U.S. judge rules against Citi in Terra suit over EMI

NEW YORK (Reuters) - Citigroup Inc lost a bid to move a lawsuit by Terra Firma Capital Partners Ltd to London in a dispute over the buyout house's acquisition of music group EMI.

An order on Wednesday by a U.S. Judge in New York was a victory for Terra Firma Chairman and Chief Executive Guy Hands, who has become embroiled in an increasingly bitter legal dispute with the U.S. bank, which advised on and provided financing for Terra Firma's 4 billion pound ($6.3 billion) acquisition of EMI Group Plc in 2007.

"For reasons that will be elaborated in a forthcoming written opinion, Citi's motion is denied in its entirety," U.S. District Court Judge Jed Rakoff said in a written order, three weeks after he heard oral arguments in Manhattan federal court.

Terra Firma asked the U.S. court to hear the case over its troubled deal for EMI, rather than shift the proceedings to London, a move it said could jeopardize the tax status of Hands, the firm's founder.

"We are disappointed with the court's procedural ruling," Citigroup said in a statement. "We look forward to defending ourselves in this case, which we believe is entirely without merit."

The judge scheduled September 10 for a pretrial conference in Manhattan federal court over the claim lodged last year by

Terra Firma accusing Citigroup of inflating the price of EMI by not revealing the only remaining bidder, Cerberus Capital Management, had withdrawn from the auction.

"We are pleased with today's court ruling and are now focused on preparing for trial before Judge Rakoff in the fall of 2010," Terra Firma attorney Chris Duffy said in a statement.

The deal at the height of the buyout bubble has come to epitomize the worst aspects of private equity deal-making, with a high debt burden and a weak performance crippling the business.

Citigroup argued in a motion to dismiss the case that the litigation should be heard in London because all the parties to the agreement were there. Hands said he has no intention of setting foot in Britain for at least two years, having left last April for tax reasons to live in Guernsey in the Channel Islands.

The music industry and the recorded music division in particular, has been severely hit in recent years by mass illegal downloading and the move away from album sales to single digital tracks.

EMI posted a 1.56 billion pound full-year loss in February and warned of a likely significant shortfall when its banking covenants are tested at the end of March.

Terra Firma has already written to investors telling them it may need to invest about 100 million pounds to keep the company within the terms of its 2.6 billion pound debt.

Plans to sell the Abbey Road studios, immortalized by the Beatles album of the same name, provoked a huge public reaction. EMI later rejected an offer of 30 million pounds and said it wanted to retain control of the studios.

The case is Terra Firma Investments vs. Citigroup, U.S. District Court for the Southern District of New York, No. 09-10459.

(Reporting by Grant McCool; editing by Bernard Orr and Andre Grenon)