Old Republic did have a contract with Kelley, however. It also had thousands of customers who hadn’t gotten refunds. On December 10, 2009, Old Republic renewed its litigation against Kelley — filing a fresh lawsuit against him in King County Superior Court.

“Kelley materially breached [his agreement with Old Republic Title] by, among other things, failing to fulfill his obligation to refund all unused portions of reconveyance fees,” the lawsuit read.

The lawsuit went on to raise an issue that Kelley’s former associate Amy Cobine had said Kelley had mastered: the corporate veil.

Since Kelley had shut down his business in Washington, the lawsuit argued that “the court should allow Old Republic Title to ‘pierce the corporate veil’ and hold Troy X. Kelley and his marital community personally liable for all refunds owed in transactions.”

The lawsuit, which was later moved to federal court, sought triple damages and restitution for Old Republic’s customers.

Kelley later said he believed Old Republic pursued litigation against him, in part, because one of the company’s executives had “personal animosity” toward him.

The Deposition

In 2010, Kelley was once again up for re-election in the conservative-leaning and heavily military 28th Legislative District. This time he faced a more formidable opponent — Republican Steve O’Ban, a constitutional lawyer active in his community with a son at West Point.

But O’Ban wasn’t aware of Kelley’s legal troubles. “All I can say is we missed it. It was not on our radar screen,” O’Ban said in an interview.

Kelley had the advantage of incumbency and was a highly organized candidate, according to his former House colleague Chris Hurst. “Troy was a prolific campaigner, he didn’t like to lose anything,” said Hurst, adding that Kelley was a “killer, good door-beller” — a reference to candidates who walk their district knocking on the doors of voters.

Kelley was not out doorbelling on the morning of Monday, August 2, 2010, however, even though the primary election was just days away.

Instead, Kelley sat down in front of a video camera in the downtown Seattle offices of the Riddell Williams law firm. He wore a button-down Oxford shirt, no tie. He raised his right hand and took an oath to tell the truth.

Kelley was about to be deposed by Old Republic attorney Scott Smith. This wasn’t a new experience for Kelley. He estimated to Smith he’d been through a dozen depositions in his life, mostly because of his work as an in-house lawyer at First American.

Over the next eight and a half hours Smith questioned almost every aspect of Kelley’s business and financial life, down to the business expense he claimed for his wife’s academic journal.

Smith began the deposition gently enough. He asked for Kelley’s full name, his home address, where he’d gone to school and where he’d worked.

Kelley testified about moving to Washington from California, starting his first business and entering into the first of several joint ventures. But he explained that his primary business was document tracking — specifically reconveyance tracking.

“We track the payoff of a document, we track the reconveyance, we track other items that may go along with it to make sure that the debt and the lien are extinguished,” Kelley said.

Kelley testified that he was paid “various different fees” for this service. Pressed about this, Kelley was vague. “The fees were pretty much different in each arrangement, and the clients set the fees,” he said.

Asked about Old Republic’s fee, Kelley said it changed over time, but that it was between $120 and $160 per reconveyance file. Kelley was then asked what portion of that was Post Closing Department’s fee for services. Kelley’s answer was that “PCD has several portions of that fee.”

This would become a central point of contention in the case. Old Republic claimed that Kelley’s fee was a flat $20 per reconveyance. But Kelley argued that was just the set-up or tracking fee. He maintained that Post Closing could and did charge additional fees in the $5 to $25 range to do things like contact a lender, send a letter, or check a county auditor website to see if a reconveyance had recorded.

“There was a charge every time we checked the public website,” Kelley said.

Without those additional fees, Kelley said, the reconveyance tracking business wouldn’t be profitable.

Kelley said clients like Old Republic knew that he charged these fees and wanted him to actively “work the files” even though the fees weren’t enumerated in Post Closing’s agreements with them.

The customers asked that the fees not be reflected in the agreements, Kelley said.

“Why is that?” Smith asked.

“I assume for liability purposes, but I shouldn’t speculate,” Kelley replied.

Kelley said the title companies colluded to fix the prices for these services at land title association meetings.

“They get together and set the prices industry wide,” he said. “I’m not commenting on whether that practice is legal or not, but that’s what happens.”

George Peters, the executive director of the Washington Land Title Association, refuted Kelley’s claim.

“I can say that I’ve been to almost all the meetings for the last many years and that’s never happened,” Peters said. He said he had never seen Kelley at an association meeting.

Old Republic would later introduce into the court record an email it said was from Kelley to an executive at Old Republic dated April 13, 2006, that read in part:

“I have priced the tracking and refund service at $20 per [Trust Deed/Reconveyance] … If either of us believes pricing is out of whack after six months, I think we should revisit the issue to make sure that both of us are comfortable.”

Later in the deposition, Smith produced a copy of a spreadsheet prepared by the Post Closing Department showing the reconveyances it handled for Old Republic. The spreadsheet included a column for payments to trustees, but it did not have columns for the extra fees and services Kelley said the Post Closing Department charged.

“It’s possible the spreadsheet is folded down, which we did all the time, where you just take the cells and columns and shrink them so it makes a nicer fit on a piece of paper,” Kelley said.

Asked who could corroborate his testimony about these ancillary fees, Kelley mentioned Dee Lamb and another former employee named Amber Murray.

But when Smith deposed Lamb and Murray in 2010, they appeared to contradict Kelley’s claim that Post Closing charged ancillary fees.

(Kelley in a later court filing said Lamb and Murray were not in a position to know the details of how his company billed its clients.)

Asked if he was obligated under his agreement with Old Republic to issue customer refunds, Kelley said it depended.

“If there are excess fees left over, yes, I would agree,” he said. “But if we had additional services where we charged for additional fees for work and for fees earned, then I would think that there would be no refund.”

That answer didn’t satisfy Smith. He tried several more times to get Kelley to agree that if there were funds left over after a reconveyance was completed, then a refund was owed.

“If there’s excess fees where we did not earn our fees, then we would refund the money,” Kelley repeated. “That’s a common practice in the industry. I don’t know if this contract binds us to it.”

Kelley added that if what he was doing was such a problem, “I wouldn’t have clients now. They would all be suing me. Those things aren’t happening.”

Sometimes, Kelley acknowledged, a lender would process a reconveyance smoothly and quickly and no additional fees were required. “But that’s a very small percent, extremely small percent that the transactions went that easily,” Kelley told Smith.

If a reconveyance didn’t post within a month, Kelley said Post Closing would start what he termed a “corrective action” with the lenders — that’s when the additional fees would add up.

In a 2011 court filing, Stewart Title, which had been sued for how it had handled reconveyances, took a similar position. It argued that tracking reconveyances could involve “sending numerous letters and making numerous phone calls” and that it was acceptable to retain the full consumer fee in service of ensuring the reconveyance was done right.

The court ultimately dismissed the lawsuit against Stewart finding there was no basis to proceed to trial.

In a later court filing, Kelley said his agreement with Old Republic obligated him to do much more than track the reconveyance.

“Unless Old Republic expected that PCD was going to perform these additional services for free, which I find unlikely and unreasonable, it must have known there would be other fees,” Kelley wrote.

Kelley said Jerue, his operations manager and vice president, maintained a “master log” — an Excel spreadsheet with more than 26 columns — that had each fee broken out. But Kelley said he didn’t have access to that log anymore.

“You have no copies?” Smith asked Kelley.

“I have no copies, correct,” Kelley said.

“What happened to your copies?” Smith asked.

“My copies were destroyed in the fire,” Kelley said.

Kelley testified that at the time of the Stewart Title fire, Post Closing’s office was on the second floor of an adjacent, connected building that did not burn. But Kelley said he believed Post Closing’s few remaining records were stored in the basement of the Stewart Title building that did burn. Kelley said the lost records “were very limited … just be a box or two total, bankers box or two.”

But in those two bankers boxes, Kelley claimed, were the very documents that would back up his story — a copy of the master log, monthly statements to Post Closing’s clients and emails that authorized the additional fees.

Kelley’s testimony that Post Closing’s remaining records burned up in the fire did not match what his former employee, Amber Murray, said in her deposition.

She testified that she had moved out of the second-floor office next door to Stewart Title a few weeks before the fire. The only documents she recalled being stored in the basement of the building that burned were reconveyance documents for Stewart Title.

Even if Post Closing’s paper records were gone, “Weren’t the records on numerous computers in the state of Washington?” Smith asked Kelley in the deposition.

“They were on a backup also, up in Everett,” Kelley said. But he disagreed with Smith’s characterization. “Certainly wasn’t on numerous computers all over the state of Washington like you’re stating,” said Kelley.

Kelley said there were two computers in Everett — including a desktop that disappeared from the second-floor office after the fire.

“I went up there once after the fire and it wasn’t there,” Kelley said.

“Did you make any further inquiries?” Smith asked.

“After that, no, it was not our computer,” Kelley said. He added that the second floor received some smoke damage from the fire, but that he had no reason to believe the computer was fire damaged.

Kelley said the other computer, a laptop, was lost in the fire. “That was in storage as well. That was burned in the fire,” he said.

That led to the following exchange:

Smith: “When you would stop in at the Stewart Title office, would you go retrieve the laptop from the basement?”

Kelley: “Yes.”

Smith: “Then when you left, you would go to the Stewart Title main office, into their basement and put the laptop there before you left?”

Kelley: “Yeah, there was a stairway adjoined between the two.”

Smith: “You would go to the trouble of putting the laptop that you were using while you were in the office into the basement of the building next door?”

Kelley: “Only if I wasn’t going to be back for quite a while, so, you know, a month or so.”

Smith: “Are you confident that the laptop was in the basement at the time of the fire?”

Kelley: “I think it was, but no, I can’t say for sure.”

Kelley was asked where else records from his business might have been saved. He mentioned a Yahoo email server linked to his company website. But Kelley said those records were also lost, when he closed his business in June 2008.

“So when you shut down your website, you lost all of your company emails?” Smith said.

“I did not have them backed up any other way,” Kelley said.

Shutting Down

By June 2008, the subprime mortgage meltdown was well underway and the housing bubble had burst. Arguably, Kelley’s reconveyance tracking business model was imperiled. But his decision to close shop also followed the filing of the class-action lawsuits.

“When did you first learn about the class-action lawsuits filed here in Washington against several title companies?” Smith asked during the deposition.

“I don’t remember,” Kelley said. “I can tell you specifically why I don’t remember. Title companies are being sued on these things all the time.”

“Were you aware of those class-action lawsuits before you closed down the business?” Smith asked.

“I can’t say I was specifically aware of those class-action lawsuits when I closed the business,” Kelley said.

Kelley testified that he had been thinking about closing down operations after he lost Fidelity as his largest client. But then the Stewart Title fire happened.

“The actual final decision was probably right after the fire,” Kelley said. “But even without the fire, I think we would have closed the business.”

Why, Smith continued, did Kelley close his business in Washington but continue to operate in Oregon? Kelley answered that the business structure was different in Oregon.

Smith asked which structure was more profitable, Washington’s or Oregon’s? Kelley said Washington. Smith pounced.

“So in June 2008, you made a decision to close down your reconveyance business in Washington but keep alive the reconveyance business in a less profitable state?” he asked.

Kelley didn’t answer the question directly. “No, we decided to close down the business in Oregon and reopen a new business with a different structure in Oregon only, not in Washington.”

Smith would later assert in a court filing that although Kelley wasn’t named in the class-action lawsuits, “his actions confirm he knew his misappropriation would soon be exposed.”

Kelley, in his own court filing, said his decision to shut down his company “was not prompted” by the class-action lawsuits but motivated by a “combination of factors” including his desire to “focus more energy” on his legislative work.

Whose Fees?

At the heart of the Old Republic lawsuit was a dispute over whether the nearly $3.8 million sitting in Kelley’s business accounts in 2008 belonged to Kelley or was money that should have been refunded to title company customers.

(Most of the nearly $3.8 million were fees collected from Fidelity Title. Fidelity did not file suit against Kelley but did issue subpoenas to several banks where Kelley had accounts, seeking to locate “stolen funds,” according to Kelley’s federal indictment.)

Smith asked Kelley: “Is it your position in this lawsuit that of the funds Old Republic Title sent to PCD, all of them were properly used?”

“Yes, it is,” Kelley said.

Asked why he didn’t issue more refunds, Kelley testified that he had in the early years because it was “easier to get a reconveyance done.” But then, he said, as the market heated up and there were bank consolidations and “a lot of refinances,” it took longer.

Tracking reconveyances between 2006 to 2008 could easily eat up $100 in fees, Kelley said.

Old Republic maintained the opposite in its lawsuit.

“In the majority of transactions, the full amount collected by Old Republic was not needed and money was left over,” Smith wrote in a 2011 motion. “Instead of making refunds, Kelley kept most of the excess reconveyance fees.”

Damaged Computer

Kelley testified that after he closed up shop in 2008, he reconciled his business accounts and provided his clients with final statements showing that the money left over had been legitimately earned by the Post Closing Department.

Smith was interested to see a copy of the Old Republic reconciliation spreadsheet that Kelley said he had posted to a secure page on his website. He asked Kelley where it could be found.

Kelley said he’d kept it on his computer, but that his computer stopped working — “We couldn’t even get it to turn on” — and he’d given it away more than a year prior.

“The old computer was, first of all, I’m sure it was cleaned and given to a Goodwill or another type of entity,” Kelley said.

In a subsequent court filing, Kelley said by “cleaned” he meant physically cleaned, not scrubbed of data. “At that point, the computer wouldn’t even turn on,” he wrote.

Smith asked Kelley if he’d gotten a receipt from Goodwill for the donation.

“Probably not,” Kelley said.

Smith asked Kelley about the nearly $3.8 million in cash he moved from his three business accounts at Columbia Bank shortly after the class-action lawsuits were filed.

“Why did you do that?” Smith asked as the deposition entered its fifth hour.

“On advice of counsel, I was consolidating the bank accounts as we consolidated the business,” Kelley replied.

Kelley identified his attorney as Alan Eber of Los Angeles. An online video from 2009 describes Eber as “a pioneer in the field of asset protection.” The video begins with ominous music as words like “lawsuit” and “litigation” appear on the screen. Next, an image of a bird’s nest with a golden egg appears and the words “Never Lose Your Assets.”

Kelley testified that he’d contacted Eber in the spring of 2008. Records later showed that Kelley paid Eber more than $18,000 for his services.

“When you started this series of wires transfers, who did the money belong to, the $3.8 million?” Smith asked.

“The money was earned, so it belonged to my company,” Kelley said.

Smith then asked Kelley if he intended to pay taxes on the money.

“Yes,” Kelley said.

“When?” Smith asked.

“On advice of counsel, when he tells me to,” Kelley said.

Kelley also said he opened a new business — Berkeley United — to receive most of the nearly $3.8 million, based on advice he got from Eber.

Smith: “You studied tax, didn’t you?”

Kelley: “Yes.”

Smith: “Take tax courses in law school?”

Kelley: “Yes.”

Smith: “Take tax courses in business school?”

Kelley: “Yes.”

Smith: “Got a JD/MBA?”

Kelley: “Yes.”

Smith: “You’ve taught tax, Mr. Kelley?”

Kelley: “Yes.”

Smith: “Can you give me a good reason why you’ve created a new company to [receive] the funds after they were wire transferred through three different states, three different entities?”

At this point, Kelley’s attorney stepped in and said Smith was getting “argumentative.”

“Yeah, a little rough here,” Kelley agreed. He said he wasn’t an estate planner and the transactions were executed as part of his estate planning.

“Any interest in trying to avoid payment of these funds to your creditors?” Smith asked.

“Again, based on the estate planning, I don’t know what — how the attorney did it or why,” Kelley said.

Next, Smith asked Kelley about the Wellington Trust account set up at the bank in Belize.

“Have you ever been to Belize?” Smith asked.

“Never been to Belize,” replied Kelley.

“Why Belize?” Smith asked.

“Advice of counsel, the estate and trust attorney,” Kelley said.

Refund Check

Smith also wanted to know about the refund check mailed to Frank Cornelius, the lead plaintiff in the class-action lawsuit against Fidelity Title. Smith showed Kelley the two letters and a copy of the check that had been sent to Cornelius.

“Do you recall sending a letter to Frank Cornelius on May 15, 2008?” Smith asked.

“No, I do not,” Kelley said.

“Who’s the universe of people that might have gone to the trouble of putting together these two letters and then getting a check for $250 and mailing it to Frank Cornelius the day after he filed a class-action lawsuit claiming that he had not received any refunds?” Smith asked.

Kelley answered with a question of his own. “And who had access to the letterhead? That would be Amy Cobine,” he said.

“You think Amy Cobine did this?” Smith asked.

“That’s one possibility,” Kelley said.

“But you’re denying you sent this letter?” Smith said.

“Yes,” Kelley said.

Kelley’s denial in the 2010 deposition that he sent the letter would become the basis for one of the criminal counts of “false declaration” against him in the federal indictment. The feds alleged Kelley was “well aware” he wrote the letter and sent the $250 refund to Cornelius.

‘I Don’t Remember’

Throughout the deposition, Smith’s efforts to tease information from Kelley were met with “I don’t remember.”

When asked to name the twin brothers who ran Horizon Mortgage, Kelley faltered. He came up with their last name, Huntington, but not their first names. That led to a testy exchange:

Smith: “You really don’t remember the names of the Huntingtons?”

Kelley: “I’m in the Legislature. I don’t think I can name all 98 members of the House of Representatives.”

Smith: “No, but I thought you might be able to recall the first names of two people named Huntington with whom you did a significant amount of business, Mr. Kelley, through the years. You’re under oath. What are their first names?”

Kelley: “I know I’m under oath, and I think you’re badgering me.”

Kelley eventually did muster the brothers’ names.

Business Expenses

It was past 5 p.m., but Smith wasn’t quite ready to end Kelley’s deposition. Instead, he launched into a series of questions about Kelley’s business expenses.

Smith wanted to know about an apartment in Portland that Post Closing rented. Kelley testified that his brother Greg worked for the company for about a year and was based in Portland.

“Did your brother live in the apartment in Portland?” Smith wanted to know.

“He lived there and at our house [in Tacoma],” Kelley said.

“Did other employees get apartments as compensation for their services?” Smith asked.

“I don’t think other employees got apartments, so they had car allowances, I believe,” Kelley said. Kelley added that he couldn’t recall if his brother had reimbursed the company for the apartment but said the apartment served as an office too.

Smith asked Kelley about a series of smaller business expenses. There was a regular $80 payment to a cleaning lady.

“She cleaned office space,” Kelley said.

“What office space did she clean?” Smith asked.

“Occasionally the office space at my house, downstairs only. We paid separately if she cleaned upstairs,” Kelley said, estimating the space she cleaned was roughly 400 square feet.

Kelley’s wife would later seem to contradict this answer.

Smith also asked Kelley about three checks written from the United National business account to the Tacoma Lawn Tennis Club.

“These were business expenses, yes,” said Kelley explaining that he socialized there for “business and political purposes.”

There was also a Costco membership, a zoo membership, YMCA child care for one of his sons, a National Geographic subscription and a payment to the Johns Hopkins University Press. Kelley said the Johns Hopkins expense was a periodical that his wife reviews.

Smith: “How is that a business expense?”

Kelley: “It’s out for my customers. [My wife] also has an interest in it, so we got that.”

Smith: “Can you think of customers who have ever picked up and read the Johns Hopkins magazine?”

Kelley: “Possibly some employees; possibly some customers.”

Smith: “Can you think of any?”

Kelley: “Probably Jason [Jerue].”

Smith: “So Jason comes over, and while he’s waiting for you to conduct business, he’ll read your magazines that you deduct to the business?”

Kelley: “If I’m on the phone, he might look at it. Broad interest.”

Kelley’s company also picked up the dues for one of his wife’s academic associations — the American Society for Eighteenth-Century Studies — “as a courtesy.”

“Mr. Kelley, are you using your business account to get away with charging some personal expenses?” Smith asked.

“No. No, I am not. These are very small charges and they are definitely business related,” Kelley insisted.

In a later court filing, Kelley accused Old Republic of submitting the business expenses to the court as “evidence of wrongdoing” without any basis of knowledge for that.

Perhaps the strangest transaction to show up on Kelley’s company books was a $20 payment to Post Closing for “antenna removal.”

Kelley told Smith that he had “several lines of business … we removed some antennas, and we charged $20 for it, and it was booked as income.”

“Isn’t this to remove an antenna from your neighbor’s house that blocked your view, or you thought was unsightly?” Smith asked.

Kelley acknowledged as much. “That’s my neighbor’s address. So my company removed the antenna for a charge of $20. I’m sure we lost money on that.”

The deposition concluded at 6:05 p.m.

In 2015, a federal grand jury would indict Kelley for false declarations partly due to his responses in this 2010 deposition.

Kelley Unleashes

Eight months after his deposition, Kelley filed with the court a fiery 14-page diatribe.

“I want to speak out about the abuse I believe I have received in this lawsuit,” Kelley began. He accused Old Republic of defaming him with “actual malice.”

Old Republic “has accused me of ‘misappropriating’ the Funds of Fidelity National Title customers and Stewart Title customers as well,” Kelley wrote. “But Old Republic knows virtually nothing about PCD’s relationship with Fidelity and Stewart.” Kelley also noted that neither of those companies was suing him.

Kelley said his records had been “pawed through and his friends and colleagues dragged into the litigation.” Kelley’s legislative assistant and state Representative Chris Hurst both filed statements with the court saying they had received unsettling calls from Old Republic attorney Scott Smith.

Smith wrote the court that he made those calls to unidentified numbers that showed up in Kelley’s cell phone records to see if they belonged to people involved with Kelley’s business. “I did not intend to alarm or offend,” he wrote.

Kelley concluded: “In sum, I feel this entire case has been an abuse of the litigation process, which is only made worse by the fact it is supposedly ‘on behalf of’ persons who aren’t before the Court, who Judge Settle already decided have no contract claim, and who aren’t even pursuing their case anymore.”

Motion To Dismiss

The same month Kelley filed his declaration, his lawyer, Judith Endejan, sought to have the Old Republic lawsuit dismissed.

She argued that Kelley and the Post Closing Department were not obligated to issue refunds and that “it was industry practice” for escrow companies and their third-party service providers not to provide refunds.

Endejan wrote that Old Republic didn’t have grounds to sue because — by its own argument — the refunds were owed to its customer and not the company, therefore Old Republic had not been “injured.”

Diane Kelley Deposed

The Old Republic lawsuit against Troy Kelley also named his wife, Diane, who was then a tenured professor at the University of Puget Sound and chaired the university’s foreign languages department.

Although she claimed to have no involvement with Kelley’s businesses, Diane Kelley’s name often appeared in the context of Kelley’s web of businesses.

Even if Diane Kelley wasn’t involved in the day-to-day operations of the business, Smith intended to depose her. Troy Kelley was determined to make sure that didn’t happen.

On August 16, 2010 — Kelley’s birthday — his attorney filed a motion in federal court to “quash” Diane Kelley’s deposition on the grounds that she “had no involvement whatsoever in the business operations” and that the deposition “is intended solely to harass the Kelleys.”

Smith filed a counter-motion arguing that “Diane Kelley might be more forthcoming” than her husband and “will likely have information about business operations.”

If the lawsuit was already acrimonious, now it was getting personal. Kelley’s attorney accused Smith of making “libelous and erroneous” assertions and said Old Republic’s insistence on deposing Diane Kelley “demonstrates the type of paranoid, abusive behavior that [Old Republic] has pursued throughout the litigation that Mrs. Kelley should be protected from.”

In the end, the judge allowed the deposition to proceed.

Despite the turmoil in Kelley’s life, he held onto his statehouse seat in the 2010 election. Kelley defeated Republican challenger Steve O’Ban winning just under 53 percent of the vote.

On the morning of Tuesday, November 16, 2010, the Puget Sound region was cleaning up after a powerful windstorm that had taken down trees and knocked out power to more than 150,000 customers.

The storm forced a late start for the Kelley boys’ school. That morning Troy Kelley stayed home with them while Diane Kelley went to Seattle for her deposition.

Once again Old Republic attorney Scott Smith would be asking the questions. From the start, Diane Kelley invoked “marital privilege.” That meant she couldn’t be compelled to reveal communications she’d had with her husband.

Over the next two hours, Diane Kelley would repeatedly assert that she was in the dark when it came to Kelley’s business dealings.

“The only thing I know is what my husband has told me, because I do not participate in the business at all,” Diane Kelley said, adding that she trusted him. She also testified that she had “no knowledge” of the family finances because her husband handled the bills and taxes as part of a “natural division of labor” in the household.

Smith asked her if she got an allowance.

“An allowance?” Diane Kelley replied. “I make my own money, sir.”

Smith quickly said he didn’t mean to be offensive.

Smith showed Diane Kelley a series of documents related to the formation of a company called Attorney Trustee Service. She was listed as the president, registered agent and incorporator of the company and she had signed the paperwork.

“Why were you signing these documents if you had nothing to do with your husband’s businesses?” Smith inquired.

“Because he asked me to,” Diane Kelley said.

“Any conversation as to why you, why not him?” Smith followed up.

“No,” she said.

Records showed Diane Kelley also co-signed some of the documents relating to the movement of the nearly $3.8 million in reconveyance fees in 2008. Once again, she pleaded ignorance.

Smith: “What was your role in wiring those funds?”

Diane Kelley: “None.”

Smith: “Did you have any idea at the time as to the magnitude of money being transferred into the account that you opened as an officer of those two companies?”

Diane Kelley: “No.”

Smith: “Were you aware you had any accounts in Belize?”

Diane Kelley: “The only information I would have about that is what my husband has told me.”

At another point in the deposition, Smith asked Diane Kelley to verify her signature on some other documents. She took a look and confirmed it was her handwriting on two of the papers. But there was a third document — an annual report to the Washington Secretary of State — signed Diane Duffrin, her maiden name.

“This one is not my signature,” she said.

Later in the deposition, Smith showed Diane Kelley a deposit slip and check that also had her signature on it. Once again she said it wasn’t hers. That triggered the following exchange:

Smith: “Have you ever authorized your husband to sign documents for you.”

Diane Kelley: “Yes.”

Smith: “Did you authorize him to sign this document for you?”

Diane Kelley: “It’s very possible. I don’t know.”

Smith: “Does he do that frequently?”

Diane Kelley: “No.”

At other times during the deposition, Diane Kelley seemed to contradict her husband’s testimony.

Kelley had said Post Closing’s principal place of business was the Everett office next to the Stewart Title building. But Diane Kelley testified that, based on her observation, the company’s main office was their house in Tacoma.

On the topic of their cleaning lady, Diane Kelley said she came every two weeks, charged $80 and wasn’t paid separately to clean the office and the house, as Kelley had testified in explaining why it was a legitimate business expense.

There was also a surprise moment during Diane Kelley’s deposition. It happened when Smith showed her an “Interspousal Transfer Grant Deed” for the sale of a condominium in Fresno, California.

Diane Kelley confirmed it was her signature on the paper. “It is something my husband presented to me and asked me to sign and I signed,” she said.

“Is this the first time you were aware you owned a condo at one point in time in Fresno, California?” Smith asked.

“Yes,” she answered.

Unlike Troy Kelley’s all-day deposition, Diane Kelley was done before noon.

But in a 2012 news conference, Kelley was still angry that his wife had been dragged into the litigation.

His voice rising, he told reporters: “My wife was sued, my wife was deposed, she’s a tenured professor, she has nothing to do with the business. This was done to embarrass me.”

What Kelley didn’t mention to reporters is that he had structured the companies in such a way that, at least on paper, it looked like his wife was very much a part of the business.

Freezing Assets

On January 11, 2011, Kelley transferred from the Army Reserve to the Washington Army National Guard as a major. The following year he was promoted to lieutenant colonel.

On March 9, 2011, Smith filed a motion in U.S. District Court to freeze $1.2 million in Kelley’s Berkeley United account at Vanguard, the one that was linked to the trust in Belize. That amount — $1.2 million — represented the fees that Kelley’s company had received and cashed from Old Republic. Smith wrote:

“Berkeley United has no employees or business function but was created for the sole purpose of holding the $3.8 million that Defendant Troy Kelley misappropriated and tried to hide when he shut down his Washington reconveyance business in June 2008.

“As with his initial efforts to hide these funds, Kelley’s recent actions may have been implemented with the advice of Alan Eber, the California attorney who specializes in helping people protect their assets from creditors.”

Smith wrote that Old Republic was likely to prevail in its lawsuit against Kelley and that the injunction was needed to “prevent the misappropriated funds from being wired to an account in Belize, beyond the reach of U.S. courts.”

Kelley wrote the court that he moved the funds not to avoid creditors but to collect money “in a logical way and to provide a clear trail for tax purposes.” He said the money “has not moved since then.”

“As far as I know, everything that Alan [Eber] does is perfectly legal, and it is estate planning.” he wrote.

Million-Dollar Settlement

On May 3, 2011, Old Republic and Kelley settled the lawsuit. Kelley paid Old Republic $1.05 million but did not admit to wrongdoing.

In 2012, Kelley told reporters he agreed to settle the lawsuit because his insurance company controlled the litigation. “At some point we just said, ‘That’s it. The insurance company wants to settle, that’s fine, we’re done with this,’” Kelley said.

However, according to his indictment, the bulk of the settlement payment came out of Kelley’s Berkeley United account with Vanguard, not from his insurance company.

After the settlement, Kelley sought to have files related to the case redacted or sealed by the court.

On June 1, 2011, U.S. District Judge James Robart in Seattle issued a blunt three-page ruling in which he denied the motion to seal.

First, Robart summed up the allegations against Kelley contained in the Old Republic lawsuit:

“In briefing filed with the court, [Old Republic] accuses 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.”

Judge Robart noted that Kelley wanted the documents sealed because they might cause “annoyance, embarrassment and harm to his legislative career.”

In his 2012 press conference, Kelley criticized Judge Robart for his ruling:

“He had no judicial experience whatsoever,” Kelley said. “I don’t want to piss off a federal judge, but he had no experience going into this and he was appointed by George W. Bush.”

It was true that Judge Robart was a Bush appointee, but he was hardly new to the bench. At the time of his ruling on Kelley’s motion to seal, he’d been a federal judge for nearly seven years.

As Kelley feared, soon enough his political enemies would find the documents and try to use them against him.