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Citigroup Wins Motion for Summary Judgment in Case Brought by Seven Norwegian Municipalities

Paul, Weiss achieved a major victory for Citigroup against seven Norwegian municipalities. In 2009, the Municipalities, along with their broker and financial advisor Terra Securities, filed a lawsuit in the Southern District of New York against Citigroup Global Markets Inc. (CGMI) and Citigroup Alternative Investments LLC (CAI), claiming that CGMI and CAI had misrepresented some of the risks associated with fund-linked notes linked to a hedge fund managed by CAI. In 2007, Terra purchased the Notes from a Citigroup company in London and agreed to distribute them only to sophisticated investors. Terra marketed and sold the notes to the Municipalities shortly before the global credit crisis unfolded. The notes subsequently lost their value and Terra and the Municipalities sued CGMI and CAI for common law fraud and negligent misrepresentation, claiming that they purchased the notes based on alleged misrepresentations contained in a marketing presentation by Citi.

In 2010, the Court dismissed Terra's fraud and negligent misrepresentation claims for failure to plead reasonable reliance. The remaining parties subsequently engaged in discovery, much of which took place in Norway. After a full opportunity for discovery, CGMI and CAI moved for summary judgment, arguing that the undisputed facts show that, in making their investments, the Municipalities did not rely on a statement from CGMI or CAI and that the Municipalities could not prove causation. After briefing, Judge Marrero granted CGMI's and CAI's motion for summary judgment for substantially the same reasons, explaining that the "Municipalities cannot demonstrate direct reliance because Citigroup did not directly communicate the alleged misrepresentations to them. The Municipalities cannot demonstrate indirect reliance, because Terra substantially and materially transformed Citigroup's statements […] by, among other things, removing many of the risk disclosures in the Citi Presentation […]. The Municipalities cannot demonstrate third party reliance, because the Court has already held that Terra's reliance was unreasonable." In addition, Judge Marrero held that CGMI and CAI are "entitled to a judgment as a matter of law, because the Municipalities cannot set forth a theory of causation supported by any facts."
The Paul, Weiss litigation team included litigation partners Brad Karp and John Baughman and counsel Karen King and Daniel Levi.

March 29, 2013

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