Namkeb, LLC v. Client Prot. Fund of the Bar of Md.

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Namkeb, LLC, et al v. Client Protection Fund of the Bar of Maryland

No. 1623-2022

Court of Special Appeals of Maryland

February 26, 2024

UNREPORTED ^[*]

Circuit Court for Baltimore County Case No. C-03-CV-22-000216

Leahy Albright, Irma S. Raker (Senior Judge, Specially Assigned) JJ.

OPINION

LEAHY, J.

As we stated in Grebow v. Client Protection Fund of Bar of Maryland, 255 Md.App. 7 (2022):

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).

Grebow, 255 Md.App. at 9.

In this appeal, under facts that closely resemble Grebow, Appellants Namkeb, LLC ("Namkeb"), and Repid, LLC ("Repid") (together, "Appellants"), challenge the final decision of the Fund's Trustees denying their respective claims for reimbursement.

Appellants' claims arise from four escrow agreements-one that involved Namkeb, and three that involved Repid-that they entered into with Brian McCloskey ("McCloskey"), various entities controlled by McCloskey, and Kevin Sniffen ("Sniffen"). The purpose of each agreement was to demonstrate to Workmen's Life Insurance Company and Insurance Annuity Group, LLC ("IAG") (together, the "Lenders") that McCloskey had the necessary "liquidity" to obtain a large development loan. In exchange for temporarily depositing a total of $6,035,000 into escrow accounts managed by Sniffen, Appellants were to receive "sizable" fees. Moreover, each escrow agreement specified that the escrow accounts were "for the benefit" of Appellants and that the funds "belong[ed] solely" to the Appellants. Each escrow agreement also expressly stated that neither McCloskey nor the entities he controlled "had" or were "acquiring any right, title or interest" in the escrowed funds, and that Sniffen was prohibited from "allow[ing] any third party to obtain possession of or an interest" in the funds.

As in Grebow, Sniffen never returned the escrowed funds to Appellants because he and McCloskey embezzled the money as part of a broader wire fraud scheme. See Grebow, 255 Md.App. at 10. "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 [Supreme Court of Maryland] from the practice of law in Maryland." Id.

Appellants filed claims totaling $6,035,000 with the Fund in July 2013; Appellants later amended their claims to reflect sums recovered through other avenues, thus reducing the total to $3,011,916. The Trustees issued a final decision denying Appellants' claims in December 2021. As in Grebow, the Trustees determined that Appellants' claims were not eligible for payment because Sniffen, as the 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. See id. at 11, 17.

The Trustees also exercised their discretion, as afforded them by statute and the Maryland Rules, to deny Appellants' claims for two additional, independent reasons. See Maryland Code (1989, 2018 Repl. Vol.), Business Occupations and Professions Article ("BOP"), § 10-312(b); Md. Rules 19-602(a) &19-609(b)-(c). Specifically, the Trustees denied Appellants' claims because Appellants foreclosed the Fund's subrogation rights by executing settlements and releases with various parties in related civil litigation, and because the purposes of the Fund do not include acting as a guaranty for any profit-making business. Appellants petitioned for judicial review in the Circuit Court for Baltimore County.

That court affirmed the decision of the Trustees. On appeal, Appellants present three questions for our review:

I. "Did the Trustees err as a matter of law and fail to base their determination on substantial evidence in the record when they found that Attorney Sniffen's conduct, while serving as escrow agent for Appellants' funds, did not involve a fiduciary relationship that is traditional and customary to the practice of law in Maryland?"

II. "Did the Trustees err as a matter of law and fail to base their determination on substantial evidence in the record when they found that Appellants' decision to execute settlement agreements with, and release, certain entities sued by Appellants related to the losses caused by Attorney Sniffen prevented Appellants from recovering from the Client Protection Fund?"

III. "Did the Trustees err as a matter of law and fail to base their determination on substantial evidence in the record when they found that the agreements entered into by Appellants related to the escrow accounts managed by Attorney Sniffen were "profit-making schemes" that were not entitled to recovery from the Client Protection Fund, or forced the Trustees to guarantee a "profit-making business" from the proceeds of the Client Protection Fund?"

The result of this case, as concerns Appellants' first question presented, is controlled by Grebow. Accordingly, we hold that Appellants are not eligible to recover from the Fund because, as the Trustees correctly decided, Sniffen was not acting in a fiduciary capacity that is "traditional and customary in the practice of law in Maryland."

As already stated, the Client Protection Fund is designed to "protect the good name of the legal profession." Md. Rule 19-602(a). The Fund is not intended to be a "broad brush" that will "compensate for any type of loss caused by an attorney." Monumental Life Ins. Co. v. Trs. of Clients' Sec. Tr. Fund of Bar of Md., 322 Md. 442, 447 (1991). Instead, the Fund is designed to protect attorney-client relationships and, recognizing that attorneys are often called upon to act as fiduciaries, the Fund also protects those relationships but only if the specific fiduciary relationship is traditional and customary in the practice of law in Maryland. Md. Rule 19-602(a)-(b). In this case, as we detail below, substantial evidence supports the Trustees' decision because the evidence before the Trustees clearly demonstrated that Sniffen was not acting in a fiduciary capacity that is traditional and customary in the practice of law.

Because this is a threshold issue, we do not reach the second and third questions posed by the Appellants. Accordingly, we will affirm the judgment of the circuit court.

BACKGROUND

A. The Escrow Agreements

The four escrow agreements were executed in late 2010 and early 2011. Each agreement was executed by McCloskey in both his personal capacity and as the sole member of an LLC for which he was the sole member;^[1] by Sniffen, who acted as the escrow agent; and Ben Lyons ("Lyons"), as the managing member of either Namkeb^[2] or Repid,^[3]such as the case may be. Pursuant to the first escrow agreement, which was executed on September 14, 2010, Namkeb delivered $3,300,000 to Sniffen for placement in his escrow account. Pursuant to the three other agreements, including one dated December 22, 2010; and two dated January 5, 2011; Repid delivered a total of $2,735,000^[4] to Sniffen for the same purpose. Cumulatively, these sums totaled $6,035,000.

Each escrow agreement provided the following:

• The escrow funds were to be placed in a "depository account at Wachovia Bank" in a "separate interest bearing account entitled 'Kevin Sniffen, Escrow Agent, for the benefit of [Namkeb or Repid].'"

• The escrow funds "belong solely to [Namkeb or Repid], and that neither the Company^[5] nor McCloskey have, nor shall have any interest whatsoever" in the funds, including "legally, equitably, or otherwise."

• Sniffen "is holding the Escrow Funds in the Escrow Account for the benefit of [Namkeb or Repid] and neither McCloskey nor the Company have, had, or are acquiring any right, title or interest in the Escrow Funds or the Escrow Account."

• Sniffen "shall not allow any third party to obtain possession of or an interest in the Escrow Funds and shall not represent to any third party that such third party has an interest in the Escrow Funds."

• Notwithstanding the foregoing, Sniffen was authorized to "give written notice to Workmen's Life Insurance Company and/or its broker (the 'Bank') involved in a Loan to the Company and/or McCloskey . . . that the Escrow Account contains the Escrow Funds, provided, however, neither the Escrow Agent, the Company nor McCloskey shall represent to the Bank, nor any other party or entity, that the Escrow Funds and/or the Escrow Account belong to, or are usable by, the Company, McCloskey, Bank or any party other than" Namkeb or Repid, as the case may be.

Each escrow agreement also stipulated when the deposited funds must be returned. Sniffen was required to return Namkeb's funds on the earlier date of: (i) the settlement of the loan with Lenders, or (ii) within 120 days of the escrow agreement. In the remaining escrow agreements, Sniffen was required to return Repid's funds "on the earlier to occur of the date of the closing of the Loan [with Lenders], or by January 17, 2011[,]" representing a date no later than four weeks from the execution of each applicable agreement. Each of the four escrow agreements also gave Namkeb or Repid, such as the case may be, the option to demand the return of the escrow funds "at any time."

In exchange for these agreements, Namkeb and Repid were promised robust returns. For its part in three of the escrow agreements, Repid was to receive $685,000 in fees. The amount of Namkeb's fee was not stated on the face of the September 14, 2010,...