday to order a new trial in its lawsuit over its claims that it was deceived by Citigroup into bidding for British music company EMI, which it lost control of last year.

The private equity firm and its founder, Guy Hands, alleged they were duped by Citigroup and its head of U.K. investment banking, David Wormsley, into believing a rival, Cerberus Capital Management, would make a competing bid for EMI in 2007.

Terra Firma ended up being the only bidder and saw its investment in EMI dwindle over time. It brought a lawsuit seeking billions of dollars in damages.

Two years ago, after roughly five hours of deliberations, a jury in Manhattan federal court found that Citigroup wasn't liable for fraud in the case.

The New York bank,, which acted as EMI's sole lender, seized control of EMI from Terra Firma last year and eventually split up and sold the legendary music company.

On Wednesday, David Boies, a lawyer for Terra Firma, argued in part before the US Second Circuit Court of Appeals that the judge erred in his instructions to the jury on English law: namely that the burden of proof in the case had shifted from Terra Firma to Citigroup.

"The only way a jury can know what to do is to be [properly] instructed about it," Boies said.

Terra Firma acquired EMI for £4bn, or about $$6.3bn. Citigroup acted as an adviser to EMI on the deal, but also funded the bulk of Terra Firma's offer.

The deal soured as rapid changes in the music industry negatively impacted EMI's bottom line and the company was weighed down by the debt taken on in the Terra Firma deal.

However, Jay Cohen, a lawyer for Citigroup, said yesterday that US District Judge Jed Rakoff properly interpreted English law and the case came down to whether the jury believed Hands, who testified at trial.

"The jury verdict is pretty powerful inferential evidence the jury believed Wormsley, and not Hands," Cohen said.

- By Chad Bray