New Case Law Shows Teeth in Uniform Power of Attorney Act for Breach of Agent’s Duties

 

Irish Arches

In an opinion published 11/7/13, the Colorado Court of Appeals ruled on substantial questions relating to the Uniform Power of Attorney Act (UPOA) as it relates to an agent’s duties and the types of activities which a power of attorney (POA) authorizes.  In People v. Stell, 2013CA0492,   the Court of Appeals reversed and remanded with directions a case involving a criminal indictment of an agent who was acting under a POA.  This decision has wide and beneficial implications for principals who have executed  POAs and whose agent are acting in their own self-interests,  are converting their principal’s assets for the agent’s use or otherwise stealing from them.  Here’s a sketch of the factual background of the case. Thanks to Vicki H. for sharing this case with me!

The principal (referred to as “victim” in the opinion) executed a POA in 2009 in Virginia.  Both Virginia and Colorado have adopted the UPOA so, even though the statutory cites vary, the law is substantially the same.  In the POA, the Principal named as agent his son, the defendant Stell.  While acting as agent under the POA, Stell wasted no time liquidating all of principal’s bank accounts, CDs, a 401K account, a piece of real property and the timber sold from that land – to the tune of $453,928.81.  The following year, Stell proposed that the principal place other assets into a trust so they would be protected from creditors.  The trust document that principal signed at his agent Stell’s direction did not name the principal as beneficiary of such trust and so, principal was permanently deprived of the use and benefit of that property.  In October 2010, principal terminated the POA and asked the Denver District Attorney’s office to investigate.  As a result of such investigation a nine-count indictment was drawn, eight counts for theft and one count of conspiracy.  The appeal of the trial court’s ruling is based on the dismissal of counts 1, 2, 4 and part of 3 – relating to the authority of the agent Stell to transfer principal’s property as agent under the POA.  In its dismissal of those counts, the trial court ruled that because the agent Stell had authority under the POA to do anything with the principal’s property that principal could do with it, that Stell couldn’t commit theft against his principal.  The Court of Appeals soundly rejected this line of thinking.

The POA is a document that confers broad powers, but it is no license to steal.  In this criminal case, the Court of Appeals examined carefully the fiduciary duty owed by an agent to his principal under the UPOA.  Citing a Virginia Supreme Court decision, the Court of Appeals stated that “powers of attorney are strictly construed.”  (Opin. at para. 17) Going further, the court ruled that the expansive language in a POA should be interpreted narrowly and should be construed in light of the surrounding circumstances.  It soundly rejected the argument that, because a POA typically gives a broad grant of authority, it could somehow give an agent the authority to misbehave, commit theft and otherwise breach fiduciary duties owed as a consequence of the nature of the principal-agent relationship.

The fact that a POA contains a broad grant of agent authority does not mean that an agent is nonetheless duty-bound (as in an agent’s fiduciary duty, as described in the UPOA) to exercise authority in acting as agent in the utmost good faith, loyalty, and other duties owed.  The Court of Appeals rejected that trial court’s reasoning that a broad grant of authority to the agent implied that an agent’s actions that were in violation of the fiduciary duties owed were somehow still “authorized” because agent was acting under a POA.  In paragraph 21 of the decision, the Court of Appeals identified the factual questions appropriate for a jury’s determination of whether an agent under a POA was acting within or outside of his or her scope of authority as determined by agent’s fiduciary duties.  They included the following questions of whether agent acted: (1) in accordance with principal’s reasonable expectations and consistently with the principal’s interests and intent; (2) in good faith; (3) loyally for the principal’s benefit; and (4) with the care, competence and diligence ordinarily exercised by agents in similar circumstances.  In reversing and remanding the counts of the indictment dismissed by the trial court, the Court of Appeals gives an indication that the days of the POA as a “license to steal” for noncriminal law purposes are over.  This is an important development for Colorado – for both the new mandatory reporting of financial exploitation law(read my post about that law here ) as well as the ability of exploited elders and other at-risk persons to recover funds  improperly taken from them by an agent under  a POA.  It gives more protection for principals who have been taken advantage of by their agents to establish that the agent’s conduct was improper and to strengthen the ability to recover such funds that were improperly used or converted for the agent’s exclusive benefit.

©Barbara Cashman 2013     www.DenverElderLaw.org

Financial Abuse of the Elderly and the Durable Power of Attorney

You might be wondering about the ability of elder law attorneys to curb abuse of durable powers of attorney (POAs) by agents who are abusing their authority.  With the ready availability of durable power of attorney forms on the internet, it is simpler than ever to get such a document in front of an elder for their signature.  Unfortunately, it can lead to problems later on because many people don’t understand how a durable power of attorney (or general durable power of attorney, for financial affairs) is designed to work.

A general durable power of attorney (POA) is an arrangement where one person (the principal) appoints another person (the agent) to act on behalf of the principal regarding matters specified within the scope of the POA.   Under Colorado law, powers of attorney executed after Jan. 1, 2010 are by default “durable.”  What makes a POA durable is that it can survive the disability or incapacity of a principal.  A POA is an important tool people can use to allow others to assist them in the event they need help managing finances.

Sometimes I represent a principal whose agent under their POA is behaving badly.  What I often find with POAs is that very few people who have executed them (the principals) really understand how the document is designed to work.  Compounding the problem is the fact that many of the agents acting under POAs do not have a grasp of how they are to perform as agents and they are unfamiliar with the kind of obligations they owe to their principal.  I will use some examples to generally illustrate this kind of situation.

What Can Happen with an Ill-Informed or Rogue Agent:

 

  1. After the principal signs the POA, agent promises to take care of principal and then “takes over” everything and principal is left in the dark and made to feel helpless by their agent who is now “running the show” and not listening to what principal wants;
  2. Agent relishes the new found power over the elder parent – I have heard in this context the agent express  “I have absolute power of attorney over you” – you can imagine how this makes the principal feel – the principal who retains the ability to revoke the POA and fire the agent (as long as principal retains capacity to do so);
  3. Agent is acting under the POA  but is treating the principal’s assets as if they were his or her own assets and not those of the principal, as agent may mistakenly believe that this is one of the purposes of a POA; and
  4. Agent may think, believe, or try to convince others that there is nobody else in the family who cares about the elder principal (typically a parent or other family member), and therefore  whatever agent decides to do for the principal will be just fine, since no one else is looking out for the principal.

What the Law Says:

  1. The principal is “the boss of” the agent – not the other way round. The durable POA is a document designed to prevent the need for a protective proceeding (an expensive trip to probate court) and as such is designed to make the principal’s life easier by giving legal authority to an agent to conduct financial transactions on principal’s behalf.  The agent is under a duty, pursuant to Colorado’s Uniform Power of Attorney Act, to provide information to his or her principal.
  2. To the extent the principal is able, he or she directs the activities of the agent.  If principal is unhappy with agent’s job performance, they may revoke the POA and terminate agent’s authority.  This can be complicated if agent has already gained access to a principal’s accounts, as the third parties who recognized the POA and agent’s authority to act must be notified.
  3.  This behavior by an agent is known as “self-dealing” and is not allowed.  An agent owes his or her principal certain fiduciary duties to take care of principal’s assets.
  4. The majority of elder financial abuse in the POA context is perpetrated by an agent who states to others and may believe themselves – that they are the only one who is “helping” the principal.  Sometimes an agent may adopt tactics that are similar to those used by perpetrators of domestic violence – including verbal and emotional abuse, controlling access of others to an elder principal, and alienating the elder from others so that they will be less likely to come to the elder principal’s aid.

From this perspective, I see many disadvantages of a DIY (do it yourself) POA document.  When I prepare durable POAs for clients, I make sure there is the requisite level of trust that the principal has in the selected agent.

It is important that, if you do hire an attorney, they give you adequate information about the importance of naming the right person (especially about avoiding the wrong person) as agent.  As principal under a POA, you may also want to consider whether it is approrpiate for your attorney to be able to speak with your agent about using the POA – that typically requires a waiver of the attorney-client privilege.  Confidentiality is a hallmark of the attorney-client relationship.  If one of my clients, for example an elder principal who executes a POA, answers yes to my question about whether it is okay to speak with his or her adult child agent about how to execute the principals’ wishes according to the POA, I do my best to ensure the client understands what that means and I get that consent in writing.  If you are interested in more of the technical aspects of the fiduciary relationship owed by an agent under a POA to the agent’s principal, read my colleague Dennis Whitmer’s article here.

To assist in actually using the document for its intended purpose, I typically give my POA clients an instruction sheet so that when the client (the principal) talks to their agent about what they want done and under what circumstances they should act on principal’s behalf, the agent will have some instructions about things they must do for the principal and actions they must avoid.  I usually tell clients that I hope they never have to use their POA, but in the event it is needed, it is important that it be “ready to go.”

Mismanagement and abuse of authority by an agent acting under a POA is a problem.  Many elders feel ashamed to talk about the harmful actions of an adult child, and sadly, this can contribute to the loss of security and further isolation of an elder principal.   If you suspect that an elder is suffering financial mismanagement, exploitation or abuse at the hands of an agent under a POA, it is important to know that you can help – don’t wait until it is too late.   The Colorado Coalition for Elder Rights and Abuse Prevention has a helpful website with links to resources.  In addition to criminal penalties for abuse of a POA, there are also civil actions available for redress by a wronged principal.  In a recent trial (March 2013) in Jefferson County district court, a jury returned a verdict in favor of the plaintiff (principal of a POA) who sued her (agent under POA) daughter for abuse of a POA by transferring her mother’s interest in a house to herself.  On claims for civil theft, breach of fiduciary duty, breach of contract and unjust enrichment, the jury found for the plaintiff on all claims and plaintiff was awarded attorney’s fees and costs.  (Hoit v. Newbrough, 11-CV-5117)

 ©Barbara Cashman 2013     www.DenverElderLaw.org