Tuesday, November 16, 2010

Uniform Power of Attorney Act

The use of Powers of Attorney (“POAs”) has become commonplace in all manner of transactions. In its most basic form, a POA authorizes someone to act on your behalf. Sometimes, POAs are used for convenience or expediency. For example, a party to a real estate contract might grant a POA to an agent to execute the necessary paperwork. Other times, POAs are used when the principal lacks the capacity or ability to make certain decisions for himself. In such situations, POAs can be used to manage or sell property, authorize appropriate medical care, and provide for dependents. What happens, however, when a POA is granted to someone that does not have the principal’s best interests at heart? What remedies are available to the principal and/or his family when it appears that the person entrusted with the POA is self-dealing?

In response to the deepening flood of litigation involving Powers of Attorney (“POAs”), the Virginia General Assembly recently promulgated Uniform Power of Attorney Act (“UPAA”)(Va. Code Ann. §§ 26-72, et. seq.) Prior to the enactment of UPAA, there was no comprehensive statutory regulation of POAs. Instead, the courts were largely guided by common law. UPAA provides specific enumeration of an agent’s duties under a POA and instruction on how others may challenge the actions of an agent.

The agent must:

1. Act in accordance with the principal's reasonable expectations to the extent actually known by the agent and, otherwise, in the principal's best interest;

2. Act in good faith; and

3. Act only within the scope of authority granted in the power of attorney.

With certain exceptions, the agent must also:

1. Act loyally for the principal's benefit;

2. Act so as not to create a conflict of interest that impairs the agent's ability to act impartially in the principal's best interest;

3. Act with the care, competence, and diligence ordinarily exercised by agents in similar circumstances;

4. Keep a record of all receipts, disbursements, and transactions made on behalf of the principal;

5. Cooperate with a person that has authority to make health care decisions for the principal to carry out the principal's reasonable expectations to the extent actually known by the agent and otherwise act in the principal's best interest; and

6. Attempt to preserve the principal's estate plan, to the extent actually known by the agent, if preserving the plan is consistent with the principal's best interest based on all relevant factors, including:

a. The value and nature of the principal's property;

b. The principal's foreseeable obligations and need for maintenance;

c. Minimization of taxes, including income, estate, inheritance, generation-skipping transfer, and gift taxes; and

d. Eligibility for a benefit, a program, or assistance under a statute or regulation.

Upon suspicion that an agent has violated any of the duties enumerated above, anyone of the following persons may petition the circuit court to review the actions of an agent:

1. The principal or the agent;

2. A guardian, conservator, personal representative of the estate of a deceased principal, or other fiduciary acting for the principal;

3. A person authorized to make health care decisions for the principal;

4. The principal's spouse, parent, or descendant;

5. An adult who is a brother, sister, niece, or nephew of the principal;

6. A person named as a beneficiary to receive any property, benefit, or contractual right on the principal's death or as a beneficiary of a trust created by or for the principal that has a financial interest in the principal's estate;

7. The adult protective services unit of the local department of social services for the county or city where the principal resides or is located;

8. The principal's caregiver or another person that demonstrates sufficient interest in the principal's welfare; and

9. A person asked to accept the power of attorney.

An agent that violates the UPAA is liable to the principal or the principal's heirs for the amount required to:

1. Restore the value of the principal's property to what it would have been had the violation not occurred; and

2. Reimburse the principal or the principal's heirs for the attorney fees and costs paid on the agent's behalf.

This statutory scheme is only beginning to be tested in Virginia courts. Case law will further hone and define the duties owed by an agent under a POA and the remedies available to others upon a finding that the agent has breach his duties to the principal. But the UPAA is the first step toward a establishing a uniform framework for handling claims involving POAs.

Reach for the Stars, and You Might Get Burned

Usually, when clients come to us about real estate deals gone bad, the facts revolve around a buyer and a seller having a dispute about whether the deal has to go forward. Every so often, however, we get an inquiry about a dispute between a buyer or seller and his or her real estate agent. One such dispute recently led to a headline-making ruling about sanctions in the context of frivolous claims in a lawsuit.

In 2007, our clients – Husband and Wife – sought representation in claims that had been made against them by a former (fired) real estate agent (the Agent). The Agent was not only suing for commission, but rather for millions of dollars, plus attorney’s fees, claiming defamation (for filing a complaint about her with the Virginia Real Estate Board), conspiracy and tortious interference with contract. The Agent also sued the buyer’s agent. As you might imagine, our clients were reeling.

All attempts at settlement failed and the case was litigated. We argued that the Agent had been properly terminated in light of the terms of the listing agreement, and therefore was not entitled to any commission. Even if she had been entitled to a commission, it would have been two percent of the sales price of the property, but she wanted five percent of a sale she suggested, but which never came to fruition. Two different attorneys made this claim on the Agent’s behalf prior to filing suit. Once suit was filed, however, the Agent’s demand increased to not only five percent of the full sale, but also six percent of a future sale based on the assumption that the buyer she had found would’ve torn down the house, built a “McMansion” on the site, and sold the place using her as his agent. Additionally, the Agent claimed that the complaint with the VREB entitled her to in excess of a million dollars in defamation damages, and that Husband had conspired with the buyers’ agent to “cut her out” of the deal. No evidence of any such conspiracy existed, nor would it make any sense from the buyers’ agent’s perspective.

Piece by piece, we got various parts of the lawsuit dismissed. The court agreed that the defamation claims for making a complaint to the Real Estate Board should be dismissed under the “absolute privilege” for defamation. The law in Virginia states that parties to litigation have an absolute right to speak without fear of being held liable for libel or slander; and that privilege also applies in “quasi-judicial” contexts such as administrative agencies, as long as certain facts apply (like subpoena power, oath-taking, and so forth – all of which applied to the Real Estate Board).

The case proceeded to trial on the claims of (1) tortious interference with a contract expectancy (that is, improperly interfering with another person’s expected contract, causing the contract not to occur); (2) conspiracy to harm a business (that is, joining with another person to hurt someone else in commerce); and (3) defamation (lying about another person – in this case, Husband allegedly lying to the buyers’ agent about the Agent in order to further the conspiracy to “cut her out of the deal”).

The evidence consisted of the following: (1) Husband supposedly disliked the plaintiff; and (2) Husband and the buyers’ agent had spoken together by phone. Husband admitted to speaking with the buyers’ agent – in fact, part of the reason Wife fired the Agent was the fact that the buyers’ agent said she had been discouraged from making an offer on the property! There was no evidence that Husband acted improperly in advising Wife to fire the Agent. In fact, evidence was introduced that Wife came to Husband for advice, and after presenting the matter to an attorney who advised him to fire the Agent, Husband advised Wife accordingly. In Virginia, the giving requested advice is a defense to a tortious-interference claim, so Husband appeared to be free of liability on that count.

Likewise, no evidence was introduced that Husband had entered into an agreement with the buyers’ agent to get the Agent fired. So, at the close of the Agent’s case, toward the end of day two of trial, we and the attorney for the buyer’s agent moved to strike the evidence – a Virginia procedure that basically accuses the plaintiff of having failed to prove his or her case. As we arrived on day three to continue our arguments on the Motions to Strike, the Agent “nonsuited” her case against the buyers’ agent and her brokerage firm. A nonsuit is a voluntary dismissal “without prejudice,” which basically allows a plaintiff one free “do-over” in most cases, giving the plaintiff a certain amount of time to refile his/her case. So the buyers’ agent was out of the case, though subject to the possibility of a future second lawsuit. Husband remained as a Defendant, and argument on his Motion to Strike continued. As the Judge was prepared to rule, the Agent nonsuited the remaining case against Husband.

All defendants joined in asking the trial court to allow a post-trial motion for sanctions under Virginia Code § 8.01 271.1, which bans frivolous lawsuits. The court agreed to let the defendants present their arguments, and after quite of bit of hard-fought post-trial motions, including multiple pleadings, hearings, and a great deal of evidence, the trial court found that the Agent had filed a frivolous lawsuit in violation of the statute, and as a sanction it awarded reasonable attorneys’ fees to the defendants in the case. Our clients were awarded $158,318.40 in sanctions against the plaintiffs and their attorney; and the other defendants were awarded $113,778.06 in sanctions. A suit borne out of what the Agent saw as a loss of commission totaling – even counting her speculative “future sale” – approximately $168,000, and built upon emotion and speculation, rather than a solid legal position, led to a “landmark” decision on sanctions.

Why was the Agent fired, you ask? Well, among other things, because – in violation of her contract – she never even listed the property for sale.

The funny thing is, if the Agent hadn’t been fired, at best she was entitled to $13,940 (2% of the actual sale that occurred, since the buyers had an agent); yet she was seeking $37,500 (5% of the proposed sale she found, even though that one didn’t occur), plus $130,500 (6% of the “future commission” sale), for a grand total of $168,000 in lost commissions. In seeking millions of dollars, she got “aggressive” (to use her lawyer’s term); in the end, it cost her. A lot.

The case is currently on appeal to the Virginia Supreme Court. No word yet about whether the Court will take the appeal.

Friday, January 15, 2010

Equitable Distribution vs. Community Property – The Line is Fading

Simply put, “equitable distribution” is meant to be and do what the name implies: distribution of property upon divorce into fair -- not necessarily equal -- shares. This is accomplished by taking a number of factors into consideration to determine the financial position of the parties after divorce. In Virginia, similar to other equitable distribution states, the factors are:

1. Each party’s contributions – financial and otherwise – to the well-being of the family and the acquisition, care and maintenance of marital property;

2. Length of the marriage;

3. Age, physical and mental condition of the parties;

4. Cause of dissolution of marriage, including fault grounds;

5. How and when marital property was acquired;

6. Debts and liabilities of the parties and whether debt is secured by marital property;

7. Liquidity – or lack thereof – of marital property;

8. Tax consequences of distribution to each party;

9. Use of marital funds for separate purposes, dissipation of marital funds done in anticipation of divorce after separation;

10. Other factors deemed necessary or appropriate to consider to arrive at a “fair and equitable monetary reward.”

If after reading the statutory language you are no closer to understanding what you are likely to receive in an equitable distribution proceeding, then you are halfway to reaching the proper mindset necessary for entering into divorce litigation. The lack of predictive quality to this and similar statutes around the country -- while not purposefully so -- is the best of many reasons to try and reach a settlement as to the distribution of your property rather than take the matter to trial. There is not always a financially feasible as well as legally sound reason to leave distribution to a Judge, to whom such statutes offer no more guidance as to what is “equitable” than they do to you or me.

However -- whether it is a product of the vagueness of the statutory factors or a testament to their validity -- many if not most equitable distribution divorce decrees ultimately divide the marital property 50/50! In other words, equitable distribution divorces tend to look a lot like “community property” divorces. Confused? What if I told you that five of the country’s community property states subject the spousal shares to equitable distribution? What does this all mean to the bottom line?

The best way to try and understand what you might be facing is to avoid the distribution consideration and focus on the classification of your property, because therein lies the similarity between the states as well as the true reason that we are finding 50/50 splits across the map. Regardless of where you live, the classification of property drives the distribution and if you understand what you have, you can understand how much you’ll keep.

For the most part, community property states have two classes of property: “community” and “separate.” These jurisdictions consider everything acquired during the marriage to be community property except that acquired by gift or inheritance. Everything acquired prior, or by gift or inheritance, is “separate.”

Equitable distribution states classify property as marital, separate, or part-marital/part-separate. “Marital property” is similar to “community property.” “Separate property” is property acquired prior to marriage; property received in exchange or as proceeds of separate property, regardless of when acquired; and gifts or inheritances, regardless of when acquired. “Part-marital/part-separate” occurs when marital is commingled with separate property or when the non-owning spouse adds value – either monetary or non-monetary – through personal efforts.

In the vast majority of cases – not the most notable, but the most common -- most property is not separate. You find more separate property in very short marriages or those governed by prenuptial agreements – ironically, two factors common in “Hollywood marriages.” These are the exceptions, not the rules. Because most property is classified as community, marital, or at least part-marital, you will find that most divorce decrees split most property 50/50.

So, where does all of this lead us? The moral of the story is that if your attorney suggests early settlement negotiations and begins with the notion of an equal division of property and works from there -- regardless of where you live -- you are likely getting better advice than if your attorney tells you he’ll help you “take him for all he’s worth,” because, in fact, he’s probably only worth about half of what you were worth together.