By Maria Rocha-Buschel
Attorney General Eric Schneiderman announced today (Wednesday) that his office had settled the case with former National Arts Club President O. Aldon James, obtaining a $950,000 settlement and resolving claims of self-dealing and breach of fiduciary duty by James.
James and his cronies who turned a slew of coveted apartments at the tony club into rubbish-strewn dumps were also ordered evicted from the premises.
The settlement also resolves long-running litigation between the club and James, as well as his brother John James and their friend Steven Leitner, over alleged abuse of their positions and memberships in the club. The club will receive $900,000 and $50,000 will go to the attorney general’s office under the terms of the settlement.
“After 100 years, the National Arts Club remains one of New York’s important cultural institutions,” Schneiderman said. “Today’s settlement allows the club to close the door on years of bitter discord and start to recover from the havoc that Aldon James and his cohorts wrought. The message is clear: Those who abuse nonprofits for personal gain will be held accountable by my office.”
The brothers are permanently barred from serving as officers, fiduciary or directors of any nonprofit in the state, and under the settlement Leitner and the brothers need to vacate their apartments in the club by the end of July. They’d fought long and hard to keep their apartments, for which they paid rents well below market rent.
Schneiderman originally filed the lawsuit against Aldon James in September, 2012 after an 18-month investigation, charging him with waste of the club’s assets, false filings with the office’s Charities Bureau and breach of fiduciary duty. The suit charged that James was using funds from the club to go on personal shopping sprees at flea markets and vintage stores while using the club’s space to hoard the items they bought.
It also alleged that James had used his position as president to take over more than a dozen apartments, offices and other rentable spaces in the club, which he and his brother were using for years without paying rent.
The suit also charged that James had improperly removed $274,000 from the Kesselring Fund, which is a restricted club endowment intended to support dramatic arts, and had used the money to finance restoration of the building façade. The settlement requires that the club apply $274,000 of the restitution money to replenish the Kesselring Fund in addition to restoring funds to the club’s general accounts.
Gerald L. Shargel, a lawyer for the James group, said, “The settlement was in the best interests of all parties to the litigation.” However, he stressed that the agreement “makes it clear that there is no admission of wrongdoing by Aldon James, John James and Steven Leitner, but from a litigation standpoint it just made sense to settle and that’s what we did.”
The current president of the National Arts Club, Reverend Tom Pike, expressed appreciation to the attorney general’s office for its commitment throughout the case.
“With this administrative burden behind us, we can now direct more significant resources to the business of promoting the arts, discovering new talent and educating our members and community,” Pike added.
Last October, Schniederman determined that the apartments once hoarded by the leadership of the tony Club should be pegged with open market rents – but only made available to members to rent.
Of 14 apartments once controlled by James, 10 were gut renovated after being turned into pigsties by James and his cronies.
Bradley S. Silverbush, senior litigation partner of Rosenberg & Estis, P.C., represented the National Arts Club in the case with co-counsel Roland Riopelle, founder of Sercarz & Riopelle, LLP.
Silverbush and Riopelle coordinated closely with the Office of the Attorney General on the nearly 70-page settlement document.
“Many boards would have settled earlier for significantly less that the National Arts Club received in this settlement,” Silverbush said. “The club refused to back down and their determination enabled them to prevail in court and to achieve a settlement that fully restored their losses. This is a total victory for the club.”
In May, the Housing Part of the Civil Court of the City of New York in Manhattan ruled on behalf of the National Arts Club in the case presented by Silverbush, granting its motion for summary judgment and permitting it to evict O. Aldon James, John James, and Steven Leitner, from their apartments at the club’s historic 15 Gramercy Park South address.
The club had revoked the memberships of the three tenants, and it began proceedings to evict them when their leases expired. The tenants claimed that notwithstanding their expulsion from the club, the National Arts Club members’ bill of rights prevented their eviction.
One of the tenants also filed a complaint with the Division of Housing and Community Renewal, claiming that the apartments should be treated as rent stabilized units, and argued that the club was no longer operating as a not-for profit charitable organization, in a further attempt to avoid eviction.
The Housing Court often stays eviction proceedings when such a filing is made, deferring to the DHCR until it makes its determination on the complaint. This process can significantly delay an eviction.
In this case, however, the judge agreed with Silverbush that the club’s arguments were so compelling that summary judgment was warranted, enabling the evictions to move forward. Coincidentally, two days later, the DHCR also agreed with Silverbush, and issued a decision rejecting all of the former members’ arguments.
Under the ruling, the tenants had until July 31 to vacate the building. The tenants had been paying approximately $900 per month for units whose market value was nearly $5,000 per month.