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11-126-cv





United States Court of Appeals

for the

Second Circuit

_______________________________________

TERRA FIRMA
INVESTMENTS (GP) 3 LIMITED

INVESTMENTS

(GP) 2 LIMITED, TERRA FIRMA

Plaintiffs-Appellants,

– v. –

CITIGROUP INC., CITIGROUP GLOBAL MARKETS LIMITED, CITIGROUP
GLOBAL MARKETS INC., CITIBANK, N.A.,

Defendants-Appellees.

_______________________________________

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF NEW YORK

BRIEF OF DEFENDANTS–APPELLEES



PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP

1285 Avenue of the Americas

New York, NY 10019
Tel.: (212) 373-3000

Attorneys for Defendants-Appellees





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CORPORATE DISCLOSURE STATEMENT

Pursuant

to Federal Rule of Appellate Procedure 26.1,

Defendants-Appellees certify that Citigroup Inc. is a publicly traded

corporation that has no parent corporation. No publicly held corporation

owns 10% or more of its stock.

Citigroup Global Markets Limited is indirectly wholly owned

by Citigroup Inc.

Citigroup Global Markets Inc. is indirectly wholly owned by

Citigroup Inc.

Citibank, N.A. is indirectly wholly owned by Citigroup Inc.





C

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TABLE OF CONTENTS

Page

CORPORATE DISCLOSURE STATEMENT..............................................C

TABLE OF AUTHORITIES.......................................................................... v

PRELIMINARY STATEMENT .................................................................... 1

COUNTERSTATEMENT OF THE ISSUES PRESENTED......................... 5

COUNTERSTATEMENT OF THE CASE ................................................... 7

COUNTERSTATEMENT OF THE FACTS ................................................. 9

A.

The Parties.................................................................................. 9

1.

2.

Terra Firma ...................................................................... 9

Citi.................................................................................. 10

Terra Firma Targets EMI ......................................................... 10

Terra Firma Prepares a Bid for EMI ........................................ 12

Cerberus Withdraws from the EMI Auction............................ 15

Terra Firma Bids for EMI ........................................................ 15

The Three Conversations Comprising the Alleged Fraud ....... 16

Terra Firma Completes Its Acquisition of EMI....................... 19

Terra Firma Learns that Cerberus Did Not Bid ....................... 19

B.

C.

D.

E.

F.

G.

H.

SUMMARY OF ARGUMENT.................................................................... 21

ARGUMENT................................................................................................ 24

I.

THE DISTRICT COURT CORRECTLY INSTRUCTED THE
JURY ON RELIANCE ...................................................................... 24

A.

Terra Firma Was Not Entitled to an Instruction on the
Presumption of Reliance .......................................................... 24



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II.

B.

The Benefit/Detriment Instruction Was Not a
Fundamental Error ................................................................... 35

THE DISTRICT COURT PROPERLY GRANTED
SUMMARY JUDGMENT ON TERRA FIRMA’S
NEGLIGENT MISREPRESENTATION CLAIM ............................ 40

A.

B.

The Project Mulberry Agreement Forecloses Terra
Firma’s Negligent Misrepresentation Claim............................ 40

Plaintiffs Failed to Show that Citi Owed Plaintiffs a Duty
of Care...................................................................................... 44

III. THE DISTRICT COURT PROPERLY GRANTED CITI

JUDGMENT AS A MATTER OF LAW ON TERRA
FIRMA’S FRAUDULENT CONCEALMENT CLAIM................... 46

IV. THE DISTRICT COURT’S EVIDENTIARY RULINGS

WERE CORRECT ............................................................................. 53

A.

B.

C.

The District Court Properly Excluded Slattery’s May 16
Notes Under Rule 403.............................................................. 54

The District Court Properly Excluded Nicoli’s Phone
Records Under Rule 403.......................................................... 56

The District Court Properly Excluded Terra Firma’s
Speculative and Methodologically Unsound Expert
Testimony................................................................................. 58

CONCLUSION............................................................................................. 60






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TABLE OF AUTHORITIES

CASES



Page(s)

A.C. Aukerman Co. v. R.L. Chaides Constr. Co.,

960 F.2d 1020 (D.C. Cir. 1992) ....................................................................30

Abu Dhabi Inv. Co. v. H. Clarkson & Co. Ltd.,

[2007] EWHC 1267 (Comm)........................................................................53

Affiliated Ute Citizens of Utah v. United States,

406 U.S. 128 (1972) ......................................................................................33

Amalgamated Clothing & Textile Workers Union v. Wal-Mart Stores

Inc., 54 F.3d 69 (2d Cir. 1995)......................................................................43

Anderson v. Liberty Lobby, Inc.,

477 U.S. 242 (1986) ......................................................................................50

In re Associated Bicycle Serv., Inc.,

128 B.R. 436 (Bankr. N.D. Ind. 1990)..........................................................34

Barton v. County Natwest,

[1999] Lloyd’s Reports 408 ....................................................................28, 29

Basic, Inc. v. Levinson,

485 U.S. 244 (1988) ................................................................................33, 34

Belfairs Mgmt. Ltd. v. Sutherland,

[2010] EWHC (Ch) 2276 ..............................................................................46

Berner v. British Commonw. Pac. Airlines, Ltd.,

346 F.2d 532 (2d Cir. 1965)..........................................................................58

Black v. Finantra Capital, Inc.,

418 F.3d 203 (2d Cir. 2005)..........................................................................33

Bradford Third Equitable Benefit Bldg. Soc’y v. Borders,

[1941] 2 All ER 205 .....................................................................................37

County of Suffolk v. Long Island Lighting Co.,

907 F.2d 1295 (2d Cir. 1990)........................................................................51



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Dadourian Group Int’l Inc. v. Simms,

[2006] EWHC 2973 (Ch) ..................................................................25, 28, 29

Delta Health Group Inc. v. Royal Surplus Lines Ins. Co.,

327 Fed. Appx. 860 (11th Cir. 2009) ............................................................35

Derry v. Peek,

[1889] 14 App. Cas. 337 ...............................................................................37

Dick v. N.Y. Life Ins. Co.,

359 U.S. 437 (1959) ................................................................................32, 33

duPont v. Brady,

828 F.2d 75 (2d Cir. 1987)............................................................................33

In re G-I Holdings, Inc.,

385 F.3d 313 (3d Cir. 2004)..........................................................................30

Girden v. Sandals Int’l,

262 F.3d 195 (2d Cir. 2001)..........................................................................50

Goldhirsh Group, Inc. v. Alpert,

107 F.3d 105 (2d Cir. 1997)....................................................................50, 57

Gordon v. N.Y. City Bd. of Educ.,

232 F.3d 111 (2d Cir. 2000)..........................................................................31

Grancio v. De Vecchio,

572 F. Supp. 2d 299 (E.D.N.Y. 2008)...........................................................58

Innomed Labs, LLC v. ALZA Corporation,

368 F.3d 148 (2d Cir. 2004)....................................................................36, 39

ITC Ltd. v. Punchgini, Inc.,

482 F.3d 135 (2d Cir. 2007)....................................................................30, 32

Kumho Tire Co. v. Carmichael,

526 U.S. 137 (1999) ......................................................................................58

Li v. Canarozzi,

142 F.3d 83 (2d Cir. 1998)............................................................................54



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Manley v. AmBase Corp.,

337 F.3d 237 (2d Cir. 2003)..........................................................................57

Otal Invs. Ltd. v. M.V. Clary,

494 F.3d 40 (2d Cir. 2007)............................................................................29

Pan Atl. Ins. Co. Ltd. v. Pine Top Ins. Co. Ltd.,

[1995] 1 AC 501............................................................................................27

Parabola Investments Ltd. v. Browallia Cal Ltd.,

[2010] EWCA Civ 486..................................................................................59

S.E.C. v. DiBella,

587 F.3d 553 (2d Cir. 2009)..........................................................................36

Sanders v. N.Y. City Human Res. Admin.,

361 F.3d 749 (2d Cir. 2004)..........................................................................31

Schering Corp. v. Pfizer Inc.,

189 F.3d 218 (2d Cir. 1999)..........................................................................56

Scott v. Harris,

550 U.S. 372 (2007) ......................................................................................44

Shade v. Housing Auth. of City of New Haven,

251 F.3d 307 (2d Cir. 2001)..........................................................................36

Sheldrake v. Dir. of Pub. Prosecutions,

[2004] UKHL 43 ...........................................................................................25

Slough Estates plc v. Welwyn Hatsfield Dist. Council,

[1996] 2 EGLR 219.......................................................................................53

Smith v. Chadwick,

[1884] 9 App. Cas. 187................................................................26, 27, 28, 29

Sprint/United Mgmt. Co. v. Mendelsohn,

552 U.S. 379 (2008) ......................................................................................54

St Paul Fire & Marine Ins. Co. (UK) Ltd. v. McConnell Dowell

Constructors Ltd, [1996] 1 All ER 96.....................................................27, 28



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Time, Inc. v. Petersen Publ’g Co. L.L.C.,

173 F.3d 113 (2d Cir. 1999)..........................................................................34

Trans-Orient Marine Corp. v. Star Trading & Marine, Inc.,

925 F.2d 566 (2d Cir. 1991)..........................................................................50

United Nat’l Ins. Co. v. Tunnel, Inc.,

988 F.2d 351 (2d Cir. 1993)....................................................................50, 52

United States v. Hendrix,

542 F.2d 879 (2d Cir. 1976)..........................................................................30

United States v. Kaiser,

609 F.3d 556 (2d Cir. 2010)..........................................................................55

United States v. McCombs,

30 F.3d 310 (2d Cir. 1994)............................................................................34

United States v. Parcel of Prop.,

337 F.3d 225 (2d Cir. 2003)..........................................................................39

United States v. Pomponio,

635 F.2d 293 (4th Cir. 1980).........................................................................34

Vermont Plastics, Inc. v. Brine, Inc.,

79 F.3d 272 (2d Cir. 1996)............................................................................47

Watson v. Fort Worth Bank & Trust,

487 U.S. 977 (1988) ......................................................................................30



STATUTES, RULES, AND OTHER AUTHORITIES
Spencer Bower, Turner & Handley, Actionable Misrepresentation

§ 132 (4th ed. 2000).......................................................................................37

Clerk & Lindsell on Torts § 18-22 (19th ed. 2006).................................................46

Clerk & Lindsell on Torts § 18-33 (20th ed. 2006) ................................................37

Colin Tapper, Cross and Tapper on Evidence (12th ed. 2010).........................25, 26

Fed. R. Civ. P. 50(a) ................................................................................................47



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Fed. R. Evid. 301 ...................................................................................29, 30, 33, 34

Fed. R. Evid. 301 advisory committee’s note..........................................................30

Fed. R. Evid. 403 ...............................................................................................54, 57

11 Lord Mackay of Clashfern, Halsbury’s Law’s of England ¶ 95 (5th

ed. 2009) ........................................................................................................28

31 Lord Mackay of Clashfern, Halsbury’s Law’s of England ¶ 766

(4th ed. 2003).................................................................................................27

1 Michael H. Graham, Handbook of Federal Evidence §§ 301:1

301:12 (6th ed. 2006) ........................................................................30, 31, 33

2 McCormick on Evidence §§ 336, 344(A) (Kenneth S. Broun et al.

eds., 6th ed. 2006)....................................................................................25, 30

Adrian Keane et al., The Modern Law of Evidence (8th ed. 2010).........................26





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PRELIMINARY STATEMENT

The time has come to put an end to Plaintiffs’ false claim that

David Wormsley, a respected senior banker employed by Citi, defrauded

Terra Firma into making a successful £4 billion bid for EMI, one of the

world’s leading music companies. Plaintiffs raise no issue that requires this

Court to set aside the jury’s unanimous verdict dispensing with their fraud

claim in a matter of hours following a 13-day trial. Nor have they identified

any reversible error in the trial court’s summary judgment, Rule 50(a) or

evidentiary rulings.

The evidence at trial clearly refuted Terra Firma’s assertion that

it bid for EMI solely because Wormsley, acting as banker for EMI,

dishonestly advised Terra Firma that another private equity firm, Cerberus,

intended to bid for EMI, and that Terra Firma needed to bid £2.65 per share

on May 21 to win the auction for the company. Although Terra Firma’s

principal, Guy Hands, testified that Wormsley so advised him in three

telephone calls between May 18 and May 20, 2007, the jury did not credit

that testimony. That is no wonder, given the overwhelming evidence that

Wormsley made no such statements, and Terra Firma made no complaint

about Wormsley’s purported lies for more than two years after learning that

Cerberus had, in fact, not bid at all. Rather, the evidence confirmed what



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common sense would suggest: that Terra Firma placed its bid of £2.65 per

share for EMI on the morning of May 21 on the basis of rigorous due

diligence and sophisticated financial analysis conducted by experienced

investment professionals and advisers, including investment bankers,

accountants, lawyers, and music industry experts. That the jury made quick

work of Terra Firma’s claim reflected the implausibility of a case premised

on the argument that one of the world’s most sophisticated private equity

firms would invest billions on the basis of three calls with a banker on the

other side of the transaction.

Faced with a mountain of evidence supporting the jury’s

verdict, Terra Firma raises a handful of marginal legal issues. None has any

merit.

Terra Firma objects to the district court’s failure to instruct the

jury on a rebuttable presumption that Terra Firma relied on the alleged

misrepresentations by Wormsley. But to give the instruction would have

been error. A correct reading of English law entitled Terra Firma to no such

instruction once Citi overcame the presumption, as it did, with evidence

demonstrating that Terra Firma did not rely on any such misrepresentations.

Terra Firma’s attack on the district court’s instruction that Terra

Firma had to show reliance on the alleged misrepresentations to Citi’s



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benefit and its detriment falls even further short of the mark. Terra Firma

lodged no objection to this instruction below, restricting this Court’s review

to fundamental error. A review of Judge Rakoff’s instruction reveals no

error at all, much less a fundamental error that misled the jury or rendered its

verdict irrational.

Terra Firma’s arguments with respect to the claims that the

district court dismissed as a matter of law are equally meritless. Judge

Rakoff properly granted

summary

judgment on

the negligent

misrepresentation claim both because Terra Firma unambiguously released

Citi from such liability by contract and because Citi owed no duty of care to

Plaintiffs. And the district court’s decision not to submit the fraudulent

concealment case to the jury was a direct consequence of Terra Firma’s

failure to advance a claim that would have required it to argue that

Wormsley believed his statements concerning Cerberus to be true but failed

to correct them when he learned otherwise. The trial court correctly entered

judgment as a matter of law on concealment because Terra Firma proceeded

from opening through the close of evidence on the opposite theory, that

Wormsley lied, the linchpin of its unsuccessful fraudulent misrepresentation

claim.



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Finally, Terra Firma presents no grounds for reversal with

respect to the speculative and unreliable damages testimony excluded after

extensive briefing and a Daubert hearing, or with respect to the prejudicial,

multiple hearsay notes and telephone records that Judge Rakoff found to be

violative of Rule 403. Each of those rulings fell squarely within the district

court’s proper exercise of its discretion.

This Court should affirm.



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COUNTERSTATEMENT OF THE ISSUES PRESENTED

1. Whether the district court correctly instructed the jury on

the element of reliance by:

(a) instructing the jury that Terra Firma had the burden of

proving reliance, and declining to instruct on an evidentiary presumption

that dropped out of the case after Citi came forward with evidence to negate

the presumption; and

(b) instructing the jury that Terra Firma must prove that

Wormsley intended Terra Firma to rely on the alleged misrepresentations “to

Citi’s benefit and Terra Firma’s detriment,” an instruction that tracked Terra

Firma’s theory of fraud and to which Terra Firma made no objection below.

2. Whether the district court correctly granted summary

judgment against Terra Firma’s negligent misrepresentation claim because

an unambiguous contractual

liability waiver precluded

liability for

negligence and Citi owed no duty of care to Terra Firma.

3. Whether the district court correctly granted judgment as a

matter of law against Terra Firma’s fraudulent concealment claim after the

close of Terra Firma’s case-in-chief, on the ground that no rational juror

could find that Terra Firma established the elements of this claim.



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4. Whether the district court abused its discretion by

excluding from evidence (i) hearsay notes that, if admitted, would likely be

used by the jury for the truth of conversations recounted therein; (ii)

telephone records offered only to encourage impermissible speculation; and

(iii) expert testimony on lost profit damages that was both speculative and

based on flawed methodology.



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COUNTERSTATEMENT OF THE CASE

Proceedings below commenced on December 23, 2009, when

Citi removed this case from state court to the Southern District of New

York, and concluded on November 4, 2010, when the jury unanimously

found in Citi’s favor on Terra Firma’s claim of fraudulent misrepresentation.

On the basis of the jury’s verdict, the district court entered judgment against

Terra Firma on December 9, 2010.

Terra Firma

initially pled four claims:

(1) fraudulent

misrepresentation,

(2) negligent misrepresentation,

(3)

fraudulent

concealment, and (4) tortious interference with prospective economic

advantage. (A83-A87.)1 The trial court granted summary judgment on

Terra Firma’s claims

for negligent misrepresentation and

tortious

interference; Terra Firma is appealing only the dismissal of the negligence

claim.

Trial commenced on October 18, 2010, on the two fraud claims.

At the close of Terra Firma’s case, the district court granted Citi’s motion


1 Citations in the form of “A__” refer to pages in the Joint Appendix.
Citations in the form of “SPA __” refer to pages in the Special Appendix.
Citations in the form of “CA__” refer to pages in the Confidential
Appendix.

English law authorities not available in the Joint Appendix have been

included in an addendum to this brief, referred to as “ADD__”.



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for judgment as a matter of law on the fraudulent concealment claim,

holding that it did not “have a sufficiently articulable basis in the evidence as

presented thus far on theories presented to the jury to go to the jury as a

separate claim.” (A14852 at 2024:5-8.) Terra Firma’s principal claim, for

fraudulent misrepresentation, went to the jury. After deliberating for less

than a day, the jury unanimously rejected Terra Firma’s claim, finding Citi

not liable. This appeal followed.



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COUNTERSTATEMENT OF THE FACTS

The facts set forth below are drawn from the record at trial and

from the record of undisputed matters submitted in connection with Citi’s

motion for summary judgment.

A. The Parties

1.

Terra Firma

Plaintiffs Terra Firma Investments (GP) 2 and Terra Firma

Investments (GP) 3 (collectively, the “GPs”) are part of a broader group of

Terra Firma entities and are the general partners, respectively, of two Terra

Firma funds. (A46-47 at ¶¶ 18-19.)

Terra Firma is a private equity firm founded in 2002 by Guy

Hands, an Oxford-educated businessman and Terra Firma’s principal

witness at trial. (A13087-88 at 253:16-254:13; A13179-80 at 345:24-346:1.)

Hands founded Terra Firma in 2002 after a successful career at Goldman

Sachs and Nomura. (A13179-80 at 345:6-346:1.)

Terra Firma is a “contrarian investor” (A18262 at 18264),

which has, over the years, invested approximately $20 billion in equity

capital in distressed companies. (A47 at ¶ 20; A218.) Plaintiffs are

“investment management companies that are responsible, generally, for

making all decisions concerning the various private equity fund partnerships



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for which they serve as general partners.” (A12504 at A12510, ¶ 6.) The

GPs make investment decisions with input from the private equity firm

chaired by Hands. (A14282-83 at 1448:19-1449:14.)

2.

Citi

Defendants are a group of companies that comprise one of the

world’s largest global financial services company. (A12504 at A12510, ¶

4.) The district court dismissed one of the defendants, Citigroup Global

Markets Inc., at the close of Plaintiffs’ case (A14648 at 1820:10-23; A14802

at 1974:12), a ruling that Plaintiffs do not appeal.

Citi’s principal witness at trial, David Wormsley, is a senior

banker who has been with Citi for over 25 years. (A14112 at 1278:8-14.) In

2007, Wormsley was the head of UK investment banking for Citi. (A14113

at 1279:11-12.)

B.

Terra Firma Targets EMI

Terra Firma explored the acquisition of EMI on several

occasions between 1994 and 2007. (A18482-90; A13088 at 254:19-22.) In

2006, Terra Firma expressed its interest but was rebuffed by EMI. (A17512-

13; A13220 at 386:13-23.) Terra Firma nonetheless continued its due

diligence (A18491-92; A12980 at 146:5-25), and when EMI came on the

auction block in May 2007, Terra Firma jumped at the opportunity. Terra



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Firma gave the potential acquisition the code name “Project Dice.”

(A13404-05 at 570:25-571:1.)

Although Citi (led by Wormsley) and Deutsche Bank had acted

as EMI’s sell-side investment bankers during late 2006, for the 2007 auction,

EMI’s chairman decided to appoint as the lead, independent “Rule 3”

adviser an investment bank that did not have any commercial relationship

with the private equity funds that would be likely bidders for the company.

(See A15667.) EMI selected Greenhill & Co. to play that role and take the

lead in negotiations with prospective bidders; Deutsche Bank and Citi (and,

therefore, Wormsley) continued in a secondary capacity as sell-side advisers

to the company. (See id.; A14100-01 at 1266:14-1267:15.) EMI cleared

both Citi and Deutsche Bank to act also as buy-side financiers to the bidders

for EMI. (A13818-20 at 984:22-986:11.)

On May 6, 2007, Hands had a meeting with EMI’s CEO, Eric

Nicoli, during which Nicoli and Hands discussed Terra Firma’s business

plan, as well as information regarding other potential bidders—including the

private equity firms One Equity Partners, Fortress, and Cerberus—that had

each already submitted indicative, or non-binding, bids for the company.

(See A16898-99.) Hands instructed his team to prepare a memorandum to

Terra Firma’s Investment Advisory Committee (the “IAC”) using the



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information he had obtained from Nicoli, which persuaded Hands that there

were “substantial upsides” to acquiring the company. (Id.; A13158-60 at

324:25-326:4.) Hands then compiled the top nine reasons why he wanted to

“win” the EMI auction, the upsides of which he now viewed as “enormous.”

(A17088-89; A13236 at 402:2-12.)

Hands instructed his team to prepare an indicative bid of £2.65

per share. (A16898-99.) From that point forward, Terra Firma consistently

targeted a final bid price of £2.65—including on May 7, in a detailed memo

to the IAC from the Terra Firma team (A16902-13); on May 15, in a

similarly-detailed update to the IAC (A16916-22); and on May 18, when the

IAC and the GPs met to discuss the potential acquisition (A16927-28;

A17522; A15911-22).

C. Terra Firma Prepares a Bid for EMI

Hands’s focus on winning the auction for EMI led him to

instruct his team to be in a position to put in a fully-financed bid on May

14—well before the auction’s then-target deadline of May 23. (A17088-89;

A13248-49 at 414:19-415:1.) Terra Firma assembled a roster of advisers

and consultants to assist it with preparing its bid,2 and recruited a number of


2 Terra Firma engaged Dresdner Kleinwort, an investment bank, to advise
it on the financial aspects of the EMI acquisition (A12990 at 156:15-23),



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banks—Citi among them—to compete for a role in financing the

approximately £2.5 billion of debt required for Terra Firma to complete the

£4 billion transaction. (A17088-89; A13031 at 197:1-10.)

As a condition of entering the bidding process for EMI, Terra

Firma signed the Project Mulberry Agreement (the “PMA”) setting out the

conditions under which EMI and its advisers, including Citi, would supply

information. (A963.) Paragraph 10 of the PMA provided that neither the

parties to the PMA nor any of their “Connected Persons” (including Citi, as

EMI’s sell-side adviser) “shall have any liability to the other or any other

person resulting from the use of Information by us or them” or “shall be

under any obligation to provide further Information, to update Information

or to correct any inaccuracies.” (A963 at ¶¶ 10(a)-(b).) The sole exception

was in the event of fraud. (Id.)

Terra Firma then began a period of intensive work, including

due diligence and financial analysis. (See, e.g., A16902-13; A16914-15;

A16916-22.) Although May 14 proved to be an overly ambitious goal, Terra

to provide evaluations on


McKinsey and Company
the “cost
improvement potential” available to Terra Firma (A17807 at 17811),
L.E.K. and Enders, music industry specialists, to provide assessments of
the future direction of the industry (A18491-92; A12981 at 147:1-7),
KPMG to conduct financial analysis of EMI’s performance (A16903),
and Weil, Gotshal & Manges to conduct legal due diligence (A12981-82
at 147:14-148:3).



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Firma nonetheless continued its efforts to get a bid together as quickly as

possible, now targeting May 18—five days before the May 23 deadline.

(A16916 at A16917; A13257 at 423:7-24.) To meet this aggressive

schedule, Terra Firma needed to procure financing quickly, and none of the

many banks with which it had been negotiating had yet committed to finance

the full amount in that short timeframe. (See A17068-69.) Plaintiffs took

steps to spur Citi, in particular, to “get the financing in place as quickly as”

possible. (A13260-61 at 426:25-427:7; A13262 at 428:15-19; A17069.) On

May 17, Citi agreed to finance the requested £2.5 billion needed for Terra

Firma’s bid. (See A13266-67 at 432:21-433:9.)

On the morning of Friday, May 18, after reviewing a 160-page

report detailing Terra Firma’s business plans, assumptions, and extensive

due diligence analyses, the IAC recommended the submission of a bid at

£2.65 per share (A17552; A16927-28), a recommendation that the GPs

approved that same morning (A15877 at A15880; A15911 at A15914). The

IAC and GP meetings recommending the £2.65 bid concluded before the

first of the calls during which Wormsley is alleged to have relayed the

Cerberus bid price and urged Hands to bid £2.65 to win the auction. (See

A13098 at 264:6-19; A18643 at A18658.)



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D. Cerberus Withdraws from the EMI Auction

On the evening of May 19, Cerberus notified Greenhill that it

would not be submitting a bid for EMI. (A13782-83 at 948:25-949:18.)

Greenhill convened a conference call on May 20 to inform senior EMI

executives of the Cerberus decision. (A15364; A13784-85 at 950:24-

951:23.) Greenhill did not invite Wormsley to participate in that call

(A15364), and he did not. Wormsley did not learn that Cerberus had

dropped out of the auction for EMI until after Terra Firma submitted its bid

the following day. (A13786 at 952:7-13; A13808-09 at 974:17-975:2;

A14157-58 at 1323:5-1324:3; A14917 at 2089:10-14.)

E.

Terra Firma Bids for EMI

At 9:00 a.m. on May 21, 2007, Plaintiffs, on behalf of their

acquisition vehicle, Maltby Limited, made a binding offer to purchase all of

the shares of EMI at a price of £2.65 per share, “[o]n the basis of our due

diligence.” (A17001.) The offer letter expressed Terra Firma’s willingness

to increase the price in the event of a competitive bid. (Id.) Indeed, the IAC

had already recommended an increased bid of £2.85 per share, if required to

win the auction. (A16929-30.) Terra Firma projected that it would earn a

substantial return at the £2.65 bid price, estimating that its initial equity of



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investment of £1.5 billion would increase in value to more than £4 billion in

five years. (A13019-20 at 185:18-186:4; A17552 at A17557.)

Less than three hours after Terra Firma submitted its bid, Hands

received an email stating that the Financial Times had information that

“Cerberus is out.” (A18255.) Despite the claim in this litigation that

Plaintiffs would not have bid had they known that Cerberus had dropped out

of the auction, neither Hands nor anyone else at Terra Firma took any action

upon receiving the FT report. (A13486-88 at 652:23-654:24.)

Later that day, EMI’s board met to discuss Terra Firma’s offer.

(A15380.) EMI recommended Terra Firma’s offer to its shareholders that

same day. (A15389-90.)

F.

The Three Conversations Comprising the Alleged
Fraud

Plaintiffs claim

to have been defrauded by statements

Wormsley allegedly made

in

three conversations with Hands

that

purportedly took place between mid-morning on May 18 and approximately

midnight on May 20. According to Hands, each of these conversations

consisted of a telephone call from Wormsley in which Wormsley stated that

Cerberus intended to bid £2.62 on May 21, and that Terra Firma needed to

bid £2.65 that day to win the auction. (A13275-76 at 441:10-442:1; A13553



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at 719:8-16; A13573-74 at 739:24-740:8; A13577 at 743:3-25; A13712 at

878:3-22.)

There is no dispute that Wormsley and Hands spoke on May

18. (A18643 at A18658; A18698.) The dispute at trial concerned the

subject matter of that call.

Wormsley testified that he spoke to Hands on the 18th after

receiving a call from Greenhill. (A13963-64 at 1129:15-23, 1130:2-19.)

Greenhill’s senior banker told Wormsley that Hands had claimed to have

been advised by Wormsley that a bid of £2.40 would be sufficient to win the

auction; Wormsley denied giving such advice. (A13963 at 1129:15-23.)

Wormsley called Hands to complain about the false comment attributed to

him. (A13964 at 1130:2-19.) Wormsley’s recollection of the May 18 call is

confirmed by an email he received later that day from Terra Firma’s general

counsel, acknowledging

the “misunderstanding” between Hands and

Wormsley on the subject of an offer at £2.40 per share. (A15359; see also

A13051 at 217:6-12.)

The second of the three calls allegedly took place on Sunday,

May 20, during a GP meeting in an aircraft hangar in Guernsey. Hands

claimed that the call took place in the late afternoon that day, although the



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minutes place the meeting earlier that afternoon. (A13553 at 719:11-14;

A17290; A17334.)

The evidence established that this call did not take place and

Hands’s testimony about it could not be credited. Wormsley’s telephone

records showed only two calls to Hands in the afternoon of May 20, each of

which lasted approximately 30 seconds. (A18643 at A18663; A18698.)

Neither could be the call Hands described. At the time Wormsley placed the

calls, Hands was on his private jet en route back to England, where he

landed approximately 30 minutes after the latter of the two calls made by

Wormsley. (A17758-59; see also A14670 at 1842:20-24.) Hands’s phone

records show no other call with Wormsley that afternoon. (See A17167 at

A17184-85.) Hands and Wormsley did not have the conversation about

which Hands testified. Nor is there any other documentary evidence of a

call between Wormsley and Hands. There is no reference to such a call in

the notes taken during the GP meeting. (A15970-72; A14361 at 1527:14-

17.) The minutes of the meeting, similarly, make no reference to a call—or

any discussions at all with Wormsley. (See A17290-92; A17334-36.)

The third call in which Hands claims to have received

information concerning Cerberus from Wormsley took place at 11:53 p.m.

on the evening of May 20. (A18643 at A18663; A18698.) Prior to this call,



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Citi and Terra Firma had engaged in e-mail exchanges over a two-hour

period about the financing for Terra Firma’s bid. (See A17293; A18537.)

Wormsley did not recall the substance of the call. (A14153 at 1319:14-20.)

Following the call, Wormsley sent an email to Nicoli, relaying Wormsley’s

advice that Hands “should not play games on price.” (A15300.) Wormsley

testified that the reference related to Hands’s game-playing on May 20,

when Hands claimed to have learned from Wormsley that the EMI board

would accept a price of £2.40. (Id.; A14153-54 at 1319:14-1320:4.) Neither

Wormsley’s e-mail to Nicoli, nor another contemporaneous email sent to

one of Wormsley’s Citi colleagues, makes any reference to Cerberus or a

Terra Firma bid at £2.65. (See A15300; A18540.)

G. Terra Firma Completes Its Acquisition of EMI

Plaintiffs conditioned their May 21 offer for EMI on achieving

90 percent shareholder acceptance by June 27, 2007. (A17350 at A17373.)

Terra Firma reached that threshold and closed the transaction on August 1,

2007. (A13076 at 242:15-19; A13476-77 at 642:19-643:3.)

H. Terra Firma Learns that Cerberus Did Not Bid

On September 24, 2007, a senior Terra Firma executive

informed Hands that Cerberus “never actually submitted a formal offer” for

EMI. (A17208.) As when he received the FT report about Cerberus on May



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21, Hands took no action upon receiving information that contradicted the

purportedly fundamental premise on which he authorized the EMI bid, that

Cerberus intended to bid at £2.62. (A13202-04 at 368:2-370:19.) After

receiving affirmation that Cerberus had not bid, Hands maintained his

personal and professional dealings with Wormsley and others at Citi, and

never once advised Wormsley or Citi that Wormsley had defrauded him into

making the bid. The first mention of Wormsley’s alleged fraud occurred

when Terra Firma filed this action in December 2009. (See A18623;

A18257; A18571; A18555; A19065; A18259; A14159-77 at 1325:1-

1343:23.)



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SUMMARY OF ARGUMENT

This appeal follows a trial and swift jury verdict rejecting Terra

Firma’s principal fraud claim. That verdict is clearly supported by the trial

record; indeed, Terra Firma does not contend otherwise. Instead, Terra

Firma takes issue with a small number of the rulings below, specifically: (1)

the district court’s jury instructions on reliance; (2) the entry of summary

judgment on Terra Firma’s negligent misrepresentation claim on the ground

that it was barred by a contractual waiver of liability; (3) judgment as a

matter of law on the fraudulent concealment claim following Plaintiffs’

abandonment of this theory at trial; and (4) the exclusion of two documents

and a portion of expert testimony on damages.

None of these issues warrants reversal.

First, the district court correctly declined to instruct the jury

that Terra Firma was entitled to a presumption of reliance. English law,

similar to ours, holds that a presumption of the type at issue shifts the burden

of going forward with evidence, not the ultimate burden of persuasion on a

claim. Because Citi came forward with the requisite evidence, Judge Rakoff

properly declined to instruct the jury on a presumption of reliance, rather

instructing that Terra Firma had the burden of proving each element of its

claim.



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Nor did the trial court err by instructing the jury that Wormsley

“acted with dishonest intentions, in that he intended that the Terra Firma

plaintiffs would rely on the misrepresentation(s) to Citi’s benefit and Terra

Firma’s detriment.” Plaintiffs concede that they were required to prove

dishonest intention; they dispute only the “benefit/detriment” amplification.

But Plaintiffs lodged no objection to this instruction; accordingly, the verdict

may be reversed only on a finding that the inclusion of this language in the

instruction constituted fundamental error. No such finding could be made

because the “benefit/detriment” language tracked the theory of fraud that

Plaintiffs asserted from the filing of the complaint through closing

arguments to the jury.

Second, the district court correctly granted summary judgment

on negligent misrepresentation because Plaintiffs had contractually waived

that claim. The PMA exempted EMI and Citi from any liability, other than

for fraud, based on information provided to Terra Firma in connection with

its potential bid. The negligent misrepresentation claim pled by Terra Firma

fell squarely within the PMA’s liability waiver. In any case, Citi could not

be found liable to Terra Firma because Citi owed Terra Firma no duty of

care.



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Third, the district court correctly granted judgment as a matter

of law on Terra Firma’s fraudulent concealment claim because no rational

juror could conclude that Terra Firma had established the elements of that

claim. To do so, Terra Firma needed to prove that Wormsley made a

representation to Terra Firma that was “true, or which [Wormsley] believed

to be true” when made, but which later turned out to be false. (Appellants’

Br. (hereinafter “Br.”) at 44.) That was not the case that Terra Firma tried;

rather, Terra Firma asserted throughout that Wormsley affirmatively lied

concerning Cerberus and the price at which Terra Firma should bid.

Fourth, the district court did not abuse its discretion by

excluding certain documents and expert testimony proffered by Terra Firma.

The handwritten notes taken by Terra Firma’s attorney contained triple

hearsay. Similarly, the district court acted within its proper exercise of

discretion in excluding Nicoli’s phone records because they had not been

shown to Nicoli during his trial deposition. Finally, Terra Firma’s anemic

effort to find fault in the trial court’s exclusion of expert testimony

concerning lost profits should be dismissed out of hand, because Judge

Rakoff properly excluded the testimony as speculative and based on a

fundamentally flawed methodology.



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ARGUMENT

THE DISTRICT COURT CORRECTLY INSTRUCTED

THE JURY ON RELIANCE

I.



A. Terra Firma Was Not Entitled to an Instruction on

the Presumption of Reliance

The trial court instructed the jury that Plaintiffs had the burden

of proving “by a preponderance of the credible evidence . . . that Terra Firma

did in fact rely on one or more . . . misrepresentations and that the

misrepresentations were a substantial factor in causing Terra Firma to make

the bid it made for EMI on May 21, 2007.” (A15284 at 2456:5, 20-23.)

That instruction was correct.

Terra Firma’s contrary argument—that the jury should have

been instructed to presume reliance—is based on a misinterpretation of

English law. The presumption in English law, as the district court correctly

concluded, put the burden on Citi to come forward with evidence that Terra

Firma had not, in fact, relied on the alleged misrepresentations. Once Citi

rebutted the presumption—and the record plainly shows that it did—the

burden shifted back to Terra Firma to prove that element of its fraudulent



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misrepresentation claims by a preponderance of the evidence, precisely the

instruction given by Judge Rakoff.3

Plaintiffs’ attack on the jury instruction is rooted in their

confusion about the distinction in English law between the burden of coming

forward with evidence, the “evidential” burden, and the ultimate burden of

persuasion on a claim.4 As a leading treatise states: “An ‘evidential burden’

is not a burden of proof. It determines whether an issue should be left to the

trier of fact, while the ‘persuasive burden’ determines how the issue should

be decided.” Colin Tapper, Cross and Tapper on Evidence p. 122 (12th ed.

2010) (ADD551 at 553) (emphasis in original); see, e.g., Sheldrake v. Dir. of

Pub. Prosecutions [2004] UKHL 43 at ¶ 1 (ADD462 at 463) (Lord

Bingham) (“An evidential burden is not a burden of proof. It is a burden of


3 Even under its incorrect reading of English law, Terra Firma has failed to
show that it would have been entitled to an instruction on the
presumption of reliance. Terra Firma contends that the presumption
arises “‘if the misrepresentation is of such a nature that it would be likely
to play a part in the decision of a reasonable person.’” (Br. at 24
(quoting Dadourian Group Int’l Inc. v. Simms [2006] EWHC 2973 (Ch)
at ¶ 543) (emphasis added).) Terra Firma was thus entitled to no
presumption unless it was reasonable for a sophisticated private equity
fund to invest £4 billion on the basis of a statement by the other side’s
banker concerning a competing bid.

4 American law similarly distinguishes between the burden of producing
evidence and the burden of persuasion. See 2 McCormick on Evidence
§ 336 (Kenneth S. Broun et al. eds., 6th ed. 2006).



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raising, on the evidence in the case, an issue as to the matter in question fit

for consideration by the tribunal of fact.”).

The distinction is well recognized in English case law and

treatises. As a leading evidence text explains, once a party has come

forward with evidence sufficient to meet its burden of production, “the effect

will be as if the presumption had never come into play at all.” Adrian Keane

et al., The Modern Law of Evidence p. 651 (8th ed. 2010) (ADD574 at 576).

At that point the burden of persuasion—which has never been shifted—

remains with plaintiff to establish its claim. “Once the party who bears the

evidential burden has discharged it by adducing evidence sufficient to justify

consideration of a particular issue, it becomes necessary for the party

bearing the persuasive burden on that issue, the proponent, to persuade the

trier of fact that it should be decided in his favour.” Cross and Tapper on

Evidence p. 151 (ADD551 at 560).

Indeed, it would be inconsistent with English law to instruct a

jury on the presumption of reliance in a civil case. The House of Lords

specifically considered the application and effect of the presumption in the

landmark case of Smith v. Chadwick, [1884] 9 App. Cas. 187 (ADD500).

Lord Blackburn, with whom a majority of the court agreed, wrote:

I think it not possible to maintain that [the presumption
of reliance on a misrepresentation] is an inference of



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law. . . . I quite agree that being a fair inference of fact it
forms evidence proper to be left to a jury as proof that he
was so induced. But I do not think that it would be a
proper direction to tell a jury that if convinced that there
was such a material representation they ought to find
that the plaintiff was induced by it . . . .

Id. at 196 (ADD509) (emphasis added); see also St Paul Fire & Marine Ins.

Co. (UK) Ltd. v. McConnell Dowell Constructors Ltd [1996] 1 All ER 96,

112 (ADD518 at 534) (reaffirming Smith v. Chadwick).

The rule of Smith v. Chadwick is hornbook law in England.

Halsbury’s Laws of England makes clear that reliance (which it calls

“inducement”) is a fact which must be proved, not simply presumed by the

trier of fact:

[B]oth inducement and materiality are prima facie issues
of fact, and neither can be presumed as a matter of law.
Inducement cannot be inferred in law from proved
materiality, although there may be cases where the
materiality is so obvious as to justify an inference of fact
that the representee was actually induced; but, even in
such exceptional cases, the inference is only a prima
facie one, and may be rebutted by counter-evidence.

31 Lord Mackay of Clashfern, Halsbury’s Law’s of England ¶ 766 (4th ed.

2003) (ADD567 at 568); see also, Pan Atl. Ins. Co. Ltd. v. Pine Top Ins. Co.

Ltd. [1995] 1 AC 501, 570 (ADD369 at 438) (Lord Lloyd of Berwick)

(describing the view that reliance can be presumed as a matter of law as



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“heresy” and noting that this view “has long since been exploded by, among

others, Lord Blackburn in Smith v. Chadwick”).5

Against this clear line of authority, Plaintiffs rely on the Court

of Appeal’s judgment in Barton v. County Natwest and a court of first

instance judgment in Dadourian Group International v. Simms. If Terra

Firma is suggesting that these cases articulate a different rule than Smith v.

Chadwick, that is plainly wrong. The House of Lords’ decision in Smith v.

Chadwick remains good law and is binding authority on all English courts.6