Self-Dealing Nullifies Gift to Power of Attorney Holder

Relying on Paragraph 3 of the power of attorney statement that Billy D. Collins signed about a week before he died, Patricia Noltensmeier made herself the beneficiary of Collins’s $45,000 Individual Retirement Account (IRA).

The power of attorney given to Noltensmeier included the power of an attorney-in-fact, the “power to make gifts, exercise powers of appointment, name or change beneficiaries under any beneficiary form or contractual arrangement.”

However, the original beneficiaries of the IRA, Kenny Collins and Linda Richard, who agreed to pay their attorney a one-third contingency fee, sued Noltensmeier for breach of fiduciary duty and conversion.

A Cass County, Ill., judge granted summary judgment against Noltensmeier and also ordered her to pay $14,832, a third of the amount recovered as a reasonable fee under Section 2-7(f) of the Illinois Power of Attorney Act.

The appellate court stated: “Here, the authority was granted to make gifts and to change beneficiaries, but there was no specific authority for defendant to self-deal. In other words, to change beneficiaries under accounts to herself. The presumption is it’s fraudulent and it has to be overcome by clear and convincing evidence. I don’t think there is. I have not seen any evidence.”

In affirming the order, the Illinois Appellate Court concluded that Noltensmeier failed “to demonstrate by clear and convincing evidence she indeed had the authority as Billy’s agent to self-deal. Defendant did not carry her burden of rebutting the presumption of fraud related to her self-dealing transaction.”

A power of attorney creates a fiduciary relationship as a matter of law. Estate of Shelton, 2017 IL 121199; 755 ILCS 45/2-7(a), (b) (codifying the agent’s duty of care owed to the principal for purpose of the act).

The existence of a fiduciary relationship prohibits the agent from seeking or obtaining any selfish benefit for herself; if the agent seeks or obtains such benefit, the transaction is presumed to be fraudulent. Thus, any conveyance of principal’s property that either materially benefits the agent or is for the agent’s own use is presumed to be fraudulent.

Once a fraudulent transaction has been alleged, the burden then shifts to the agent to prove by clear and convincing evidence that the transaction was fair and did not result from his undue influence over the principal.

The presumption of fraud is rebuttable if it can be shown that the agent exercised good faith and did not betray the confidence placed in her.

If the agent rebuts the presumption of fraud, the transaction in question will be upheld. 735 ILCS 45/2-7(a) (agent who acts with due care for the benefit of the principal will not be held liable merely because the act also benefits the agent).

The appeals panel went on to state that a written power of attorney must be strictly construed so as to reflect the clear and obvious intent of the parties. However, the general powers granted to the defendant pursuant to paragraph 3 did not specifically include the power to change the beneficiary on Billy’s IRA to herself, a presumed fraudulent act of self-dealing.

The defendant in this case was unable to demonstrate by clear and convincing evidence that she indeed had authority as Billy’s agent to self-deal. The defendant did not carry her burden of rebutting the presumption of fraud related to her self-dealing transaction. Accordingly, the appeals panel affirmed the trial court’s order granting summary judgment in favor of plaintiffs.

Lastly, the court allowed plaintiffs’ counsel attorney’s fees. Section 2-7(f) of the Power of Attorney Act states that “an Agent that violates this act is liable to the principal or the principal’s successors an interest for the amount required (i) to restore the value of the principal’s property to what it would have been had the violation not occurred, and (ii) to reimburse the principal or the principal’s successors in interest for the attorney’s fees and costs paid on the agent’s behalf. This subsection does not limit any other applicable legal or equitable remedies.”

In this case, the trial court appropriately enforced the attorney’s fees provision contained in the statute after finding defendant had violated the act. The court then determined that the contingent fee arrangement constituted a reasonable award in this case. Plaintiffs’ counsel provided an affidavit in support of their motion for fees. Counsel averred that two attorneys worked a total of 134.5 hours between them on this case. At their respective hourly rates, their fees totaled $25,290. However, as noted, the fee due on the contingency contract totaled $14,832.15, as one-third of the value of the IRA at the time of Billy’s death. The court found the contingency fee to be a reasonable award. The appeals panel found that the trial court did not abuse its discretion in consideration of plaintiffs’ contingency fee agreement and subsequent award of attorney’s fees in this case.

Collins v. Noltensmeier, 2018 IL App (4^th) 170443 (April 5, 2018).

Kreisman Law Offices has been handling guardianships, probate litigation, jury trials and business litigation for more than 40 years in and around Chicago, Cook County and its surrounding areas, including Woodstock, Crystal Lake, Grayslake, Gurnee, University Park, Countryside, Country Club Hills, Clarendon Hills, Bridgeview, Maywood, Melrose Park, Chicago (Wicker Park, Logan Square, Ukrainian Village, Roscoe Village, Beverly, Lakeview, Lincoln Square, Rogers Park, North Lawndale, Jefferson Park), Schaumburg, Schiller Park, Bensenville, Bolingbrook and Joliet, Ill.