June 23 (Bloomberg) -- Leon Black, founder of Apollo Management LP, was sued for more than $3 billion by Huntsman Corp., escalating the fight over his attempt to abandon a takeover of the chemicals maker.

Black and Apollo co-founder Joshua Harris engaged in fraud and tortious interference, Huntsman said in a complaint filed today in Texas state court in Montgomery County, north of Houston, where its management is based. The allegations stem from the company's decision in July to break a takeover agreement with Basell Holdings NV to accept a higher offer from Hexion Specialty Chemicals Inc., which is controlled by Apollo.

Hexion sued Huntsman last week to terminate the $6.54 billion deal, saying the combined company would be insolvent. Today's complaint is an unusual step by Huntsman to personally drag Black and Harris into the dispute, the latest court battle over leveraged buyouts that have fallen apart, legal experts said.

``Pulling in the people behind the private equity shell is novel,'' Elizabeth Nowicki, a Tulane University Law School securities professor and a former attorney with the U.S. Securities and Exchange Commission. ``Those people are usually pretty well protected, but they won't sleep well tonight.''

The Apollo-Huntsman deal is one of the biggest uncompleted transactions announced prior to last year's credit-market collapse, which led to a tripling of borrowing costs and a slowing of the U.S. economy.

Last Year's Hangover

``Apollo did a deal it wishes it hadn't done and Huntsman really wants to do it,'' said Steve Kaplan, a professor at the University of Chicago Graduate School of Business who studies private equity. ``We're still working through the hangover from last year.''

Huntsman fell 4 cents to $12.80 at 4:04 p.m. in New York Stock Exchange composite trading. The stock dropped a record 38 percent after Apollo announced its lawsuit on June 19.

``It is unfortunate that Huntsman has chosen to file a baseless lawsuit against Apollo and to personally sue two of its principals,'' Hexion said in an e-mailed statement.

Hexion said the suit violates the LBO agreement, which calls for any litigation to be filed in Delaware. The company sent a letter to Huntsman today asking that it agree to an unsealing of last week's complaint. Huntsman shareholders have asked for financial details contained in the sealed document, Hexion said.

`Personal Assurances'

Apollo outbid Basell, a unit of New York-based Access Industries Holdings LLC that had agreed to pay $25.25 a share for Huntsman, with a $28-a-share offer.

``We broke the Access deal and now it's very apparent to us that they didn't have any intention of closing at $28 a share,'' Huntsman Chief Executive Officer Peter Huntsman said today in an interview. The Apollo founders were named in the lawsuit because they ``gave us their personal agreements, their personal reassurance repeatedly to my father, to me, to our board of directors, our senior managers,'' he said.

Huntsman's legal strategy may open Apollo to paying more than the termination fee of $325 million dictated by the merger agreement.

``Making tortious interference claims is a novel strategy in the context of big LBO deals that have fallen apart in the past few months,'' Tulane's Nowicki said. ``Huntsman is saying, We were lured away from doing a better deal through fraud.''

Clear Channel

Huntsman may have taken the case to Texas state court to get a more sympathetic hearing, legal experts said.

``It's an attempt by the seller to get the case out of Delaware and into a friendlier court,'' said John Coffee, a Columbia University Law School professor. ``In a one-horse town, it's usually predictable who the judge will be. This follows the game plan for Clear Channel.''

In March, Clear Channel Communications Inc., the largest U.S. radio broadcaster, went to state court in San Antonio, its hometown, to sue six banks that agreed to finance its LBO, saying they had refused to provide $22.1 billion of loans on the original terms. The two sides settled in April after a trial date had been set.

Two of the top 10 verdicts of 2008 were awarded by courts in Texas, including a $431.9 million patent-infringement verdict in February against Boston Scientific Corp., according to data compiled by Bloomberg. Boston Scientific has said it will appeal.

Black, 56, and Harris, 43, founded Apollo in 1990 after working at collapsed investment bank Drexel Burnham Lambert Inc. Apollo pursues investments in distressed assets such as leveraged loans and has undertaken leveraged buyouts of companies including Harrah's Entertainment Inc. and Realogy Corp.

The firm created what became closely held Hexion through a series of chemical-industry acquisitions.

Family Company

Chairman Jon Meade Huntsman, 71, founded Huntsman in 1970 as a container maker, creating Styrofoam ``clamshell'' boxes for McDonald Corp.'s Big Mac hamburgers in 1974. He built the company with debt-financed acquisitions over two decades, gaining products such as laundry detergent ingredients, paint pigment, and polyurethane foam for seat cushions.

Peter Huntsman, 45, the founder's son, took the company public in February 2005, raising $1.45 billion selling common shares for $23 each. The company, whose legal headquarters are in Salt Lake City, has since acquired a textile-dye unit and has shed businesses that make commodity polymers and chemicals. Utah Governor Jon M. Huntsman Jr. is the founder's other son.

To contact the reporters on this story: Jason Kelly in New York at jkelly14@bloomberg.net; Jack Kaskey in New York at jkaskey@bloomberg.net.

Last Updated: June 23, 2008 16:54 EDT