Miami-Dade judge sent Shelborne Hotel case to judge with similar conflict

By Francisco Alvarado, Florida Bulldog.org 

Miami-Dade Circuit judges Beatrice Butchko, left, and Jennifer Bailey

The Miami-Dade Circuit judge who chose to quit presiding over the high-profile Shelborne Hotel case due to an apparent conflict of interest, funneled the case directly to a second judge with a similar conflict in a way that avoided the case being randomly reassigned.

Typically, judges recuse themselves from cases in which they have a disqualifying conflict or the appearance of a conflict. But in the Shelborne case, Judge Jennifer Bailey chose another path after disclosing that she briefly had attended a meeting with Chief Judge Bertila Soto at which prominent Miami Beach developer Russell Galbut presented preliminary plans to build a new civil courthouse on nearby property partially owned by one of his companies. Two other of Galbut’s companies were defendants in the Shelborne case.

“If I am a plaintiff and I read in the newspaper in a month that Russell Galbut is going to build a new courthouse, I might not be incredibly comfortable with Judge Bailey hearing my case,” Bailey said in open court during a Dec. 14 hearing.

But five days later, using her authority as administrative judge of the civil division, Bailey transferred the case to her associate administrative judge, Beatrice Butchko, who also actively campaigned in 2014 to convince voters to approve a bond referendum to pay for a new $350 million courthouse to replace downtown’s landmark courthouse built in 1928. The referendum did not pass.

Within weeks, Butchko tossed out the entire case that Bailey had set for trial in early January.

“Cases are randomly reassigned upon recusal,” said court spokeswoman Eunice Sigler. “This was not a recusal. This was a transfer.”  Transfers fall under the jurisdiction of the administrative judge, per 11th Judicial Circuit administrative orders adopted in 1979 and 2016.

For more than two years, Bailey had presided over the lawsuit filed by 40 investors who purchased rooms at the historic art deco Shelborne South Beach against the property’s condo association, condo board members, and companies tied to developer Galbut. The plaintiffs, who sued in 2012, alleged the condo association illegally assessed them $30 million in unnecessary repairs and renovations at the Shelborne, damaged their rooms and have tried to force them into foreclosure so the Galbut entities can acquire their units at a huge discount.

Butchko, however, made quick work of the investors’ case after she took over. She dismissed key parts in early January, days before jury selection was to begin.  She tossed the rest the following week. She did so while brushing aside a plaintiffs’ request that she recuse herself from the case and for a change of venue.

‘Dirty work’

“Obviously we were going to ask Bailey to remove herself once we found out about her involvement with Galbut,” Gia Hutt, one of the 40 investors, told Florida Bulldog. “But before any of that happened, she handed off the dirty work to Butchko, who destroyed our case.”

Hutt said the investors’ plan an appeal, but none was filed as of Tuesday.

Miami-Dade court spokeswoman Sigler said Bailey and Butchko would not comment on their rulings. She explained, however, that Bailey assigned the case to Butchko, who are both in the complex business litigation section, because Butchko was the only judge available to handle what was expected to be a 7-week trial for the Shelborne case that was set to start Jan. 9.

“The parties expressed their satisfaction with the transfer at the time, in the interest of keeping their specially-set trial date,” Sigler added.

But the case never got to jury selection. On Jan. 20, Butchko issued a summary judgment in favor of the Shelborne Beach Hotel Condominium Association and its board, as well as Shelborne Property Associates and Shelborne Operating Associates, two companies partially owned by Galbut. Butchko ruled that the plaintiffs had not presented any material facts disputing the defendants’ assertions that the repairs were necessary to address life safety issues.

Alice K. Sum, an attorney at the Fowler White Burnett law firm who represented the condo association, refuted Hutt’s claims that Bailey and Butchko were both compromised because of their public advocacy for a new courthouse and Galbut’s offer to build one.

“On the first day we appeared before Butchko, she said she didn’t know who Russell Galbut is and that her involvement in anything related to a new courthouse dated back to the prior initiative that was voted down in 2014,” Sum explained. “There’s no doubt lawyers and judges would like a new courthouse. But to imply no judge can be impartial because of that is to taint public servants unnecessarily.”

Kevin Malek, lead attorney for Hutt and the other 39 investors, declined comment.

Motions denied

Hutt, however, said that before Bailey disclosed her meeting with Galbut and transferred the case to Butchko, she had denied motions by the defendants to dismiss 8 of the 12 counts in their lawsuit, including civil conspiracy, breach of fiduciary duty and other wrongdoing. According to a Dec. 29 motion filed by the defendants, Bailey’s rulings were contrary to state law that required her to disclose her conflict before making a decision.

On Jan. 6, 19 days after she took over the case, Butchko granted the defendants’ request to reverse Bailey’s denials and dismissed the eight counts, according to court documents. By doing so, Hutt contends, Butchko crippled their case.

“You have a judge who is on the case for less than a [month] and throws out most of our lawsuit,” she said. “She took our rights away to go before a jury.”

Condo association attorney Sum said Butchko had sufficient time to process evidence presented by the defense that the repairs and renovations were not only necessary, but mandated by the City of Miami Beach. She claimed the plaintiffs’ counsel offered nothing to refute that.

“Judge Butchko explained she has been brought in again and again to take over cases,” Sum said. “So she had a lot of experience getting up to speed on cases dumped on her last minute. Butchko is well regarded among her peers and lawyers as a hard worker.”

Lenny Walder, another the 40 investors, doesn’t buy it.

“The same element of ‘eureka’ and awareness Bailey had on the new courthouse issue should have applied to Butchko, since she too is a courthouse advocate,” Walder said. “What is good for the goose is good for the gander. Butchko should have recused herself.”

Owners at South Beach’s Shelborne fight $30 million assessments, foreclosure

By Francisco Alvarado, FloridaBulldog.org 

The Shelborne Wyndham Grand South Beach

The Shelborne Wyndham Grand South Beach

For the past four years, about 40 investors and snowbirds who own 42 rooms in a landmark oceanfront art deco hotel have been locked in a pitched court battle with one of Miami Beach’s most politically connected families to keep their units.

An ongoing civil lawsuit in Miami-Dade Circuit Court alleges that Miami Beach developer Russell Galbut, along with relatives and business associates, broke Florida condo association laws by passing nearly $30 million in illegal assessments for renovations at what is now the Shelborne Wyndham Grand South Beach. That works out to roughly $107,142 per room.

The group, 10 of whom spoke with a reporter but asked that their names not be used, claim Galbut stacked the condo association’s board with flunkies and is trying to take control of the entire building by initiating foreclosure proceedings against them for refusing to pay what they believe are outrageous assessments. They also alleged that their rooms were demolished without their consent during the renovations, resulting in the City of Miami Beach revoking their certificates of occupancy until they fixed their units.

“They are using the old game of charging us exorbitant assessments to push us out,” said one New Yorker who purchased two rooms in the late 1990s as an investment. “There is a conspiracy to take our deeds for peanuts. Their end game is to own all the units.”

Galbut is not a defendant in the case, but a Galbut company that owns 100 rooms and 57 commercial spaces at the Shelborne is a defendant. Other defendants with Sherborne Property Associates are four shell companies Galbut controls, his cousins Keith Menin and Joan Brent and the Sherborne Ocean Beach Hotel Condominium Association.

Ronald M. Rosengarten of the Greenberg Traurig law firm represents Sherborne Property Associates. 

“While it is true that friends and supporters of the Galbut family projects may sit on the board, the Galbut family does not ‘control’ their votes,” Rosengarten said. “Currently, Galbut family related entities only have a minority interest in the Shelborne, owning less than one sixth of the units and certainly do not control the units.”

Rosengarten said court records also show the Galbuts’ renovation of the Shelborne “has been a financial boon for the unit-owners and not a fraud.”

Built in 1940, the iconic hotel at 1801 Collins Avenue was entirely owned by Galbut and his relatives in the 1980s. A decade later, the Galbuts began selling some of their units to outside investors when the property was converted to a condo-hotel, according to the 10 owners and Rosegarten. The new owners were allowed to rent their rooms to tourists through a Galbut entity that managed the hotel or other companies that provided booking services.

Galbut family big political contributors

Galbut family members and companies they control have contributed tens of thousands of dollars to political committees supporting Miami Beach city commission candidates. Through six companies he controls, Russell Galbut also has raised $10,000 for a PAC supporting Miami-Dade Mayor Carlos Gimenez’s re-election. Three Galbut family members have contributed a combined $15,100 this year to Republican congressional candidates including Sen. Marco Rubio, and Republican U.S. Reps. Carlos Curbelo and Ileana Ros-Lehtinen.

Things began going awry in 2010, a year after management of the Shelborne was handed over to Menin Hotels, a company controlled by Galbut and his cousin, Keith Menin, the lawsuit states. From 2006 through the beginning of 2015, Menin also served on the condo association board. The lawsuit alleges Menin and the board voted in favor of a $15 million renovation in 2011 to redo the Shelborne’s common areas, from the hotel hallways to the lobby to the pool deck without obtaining approval from at least 75 percent of the unit owners as required by state law.

Yet the non-Galbut owners still got a bill for the $15 million through a series of special assessments between 2011 and 2012.

“Keith Menin knows the Menin Alterations are unlawful,” the lawsuit states. “But he caused or allowed the partnership to make them anyway.”

The lawsuit also claims that Joan Brent, the other Galbut cousin who served on the condo association’s board from November 2011 and June 2013, knew the Menin Hotels renovation was unlawful.

Barely a year later, Galbut and his alleged surrogates signed an agreement with Wyndham Hotel Management allowing them to market 125 rooms and the common areas of the hotel under the Wyndham brand, the lawsuit states. The non-Galbut owned-rooms were not part of the deal.

Despite just finishing the $15 million update to the building, the condo board initiated another renovation project in the summer of 2014 in order to meet Wyndham standards, the lawsuit states. This time, the non-Galbut owners were assessed a combined $28.7 million, according to the complaint.

Again, the condo board did not obtain consent from 75 percent of the owners, the lawsuit alleges. It also says Galbut, Brent, Menin and their allies on the board devised a plan to lie to the non-Galbut owners about the extent of the renovations – saying only that they were replacing the Shelborne’s windows and making repairs required by the City of Miami Beach.

In the ensuing months, the lawsuit say, the non-Galbut owners learned that the scope of the work was much bigger than they were told and that the developer and his cohorts barred them from entering the hotel, preventing them from seeing what was actually happening in the building.

“While the property was closed, the conspirators caused or allowed the structure to be completely gutted,” the lawsuit states. “By closing the property, the unit owners were simultaneously deprived of the use and income generated by their residential units.

Many Shelborne owners “forced to sell”

Predictably, many members could not afford this wave of special assessments with or without the building being closed so they were forced to sell their units.”

The lawsuit also notes that Shelborne Property Associates obtained a $125 million loan around the same time the deal with Wyndham was signed. The proceeds were used to buy rooms from non-Galbut owners who wanted out, the lawsuit alleges. Court and property records confirm that Galbut-owned shell companies purchased 120 units at the Shelborne since 2012, the complaint alleges.

“There were not $125 million worth of units for sale when Shelborne Property Associates obtained this financing,” the lawsuit alleges. “But SPA knew that the association was about to levy tens of millions of dollars of additional special assessments against its members, and close the condominium property for over a year.”

The purchases gave Galbut controlled entities 75 percent ownership of the Shelborne, and the board the necessary majority to approve the Wyndham renovation after the construction had already begun.

A non-Galbut owner who identified himself as “Jackie” said Galbut and his accomplices are squeezing them out because they don’t want to pay them fair market value for their rooms. “They saw that Miami Beach real estate in general was skyrocketing, especially beachfront hotels,” Jackie said. “Rooms have been going for $700,000 to $800,000 a room. That was the case with Raleigh Hotel, the SLS South Beach and the Shore Club.”

According to a review of some of the Shelborne units purchased by Galbut-related entities in the last four years shows rooms have sold for an average between $150,000 and $250,000. Rosengarten countered that non-Galbut owners who sold rooms to his client got good deals.

“Property records evidence that the overwhelming majority of transfers occurred in sales whereby the owners received vastly greater prices for the units they sold compared to what they paid for them,” Rosengarten said. “In other words, the condo owners were not victims but were beneficiaries of the increasing valuation which resulted from maintaining and improving the building.”

Adding insult to injury, construction workers entered their units without their consent and destroyed their rooms, the non-Galbut owners allege. “When we finally gained access to our units, we found our rooms completely wrecked,” said the New Yorker who owns two rooms. “They demolished my kitchen, my bathroom and my living room. They never repaired the damages.”

The owner said city inspectors flagged his units for 20 life safety violations and told him he couldn’t use the rooms until he fixed it. He spent close to $25,000 per room after paying nearly $40,000 in special assessments, he said.

Another owner, a retiree who lives in Atlanta, said she had to dip into her 401K to finance her repairs. She had plans to live out her retirement in her Shelborne unit.

“In anticipation of losing my unit, I tried to buy a house,” she said. “But I was denied a mortgage when the bank saw I was shelling out these huge sums of money and that my income had dropped to $50,000 a year. All because of the Galbuts.”

FBI probes whistleblower claim of $130 million scam; Plaza Health Network under scrutiny

By Francisco Alvarado, BrowardBulldog.org 

Plaza Health Network's headquarters at 1800 NE 168th St., North Miami Beach. Witnesses saw FBI agents carting off computers and boxes of patient records there for several days last year.

Plaza Health Network’s headquarters at 1800 NE 168th St., North Miami Beach. Witnesses saw FBI agents carting off computers and boxes of patient records there for several days last year.

Since being founded 64 years ago as a convalescent home for elderly Jewish people and war veterans, Plaza Health Network has nurtured a reputation for providing top-notch services to senior citizens of all denominations who can no longer take care of themselves.

But a little-noticed whistleblower’s lawsuit filed in Miami federal court by an ex-Plaza executive alleges the non-profit company scammed the federal government for $130 million.

The FBI, the Miami U.S. Attorney’s Office and attorneys with the civil division the Department of Justice are investigating as a result of accusations made by Steven Beaujon, Plaza Health’s chief financial officer from September 2002 to February 2012. Beaujon stands to collect a substantial reward if his allegations prove true.

According to Beaujon’s 2012 lawsuit, Plaza Health chief executive William Zubkoff, and its board of directors, led by past chairman and Miami Beach real estate developer Russell Galbut, concocted a scheme to dole out secret kickbacks to dozens of south Florida physicians who referred hundreds of Medicaid and Medicare patients to Plaza Health’s eight nursing and rehabilitation centers.

Russell Galbut, left, and William Zubkoff

Russell Galbut, left, and William Zubkoff

Plaza Health allegedly used the patients to submit false claims to Medicaid and Medicare for therapy services that were never provided or charged at inflated cost. A convicted stock swindler ran the company’s therapy program, Beaujon said.

Likewise, the complaint accuses Zubkoff and the board of fraudulently inflating the value of Plaza’s real estate assets to obtain low-interest rate loans from the U.S. Department of Housing and Urban Development.

Galbut and Zubkoff declined comment. Plaza’s current board chairman Ron Lowy, a criminal defense and civil attorney who represents real estate companies owned by Galbut, said Beaujon’s complaint is without merit and the ongoing federal investigation has not found any criminal wrongdoing on the part of Plaza’s management team.

“The government has not taken any type of formal action against Plaza Health Network,” Lowy said. “The lawsuit was filed by a disgruntled employee who asserted all types of outrageous claims.”

Nicole Navas, a Justice Department spokeswoman, said she cannot comment on pending investigations.

GALBUT’S DEEP TIES TO MIAMI BEACH POWER STRUCTURE

A 62-year-old attorney and builder, Galbut has deep ties to Miami Beach’s political power structure where his family has been developing real estate since the 1970s. They began by converting apartment buildings into condos. Today, their company, Crescent Heights, is one of the largest development firms in the country.

In Miami Beach, Galbut and his family own several iconic properties including the site of the shuttered South Shore Hospital, the Alexander Hotel, the Castle Beach Club, 100 Lincoln Road, and the Shelbourne Hotel, which recently reopened after undergoing a $90 million renovation.

In the 1980s Galbut’s law firm was associated with Alex Daoud, a city commissioner elected mayor in 1985 only to see his career end in 1991 with a felony bribery conviction and an 18-month prison sentence.

Galbut, who is building himself an ostentatious 17,000-square-foot penthouse on top of a South Beach parking garage his company is developing, is a big political contributor. In 2013, he and his companies gave $6,000 to a political action committee supporting two city commissioners. Election records show that Galbut and his companies donated $113,750 to various Republican congressional candidates in 2008, 2010, 2012, and the recent midterm election.

Galbut and Zubkoff joined the board of directors for Hebrew Homes for the Aged, Plaza Health’s predecessor company, in 1995 as vice-president and secretary, respectively. A year later, Galbut was elected chairman. Zubkoff was hired as president and CEO in 2007.

Plaza’s seven-member board also includes four people with close ties to Galbut: his brother Abraham Galbut, his cousin Joan Brent, Ben Rozsansky, who works full-time at Galbut’s company Crescent Heights, and chairman Ron Lowy. 

Steven Beaujon, former Plaza Health chief financial officer-turned- whistleblower

Steven Beaujon, former Plaza Health chief financial officer-turned- whistleblower

Under the Galbut and Zubkoff administration, Hebrew Homes changed its name to Plaza Health Network and added six locations with 933 total beds in Allapattah, Aventura, Little Havana, South Beach, North Miami, and North Miami Beach.

According to Beaujon’s whistleblower lawsuit, Galbut and his brother-in-law orchestrated Plaza Health’s alleged scheme to illegally siphon Medicaid and Medicare funds, while paying kickbacks to as many as 55 physicians. Federal law prohibits payments to doctors for referring Medicaid and Medicare patients.

To hide the true nature of the payments, Plaza Health entered into bogus contracts with the doctors to provide medical treatment at its eight facilities. Beaujon alleged, however, that the physicians were not required to show up for work and did not have to submit time sheets for the hours they supposedly worked.

Between 2008 and 2011, Plaza paid $2 million to 11 of the 55 doctors, according to a chart in Beaujon’s lawsuit.

The lawsuit says patients referred by doctors on Plaza Health’s payroll were placed in a physical therapy program run by Herman Epstein – an employee with no medical background and no physical therapy certifications, but a 1999 securities fraud conviction.

FROM BOILER ROOM TO THERAPY ROOM

The criminal case stemmed from Epstein’s participation in a New Jersey boiler room operation that targeted elderly victims.

According to the lawsuit, Epstein’s job at Plaza Health was to fabricate and inflate the number of hours that Medicaid and Medicare patients supposedly received physical therapy. Between 2008 and 2011, the company billed the government programs for $130 million in bogus physical therapy services, the complaint alleges.

Beaujon asserted he was punished with a demotion and minimal pay raises because he kept warning Galbut about Plaza’s illegal activities.

In either February or March 2013, about a year after Beaujon sued, FBI agents raided Plaza Health’s Aventura corporate office and two of its nursing homes, according to three nursing assistants employed by the non-profit who asked for anonymity.

One nursing assistant who worked at the Aventura office said she saw four agents wearing FBI windbreaker jackets carting off computers and boxes of patient records for several days. Another nursing assistant said she also saw FBI agents coming in and out of the Sinai Plaza Rehabilitation and Nursing Center at 201 NE 112th St.

“They would come out with boxes and go back in for more,” she said. “It was something very serious because management had to get out and let the agents do what they had to do.”

Plaza chairman Lowy confirmed the raids took place.

In an October 16, 2013 motion, Assistant U.S. Attorney Franklin Monsour Jr. notified Judge Federico Moreno, who is presiding over Beaujon’s whistleblower case, that the Department of Justice was not intervening in the lawsuit because its investigation had not been completed.

“However, the government’s investigation will continue,” Monsour wrote.

Both employees who witnessed the feds taking records told BrowardBulldog.org that they began hearing rumors the board of directors was looking for an exit strategy after the federal raid.

Indeed, state records show that on Sept. 13, 2013, during the Hebrew holiday of Yom Kippur, Plaza Health informed the Florida Department of Health that it was closing its nursing home at 320 Collins Ave. and would lay off 159 employees. As recently as August of this year, the company contracted with business consulting firm Marcus & Millichap to produce a valuation report on all its nursing homes.

A Plaza Health administrator, who also requested anonymity, said Galbut and the other board members want to find a national for-profit nursing home operator to sell the business to.

“It’s the destruction of the highest quality senior care not-for-profit network in our community,” the administrator said.

Lowy insisted that Plaza Health is no longer in trouble with the feds and that the nursing homes are not for sale. He also added that the company has complied with every subpoena and request for documents by the federal government.

Lowy blamed the union representing Plaza Health’s nurses and nursing assistants, SEIU, for spreading misinformation.

“We are sad that there are entities trying to foster fear that people will lose their jobs,” Lowy said. “We are doing everything possible to make Plaza the best nursing home system in the country.”

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