While Friday’s decision by the U.S. Court of Appeals for the Second District will have no impact on the breakup and sale of EMI’s label and music publishing assets, it could end up costing Citigroup, which had prevailed in U.S. District Court in 2010.
The decision issued by the three-judge panel in Manhattan said, “Because the district court’s jury instructions were based on an inaccurate understanding of the relevant English law, the case must be vacated and remanded for a new trial.”
A new round in court could prove costly to Citigroup: Terra Firma had originally sought $8.3 billion in potential damages, which were reduced to $2.3 billion by the original federal trial judge, Jed Rakoff, who would hear the retrial should it occur. (The parties also have the option of settlement.)
Led by financier Guy Hands, Terra Firma had purchased EMI for $6.3 billion on the eve of the collapse of international financial markets. Citigroup had acted as an advisor on the sale and was also Terra Firma’s main creditor, having supplied $4.2 billion in loans.
At trial, Terra Firma’s attorneys contended that Citigroup had fraudulently driven up the per-share price of EMI by falsely claiming that another equity firm was entering a bid in the auction of EMI.
However, the plaintiff could offer no “smoking gun” in the case, and jurors rejected Terra Firma’s allegations after just four hours of deliberation.
In February 2011, Citigroup took control of debt-burdened EMI from Terra Firma. The company was subsequently put up for sale and broken up in 2012, with Universal Music Group acquiring its labels for $1.9 billion and an investment group led by Sony buying its publishing unit for $2.2 billion.