Preview
FILED: NEW YORK COUNTY CLERK 08/13/2010 INDEX NO. 650159/2010
NYSCEF DOC. NO. 12 RECEIVED NYSCEF: 08/13/2010
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
---------------------------------------x
HARVEY RUDMAN and HAROLD KUPLESKY, Index No. 650159/10
on Behalf of Each of Them Individually and
on Behalf of Starrett City Preservation LLC,
Derivatively, AFFIDAVIT OF
Plaintiffs, IRIS SUTZ
-against- Assigned to: Kornreich, 1.
CAROL GRAM DEANE, DISQUE D. DEANE, Motion Sequence No. 001
SALT KETTLE, LLC, ST. GERVAIS, LLC, and
STARRETT CITY PRESERVATION, LLC,
Defendants.
---------------------------------------x
STATEOFNEWYORK )
) ss.:
COUNTY OF NEW YORK )
IRIS SUTZ, being first duly sworn, deposes and says:
1. I am a certified public accountant, and since March 2006 I have been the
Controller of Starrett City Associates LP ("SCAli), located at 150 East 58th Street in
Manhattan, the entity that beneficially owns the world famous Starrett City subsidized
housing development located in Brooklyn, New York.! In that capacity, I am familiar
with the history and terms of a major refinancing of Starrett City that closed in December
2009, and with the documents relating to that refinancing transaction. I submit this
1. Since November 2009, I have also been the Chief Financial Officer of Starrett City,
inc. ("SCI"), the entity which holds title to and operates Starrett City on behalf of SCA, the
beneficial owner.
1
affidavit to supply this Court with the facts and documents related to SCA and that
refinancing.
2. Defendant Disque D. Deane became the Managing General Partner ("MGP") of
SCA in 1985, and continued in that position until the $530 million refinancing of Starrett
City, which closed on December 17,2009. Prior to the refinancing, a) Mr. Deane had a
1% ownership interest in SCA; b) the General Partner ("GP") of SCA, which was Salt
Kettle, LLC ("SK"), had no ownership interest at that time; and c) the 99% owners of
SCA were hundreds of limited partner interests, which overwhelmingly (approximately
75%) are not subject to the control of any of the defendants in this case. 2
3. In order to give the SCA management team, which included plaintiffs,
additional incentives and motivation to help bring about a sale or refinancing of Starrett
City, Mr. Deane and SK assigned their "economic interests" (as opposed to their "rights,
powers and authorities" as MGP) (Exhibit A at §1.3(b)) in SCA to a new entity, Starrett
City Preservation LLC ("Preservation").3 The terms and conditions agreed upon by
Preservation's members are set forth in a written agreement ("the Preservation
Agreement"). Exhibit A. Plaintiffs Harvey Rudman and Harold Kuplesky are minority
members of Preservation.
2. I am a minority member of St. Gervais LLC, the sole member of Salt Kettle, LLC.
3. Upon a sale or refinancing, those economic interests, as well as the associated
membership interests, would (and did) change: SK would, upon a "participation event,"
including a sale or refinancing, obtain an 18.9% economic interest which, together with Mr.
Deane's 1% interest, would total a 19.9% economic interest, and the limited partners would have
an 80.1 % economic interest.
2
4. As a condition of the refinancing, a change in the organizational structure of
SCA was required by the Lender (Wells Fargo). The interests of Mr. Deane (the MGP),
and SK (the GP) were required to be transferred to Single Purpose Entities ("SPE's"), i.e.,
DD Spring Creek LLC (the sole member of which is Mr. Deane) and SK Spring Creek
LLC (the sole member of which is Salt Kettle or SK), respectively.4 As part of the
refinancing transaction, a shopping center and certain vacant land, which had been part of
SCA, were transferred to another entity, Spring Creek Plaza LLC. The members of
Spring Creek Plaza included entities called DD Shopping Center LLC (the sole member
of which is Mr. Deane) and SK Shopping Center LLC (the sole member of which is SK);
the limited partner interests were held by another entity. Thus, Spring Creek Plaza
(owner of the shopping center) and SCA have the same ownership and membership
structure, albeit through different entities.
5. The required transfers to Single Purpose Entities were all approved by Mr.
Deane, as they had to be for the refinancing to close. Mr. Deane's approval meant that
these transfers also had to be approved by Preservation, as required by Section 5.10 of the
Preservation Agreement:
The MGP shall from time to time propose transactions or
plans for SCA (including but not limited to merger,
consolidation, conversion, financing, recapitalization,
liquidation or other business combination transaction) and in
the event that the MGP approves any such transaction or plan
for SCA the Members [of Preservation] shall consent to, vote
4. "Spring Creek Towers" is another name for the Starrett City apartment
complex, hence "Spring Creek" is shorthand for Starrett City.
3
in favor of(if applicable) and raise no objections against such
transaction or plan (emphasis added).
6. I have access to all of the refinancing's closing documents, which include a
Commitment Letter, dated December 11,2009, and exhibits, from Wells Fargo to Mr.
Deane as MGP approving the refinancing, promising the funds and documenting the SPE
requirement. Exhibit B (without the voluminous exhibits).
7. Section 1(a) of the Commitment Letter, entitled "Required Borrower Principals
and Percentage of Ownership," incorporates a document captioned "Additional Tenns."
Exhibit C. The first paragraph of the "Additional Tenns" describes the required
"Organizational Structure" of SCA, including that the interests of Mr. Deane and SK
shall be newly fonned Delaware Single Member Limited
Liability Companies wholly owned, respectively, by Disque
Deane and by Salt Kettle, LLC. Each of these newly fonned
[LLC's] shall be a Single Purpose Entity.
8. Section 2(a) of the Commitment Letter, captioned "Required Borrower
Principals," incorporates two charts which are described in the Commitment Letter as the
"approved organizational charts" for the Borrower (Starrett City) and for the owner of
two parcels of property transferred out of the highly regulated Starrett City, i.e., a
shopping center and certain vacant land.
9. The first of the "approved" charts, labeled "Approved Borrower Organizational
Chart" (Exhibit D), reflects Preservation having 100% of the "economic interest" of Mr.
Deane and SK held by the two SPE's fonned to take title to SCA as a result of the
refinancing transaction, i.e., DD Spring Creek LLC, and SK Spring Creek LLC. The
4
second chart, labeled "Approved Shopping Center/Vacant Parcels Owner Organizational
Chart" (Exhibit E), reflects Preservation holding 100% of the "economic interest" of Mr.
Deane and Salt Kettle then held by DD Shopping Center LLC and SK Shopping Center
LLC. 5
10. In March 2010, SCA's MGP circulated to the more than 200 SCA limited
partner interests a document entitled "Summary of Completed Refinancing and Consent
Solicitation for Proposed Donation" ("the Solicitation Letter"). Exhibit F (without the
voluminous attachments). Among other things, the Solicitation Letter reflects the fact
that "as a condition of the Refinancing Transaction, the new lender mandated that the
Partnership have qualified Single Purpose Entities to act as general partners of the
Partnership. This was accomplished by a Nineteenth Amendment to the Partnership
Agreement." Exhibit Fat 2.
11. The Nineteenth Amendment (Exhibit G), a copy of which was attached to the
Solicitation Letter, is the document by which Mr. Deane and SK transferred their
"interests and obligations" as MGP and GP of SCA to the newly formed SPE's. For
example, the Nineteenth Amendment provides in relevant part that
WHEREAS, in order to satisfy this SPE requirement [i.e., a
condition of the refinancing], as of December 15, 2009 Deane
assigned, pursuant to Section 9.01(a) of the Partnership
Agreement to his Affiliate DD Spring Creek LLC, a Delaware
5. Because of the poor quality of the reproduction of Exhibits D & E, each exhibit
also contains an "unofficial" but identical and clearer copy of each chart for the Court's
convemence.
5
limited liability company, whose sole member is Deane, all of
his interests and obligations as Managing General Partner of
the Partnership.
Exhibit G at 2 (emphasis added). The Nineteenth Amendment contains a similar transfer
of"interest[s] and obligations" by SK, the GP ofSCA.
12. The Solicitation Letter also seeks the consent of the limited partners to donate
the vacant parcels of land, previously transferred out of SCA into Spring Creek Plaza
LLC, to a not-for-profit corporation in exchange for a charitable contribution deduction.
To facilitate the limited partners' understanding of the intended transfers, I participated in
the creation and attachment of a chart to the Solicitation Letter reflecting the
organizational structure of Spring Creek Plaza, but only as that organizational structure
pertained to the limited partners, i.e., focusing on the three membership interests - DD
Shopping Center LLC, SK Shopping Center LLC and the limited partners' entity. Exhibit
H.
13. That chart does not, and was not intended to, reflect all of the entities and
relationships associated with the shopping center. For example, the continued economic
interest of Preservation is not reflected in the chart, although it was reflected in the chart
accompanying the closing documents for the refinancing. Exhibits D & E. Such an
omission was not intended to signal, reflect or cause any change in the status of the
economic interest assignment by the MGP and GP to Preservation, either with respect to
the shopping center or SCA.
14. I am advised that plaintiffs have attached a copy of the chart accompanying
6
the Solicitation Letter (Exhibit H) as Exhibit 4 to their proposed Second Amended
Complaint in support of their claim that the economic interest assignments to Preservation
by Mr. Deane and SK have been or are threatened to be negated or superseded by the
Nineteenth Amendment and the assignments to SPE's it authorized. As I have explained,
the chart on which plaintiffs rely does not and was not intended to reflect or demonstrate
that any such nullification occurred.
15. On the contrary, the "approved" charts reflecting those assignments are the
ones attached to the refinancing closing documents (Exhibit D & E), which were intended
to and do reflect a full and accurate view of the organizational structures involved, and
they show that Preservation still retained the interests assigned to it by the MGP and the
GP.
16. Moreover, Preservation's continued economic interest in the property assigned
to it by the MGP and GP is reflected in SCA's 2009 audited financial statement issued in
April 2010. Exhibit I. The 2009 financial statement provides in relevant part the
following very clear acknowledgment of the assignments: "Prior to the creation ofDD
Spring Creek LLC and SK Spring Creek LLC, Disque Deane and Salt Kettle, LLC had
assigned their economic interest as MGP and GP, respectively, in the Partnership to
Starrett City Preservation LLC, an entity controlled by persons related to those sole
members." Exhibit I, Note 1 at p. 7.
17. Kuplesky retired in December 2008 and Rudman was terminated in April
2009. Thus, neither plaintiff participated in the December 2009 refinancing transaction.
7
Nevertheless, I issued checks to them from Preservation on May 10,2010 for over $4
million, representing their shares, as members of Preservation, in proceeds from the
refinancing that had been distributed to Preservation. Exhibit J. 6 The payments to
Preservation by the new MGP and GP (DD Spring Creek and SK Spring Creek) were
made after the creation of the SPE's and pursuant to the assignments to Preservation by
Mr. Deane and SK of their "economic interests" in SCA which the new SPE's had
assumed as a result of the Nineteenth Amendment.
RICHARD A. GREENBERG
Notary PUblic. Slale 01 New YOIle
No.02GR1552760
Q~~lified in Kings County
CommISSIon Expires July 17, 20 (f
6. Plaintiffs' respective distributions were $3,025,574.80 (Rudman) and $703,481.41
(Kup1esky). Exhibit J.
8
Preview
FILED: NEW YORK COUNTY CLERK 08/13/2010 INDEX NO. 650159/2010 NYSCEF DOC. NO. 12 RECEIVED NYSCEF: 08/13/2010 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ---------------------------------------x HARVEY RUDMAN and HAROLD KUPLESKY, Index No. 650159/10 on Behalf of Each of Them Individually and on Behalf of Starrett City Preservation LLC, Derivatively, AFFIDAVIT OF Plaintiffs, IRIS SUTZ -against- Assigned to: Kornreich, 1. CAROL GRAM DEANE, DISQUE D. DEANE, Motion Sequence No. 001 SALT KETTLE, LLC, ST. GERVAIS, LLC, and STARRETT CITY PRESERVATION, LLC, Defendants. ---------------------------------------x STATEOFNEWYORK ) ) ss.: COUNTY OF NEW YORK ) IRIS SUTZ, being first duly sworn, deposes and says: 1. I am a certified public accountant, and since March 2006 I have been the Controller of Starrett City Associates LP ("SCAli), located at 150 East 58th Street in Manhattan, the entity that beneficially owns the world famous Starrett City subsidized housing development located in Brooklyn, New York.! In that capacity, I am familiar with the history and terms of a major refinancing of Starrett City that closed in December 2009, and with the documents relating to that refinancing transaction. I submit this 1. Since November 2009, I have also been the Chief Financial Officer of Starrett City, inc. ("SCI"), the entity which holds title to and operates Starrett City on behalf of SCA, the beneficial owner. 1 affidavit to supply this Court with the facts and documents related to SCA and that refinancing. 2. Defendant Disque D. Deane became the Managing General Partner ("MGP") of SCA in 1985, and continued in that position until the $530 million refinancing of Starrett City, which closed on December 17,2009. Prior to the refinancing, a) Mr. Deane had a 1% ownership interest in SCA; b) the General Partner ("GP") of SCA, which was Salt Kettle, LLC ("SK"), had no ownership interest at that time; and c) the 99% owners of SCA were hundreds of limited partner interests, which overwhelmingly (approximately 75%) are not subject to the control of any of the defendants in this case. 2 3. In order to give the SCA management team, which included plaintiffs, additional incentives and motivation to help bring about a sale or refinancing of Starrett City, Mr. Deane and SK assigned their "economic interests" (as opposed to their "rights, powers and authorities" as MGP) (Exhibit A at §1.3(b)) in SCA to a new entity, Starrett City Preservation LLC ("Preservation").3 The terms and conditions agreed upon by Preservation's members are set forth in a written agreement ("the Preservation Agreement"). Exhibit A. Plaintiffs Harvey Rudman and Harold Kuplesky are minority members of Preservation. 2. I am a minority member of St. Gervais LLC, the sole member of Salt Kettle, LLC. 3. Upon a sale or refinancing, those economic interests, as well as the associated membership interests, would (and did) change: SK would, upon a "participation event," including a sale or refinancing, obtain an 18.9% economic interest which, together with Mr. Deane's 1% interest, would total a 19.9% economic interest, and the limited partners would have an 80.1 % economic interest. 2 4. As a condition of the refinancing, a change in the organizational structure of SCA was required by the Lender (Wells Fargo). The interests of Mr. Deane (the MGP), and SK (the GP) were required to be transferred to Single Purpose Entities ("SPE's"), i.e., DD Spring Creek LLC (the sole member of which is Mr. Deane) and SK Spring Creek LLC (the sole member of which is Salt Kettle or SK), respectively.4 As part of the refinancing transaction, a shopping center and certain vacant land, which had been part of SCA, were transferred to another entity, Spring Creek Plaza LLC. The members of Spring Creek Plaza included entities called DD Shopping Center LLC (the sole member of which is Mr. Deane) and SK Shopping Center LLC (the sole member of which is SK); the limited partner interests were held by another entity. Thus, Spring Creek Plaza (owner of the shopping center) and SCA have the same ownership and membership structure, albeit through different entities. 5. The required transfers to Single Purpose Entities were all approved by Mr. Deane, as they had to be for the refinancing to close. Mr. Deane's approval meant that these transfers also had to be approved by Preservation, as required by Section 5.10 of the Preservation Agreement: The MGP shall from time to time propose transactions or plans for SCA (including but not limited to merger, consolidation, conversion, financing, recapitalization, liquidation or other business combination transaction) and in the event that the MGP approves any such transaction or plan for SCA the Members [of Preservation] shall consent to, vote 4. "Spring Creek Towers" is another name for the Starrett City apartment complex, hence "Spring Creek" is shorthand for Starrett City. 3 in favor of(if applicable) and raise no objections against such transaction or plan (emphasis added). 6. I have access to all of the refinancing's closing documents, which include a Commitment Letter, dated December 11,2009, and exhibits, from Wells Fargo to Mr. Deane as MGP approving the refinancing, promising the funds and documenting the SPE requirement. Exhibit B (without the voluminous exhibits). 7. Section 1(a) of the Commitment Letter, entitled "Required Borrower Principals and Percentage of Ownership," incorporates a document captioned "Additional Tenns." Exhibit C. The first paragraph of the "Additional Tenns" describes the required "Organizational Structure" of SCA, including that the interests of Mr. Deane and SK shall be newly fonned Delaware Single Member Limited Liability Companies wholly owned, respectively, by Disque Deane and by Salt Kettle, LLC. Each of these newly fonned [LLC's] shall be a Single Purpose Entity. 8. Section 2(a) of the Commitment Letter, captioned "Required Borrower Principals," incorporates two charts which are described in the Commitment Letter as the "approved organizational charts" for the Borrower (Starrett City) and for the owner of two parcels of property transferred out of the highly regulated Starrett City, i.e., a shopping center and certain vacant land. 9. The first of the "approved" charts, labeled "Approved Borrower Organizational Chart" (Exhibit D), reflects Preservation having 100% of the "economic interest" of Mr. Deane and SK held by the two SPE's fonned to take title to SCA as a result of the refinancing transaction, i.e., DD Spring Creek LLC, and SK Spring Creek LLC. The 4 second chart, labeled "Approved Shopping Center/Vacant Parcels Owner Organizational Chart" (Exhibit E), reflects Preservation holding 100% of the "economic interest" of Mr. Deane and Salt Kettle then held by DD Shopping Center LLC and SK Shopping Center LLC. 5 10. In March 2010, SCA's MGP circulated to the more than 200 SCA limited partner interests a document entitled "Summary of Completed Refinancing and Consent Solicitation for Proposed Donation" ("the Solicitation Letter"). Exhibit F (without the voluminous attachments). Among other things, the Solicitation Letter reflects the fact that "as a condition of the Refinancing Transaction, the new lender mandated that the Partnership have qualified Single Purpose Entities to act as general partners of the Partnership. This was accomplished by a Nineteenth Amendment to the Partnership Agreement." Exhibit Fat 2. 11. The Nineteenth Amendment (Exhibit G), a copy of which was attached to the Solicitation Letter, is the document by which Mr. Deane and SK transferred their "interests and obligations" as MGP and GP of SCA to the newly formed SPE's. For example, the Nineteenth Amendment provides in relevant part that WHEREAS, in order to satisfy this SPE requirement [i.e., a condition of the refinancing], as of December 15, 2009 Deane assigned, pursuant to Section 9.01(a) of the Partnership Agreement to his Affiliate DD Spring Creek LLC, a Delaware 5. Because of the poor quality of the reproduction of Exhibits D & E, each exhibit also contains an "unofficial" but identical and clearer copy of each chart for the Court's convemence. 5 limited liability company, whose sole member is Deane, all of his interests and obligations as Managing General Partner of the Partnership. Exhibit G at 2 (emphasis added). The Nineteenth Amendment contains a similar transfer of"interest[s] and obligations" by SK, the GP ofSCA. 12. The Solicitation Letter also seeks the consent of the limited partners to donate the vacant parcels of land, previously transferred out of SCA into Spring Creek Plaza LLC, to a not-for-profit corporation in exchange for a charitable contribution deduction. To facilitate the limited partners' understanding of the intended transfers, I participated in the creation and attachment of a chart to the Solicitation Letter reflecting the organizational structure of Spring Creek Plaza, but only as that organizational structure pertained to the limited partners, i.e., focusing on the three membership interests - DD Shopping Center LLC, SK Shopping Center LLC and the limited partners' entity. Exhibit H. 13. That chart does not, and was not intended to, reflect all of the entities and relationships associated with the shopping center. For example, the continued economic interest of Preservation is not reflected in the chart, although it was reflected in the chart accompanying the closing documents for the refinancing. Exhibits D & E. Such an omission was not intended to signal, reflect or cause any change in the status of the economic interest assignment by the MGP and GP to Preservation, either with respect to the shopping center or SCA. 14. I am advised that plaintiffs have attached a copy of the chart accompanying 6 the Solicitation Letter (Exhibit H) as Exhibit 4 to their proposed Second Amended Complaint in support of their claim that the economic interest assignments to Preservation by Mr. Deane and SK have been or are threatened to be negated or superseded by the Nineteenth Amendment and the assignments to SPE's it authorized. As I have explained, the chart on which plaintiffs rely does not and was not intended to reflect or demonstrate that any such nullification occurred. 15. On the contrary, the "approved" charts reflecting those assignments are the ones attached to the refinancing closing documents (Exhibit D & E), which were intended to and do reflect a full and accurate view of the organizational structures involved, and they show that Preservation still retained the interests assigned to it by the MGP and the GP. 16. Moreover, Preservation's continued economic interest in the property assigned to it by the MGP and GP is reflected in SCA's 2009 audited financial statement issued in April 2010. Exhibit I. The 2009 financial statement provides in relevant part the following very clear acknowledgment of the assignments: "Prior to the creation ofDD Spring Creek LLC and SK Spring Creek LLC, Disque Deane and Salt Kettle, LLC had assigned their economic interest as MGP and GP, respectively, in the Partnership to Starrett City Preservation LLC, an entity controlled by persons related to those sole members." Exhibit I, Note 1 at p. 7. 17. Kuplesky retired in December 2008 and Rudman was terminated in April 2009. Thus, neither plaintiff participated in the December 2009 refinancing transaction. 7 Nevertheless, I issued checks to them from Preservation on May 10,2010 for over $4 million, representing their shares, as members of Preservation, in proceeds from the refinancing that had been distributed to Preservation. Exhibit J. 6 The payments to Preservation by the new MGP and GP (DD Spring Creek and SK Spring Creek) were made after the creation of the SPE's and pursuant to the assignments to Preservation by Mr. Deane and SK of their "economic interests" in SCA which the new SPE's had assumed as a result of the Nineteenth Amendment. RICHARD A. GREENBERG Notary PUblic. Slale 01 New YOIle No.02GR1552760 Q~~lified in Kings County CommISSIon Expires July 17, 20 (f 6. Plaintiffs' respective distributions were $3,025,574.80 (Rudman) and $703,481.41 (Kup1esky). Exhibit J. 8