The Insiders

Suffolk judges violated rules while awarding Oheka Castle owner and associates at least $600,000 of foreclosure work

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Two Suffolk County judges violated court rules designed to promote transparency and limit cronyism while awarding at least $600,000 in fees and expenses to political power broker Gary Melius and a network of his associates, a Newsday investigation has found.

Suffolk Supreme Court Justice Thomas Whelan appointed Melius and his associates to serve as property managers or receivers, which are essentially temporary landlords, for at least three office complexes in foreclosure. In a fourth case, also involving a foreclosed commercial complex, Whelan handled the case before it moved to Suffolk Supreme Court Justice Emily Pines.

Judges have used the appointments as a way to dole out lucrative favors to political insiders and reward party leaders for their endorsements, leading to criticism of the system. State court officials in 2002 established new rules to end the patronage and unjustified payouts.

But in the cases involving Melius and his associates, Newsday found that Whelan and Pines presided over the type of abuses court rules were designed to stop. The judges approved questionable or improper payments to political insiders and then failed to abide by court rules in neglecting to report information to the state, effectively hiding the group’s activity from the public.

Melius and his associates made money on top of the fees awarded through court appointments by sometimes hiring their own businesses to do work for the office complexes, Newsday found.

Those who benefited financially from the court appointments include Melius, a major political donor and influential member of the Independence Party who owns Oheka Castle in Huntington; Melius’ daughter, Kelly, who has worked for her father as Oheka’s director of sales; Ronald Rosenberg, a former Independence Party committee candidate and Melius’ attorney; Steven Schlesinger, Nassau County Democratic Party attorney and one of Melius’ closest friends; and Mark Cuthbertson, a Huntington Town Board member whose largest individual donor is Melius.

Also involved was Melius’ former son-in-law, Richard Bellando, Oheka Castle’s chief operating officer. Despite state court rules that bar the heads of political parties from fiduciary appointments, Pines approved a $90,000 payout to Bellando, Nassau County’s Independence Party chief since 2011.

Newsday uncovered the court appointments during an examination of Melius’ business dealings that began after he survived a gunshot to the head in February. His assailant has not been caught.

Reporters reviewed thousands of court filings related to four office complexes handled by Melius and his associates since 2009 and interviewed dozens of individuals, including current and former judges, attorneys familiar with commercial foreclosures and tenants and vendors linked to the properties in question.

The review found:

  • Court officials maintain a list that currently includes roughly 270 state-approved property managers in Suffolk, but Whelan appointed Gary Melius once even though he was not on the list.

  • Court records identify Gary and Kelly Melius and Bellando as property managers, but in reality they were just names on paper. The actual property manager was Geri Mayo, an Oheka employee who had not been approved by a judge to manage those properties. “It’s the expectation that when a judge appoints an individual that that individual will complete the work,” a state court spokesman said.

  • By masking Mayo’s role, the group skirted court rules that bar an individual or entity from taking more than one appointment a year if compensation from any single one is expected to exceed $15,000. Judges awarded Melius and his associates at least three appointments in 2012 that totaled roughly $200,000 in fees, exceeding the cap in each case.

  • Court rules require receivers to keep and report “written accounts itemizing receipts and expenditures” so that judges can decide whether expenses are justified. But in three of the four receiverships tied to Melius and his associates, many of the records failed to specify what work had been done. In the fourth case, the expense account is not included in the file, even though the receivership ended in April 2014.

  • Some of the expenses judges approved to the Melius network included bills for work that could not be verified, even by the company that reportedly did the job. For example, John Cook, a fire alarm and sprinkler consultant whose company is listed as getting more than $62,000 for work at an Islandia office complex, said his company performed only routine maintenance that would not have resulted in such a large bill.

    “We weren’t paid that much,” Cook said. “There’s no way.”

Rosenberg, Schlesinger and Cuthbertson — the appointed receivers who were responsible for submitting expenses — each said in interviews that all their expenditures were appropriate and approved by judges.

Gary and Kelly Melius, and Bellando — the appointed property managers — declined to be interviewed.

Justice Pines acknowledged in a recent interview that she’d made mistakes and said that she did not know Bellando was a party leader when she approved the payment to him. She said her expectation was that Bellando and Rosenberg would comply with the court rules.

“I have to take some responsibility,” she said, “and I apologize if there was anything improper.”

Pines said she has reopened the case to address any failures to comply with court rules.

“But I have to take some responsibility, and I apologize if there was anything improper.” — Suffolk Supreme Court Justice Emily Pines, on awarding a receivership to a party leader

Court rules have the force of law, and a rule violation can be the basis for a censure or reprimand of a judge. Lawyers who file a false document can be convicted of a crime, which would result in disbarment.

Whelan, whose political benefactor is state Independence Party chief Frank MacKay, declined to comment. Whelan and Pines have both received the Independence Party’s endorsement in judicial elections.

Earlier this year, Newsday reported that Whelan had given Melius control of a company in a civil case in which Melius had tried to put MacKay on the company’s board.

Whelan did not disclose his ties to MacKay. He recused himself from the case following Newsday’s story.

Newsday’s inquiry into court appointments prompted Suffolk Supreme Court Chief Judge C. Randall Hinrichs to order an internal review to locate the records that judges had failed to properly report. That effort is ongoing, so the full extent of the Melius network’s activity remains unknown.

Hinrichs said he believes all appointments by Suffolk judges have now been identified but that court staff would need more time to locate all the records showing how much money had been awarded.

“We’re trying to fix it,” Hinrichs said. “The integrity of the court system is of critical importance to myself and everybody else in the New York State court system.”

Hinrichs declined to answer questions about specific appointments and expenditures judges approved.

Medford


Brookhaven Executive Center

Location: 3233 – 3253 Route 112, Medford
Receivership: March 2012 – April 2014
Judge: Thomas Whelan
Receiver/Fees: Steven Schlesinger, fees not in court file
Property manager/Fees: Gary Melius, fees not in court file

Heather Walsh

To protect the value of a commercial property in foreclosure, the lender can ask a judge to appoint a receiver — typically a private attorney — to manage the finances of the building until there’s a new owner. The judge can then make other appointments as needed, such as a property manager to handle day-to-day maintenance or a real estate broker.

Office complexes are coveted appointments because they tend to have stable tenants who reliably pay the rent and want to keep their own business going. Receivers can earn fees of up to 5 percent of the rent roll, while the property manager’s fee is determined separately by the judge based on the work performed.

When the Brookhaven Executive Center, a 10-building office complex in Medford, went into foreclosure in March 2012, the lender asked Whelan to appoint as receiver William Hoffman, who is chairman of the board and chief executive of a national property management company based in San Diego.

Instead, Whelan appointed Steven Schlesinger, counsel to the Nassau Democratic Party.

Hoffman said in nearly 40 years in the industry, he’s only had judges in New York bypass him as the lender’s preferred choice of receiver. Hoffman called it “common knowledge” that appointments in New York go only to people with the right connections.

“I would say it’s a dirty little secret, but it’s not a secret — it’s just dirty,” Hoffman said. “The potential for abuse is very sad.”

He said little has changed since 2002, after a report prepared for then-Chief Judge Judith Kaye described an appointment system that resembled a jobs program for politically connected lawyers. State court officials instituted reforms, including a requirement that judges report all court appointments and approved fees to state court administrators, who would then make them available to the public.

Whelan did not report Schlesinger’s appointment.

In an interview with Newsday, Schlesinger said Whelan appointed him because the plaintiff had requested him. When told the court file indicated the plaintiff had asked for Hoffman, Schlesinger said Hoffman was not on the state’s approved receiver list. When told that Hoffman is on the approved list, Schlesinger said Hoffman was not licensed to practice law in New York. When told that Hoffman is licensed in New York, Schlesinger said he did not know why Whelan named him receiver.

Shortly after his selection, Whelan granted Schlesinger’s request to appoint Gary Melius property manager.

“I put him in,” Schlesinger said of Melius. “There’s no secret. I play poker with him every Monday night. He’s a friend.”

“I would say it’s a dirty little secret, but it’s not a secret – it’s just dirty.” — William Hoffman, on the nature of granting receiverships in New York

Whelan failed to report Melius’ appointment to court administrators.

A court filing shows Schlesinger and Melius signed an agreement authorizing Melius to lease out offices at the complex, instead of seeking appointment of a lease broker through a court order, as required. Each lease agreement would have entitled Melius to additional payments.

The Medford receivership ended in April 2014 when the property was auctioned. Although an accounting of expenses and fees must be filed within 30 days, there is none in the court file.

Court rules require that a judge issue a court order before fees are paid, but there is no such order in the court file. Still, Schlesinger said he and Melius had been paid between $70,000 and $80,000 each. He said he did not know why there was no approved fee accounting in the court file.

Newsday requested the Medford expense accounting on Aug. 29. After trying to locate the accounting, court spokeswoman Marian Tinari said records show the court sent it to Schlesinger on Sept. 10 for his signature. Schlesinger, however, said Tuesday the fee accounting never came back to him.

The accounting has yet to be added to the court file.

Islandia


Islandia medical office building

Location: 3001 Expressway Dr. North
Receivership: November 2008 – March 2012
Judge: Thomas Whelan
Receiver/Fees: Mark Cuthbertson, $101,594
Property manager/Fees: Gary Melius, $77,736

Newsday / John Paraskevas

Real estate broker Anthony Galano Jr. said he tried in August 2009 to show a foreclosed 40,000-square-foot medical office building in Islandia to a potential buyer, but Geri Mayo — who worked for Melius at the time — locked him out of the building.

Galano said Mayo told him Melius, who had been appointed property manager of the office complex, was also the exclusive broker. Galano complained in an Aug. 20, 2009, letter to the property’s lender that Melius expected a broker’s commission, something he had never seen from a receivership appointee.

Mayo declined to be interviewed.

Galano said in a recent interview that only someone with Melius’ connections could arrange such a deal.

“The Lord is not with him, but the politicians and the judges are,” Galano said.

The property’s appointed receiver, Mark Cuthbertson, responded to Galano’s complaint with a Sept. 29, 2009, motion asking Whelan to appoint Kellum Realty, a Melius company, to be the property’s real estate broker. Court rules do not prohibit receivers or property managers from steering work to companies they control as long as the judge deems the expense appropriate, a state court spokesman said.

The court file for the receivership shows that Cuthbertson also asked Whelan to allow expenses of up to $10,000 without court approval. Money for expenses does not come from the receiver, but a bank account the receiver establishes to hold rent payments from the property.

Bank officials objected in court filings that asked Whelan to remove Cuthbertson as receiver because he wasn’t giving them any information on the account. A bank attorney argued that Cuthbertson’s proposals would subject the bank to “needless additional expense” and that the bank wanted to preserve the property’s value, not see its “dissipation.”

“I try and follow what the law is, and I thought I did so.” — Mark Cuthbertson, on working as a receiver

Whelan kept Cuthbertson on as receiver and allowed expenses of up to $5,000 without court approval.

In an interview, Cuthbertson dismissed the dispute as “an adversarial relationship at first” that worked itself out.

“I try and follow what the law is, and I thought I did so,” he said.

Records show that expenses for maintaining the building from August 2009 through March 2012 totaled nearly $2 million, including $1,526 billed to “Oheka catering” and $491 for lunch at Oheka.

The expenses show no further details. Cuthbertson said he might have approved a lunch from Oheka because tenants had been inconvenienced by a water leak.

The expenses also included $357,661 for mostly unspecified repairs. One repair bill indicates an expense of more than $64,000 for the heating and air-conditioning system.

As with the $62,000 payment to the fire and sprinkler alarm company for the same complex, the heating and air-conditioning bill raises questions of whether Justice Whelan approved expenses for work that justified the amount.

Doug Rudney, construction manager for the building’s new owner, Damianos Realty Group, said in an interview he did not understand the expense. He said his company had to replace the heating and air system during a total renovation after buying the building two years ago.

“It wasn’t being maintained,” Rudney said.

Ronkonkoma


Fleetwood office park

Location: 3275, 3279, 3281 and 3285 Veterans Memorial Hwy., Ronkonkoma
Receivership: January 2012 – April 2013
Judge: Thomas Whelan
Receiver/Fees: Mark Cuthbertson, $38,192
Property manager/Fees: Kelly Melius, $32,689

Newsday / John Paraskevas

In a January 2012 court filing, a lender’s representative asked Whelan to pick from two men to serve as receiver for the Fleetwood Office Park, a Ronkonkoma property in foreclosure.

Whelan went with neither man and instead appointed Cuthbertson. Whelan then granted Cuthbertson’s request to appoint Kelly Melius as manager of the property.

However, Fleetwood tenants told Newsday they don’t remember working with Kelly Melius. The property manager they dealt with was Gary Melius employee Geri Mayo.

Cuthbertson said when he asked Whelan to appoint Kelly Melius, he understood that Mayo would actually be the person doing the job. Cuthbertson said he had a “comfort level” and considered Gary and Kelly Melius and Mayo a competent crew who would be working together.

Cuthbertson suggested Kelly Melius, he said, because he’d recently worked with her father on the Islandia receivership and knew court rules cap what appointees can collect in fees.

Gary Melius “had just done one. I know there are certain limits,” Cuthbertson said.

When the Fleetwood receivership ended in April 2013, Whelan awarded fees of $38,192 to Cuthbertson and $32,689 to Kelly Melius.

Whelan also approved receivership expenses of $363,078 based on paperwork Cuthbertson submitted that showed check numbers and payment amounts but no indication of who had been paid the money. Cuthbertson said he did not know why the record was incomplete.

He later provided Newsday with check copies that included a $300 payment to the South Huntington Water District, which does not service the Fleetwood Office Park in Ronkonkoma. The water district’s records show the payment was for a Huntington Station receivership handled by another receiver in the Melius network.

Cuthbertson said someone, perhaps Mayo, had mistakenly sent him the bill.

“In all honesty, I should have caught it because I signed it,” Cuthbertson said.

The error, however, points to how the group worked together while making it seem in the court filings as if judges had made individual appointments that stayed under the financial limits set by court rules.

The check copies also included nearly $800 in payments to ArchCon Design Ltd., a Gary Melius company. Cuthbertson said he could not remember what the payment to ArchCon was for and said he may not have known when he signed the check that the company belonged to Melius.

Nearly $20,000 more was paid to Integrated Realty Group, although there are no details in the court file that would explain the payment.

Cuthbertson said either Melius or Mayo had recommended Integrated to him and that he had paid the company for lease renewals. In violation of court rules, Whelan failed to report Integrated’s hiring as broker to state court administrators.

Five days after Cuthbertson wrote the first of three checks to Integrated, the company donated $300 to Cuthbertson’s political committee.

Huntington Station


Huntington Station office building

Location: 33 Walt Whitman Rd.
Receivership: January 2012 – March 2013
Judge: Emily Pines
Receiver/Fees: Ronald Rosenberg, $72,541.24
(another $38,976.65 went to Rosenberg’s law firm)
Property manager/Fees: Richard Bellando, $90,000

Steve Pfost

Court filings don’t indicate a property manager for Ronald Rosenberg’s 2012 receivership of a Huntington Station office building. But the file does include $90,000 in payments between March 2012 and April 2013 to his political ally, Bellando, the head of the Nassau Independence Party.

Rosenberg said in an interview that Bellando earned the money as the property manager.

State court rules bar judges from awarding fiduciary appointments to party leaders like Bellando, and Suffolk Supreme Court Justice Pines never issued the required court order to name Bellando property manager.

Instead, Rosenberg submitted Bellando’s fee as an expense and Pines approved it. The payment to Bellando is the highest fee given to a property manager in the four cases tied to Melius that Newsday reviewed.

None of the seven tenants interviewed by Newsday remembers dealing with Bellando. Again, tenants said Mayo was the property manager.

Rosenberg also submitted expenses Pines approved that were reimbursed to several Melius companies: $77,325 to ArchCon Design, $1,185 to Kellum Realty Group and $3,677 to Oheka Management. The court file lacked itemized reports that would show what work the companies performed.

Rosenberg earned $72,541 in fees as receiver, and another $38,977 in legal fees was paid to his Garden City law firm, Rosenberg, Calica & Birney.

In an interview, Rosenberg defended hiring Bellando, who was on the state’s list of approved property managers at the time.

“Obviously, I make mistakes.” — Suffolk Supreme Court Justice Emily Pines

Records show that when Bellando applied to be an approved manager in August 2011, he checked a box indicating that he was not a party leader but also included a resume that said he was the Nassau Independence Party’s executive director.

The Office of Court Administration approved Bellando’s application.

OCA spokesman David Bookstaver said his agency assumes people are truthful on applications and that judges will adequately vet appointment candidates.

“The application itself is a sworn affidavit, a sworn document,” Bookstaver said. “The resume is provided not for the Office of Court Administration to vet, but it is provided in case a judge wants additional information. There is no expectation that we are an investigative body here where we are required to match the application with the resume.”

OCA provided Newsday with correspondence that shows Rosenberg informed Pines by email on Feb. 27, 2012, that he was hiring Bellando. Pines confirmed that the email was not added to the court file, as it should have been.

Initially, Pines said the county clerk removes correspondence from court files. A county clerk spokeswoman said her office does not do that.

In a subsequent interview, Pines said she believed Rosenberg’s emailed letter never got into the court file because it wasn’t printed out.

Pines acknowledged that she should have issued a separate court order appointing a property manager but didn’t because both sides in the case agreed on Bellando. She said she didn’t question the request because the lawyers in the case were prominent and well-regarded.

“Obviously, I make mistakes,” she said.

CORRECTION: An earlier version of this story inaccurately identified the fire alarm and sprinkler consultant for a vendor on an Islandia building in receivership. His name is John Cook.

Correction added on 1/9/16
In a series on court appointments published in 2014, Newsday reported that Suffolk County Supreme Court Justice Thomas Whelan twice appointed Oheka Castle owner Gary Melius to manage properties when Melius was not on the court system’s approved list of property managers. Whelan made one such appointment, in 2009. In Whelan’s 2012 appointment of a foreclosed property in Brookhaven, Melius was on the approved list and the judge was not required to file a written justification for his decision. This has been corrected in the story above.

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