Folly Farms I, Inc. v. Trustees of Clients' Security Trust Fund of the Bar

Murphy, C. J., delivered the opinion of the Court. Maryland Code (1957, 1976 Repl. Vol.) Art. 10, § 43 authorizes the Court of Appeals “by rules and regulations . .. [to] provide for the creation and operation of a ‘Clients’ Security Trust Fund of the Bar of Maryland,’ and for the appointment of trustees to administer the fund.” The statute specifies that it was the purpose of the Fund to maintain “the integrity and [to] protecting] the good name of the legal profession by reimbursing, to the extent deemed proper and reasonable by the trustees, losses caused by defalcations of members of the bar of the State of Maryland, acting either as attorneys or as fiduciaries ... .” Maryland Rule 1228, entitled “Clients’ Security Fund,” was promulgated in pursuance of the statute; it requires as a condition precedent to the practice of law in this State that each Maryland lawyer pay an annual assessment to the ²⁹⁹ Fund. The trustees of the Fund, whom the Court appoints to operate and manage the Fund, are authorized to make payment of claims and to determine whether a claim merits reimbursement.

The Rule (1228 i 3) sets forth criteria governing the exercise of the trustees’ power in determining whether a claim should be paid, viz.: “In exercising their discretion the trustees may consider, together with such other factors as they deem appropriate, the following: (i) The amounts available and likely to become available to the trust fund for payment of claims. (ii) The size and number of claims which are likely to be presented in the future. (iii) The total amount of losses caused by defalcations of any one attorney or associated groups of attorneys. (iv) The unreimbursed amounts of claims recognized by the trustees in the past as meriting reimbursement, but for which reimbursement has not been made in the total amount of the loss substained.

(v) The amount of the claimant’s loss as compared with the amount of the losses sustained by others who may merit reimbursement from the trust fund. (vi) The degree of hardship the claimant has suffered by the loss. (vii) Any negligence of the claimant which may have contributed to the loss.” On March 27, 1974, Folly Farms I, Inc., et al. (Folly Farms) filed claims with the Fund for reimbursement of losses amounting to approximately $40,000 sustained by the defalcation of a member of the Maryland Bar, William Jacob. The trustees of the Fund denied the claim on the ground that the information and documentation furnished by Folly Farms revealed that Jacob was the vice president of Folly Farms and the claim arose from his relationship as an ³⁰⁰ officer of the corporation rather than from an attorney-client relationship or because he was an attorney acting in a fiduciary capacity.

Folly Farms filed a petition for á writ of certiorari in the Circuit Court for Baltimore County, seeking review of the adverse determination of the trustees. It claimed that the defalcation occurred in the course of Jacob’s acting as attorney and fiduciary for the corporation and averred that the decision of the trustees denying the claim was unconstitutional, arbitrary and capricious,