Stewart Title $10.5 million settlement in the works

June 10, 2014

By KAREN VELIE

More than 400 investors who were defrauded by former North County developer Kelly Gearhart will receive a portion of their losses if all parties agree to a proposed $10,530,570 settlement claim to be paid by Stewart Title.

Gearhart and James Miller, the former president of Hurst Financial, defrauded more than 1,200 investors out of more than $100 million in an alleged Ponzi scheme. Both men plead guilty and are awaiting sentencing.

Multiple lawsuits claim employees of Cuesta Title – now Stewart Title – aided and abetted and/or conspired with Miller and Gearhart. Cuesta Title created false escrows, falsely closed active escrows, and illegally filed clean title reports before placing additional loans on already encumbered properties, according to the lawsuits.

Several years ago, Stewart Title settled with a group of Hurst Financial investors for $460,000, approximately 27 percent of their investments in loans on seven lots off Highway 41 near U.S. Highway 101 in Atascadero.

In 2009, San Diego based attorney Steven Sanchez filed a suit on behalf of approximately 400 investors. Since then, at least seven other lawsuits have been filed against Stewart Title by former Hurst Financial investors.

In Oct. 2013, the Sanchez lawsuit trial, which lasted more than two months, ended in favor of the title company. Hurst Financial investors, many of whom lost their nest eggs in the Ponzi-type scheme, looked stricken as the verdict was read. Many broke out in tears.

Shortly afterwards, Sanchez filed an appeal and San Luis Obispo County Superior Court Judge Charles Crandall ordered arbitration which if successful would end the possibility of another lengthy trial.

San Luis Obispo County Superior Court Judge Martin Tangeman then set two dates to meet with investors. Tangeman spent several hours encouraging investors to accept the settlement and avoid the possibility of losing again at trial.

Plaintiffs from three of the eight lawsuits, including Sanchez’ clients, are in line to accept the $10.5 million settlement, which would also cancel the appeal. If the settlement is agreed to, each client will receive between 5 and 9 percent of the money they lost.

The plaintiffs in the five remaining lawsuits, which includes former Ultimate Fighting champion Chuck Laddell, have elected not to participate in the proposed settlement.