Posts Tagged ‘conservatorship bond’

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.

Several Factors Increase Cost Of Conservatorships in Arizona

OCTOBER 12, 2009  VOLUME 16, NUMBER 57

A reader writes:

Can a conservator get a waiver from the requirement of bonding, which costs my mother’s estate over $900 per year? This, along with the $300 court fee to evaluate accountings, is a tremendous amount of money. Can I get my sister to agree that this is not necessary?

[Editor’s note: our weekly newsletter often deals with Arizona-specific information, and we try to remind our readers that we are providing general information that might not be applicable outside Arizona. This week’s question deals with Arizona practice more narrowly than most — no reader should assume that the rules in their own state are the same or even similar. This information is intended to be general and informative, but it is no substitute for getting specific legal advice for your own legal problems.]

Arizona requires that a “surety bond” must be posted in every conservatorship case. The Probate Court must set that bond at the estimated value of the estate plus approximately one years’ income. There are very few circumstances in which the bond can be reduced or waived.

What is a surety bond? It is essentially an insurance policy, designed to protect your mother. If you misuse her funds, or fail to meet your fiduciary duty to invest them prudently, the Probate Court could one day enter a judgment against you personally. The bond simply assures the Court that there will be funds available to pay your mother’s estate back, even though you might not have any assets reachable by the Court.

One way to reduce the size (and therefore the cost) of the bond is to place conservatorship assets under court control. This is usually accomplished by putting some or all of the money in a court-controlled and federally-insured bank account. While this may save costs, it also makes the money unavailable for daily living expenses of the ward. It is most commonly used when the money belongs to a minor rather than an adult, but it might be one way of reducing the cost of the bond.

Another choice is to ask the Judge to reduce the bond by the value of “regular fixed expenses” paid for the ward’s benefit. (See Arizona Revised Statutes §14-5411(B)) This might, for example, mean that the Court might be willing to reduce the bond amount by the cost of regular monthly nursing home or assisted living bills. Note, however, that this decision is in the discretion of the Probate Judge; it is far from an automatic adjustment.

Trust companies (like those affiliated with most major banks) are not required to pay a bond premium. Of course, you would have to turn over management of your mother’s finances to such a company in order for that to make any difference. Even then, the fees charged by the bank would almost certainly be more than the bond premium.

Getting the consent of other siblings — or even the ward herself — simply will not help. The Court is more interested in protecting your mother’s assets than in making the family comfortable with the costs.

The $300 fee charged by the Court each year to review the accounting is a little more complex. Arizona permits each county Probate Court to decide whether it will charge such a fee. If it does, the money collected must be used to pay some of the court’s probate-related expenses. Maricopa County (Phoenix, where your mother’s conservatorship is located) imposes the fee. Most counties do not levy such a fee, but it is usually not possible to change the county of administration of an existing conservatorship.

What can be done to minimize these conservatorship costs, at least in Arizona? Not much. This is one reason why durable powers of attorney are so important — and so popular.

“Joint Control Agreement” Leads to Lawyer’s Liability

JUNE 15, 2009  VOLUME 16, NUMBER 44

Tranquilino Ventura was a child when his father died, and just fourteen years old when a lawsuit arising from his father’s death was settled. The total settlement, after costs and fees, exceeded $500,000. When Mr. Ventura turned eighteen he found out that the money was all gone.

Mr. Ventura’s mother, Patricia Dutton, had been appointed conservator by an Alabama probate judge. The judge had ordered that she post a $620,000 bond to secure her proper management of the money, and then given her authority to handle her son’s lawsuit proceeds. Over the next four years she apparently managed to lose much of it in poor stock investments.

There were other questionable uses of the money. Ms. Dutton bought her son a BMW automobile for his sixteenth birthday, and paid for polo lessons and a polo pony. She also loaned $120,000 of her son’s money to her parents, who lost those funds in several schemes involving auto and mobile home sales.

After Mr. Ventura discovered that his money was gone, he brought suit against a number of individuals and organizations. He sued Hartford Insurance, who had issued the bond assuring that his mother would manage the money properly. He also sued the lawyer who had represented his mother, Billie B. Line, Jr., and two brokerage houses that had each handled a portion of the conservatorship money.

Mr. Ventura’s case has made its way to the Alabama Supreme Court twice in the seven years since he reached his majority. The first case, Edward D. Jones & Co. v. Ventura, was decided in 2005. It stands for the proposition that the mandatory arbitration agreements contained in almost all brokerage new account forms can bind the ward even though signed by a conservator. But the more interesting case was decided just last month.

Mr. Ventura secured a $500,000 judgment, plus interest, against his mother, and sought to collect the money from Hartford Insurance, which had (after all) promised to pay off on any claims against the conservator. Hartford, however, wanted to raise another argument. It had gotten Ms. Dutton’s lawyer (Mr. Line) to sign a “joint control agreement,” in which Mr. Line agreed to personally oversee Ms. Dutton’s management of the money — and to sign every conservatorship check that might be issued.

Joint control agreements are popular among bonding companies, and less so among lawyers. The idea is that, since the attorney has some responsibility to monitor the estate anyway, the bonding company can leverage that responsibility into more protection on its bond. It may be hard to see how this works to the lawyer’s benefit, but some insurance agents even hold the joint control agreement out as a boon to lawyers.

Whether or not it was a smart decision for Mr. Line to agree to the joint responsibility, he did. By his signature he actually became an agent of Hartford Insurance. So what did he do next? Mr. Line then signed a number (somewhere between 50 and 150 — the testimony was unclear) blank checks for Ms. Dutton, and let her take over management of the money.

Mr. Line’s failure to monitor the conservatorship went further than that, however. He borrowed $5,000 from Mr. Ventura’s assets himself to make a down payment on a house in Reno, Nevada. Later he and Ms. Dutton would agree that could be a part of his fees, along with another $4,000 he received from the estate.

Although the probate judge had ordered Ms. Dutton to post an additional $120,000 bond, Mr. Line never saw to it that the extra bond was posted. When the judge scheduled an accounting two years into the conservatorship, Mr. Line failed to get it filed and instead asked for dismissal of the guardian ad litem, the attorney who had been appointed to represent Mr. Ventura’s interests. The probate judge declined to grant his request, but Mr. Line later testified that he did not get the judge’s order, and he never prepared an accounting or appeared for the hearing scheduled in the probate court.

Before trial Mr. Ventura settled with Hartford Insurance on the claim against the bond issued to Ms. Dutton, and that meant the trial proceeded with Hartford moved from the “defendant” category to “plaintiff.” Testimony at the trial indicated that Mr. Ventura’s estate should have been worth in excess of $920,000, even if some of Ms. Dutton’s expenditures had been approved.

The jury awarded $200,000 in actual damages against Mr. Line, and another $550,000 in punitive damages. The Alabama Supreme Court ruled that Mr. Line had undertaken a fiduciary relationship not only with his client, Ms. Dutton, but also with Hartford Insurance and with Mr. Ventura. In these facts, and given the magnitude of Mr. Ventura’s loss, the court had no trouble upholding the judgment. Line v. Ventura, May 22, 2009.

Footnote: on February 8, 2008, Mr. Line filed a Chapter 7 bankruptcy petition. It is not yet clear whether Mr. Ventura or Hartford Insurance will receive all or any significant portion of their judgment.

What can we glean from the story of Mr. Ventura, Ms. Dutton, Mr. Line and Hartford Insurance? Several points:

  • If a lawyer is willing to sign a “joint control agreement,” he or she should do so with eyes wide open  and the lawyer needs to treat the agreement seriously and actually monitor his or her client’s actions
  • In any case, agreement or no agreement, a lawyer who ignores his client’s failure to handle conservatorship funds subjects himself or herself to personal liability for that failure
  • If there is any question about the ability of a family member — even a trusted and loved family member — to handle fiduciary responsibility, it is better for the ward, for the bonding company, for the court and ultimately for the lawyer if a professional fiduciary is selected instead.

Nursing Home May Sue On Surety Bond For Nonpayment

SEPTEMBER 10, 2001 VOLUME 9, NUMBER 11

When J. Michael Cantore, Jr., was appointed as conservator of the person and estate of Diana Kosminer, he was required to post a bond to help ensure that he would handle her finances properly. The purpose of a “surety” bond (the type usually required of conservators) is to protect the ward; if the conservator misspends money, or invests imprudently, or even steals from the ward, the bonding company will reimburse the ward for any loss and then pursue the conservator for recovery. That way the ward does not bear the loss for the conservator’s mistakes.

In 1989 (two years after the conservatorship was established) Ms. Kosminer moved into a nursing home. She would live in the home for the remaining six years of her life and, as it turned out, the $160,000 in her estate when she entered the facility would not be enough to pay for her care for the entire time.

From the very start Mr. Cantore tried to avoid using Ms. Kosminer’s money for her care. He made no payments to the nursing home, but instead made an application (eight months after her admission to the home) to have the state Medicaid agency pay for her care. That application was denied because Mr. Cantore did not provide the information the state required; if he had completed the application Ms. Kosminer would presumably have been denied because she had too much money to qualify for assistance.

Mr. Cantore tried twice more, unsuccessfully, to get Ms. Kosminer qualified for Medicaid benefits. In 1992, after the nursing home had cared for Ms. Kosminer for almost three years without payment, Mr. Cantore liquidated Ms. Kosminer’s assets and successfully qualified her for Medicaid.

Although Ms. Kosminer was not actually injured by Mr. Cantore’s failure to act properly, the nursing home filed a lawsuit against the conservatorship bond. The facility argued that Mr. Cantore had a duty to use Ms. Kosminer’s money for her care and then, when it ran out, to make a timely and complete Medicaid application. Had that been done, said the nursing home, they would not have lost $63,000 on her care.

The Connecticut courts initially threw the nursing home’s claim out of court because, the court ruled, a third party can not make a claim against the surety bond. The bond, according to that argument, is intended to protect the ward and not the ward’s creditors.

The Connecticut Supreme Court disagreed. It reinstated the lawsuit against the bonding company and ruled that Mr. Cantore had a duty to handle Ms. Kosminer’s finances in a timely and appropriate manner. If the nursing home can show that Mr. Kosminer failed in that duty, it can collect on the conservator’s bond. Jewish Home for the Elderly of Fairfield County v. Cantore, August 14, 2001.

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