An ethical question for leading Pa. Democrat
HARRISBURG - Taxpayers have spent more than $200,000 for the state's top Senate Democrat, Robert J. Mellow, to rent an office in a building partly owned by his wife - and later himself - in a business she said was largely a mystery to her.
HARRISBURG - Taxpayers have spent more than $200,000 for the state's top Senate Democrat, Robert J. Mellow, to rent an office in a building partly owned by his wife - and later himself - in a business she said was largely a mystery to her.
For seven years, the state rented the office in Mellow's hometown of Peckville, Lackawanna County, from a company called Brad Inc. Diane Mellow owned 50 percent of the company from 2001 to 2006, when Mellow took over her share in a divorce that ended their nearly four-decade marriage.
The 1978 state ethics law says it is a conflict for a public official to use his office "for the private pecuniary benefit of himself, a member of his immediate family or a business with which he or a member of his immediate family is associated." In 1990, the State Ethics Commission specifically ruled that it was a conflict for lawmakers to rent from themselves.
Violating the ethics act carries civil and criminal penalties including a felony charge with up to five years in prison, a fine of up to $10,000, or both.
Mellow says a Senate resolution he introduced trumps state law and permitted the rental payments, which amounted to $2,400 a month.
"I don't and do not believe that I have done anything wrong," said Mellow. "In fact, I think I honored the ethics - which I always will."
Mellow said he was not required to reveal the rental arrangement in his state financial-disclosure reports until he took a direct interest in the company. He disclosed it in 2008.
Robert M. Stern, the former president of the Association of State Ethics Administrators, faulted the deal.
"I can't tell you that it's illegal, but clearly he's been engaging in self-dealing and enriching himself at state expense," said Stern.
The story of the building is a tale that unfolds over 20 years, featuring a longtime Mellow staffer who was once the senator's landlord, a real estate company whose origins remain murky, and a contentious divorce that brought the unique rental agreement to light.
Leader of the Democrats
Mellow, 66, has represented the largely blue-collar Scranton region since 1971, making him the longest sitting state senator. He's been the leader of the Democrats in the upper chamber for 20 years.
For most of those two decades he has located his district office on the main street of Peckville, a village of about 5,000 people just outside Scranton.
In 1990, Mellow picked as his office a two-story brown-and-yellow former television and radio repair shop a short walk from his family's home.
That was just a few months after the building was purchased for $90,000 by a longtime Mellow aide, Gabriel J. Giordano, and his wife, Celestine P. Giordano, land records show. Giordano was a full-time employee on Mellow's Senate staff from 1973 to 2004, earning $26,265 in his final year, Senate records show.
The building would become the home of Mellow's campaign office, his brother's accounting firm, and an insurance company named Giordano & Associates, owned by Gabriel Giordano, records show. Mellow has reported holding a financial interest in that business, according to the senator's disclosure forms.
In 2001, the Giordanos transferred ownership of the building and a parcel next door to a newly formed corporation, Brad Inc., according to land records. The company acquired the property for $1, according to the real estate transfer tax document, which listed its fair market value at $82,331.
Corporation records filed with the state do not list the owners of the new company, but interviews and documents filed by Mellow show that Diane Mellow owned half. Celestine Giordano owned the other half, Diane Mellow said. Property transfer records list Mrs. Giordano as the company's vice president, secretary, and treasurer.
The circumstances under which Diane Mellow became an owner are somewhat unclear - even to the senator and his ex-wife.
In an interview, Sen. Mellow said that his recollection of the deal was "fuzzy" and that he could not recall many details.
For example, he said he did not know who owned the building before Brad Inc.
"I did not own it. I'm not sure of the exact ownership going back that far," Mellow said. "I can only kind of give you the exact ownership as of 2001 or 2000, but prior to that, you know, that's over 20 years ago. I'm not really certain who owned it."
As it happens, the owners were the Giordanos. Gabriel Giordano worked in the Peckville office, dealing with constituent services.
The Giordanos did not respond to repeated requests for comment.
Mellow said Brad Inc. was set up by Pat Mellody, a lawyer, on behalf of the owner of the building at the time and Diane Mellow.
When he was asked who decided his wife should play a role in Brad Inc., Mellow said he was unsure.
"I would assume that it was probably Pat Mellody who must have talked with her because they were friends," he said.
At the time, Mellody was chair of the Democratic Party in Lackawanna County. He died in 2002.
When told that her ex-husband said she played an active role in forming Brad Inc., Diane Mellow replied: "Nonsense."
Mellody never discussed the formation of the company with her, she said. She learned about it from her husband, who asked her to sign some ownership documents, she said.
"I just signed what he put in front of me," she said in an interview.
Diane Mellow said she never received company correspondence. She pointed out that the registered mailing address of Brad Inc. was the same as that of Sen. Mellow's district office.
She also said she paid nothing for her share in the company. Sen. Mellow said he didn't know how much his wife paid because he wasn't a party to the transaction. "As to what was brought into it, I can't answer that question because I don't know," he said.
Every month, Diane Mellow said, the senator would give her $350, which he said came from Brad Inc. This was a fraction of the rent receipts each month.
After an initial interview, Sen. Mellow declined to respond to written questions seeking additional financial details of the 2001 deal.
Ethics and interpretations
When the General Assembly passed the Ethics Act in 1978, it created the State Ethics Commission to interpret the law. Public officials frequently ask the commission about possible conflicts.
In 1989, a state representative from Erie named Italo S. Cappabianca asked the commission if the law would allow him to rent a district office, using taxpayer money, in a building he owned. He would pay the prevailing rates.
The commission said no.
Mellow said he saw no ethics problems when his wife was an owner. Once he acquired a stake in the property after the divorce, he said, he realized he had a "problem," reported it, and began taking steps to sell the property.
"If I thought I had done something inappropriate back in 2000, I never would have made the declaration in 2006, to expose myself," he said.
Though Mellow acquired his interest in the building in 2007, he did not report the Brad Inc. acquisition until the spring of 2008. That was the deadline to report financial activity from the previous year.
In his defense of the rental agreement with a company his wife partly owned, Mellow cited a Senate resolution - routinely passed by the chamber dating back to the early 1980s - that appears to contradict the state ethics law.
The resolution says that if a senator rents an office from himself or a family member, the Senate clerk must obtain an appraisal.
The State Ethics Commission has never considered whether the resolution, passed only by the Senate, somehow allows senators to do something banned under a state law.
Bruce Ledewitz, a professor of constitutional law at Duquesne University, said the resolution is irrelevant to the rental question.
"I can't say if this is a violation. I can just tell you that if it is, the resolution has nothing to do with it," he said.
John Contino, executive director of the state Ethics Commission, declined to comment.
Mellow's resolution
The resolution Mellow is leaning on is one he has introduced on at least three occasions and voted to approve five times in the last decade.
Before senators act on measures in which they have a personal stake, they are required to seek approval from the Senate. Mellow said he did not seek a ruling because no conflict existed.
In any event, the Senate failed to follow the prescriptions of the resolution. The measure states that when a senator rents from himself or his family, the Senate clerk must obtain an appraisal to ensure a fair price.
Mellow said it was up to Senate administrators, not him or his wife, to obtain the appraisal.
Russell Faber, chief clerk of the Senate, said he didn't get appraisals because Mellow never informed his staff of Diane Mellow's interest in the building.
"Had I known there was an equity interest, we should have gotten an appraisal," he said.
But the rules do not stipulate that senators must bring these matters to the attention of the clerk, Faber acknowledged.
"The rules are silent on the matter," he said.
Mellow did alert Faber after he took part-ownership of the building. At that point, Faber said, he did not request an appraisal because Mellow told him he was selling the property.
Mellow and Brad Inc. sold the building in September 2008. Since Mellow became half-owner of the company, taxpayers had paid the firm about $48,000 in rent.
The building's buyer was a Scranton company named Ibis Realty, which paid $350,000.
As part of a fresh lease struck between the state and the new owner, taxpayers are paying $4,600 a month for Mellow's office. This was nearly twice as much as paid to Brad Inc. and near the top of the market, experts say.
The Senate also pledged to rent the building for at least six more years - with an option to renew provided that Mellow is still in office.
He is up for reelection in 2010.