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Terra Firma v Citigroup: Another cut back on possible damages

By | Published on Tuesday 2 November 2010

The team from Terra Firma were dealt another set back in their big litigation against Citigroup yesterday, when Judge Jed Rakoff further reduced the potential pay out for the equity group if it win its case against the US bank. 

As previously reported, Terra Firma claims that Citigroup basically tricked the company into bidding too high and too soon for EMI back in 2007, leaving it and its boss man Gary ‘The Guy’ Hands saddled with a dud asset that just haemorrhages cash. Gary says Citigroup’s main man David ‘The Worm’ Wormsley lied about another bidder. The Worm, of course, says he did no such thing. 

Ahead of the trial there was speculation Gary would push for in excess of seven billion in damages if he won his lawsuit, a pay off that would more than cover the losses his company has made from the EMI project, while compensating for the bad press the equity man and his team would inevitably get from any court hearing. 

But to push damages that high Gary needed Rakoff to allow the jury hearing the case to consider so called ‘lost profits’ – the money Terra Firma could have made had it invested its cash in a profitable concern instead of EMI – and ‘punitive damages’, basically damages  awarded in civil cases to punish a guilty party which has behaved dishonestly. 

Rakoff last week rejected the ‘lost profits’ method for calculating damages, refusing to allow Terra Firma’s ‘forensic accountant’ to even discuss it in front of jurors. And yesterday evening he ruled punitive damages would not be considered either. 

You get the impression Rakoff himself doesn’t feel much sympathy to either party in this legal squabble, and continuing on that theme, according to Reuters, he last night described the whole case as “a cat fight between two rich companies” that did not involve a threat to the public. For those reasons, he said, punitive damages were not relevant. 

Back in the court room, more Citigroup emails were put on a screen to show that the bank knew Terra Firma’s EMI acquisition was a mistake even before the deal had been completed. One credit officer within the bank back in 2007 compared EMI to a “terribly ill cancer patient”, while another, Ian Cockerill, who testified yesterday, cautioned his colleagues regarding the size of the loan they were handing Hands to enable the EMI buy. 

According to the Financial Times, he wrote at the time: “Oh dear, Oh dear! These must be very valuable relationships for us to have extended [the loan] again. I can see us taking a huge loss on this deal”. 

Terra Firma’s legal team, presumably, are questioning why Citigroup – as advisors to the equity company – didn’t raise these concerns at the time. Though the bankers might argue Gary wouldn’t have listened even if they did. 

Summing up is expected to begin today, with the jury due to being deliberations tomorrow.



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