Power of the POA

November 25, 2019 § 1 Comment

It sometimes happens that a client comes bearing process with a complaint attached alleging that he has a POA (power of attorney) and is guilty of self-dealing. “But,” he explains, “look at the POA. It clearly says right here that I have ‘full authority to handle, in his exclusive discretion, all matters and things in which [the principal] may be interested, in either business or personal affairs.'” He looks at you almost confidently, but certainly hopefully.

That was an element of the litigation between the estate of Dorothea Kolf and her surviving husband, Peter. The couple had executed a pre-marital agreement that provided each would own and surrender any claim to the other’s assets that predated the marriage. Peter, however, acting under a broad-power POA, withdrew some money from Dorothea’s accounts after she became cognitively incapacitated. A chancellor ordered him to repay into the estate the funds he had not used expressly for her benefit, and Peter appealed.

In Kolf v. Authement, Ex Rel. Estate of Kolf, handed down October 22, 2019, the COA affirmed on the chancellor’s ruling that Peter had misused the POA. Here is what Judge Barnes had to say for the court on point:

¶12. Alternatively, Peter argues that he had authority under the general power of attorney (POA) to withdraw the IRA funds. As stated, Dorothea executed the POA on August 7, 2008, naming Peter as her attorney-in-fact for financial purposes. The POA granted Peter “full authority to handle, in his exclusive discretion, all matters and things [in] which [Dorothea] may be interested, either business or personal affairs.”

¶13. The issue before us on appeal is whether the chancery court erred in awarding the IRA funds to Dorothea’s estate. Because the funds were Dorothea’s separate property under the terms of the Agreement, thereby making them a future estate asset, any authority that Peter may or may not have had to withdraw those funds under the POA is irrelevant. Moreover, an agent’s authority under a POA “does not permit the attorney-in-fact to engage in undisclosed, self-dealing activities.” West v. Johnston (In re Estate of Johnson), 237 So. 3d 698, 707 (¶23) (Miss. 2017).

“It is fundamental law that an agent owes his principal absolute good faith and fidelity, and he cannot in the exercise of his authority as agent acquire property or interest therein rightfully belonging to his principal without full disclosure and free consent of his principal.” McKinney v. King, 498 So. 2d 387, 388 (Miss. 1986). If disputed, the attorney-in-fact’s actions must be shown to be within the principal’s intent when granting the power of attorney, in the best interests and for the benefit of the principal, and in accord with the duty of good faith owed by the attorney-in-fact to the principal. Any property or interest obtained in violation of the attorney-in-fact’s fiduciary duty “thereby is voidable by, and may be set aside by the principal or his estate.” Id. In re Estate of Johnson, 237 So. 2d at 707 (¶22).

There was substantial evidence that the transfer of the IRA funds was not done with Dorothea’s “free consent.”

Unsurprisingly, the court ruled that the duty of good faith and fair dealing trumps the powers of the POA, no matter how broad and comprehensive they might be. And that’s pretty much the result that you can expect in every similar case. You can tell your client that.

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