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Dispatches from public radio's correspondent at the Washington Legislature. Austin Jenkins is the Olympia correspondent for the Northwest News Network. You can also see Austin on television as host of TVW's (the C–SPAN of Washington State) weekly public affairs program "Inside Olympia."

As Case Prepares To Go To Jury, Kelley Defense Seeks To Turn Criminal Trial Into Contracts Dispute

Washington State Auditor's Office
File photo. The trial of Washington State Auditor Troy Kelley is expected to go to the jury this week.

Washington State Auditor Troy Kelley is not expected to testify in his real estate services and fraud trial.

Instead, the first-term Democrat is counting on his defense team to convince a jury to acquit him of an array of charges that include possession of stolen funds, money laundering and filing false tax returns.

To that end, Kelley’s defense lawyers are banking on the testimony of another lawyer -- a contract law expert -- to make the case that Kelley was not clearly obligated to refund homeowner fees during his years operating a reconveyance tracking business.

A reconveyance is when a lender formally clears its interest in a property after a loan is repaid in full, usually after a sale or refinance. At issue in this trial are $1.4 million in reconveyance fees that Kelley collected during the 2000s.

On Monday, the defense called as its second-to-last witness Seattle attorney James Savitt, a high-profile commercial litigator recently in the news for his representation of Zillow executive Curt Beardsley, who is being sued by his former employer.

‘The elephant in the room’

Savitt testified that he had reviewed the contracts between Kelley’s company, the Post Closing Department, and Old Republic Title and Fidelity Title during the pre-recession housing bubble. Savitt noted that while both contracts referenced refunds, the language was “ambiguous.”

“It’s just odd to me, it’s the elephant in the room, that there’s nothing in these documents that deals with this in a really clear way,” Savitt said under questioning by defense attorney Patty Eakes.

He noted that while both contracts seemed to contemplate refunds, they didn’t clearly spell out how and when refunds would be issued.

With respect to the wording of the Old Republic contract, Savitt said, “It gives rise to a reasonable and legitimate argument that the decision [to issue refunds] is allocated to [Post Closing] and not something that was dictated by Old Republic.”

Nonetheless, in 2011 Kelley settled a lawsuit filed against him by Old Republic for more than $1 million. At issue in the lawsuit was the lack of refunds paid by Post Closing to Old Republic customers.

Asked why Kelley would have settled the lawsuit if he wasn’t obligated to pay refunds, Savitt offered a series of possible reasons including the cost of litigation and the emotional toll of being sued.

“He had another reason,” Savitt added, “which was the publicity that might come from a lawsuit.” Savitt noted that Kelley was an elected Washington state representative at the time.

As for the Fidelity contract, Savitt noted that it included a specific obligation for Kelley to refund “extra funds,” but still left plenty of ambiguity.

“The phrase ‘extra funds being leftover’ is not defined,” Savitt said. “What are the extra funds?”

On cross-examination, Assistant U.S. Attorney Andrew Friedman sought to highlight what was in the contracts, not what might be missing from them. He drew Savitt’s attention back to Kelley’s agreement with Old Republic.

“So the contract seems to contemplate refunds?” Friedman asked.

“Correct,” Savitt answered.

“And [the contract] lists a single fee?” Friedman continued.

“Correct,” Savitt replied.

The fee referenced in the contract was the $20 tracking fee. Friedman also revisited the Fidelity contract with Savitt.

“And the contract does require refunds?” Friedman asked.

“The contract contemplates refunds….Yes,” Savitt said.

Friedman also sought to counter Savitt’s testimony that the question of whether refunds were owed remains an open question to this day. He referred Savitt to testimony from Kelley’s clients earlier in the trial, statements Kelley made under oath in the Old Republic lawsuit and a court filing in that case in which Kelley acknowledged refunds were part of the Fidelity contract.

At one point, Friedman got Savitt to acknowledge that he was not aware Kelley had routinely issued refunds for the first two years of his contract with Fidelity.

Concerns about trial publicity

The day began with a cryptic conversation between the lawyers and the judge in the case, outside the presence of the jury, about a sealed motion filed with the court by the defense. That motion appears to deal with ongoing publicity and news coverage of the trial and whether any of that has tainted the jury.

"I’m totally fine with inquiring the jury to see if there’s been any news that they’ve come across inadvertently or unintentionally,” U.S. District Court Judge Ronald Leighton told the lawyers. But he said he was not inclined to close the courtroom to the public and press to conduct such an inquiry. “We’re taking a temperature.”

Last week, media reports of the trial quoted Leighton as saying, “In the main … I am satisfied that there is an abundance of evidence of possession and concealment of stolen property and I’m satisfied that there’s an abundance of evidence on the money laundering counts that a rational jury could find on those counts.”

Leighton made those comments outside the presence of the jury and in response to a defense motion shortly after the prosecution rested its case to dismiss most of the charges against Kelley. It’s not clear if the sealed defense motion regarding trial publicity was triggered by Leighton’s comments.

Since January 2004, Austin Jenkins has been the Olympia-based political reporter for the Northwest News Network. In that position, Austin covers Northwest politics and public policy, as well as the Washington State Legislature. You can also see Austin on television as host of TVW's (the C–SPAN of Washington State) Emmy-nominated public affairs program "Inside Olympia."