The Insiders: Newsday findings show 2002 reforms failed to eliminate cronyism and increase transparency in court appointment system

In a 2007 state appellate court ruling, judges rejected Oheka Castle owner Gary Melius' effort to recover alleged loan payments, finding instead that Melius had essentially engaged in a "kickback scheme" that was "illegal and unenforceable" while acting as a manager of foreclosed properties.

Despite that critical assessment of Melius' actions, Suffolk County Justice Thomas Whelan bypassed hundreds of qualified candidates just one year later and picked Melius, a Long Island power broker, to manage an office complex in foreclosure. Whelan notified state court administrators that he selected Melius for the lucrative appointment because he "conducts himself in a manner consistent with the highest traditions of the business and real property profession."

Melius and a network of associates would go on to collect more than $762,000 in fees awarded by Whelan and another Suffolk justice for overseeing four office parks in foreclosure. As Newsday has previously reported, the judges violated court rules established in 2002 to rid the system of cronyism and increase transparency in their handling of appointments and awards to the Melius group.

When the rules were instituted, now Deputy Chief Administrative Judge Lawrence K. Marks wrote that they had made the state's court appointment system, "the most closely regulated of any in the nation."

Newsday's investigation into the court appointment process has shown that the reforms have not achieved their goals, at least on Long Island. And the findings cast doubt on the court system's ability to provide adequate oversight despite a watchdog agency -- the Office of the Managing Inspector General for Fiduciary Appointments -- that was created in 2000 to identify and correct abuses in the system.

Examples of rule violations

Newsday has found even routine oversight lacking and identified widespread rule violations and dubious court practices, including:

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- Appointments and monetary awards made by judges have not been disclosed to the public.

- Judges approved cursory expense logs prepared by appointees that included payouts to vendors who say the records don't accurately reflect what they were paid.

- While those seeking appointments must apply to be on a state-approved list, there is no serious review of applications. Party leaders are prohibited from getting court appointments, but the court system put Nassau Independence Party leader Rick Bellando on the approved list of property managers and a judge awarded him a $90,000 payment.

- Appointments and awards reported to the state are not checked for accuracy, and appointees underreported the amounts judges had awarded them in some cases. Because court rules cap the amount of money an appointee can collect in a year before becoming ineligible for appointments the next year, underreporting fee awards can allow appointees to circumvent the cap.

State courts spokesman David Bookstaver declined to make the managing inspector general for fiduciary appointments available for an interview. Bookstaver said New York Chief Judge Jonathan Lippman plans to address problems in the court appointment system at his upcoming state of the judiciary speech in February.

Newsday previously reported that sources familiar with the investigations said both the managing inspector general and the Commission on Judicial Conduct, which oversees judges, began those investigations following Newsday's stories.

Oversight of court appointments and adherence to the rules is critical to preserve the integrity of the courts and to protect the vulnerable and those involved in business disputes, legal experts say.

"If there is no compliance it raises serious questions about whether there are corrupt relationships," said Bennett Gershman, a Pace Law School professor who has investigated judges as a prosecutor.

Leon Lazer, a former Appellate Division justice, said the judicial system and the economic system depend on the quality of court appointees.

"Those who are selected should be selected on merit and should not be selected based on a particular party affiliation," Lazer said.

Reason to raise questions

When Whelan picked Melius to manage a foreclosed Islandia medical office complex in 2008, court officials had reason to raise questions.

Melius was not on the state's list of approved property managers at the time, so Whelan had to provide court administrators with a "finding of good cause" explaining why he needed to pick someone not on the approved list. Rather than argue that Melius had unique skills required to oversee the medical office building, Whelan stressed Melius' personal qualities, writing that he "possesses the appropriate ethical character" for the job.

A simple Internet search would have turned up a political connection between Melius and Whelan that might have raised red flags with court administrators. Months before Whelan's appointment of Melius, state Independence Party leader Frank MacKay had named Melius his "chief adviser," cementing a political alliance that continues today. And Whelan, a member of the Independence Party, had long-standing personal and political ties to MacKay.

Court administrators could have also questioned Melius' appointment based on a ruling by their own justices.

A year earlier, a four-judge appellate panel had ruled in favor of a developer who had been ordered by a lower court to repay Melius an alleged $362,500 loan.

The matter originated in a Nassau County case from the late 1990s in which Melius had been the manager of foreclosed properties owned by developer Wilbur F. Breslin.

Records from a lawsuit show that Melius claimed Breslin had coerced a loan from him by demanding money in return for not filing bankruptcy, an action that would jeopardize Melius' management position.

Melius claimed that Breslin needed money to help cover his legal bills and that Breslin had promised to pay him back.

Court records show that Breslin countered that Melius' loan claim was "a fabrication."

"There is no note. There is no letter. There is no payment. There is nothing because there was nothing," Breslin testified.

Breslin lost but won on appeal, with the appellate court saying that Melius, at best, was involved in a kickback scheme. Due to his "unclean hands" in the case, the court found he was not owed for the payments that he had characterized as a loan to Breslin.

Asked in an interview Monday about the decision against him, Melius said the appellate court did not give him a fair hearing.

"It appears to everybody in that field, judges, that it was a fix," he said.

Pressed for details, Melius said he did not know precisely how the appellate court had been compromised.

Compliance office quiet

With an annual budget of roughly $1.3 million, the managing inspector general for fiduciary appointments has a staff of five investigators and three attorneys to handle complaints and help enforce the rules.

But precisely what the office has done to promote compliance is unclear. A search of an online database of news reports found no mention of the office before Newsday began to publish its stories.

The office compiles no annual reports or data for analysis and does not impose sanctions or fines, courts spokesman Bookstaver said. It can refer cases to other agencies, but Bookstaver would not provide the number or type of referrals made, if any.

In the past five years, the agency has handled 106 cases, according to Bookstaver. Complaints in 59 cases were found to have no merit, and 24 appointees across the state have been removed or resigned their posts. Four more removals are pending, Bookstaver said, and decisions in the remaining cases have yet to be made.

Bookstaver declined Newsday's requests for more information on the cases, including whether the office has faulted any judges who actually name and oversee appointees.

The inspector general has managed to keep a profile so low that even lawyers and judges experienced with the court appointment process said they weren't aware of its existence.

"Never heard of it, no" said Steve Cohn, a Carle Place attorney who has been appointed to seven receiverships since 2008.

"I didn't know there was one," former Appellate Justice Lazer said.