Terra Firma Capital Partners Ltd can proceed to trial against Citigroup Inc in their dispute over Terra's 2007 acquisition of music group EMI, a federal judge ruled.

The buyout house alleges in its lawsuit that Citigroup inflated the price of EMI Group Plc by not revealing that the only remaining bidder had withdrawn from the auction. Terra Firma bought out EMI for more than £4 billion ($6.26 billion).

Lawyers for Citigroup had argued that the case should be resolved in its favor before trial. But on Tuesday (Sept. 15), U.S. District Judge Jed Rakoff allowed Terra Firma's claims for fraudulent misrepresentation and fraudulent concealment to proceed to a jury. Rakoff granted judgment in favor of Citibank on two of Terra's claims.

A spokesman for Terra Firma said it was pleased with Rakoff's ruling. "We look forward to the beginning of the trial on October 18, when Citi will have to answer to a group of New York jurors," Jonathan Doorley said.

A Citigroup representative was not immediately available for comment.

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.

Last month, EMI's parent company said further equity injections may be needed, particularly in 2011, as the music group continues to struggle under the weight of its debt in spite of an improved trading performance.

The music company, controlled by Guy Hands's buyout firm, generates enough cash to cover interest payments on its £3 billion ($4.69 billion) debt burden, EMI parent company Maltby Capital said in its annual report.

However, it needs to address banking covenants that will tighten steadily over the coming years.

The case in U.S. District Court, Southern District of Manhattan is Terra Firma Investments v. Citigroup, No. 09-10459.

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