Where the money went

Judge awarded the most lucrative foreclosure cases to Oheka Castle owner and associates.

Suffolk County’s commercial judges have picked individuals to oversee distressed properties and businesses in cases that generated $1.4 million in fees since 2008, and nobody benefited more than political power broker Gary Melius and a network of associates, a Newsday investigation found.

Court records show the group claimed 55 percent, or roughly $762,000, of all the fees set aside in the 43 cases in which judges have approved awards. They got this money from only four cases because judges selected group members to work on the most lucrative properties in need of temporary management.

Six of the nine fee awards that exceeded $50,000 and eight of the 13 that topped $30,000 went to Melius and the following associates: his daughter Kelly; his former son-in-law, Richard Bellando; his attorney, Ronald Rosenberg; his close friend, Steven Schlesinger, who is also attorney for the Nassau County Democratic Party; and Mark Cuthbertson, a Huntington Town Board member whose largest individual donor is Melius.

Newsday reported last month that justices Thomas Whelan and Emily Pines violated court rules in appointing members of the group to serve as property managers or receivers, which are essentially temporary landlords. The judges failed to report the appointments and fees awarded, as required, effectively hiding the group’s activity.

A state court official has previously confirmed that the Office of the Managing Inspector General for Fiduciary Appointments opened an investigation following Newsday’s reports. New York’s Commission on Judicial Conduct is also investigating, according to sources with ties to the state court system.

For this story, Newsday examined 43 cases in which Suffolk’s three commercial division justices — Whelan, Pines and Elizabeth Emerson — appointed a receiver and approved fees in the last six years. The appointments and tally of fees establish a clear link between Whelan, a prominent member of the Independence Party, and Melius, the owner of Oheka Castle in Huntington who employs state Independence Party leader Frank MacKay.

Newsday’s review found no comparable pattern of repeat appointments by the other commercial division judges of Melius network members — or any other similarly allied group.

Whelan gave three of the receivership cases to Melius and his associates, who claimed $599,892 in fees for serving as appointed property managers and receivers. The figure represented 79 percent of the group’s total fees from all judges and 79 percent of all fees that Whelan awarded.

Whelan’s payouts to his other appointees in cases that included fee awards were much smaller: $9,900 on average compared to the $100,000 on average that Melius group members claimed.

Nearly a third of Whelan’s other appointments went to people with ties to the Independence and Suffolk Conservative parties. Because New York allows political parties to cross-endorse candidates, those minor parties can decide elections. Whelan won election unopposed this month, thanks to cross-party endorsements.

Pines awarded $162,541 to two Melius associates in a case in which Whelan approved an order for a receiver before Pines took it over. Pines recently rescinded her approval of a $90,000 payment to Bellando, the Nassau County Independence Party leader, following Newsday’s report that the payment violated court rules that bar party leaders from such awards. The order does not require Bellando to return the money.

Emerson did not appoint a member of the Melius group in any of the cases that Newsday reviewed.

Bennett Gershman, a Pace Law School professor who has written on judicial ethics and investigated judges as a prosecutor, called Newsday’s findings “a blatant example of political and judicial corruption and cronyism.”

Melius declined to answer questions about court appointments, but told a reporter: “I am not going to go away. And I know that you guys think that you are on the upside right now. But time will tell. And I hope that in your life you get everything that’s coming to you. And your family.”

Suffolk Chief Judge C. Randall Hinrichs said he could not speak to specific decisions that his judges made.

“It would be inappropriate for me to comment on any individual appointments, expenses or compensation awards while the inspector general is in the midst of an ongoing investigation,” he said.

Big office buildings prized

Receivers earn fees based on a percentage of the rent roll at properties a judge appoints them to oversee, so the more rent that’s collected, the more a receiver can claim. Receivers typically pay property managers from rental income, and judges decide whether the amount is justified.

Large office buildings in foreclosure are prized receiverships because they tend to have multiple tenants locked into rental agreements. But such lucrative receiverships are scarce, and many involve smaller properties that don’t generate substantial, steady income.

“Most receiverships aren’t worth the appointment — much more work than it’s worth,” said Bay Shore attorney David Besso, who collected a $2,400 fee on a small receivership Whelan gave him.

Judges have the power to appoint receivers and approve property managers, but court officials said they do not get to select which foreclosure proceedings wind up in their courtroom. According to officials, a computer system distributes cases to judges randomly after a plaintiff, typically a lender, begins an action.

Chief Judge Hinrichs said Whelan’s cases were no exception.

“Every single case that we’ve looked at was assigned by the computer on a random basis,” Hinrichs said.

Newsday’s review of Whelan’s case history showed a repeated link to Schlesinger, the managing partner at the Garden City law firm Jaspan Schlesinger.

The firm has appeared before a Suffolk commercial division judge nine times in cases initiated since 2008 where the judge named a receiver. In every case but one, Whelan was the judge.

The chance that nine cases, randomly assigned among three judges, would go to the same judge eight times is about one in 1,000 — about the same chance that a flipped coin would land heads up 10 times in a row.

Schlesinger said he “had no clue” why so many of his firm’s receivership cases were assigned to Whelan.

When presented with Newsday’s finding about Whelan’s case assignments, Hinrichs said the computer assigned Whelan so many Jaspan Schlesinger cases because, as the newest judge in the division, he had the lowest commercial caseload.

In addition, Whelan got one Jaspan Schlesinger case because another judge recused himself, and another case involving the firm was assigned to Whelan because it was related to a case he already had, Hinrichs said.

Regardless of how the cases were assigned, the most lucrative ones landed in Whelan’s courtroom and he repeatedly involved the Melius group, at times naming members to appointments over preferred candidates suggested by litigants.

Whelan declined to be interviewed for this story.

Schlesinger claimed the largest fee identified in any case — $189,998 — after Whelan tapped him to oversee a Medford property in foreclosure. Whelan then chose Melius to be the property manager at the same complex, leading to a $161,073 award, the second-largest in the cases Newsday reviewed.

Brookhaven Executive Center

Location: 3233 – 3253 Route 112, Medford Receivership: March 2012 – April 2014 Judge: Thomas Whelan Receiver/Fees: Steven Schlesinger, $189,998 Property manager/Fees: Gary Melius, $161,073

Credit: Heather Walsh

Although the case has concluded, Whelan has not issued a final order approving the payments. Following Newsday stories on his appointments, Whelan issued a ruling questioning some of the $3.4 million in expenses Schlesinger submitted and ordered lawyers to submit motions explaining them. The deadline for those motions was Friday.

Gregory J. Blass, a former Suffolk Family Court judge and county social services commissioner, said that a small number of judges have had a “knack of getting their finger in every fiduciary pie that involved large assets.”

“Mother Justice is a very real figure, but in Suffolk County now and again, there will be cracks in her blindfold,” Blass said. “There are well-hidden systems that reward the well-connected.”

Independence Party judge

Party leader MacKay helped Whelan capture a judgeship in 2000 by agreeing to give Democratic candidates the Independence endorsement in exchange for the Democrats’ support of Whelan, who is godfather to MacKay’s daughter.

The Independence Party’s role in state and local politics has been controversial, with critics saying it has no real platform and serves largely to enrich its leaders and allow them to exert influence.

MacKay disputed that in a March letter to the New York Daily News, writing that his party “supports government reform, small business and policies promoting economic development. There is absolutely nothing corrupt about our party, our ideals or our leadership — nor are we devoid of a philosophical core.”

Financial disclosure forms show that MacKay has been paid between $100,000 and $150,000 a year as an executive at Melius’ Oheka Castle, the North Shore estate where Melius has entertained Long Island’s political class and that has served as a base of operations for the Independence Party.

MacKay did not respond to a request for comment.

The receiverships are yet another example of the links between Melius, MacKay and Whelan. In December of last year, Whelan sided with Melius in a civil dispute, handing him control of a company that made devices to stop drunken driving. Whelan recused himself after Newsday reported in March that Melius had attempted to add MacKay to the company’s board during the litigation.

Whelan first appointed a member of the Melius group in 2008 when he named Cuthbertson receiver at a property in Islandia. Whelan then appointed Melius to be the property manager at the same complex.

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

Credit: Newsday / John Paraskevas

As Newsday reported in October, Melius was not on an approved list of property managers maintained by state court administrators. Judges may appoint someone not on the list but must file a written justification for doing so.

No such justification was in the court file for the Islandia receivership. After Newsday’s story on Whelan’s appointments, court officials said he had filed the required justification. A spokesman for the state Office of Court Administration initially said Whelan’s justification wasn’t public and declined to provide the documentation. But after repeated requests, the spokesman gave Newsday a record titled “Statement of Reasons for Non-List Appointment.”

Court rules require the statement to offer “good cause” to appoint someone who is not on the approved list. For example, Pines once picked someone who wasn’t on the list to help oversee a property with a polo club, and she submitted a statement noting that her “appointee had unique experience as an equestrian attorney.”

Whelan, however, did not specify what unique expertise Melius had that made him especially suited to manage the Islandia property.

Melius “possesses the appropriate ethical character” to aid the court, Whelan wrote, and “conducts himself in a manner consistent with the highest traditions of the business and real property profession.”

State court officials declined to say whether Whelan’s statement provided valid reasons to bypass the candidates already on the approved list.

Whelan would award Melius $77,736 in the Islandia case. Including the $161,073 in the Medford case, and a $32,689 fee approved for Kelly Melius in another case, Melius and his daughter have garnered $271,498 in fees from the Whelan cases since 2008. The total represents 87 percent of all fee awards to property managers Whelan made.

Others with party roles

Although the fee awards were small compared to what the Melius group earned, Whelan also made receivership appointments to other individuals with roles in minor parties that enjoy influence on judgeships. Pines and Emerson did not appoint several individuals with significant official roles in minor parties, according to Newsday’s review.

Whelan’s other appointments included:

  • Nesconset attorney Michael Gajdos, a member of the executive committee of the Suffolk Conservative Party. Whelan’s award of $25,123 to Gajdos in one case was the largest to a receiver not tied to Melius. It’s unclear how much Gajdos earned in another receivership Whelan gave him because the fees are not in the court file.

    Gajdos did not return a call for comment.

  • State Independence Party attorney Vincent Messina was named receiver in three cases, although none appear to have generated large fee awards. Messina received $650 in one case, no fee in another and a third case is still active. Messina declined to comment.

  • State Independence Party treasurer Robert Pilnick was named receiver last year in a case that is ongoing. Pilnick, who earned $81,687 last year as Huntington Town’s executive assistant director of environmental waste management, declined to comment.

    Paul Sabatino, who has formerly served as counsel to the Suffolk County Legislature and as chief deputy county executive, said court fiduciary appointments are supposed to be “held to a higher standard.”

    “Anything that politicizes the appointment process for fiduciaries undermines the integrity of the judicial process and it corrodes public confidence,” Sabatino said.

With Adam Playford

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Produced by Erin Geismar