A trio of title companies didn't assist Kelly Gearhart and lender Jay Miller in committing fraud, a jury announced Tuesday in a trial that could be a bellwether for several related cases that are pending.
As a result of the verdict, the eight plaintiffs involved in the case people who invested in Gearhart projects that weren't built will not collect the roughly $4 million in damages they sought, and no punitive damages will be awarded.
Mack Staton, an attorney for one of the defendants, said he felt sympathy for those who lost money but happy for the escrow workers who were vindicated.
I feel awful for the plaintiffs, said Staton, representing Cuesta Title. But the cloud of suspicion has been lifted.
The decision, reached Monday, was formally announced in San Luis Obispo Superior Court on Tuesday morning to a courtroom packed with investors.
Eight plaintiffs sued three escrow companies, claiming they suffered close to $4 million in damages in a Ponzi scheme. The plaintiffs charge that hard-money lender Jay Miller, of Hurst Financial, took loans from the investors to pay for the projects, and Cuesta Title along with Stewart Title of California, which acquired Cuesta, and its sister company, Stewart Title Guaranty acted as the escrow companies.
The plaintiffs claimed that instead of paying for new developments, their investments were used to pay other investors. The escrow companies knew about the scheme, the plaintiffs argued, and failed to inform investors about it.
David Noonan, an attorney for the plaintiffs, could not be reached Tuesday afternoon. After the jurys verdict was read, a group of the investors some who cried during the announcement talked about the decision in the lobby, but they declined to comment to The Tribune.
Attorneys for the escrow companies said the defendants merely followed the instructions of the parties as required and that the plaintiffs ignored the risks of their investments in a staggering economy because they had previously enjoyed excellent returns from Gearhart and Miller.
Nobody knew what (Gearhart and Miller) were doing behind the scenes, Staton said.
Miller has pleaded guilty to fraud charges and is set to be sentenced March 17 in federal court. Gearhart, a former Atascadero Citizen of the Year now facing up to 300 years in federal prison, is set to go to trial on fraud charges next month. Both Gearhart and Miller filed for bankruptcy after allegations of wrongdoing were levied, leaving investors with less recourse to reclaim their money.
The people responsible for taking that money werent part of the trial, Staton said, adding that no fraud money was ever traced to the title employees. We were the targets after there was no way to get money out of the bad guys.
Stewart Title Guaranty echoed Statons statements.
As we said in these proceedings, we regret the losses the investors have suffered but feel it is unfair to hold others liable for the acts of Mr. Miller and Mr. Gearhart, said John Killea, chief legal and compliance officer, in a statement e-mailed to The Tribune.
Jurors unanimously voted that Stewart Title Guaranty was not negligent, did not engage in a fraud conspiracy and did not aid and abet Gearhart and Miller. They voted 9-3 to vindicate Cuesta Title and Stewart Title of California.
While this trial featured eight plaintiffs, numerous other lawsuits featuring roughly 500 investors have been filed against the title companies in the case. In all, investors in the various cases were reportedly seeking $80 million in damages from the title companies.
Staton said the verdict in this trial could prompt plaintiffs in the other cases to reassess their plans.