Mortgage

What really happened at LandCastle Title?

Missing money from escrow accounts starts a landslide of accusations

It all started so simply, with a letter. The letter, posted in August to the website shared by LandCastle Title and its parent company, the law firm of Morris Hardwick Schneider, told customers that Fidelity National Financial had acquired a 70% stake in LandCastle Title after “substantial escrow account misappropriations” were discovered within LandCastle’s accounts and the accounts of Morris Hardwick Schneider.

The letter also stated that Nathan (Nat) Hardwick, who was the managing partner of MHS and the chairman of the board and CEO of LandCastle Title, had resigned from the firm and that Mark Wittstadt had been named managing partner of MHS.

What followed the publication of that letter was a story that has taken the kinds of twists and turns that one might expect to see in a Hollywood blockbuster, not in the annals of housing finance.

The LandCastle Title saga has ensnared Hardwick, Wittstadt, Wittstadt’s brother Rod, PGA golfer Dustin Johnson and others into a web of allegations involving deception, theft and conspiracy that is still being worked out in the courts.

The first domino after the letter was posted was a lawsuit filed in Fulton County Superior Court, in which MHS and LandCastle Title sued Hardwick, alleging that Hardwick embezzled at least $30 million from the companies’ own accounts and the companies’ trust accounts, allegedly using the money to pay for private jets, cover real estate investment losses, cover millions in gambling debts and other investments.

Hardwick, through an attorney, issued a statement, claiming that Hardwick is not guilty of “any improper, illegal or unethical conduct,” and stating that Hardwick believes all of the money he received was “properly distributed to him as his share of the profits of the firm.”

But that didn’t stop Johnson, the PGA golfer, from suing Hardwick, the Wittstadts and the law firm of Morris Hardwick Schneider, which changed its name to Morris Schneider Wittstadt in the wake of Hardwick’s departure.

Johnson’s lawsuit, filed in October in U.S. District Court for the Northern District of Georgia, alleges that the law firm of Morris Schneider Wittstadt, Hardwick and both Wittstadts used their positions as Johnson’s “trusted advisors” to steal $3 million from him to cover shortages in the firm’s accounts created by Hardwick himself.

In Johnson’s original lawsuit, Johnson stated that Hardwick “played a particularly unique and significant role of trust and confidence” in Johnson’s life, serving as one of his primary advisors on all matters relating to his career as a professional golfer.

Hardwick was also an officer in Johnson’s professional corporation, and was listed on Johnson’s personal website as a member of “Dustin’s Team” as Johnson’s “attorney/counselor.”

In the immediate aftermath of Hardwick’s alleged misdeeds being revealed by HousingWire, Hardwick’s name and picture were removed from Johnson’s website.

But Johnson would soon change his tune, amending his lawsuit in November and saying that the Wittstadts conspired to use Hardwick as a pawn and set him up to take the fall for the shortage.

Johnson’s amended complaint, filed in November, also alleges that the total shortfall in the firm’s accounts was originally thought to be only $6.5 million, not the $30 million that the Wittstadts accused Hardwick of stealing.

Johnson’s complaint laid out a clear, and previously unknown, timeline of how the account shortages were discovered and what the Wittstadts and Hardwick allegedly did to cover it all up.

Johnson’s complaint states that on July 11, 2014, one of firm’s other partners, who is not specifically named by Johnson in the suit, informed Hardwick that there was an altered bank record for one of the firm’s escrow accounts for its real estate clients.

Then, on July 18, Hardwick reportedly discovered that LandCastle Title’s chief financial officer, who is also not identified by name, had “improperly moved funds from client escrow accounts to the law firm’s operating account.”

Johnson’s lawsuit states the CFO subsequently admitted to altering the bank statement and improperly moving $689,018.93 from the firm’s client escrow accounts into the firm’s operating account.

Law and order quoteBased on the CFO’s admission, the firm then immediately moved $689,018.93 from its operating account to the LandCastle escrow accounts to cover the shortfall.

Johnson’s lawsuit states that after the original shortfall was discovered, the firm, at Hardwick’s direction, conducted an internal investigation and uncovered additional escrow account shortages.

While the investigation was taking place, Hardwick traveled to the British Open Championship golf tournament at Royal Liverpool Golf Club in Hoylake, England.

When he returned from England on July 28, Hardwick was informed of the additional shortages and informed his two other equity partners in the firm, Mark and Rod Wittstadt.

According to Johnson’s lawsuit, Hardwick then hired outside investigators and outside legal counsel to conduct a further investigation into the firm’s accounts.

Johnson’s lawsuit states that on or around July 29, Hardwick and the Wittstadts began discussing how to cover the shortages in the firm’s accounts. By Aug. 6, the total shortfall was estimated to be approximately $6.5 million.

But the firm did not have enough operating capital to cover those shortages.

Hardwick and the Wittstadts then agreed that Hardwick would loan $1.4 million of his own money to the firm and also work to obtain loans to cover the additional $5 million.

Johnson’s lawsuit states that while Hardwick was attempting to secure those loans, the Wittstadts entered into secret negotiations with Fidelity National Financial to bail out the firm “in order to prevent a disastrous national impact on the housing market should the escrow account misappropriations become public before the Wittstadts could cover everything up.”

Those negotiations, which took place unbeknownst to Hardwick, subsequently led to Fidelity bailing out the firm to the tune of at least $19 million.

Fidelity also said that “based on our current understanding” the amount needed to fund the escrow shortages could increase by an additional $10 million, which would bring the total influx of funding into LandCastle’s accounts to $29 million.

But while those negotiations were taking place, Hardwick approached Johnson with a “very good investment” opportunity. Hardwick allegedly told Johnson that if he loaned the firm $3 million, the firm would pay him back $4 million in equal monthly installments over a 30-month term, beginning on Sept. 6 and secured by a promissory note and guaranteed by the firm.

“Mr. Johnson trusted his lawyers and his law firm,” Johnson’s original lawsuit states, and because of that trust Johnson wired $3 million into the firm’s “Equity Partners Account” on Aug. 6.

Hardwick also secured a $2 million loan from James Pritchard, one of Hardwick’s business contacts, by promising to repay Pritchard’s loan in 24 equal monthly payments of $96,146.94, which would total  more than $2.3 million in repayment to Pritchard.

When the firm did not make its first or second monthly installment payments, both Pritchard and Johnson sued in an attempt to reclaim their money.

But Johnson’s lawsuit states that the Wittstadts conspired to set up Hardwick to take the fall for the alleged misdeeds and never had any intention of repaying Johnson or Pritchard.

“Upon information and belief, however, unknown to Hardwick, the Wittstadt brothers on behalf of themselves, the Morris Corp., and the Morris Firm, conspired among themselves in July and early August 2014, to use Hardwick as a pawn,” Johnson’s lawsuit states.

“The Wittstadts intended and directed Hardwick to represent to Pritchard and Johnson that the firm would guarantee any loans,” Johnson’s suit continues.

 “To the contrary, the Wittstadts never intended to pay back any money Hardwick could get into the firm’s account, but instead intended to keep all of that money for themselves with a plan to fire Hardwick and thereafter claim any money he was able to raise from clients or contacts was solely to cover Hardwick’s own misdeeds, and should be viewed as personal loans made to Hardwick only.”

Johnson’s lawsuit states that after securing the loans from Johnson and Pritchard, Hardwick informed Fidelity on Aug. 10 that he had raised the $5 million in loans.

But according to Johnson’s lawsuit, the Wittstadts “already had their plan in motion to give up a 70% stake in LandCastle to Fidelity in exchange for Fidelity’s agreement to pay any and all shortfalls in client escrow accounts.”

The Wittstadts could not make the deal without Hardwick’s involvement, because according to Johnson’s lawsuit Hardwick owned 55% of the company and the Wittstadts each owned 22%, “and needed to oust majority shareholder Hardwick from the Morris Corp. and the Morris Firm” to complete the deal.

“And that is exactly what the Wittstadt brothers did,” Johnson’s lawsuit states. “They forced Hardwick to resign and give up all ownership rights to both the Morris Corp. and the Morris Firm on Aug. 18, 2014.”

Then, in late August, the Wittstadts and Fidelity collectively announced that Fidelity had acquired a 70% stake in LandCastle after “substantial escrow account misappropriations” were discovered within LandCastle’s accounts.

Johnson’s lawsuit states that once the Wittstadts publicly announced the investment of funding from Fidelity, they should have returned Johnson and Pritchard’s money immediately, “but they did not – according to plan.”

Johnson’s lawsuit states that the Wittstadts have refused to return his money, claiming that Hardwick was the only borrower in his own name, and that Johnson should only seek repayment from Hardwick, not the Wittstadts or the firm.

“Remarkably, neither the Wittstadts, the Morris Firm, nor the Morris Corp. have ever produced one single document, lawyers that they are, to memorialize their bald and self-serving claim wherein Hardwick tells any of them that this $5 million was wired into the firm’s Equity Partners Account because he personally borrowed money from Johnson and Pritchard,” Johnson’s lawsuit states.

The Wittstadts also claimed that Johnson was not even a client of the firm, despite formerly listing Hardwick as his attorney and counselor on his personal website.

But Johnson’s lawsuit provides proof of his relationship with the firm, in the form of an executed representation agreement dated Sept. 27, 2011 and a letter from Johnson himself, requesting that all his files be sent to Hardwick after he left his former firm.

Hardwick, for his part, denied the Wittstadts’ allegations against him, saying, through an attorney, that he is not guilty of “any improper, illegal or unethical conduct,” and said that he believes all of the money he received was “properly distributed to him as his share of the profits of the firm.”

The Wittstadts’ motion called Johnson’s career status and integrity into question, rehashing unproven drug charges against Johnson.

“Johnson is, or was, a professional golfer,” the Wittstadts’ motion states. “Apparently his status is in doubt, as Johnson has taken an indefinite leave of absence from the PGA Tour amid allegations of substance abuse.”

Johnson was reportedly suspended from the PGA Tour in August after testing positive for cocaine. From the Golf.com report:

“According to a source, Johnson has failed three drug tests: one for marijuana in 2009 and two for cocaine, in 2012 and 2014. He was previously suspended for the 2012 failed test, but that suspension was never made public. Under the PGA Tour’s drug-testing policies, the Tour is not required to announce any disciplinary actions against players who test positive for recreational drugs.”

Johnson’s lawsuit states very clearly, within the first two paragraphs of the 88-page filing, that Johnson is still the 15th ranked professional golfer in the world.

“Further, the Morris Firm, the Morris Corporation and the Wittstadts have followed through on their threats to malign their former client in response to his initial lawsuit by calling him a liar, disclaiming he was ever a firm client, accusing him of making up a fanciful story, questioning whether or not he is even a professional golfer anymore, and rehashing prior and false allegations of discipline by the Professional Golfers Association of America in an attempt to punish him for making these serious and meritorious claims,” Johnson’s lawsuit states.

“And they do all of this as his former attorneys who are required by law to act as fiduciaries with the utmost care, trust and honesty, placing his interests solely before their own.”

Johnson’s lawsuit states that his lawyers placed their interests before his and fraudulently induced him to give them his hard-earned money to pay for their firm’s day-to-day operations.

“Johnson is stunned that the men in whom he entrusted his career have so callously ignored his interest,” Johnson’s lawsuit states. “Johnson’s lawyers stole his money.”

The Wittstadts answered Johnson’s claims with an amended motion to dismiss, in which they called Johnson’s lawsuit a work of fiction “worthy of John le Carre.”

In their amended motion to dismiss, the Wittstadts say that Johnson’s reversal from initially calling Hardwick a “racketeer” to later referring to Hardwick as a pawn raises “serious questions” about Johnson’s judgment.

“Dustin Johnson’s first wild theory, that his friend Nat Hardwick conspired with the Wittstadt Defendants to steal $3 million, was so ludicrous that he abandoned it,” the Wittstadts said in their latest motion to dismiss.

“Johnson’s new yarn, that he and his friend are patsies in a complex, serpentine fraud scheme, would be even more laughable but for the damage that such patently false allegations cause to the reputations of good lawyers who are, without any question, the true victims here.”

As of press time, the truth about what really happened at LandCastle Title is still being worked out within the court system.

3d rendering of a row of luxury townhouses along a street

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