The Case:
On December 10, 2009 Troy Kelley was sued by his client, Old Republic Title. As Judge James Robart, United States District Judge, summarized while denying Mr. Kelley’s plea to seal the records from the public, the case involved charges of:
“… misappropriation of customer funds, lying, fraudulently transferring funds, intentional spoliation of evidence, shady business schemes, tax evasion, and hiding from creditors.”
For the next two and a half years, Old Republic Title, Ltd v. Kelley exposed Mr. Kelley’s business dealings for all to see.
This memo summarizes the 144 public documents filed in the case. It includes excerpts from Mr. Kelley’s own sworn depositions and court filings with evidence of Mr. Kelley’s misdeeds. The reader will be especially interested in the following filings:
1. Document 122, Best Summary of Case by Topic – a summary of the evidence presented organized under topic headings with exceptional coverage of the timeline and Mr. Kelley’s attempt to hide the misappropriated funds.
2. Document 71, Motion for Partial Summary Judgment – an early summary of the case and issues at hand.
3. Document 88, ORT’s Reply to Kelley & Summary of Case – the response to Kelley’s arguments to dismiss.
4. Document 110, Motion for Injunction re Money Laundering – a motion to prevent Kelley from hiding the misappropriated funds in Belize.
5. Document 145, Order Refusing to Seal Court Docs – Judge Robart’s brief summary of the case, and ruling that Mr. Kelley’s ‘annoyance, embarrassment, or harm to his political career’, do not outweigh the public’s right to see the evidence in this case.
The entire case file and certified copies of all the original documents are available at the United States District Court, Western District of Washington at Seattle. Case No. 2:10-CV-0038-JLR, Old Republic Title, LTD. vs. Troy X. Kelley.
Click here for searchable PDF’s of selected original case files.
Case Summary:
During the corrupt and predatory mortgage lending boom, Mr. Kelley was sued for misappropriating $1.2 million, and accused of misappropriating a total of $3.8 million from thousands of individual mortgage borrowers in Washington State by failing to refund certain pre-paid fees and converting the funds to his own use. Later, in an attempt to hide the misappropriated funds, he transferred the $3.8 million through a network of Kelley controlled shell companies (domiciled at his personal residence), ultimately attempting to send the money offshore to new Kelley controlled shell companies in Nevada and Belize. By his own admission, he didn’t pay taxes on any of the money from 2002 to 2010.
a. Mr. Kelley owned a business called United National, LLC dba “The Post Closing Department” which tracked and managed certain paperwork and reconveyance fees associated with mortgage loans for title companies. He was required to keep the fees in dedicated accounts segregated per client: Old Republic Title, Fidelity, etc. and refund the balance when the title reconveyance had been completed.
b. As a result of class-action lawsuits against Old Republic Title and other Kelley clients, it was revealed that Mr. Kelley failed to refund $3.8 million in excess fees to borrowers.
c. Mr. Kelley was sued by at least one of his three major clients for misappropriating $3.8 million of those fees and violating the Consumer Protection Act. He was forced to settle when it became clear he could no longer prevent the case from going to court.
d. During the protracted battle to get Mr. Kelley to court, Kelley repeatedly attempted to mislead his former client’s lawyers and the Court:
i. On June 10, 2008, within one month of the original class-action lawsuit filed on May 14, 2008, Mr. Kelley engaged a law firm specializing in hiding assets from creditors, courts, taxes, and ex-spouses. Then, two days later, on June 12, 2008, he seized $3.8 million from dedicated client accounts. Mr. Kelley then transferred the $3.8 million through a series of shell companies controlled by him and domiciled at his residence, but using different banks. By Mr. Kelley’s own admission under oath, he could not identify any consideration or anything of value exchanged for the $3.8 million. The transfers appear to have no business purpose other than to hide the misappropriated funds. Mr. Kelley finally attempted to send the funds offshore to Belize through newly established shell corporations in Las Vegas and Belize City. Belize does not recognize judgments by US courts.
ii. Mr. Kelley abruptly closed his apparently profitable company on August 1, 2008, two and a half months after the first class-action lawsuit was filed. He wiped the computers and seized all records from employees terminated when the business was closed.
iii. In a variation of the ‘dog ate my homework’ defense, Mr. Kelley refused to provide documentary evidence, claiming under oath that a fire destroyed his business records and the single computer with the only copy of the master spreadsheet which had billing records. While there was a fire next door, there was no damage to Mr. Kelley’s office. When confronted with the truth about the fire, Mr. Kelley then claimed his computer was given away to the Salvation Army and the data wiped, so he had no records from his business. He then claimed – during a period when he was a candidate, elected official, and had high income – that he had no personal or business computer, but shared use of his wife’s personal computer. He also claimed that he was unable to produce any email documents, despite using the internet-based Yahoo mail service. In any event, no records were produced.
e. Prior to his seizure of the $3.8 million, Mr. Kelley had a fiduciary responsibility for mortgage borrowers’ reconveyance fees, but treated those funds like his own private account. He paid for personal vacations, maid service for his home, salary for a personal housekeeper, and other personal expenses with borrowers’ funds.
f. For the purposes of his legal defense, Mr. Kelley claimed that the $3.8 million were legitimate earnings. But when deposed under oath, he admitted that from 2002 to 2010, the $3.8 million was never reported as income, and no taxes were paid on those funds. One would suppose Mr. Kelley failed to pay social security, self-employment, and federal income taxes, as well as Washington State B&O taxes.
g. Shortly before the case was finally to go to trial, Mr. Kelley settled and the case was dismissed on May 5, 2011. The settlement details are not in the court file. After the case was dismissed, however, a filing indicates Old Republic received money in settlement and agreed not to oppose Mr. Kelley’s efforts to seal the court file. Mr. Kelly moved to seal the entire docket because he was concerned “it is extremely possible, and highly likely, that [his] political opponents will misuse some of the public documents against [him] to harm [his] political reputation.”
The Court denied Mr. Kelley’s motion and noted that Old Republic’s briefing accused Mr. Kelley of:
“all forms of wrongdoing including misappropriation of customer funds, lying, fraudulently transferring funds, intentional spoliation of evidence, shady business schemes, tax evasion, and hiding from creditors.”
The Court concluded that Mr. Kelley’s interest in avoiding “annoyance, embarrassment, and harm to his political career” did not overcome by the public’s interest in disclosure. As a result, the court filings are open to the public.
Conclusion:
Mr. Kelley has shown an ongoing, deliberate, and disturbing pattern of poor behavior. Legitimate business people do not get sued by their clients for misappropriating client funds. They do not shift funds between shell companies domiciled at their residences, do not suddenly close profitable businesses and seize client funds, do not destroy evidence, and do not convert client money to their personal use. Legitimate businesses pay taxes on actual earnings. Finally, aside from native Belizeans, honest people do not bank in the notorious offshore tax haven of Belize.
Mr. Kelley is not fit to hold any public office or position of trust.