The appeals court said the jury in the case had been instructed by federal judge Jed Rakoff incorrectly, The Financial Times reported Friday.
What needs changing is the jury should have placed the burden of proof on Citigroup rather than Terra Firma, the Times said.
The original case involves Terra Firma's complaint that it overpaid for music publishing firm EMI, which it bought for $6.3 billion. The equity firm, which is controlled by investor Guy Hands, says it did so on the advise of David Wormsley, a Citigroup banker who helped with the deal.
But the appeals court was cautions. "Whether that error actually affected the jury's determination is unknowable," the judicial panel said.
In addition, the panel said Terra Firma's additional arguments in the appeal case were "unpersuasive."
The appeals court called it a "he said, she said," dispute. But both sides said they would win in a new trial.
"We are confident we will again prevail at trial as Citi's conduct in the EMI transaction was entirely proper," the bank said in a statement.
"The original verdict made clear that Terra Firma's baseless accusations of fraud were simply an attempt to gain leverage in debt restructuring negotiations."
A spokesman for Hands said the firm continues "to believe that we have a strong claim, and with the jury instructions now resolved in our favor we expect to prevail in any subsequent trial."