Thursday, June 30, 2022

Theft Was Not "Traditional And Customary" Practice: Trust Fund Claim Denied

The Maryland Court of Appeals affirmed the denial of a client security trust fund claim

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.” 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.

We covered the disbarment here.

The Fund denied relief because  Sniffen

was not acting as an attorney or in a fiduciary capacity that is traditional and customary in the practice of law in Maryland.

The court agreed that

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...

Under the terms of the Escrow Agreement, Mr. Sniffen’s role was limited to creating an escrow bank account, which did not qualify as an attorney trust account, and holding the escrowed funds of Mr. Grebow, a non-client, for investment purposes, until he was instructed to return the funds back to Mr. Grebow. This relationship does not resemble the “intermediary” capacities recognized in Advance Finance and American Asset Finance or the fiduciary capacities listed in Rule 19-602(b).

(Mike Frisch)

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