Grebow v. Client Prot. Fund of the Bar of Md.
| Decision Date | 29 June 2022 |
| Docket Number | 1392, Sept. Term, 2020 |
| Parties | Steven J. GREBOW, v. CLIENT PROTECTION FUND OF the BAR OF MARYLAND. |
| Court | Court of Special Appeals of Maryland |
Argued by: Mark D. Maneche (Pessin, Katz Law, PA, on the brief), Towson, MD, for Appellant
Argued by: Leo W. Ottey, Jr., Baltimore, MD, for Appellee
Panel: Leahy, Zic, J. Frederick Sharer (Senior Judge, Specially Assigned), JJ.
The Client Protection Fund of the Bar of Maryland (the "Fund") was established in 1966 to "maintain the integrity and protect the good name of the legal profession." Md. Rule 19-602(a). The Fund reimburses members of the public for "losses caused by defalcations" by attorneys acting in professional capacities or certain fiduciary capacities that are "traditional and customary in the practice of law in Maryland." Md. Rule 19-602(a) and (b). In this appeal, Steven J. Grebow, appellant, challenges a final decision of the Fund's Trustees denying his claim for reimbursement.
Mr. Grebow's claim arises out of an "Escrow Agreement" that he entered into with the McCloskey Group (the "Company") and its sole member, Mr. Brian McCloskey, on December 11, 2009, during the "Great Recession."1 The purpose of the Escrow Agreement was to establish that the Company had cash reserves to secure a United States Department of Housing and Urban Development ("HUD") loan for a large development project. In exchange for temporarily depositing several million dollars into the escrow account, Mr. Grebow was to be paid a handsome fee of two million dollars. The Escrow Agreement specified, however, that Mr. Grebow remained "the sole beneficiary of the escrow account" and neither Mr. McCloskey, the Company, nor their creditors acquired "any right, title, or interest in the Escrow Funds."
The Escrow Account was managed by Mr. Kevin Sniffen, a Maryland attorney, who was obligated to deliver the fee, together with Mr. Grebow's entire deposit, to Mr. Grebow on the date of the settlement of the HUD Loan. Mr. Sniffen never returned the escrow funds to Mr. Grebow as he and Mr. McCloskey had embezzled the money in the perpetration of a complex wire fraud scheme. For his role, Mr. Sniffen was convicted in the United States District Court for the District of Maryland of conspiracy to commit wire fraud, and he was subsequently disbarred by the Maryland Court of Appeals from the practice of law in Maryland.
Mr. Grebow filed a claim for $3,115,000.00 with the Fund in February 2012.2 The Trustees denied Mr. Grebow's claim in April 2019. They determined, among other things, that Mr. Sniffen, in his capacity as escrow agent, was not acting as an attorney or in a fiduciary capacity that is traditional and customary in the practice of law in Maryland. Mr. Grebow petitioned for judicial review in the Circuit Court for Baltimore County. That court affirmed the decision of the Trustees. Mr. Grebow appeals and presents one question for our review:
"Did the Fund err in determining pursuant to Maryland Rule 19-602(a) that [Mr.] Sniffen was not ‘acting in a fiduciary capacity that is traditional and customary in the practice of law in Maryland’ with respect to [Mr.] Grebow's misappropriated funds?"
We hold that Mr. Grebow is not eligible to recover from the Fund because, as the Trustees correctly decided, Mr. Grebow's dealing with Mr. Sniffen did not rise to an attorney-client relationship and Mr. Sniffen was not acting in a fiduciary capacity that is "traditional and customary in the practice of law in Maryland." Accordingly, we affirm.
In 2009, the Company was pursuing a loan to fund a large development project in York, Pennsylvania. To bolster the odds of obtaining the loan, Mr. McCloskey, the Company's sole member, asked Mr. Grebow, of Grebow Investments, to temporarily deposit money into an escrow account to supply the Company with "liquidity." Ergo, the Escrow Agreement was drafted by Mr. Grebow's attorney and Mr. Kevin Sniffen, an attorney affiliated with the Company. The parties signed the Escrow Agreement on December 11, 2009, and represented in an opening "Explanatory Statement" that:
The Company is a single member limited liability company, the sole member of which is McCloskey. The Company is contemplating entering into a loan transaction ("The Loan") as borrower with Eastern Mortgage Capital or HUD (collectively the "Lender"). The Company has represented to Grebow that the Loan is more likely to be consummated if Escrow Agent represents to the Lender that he holds Two Million Two Hundred and Fifty Thousand Dollars ($2,250,000,00) ("the Escrow Funds") in an escrow account. Grebow is willing to deposit the Escrow Funds with Escrow Agent to be held and to remain in an escrow account established by Escrow Agent for the purposes of this Agreement ("the Escrow Account") on the following terms and conditions.
The Escrow Agreement specified that the account was to be a "non-interest bearing depository account at Wachovia Bank[,]" titled "Kevin Sniffen, Escrow Agent[,]" and was to be opened using Mr. Sniffen's employer identification number. It provided that, simultaneously with Mr. Grebow's deposit of $2,250,000.00 into the "Kevin Sniffen, Escrow Agent" account, the Company was obligated to deposit a "fee" in the amount of $500,000.00 into the account, "payable to Grebow in consideration for Grebow's deposit of the Escrow Funds in the Escrow Account." Mr. Grebow earned this fee "immediately upon [his] delivery of the Escrow Funds," and, under section 2 (c) of the Escrow Agreement, Mr. Sniffen was to deliver the fee, together with Mr. Grebow's initial deposit, to Mr. Grebow on "the date of the settlement of the HUD Loan, but not later than March 1, 2010 (the ‘Termination Date’)." In other words, on the "Termination Date," Mr. Sniffen was to send Mr. Grebow $2,750,000.00 "by wire transfer."
Notwithstanding the Escrow Agreement's provision that it was consummated "solely for the purpose of satisfying the Company's closing requirements of that certain loan," Section 1(e) of the Escrow Agreement explained that Mr. Grebow was "the sole beneficiary of the escrow account" and neither Mr. McCloskey, the Company, nor their creditors, acquired "any right, title, or interest in the Escrow Funds." (Emphasis added).
Section 2(a) and (b) of the Escrow Agreement detailed Mr. Sniffen's obligations as Escrow Agent, including his duty to "retain and safeguard the Escrow Funds" and to prohibit any third party, "other than the Lender or Grebow" from "obtaining possession of or an interest in the Escrow Funds." He was not permitted to withdraw money from the escrow account, unless it was for Mr. Grebow's benefit, without the "express joint written consent of Grebow, the Company and McCloskey[.]"
To cover any losses resulting "from the acts or omissions of [Mr. Sniffen], his employees[,] agents[,] and contractors," the Escrow Agreement required that Mr. Sniffen procure a fidelity bond which was "acceptable to Grebow in its sole discretion[.]" If the fidelity bond was cancelled, Mr. Sniffen was required to "immediately return the Escrow Funds to Grebow[.]"
Sections 3 and 4 of the Escrow Agreement contained numerous representations, warranties, and covenants protecting Mr. Grebow's funds. In Section 3, Mr. McCloskey and his company agreed that they would not settle on the subject loan "unless there are sufficient excess proceeds in the Loan to fund all escrows and interest reserves required by the Lender[.]" Further, Mr. McCloskey warranted that the Company would close on the loan only "upon the consent of Grebow." For his part, Mr. Sniffen warranted that he was "an attorney admitted to practice in the State of Maryland and [was] fully competent to perform his duties pursuant to [the] Agreement." He further warranted that any representation he made to the "Lender [HUD] ... regarding the Escrow Funds" would be "truthful, lawful and not in the perpetuation of a fraudulent transaction."
The Escrow Agreement, which was scheduled to terminate no later than March 1, 2010, was amended nine times to extend the Termination Date. During the course of the nine amendments, Mr. Grebow made two additional deposits into the escrow account: the first, in the amount of $1,300,000.00, was made on May 11, 2010; and the second, for $290,000.00, was made on February 4, 2011.
In exchange for the additional deposits and extensions, Mr. McCloskey increased Mr. Grebow's fee to $2,000,000.00 under the Ninth Amendment. This final amendment extended the Termination Date to April 15, 2011—just over sixteen months after the original Agreement was signed. During the course of the escrow arrangement, Mr. Grebow also received a total of $725,000.00 through various "Return from Escrow" payments, leaving Mr. Grebow's net deposit into the escrow account at $3,115,000.00.
In August 2011, Mr. Grebow's attorney received a copy of a civil complaint alleging that Mr. McCloskey and Mr. Sniffen had embezzled escrow funds and used the money as part of a large wire fraud scheme.3 A year later, Mr. Sniffen was disbarred from the practice of law in Maryland for his participation in the scheme. See Att'y Grievance Comm'n v. Sniffen , 427 Md. 521, 50 A.3d 8 (2012). He pleaded guilty to one count of conspiracy to commit wire fraud in the United States District Court and, in January 2015, was sentenced to 36 months imprisonment, followed by three years of supervised probation upon his release. See Second Amended Judgment, United States v. Sniffen , No. 1:12-cr-00127-JFM (D. Md. Jan. 21, 2015). At his sentencing, Mr. Sniffen was ordered to pay $15,850,000.00 in restitution, $3,115,000.000 of which was designated for Mr. Grebow.4
In February 2012, Mr. Grebow filed the underlying "Statement of Claim" against Mr. Sniffen with the Fund. On the "CPF Claim 2528" form, Mr. Grebow alleged that, between December 2009 and February 2011, Mr. Sniffen,...
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