(Reuters) - A federal appeals court has revived British buyout mogul Guy Hands' lawsuit accusing Citigroup Inc of deceiving him into overpaying for EMI, the multinational music company.
The 2nd U.S. Circuit Court of Appeals said on Friday that U.S. District Judge Jed Rakoff in Manhattan incorrectly instructed the jury on the relevant English law, which both sides agreed governed the case. The appeals court ordered that the case be sent back for a new trial.
Hands' private equity firm Terra Firma in 2007 paid 4 billion pounds, then equal to $6.5 billion, for EMI, with Citigroup providing much of the financing.
But Hands said he had been misled about EMI by David Wormsley, a top Citigroup banker in Europe, and overpaid for EMI at the height of the buyout bubble. Terra Firma later defaulted on some loans and Citigroup seized EMI.
A federal jury in New York found in November 2010 that Citigroup was not liable for fraudulent misrepresentation to Terra Firma.
But Circuit Judge John Walker wrote for the 2nd Circuit on Friday that Rakoff incorrectly instructed jurors that Terra Firma was required to prove it had relied on misrepresentations by Wormsley and that the misrepresentations were a substantial factor in the overbid. Walker said the judge's instruction was inconsistent with English law and erroneous.
"We are particularly reluctant to overturn a jury verdict when, as here, it appears that both parties have had a fair bite at the proverbial apple," Walker wrote for a three-judge appeals court panel. "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."
Citigroup spokeswoman Danielle Romero-Apsilos said in a statement: "We are confident we will again prevail at trial as Citi's conduct in the EMI transaction was entirely proper. The original verdict made clear that Terra Firma's baseless accusations of fraud were simply an attempt to gain leverage in debt restructuring negotiations."
David Boies, a lawyer for Hands, was not immediately available for comment.
The case is Terra Firma Investments (GP) 2 Ltd et al v. Citigroup Inc et al, 2nd U.S. Circuit Court of Appeals, No. 11-126.
(Reporting by Jonathan Stempel in New York; Editing by Gerald E. McCormick and Jeffrey Benkoe)