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Citigroup Verdict Over Guy Hands’s Terra Firma Thrown Out

Terra Firma Chairman and CEO Guy Hands
Terra Firma Capital Partners Ltd. Chairman and Chief Investment Officer Guy Hands. Photographer: Scott Eells/Bloomberg

Guy Hands’s Terra Firma Capital Partners Ltd. got a second chance to try its $8.3 billion claim against Citigroup Inc. over the 2007 sale of EMI Group Ltd.

An appeals court in Manhattan today overturned the 2010 verdict in which Citigroup defeated Hands’s claim that it tricked him into overpaying for EMI, the London-based music company. The appeals court ordered a new trial, ruling that the judge made an error in explaining the law to the jury.

“The district court’s jury instructions were based on an inaccurate understanding of the relevant English law,” U.S. Circuit Judge John M. Walker Jr. wrote on behalf of a three-judge appeals panel.

Hands claimed that a Citigroup banker, David Wormsley, lied to him in phone calls the weekend before the EMI auction on May 21, 2007, a Monday, leading his private-equity firm to overbid in a deal that lost money for all involved.

Hands said Wormsley told him that Cerberus Capital Management LP planned to submit a bid when Cerberus had in fact decided to withdraw from the auction, leaving Terra Firma without competition.

“We are confident we will again prevail at trial as Citi’s conduct in the EMI transaction was entirely proper,” Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, the third-biggest U.S. bank, said in an e-mailed statement. “The original verdict made clear that Terra Firma’s baseless accusations of fraud were simply an attempt to gain leverage in debt restructuring negotiations.”

‘Strong Claim’

Terra Firma has “a strong claim,” Jonathan Doorley, a spokesman at Sard Verbinnen & Co., said today in an e-mailed statement. “With the jury instructions now resolved in our favor, we expect to prevail in any subsequent trial,” he said.

The appeals court ruled that the trial judge, U.S. District Judge Jed Rakoff, incorrectly told jurors that Terra Firma had to prove it relied on one or more misrepresentations by Wormsley and that the misrepresentations were a substantial factor in the decision to bid on EMI.

“Such an instruction was inconsistent with English law and therefore was error,” Walker said in the opinion. “Because the jury instructions incorrectly shifted the burden of proof from Citi to Terra Firma on the reliance element, they were prejudicial and require reversal.”

Both sides agreed before trial that English law applied to the dispute.

Dismissed Claims

The appeals court today also ruled that Rakoff was correct in dismissing Terra Firma’s claims based on negligent misrepresentation and fraudulent concealment.

The verdict in Citigroup’s favor came in November 2010, after a 2 1/2-week trial. Rakoff, who called the dispute “a catfight between two rich companies,” narrowed the range of possible damages to $2.2 billion from $8.3 billion.

Hands testified for parts of four days. He claimed that if he had known that Terra Firma was alone in the bidding, he wouldn’t have submitted a bid. Instead, he told jurors, he would have tried to negotiate with EMI for a lower price and for more time to evaluate the company.

Wormsley told jurors he never lied to Hands about the auction.

The case is Terra Firma Investments (GP) 2 Ltd. v. Citigroup, 11-126, U.S. Court of Appeals for the Second Circuit, (Manhattan).

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