Nursing home abuse of agents: Creditor misuse of New York's revised durable Power of Attorney.

• Author: Davies, William P.
• Position: NOTE

Mary is eighty-two years old and lives at Spring View, a skilled nursing home facility near Syracuse, New York. Mary's husband, Walter, died three years ago after a prolonged battle with Parkinson's disease. After Walter's death, Mary's health slowly deteriorated and her doctor determined that she needed skilled nursing care.

Mary's son, Richard, moved into Mary's home shortly after Walter's death to care for his mother. Walter works as a part time bus driver. Following Walter's death, Mary executed a Health Care Proxy, Statutory Short Form Power of Attorney, and Statutory Major Gifts Rider appointing Richard as her agent. Richard has been handling Mary's day-to-day medical and financial affairs for the past year.

Six months ago, based upon Mary's doctor's recommendation, Richard moved Mary to Spring View. As Mary's agent, he signed all the various applications, financial disclosures and documents requested by the nursing home to allow Mary to be a full time resident. At the same time, Richard applied for nursing home assistance through the Chronic Care Unit of Medicaid in Onondaga County. Richard advised Spring View of the application for Medicaid.

A month after Mary moved to Spring View, Richard received a bill for services in the amount of $10,500 ($350 per day). Richard contacted the Medicaid worker assigned to Mary's case and was told not to pay the Spring View bill because Mary's application was pending and Medicaid would pay the bill once Mary's application had been approved. Richard called the Spring View business office and explained what he had been told by the Medicaid worker.

Four months later, with an outstanding bill of $42,000 for Mary's care, Spring View filed a Petition for a Special Proceeding naming Richard individually and as the agent under a power of attorney for Mary. The Petition alleged that Richard had violated his fiduciary duty as Mary's agent by not acting in her best interests by failing to pay the outstanding bill from Spring View, causing her possible eviction. In the Petition, Spring View demanded that Richard give a full accounting of all of Mary's assets as well as an explanation of his actions. The Petition also demanded the removal of Richard as the agent for Mary, required that he pay the attorney's fees of Spring View, and asked the judge to hold Richard personally responsible for Mary's $42,000 nursing home bill.

Richard did not have the means to hire an attorney to defend him. On the return date of the Petition, Richard appeared pro se before the Supreme Court. The attorney for Spring View offered to settle the case if Richard immediately paid the outstanding bill. Fearing that he would be held personally liable and lose his ability to care for his mother, Richard agreed to pay the outstanding bill of $42,000. As Richard didn't have the funds available, he was forced to take out a home equity loan on the house to pay the nursing home, even though Medicaid would have eventually paid the entire bill. (1)

1. INTRODUCTION

   According to the Third Restatement of Agency, "[a] written instrument may make an agent's actual authority effective upon a principal's loss of capacity, or confer it irrevocably regardless of such loss." (2) A commonly used device that confers agency, and does not terminate upon incapacity, is known as a Durable Power of Attorney ("DPOA"). (3) While such a device can be useful to avoid government and court involvement in the event of incapacity, it can also be dangerous. Without proper safeguards, the agent under a DPOA can use the device to exploit an elderly principal. (4) Due to the danger of abuse of the principal at the hands of the agent, state legislatures have enacted various measures to protect principals. (5) However, as this paper sets out, some reforms that combat DPOA abuse may be contrary to the purpose of the device. One of these reforms is the Special Proceeding available to third parties pursuant to the New York General Obligations Law section 5-1510(3), which in its current form allows creditors to bypass the protections offered by New York Debtor Creditor law. (6)

   In order to understand how the special proceeding came to be in its current form, this paper will discuss the history of the DPOA on a national scale, its application in New York, and the various measures taken by New York and other states to ensure agents do not abuse the power granted to them by principals who are no longer competent to manage their affairs.

2. HISTORY

   A DPOA statute was first codified in 1954 by the state of Virginia, which enacted a statute that allowed an agent to maintain power over a principal's assets after the onset of the principal's incapacity. (7) Codification of the DPOA was necessary because common law did not allow an agent to maintain power over a principal's assets after the principal became incapacitated. (8) The Virginia statute did not bring national attention to the problem of incapacity, but it was the first state to attempt to deal with the problem, and subsequently, spurred by national studies into the problems the elderly and incapacitated face, the Uniform Law Commissioners ("ULC") (9) created a committee to work on a proposal for "a power of attorney that could be used for assisting the mentally disabled." (10) All fifty states have adopted some form of the device envisioned by the ULC, which we now know as a DPOA, through the Uniform Probate Code ("UPC"), the Uniform Durable Power of Attorney Act ("UDPAA"), or a modified version of one of the uniform codes. (11) Although states recognized the DPOA device, they did not simultaneously enact many of the protections that the Model Act committee recommended, because the ULC adopted the Virginia enactment, rather than its own Model Act committee's proposal. (12) The ULC did not follow the Model Act committee's proposal because the DPOA the committee recommended would only be used for very small amounts of property and would have strict oversight by the court, including that the agent give the issuing court information about annual income and property subject to the agent's authority. (13) In contrast, the UPC final version did not include these restrictions, because "the drafters were ready to make the device available for a broad constituency as an economic alternative to guardianship," and felt that restrictions recommended by the Model Act committee would discourage adoption of the device. (14) As the ULC did not restrict the DPOA to small estates, legislatures have enacted individual statutes to curb abuse of incapacitated principals who could be taken advantage of by their agents. (15) Today, legislatures continue to search for reforms that allow for "low cost and flexibility," but that also decrease abuse of the DPOA relationship by unscrupulous agents. (16) In 2002, the ULC began to study various DPOA legislation, and "found that a majority of states had begun to enact non-uniform provisions to deal with specific matters upon which the UDPAA was silent." (17) As a result of this study, the ULC adopted the Uniform Power of Attorney Act ("UPOAA"), which aimed to unify Power of Attorney laws among the states. (18) Adopted in 2006 by the ULC, fifteen jurisdictions adopted the UPOAA by 2014. (19) Other states, including New York and California, have extensively revised their DPOA statutes separately from the UPOAA. (20)

3. DPOA REFORM

   The DPOA is "most frequently used as an economical and efficient way for family members to handle the financial affairs of an elder parent." (21) A problem with DPOA reform is that too much oversight risks negating the flexibility and low cost of the device. (22) If reform creates too many protections and safeguards, general practitioners may advise clients to stay away from a DPOA in favor of trusts, devices that can be used in a similar manner to a DPOA, but in a stricter and less flexible setting. (23)

   An often suggested reform, increased court supervision, would "dilute the usefulness of the arrangement and would be inefficient overall" because it would create a relationship similar to guardianship. (24) Accordingly, increased supervision should be a last resort, because it forces a principal and agent to spend money on legal representation and requires that they appear in court, a situation the principal tried to avoid by creating a DPOA and naming an agent. Before instituting legislation that includes increased supervision, reforms that allow an agent to act without forcing them to spend time and money defending their actions in court should be exhausted. In line with this point of view, there are many options state legislatures can choose that have the potential to make an agent think twice before violating his or her fiduciary duty. (25)

   Reforms designed to curb agent abuse of a principal take many forms. Some broad categories include:

   * Reforms that change the requirements for execution of a DPOA; (26)

   * Reforms that clarify the limitations of an agent's authority or reforms that impose new limitations on the agent's authority to act; (27) and

   * Reforms that increase third parties' ability to police DPOA relationships. (28)

   A study published by the New York State Coalition on Elder Abuse shows that increased education is linked to a decrease in financial abuse of the elderly. (29) Further, punishment is not an effective deterrent, partially because offenders may not be aware there are penalties for their actions. (30) In fact, one of the driving factors behind DPOA abuse is a principal's ignorance of the power given to an agent through the DPOA device. (31) Accordingly, it can be inferred that reform is best served through education of principals and agents, because it decreases the chance of abuse before such abuse occurs. In contrast, third party policing of the principal and agent relationship will only discover past abuse or ongoing abuse, rather than address the problem at its source.

   There are many proposals that use third...