This article strives to identify a manageable bit of a broad topic: the presumption of fraud in typical civil cases arising from criminal prosecution for financial exploitation against the elderly. Following is a way of approaching the most typical case of “financial exploitation of the elderly” from the perspective of an elderly mother (Mom), and trying to ensure that her best interests as an individual are met.
Thorny Questions Involved
When is a person “elderly?” Once that is defined (most likely by numerical age), are all adults of that age the same? When is a transaction “exploitative?” If we can ever agree upon these two phrases, are all transactions “financial,” or must money in some sense change hands? Would a like-kind exchange of a little cottage for another’s bungalow be included? Suppose she, the claimed victim, is 79, but he, a smooth operator, is 90? Is the transaction exploitative because a son (Sonny) made a huge profit from Mom? Does it make a difference that he knew her cottage was in the development plan for a large developer, but she did not? Would it matter that she had not read the newspaper, but Sonny had?
Laws govern our behavior, define our honor, and shape our fortunes. We may feel that there is unfairness to a particular transaction, but without the law to guide us, we have no basis for rationally concluding that a legal wrong has been done when neither party knew of the protections and limits of the law governing their actions.
When the law defines no wrong, how can estate planning lawyers prevent it, criminal litigators avenge or defend it, and the civil litigators rescind or mitigate it?
Civil Case Scenarios
An ancestor (loosely defined as a parent, grandparent, uncle or aunt) grants authority to a descendant, loosely defined as the child, grandchild, nephew or niece, to “take care of me.” In the typical case, the authority is granted by a joint bank account “signature card” that a banker advised the ancestor to sign, or by a written power of attorney (perhaps taken from the Internet). The arrangement is perceived by the principals as practically perfect in every way. The typical civil case presents three variations, depending upon the lawyer’s practice, and will be addressed by the lawyer in different ways depending upon whom the civil lawyer is representing.
- Case A Sonny, a cocaine addict, has Mom’s power of attorney. He has taken all her money, her house is being foreclosed upon, and Sonny’s sister (Sis) has no room for Mom.
- Case B Same as Case A, except that Sonny is going to take all of Mom’s money.
- Case C Sis, who never liked Sonny, sent him papers about guardianship, and/or demand for accounting, and/or complaint for restitution.
If Mom agrees with Sis, and is not an incapacitated person under local law, then a typical criminal case opens differently. In Virginia, as in many states, an incapacitated person is variously defined depending upon the object of the inquiry.¹
The case will almost surely be brought as an embezzlement grievance. Local laws may vary, but in Virginia, “A person who takes personal property from the possession of another without the owner’s consent and with intent to deprive him of possession permanently is guilty of common law larceny,” and, “A person entrusted with possession of another’s property who converts such property to his own use or benefit is guilty of the statutory offense of embezzlement.”²
An embezzlement case is likely because the elements of proof will be presented on a platter to the prosecutor by the bank, brokerage house, and other financial institutions. They will have copies of Sonny’s Power of Attorney and records of many ATM withdrawals by Sonny entering the code that only he possessed.
Other crimes specifically keyed to abuse of incapacitated adults may also be charged which spring from the collateral consequences of the agent’s or guardian’s financial predation. So, in a trial for felonious abuse or neglect of an incapacitated adult, a guardian’s failure to obtain timely medical treatment for a mother’s chronic starvation, dehydration, or infected bed sores might be tied to the alternate wrongful use of the funds by the guardian or agent.³
The Scenario Unfolds
The path to prosecution has Sis in the detective’s office bravely positing Case A, followed by a retraction and a fallback to Case B. If a crime has been committed, the detective will submit a case to the prosecutor, setting the prologue for the criminal defense lawyer. The jailhouse location of the opening scene for the defense is almost always predictable by the existence and severity of an addiction such as Sonny’s. In jail, Sonny hands over the presentment, warrant, or direct indictment to his public defender.
If his addiction was brief or non-existent, the opening defense scene may shift to a lawyer’s office. The lawyer’s arrangements for service will be the second matter for consideration, with cash being preferred, a mortgage perhaps agreeable, but in any event, one or the other.
As for criminal procedure, strategy, and tactics, it is important to understand that the state, not Mom or Sis, is the offended party and controls criminal prosecution from beginning to end. Sonny is cloaked with a presumption of innocence that often is so impenetrable that it may be overcome only by proof beyond a reasonable doubt of every element of the alleged criminal act. He may remain silent, without comment from the prosecutor, who may slash Sis’s credibility to shreds.
If Mom (who suffers from dementia) does not testify, she will be characterized as the silent witness approving the son who has taken care of her in her home when Sis couldn’t be bothered. If Mom does testify, she can be led in cross examination by the defense to “remember” all that she consented to in helping out her beloved son.
It is likely that the poor dear will be too confused to recall all the times she approved Sonny’s “gifts.” If she seems recalcitrant, it is only to be expected from a matron constantly bombarded by Sis’s relentless spew of hatred for Sonny.
Successful criminal prosecution of Sonny will result in some combination of imprisonment or threat of imprisonment (conditioned upon probation), criminal fines, and often restitution orders. Regardless of consequences to Sonny, Mom’s financial interest will be improved only marginally, and then only insofar as an order of restitution is applicable and can be enforced. Even with a restitution order, Sonny’s ability to restore Mom’s funds will be reduced if not eliminated. He will be a felon in a world where there is high unemployment even for non-felons. He is not so young, and will have spent the last of his ill-gotten funds to defend the case. If the prosecution fails, Sonny’s liberty is preserved and the criminal court’s jurisdiction is at an end. There will be no order of restitution. Liberty having been assured, Sonny will have no legal incentive arising from the proceeding to pay anything to Mom.
If the prosecution ended because he was innocent, then justice was served. If he was not innocent, but acquitted because he could not be proven guilty beyond a reasonable doubt, perhaps a more profound justice has been served. The presumption of innocence and the demand for the State to prove its case beyond a reasonable doubt is “bottomed on a fundamental value determination of our society that it is far worse to convict an innocent man than to let a guilty man go free.”4 His justice will be left to higher powers.
The interests of Mom have not been served in either case. She is still out the money, her home, and everything else. If Sonny is in jail, she will be remorseful. If he is on probation, he will constantly remind her that she “ruined his life.” If he has been acquitted, and there is anything of her estate left to steal, then handing it over “is the least she can do to make up for ruining him.”
In contrast, civil law stacks the deck against Sonny in a way that can restore to Mom whatever is left. When there is nothing left, the only remedy may be to pursue negligence against the architect of Mom’s woes. That might be the lawyer who created the Power of Attorney for Mom to sign without warning her of its implications or taking steps (surety, accounting oversight, joint control, etc.) to mitigate risks.
It might be the bank that presented and induced Mom to sign a joint account card. To avoid being among these architects, the legal professionals in this case should not have prepared a power of attorney for Sonny to present to Mom for execution without having first met Mom to explain the arrangement and apprise her of the risks that her son’s cocaine addiction might present.
Settlement of such cases often provides for a Living Trust in which all of Mom’s assets are placed for Sis to control, with Sonny’s waiver of any entitlement to inheritance in what is left in her estate and, for good measure, a lien on whatever inheritance he presently has. Because Mom, not the State, controls the litigation in a civil prosecution, she has great leverage to fashion creative means of restoring past predations and preventing them in the future. She may be able to stop the bleeding and extract the serpent’s fangs, all in one stroke.
Mom’s best cause of action against Sonny is for constructive fraud. On these 17 facts, it is the abuse of a confidential or fiduciary relationship. A fiduciary relationship exists “when special confidence has been reposed in one who in equity and good conscience is bound to act in good faith and with due regard for the interests of the one reposing the confidence.”5 No such relationship is more firmly established than by that of agent to principal in a power of attorney.6
The usual procedural rule is that the plaintiff bears the burden of proving his or her case. In most civil cases, the rule requires proof by a preponderance of the evidence (ie: the complained of action more than likely actually occurred). The plaintiff bears the burden of every element of fraud by clear and convincing evidence. This does not necessarily mean a greater number of witnesses, but, rather, the greater weight of all the evidence.7
This standard of evidence in civil cases is “the degree of proof that provides the fact finder a firm belief or conviction regarding the allegations that a party seeks to establish. This evidentiary standard is intermediate in nature, exceeding the ‘preponderance’ standard but not requiring the level
of certainty in criminal cases of ‘beyond a reasonable doubt.’”8
By contrast, in a claim for constructive fraud against Sonny, Mom’s burden of proof is a remarkably simple two steps:
- Mom gave Sonny a Power of Attorney (or authority under a trust or a convenience relationship in a bank account). The proof is the Power of Attorney itself and, in most cases, its recordation by Sonny in a court record (eg: if real estate has been transferred) or with financial institutions to authorize his dealings.
- During the life of the Power of Attorney, Sonny was benefitted by Mom’s estate. Proof is usually documentary (eg: cancelled checks, ATM receipts with security photos, deeds of gift, etc.). Upon proof of these facts, the burden of proof shifts to Sonny in a big way. In most cases, lawyers know that a presumption arising by operation of law is rebutted by the introduction of any competent contrary evidence. Once rebutted, the presumption has no further use. It, effectively, “disappears”9.
Here, for Sonny, the presumption is not rebutted upon introduction of the slightest scintilla of evidence, which is often little more than “Mom wanted me to take the money and give me the real estate, etc.”
In a complete reversal, then, Mom’s mere proof of the Power of Attorney and Sonny’s benefit from her estate during its existence is totally sufficient to shift the burden of proof to Sonny to prove by clear and convincing evidence that he didn’t take advantage of Mom.
A Real Case in Point
The short shrift Sonny would receive in this instance can be appreciated by reviewing the long established doctrine applied at the appellate level in Virginia as recently as 2007 in Froelich v. Haynes.10
In short, Deborah Haynes Froelich, administrator of the estate of Walter H. Haynes (Decedent), appealed from the judgment of the Circuit Court of Spotsylvania County that dismissed her Bill of Complaint against Ronald W. Haynes.
The Bill of Complaint alleged that Haynes acted “without the authority of a proper Power of Attorney or beyond its granted powers [and] improperly obtained possession and control over all of the…property of the Decedent and converted [it]…for the personal benefit of Ronald Haynes, and his immediate family.” On appeal, Froelich argued that the circuit court erred by finding that she “failed to sustain the burden of proof” because the proper allocation of the burden of proof was to Haynes.
Haynes had a confidential relationship with the decedent in which Haynes acted as the decedent’s attorney and provided advice on many financial matters. As a result of this confidential relationship, Haynes owed a fiduciary duty to the decedent.
Based on Haynes’ status as the decedent’s attorney in fact, any transaction involving [the decedent’s assets that he consummated to his own benefit while acting as the decedent’s fiduciary is presumptively fraudulent.11 When a presumption of constructive fraud arises, the burden of proof shifts to the fiduciary to produce clear and convincing evidence to rebut the presumption.12
This rule arises independently of any evidence of actual fraud, or of any limitations of age or capacity in the other party to the confidential relationship. It is intended to protect the other party from the influence naturally present in such a confidential relationship.13
The appellate courts ruled that once uncontradicted evidence showed Haynes’ confidential relationship to the decedent under the power of attorney and Haynes’ personal use of the decedent’s assets, a presumption of fraud arose as a matter of law. Further, the burden of proof to rebut that presumption by clear and convincing evidence shifted to Haynes.
The circuit court erred by improperly assigning the burden of proof to Froelich. The judgment was to be reversed and the matter remanded for a new trial with the correct burden of proof applied.14
As the fiduciary conducting transactions for his own benefit, Haynes now must satisfy the burden of proof at a new trial by clear and convincing evidence to rebut the presumption that his activities were fraudulent. If he failed to satisfy his burden of proof, a constructive trust would arise to protect the decedent’s estate and its beneficiaries from Haynes’ self-dealing in the affected assets.15
“Constructive trusts arise independently of the intention of the parties, by construction of law; being fastened upon the conscience of him who has the legal estate, in order to prevent what otherwise would be a fraud.”16 Accordingly, the judgment appealed from was reversed and remanded for further proceedings.
You Go, Mom!
Mom would be much better off with this kind of outcome than almost any other. Because the rules are so devastating, early capitulation would likely be counseled for Sonny, especially given the specter of punitive damages and payment of attorney fees. If surrender were not forthcoming, careful lawyers on both sides would remind clients of the limits and protections bankruptcy offers.
Sonny could threaten and Mom might quake, but in the end Sonny would pay. He would, in fact, probably pay more to Mom if he filed for relief because debts arising from fraud are not dischargeable.17
If Sonny did not stumble into the pit, Mom might shove him in by way of involuntary proceedings to recover rent. Relieved of all other creditors, Sonny would be fair game (perhaps “sporting” game”) for Mom’s legal settling of scores.
- See Va. Code § 37.2-1000 (incapacity for guardianship/ conservatorship); Va Code § 26-76,77 (capacity for power of attorney under Uniform Power of Attorney Act); and Va. Code § 55-546.01 (the Uniform Trust Code definition of capacity to create a revocable living trust).
- Hewitt v. Commonwealth, 213 Va. 605, 606, 194 S.E.2d 893, 894 (1973); Code § 18.2-111.1, C.D. Smith v. Commonwealth, 222 Va. 646, 658, 283 S.E.2d 209 (1981)
- Correll v. Commonwealth, 269 Va. 3, 3, 607 S.E.2d 119 (2005).
- In re Winship, 397 U.S. 358, 372 (1970).
- Allen Realty Corp. v. Holbert, 227 Va. 441, 446, 318 S.E.2d 592 (1984), citing H-B Partnership v. Wimmer, 220 Va. 176, 179, 257 S.E.2d 770, 773 (1979).
- Grubb v. Grubb, 272 Va. 45, 630 S.E.2d 746 (2006), citing Economopoulos v. Kolaitis, 259 Va. 806, 812, 528 S.E.2d 714, 718 (2000); Jackson v. Seymour, 193 Va. 735, 740-41, 71 S.E.2d 181, 184-85 (1952); Nicholson v.Shockey, 192 Va. 270, 278, 64 S.E.2d 813, 817-18 (1951).
- Smyth Bros. Et Als v. Beresford, 128 Va. 137, 156, 104 S.E. 371 (1920); Norfolk & A. Terminal Co. v. Morris, 101 Va. 422, 44 S.E. 719 (1903).
- Grubb v. Grubb, 272 Va. 45, 54, 630 S.E.2d 746 (2006), citing Commonwealth v. Allen, 269 Va. 262, 275, 609 S.E.2d 4, 13 (2005); Judicial Inquiry & Review Comm’n v. Lewis, 264 Va. 401, 405, 568 S.E.2d 687, 689 (2002); Fred C. Walker Agency, Inc. v. Lucas, 215 Va. 535, 540-41, 211 S.E.2d 88, 92 (1975).
- Yates v. Evatt, 500 U.S. 391, 413 (1991) (comparing two presumptions, one of which “disappeared” upon introduction of evidence, and the other somehow lingered as might Bacon’s ghost, “not conclusive[ly],”) (Scalia, concurring).
- Froelich v. Haynes, 07 Va. S. Ct. UNP 061060 (2007)
- See Economopoulos v. Kolaitis, 259 Va. 806, 812, 528 S.E.2d 714, 718 (2000); Jackson v. Seymour, 193 Va. 735, 740-41, 71 S.E.2d 181, 184-85 (1952); Nicholson v. Shockey, 192 Va. 270, 278, 64 S.E.2d 813, 817-18 (1951).
- Creasy v. Henderson, 210 Va. 744, 749-50, 173 S.E.2d 823, 828 (1970); Nicholson, 192 Va. at 277, 64 S.E.2d at 817; see Carter v. Williams, 246 Va. 53, 59, 431 S.E.2d 297, 300, 9 Va. Law Rep. 1438 (1993)
- Nicholson, 192 Va. at 277, 64 S.E.2d at 817; Stiers v. Hall, 170 Va. 569, 577-78, 197 S.E. 450, 454 (1938). Id. at 53-54, 630 S.E.2d at 751.
- Nuckols v. Nuckols, 228 Va 25, 37–38, 320 SE 2d 734, 741 (1984).
- See Faulknier v. Shafer, 264 Va. 210, 215, 563 S.E.2d 755, 758 (2002). Id.
- 11 USC § 523 (a)(2)(A), (a)(6). “Both Supreme Court and our own precedent support our interpretation of the exception in this case. The Supreme Court explained the rationale behind Congress’s adoption of the exceptions to discharge in Local Loan v. Hunt, 292 U.S. 234 (1934). The Court stated that bankruptcy proceedings provide ‘a new opportunity in life and a clear field for future effort’ to an individual burdened by excessive debt, but it also cautioned that such a new opportunity is available only for the ‘honest but unfortunate debtor.’ Hunt, 292 U.S. at 244. When a debtor has acquired debt through fraudulent means, the exceptions to discharge protect the duped creditor and demand that the debtor make good for her misdeeds. Brown v. Felsen, 442 U.S. 127, 138 (1979).” In Re Rountree, 478 F.3d 215, 219-220 (4th Cir. 2007).