A Las Vegas judge has dismissed a high-profile criminal "robo-signing" case against two Southern California title officers after their attorneys accused the Nevada attorney general’s office of prosecutorial misconduct.

Defense attorneys John Hueston and Kenneth Julian had argued that prosecutors—in their zealous pursuit to bring criminal charges tied to the mortgage meltdown—gave the grand jury an improper definition of what constituted a forgery and threatened a witness into pleading guilty. The witness later committed suicide.

The defense also alleged that the former lead prosecutor in the case, the head of the attorney general’s mortgage fraud task force at the time, failed to disclose that the company for which both defendants worked was in the process of foreclosing on his own home.

In a February 25 ruling from the bench, Clark County, Nev., District Judge Carolyn Ellsworth dismissed more than 300 counts each against Gary Trafford and Gerri Sheppard. She did not issue a written ruling.

Hueston, a partner at Irell & Manella in Los Angeles who represents Trafford, said the judge was convinced that the prosecution’s improper definition of a forgery had tainted the entire indictment. Ellsworth did not address the accusation about the former prosecutor’s conflict of interest, he said.

"At the end of the day, this is a stain on this office: A profiled first-in-the-nation robo-signing prosecution of over 300 counts has been tossed out because of the stretch and improper conduct of this office," said Hueston.

Ellsworth gave the attorney general’s office leave to bring revised charges against both defendants. Jennifer Lopez, a spokeswoman for Attorney General Catherine Cortez Masto, said the office was evaluating whether to do so.

"There was no intent to mislead the grand jury," she wrote in an email to The National Law Journal. "We think the judge recognized this. The judge’s ruling allows this office to return to the grand jury. We are in the process of now evaluating the judge’s ruling and the evidence."

Masto’s office announced the indictment on November 16, 2011, accusing Trafford and Sheppard of filing tens of thousands of forged documents with the Clark County Recorder’s Office from 2005 to 2008. Prosecutors alleged that they had directed employees to forge their names on notices of default, which are used to initiate foreclosure proceedings.

Two days earlier, a local notary, Tracy Lawrence, had pleaded guilty to having notarized the signature of someone not in her presence. The following month, the office announced charges against three additional notaries and sued the service provider, Lender Processing Services Inc., and its subsidiaries for consumer fraud.

Prosecutorial misconduct allegations first came up in April in the defendants’ writs of habeus corpus and motions to dismiss the indictment. Specifically, they argued that, when presenting evidence to the grand jury in November 2011, prosecutors falsely argued that Lawrence and other notaries had committed forgeries, even though they were authorized to sign for the defendants. They also introduced "highly inflammatory and baseless hearsay testimony" from homeowners who claimed to have been wrongfully foreclosed upon as a result of the forged documents, the defense said.

"We began looking at the grand jury transcripts in discovery, and it was clear the prosecutors had been telling the grand jury about crimes that weren’t supported by the facts, such as forgery," said Hueston, the former lead prosecutor in the Enron Corp. criminal trial who is handling Trafford’s defense along with Kirk Lenhard, a shareholder at Brownstein Hyatt Farber Schreck in Las Vegas. "They also brought in improperly victims of foreclosure who had nothing to do with the underlying defendants at issue in the case."

As for Lawrence, he added: "They bullied the primary witness against Trafford to sign a plea agreement to a misdemeanor, telling her she was guilty of forgery."

Lawrence committed suicide on the day she was scheduled to be sentenced.

"We are grateful to the court for the decision," said Julian, a partner at Manatt, Phelps & Phillips in Costa Mesa, Calif., who represents Sheppard. Julian was the lead prosecutor in the public corruption trial of former Orange County, Calif., Sheriff Mike Carona.

During an August 27 hearing, Ellsworth asked for additional briefing on the misconduct allegations."Is there a tipping point at which improperlyadmitted evidence before the grand jury makes it such that the indictment must be dismissed, even though there may be sufficient evidence in front of the grand jury to prove up the crimes that are charged?" she asked.

In court documents, senior deputy attorney general Robert Giunta defended the office’s definition of forgery to the grand jury. "The defendants’ signatures were not provided on the [notices of default]; the notary falsified the defendants’ signatures. This is the falsity or forgery as alleged in the indictment," he wrote.

Then, on November 26, defense attorneys raised the claimthat John Kelleher, the former lead prosecutor in the case, had been reassigned in April to another post within the attorney general’s office due to his own "personal foreclosure crisis." He had been served with a notice of default on his home two months before taking the case before the grand jury, and the processing company was Trafford’s employer.

Within the same month Kelleher received the notice of default, defense attorneys wrote, the attorney general’s chief investigator went to Lawrence’s house, saying he was "under the gun" to have her arrested. "We have a prosecutor who is pissed," he said.

The attorney general’s office never disclosed Kelleher’s conflict of interest, defense attorneys wrote.

"The AG’s office and its prosecutors have apparently forgotten their obligations to the people, to the Court, and to the proper pursuit of justice," Hueston wrote in a February 20 court filing. "The lead prosecutor’s conflict of interest, and the attempts by him and the AG to avoid answering for their unethical conduct, are among the most egregious examples of prosecutorial misconduct found in any published case."

In court documents, the attorney general’s office defended Kelleher. Giunta noted that his removal from the case had been made public on television news broadcasts as early as July. By then, Kelleher had resigned from the office.

He attributed the Lawrence questioning to a case of "good cop, bad cop," and noted that Kelleher had been transferred from the mortgage fraud division in April, about four months after he informed the office of his conflict.

In an affidavit filed in court, Kelleher said he did not know that the same lender-processing firm he was investigating had been involved in the notice of default on his own house until after the indictment was returned.

Kelleher could not be reached for comment.

"To allege that Kelleher had a vendetta against LSI as early as September 2011, when Kelleher was wholly unaware of LSI’s involvement until December is unsupportable by the facts of the case," Giunta wrote, referring to the processing company. "More importantly, Kelleher’s decision to prosecute this matter had nothing to do with his residential loan, but was based solely and exclusively on the weight of the evidence discovered in the course of the investigation."

In her email, Lopez, of the attorney general’s office, noted that the judge found that the state’s evidence properly demonstrated the consequence of the fraud on homeowners.

Giunta had defended that evidence in court documents. "The evidence presented brought into context the fact that the offenses charged were more than merely administrative violations and they did, in fact, cause harm to Las Vegas homeowners and ultimately, the greater Las Vegas real estate market," he wrote. "The evidence in question did not constitute separate bad acts, but rather demonstrated to the grand jury members that the filing of falsely notarized documents was an intentional act that could cause homeowners difficulty in selling or in purchasing homes."

Contact Amanda Bronstad at abronstad@alm.com.