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Attorney Discipline: Powers of Attorney

5/23/2019

May 23, 2019

To whom does a lawyer owe duties when the lawyer drafts a power of attorney? The precedent in Illinois might not be as clear as you think. Let’s take a look at the relevant cases.

The first is In re Winthrop, 219 Ill. 2d 526 (2006). Here’s what happened in that case: The attorney had a business relationship with a man who told the attorney that a woman friend of his needed a will. The attorney went to see the woman, who was in her 90’s; lived alone; had no parents, siblings, or children; and slept on two folding chairs in the kitchen of her cluttered condominium. The woman told the attorney that she wanted him to draft a power of attorney for her making the man her agent so that he could help her with her banking. The attorney did so, creating one from scratch rather than using the statutory form. The attorney and the man then brought the woman to a bank to have the power of attorney executed and notarized. The next day, the attorney and the man went to another bank where the man, while sitting in a bank officer’s cubicle with the attorney, closed one of the woman’s certificates of deposit prematurely, incurring an $1,800 penalty, and received a check in his name for $87,000. The man promptly misappropriated the money.

A local elder care organization got wind of the situation and brought proceedings to freeze the woman’s bank accounts. The attorney called one of the organization’s lawyers and questioned its actions in light of the fact that, he said, the bank hadn’t paid out any of the woman’s money to the man.

The ARDC charged the attorney with various ethical violations, including engaging in a conflict of interest, assisting the man in fraud, and making a false statement to the elder care organization’s attorney. The ARDC’s Hearing Board found no misconduct and recommended dismissal. On appeal, a majority of the ARDC’s Review Board reversed the Hearing Board’s no-misconduct findings. On further appeal, the Illinois Supreme Court found only that the attorney had made a false statement to the organization’s attorney. The Supreme Court essentially held that the attorney had been hired by the woman to make the man her agent under a power of attorney; and, having accomplished that, the attorney did not have any duty to police the man in his actions as agent. The Court did, however, suspend the attorney for two years for his false statement and noted his disturbing lack of judgment overall.

The second case is In re Krasnik, 2015PR00001 (Review Bd., Feb. 8, 2017), recommendation adopted, No. M.R. 028652 (May 8, 2017). In that case, a man in his mid-60’s walked into an attorney’s office one morning and told the attorney that a childhood friend of his was in a nearby hospital and wanted to give the man his home and power over his bank accounts. The man asked the attorney to draft a quitclaim deed and a power of attorney making the man his friend’s agent. Notably, the man told the attorney to make sure that the power of attorney allowed him to withdraw all the funds from his friend’s bank accounts. The attorney did not ask the man anything about his friend or his friend’s medical condition. He drafted the documents and gave them to the man a few days later.

As it turns out, the man’s friend was afflicted with dementia and had suffered a debilitating stroke a few days before the man went to see the attorney. The man used the power of attorney to clean out his friend’s bank account and then moved into his friend’s home and abused and neglected him. The friend’s part-time caretaker reported the situation to the Cook County Public Guardian’s Office. That office was able to reverse the transfer of the friend’s home and secure an $80,000 payment from the attorney’s malpractice insurer after the man fled overseas with the friend’s money.

The ARDC charged the attorney with engaging in a conflict of interest, failing to communicate with the friend, and failing to explain matters to the friend.The ARDC’s Hearing Board found that the attorney owed no duties to the friend. A majority of the ARDC’s Review Board, however, reversed, finding that the friend was the intended beneficiary of the attorney’s attorney-client relationship with the man and was therefore owed the same duties that the attorney would owe to a client.

In reaching its decision, the Review Board looked primarily at two Illinois Supreme Court decisions, Pelham v. Griesheimer, 92 Ill. 2d 13 (1982), and In re Estate of Powell, 2014 IL 115997. In Pelham, the Court found that an attorney who had been hired by a woman to obtain a divorce for her did not owe a duty to the woman’s children to inform her ex-husband’s employer that the divorce decree required the ex-husband to keep the couple’s children as beneficiaries on his work-supplied life insurance policy. The children were not intended third-party beneficiaries of the attorney’s agreement to secure a divorce for the woman.

In Powell, the Court held that an attorney who was hired by a woman to bring a wrongful death suit arising from the death of her husband did owe duties to the woman’s son, because the Wrongful Death Act mandated that damages are owed exclusively to the decedent’s surviving spouse and next of kin. The attorney had paid the settlement funds to the woman and did not set up a trust for the son. The primary purpose and intent of the attorney-client relationship between the woman and the attorney was to benefit the decedent’s statutorily-named beneficiaries, which included the son.

The Review Board in Krasnik likened the power-of-attorney situation to the circumstances in the Powell case. It noted that, under Illinois law, an agent under a power of attorney is required to act solely for the benefit of the principal. Thus, the primary purpose of the attorney’s work for the man was to benefit the man’s friend. The Review Board was aware, however, of how its decision might be viewed by the bar. It stated:

We emphasize that we are not creating a de facto rule that, in every case where an attorney is asked by a client to draft a power of attorney for a third party, the attorney must undertake an investigation to determine the competency and wishes of the third party. In many cases that may be required, but we can envision others where it may not be. Rather, we are simply asking attorneys to exercise the judgment and due diligence that each particular situation calls for.

Krasnik, Review Bd. at 12-13. The Supreme Court approved the Review Board’s report and reprimanded the attorney. In re Krasnik, No. M.R. 028652 (May 8, 2017).

So what’s the takeaway? Legally, a lawyer owes duties to the principal under a power of attorney as the intended beneficiary of any attorney-client relationship between the lawyer and a person seeking to become an agent under the power of attorney. In practice, a lawyer cannot blindly rely on representations from a person seeking to become an agent for someone else pursuant to a power of attorney – there are circumstances under which an investigation is necessary. What about the degree of any investigation required? That’s unclear. As the Review Board set out, however, any investigation required should be judged by a standard of reasonableness under the circumstances. It is unlikely that the Court seeks to turn drafting a power of attorney into an overly-complicated or risky undertaking for attorneys.