Back in November 2010, when Theodore Wells Jr. convinced a jury that Citigroup Inc. didn’t swindle Terra Firma Capital Partners out of billions of dollars, he told us half-jokingly that he’s up for a rematch some day against Terra Firma’s lawyer, David Boies. In a remarkable reversal of fortune, it’s now quite possible that Wells and Boies could end up redoing that very same trial.
In a 10-page order issued Friday, the U.S. Court of Appeals for the Second Circuit revived Terra Firma’s claim that Citi duped it into making a disastrous bid for the record company EMI Group. A jury had rejected Terra Firma’s claim after a closely-watched federal trial in Manhattan in 2010, but the Second Circuit vacated the verdict and ordered a new trial on the grounds that U.S. District Judge Jed Rakoff incorrectly instructed the jury on relevant U.K. law.
Terra Firma, which is chaired by famed British financier Guy Hands, bought EMI for $6.5 billion in May 2007. Citi served as adviser on the deal, and loaned Terra Firma money to finance the acquisition. EMI went deep into the red during the financial crisis, and Hands’s firm had no choice but to part with the record label at a $2.5 billion loss in 2011.
In a move that captured the attention of the banking world, Hands sued Citi in 2009 in U.S. court. His lawyers at Boies, Schiller & Flexner, led by D.C. partner Jonathan Sherman and David Boies, alleged that a top investment banker at Citi drove up EMI’s price by fraudulently misrepresenting to Hands that a rival private equity firm, Cerberus Capital Management LP, was also bidding. Terra Firma initially sought $8.3 billion in damages, but Judge Rakoff issued pre-trial rulings that capped potential recovery at about $2 billion.
The case, which Rakoff once described as a "cat fight between two rich companies," climaxed in a 2010 jury trial. Wells and his colleagues at Paul, Weiss, Rifkind, Wharton & Garrison squared off against a Boies Schiller team led by Mr. Boies himself. After less than a day of deliberation, jurors sent Terra Firma home empty-handed. Citi benefited from getting a supposedly hostile juror bounced at the last minute, as we explained when we named Wells Litigator of the Week for the win.
Wells said then that "divine intervention" must have played a part in revealing trouble with the juror, averting a potential mistrial. Now Boies can thank the Second Circuit’s intervention for giving his client another shot at Citi’s billions. Siding with a Boies Schiller appellate team led by Boies and Christopher Duffy, the Second Circuit ruled Friday that Rakoff incorrectly shifted the burden onto Terra Firma to prove that it relied on Citi’s allegedly fraudulent misrepresentation under U.K. law. The appeals court admitted that it was loath to revive the case, given the high cost of the first trial.
Boies said in a statement that he’s "gratified" by the decision and "looking forward to a new trial with new jury instructions." We asked Boies Schiller partner Chris Duffy what the firm’s line-up could be in the retrial, but he declined to comment.
Wells did not immediately return a call seeking comment. Citi said in a statement that it was "confident we will again prevail at trial as Citi’s conduct in the EMI transaction was entirely proper."
Note: An earier version of this story neglected to include Boies Schiller partner Jonathan Sherman’s role on the Terra Firma team. We regret the omission.
