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Sage Title Group, LLC v. Roman

Court of Appeals of Maryland

August 4, 2017


          Argued: June 1, 2017

         Circuit Court for Baltimore County Case No. 03C12000890

          Barbera, C.J. Greene, Adkins, McDonald, Watts, Hotten, Getty, JJ.


          GREENE, J.

         On January 26, 2012, Respondent and Cross-Petitioner Robert Roman ("Mr. Roman") sued Petitioner and Cross-Respondent, Sage Title, LLC ("Sage Title" or "Petitioner"), [1] in the Circuit Court for Baltimore County. Respondent alleged in his Complaint that Sage Title committed conversion/theft and negligence.[2] He sought to hold Sage Title liable under a theory of respondeat superior for the actions of Sage Title's employee Kevin Sniffen, who, along with Patrick Belzner and Brian McCloskey, according to Mr. Roman, were part of a fraud scheme to which he fell victim. Respondent also sought to hold Sage Title liable under a theory of direct negligence. The parties proceeded to trial, and at the close of Mr. Roman's evidence, Sage Title moved for a judgment with respect to the negligence count, a motion on which the trial court reserved and ultimately granted at the close of Sage Title's case. The jury returned a verdict in favor of Mr. Roman on the conversion count and awarded him $2, 420, 000 in damages. Sage Title moved for judgment notwithstanding the verdict ("JNOV") on the conversion count, and the trial court granted the motion. Mr. Roman appealed to the Court of Special Appeals, which affirmed the trial court's judgment on the negligence count but reversed the trial court's grant of JNOV with respect to the conversion count. Both parties petitioned this Court for review.


         Mr. Roman's Transactions with Mr. McCloskey, Mr. Sniffen, and Mr. Belzner

         Mr. Roman's business interests involved making private loans to individuals who buy and renovate homes but do not use bank financing. At trial, Mr. Roman described his loan business as a "bridge" for contractors who cannot qualify for traditional financing from a bank; his "bridge loan" allows a contractor to buy property then either refinance with a traditional bank loan or sell the property after completing renovations. In the late 1990s, Mr. Roman met Brian McCloskey, a superintendent for a local builder. Beginning in the early 2000s, Mr. Roman lent Mr. McCloskey money to buy "old dilapidated house[s]" which "he would gut [] and fix [] up and resell[.]" As of April 2009, Mr. McCloskey owed Mr. Roman over one million dollars in principal and interest.

         On April 3, 2009, Mr. McCloskey asked Mr. Roman to come to Sage Title's office because he needed to borrow money to complete a real estate transaction for a property located in York, Pennsylvania ("Columbia York"). There, at Sage Title's office, Mr. McCloskey introduced Mr. Roman to Mr. Sniffen, an attorney and employee of Sage Title, and Patrick Belzner, an associate of Mr. McCloskey. During the meeting, which lasted approximately three and a half hours, the men explained that they would soon need an infusion of cash to establish an escrow account showing liquidity to either the United States Department of Housing and Urban Development or institutional investors for development of the Columbia York project and a marina property in Baltimore City ("Claires Lane"). Mr. McCloskey told Mr. Roman that he would likely be asking for more money in the near future. Mr. Roman testified that Mr. Belzner and Mr. McCloskey explained that the money in escrow was "to show liquidity to [lenders]." In other words, the money would demonstrate to the lender that there was money to pay interest on the construction loan. Mr. Roman's understanding was that his money would not be used as a bridge loan to Mr. McCloskey, as the two men had arranged in the past, but instead would only be used for purposes of showing liquidity in the escrow account. According to Mr. Roman, Mr. McCloskey told him that once Mr. McCloskey received the United States Department of Housing and Urban Development construction loan, Mr. Roman's money deposited at Sage Title would be returned to him. Mr. Roman testified that Mr. Sniffen was present during this conversation and that he nodded affirmatively, saying "yes" during the discussions. Mr. Sniffen, in contrast, testified that he could not remember the details of the April 3 meeting.

         Mr. Roman testified that at the April 3 meeting Mr. McCloskey, Mr. Sniffen, and Mr. Belzner had with them a grocery bag containing $230, 000 cash, which they claimed they could not use for the settlement of the Columbia York property. According to Mr. Roman, Mr. McCloskey, Mr. Sniffen, and Mr. Belzner "didn't have any checks and they wanted to give [Mr. Roman] the cash for checks[.]" Mr. Roman testified that "naturally, when you see a lot of cash like that, there's, something is screwy."[3]

         On April 13, 2009, Mr. Roman delivered to Mr. McCloskey or Mr. Belzner a $1.5 million cashier's check made payable to "Sage Title Group[, ]" with the notation "Robert Roman" on the check's memo line. Mr. Roman did not request a promissory note for the $1.5 million because, as he explained, "it was not a loan" and "not at risk[.]" Later that month, he delivered two more cashier's checks to Mr. McCloskey or Mr. Belzner: one issued on April 20 in the amount of $220, 000, and the other issued on April 29 in the amount of $700, 000. As with the April 13 check for $1.5 million, both of these checks were made payable to "Sage Title Group" and contained the name "Robert Roman" on the memo lines. Mr. Roman never requested nor received any written explanation of how the funds would be handled. He also did not charge interest on the funds he deposited into the escrow account. Mr. Roman explained at trial his understanding that "it wasn't a loan, it was money going into an escrow account at Sage and it would be mine and I was the only one to have access to it." Mr. Sniffen, on the other hand, indicated that his understanding was that there were no restrictions on the use of the funds other than how Mr. McCloskey directed.

         Sage Title's Baltimore Escrow/Trust Account

         Sage Title's Baltimore escrow/trust account is a single account containing funds for all of Sage Title's Baltimore clients. In a recorded deposition, which was played at trial, Michael Maddox ("Maddox"), Sage Title's president at the time of the proceedings, explained that funds are withdrawn from that account when they are ready to be disbursed per client instructions. According to Mr. Maddox, the money in Sage Title's escrow/trust account belongs to the clients and Sage Title is not free to do what it wants with the funds; further, the money in the account may only be disbursed upon the client's written instruction.

         At trial, Sage Title's executive vice president, Susan Holler also testified. Ms. Holler explained that Sage Title's use of a single ledger allowed the company to track each specific transaction. According to Ms. Holler, you "couldn't tell if it was your dollar that was put in or someone else's dollar that was put in but by using the single ledger balance report, we know how much was deposited for that case and how much needs to be disbursed for that case."

         With respect to Mr. Roman's deposits, the Columbia York ledger reflected that a check in the amount of $1.5 million was deposited and "Robert Roman" was listed in the Payee Name Memo line of the ledger. The Claires Lane ledger reflected that checks in the amount of $700, 000 and $220, 000 were deposited and, again, "Robert Roman" was listed in the Payee Name Memo line of the ledger. Both ledgers identified the "Trust Account" as "BALTIMORE." Mr. Sniffen later testified that by May 25, 2009, he had disbursed funds for the Columbia York and Claires Lane transactions from the trust account at Mr. McCloskey's instruction.

         Sage Title's Termination of Mr. Sniffen

         At the end of February, March, and April 2009, Sage Title's accounting department audited the single-ledger balance reports for the escrow account containing the money at issue. The reports show that a series of personal checks from Mr. McCloskey were deposited into the account by Mr. Sniffen in both March and April, and some of the checks had bounced. Mr. Maddox claims that the accounting department never notified him of this. Instead, the accounting department had contacted Mr. Sniffen to get him to remedy the problem. Ms. Holler testified that she was notified by the accounting department in late March 2009 that at least three of the four personal checks from Mr. McCloskey accepted by Mr. Sniffen had bounced. Ms. Holler testified that she called Mr. Sniffen and warned him to no longer accept personal checks. Ms. Holler also testified that she is "almost positive" that she discussed this issue with Mr. Maddox.

         Sometime between late March and early April 2009, after having been warned by Ms. Holler of the company policy, Mr. Sniffen accepted two more personal checks from Mr. McCloskey. Both of these checks bounced and caused an overdraft on the escrow account. Mr. Maddox testified that upon learning that Mr. Sniffen had accepted these two checks, Mr. Maddox immediately placed Mr. Sniffen on leave pending investigation then ultimately terminated him on May 26 for violating company policy.

         Mr. Roman's Continued Transactions with Mr. Sniffen and Mr. McCloskey

         Mr. Roman continued to have dealings with Mr. McCloskey, Mr. Belzner, and Mr. Sniffen, even after Mr. Sniffen's termination in May 2009. In June 2010, upon needing to demonstrate his own assets to potential lenders, Mr. Roman sought return of the escrowed funds. Despite execution of a formal agreement in 2011 between Mr. Roman and Mr. McCloskey, Mr. Roman never received the funds. He filed two lawsuits on July 14, 2011: a claim for a confessed judgment against Mr. McCloskey and a four-count complaint against Mr. Sniffen. Thereafter, Mr. Roman filed the present suit.

         Procedural History

         On January 26, 2012, Mr. Roman sued Sage Title, LLC for Count I, "Conversion/Theft, " Count II, "Negligence, " and Count III, "Accounting." He sought to hold Sage Title liable vicariously for the actions of Mr. Sniffen during his employment with Sage Title. Mr. Roman alleged that Mr. Sniffen, along with Mr. Belzner and Mr. McCloskey, were part of a fraud scheme to which Mr. Roman fell victim. He also sought to hold Sage Title liable for direct negligence for allowing the unauthorized withdrawal of funds and failing to have in place procedures and safeguards to prevent the unauthorized disbursement of Mr. Roman's funds. The Circuit Court for Baltimore County held a three-day trial starting on August 6, 2013.

         At the close of Mr. Roman's case, Sage Title moved for judgment, pursuant to Maryland Rule 2-519. In its motion for judgment, Sage Title argued, inter alia, that Mr. Roman's monies were commingled and could not, therefore, be converted, that Mr. Roman failed to establish Sage Title's duty to him for purposes of his negligence claim, that Sage Title is not responsible for the acts of Mr. Sniffen, and that Mr. Roman's own negligence bars his claims. The trial court reserved ruling on the motion. Mr. Roman voluntarily dismissed Count III, his claim for an accounting. At the close of all the evidence, Sage Title renewed its motion for judgment. The trial judge granted the motion on the negligence count but denied it on the conversion count. The jury returned a verdict in favor of Mr. Roman on the conversion count, awarding him $2, 420, 000 in damages. The court entered the judgment on August 16, 2013. Following the verdict, Sage Title moved, pursuant to Md. Rule 2-532, for JNOV. The trial judge granted Sage Title's JNOV on February 28, 2014, finding that the commingling of funds precluded any claim for conversion. The trial judge ruled, in pertinent part:

[T]here was a variety of evidence that explained how [Sage Title] operates its trust account. First, during Michael Maddox's deposition . . . he testified that the trust account is different from [Sage Title's] operating account . . . [which] pays [Sage Title's] rent, mortgage, employees, and other company expenses. Mr. Maddox further testified that [Sage Title] is not free to do what it wants with the funds in the account. Trial counsel then posed the following scenario: "[a]nd so that if, for instance, I had a file with Sage Title and Ms. Whelihan had a file with Sage Title, you couldn't use the money in Ms. Whelihan's account to pay expenses that happened in my file, could you?" Mr. Maddox then responded with: "[c]orrect, no."
However, there was also testimony that [Mr. Roman's] money was commingled with other funds in [Sage Title's] trust account, which leads this [c]ourt to conclude that [Mr. Roman's] Conversion claim should not have been submitted to the jury. First, during Mr. Sniffen's testimony, he testified that [Sage Title's] trust account was "one large escrow account, " where funds were deposited and identified by file so "they would be applied to a certain file" in order to reconcile the file. Mr. Sniffen further provided that all of the money from transactions pertaining to [Sage Title's] Baltimore City office was located in the same escrow account, and with respect to Mr. McCloskey's specific files, other individuals, besides [Mr. Roman], contributed money to these properties. Ledger sheets relating to the two properties at issue further confirm the fact that other individuals contributed money to Mr. McCloskey's properties. In addition to Mr. Sniffen's testimony, Mr. Maddox also provided testimony that [Mr. Roman]'s money was commingled with other funds. Specifically, Mr. Maddox testified that [Sage Title] had one escrow account for each office, further indicating that "all of the funds from every transaction that goes through that office are commingled into that one escrow account." However, Mr. Maddox did testify that [Sage Title] accounts separately for each individual file.
Finally, Ms. Holler also provided testimony that [Mr. Roman]'s funds were commingled with other funds. Specifically, Ms. Holler testified that there were other sources of funds in [Sage Title's] escrow account besides [Mr. Roman's]. Ms. Holler also confirmed that [Mr. Roman's] deposit went in with all of the other deposits in [Sage Title's] Baltimore City escrow account. Furthermore, with respect to the funds in the trust account, [Sage Title] cannot identify the exact dollar that is being withdrawn or disbursed. Instead, [Sage Title] can only identify the exact amounts that are deposited and how much needs to be disbursed.
In sum, Mr. Sniffen, Mr. Maddox, and Ms. Holler's testimony all support the conclusion that [Mr. Roman's] money was commingled with other funds in [Sage Title's] Baltimore City escrow account and also with funds contributed towards Mr. McCloskey's properties. Although [Sage Title] accounts separately for each file, it does not solve the problem that [Mr. Roman's] money was commingled with other funds. [Sage Title] can only track the exact amounts that were deposited and required to be disbursed, but it cannot tell whose dollar is actually being disbursed. Because [Mr. Roman's] money was commingled with other money in [Sage Title's] Baltimore City escrow account and with other money contributed towards Mr. McCloskey's properties, [Mr. Roman] cannot bring a Conversion claim.

         Sage Title raised two alternative arguments to support its motion for JNOV. It argued that because Mr. Sniffen's acts were outside the scope of employment, Sage Title cannot be held responsible under respondeat superior and that Mr. Roman's claim was precluded by the unclean hands, or in pari delicto, doctrine. The court rejected both arguments and concluded that not only did Sage Title waive any argument regarding foreseeability of Mr. Sniffen's misconduct under respondeat superior as well as waive the unclean hands, or in pari delicto, argument, both arguments substantively failed on the merits. Mr. Roman noted an appeal to the Court of Special Appeals. The intermediate appellate court reversed the judgment in part, holding that the money was identifiable for purposes of a conversion claim because it was in an escrow account. Roman v. Sage Title Grp., LLC, 229 Md.App. 601, 612-18, 146 A.3d 479, 485-88 (2016). The Court of Special Appeals held that Sage Title's defense to vicarious liability, although preserved, failed on the merits and that its defense of unclean hands had not been preserved. Roman, 229 Md.App. at 618-23, 146 A.3d at 488-92.

         Sage Title subsequently filed a petition for certiorari and Mr. Roman filed an answer and conditional cross-petition. This Court granted certiorari on both the petition and cross-petition.

         Sage Title poses the following questions in its petition for certiorari:

(1) Was the Court of Special Appeals correct to create an "escrow account" exception to the rule against conversion claims involving commingled funds?
(2) If an employee violates company policy without breaking the law, is a later serious crime foreseeable to the employer?
(3) Must the doctrine of unclean hands/in pari delicto, which is a question for the court, be invoked in a Rule 2-519 motion before submission to the jury?

         Additionally, Mr. Roman poses the following questions:

(1) Can a defendant in a conversion claim for money avoid liability with a "commingling" defense if that defendant was entrusted with specific, identifiable funds and agreed with the plaintiff to place those funds in an escrow ...

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