A trio of escrow companies assisted builder Kelly Gearhart and lender Jay Miller in a fraudulent investment scheme that cost investors $3.9 million, an attorney argued during a civil trial Wednesday.
“They are joined at the hip,” David Noonan told a jury in his closing argument. “They were all mutually interested in maximizing their returns.”
But an attorney representing one of the escrow companies said his clients did nothing but close escrows, just as it had done in the past.
“There wasn’t a single trace of a paper trail to suggest any misconduct in this case,” said Gerard Kelly, representing Stewart Title of California.
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Gearhart, who has pleaded not guilty to federal fraud charges, and Miller, the Hurst Financial principal who has been convicted of fraud, are accused of bilking investors in a real estate investment scheme that used investor money to pay other investors. The eight plaintiffs in the case say the money was supposed to fund building projects Gearhart had proposed.
Both Gearhart and Miller have declared bankruptcy and are not parties or witnesses in the trial. Instead, the plaintiffs focused on three related companies that handled the escrows: Cuesta Title, Stewart Title of California, which acquired Cuesta, and Stewart’s sister company, Stewart Title Guaranty.
The linchpin of Noonan’s case is Melanie Schneider, a Cuesta title officer who lived in Gearhart’s guest house, vacationed with Gearhart and his wife and moved to Ohio with Gearhart’s brother. After criminal allegations surfaced, Gearhart and his wife also moved to Ohio.
Schneider’s relationship with the Gearharts, Noonan said, made her a partial party when the escrow company should be independent, providing checks and balances for investors.
“How could anyone view this as acting impartial or independent?” he asked, saying Schneider, who had regular contact with Gearhart, knew that the development projects investors paid for were not being built.
When investors called her, asking about their investments, Noonan said, Schneider didn’t tell them what was happening with their money.
“The people that brought the money to the table were shut out,” Noonan said. “They didn’t know what was happening.”
Kelly, however, said the Schneider claims constituted a “smokescreen” and that Schneider actually invested with Gearhart and Miller after the alleged frauds began, suggesting even she didn’t know the money was being mishandled.
“She invested her own money and lost her own money,” he said.
Records show that no escrow employees personally gained from fraud, Kelly said.
“They didn’t get anything other than the standard fees that are paid,” he said.
In addition to considering the $3.9 million in alleged damages, jurors can also consider additional awards for punitive damages.
Mack Staton, an attorney for Cuesta, said it was Gearhart and Miller who committed the fraud. After gaining the trust of investors over the years, he said, they didn’t need anyone else’s help.
“They could do it alone,” he said. “They did do it alone, and they got caught.”