Developer Kelly Gearhart defrauded former fighting champ Chuck Liddell of $2 million with the aid of an escrow officer who stood to profit from the crimes, Liddell's attorney argued Thursday.
But an attorney for the escrow company argued that Liddell and other investors are at fault for putting too much trust in Gearhart.
"The plaintiffs didn't want to look in the mirror — they didn't want to take personal responsibility for their actions," Gerard Kelly, an attorney who is representing Cuesta Title Company, said during his closing argument in Superior Court.
After a five-week trial, Liddell’s lawsuit against Cuesta Title Company will go to the jury, which will decide whether Cuesta Title aided Gearhart in defrauding Liddell and others.
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Liddell, former light-heavyweight champ of the UFC, is one of hundreds of people who claim to have been scammed by Gearhart, a former Atascadero Chamber of Commerce Citizen of the Year who is scheduled to be sentenced on federal fraud charges June 29.
Federal prosecutors say Gearhart, along with loan broker Jay Hurst of Hurst Financial, enticed hundreds of investors to give Gearhart money for proposed developments, including one called Vista del Hombre, which was to include a golf course, commercial buildings and residential lots in Paso Robles. But instead of paying for new developments, investor money was used to pay Gearhart and other investors — a Ponzi scheme.
Because Gearhart declared bankruptcy, investors focused their lawsuits on Cuesta Title Company, which handled the escrows, and its related companies, Stewart Title of California and Stewart Title Guaranty.
While the plaintiffs claimed the escrow company helped Gearhart commit fraud, Kelly argued that their employees followed proper procedures — and that the plaintiffs took part in risky hard-money lending investments.
Jurors and a judge ruled in favor of the escrow companies in two previous trials with similar circumstances.
Witnesses began testifying in Liddell's trial — joined by two other parties with multiple plaintiffs — May 20. Liddell, who purchased four Vista del Hombre lots for $500,000 apiece, says Cuesta Title released his funds before the close of escrow and without transferring title to the properties. While a document with his signature authorized the release, Liddell said the signature was forged.
"I never saw that document," Liddell testified during the trial.
Liddell testified that he met Gearhart through two friends, brothers Usman and Umer Iqbal — also plaintiffs in the trial — who used to fly with Gearhart to ultimate fights.
"Usman told me about a big fight fan who would trade tickets for private flights to the fights," Liddell testified June 8. "So it seemed like a great trade to me."
Liddell, a Cal Poly graduate and former Mustangs wrestler, was living in San Luis Obispo. That same year, 2005, Liddell became UFC light-heavyweight champ when he defeated Randy Couture. Gearhart, meanwhile, was named Atascadero's Citizen of the Year for 2005.
While Liddell didn't socialize with Gearhart, he said, Gearhart called him with a business proposal some time in 2007.
"He called me one weekend and asked me to check these lots out," Liddell said.
Liddell, who had begun making serious money after defeating Kevin Randleman in 2001 — "I went and fought in Japan and made about 60 grand in one month" — had only invested in college funds for his children. But his mother had told him that real estate was a good investment, he said.
"People were trying to tell me I should invest," he testified. "So I just put it in land."
Around September 2007, after back-to-back losses, he started thinking about life after fighting.
"I had just lost," he said. "It was the first time losing twice in a row."
While his comeback victory over Wanderlei Silva that December would be called the fight of the year by some, he invested $2 million with Gearhart, thinking it would be for his retirement.
Gearhart had told him to go to Cuesta Title for the escrow on his Vista del Hombre lots, Liddell said. There he'd work with escrow officer Melanie Schneider, who handled Gearhart's deals.
He didn't know that Schneider had also invested $50,000 in Vista del Hombre.
On the stand, Schneider said she invested in the project in 2005, two years before Liddell, hoping for 12 percent returns.
During his examination of Schneider, Paboojian suggested that was a conflict of interest.
"Ma'am, if that project goes forward and it's completed, and it's successful, you make money on that interest payment, on that investment, correct?" he asked.
"Yeah, just like everybody else did," she said.
Up to 80 percent of the escrows at her branch, she said, were related to Gearhart.
While Schneider was friends with Gearhart's wife, flew on Gearhart's private jet, briefly lived in Gearhart’s guest house and eventually moved in with Gearhart's brother, she said she did not know Kelly Gearhart was committing fraud.
The title company is supposed to be neutral, Paboojian told jurors. But with so much to lose, Paboojian said, Schneider had to make the deal happen even though her former husband testified that she initially felt uncomfortable with some of Gearhart's business transactions.
"There is no way she could be neutral and impartial," he said. "She's got a vested interest in seeing the deal go through."
Escrow experts who testified at the trial agreed there was a conflict of interest, Paboojian said.
Paboojoan said Schneider knew about the fraud. But Kelly said his own expert testified that Cuesta employees acted appropriately, following protocol.
"The evidence shows that Cuesta absolutely did its job properly," he said. "It complied exactly with the escrow instructions."
The investors, he said, blindly trusted Gearhart — who had a good reputation at the time — and didn't do their homework before investing.
"Mr. Liddell barely did anything," he said. "He called his mom, and then he plunked down $2 million."
When investors couldn't sue Gearhart, he told jurors, they looked for someone else.
"They were mad, and they very quickly saw they weren't going to get anything from Kelly Gearhart," he said.
But suing Cuesta Title, he added, was wrong.
"My clients were not the ones who caused their loss," he said.
A handwriting expert for the defense said Liddell did sign an amendment releasing his money. During his cross-examination of Liddell, Kelly suggested Liddell had been careless to sign off on his money.
"You don't want to think you would have signed that because now that you read the terms, you don't like what they say, correct?"
"I would never have signed that — no," Liddell said.
Liddell is executive vice president of business for the UFC. Schneider, who lives in Colorado with Doug Gearhart, has invested in homes in Ohio, where Kelly Gearhart is awaiting his sentencing.