SUPREME COURT OF THE STATE OF NEW YORKCOUNTY OF NEW YORK

IN THE MATTER OF THE PETITION OF STEVEN L.RATTNER,

Petitioner,

FOR AN ORDER PURSUANT TO SECTION 3102(C)OF THE CIVIL PRACTICE LAW AND RULES TODIRECT THE ISSUANCE OF A SUBPOENA DUCESTECUM TO DAVID LOGLISCI AND ALAN HEVESI,

PETITION

Respondents.

-------------------------------------------------- A

PETITION FOR DISCOVERY IN AID OF ARBITRATION

CLEARY GOTTLIEB STEEN & HAMILTON LLPOne Liberty PlazaNew York, New York 10006(212) 225-2000

Attorneys for Steven L. Rattner

Of Counsel:

Lewis J. LimanRoger A. Cooper

Index No.

TABLE OF AUTHORITIES

PageRules and Statutes

N.Y. CPLR § 3 102(c)............................................................................... 12

AAA Commercial Rule 3 1(d)...................................................................... 12

Cases

Allstate Ins. Co. v. Baez,269 A.D.2d 392, 702 N.Y.S.2d 878 (2d Dep't 2000)............................................ 12

Hendler & Murray. P.C. v. Lambert,127 A.D.2d 820, 511 N.Y.S.2d 941 (2d Dep't 1987)............................................ 12

In re VWrader Pro. LLC,24 Misc.3d 828 (Sup. Ct. N.Y. County 2009).................................................... 13

State Farm Mut. Auto. Ins. Co. v. Wernick,90 A.D.2d 519, 455 N.Y.S.2d 30 (lst Dep't 1982) .............................................. 13

Petitioner Steven L. Rattner respectfully submits this Petition seeking the

production of documents and testimony from David Loglisci and Alan Hevesi ("Hevesi")

concerning (i) the New York State Common Retirement Fund's ("Ny Common") investment in

Quadrangle Capital Partners II ("QCPII"); and (ii) Hevesi' s involvement with the NY Commron

investment in QCP Il.

M\r. Rattner is a financier who has had a distinguished career in private industry

and public service. From February 2009 to July 2009, he served as Counselor to the Treasury

Secretary and was lead advisor to the Administration of President Barack Obama in the

restructuring of the automobile industry. Before that, he was a found .ng partner and managing

principal of Quadrangle.

Today, Mr. Rattner settled an investigation by the United States Securities and

Exchange Commission ("SEC") into NY Common' s investment in QCPII by agreeing to settle,

without admitting or denying, a non-scienter based charge under Section 17(a)(2) of the

Securities Act of 1933. The settlement frees Mr. Rattner to pursue ar. American Arbitration

Association ("AAA") proceeding he previously brought against Quadrangle Group LLC and

certain affiliated entities (collectively, "Quadrangle"), and its current managing principals

(together with Quadrangle, the "Quadrangle Parties") that seeks substantial damages for their

unlawful conduct and contractual breaches, and to defend himself against the charges brought by

the Office of the New York Attorney General (the "NYAG") today, which charges Mr. Rattner

categorically denies.

According to the arbitration, the Quadrangle Parties - having settled the SEC's

investigation of them and a parallel investigation by the NYAG by agreeing to pay $12 million,

pursuant to agreements that forbade them from "seek[ing] . .. directly or indirectly,

reimbursement or indemnification from any source ... with regard to any penalty amount" they

paid, then turned around and, even before Mr. Rattner's own settlement and in violation of its

contractual obligations and ordinary rules of obligation, sought to shift responsibility for its

penalty to Mr. Rattner and to avoid any accountability for its own misconduct while retaining the

fruits of their own alleged misconduct. The Quadrangle Parties also allegedly took advantage of

the occasion of Mr. Rattner' s departure from the partnership to seize fo'r themselves monies due

and owing to Mr. Rattner. Their behavior blatantly violates Mr. Rattner's rights, the agreements

Quadrangle entered into with Mr. Rattner, and Quadrangle's own agreement not to seek to

recover from others the monies that it itself chose to pay to settle the investigative matters. Mr.

Rattner seeks through this Petition to obtain the documents necessary for him to prosecute and

defend the arbitration and prove the unfairness of that behavior.

Issuance of the requested subpoenas is critical to Mr. Rattnier' s ability to advance

his claims in the arbitration underlying this Petition and to defend against Quadrangle's

Counterclaim. Mr. Rattner needs discovery from David Loglisci and Hevesi to show that any

alleged Quadrangle disclosure failures were immaterial in any event, because they played no role

in NY Common's decision to invest in Quadrangle.

The Parties

1 . Petitioner Mr. Rattner is a founding member and former managing

principal of Quadrangle Group, and is currently a member of Quadrangle Group and other

Quadrangle entities.

2. David Loglisci is the former chief investment officer of NY Common and

had substantial influence over the investments made by NY Common.

3. Hevesi is the former Comptroller of New York State and had ultimate

authority over the investments made by NY Common.

2

Factual Backg~round

4. The arbitration in connection with which Mr. Rattner seeks disclosure

arises out of the Quadrangle Parties' pattern of bad faith and retaliatory treatment of Mr. Rattner,

a founding partner and former managing principal of Quadrangle Group, following his departure

as managing principal in February 2009. The Quadrangle Parties' conduct has resulted in

repeated breaches of their contractual obligations to Mr. Rattner, breaches of their fiduciary

duties, violations of the implied covenant of good faith and fair dealing, and other violations of

New York and Delaware law.

5. Mr. Rattner co-founded Quadrangle in 2000 with several of the

Quadrangle Parties. Quadrangle built its business on making private (,quity investments in media

and communications companies, and at the time of Mr. Rattner' s departure, it had more than $6

billion of assets under management.

6. In February 2009, Mr. Rattner stepped down as a managing principal of

Quadrangle to join the United States Treasury Department as Counselor to the Treasury

Secretary. In that capacity, Mr. Rattner served as lead advisor to the Obama Administration in

the restructuring of the automobile industry. He led President Obama's automobile industry task

force and was instrumental in guiding General Motors and Chrysler through bankruptcy. During

this time, Mr. Rattner remained a member of Quadrangle but ceased tD have any managerial

responsibilities.

7. After Mr. Rattner's departure from Quadrangle, he and his substantial

financial interest remaining in the company became a target of Quadrangle's retaliation for his

departure, about which the Quadrangle Parties were unhappy.

8. An opportunity for retaliation arose during an investigation by Attorney

General Andrew Cuomo's office. In 2010, to buy peace with Cuomo,, the Quadrangle Parties

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falsely charged Mr. Rattner - both publicly and privately - with misconduct. Years earlier, the

NYAG had commenced an investigation into alleged pay-to-play practices at public pension

funds nationwide. By the spring of 2009, a number of individuals were charged with extracting

kickbacks from investment management firms seeking investments from NY Common,

including Hank Morris and David Loglisci, the chief investment officer of NY Common. The

NYAG had also turned its attention to Quadrangle, including its relationship with NY Common.

Quadrangle had received a $100 million investment from NY Common in March 2005 and had

used Searle & Co., and its affiliated agent Morris, as its placement agent in securing the

investment.

9. Faced with the investigation, the Quadrangle Parties had a choice: they

could have either disclosed completely their involvement with the underlying facts, including

those facts that exculpated Mr. Rattner and showed their own involvement in the activity under

investigation and accepted full responsibility for that conduct, or they could offer the NYAG a

scalp. They chose the latter. On April 15, 2010, Quadrangle entered into settlements with both

the NYAG and the SEC in connection with their investigations of N-Y'Common' s investment in

Quadrangle. Quadrangle agreed to pay a total of $12 million. The settlement offered

Quadrangle and its principals a substantial benefit: the NYAG "disco~ntinue[d] . .. the

Investigation of Quadrangle." The SEC did the same. The SEC's comnplaint alleged specifically

that Quadrangle had violated the federal securities laws by failing to disclose finders' fees paid

to Morris for his work in connection with the NY Common investment in Quadrangle and by

failing to disclose a deal for the DVD distribution of a movie called Chooch, produced by Steven

Loglisci, the brother of David Loglisci.

10. On the same day that the Quadrangle Parties settled these claims,

Quadrangle made a "statement" (the "Statement") - which was disseminated on the NYAG' s

website - that publicly blamed Mr. Rattner - and Mr. Rattner alone - for the conduct that

resulted in the NYAG and SEC charges. In the Statement, Quadrangle stated that it

"disavow[ed] the conduct engaged in by Steve Rattner," stating that ii: was "inappropriate,

wrong, and unethical." It also stated that "Mr. Rattner is no longer with the firm." It thus sought

to blame Mr. Rattner for the conduct that it, as a corporation, engage& in and bore responsibility

for. M\r. Rattner was given no opportunity to defend himself. Accorcing to public reports,

Attorney General Cuomo demanded that Quadrangle impugn Mr. Rattner in exchange for

making the deal.

11. At the same time that they were publicly attempting to shift blame, the

Quadrangle Parties were also secretly evading financial accountability. With Mr. Rattner no

longer at the firm, the Quadrangle Parties charged him a far greater percentage of the settlement

amount than they charged any other partner, and did so in blatant violation of the Quadrangle

LLC Agreement.

12. Through this Petition, Mr. Rattner seeks evidence that will help him

further establish that Quadrangle's accusations are false.

13. Even at this preliminary stage, the email evidence alone proves that Mr.

Rattner did not engage in misconduct in connection with the Chooch -DVD distribution deal. Mr.

Rattner simply introduced a film producer, Steven Loglisci, to GoodTimes, a distribution

company in which Quadrangle had an investment. Mr. Rattner did not pay any bribes or arrange

any quid pro quo for the purpose of obtaining an investment from NY Common, nor did he direct

GoodTimes to do a deal with Mr. Loglisci.

14. Indeed, the emails show just the opposite, that MVr. Rattner rejected a

direct offer to do a "courtesy" deal.

15. According to the emails, on October 13, 2004, shortly after GoodTimes

first met with Steven Loglisci, a GoodTimes executive reported that the Chooch producer

believed that the movie could sell half a million units and had a well-defined - albeit narrow -

niche audience and offered to Mr. Rattner that GoodTimes could do a "courtesy" deal "if it

would benefit you in some way to do so." Otherwise, it would "take a pass." The emails also

reflect that the initial meeting between Steven Loglisci and GoodTimes had been contentious,

with GoodTimes finding Loglisci "naive" and "very unrealistic." Affirmation of Roger A.

Cooper ("Cooper Affirmnation") Ex. A;' see also Ex. B.

16. On receiving the report of the meeting, Mr. Raitner did not take

GoodTimes up on the offer to do a "courtesy" deal. But he did - and entirely properly so - want

Steven Loglisci treated "carefully" - i.e., courteously and professionally. See Ex. A. The emails

show that GoodTimes full well understood Mr. Rattner's message about courtesy. In an October

15, 2004 email, GoodTimes apologized for the tone of the prior interactions with Steven Loglisci

and promised to report back on both the "tenor" and the "outcome" of the next meeting.

17. A week later, GoodTimes met with Steven Loglisci and, in the words of a

GoodTimes executive, "[w]e spent 75 minutes educating [h]im." The more professional tone

had the desired effect, because this time - even after being "educat[ecL]" - Steven Loglisci

seemed "extremely pleased." Mr. Rattner was told, "[b]efore we bring anything to closure one

way or the other I will touch [b]ase with you." In other words, Mr. Rattner did not direct that a

deal be done, and GoodTimes did not take it that way. GoodTimes tr-,ated Steven Loglisci

respectfully, and then, substantively, it reported no more to Mr. Rattner than that it would "work

All exhibits referenced herein are attached to the Cooper Affirmation.

6

with him [Steven Loglisci] for at least a couple of [w]eeks." In sum, Mr. Rattner did exactly the

opposite of what the NYAG has alleged. He shunned an explicit offer to do a "courtesy" deal.

18. A month later, GoodTimes was "at a point with Steve Loglisci and the

Chooch movie that [it] would typically disengage" and so informed Mr. Rattner. But in the same

email, on November 19, 2004, GoodTimes also offered to "continue to work with [Steven

Loglisci] if that would be helpful." Contrary to the NYAG's allegations, Mr. Rattner still did not

respond by directing GoodTimes to do a deal, or even express disappointment. To the contrary,

he merely took GoodTimes up on its offer to "continue to work" with Steven Loglisci, asking it

to do no more than "dance along with this for another couple of weeks." Mr. Rattner's request

had zero practical import from the GoodTimes perspective. The GoodTimes executive replied,

"[w]e will continue to dance with Steve. It is not a problem at all as he is not very pro-active at

the moment." In other words, once again, Mr. Rattner issued no direction to do a deal with

GoodTimes. See Ex. C.

19. The emails show that this was true to the very end. What's more, they

show that, without Mr. Rattner's knowledge, GoodTimes met with Steven Loglisci one week

later. At that meeting without any additional input from Mr. Rattner whatsoever, GoodTimes

made Steven Loglisci an offer. The emails themselves thus directly controvert the NYAG's

allegations by showing unequivocally that Mr. Rattner did not even know the offer was coming

and was completely surprised by it.

20. Specifically, according to the emails (that the NYAG had before it filed

suit), personnel at GoodTimes met with Steven Loglisci on November 29, and did so without Mr.

Rattner's knowledge. The emails show that a GoodTimes employee offered a deal to Steven

Loglisci at that meeting, and he accepted it. The two left the meeting with a handshake deal,

with details to be worked out in a term sheet. On the following day, November 30, GoodTimes

personnel discussed the terms internally (strengthening them in favor of GoodTimes), and

declared the deal "[d]one." See Ex. E.

21. In the meantime, Mr. Rattner was ignorant of all of this. So on November

29, still wondering what to do, he emailed a GoodTimes executive asking what "typical" terms

for a deal might be. He never got an answer to his question. Instead, he was informed: (a) that a

meeting had already taken place; (b) that Loglisci had already been told that "we would do a

distribution .. . for him"; and (c) that Mr. Rattner would be sent a note "that explains how we are

proceeding." See Ex. D; see also Ex. E. When Mr. Rattner got the note describing terms he

ignored it. When the executive followed up days later, Mr. Rattner responded merely that it was

"fine."

22. In other words, not only did Mr. Rattner give no direction, he had no

knowledge of the meeting, the offer, or the acceptance until after Goo dTimes had already

declared the deal "done." And this was all after he had already rejectc-d a "courtesy" deal. It is

certainly no Martin Act violation to ask that a potential source of business be treated politely,

regardless of who his brother is.

23. Moreover, under the terms that GoodTimes personnel negotiated, the deal

made a healthy 12 percent profit for the firm - after all costs and expenses were deducted. And

the Chooch producers made money only after all of GoodTimes's costs were covered and only

when their movie actually sold. Se Ex. E. In sum, any suggestion that Mr. Rattner directed

entering into some corrupt "Chooch" distribution deal is entirely disp roved by the emails and

other documents.

24. Similarly, contrary to Quadrangle's accusation, Mr. Rattner did not engage

in misconduct with respect to Hevesi or Morris. Indeed, the evidence in the possession of David

Loglisci and Hevesi will show that Mr. Rattner was completely unaware of any reason to suspect

that Morris was engaged in criminal conduct. That evidence will show that Morris was hired

only after an extensive vetting process including the use of Quadrang" e's outside counsel and

others to vet Morris and his firm and to ensure that he was a duly registered placement agent,

which he was. The evidence will also show that Quadrangle's retention of Morris was precisely

what it purported to be: a legal and appropriately disclosed retention of a duly registered

placement agent. Quadrangle determined that it needed additional phlcement agent services -

because it was not satisfied with the performance of its original placemnent agent - which led to

the decision to hire Morris. Quadrangle's then outside counsel vetted Morris and his firm,

Searle, to ensure that he was a duly registered placement agent - which he was - and drafted an

agreement in which Searle represented that it would comply with all applicable laws. Morris

performed real, legitimate, and valuable placement agent services for Quadrangle. And finally,

Quadrangle disclosed to NY Common that it had paid fees to Searle as a placement agent in

connection with the investment.

25. Additionally, missing from much of the overheated public statements by

regulators is the simple truth that NY Common's decision to invest in QCP II proved a financial

success. Indeed, the investment has substantially outperformed both the general marketplace and

other comparable private equity investments during the worst recession since the Great

Depression. No one was harmed by NY Common's investment in Quadrangle or by anything

that Mr. Rattner is alleged to have done.

26. Further, as to the details of the investment, Mr. Rattner believes that the

requested documents will show that neither the Chooch deal nor the engagement of Morris's

firm, Searle, had any effect - positive or negative - on the terms, fees, potential profitability, or

risk profile of NY Common' s investment with Quadrangle.

27. Moreover, Mr. Rattner believes that the evidence will show that he had no

role or responsibility in connection with the disclosures and therefore did not make any false

disclosures and was not responsible for any false disclosures.

28. Mr. Rattner also seeks discovery with respect to the involvement of others

at Quadrangle in the Morris relationship and the NY Common investment. Mr. Rattner believes

the evidence will show that not only did others at Quadrangle know about the hiring of Morris

and the placement agent services he provided, but several of Quadrangle's key employees would

have been involved in key aspects of Quadrangle's business relationsh-ip with Morris. Indeed,

the hiring of Morris was discussed with all of the Quadrangle managing principals, including

Quadrangle's current co-presidents Joshua Steiner and Michael Hube r. Others were also

involved in negotiating the terms of the placement agent agreement, mranaging the day-to-day

dealings with Morris, and preparing the relevant disclosures to NY Common regarding his

services.

29. Similarly, regarding the deal to distribute the Chooch DVD, Mr. Rattner

believes the evidence will show that a number of Quadrangle's key employees knew of the talks

between the movie's producer and a Quadrangle portfolio company to distribute the DVD, and

that the movie's producer was the brother of NY Common's Chief Inrvestment Officer.

30. In sum, Mr. Rattner seeks the requested documents to demonstrate that,

contrary to Quadrangle's allegations, at no point during the relevant ti me period did Mr. Rattner

engage in any undisclosed or ultra vires behavior in connection with either Morris or the DVD

distribution deal or any willful misconduct.

31. On September 2, 20 10, Mr. Rattner filed his arbitration demand with the

American Arbitration Association seeking, as relevant here, indemnity under Section 3.6 of the

Quadrangle LLC Agreement for the damage the Quadrangle Parties had caused him, including

their settlements with the SEC and NYAG and their subsequent defaming of Mr. Rattner in the

Statement.

32. The time for the scapegoating of Mr. Rattner is over. Today he reached a

settlement with the SEC, settling all charges against him without admitting or denying the

allegations. The SEC settlement does not restrict Mr. Rattner from laying out the truth in

litigation, including this one. With the SEC investigation behind him, Mr. Rattner is now free to

dedicate his resources, time, and attention to vindicating his rights with Quadrangle, recovering

the substantial money they have withheld from him, and defending against the NYAG's charges.

Mr. Rattner requests an order directing the production of the documents described herein to

prove his case and clear his name.

Disclosure Requests In Aid Of Arbitration

33. To aid in Mr. Rattner' s arbitration against the Quadrangle Parties, it is

essential that Mr. Rattner obtain discovery from David Loglisci and Hevesi.

34. Mr. Rattner needs discovery from David Loglisci and Hevesi to show that

any alleged disclosure failures by Quadrangle - in which, in any event, Mr. Rattner had no

involvement - in connection with the hiring of Morris or the distribution of the DVD produced

by the brother of the NY Common Chief Investment Officer were immaterial. The DVD

distribution played no role whatsoever in NY Conmmon's decision to invest in Quadrangle and

NY Common had already decided to invest with Quadrangle before Morris was hired. Thus,

Mr. Rattner seeks the issuance of a subpoena for documents to David Loglisci and Hevesi

requesting all documents in David Loglisci's and Hevesi's possession that concern Quadrangle,

and that reflect the process that led to NY Common's decision to invest in 2005 in QCP II.

35. Accordingly, Petitioner brings this Petition pursuant to CPLR Section

3102(c) for an order directing the issuance of a judicial subpoena duces i'ecum to David Loglisci

and Hevesi to produce records for inspection and copying by December 30, 2010, and also to

provide testimony under oath on January 21, 2011. The records sought include all documents in

David Loglisci's and Hevesi's possession that concern Quadrangle, and that reflect the process

that led to NY Common's decision to invest in 2005 in QCP II.

36. AAA rules provide that any person legally authorized to do so may issue

subpoenas. AAA Commercial Rule 31(d) states that "[a]n arbitrator or other person authorized

by law to subpoena witnesses or documents may do so upon the request of any party or

independently." And New York CPLR Section 3102(c) provides, in part, that "[b]efore an

action is commenced, disclosure .. . to aid in, arbitration may be obtained, but only by court

order."

37. Under New York law, discovery may be sought "to aid in arbitration."

CPLR § 3 102(c). See Allstate Ins. Co. v. Baez, 269 A.D.2d 392, 392 (2d Dep't 2000) (affirming

an order of discovery of appellants' medical records and reports, depositions, and physical

examinations in aid of the arbitration). New York courts grant discovery in aid of arbitration in

circumstances such as this when the discovery is required "to present a proper case to the

arbitrator." E~. Hendler & Murray. P.C. v. Lambert, 127 A.D.2d 820, 820 (2d Dep't 1987)

(affirming lower court ruling that production of petitioners' books and records were required).

Indeed, Mr. Rattner' s Petition demonstrates just the kind of "extraordinary circumstances"

identified by New York courts as justifying the issuance of subpoenas relating to a pending

arbitration. State Farm Mut. Auto. Ins. Co. v. Wemnick, 90 A.D.2d 519, 519 (1 st Dep't 1982)

(holding facts constitute "extraordinary circumstances" where claimant alleged physical injuries

and petitioner would be "severely prejudiced" if unable to disprove any of the claimant's

assertions).2

38. Accordingly, Petitioner's application for the issuance of a subpoena is

appropriate under CPLR Section 3 102(c).

39. No previous application for the relief sought has been made.

2 Discovery in aid of or otherwise to assist in arbitration is not uncommon, as New York courts also provide

for pre-arbitration discovery in certain circumstances. See, e.g., In re VTrader Pro. LLC, 24 Misc. 3d 828, 831 (Sup.Ct. N.Y. County 2009) (granting in part pre-arbitration issuance ofjudicial subpoenas to respondents for theidentification of potential parties).

13

WHEREFORE it is respectfully requested that an order be made and entered

directing the issuance of a subpoena duces tecum to the David Loglisci and Hevesi to fin-nish

Petitioner's attorneys with all documents in David Loglisci's and Hevesi's possession that

concern Quadrangle, and that reflect the process that led to NY Common's decision to invest in

2005 in Quadrangle Capital Partners UI.

Dated: New York, NYNovember 18,2010

CLEARY GOTRIEB STEEN &,HAMLTON LLP

-7By:

Lewis J. Liman

One Liberty PlazaNew York NY 10006Tel. (212) 225-2000'Fax. (212) 225-3999

Attorneys for Petitioner Steven L. Rattner

Of Counsel:

Roger A. Cooper