Posts Tagged ‘California Court of Appeals’

Doctor’s Report to California DMV Does Not Violate Privacy Rights

DECEMBER 5, 2016 VOLUME 23 NUMBER 45
You might have wondered about this from time to time — we have, too. If a patient really shouldn’t be driving, is his or her doctor really able to write to the Motor Vehicle Division to report the patient’s condition? Wouldn’t that be a violation of the patient’s privacy rights?

A recent California case says no — the doctor is not liable for any breach of privacy, at least not under California law. The facts of that case are interesting, and instructive.

Mitch McIntyre (not his real name) was trying to establish that he was disabled, so that he could qualify for Social Security Disability payments. He visited several physicians over an almost ten-year period, but his primary care physician was Dr. Ann Kim. His diagnoses included diabetes and unspecified cognitive deficits.

During one office appointment, Mitch told Dr. Kim that he needed to renew his commercial driver’s license. He told her that he had applied to drive a school bus, and asked if she would “sign off” on his medical certification.

Over previous years, while he was working as a bus driver, Mitch had complained to Dr. Kim and other physicians that he didn’t want to “babysit” his passengers. He had confessed to his physicians that he didn’t always follow the routes specified by his employer — he preferred his own routes. On one occasion, he acknowledged, he had taken a group of children from San Diego, California, to Tijuana, Mexico — though that was not their actual destination.

But when Mitch told Dr. Kim that he was about to start driving school buses, that was too much for her. She called Mitch, told him that she wouldn’t be signing his medical certification form, and added that, in fact, she was considering sending a letter to alert the California DMV to her concerns about his impulsivity and poor judgment. Mitch told her that he did not want her communicating with the DMV at all, and that he did not agree with her reporting her concerns.

Dr. Kim thought about her dilemma for several weeks, and then wrote a letter to DMV. Her letter reported that Mitch “is functionally illiterate, lacks the capacity to set limits on himself and fails to understand the consequences of his behavior.” She added that Mitch’s problems appear to be “the result of mild congenital or developmental brain damage that has not only affected his cognitive skills but more importantly has impaired his judgment, impulse control, insight, forethought and ability to introspect.”

Mitch’s commercial and regular driver’s licenses were suspended almost immediately after the DMV received Dr. Kim’s letter. His employment was suspended, and he was ordered to get his licenses reinstated if he wanted to continue to drive buses. He managed to get his regular license restored quickly, but it took him three months to get his commercial license reinstated — though he did manage to do so. Because he failed to meet his employer’s deadline, however, he lost his bus-driving job.

Mitch then sued Dr. Kim and her employer, alleging that she had violated state privacy laws and the federal HIPAA (Health Insurance Portability and Accountability Act) law by disclosing his medical information to DMV. The defendants moved to dismiss Mitch’s complaint, arguing that they were permitted to give such information to the Department of Motor Vehicles. While the trial court did not immediately dismiss, it ultimately threw out Mitch’s case after he had put on evidence at his trial; the defendants were not even required to put on any case.

Mitch appealed to the California Court of Appeals, which affirmed the trial judge’s dismissal. Applying California’s version of the privacy laws, the appellate judges ruled that Dr. Kim’s disclosure was specifically authorized to report her concerns about Mitch’s ability to drive. According to the appellate court, California has a policy of encouraging people (including but not limited to physicians) to report the possibility of unsafe driving — and that supported Dr. Kim’s authority to disclose medical information for the limited purpose of calling Mitch’s ability to drive into question. McNair v. City and County of San Francisco, November 22, 2016.

Mitch and Dr. Kim, of course, were operating under California’s state law — and the national HIPAA rules. As the court acknowledged in its opinion, HIPAA does not give Mitch (or any other individual) any right to bring a breach-of-confidentiality suit against a medical provider. That means that state law will be the most important consideration in addressing similar claims.

Arizona has law that seems like it would resolve a dispute similar to Mitch’s (if it had been subject to Arizona law, that is). Arizona Revised Statutes section 28-3005 spells out that:

Notwithstanding the physician-patient, nurse-patient or psychologist-client confidentiality relationship, a physician, registered nurse practitioner or psychologist may voluntarily report a patient to the department who has a medical or psychological condition that in the opinion of the physician, registered nurse practitioner or psychologist could significantly impair the person’s ability to safely operate a motor vehicle.

In fact, the Arizona Motor Vehicle Division has a web page devoted to the forms and procedures for physicians — and any regular citizens — to report unsafe drivers or concerns about anyone’s ability to drive. Physicians are encouraged to use the form on the MVD website; other concerned citizens can download a form to make their own reports, as well.

Undue Influence and Limited Capacity Do Not Necessarily Justify Conservatorship

OCTOBER 31, 2016 VOLUME 23 NUMBER 41
In our legal practice, we frequently deal with individuals with limited capacity. Sometimes we speak of them being “incapacitated” or “incompetent.” Sometimes they are “disabled,” or qualify as “vulnerable adults,” or are subject to “undue influence.” But each of those terms means something specific, and some variations even do double duty (with two related but distinct meanings). A recent California case pointed out the confusion engendered when litigants rely on similar but different terms.

Aaron, a widower in his late 90s, lived alone after the death of his wife Barbara. He had no children of his own, though he and his wife had raised Barbara’s daughter Connie together after their marriage — when Connie was four. Aaron’s other nearest relatives were two nieces, Cynthia and Diane. He didn’t have much contact with Cynthia and Diane, though that might have been because his late wife had discouraged contact over the years they were together.

Connie was actively involved in overseeing Aaron’s care. She arranged for his doctor’s visits, went to his home at least twice a week to check on him, helped pay his bills and generally watched out for him. She was concerned about his ability to stay at home, and on several occasions she found herself summoning the local police to make welfare checks on her stepfather.

After Aaron fell in his home, refused treatment, and suffered a frightening seizure, he was diagnosed as having a subdural hematoma (from his fall). He spent some time in a hospital, but was anxious to return home. His physician noted that he had a poor score on the mental status exam administered in the hospital, and diagnosed him as having dementia. He was discharged to a nursing facility, with Connie’s help.

Aaron hated the nursing home, and the assisted living facility Connie helped move him to after that. He insisted that he could return to his own home. About this time, his nieces began to visit him, and they tried to assist. They disagreed with his placement, and niece Cynthia prepared a power of attorney for Aaron to sign, giving her authority over his personal and financial decisions. After he signed the document, he asked his attorney to write to Connie, asking her to return his keys and personal possessions so that he could return home.

Connie filed a petition for her own appointment as conservator of Aaron’s person and estate (California, confusingly, refers to guardianship of the person as conservatorship). While that proceeding was pending, Aaron went to his attorney’s office and changed his estate plan — instead of leaving everything to Connie, he would split his estate into three equal shares, with one each for Cynthia, Diane and Connie’s daughter.

The probate judge heard evidence in connection with Connie’s conservatorship petition, but denied her request. The judge found that Aaron was clearly subject to undue influence, and might lack testamentary capacity — but he didn’t need a conservator (of his person or his estate).

How could that be? Connie appealed, but the California Court of Appeals ruled that the probate judge was correct. At the time of the hearing on the conservatorship petition, according to the appellate court, Aaron was alert, oriented and able to describe his wishes. The fact that he might have been incapacitated when he signed the powers of attorney, or that he might have been subject to undue influence when he changed his estate plan, was not dispositive of the question of his capacity at the time of the conservatorship hearing. Furthermore, the mere fact of incapacity would not be enough; by the time of the trial Aaron had a live-in caregiver who could help him manage his daily needs, and that could support the probate judge’s determination that no conservator (especially of the person) would be necessary.

Aaron and his attorney also argued that Connie didn’t actually have any standing to file a court action in the first place. After all, she was his stepdaughter, and not even a blood relative. The Court of Appeals rejected that notion; any person with a legitimate interest in the welfare of a person of diminished capacity has the authority to initiate a conservatorship proceeding. Conservatorship of Mills, October 20, 2016.

So what do the various terms mean, and how are they different? “Capacity” (and “competence”) usually refers to the ability to make and communicate informed decisions. “Testamentary” capacity is a subcategory, and requires that the signer of a will must have an understanding of his or her relatives and assets, and the ability to form an intention to leave property in a specified manner. “Vulnerable adult” is a related term, but is used in most state laws to refer to a person whose capacity is diminished, and whose susceptibility to manipulation or abuse is therefore heightened. “Undue influence” can arise because of limited capacity, but refers to the actions of third persons which overpower the individual’s own decision-making ability. “Disability” is, perhaps, the least useful of the terms — attaching the term does not say much about an individual’s ability to make their own decisions, since disabilities can be slight or profound, physical or mental (or, of course, both), and subject to adaptive improvement in any case.

In Aaron’s case, it might well be that his amended estate plan will be found to have been invalid as a result of undue influence, and his new powers of attorney might be set aside on the same basis. He might even be found to have been a vulnerable adult and any transactions benefiting his nieces might be subject to challenge. But he apparently had the level of capacity necessary to make his own personal and financial decisions at the time of the hearing on the conservatorship petition.

As an aside, there’s another issue in Aaron’s court decision: the inappropriate reliance on scores obtained on short mental status examinations. Typically, medical practitioners ask a short series of questions (“What is the year?”, “Please repeat this phrase: ‘no ifs, ands or buts'” and the like) as a way of determining whether further inquiry should be made into dementia and capacity questions. Aaron variously scored 14, 18, 24 and 20 on 30-point tests administered by several interviewers, and both the probate court and the Court of Appeals seem to have thought that the results demonstrated his fluctuating capacity (and general improvement). Those scores are only suggestive of incapacity, and should be an indicator that further testing might be appropriate. There is no bright-line score for determining incapacity on the basis of those short examinations.

Trustee Has Duty to Monitor His Lawyer’s Behavior

AUGUST 29, 2016 VOLUME 23 NUMBER 32
Are you a trustee, or named as successor trustee for a family member or friend? We regularly advise people in your circumstance that they should get good legal advice. Once you’ve done that, however, you are not absolved from any liability if things go wrong.

A trustee is generally permitted to delegate some duties to others — especially to professionals. So it makes sense, and might even be required, for a trustee to hire a stockbroker, or an accountant, or a lawyer. But the ability to delegate is coupled with a duty to monitor the professional.

At least that’s the law in Arizona, and probably also the law in any state that has adopted the Uniform Trust Code. It’s also the law in California, as it turns out — even though California has not adopted the Uniform Trust Code. How do we know? Because of Terry Delgado (though we’ve changed his name for this narrative).

Terry was named as successor trustee on his mother’s trust. After her death late in 2011, he took over, and began managing her trust property. That included two pieces of real estate in the San Francisco area, several bank accounts and some personal property items. Her trust directed that it should be distributed equally between Terry and his two sisters.

When they hadn’t gotten any information about the trust after two years, Terry’s sisters wrote to the lawyer who had been handling the trust administration. They asked for an accounting, distribution of some of the trust’s holdings, and information about what would happen to the real estate. They got nothing back in response. They did, though, get a notice from Terry’s lawyer that one of the properties was being listed for sale. They wrote back saying that they thought the property needed work done before it was sold, and demanding that they get information about what had happened and what might be proposed.

A court hearing was set for six weeks later. Three days prior to that hearing, Terry’s lawyer filed a motion to continue the hearing, claiming that he (the lawyer) had been ill and needed to be involved in the preparation of any accounting. The probate judge conducted a hearing anyway, and decided Terry’s power as trustee needed to be suspended. The judge appointed a professional trustee to take charge temporarily, and ordered Terry to file a complete accounting with the court within six weeks from that hearing date.

Instead, Terry’s lawyer filed a motion to reconsider the order suspending Terry’s powers as trustee. The lawyer claimed that, because of his illness, he had been sleep-deprived and unable to complete the accounting. He had also been working on an accounting in connection with the related estate of Terry’s mother’s late husband. Furthermore, Terry himself had been unable to complete the accounting because of his work schedule and his lawyer’s illness.

At the same time, Terry’s lawyer filed an entirely separate pleading on behalf of the real estate agent who had been hired to list the property. That pleading objected to any change in trustee, and noted that the real estate agent’s company might file a claim against the estate if the listing were to be canceled.

On the last day set by the probate judge, Terry’s lawyer filed an accounting on his behalf — on the wrong forms. The accounting revealed that up to that point, Terry’s lawyer had charged the trust something more than $320,000 in fees — $350 per hour for 916.15 hours.

The probate court received the accounting and set a hearing to review it for two months later. During the delay, Terry’s lawyer filed his own declaration. It apologized to the probate judge for the delays, acknowledged that he had filed the wrong kind of accounting, described his health problems and promised to get the proper accounting filed before the new hearing date already set.

At that hearing, the probate court permanently removed Terry as trustee. It appointed the neutral fiduciary who had been acting temporarily, and noted that no acceptable accounting had yet been filed. At a later hearing on Terry’s lawyer’s request for a reconsideration, the probate judge reaffirmed the same orders.

Terry appealed to the California Court of Appeal. That court upheld the removal and the appointment of a new fiduciary. The appellate judges noted that Terry had every right to hire an attorney to represent him as trustee, but that he had an obligation to monitor his attorney and to see to it that his duties were properly discharged.

Terry’s attorney had created a serious conflict of interest by appearing in the same proceeding on behalf of someone who asserted a claim against the trust, ruled the appellate court. The attorney’s assertion that there was no “actual” conflict of interest in the dual representation did not relieve Terry of his duty.

It is perfectly permissible, ruled the appellate court, for a trustee to hire a professional — like an attorney — to handle trust business and to delegate authority to that professional. The trustee, though, is still required to monitor the professional, and to hire a more suitable alternate if the attorney is unable to handle the assignment — whether that is because of illness, unfamiliarity with trust administration procedures, or otherwise. Desbiens v. Delgman, August 10, 2016.

Court Invalidates Will and Trust Naming Lawyer as Beneficiary

JULY 11, 2016 VOLUME 23 NUMBER 26
One principle governing lawyers is obviously and intuitively correct: A lawyer may not prepare a will or trust (or, for that matter, any other document or arrangement) by which a client makes any substantial gift to the lawyer. Similarly, lawyers are precluded from preparing documents giving or leaving anything of value to the lawyer’s close family members, either.

The American Bar Association, in its “Model Rules of Professional Conduct,” codified the principle. Rule 1.8(c) of the Model Rules says:

“A lawyer shall not solicit any substantial gift from a client, including a testamentary gift, or prepare on behalf of a client an instrument giving the lawyer or a person related to the lawyer any substantial gift unless the lawyer or other recipient of the gift is related to the client. For purposes of this paragraph, related persons include a spouse, child, grandchild, parent, grandparent or other relative or individual with whom the lawyer or the client maintains a close, familial relationship.”

That rule has been adopted in 49 states, the District of Columbia and the U.S. Virgin Islands. Some of those jurisdictions may have modified the rule slightly, but the basic principle is pretty nearly universal. It also is clearly appropriate.

But lawyer ethics rules are not the same as laws, and it is not that hard to imagine that an ethically-challenged lawyer might be willing to violate the rule — if he or she could still inherit a substantial estate, it might not matter whether the license to practice law is revoked. Most court decisions dealing with lawyers who write themselves into wills (they are blessedly rare) recognize that the document itself should also be found to be invalid, at least to the extent of any gifts to the lawyer or his/her family.

You may have noticed that there is just one U.S. state which has not adopted the ABA’s Rule 1.8. In fact, California has not adopted any of the ABA’s Model Rules. What California has done, though, is to adopt an even stronger law. Under its law governing wills and trusts, any document prepared by anyone in a fiduciary relationship with the signer is presumed to be invalid — and the law is clear that lawyers are fiduciaries. In other words, California’s go-it-alone approach to this issue results in a stronger proscription than in most states.

That provision was put to the test last month in a case involving 74-year-old California lawyer John F. LeBouef, who was accused of having prepared (and possibly forged) a will and trust naming himself as principal beneficiary of a client’s $5 million estate.

LeBouef’s client, himself 73 years old at the time of his death, had been in poor health since the death (seven years before) of his life partner. The client was reported to have serious problems with alcohol, to the point that neighbors reported that he frequently would fall down in his home, howl like a dog, and occasionally soil himself.

The client had two nieces who were probably named as his principal beneficiaries in a will and trust he signed in 2006. “Probably” because, as it turns out, the original documents were lost — in a burglary of the client’s home after his death, in which his prior estate planning documents (and LeBouef’s laptop computer) were among the only items stolen. At trial, the probate court judge found LeBouef’s testimony about the burglary, the preparation of the new documents, and the client’s intentions all unbelievable.

Some part of the judge’s incredulity was related to LeBouef’s prior behavior. It developed that, after he helped an 86-year-old caretaker claim a $2.5 million inheritance from the estate of the man she had cared for, LeBouef’ marred his client (he would have been about 60 at the time) and, ultimately, inherited the bulk of her estate. Meanwhile, another, 90-year-old, client of LeBouef’s had left most of her $1.3 million estate to LeBouef’s life partner (and business partner), Mark Krajewski. LeBouef had prepared the four amendments to that client’s trust, of course.

After the California probate judge invalidated the will and trust naming LeBouef, she also ordered him to pay the client’s nieces over $1.2 million legal fees — those fees and costs were incurred in their successful challenge of the documents prepared by LeBouef. Perhaps the most impressive act of bravado, though, was LeBouef’s final request of the probate court: he asked the court to approve payment of a fee to him for acting as trustee during the litigation, including a separate fee for managing the trust’s real estate (including the decedent’s home, in which LeBouef lived for three years rent-free). The probate judge declined the request.

The California Court of Appeals reviewed the case and, in a strongly-worded decision, approved the probate court’s rulings on every score. In fact, the Court of Appeals directed that a copy of its decision should be sent to the State Bar of California and to the local prosecutor’s office. “We express no opinion on discipline and/or the decision to initiate criminal prosecution,” wrote the Court. Butler v. LeBouef, June 20, 2016.

The Difference Between an Heir and a Beneficiary

APRIL 18, 2016 VOLUME 23 NUMBER 15

Your estate is simple, your family relationships clear, your intentions easy to understand. Why can’t you just write your own will, and save the legal fees?

Because of Esther Hill, that’s why. Actually, that’s not her real name — we change the names of most of the people we write about, because we don’t particularly want later internet searches for their name to turn up our articles high on the list. But her story doesn’t depend on her name.

Esther had two children — a daughter Leslie and a son Leonard. Leslie and her mother were very close — they visited regularly, went on shopping excursions together, and had a strong relationship. Leslie had two daughters, and they visited their grandmother regularly.

Leonard was not married, and lived with his mother in her home in Saratoga, California. She helped support him, and she tried to involve him in family events — but he chose not to participate.

Leslie became sick and died in 1991, and Esther was devastated. Just three weeks after Leslie’s death, Esther hand-wrote her own will. She wrote (with name changes in order to keep our intended level of anonymity):

I, Esther Hill, aka as E. Hill; declare this will, is my only and last testament.

I, name my son, Leonard Hill, as sole heir and executor to manage estate affairs.

In the event of any challenges to said estate, I hereby authorize said Executor to dispense the amount of $1.00, one dollar, to any claimant.

I am confident that my son, as Executor, will also subscribe to my wishes, along lines that were discussed previously and privately in the past. A simple cremation, without ceremony is the wish of Esther Hill.

It turned out that Esther’s estate was worth a little more than $10 million. Leonard filed the will with the California probate courts, and got himself appointed as executor of her estate. He didn’t rush to wrap up her estate, though — three years after her death, he hired a woman to come to the home and help him organize and purge old business files. Two years later, he and the woman who helped him became romantically involved, and ten years later they were married. Still, though, the estate was not closed.

Leonard himself died in 2009, but without having closed his mother’s estate (or making distribution of the remaining assets, after payment of considerable estate taxes). His widow asked the probate court to appoint her to finish up the estate administration, and to determine who should receive Esther’s assets.

Can you see the problem? It’s in the language of that handwritten will, in which Esther names Leonard as her “sole heir.” The difficulty: “heir” has a specific meaning under probate law, and Leonard wasn’t her sole heir.

An heir is a person who would be entitled to a share of the decedent’s estate if the decedent died without issue, and under California law that would mean Leonard and his two nieces. If Esther had not left a will, half of her estate would go to Leonard, and one-quarter each to the two nieces. (Arizona law would be the same, as would the law of most — if not all — other American jurisdictions.)

Did Esther mean to name Leonard as her sole “beneficiary”? Or, perhaps, “devisee”? That last is the word lawyers and judges use to identify a person named as a beneficiary in a will. If she had written that she named Leonard as “sole beneficiary” or “sole devisee,” then he would have been clearly entitled to her entire estate, and his widow would receive Esther’s assets through his estate.

Esther’s granddaughters (Leonard’s nieces) objected. They argued that Esther was simply identifying Leonard as her sole surviving child, and that they should be entitled to one-half of her estate (they acknowledged that Leonard’s widow would receive the other half).

In the contested probate proceeding, various witnesses testified about Esther’s relationships with Leonard, Leslie and the two granddaughters. Some witnesses observed that Esther (and, for that matter, Leonard) talked to the granddaughters from time to time as if they would eventually inherit the property, and others testified that Esther sometimes didn’t seem to approve of her granddaughters. Because the probate court decided that the use of the word “heir” was ambiguous, it considered all that evidence — and ruled that Esther had meant to leave half of her estate to be divided between her granddaughters.

The California Court of Appeals disagreed. It ruled that the word “heir” as used by Esther was unambiguous — she clearly meant “beneficiary.” That was true, according to the appellate judges, because it would make no sense for Esther to write, in effect, that “I name Lester, my son, as my only son”. Furthermore, the final sentence (in which she indicates that she trusts Lester to carry out her wishes) does not change the result, and does not create what the Court of Appeals calls a “secret” trust for the benefit of family members.

What about the effect of Esther’s attempt to create an in terrorem or no-contest provision? If, for example, the will was construed as disinheriting the granddaughters, would they be entitled to receive $1.00 just because they objected? The Court of Appeals acknowledges that Esther’s attempt at creating a no-contest provision was clumsy, but it does not indicate that she intended to give a larger share of her estate to her granddaughters.

One of the three appellate judges disagreed with the other two. In that judge’s mind, the probate court had gotten it right — and the ruling in favor of the granddaughters should be upheld. That judge was outvoted by the other two, however. Estate of Hinz, March 22, 2016.

Lawyer Has Responsibility to Monitor Conservatorship Administration

OCTOBER 27, 2014 VOLUME 21 NUMBER 39

Guardianship (of the person) and conservatorship (of the estate) cases pose special problems for lawyers. Usually, a lawyer involved in such a case will have responsibilities to several different persons. To name three obvious choices, the lawyer will have duties to: the guardian or conservator the lawyer represents; the ward or protected person subject to the proceedings; and the court itself. State law varies as to how the responsibilities are divided, and what the lawyer’s duty actually is — especially when the guardian / conservator misbehaves. But there is little doubt that there is significant responsibility for the lawyer to oversee the actual administration of the guardianship or conservatorship.

A recent California Court of Appeals case describes the dilemma facing lawyers in conservatorship cases. When Deborah Delmonico (not her real name) became ill, her son Daniel hired Alameda County attorney Monica Dell’Osso to help him get control of her assets. Deborah had already signed a revocable living trust (naming Daniel as successor trustee), and most of her assets were titled to that trust. Ms. Dell’Osso filed a petition to get Daniel appointed as conservator of both the estate and person of Deborah (in California, conservatorship of the person is equivalent to what we in Arizona would call guardianship of the person). No court action was required with regard to the trust; Daniel just took over managing trust assets.

In an apparent attempt to save costs and simplify administration, Ms. Dell’Osso asked the court to waive any requirement of a bond for the conservatorship of the estate. She argued that there were no assets outside the trust, and that the trust did not require court supervision (or bonding). The court agreed, and Daniel was appointed conservator of his mother’s person and estate, without any requirement of bond.

As it turned out there were assets outside the trust — extensive real estate holdings and several  Individual Retirement Accounts, at least. The total value of assets in Deborah’s name individually exceeded $1 million. According to the later complaint filed with the conservatorship court, Ms. Dell’Osso not only knew about those assets, but her office helped Daniel to collect them and administer them. She never told the probate judge about the extensive individual holdings, and so they were never court-controlled or subjected to a bonding requirement.

Eventually, Daniel simply took a million dollars worth of assets from his mother’s conservatorship estate. Once the probate court learned of his misappropriation he was removed, and a professional fiduciary was appointed to take over Deborah’s estate.

The professional fiduciary filed a lawsuit against Daniel for conversion of his mother’s property and for elder abuse. She also sued Ms. Dell’Osso for legal malpractice, arguing that she had a responsibility to Deborah and the court to inform them of the assets outside the trust, and to oversee Daniel’s administration as conservator.

Ms. Dell’Osso moved for dismissal of the complaint, making these two arguments (in addition to others not relevant here):

  1. Since she represented Daniel, she argued that the successor conservator could not sue her for malpractice — only her actual client (Daniel) would have a cause of action against her.
  2. Even if the new conservator could sue her, they would stand in Daniel’s shoes — and because Daniel had himself misbehaved, he could not have brought an action against her. Hence, the malpractice lawsuit would fail.

The trial judge agreed, and dismissed the lawsuit against Ms. Dell’Osso. The California Court of Appeals reversed that decision and sent the case back for a trial on the merits.

First, the appellate court ruled that a successor conservator can sue the prior conservator’s attorney for malpractice — at least under California law (the answer may differ in other jurisdictions). This is different from the circumstance where a family member, or intended beneficiary of a trust or estate plan (to cite two common examples) is attempting to sue the attorney for malpractice in representation of the original client.

In this case, according to the court, the successor conservator essentially stands in the original client’s shoes, and can bring the malpractice lawsuit. In fact, the court takes this analogy one step further and notes that the attorney’s confidential communications with the prior conservator will not be privileged as to the successor conservator — the professional fiduciary in this case holds the privilege, and can ask Ms. Dell’Osso about her conversations and correspondence with Daniel.

Second, the appellate court strikes down any argument that the professional fiduciary is restricted by her predecessor’s bad actions. While the court agrees that (under California law, at least) Daniel would not be able to sue for malpractice because of his own misbehavior, that restriction does not extend to his successor. In this sense she does not stand in the prior conservator’s shoes.

Two observations by the Court of Appeals seem particularly apt. One is that “an individual who is a fiduciary wears two distinct and separate hats — one as a fiduciary and one as an individual….” This complicates the relationship between a fiduciary and his or her lawyer, since the lawyer is often wearing (to continue the analogy) as many as four hats: one as attorney for the fiduciary individually, another as attorney for the fiduciary as fiduciary, a third as a protector of the interests of the subject of the proceedings, and a final hat as representative of the court and legal system.

On a very practical level, the court decision notes that any other outcome would make a successor conservator’s job impossible. “[W]hy would any competent individual agree to take over as a successor fiduciary if he or she were tarred with and shackled by the malfeasance of a prior fiduciary?” asks the court. The opinion’s answer: the successor fiduciary is not so restrained. Stine v. Dell’Osso, October 17, 2014.

Would the Stine case be decided the same way in Arizona? Probably, though there is a recent change in the law that makes it less than completely clear. Arizona’s Court of Appeals decided the landmark case of Fickett v. Superior Court in 1976, which clearly would have created a potential liability for the attorney for a conservator. Recent changes in Arizona statutes muddy the question somewhat, but probably not enough to prevent the imposition of liability in facts like these.

Even Lawyers Can Have Trouble Recognizing Undue Influence

OCTOBER 20, 2014 VOLUME 21 NUMBER 38

We often say that experienced lawyers can be pretty good at judging the competence of a client to make a will, sign a power of attorney or execute other documents. We (collectively) probably make better witnesses on those questions than even the doctors and medical staff attending to their patient (our client). Why? Not because we have better medical training — we obviously don’t. What we are better at is applying the legal tests of capacity to the person we meet with. “Can you name your family members?” and “What do you think a will is designed to do?” are questions that just don’t come up in most medical interviews.

What we are less good at, though, is recognizing undue influence. Of course we know the markers (social isolation, big changes in estate plans, active involvement by the person benefiting from the change, etc.), but we don’t see the daily interaction between our clients and their family members. That can make it easy for us to miss the significance of the influence brought to bear on our clients, even if we are vigilant and familiar with the circumstances and possibilities.

That concept was brought home this week while reviewing a recent California Court of Appeals case. Two brothers disputed the validity of a series of documents their mother had signed, and all were prepared by lawyers after close questioning by each. The two lawyers heard very different stories, and within days or weeks of one another. How could this have happened, and was there a way to avoid it in other cases?

The California case, Bellows v. Bellows (October 9, 2014), is an “unreported” decision. That means that it can’t be cited as a precedent in other, similar cases — but it doesn’t change the validity of the appellate court’s holding. That holding: the most recent documents signed by the mother were valid, at least partly because the contesting brother could not meet his burden of proving otherwise. But the story of battling lawyer visits was more poignant than the ultimate court holding was significant.

The saga began in 2002, when Ms. Bellows’ brother became ill. Her son Fred helped her deal with her brother’s illness, need for care, and ultimate death — and even the probate of his estate. After she inherited about $400,000 from her late brother, she and Fred visited her attorney about estate planning, and her stockbroker about setting up an account to hold the inherited money.

Ms. Bellows’ will and trust had previously provided for an equal division between her two sons, Fred and Donald. The upshot of the meetings with lawyers and stockbrokers was that Fred would inherit all of the money that Ms. Bellows had received from her late brother, and the balance of her estate would be divided equally between Fred and Donald.

It is worth noting that Fred went with his mother to most or all of her meetings with her stockbroker and her lawyer, though her lawyer took care to discuss her wishes in a separate session without Fred in the room. Her lawyer was certain that the changes she requested were her wishes, and that she was not being unduly influenced by her son.

About six months after those changes were completed, Ms. Bellows visited another lawyer — this time in the company of her other son, Donald. The new lawyer began the process of reviewing her existing estate planning documents, and considered her request for a change in the disposition she had planned. That new lawyer wrote to the lawyer who had prepared Ms. Bellows’ earlier documents, requesting a copy and more information.

The day after that meeting, Ms. Bellows was back in the original lawyer’s office with her son Fred. She told the first lawyer that she did not want to make any changes, and that she did not want to deal with the new lawyer any further. The first lawyer wrote to the new lawyer to tell her not to take any further action.

Nonetheless, Ms. Bellows was once again in the second lawyer’s office two days later. She signed a new power of attorney naming Donald as her agent rather than Fred, and she amended her trust to provide for equal distribution of all of her assets, including the inheritance she had previously earmarked for Fred. The second lawyer later testified that she was clear about her wishes, not being directed by Donald and could express her own wishes without any hesitation.

Shortly after those changes were made, the first lawyer visited Ms. Bellows at her apartment. She told him that she wanted Fred, not Donald, as her agent, and the lawyer prepared yet another power of attorney for her to sign. Since the beneficiary designation on the account holding her inheritance had never actually been changed, the first lawyer made no further changes.

When Ms. Bellows died three years after that sequence of events, the two brothers fought about whether there had been undue influence. Each pointed to the interviews their mother had had with the lawyers as evidence that the other had acted inappropriately. As the Court of Appeals noted, each of those two lawyers “apparently thought they were helping [her] resist improper pressure from the other brother.”

As noted in the introduction, the upshot was that the beneficiary designation favoring Fred was upheld, though mostly on the basis that Donald had not met his burden of proving undue influence in order to set it aside. But the real lesson, it seems to us, is that two lawyers — who we will assume (as the Court of Appeals did) were both well-meaning — could hear such different stories within days of one another.

What might either of those lawyers have done differently, in order to help make Ms. Bellows’ wishes clear? It is a challenge, but we have some ideas we follow:

  1. Never start a client meeting with the family — meet first and alone with the client. If either lawyer could have said that they took no direction from either of Ms. Bellows’ sons, it would have been more powerful defense of their position. Who knows what she might have said if there was no opportunity for prompting or direction? A visit without either son present is good, but perhaps it should be clearer that neither son should have been actively involved at all.
  2. Outside information might have been helpful to judge the effect on the client. The record is not clear as to whether either attorney asked for information from doctors, social service workers, psychologists, caretakers or others about Ms. Bellows’ daily life, and how susceptible she might have been to direction from others (including either or both of her sons).
  3. Once such clear conflicts have been exposed, it’s time to step up the efforts to eliminate inappropriate influence. If, as the Court of Appeals suggested, the two lawyers each thought they were protecting Ms. Bellows from the other lawyer and the brother who was seen as the “real” motive force, perhaps they would both have served Ms. Bellows better if they had discussed their different views, figured out a way to reconcile them, and give Ms. Bellows the peace of mind that her wishes were in place and would not be changed at the insistence of either son. After all, Ms. Bellows’ peace of mind should have been a primary goal of her representation.

Disinheritance of Adult Child With Disabilities Leads to Lawsuit

OCTOBER 21, 2013 VOLUME 20 NUMBER 40

Suppose you have two children. Your daughter is very capable, very mature, very responsible. Your son has a developmental disability, or a drinking problem, or just problems handling money. What should you do with any inheritance you leave to your son? Put it in a trust? Make your daughter trustee?

Again and again clients tell us that they don’t want to do that. It seems like a lot of fuss, and probably the son whose inheritance goes into a trust will feel injured, like maybe his parents have said they don’t trust him, or don’t value him. Can’t you just leave everything to your daughter, and tell her to be sure to take care of her brother? Won’t that work?

No.

That’s essentially what Howard Kaufman (not his real name) decided to do. By all reports Howard was very strong-willed and domineering. He had a living trust, written in 2002, which divided most of his estate equally between his two daughters. He named his daughters as successor co-trustees.

Howard’s older daughter, Diane, was blind, diabetic and receiving Social Security Disability benefits. His younger daughter, Jackie, was a successful business woman.

In 2009, Howard decided to change his trust’s terms. He called a meeting with Jackie and his long-time girlfriend (Diane was not included); he arranged for a notary to be present. He told the three of them that he had changed his mind, and that he was going to disinherit Diane. He told Jackie that it would be her duty to see that Diane was “taken care of” with the inheritance she was to receive. Then he had the notary prepare amendments to his trust removing Diane as a beneficiary.

When Howard died, Diane was surprised to learn that she had been left out of his estate plan. Nonetheless, she turned to her sister to continue the pattern Howard had set of helping out so that she could live on her Social Security and disability insurance payments. Jackie declined to continue his pattern of gifts; she insisted that her father had left her his estate (of approximately $4 million) to “do with as I will.”

Diane ended up suing her sister. The theory of her lawsuit, though, was unusual. Rather than arguing that the trust change was invalid, or that Jackie had unduly influenced their father, she sued for a breach of contract. Her theory: Jackie had promised to take care of her, and it would take about $2 million over her lifetime to do that. She also claimed that Jackie had taken advantage of both their father (a vulnerable adult) and Diane (a dependent adult).

The jury in Diane’s case found that Jackie had broken her promise, and had taken advantage of Diane. The jury awarded actual damages of $1.4 million, plus punitive damages of $260,000 and attorneys fees of another $700,000. The jury also ruled against Diane with regard to the vulnerable adult claim — it found that Jackie had not taken advantage of their father. Jackie appealed the judgments against her.

The California Court of Appeals upheld the verdict. It ruled that Diane’s lawsuit was not a disguised trust contest, and that it was not inconsistent that they found Jackie had exploited Diane but not their father. One of the main issues: whether Diane was entitled to a jury trial on her claim. The appellate court ruled that she had, and that Jackie’s promise to take care of her sister was an enforceable contract. Kalfin v. Kalfin, October 15, 2013.

What is the lesson to be learned from Howard’s trust case and his daughter’s lawsuit? There are several, but two key ones jump out:

  1. Disinheriting your child with disabilities and relying on another child to “take care of” them is not a reliable way to handle division of your estate. It might work, but there are real risks — and the cost and family disharmony resulting from litigation is almost certainly worse than what would be involved in simply setting up a trust for te child with a disability.
  2. Do you have a child with a disability? A complicated estate? Uncommon wishes? Talk to a lawyer. A notary public is not going to be the best choice for drafting your estate plan. The cost of doing it right will be way, way less than the cost of dealing with the aftermath.

 

Lawyer, Acting as Trustee, Challenged for Self-Dealing

DECEMBER 3, 2012 VOLUME 19 NUMBER 44
One of the great advantages of a trust can be the ability to bypass court supervision and review. One of the great disadvantage of a trust can be that it bypasses court supervision and review. A recent California Court of Appeals decision highlights the problem nicely — and at the same time provides a warning for trustees.

California attorney Douglas Mahaffey represented Tom Matthews (not his real name) in a personal injury action in 1992. He helped Matthews recover a $3.5 million settlement, and then agreed to act as trustee, handling his client’s money. One concern lawyer and client shared was Matthews’ possible exhaustion of the funds; they agreed that a separate trust would be set up to protect $356,967 for the benefit of Matthews’ daughter Katrina (not her real name). Mahaffey would act as trustee of that trust, as well.

Four years after Katrina’s trust was set up, Mahaffey loaned himself $210,000 from the trust. He signed a note, with an indicated rate of 8%. There was no security for the loan — Mahaffey did not pledge his home, his office or business, or any other assets to protect the trust from default. His law firm did guarantee the note, indicating that if he did not make payments the firm itself would be liable.

Mahaffey did not make payments on the loan, and did not tell anyone about it at the time. Later Matthews, the father of the trust beneficiary, found about it, and Mahaffey asked him to sign a a set of documents ratifying what Mahaffey had done with his, Matthews’, money. After Katrina reached her majority she found out about the loan and sued Mahaffey.

A California judge agreed with Katrina that Mahaffey should not have loaned himself the money, but also that his motivation included a desire to “protect” Katrina’s money from, among other things, the possibility of litigation brought by Matthews against Mahaffey. Nonetheless, the judge removed Mahaffey as trustee, ordered him to repay the loan immediately, and added interest of almost another $200,000, and imposed additional interest of $110/day for each day the sums remained unpaid.

The California appellate court reviewed the record (after Mahaffey appealed) and concurred with the outcome. The appellate judges noted that “the trial judge went easy on Mahaffey.” The court notes a number of items in the litany of objections to Mahaffey’s administration of the trust:

  1. The loan was self-dealing, even if Mahaffey motivation was not abjectly self-interested. He should not have loaned trust money to himself.
  2. The interest rate (8%) was slightly less than the “prime” interest rate at the time. That made the self-dealing more obvious and problematic.
  3. The fact that the note called for no actual payments — not even interest — for 10 years, and that it was unilaterally extended by Mahaffey when it came due, further showed his self-dealing. In fact, no payments were made on the note at all until 2002, and then only interest payments were made up until the time of trial.
  4. The failure to adequately secure the loan was another strike against Mahaffey. The significance of that failure was not truly evident until after the trial; the appellate court notes that Mahaffey and his law firm filed for bankruptcy after the judgment was entered but before the appeal was decided.
  5. The opinion is replete with information about another trust Mahaffey administered — the trust for Matthews, holding the rest of his lawsuit settlement proceeds. It turns out that Matthews separately sued Mahaffey for mismanagement, but that lawsuit had been dismissed because it was filed too long after Matthews learned of the items he later complained about.

It is easy to criticize what is appears to be obvious self-dealing by a trustee after the fact. What happens time and again, however, is that trustees reach a tipping point by degrees — first rationalizing that they will pay interest rates above what the trust could get in other investments, then by adding the thought that they are good credit risks, then by rationalizing that it saves everyone time, money and taxes to keep the transaction in the trust “family.” The right answer: just say no. If you are a trustee, do not borrow money from the trust. Period.

As the Court of Appeals noted in this instance: “It is strong poison for attorneys who double as trustees to make loans to themselves.” Indeed. It is equally strong poison for any other trustee, though attorneys face the additional risk of losing their law licenses as well as being removed and surcharged for self-dealing. Although the appellate opinion does not indicate what has happened or might happen, Mahaffey could still face discipline or even disbarment by the State Bar of California. Grunder v. Mahaffey, November 7, 2012.

A critical reader might note that nothing about the description here explains our introductory observation. Trusts ordinarily do not have to be supervised by any court — that is one of the primary selling points for trusts, in fact. We generally agree. The cost of posting a bond, filing periodic accountings with a court and giving formal notice can be high, and there is often no need to seek an independent review of trustees’ behavior. But there is a trade-off involved. If the informal and extra-judicial alternative of trust planning is being considered, there really ought to be some way to monitor the trustee’s behavior.

Could Matthews, in the story told above, have demanded accountings, and more closely followed Mahaffey’s actions? Undoubtedly. Would that have prevented the self-dealing, or at least caused it to be cured earlier? Perhaps. But the very advantages of trusts (privacy, lack of formal accounting requirements and limited independent oversight) can often lead to the largest risk inherent in trust administration.

How is a thoughtful planner to respond? Pick your trustees carefully (you might, for instance, want to know how often the trustee acts in that capacity), and then provide a monitoring mechanism (accountings to a trusted third person, perhaps). It can be a challenge to balance efficiency and risk.

How To Revoke Your Revocable Living Trust. Not.

MARCH 14, 2011 VOLUME 18 NUMBER 9
Let us be clear right up front. The California Court of Appeals ultimately agreed that Steven Wayne Stoker had successfully revoked a will favoring a former girlfriend. He also successfully revoked the trust created at the same time as that original will. In a sense, our headline is incorrect, since Stoker’s technique worked. But why in the world (other than for the good story thereby bequeathed to your children) would you ever use this technique to straighten out your estate planning? The right approach: talk to your lawyer, explain what you have already done and what you want to accomplish, and leave the revocation method in the hands of professionals.

Back to our story, which is admittedly both instructive and entertaining. Steven Wayne Stoker signed a will in 1997. In it he left some items of personal property to friends, but the residue (and bulk) of his estate was to go to the Steven Wayne Stoker Revocable Trust, which he had signed that same day. The trust named his girlfriend, Destiny Gularte, as trustee and beneficiary.

According to later testimony Mr. Stoker and Ms. Gularte had an angry argument several years later, and they separated permanently. One night about eight years after signing the will and trust, he apparently had a conversation with another friend about estate planning, and he resolved to change his will. At Mr. Stoker’s request the friend took down what Mr. Stoker dictated:

I, Steve Stoker revoke my 1997 trust as of August 28, 2005. Destiny Gularte and Judy Stoker to get nothing. Everything is to go to my kids Darin and Danene Stoker. Darin and Danene are to have power of attorney over everything I own.

Mr. Stoker signed this document, but (though two friends watched him sign it) no one signed as a witness. Mr. Stoker apparently did not notice that his friend had misspelled both Darrin’s and Danine’s names — the court record is silent as to who introduced those errors. Then he took out the original 1997 will, urinated on it, and set it on fire.

Three years later Mr. Stoker died, but without having done anything more formal to clarify his estate plan. His signature and his actions in 2005 raised a number of legal questions:

  1. Had he revoked the 1997 will?
  2. Was the 2005 will valid?
  3. If the 2005 will WAS valid, what effect did that have on the 1997 trust?

The California probate judge — who had listened to the testimony and assessed the credibility of the witnesses — found that the 2005 will expressed Mr. Stoker’s actual wishes, and that the 1997 will and trust had both been revoked. The California Court of Appeals agreed, and upheld the finding that Ms. Gularte would not receive anything from his estate.

It is important to note that state law differs, and that Arizona law would assess these actions differently — even though the outcome might ultimately be similar. Indeed, California had adopted changes in its probate laws in 2009 making it easier to show an individual’s intent even though the precise procedural rules might not have been followed. That change in law made it possible for the probate court to enforce Mr. Stoker’s apparent intent despite his not having secured two witnesses’ signatures, not having formally revoked his revocable living trust, and having taken an unusual approach to the revocation of his prior will. Estate of Stoker, March 3, 2011.

Would the same result be reached in Arizona? Perhaps, but for different reasons. Ideas to explore in an Arizona probate proceeding might include:

  • Arizona permits “holographic” wills without witnesses, but requires the important parts to be in the testator’s own handwriting. Mr. Stoker’s will probably would not have complied with this requirement, since the handwriting was almost all his friend’s — even though he might have dictated the words.
  • Arizona does have at least one court case allowing witnesses to sign later — even after the death of the person executing the will. Here there were apparently two actual witnesses, though they had not signed the document at the time. Could they sign attesting that they had witnessed the will even after Mr. Stoker’s death? Perhaps.
  • On one point there is no question. Arizona permits revocation of an old will by any “revocatory act.” There is little doubt that urinating on and then burning the will would meet that requirement. (The appellate court, noting the practical difficulty of using this technique, observed that “we hesitate to speculate how he accomplished the second act after the first.”)
  • While there is little doubt in Arizona that the successful revocation of his 1997 will would prevent transfer of additional assets to his revocable living trust after his death, it is less clear what would happen to assets he might have already transferred into the trust’s name. The California court opinion is unclear about whether there even were any such assets; if there were, Arizona law might lead to a different result. But even that is uncertain, since Arizona adopted a change in trust law as part of  the Arizona Trust Code effective in 2009. Under the new provision, the court can usually treat any document as a trust amendment if it “manifest[s] clear and convincing evidence of the settlor’s intent.”

Mr. Stoker did leave his children a pretty good story, regardless of how much property and money they might have received. But our recommendation remains: if you want to make changes to your estate plan, the relatively small cost of getting professional assistance will pay off in the long run. We do endorse Mr. Stoker’s revocatory act: it left a convincing impression of his intent and wishes.

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