In rе ESTATE OF THOMAS F. SHELTON, Deceased, (Ruth Ann Alford, Executor, Petitioner-Appellant, v. Rodney I. Shelton, Respondent-Appellee).—RUTH ANN ALFORD, as executor of the ESTATE OF DORIS E. SHELTON, Plaintiff-Appellant v. RODNEY I. SHELTON, Defendant-Appellee.
Docket Nos. 3-14-0163, 3-14-0685 cons.
Appellate Court of Illinois, Third District
August 1, 2016
2016 IL App (3d) 140163
Hon. Lance R. Peterson, Judge, presiding.
Illinois Official Reports
Decision Under Review: Appeal from the
Judgment: No. 3-14-0163, Affirmed: No. 3-14-0685, Reversed and remanded.
Counsel on Appeal: George C. Hupp, Jr. (argued), and Michael W. Fuller, both of Hupp, Lanuti, Irion & Burton, P.C., of Ottawa, for appellant.
Darrel L. Seigler (argued), of Ottawa, for appellee.
Panel: JUSTICE HOLDRIDGE delivered the judgment of the court, with opinion. Justice Carter concurred in part and dissented in part, with opinion. Justice Schmidt concurred in part and dissented in part, with opinion.
OPINION
¶ 1 In these consolidated cases, Ruth Ann Alford, as the executor of the estates of her late parents, Thomas and Doris Shelton, sued her brother, Rodney Shelton, to recover real estate that she alleged Rodney had wrongly received from both estates and for damages resulting from Rodney’s alleged violation of his legal duties as successor power of attorney for Doris. In case No. 3-14-0144, Ruth Ann, as executor of Thomas’s estate, filed an amended estate citation seeking the return to Thomas’s estate of a farm that Thomas had conveyed to Rodney in December 2011. Ruth Ann alleged that the conveyance was presumptively fraudulent because it occurred while Rodney was named as the successor power of attorney under Thomas’s Illinois Statutory Short Form Power of Attorney for Property (POA), and while Doris, Thomas’s primary power of attorney under the POA, was incompetent. Rodney moved to dismiss the complaint under sections
¶ 2 In case No. 3-14-0685, Ruth Ann, as executor of Doris’s estate, sued Rodney for damages allegedly caused by Rodney’s breach of a duty to Doris as a successor power of attorney. Ruth Ann alleged that, while Rodney was named as a successor power of attorney for Doris, and while Doris was incompetent to manage her own affairs, Rodney colluded with Thomas, Doris’s primary power of attorney, to transfer Doris’s interest in certain real estate to Rodney in violation of section
FACTS
¶ 4 On January 18, 2005, Thomas Shelton executed an Illinois Statutory Short Form Power of Attorney for Property (POA) appointing his wife, Doris Shelton, as his “attorney-in-fact” or “agent.” The POA form states that Doris has the power to act for Thomas and in his name in any way Thomas could act in person with respect to several enumerated powers, including: (1) the power to “pledge, sell, and otherwise dispose of any real or personal property without advance notice” to Thomas; (2) the power to make Estate transactions, gifts, and “all other property powers
¶ 5 In paragraph 8, Thomas’s POA provided:
“If any agent named by me shall die, become incompetent, resign or refuse to accept the office of agent, I name the following (each to act alone and successively, in the order named) as successor(s) to such agent: my son Rodney I. Shelton—my daughter Ruth Ann Alford.
For purposes of this paragraph 8, a person shall be considered to be incompetent if and while the person is a minor or an adjudicated incompetent or disabled person or the person is unable to give prompt and intelligent consideration to business matters, as certified by a licensed physician.”
¶ 6 On the same day Thomas executed his POA, Doris executed a substantively identical durable POA for property appointing Thomas as her agent (or attorney-in-fact) and Rodney and Ruth Ann, successively, as successor agents.
¶ 7 Thomas and Doris owned a farm together as joint tenants. On December 1, 2011, Thomas executed quitclaim deeds conveying his and Doris’s interest in the farm to Rodney and Rodney’s wife. Thomas conveyed his own interest in the farm on his own behalf, and he conveyed Doris’s interest in the farm as attorney-in-fact under Doris’s power of attorney. On the same dаy, Thomas executed another quitclaim deed conveying to Rodney and Rodney’s wife another farm that was titled in Thomas alone.
¶ 8 On December 2, 2013, Thomas’s estate (by its executor, Ruth Ann), filed an amended citation under section
¶ 9 The complaint further alleged that, due to Doris’s incompetence at the time the deeds at issue were executed, “Rodney *** had succeeded to and was the POA under the power of attorney which created a fiduciary relationship between Thomas *** and Rodney.” Therefore, the complaint
¶ 10 On December 11, 2013, Rodney filed motions to dismiss the estate’s amended petition for citation under sections
adjudication of incompetence or the creation of a fiduciary relationship nunc pro tunc.” The estate filed a response to Rodney’s motions to dismiss and Rodney filed a reply.
¶ 11 On January 30, 2014, the estate filed the “Physician’s Report” of Dr. Daniel M. Jurak, Doris’s former treating physician, as a supplemental exhibit to its response to Rodney’s motions to dismiss. In his report, Dr. Jurak stated under oath that Doris had suffered from “[d]ementia, diagnosed on or before October 4, 2011, associated with Parkinson’s Disease with a start of care date of October 13, 2011.” Dr. Jurak further stated that Doris had an “onset of confusion in March 2011” and had “exhibited continuing diminishment of mental and cognitive ability with progressive worsening through the date of her death in 2012.” Dr. Jurak opined that “[a]s of, and including, December 1, 2011, *** Doris Shelton was incompetent, unable to manage her personal affairs, unable to give prompt and intelligent consideration [to] her personal affairs and unable to give prompt and intelligent consideration to business matters.” Dr. Jurak stated that he based these observations on: (1) “[his] own examinations(s), continuing care and observations(s), of Doris Shelton from 2008 through the dаte of her death“; and (2) “[r]eview and examination of treatment records kept in the ordinary course of business, created by persons with independent knowledge of their personal observations and assessments, made at or near their personal observations and assessments[,] *** records of which [Dr. Jurak had] found to be accurate and reliable.”
¶ 12 The trial court held a hearing on Rodney’s motions to dismiss on February 4, 2014. After reading the parties’ briefs and hearing oral arguments, the trial court denied Rodney’s motion to dismiss under
¶ 13 On March 24, 2014, Ruth Ann, as executor of Doris’s estate, filed a complaint against Rodney seeking damages for Rodney’s alleged breach of fiduciary duty to Doris. The complaint alleged that, on December 1, 2011, Thomas violated his duty as Doris’s agent under Doris’s POA by transferring all of Doris’s interest in the farm to Rodney and Rodney’s wife without reserving a life estate in Doris at a time when Doris was incompetent and in need of income from the property. The complaint
¶ 14 Rodney filed a motion for judgment on the pleading pursuant to section
the proposition that a “secondary agent could be liable” if he “sees the primary agent violate his duty to the principal,” and that a successor POA has a duty to take action under such circumstances to protect the principal from harm.
¶ 15 After oral argument, the trial court took the matter under advisement. On August 29, 2014, the trial court issued a ruling from the bench finding as a matter of law that Rodney never became an agent of Doris’s under Doris’s POA, and therefore no fiduciary duty ever arose. The court found that, at the time of the conveyance at issue, Thomas was Doris’s agent with all of the discretion that Doris chose to give him. Accordingly, the trial court granted Rodney’s motion to dismiss Ruth Ann’s complaint with prejudice under section
¶ 16 Thomas’s estate appealed the trial court’s dismissal of its amended petition for citation to recover property from Rodney under section
ANALYSIS
1. The Dismissal of the Amended Estate Citation Filed by Thomas’s Estate
¶ 19 In appeal No. 3-14-0163, Ruth Ann, as executor of Thomas’s estate, argues that the trial court erred in granting Rodney’s motion to dismiss the amended estate citation under section
¶ 20 Ruth Ann argues that Rodney had a fiduciary relationship with Thomas at the time of the conveyance in December 2011 because Thomas had designated Rodney аs a successor agent in his POA. She also maintains that, because Doris was incompetent at the time Thomas conveyed his farm to Rodney in December 2011 (as certified by Doris’s treating physician in 2014), Rodney had succeeded Doris as Thomas’s attorney-in-fact at the time of the conveyance, which made him Thomas’s fiduciary. Ruth Ann argues that, because Rodney was Thomas’s fiduciary, Thomas’s conveyance of his farm to Rodney was presumptively fraudulent, and the trial court erred in dismissing the amended estate citation.
¶ 21 A fiduciary relationship is one where a person is under a duty to act for the benefit of another. In re Estate of Baumgarten, 2012 IL App (1st) 112155, ¶ 16. A fiduciary relationship can arise as a matter of law or fact. In re Estate of DeJarnette, 286 Ill. App. 3d 1082, 1088 (1997). One way in which a fiduciary relationship can exist as a matter of law is through the apрointment of a power of attorney. Id.; see also Clark v. Clark, 398 Ill. 592, 600 (1947); In re Estate of Elias, 408 Ill. App. 3d 301, 319 (2011) (“A power of attorney gives rise to a general fiduciary relationship between the grantor of the power and the grantee as a matter of law.“); Spring Valley Nursing Center, L.P. v. Allen, 2012 IL App (3d) 110915, ¶ 12 (“When a person
is designated as an agent under a power of attorney, he has a fiduciary duty to the person who made the designation.“).
¶ 22 “The mere existence of a fiduciary relationship prohibits the agent from seeking or obtaining any selfish benefit for himself, and if the agent does so, the transaction is presumed to be fraudulent.” Spring Valley Nursing Center, 2012 IL App (3d) 110915, ¶ 12; see also Clark, 398 Ill. at 601-02. “Thus, any conveyance of the principal’s property that either materially benefits the agent or is for the agent’s own use is presumed to be fraudulent.” Spring Valley Nursing Center, 2012 IL App (3d) 110915, ¶ 12; see also Clark, 398 Ill. at 601; In re Estate of Rybolt, 258 Ill. App. 3d 886, 889 (1994).1 This rule applies to conveyances of the principal’s property by the agent to a third party on behalf of the principal and also to conveyances made by the principal directly
¶ 23 In determining whether Rodney was Thomas’s fiduciary at the time of the conveyance at issue, we must first answer a threshold legal question. Specifically, we must decide whether a successor agent under a POA has a fiduciary duty to the principal before he becomes the acting agent (or the “attorney in-fact“) merely by virtue of being named a successor agent in the POA. This is an issue of first impression. Illinois courts have held reрeatedly that an appointed agent under a POA (i.e., an agent designated as the principal’s attorney-in-fact) has a fiduciary duty to the principal as a matter of law from the time the POA is executed, regardless of whether or when he exercises his powers under the POA. See, e.g., Estate of Elias, 408 Ill. App. 3d at 320; see generally In re Estate of Miller, 334 Ill. App. 3d 692, 697, 700 (2002). However, no published Illinois decision holds that a party named a successor agent under a POA has such a duty before he becomes the principal’s attorney-in-fact. That is not surprising, because a fiduciary relation is created by the “appointment,” “granting,” or “designation” of a power of attorney (see, e.g., Estate of DeJarnette, 286 Ill. App. 3d at 1088; Estate of Elias, 408 Ill. App. 3d at 319; Spring Valley Nursing Center, 2012 IL App (3d) 110915, ¶ 12), and a successor agent under a POA is appointed, granted, or designated a power of attorney only contingently, i.e., only if the person designated attorney-in-fact under the instrument is unwilling or unable to act on the principal’s behalf. In this case, Thomas’s POA provided: “If any agent named by me shall die, become incompetent, resign or refuse to accept the office of agent, I name the following (each to act alone and successively, in the order named) as successor(s) to such
agent: my son Rodney I. Shelton—my daughter Ruth Ann Alford.” (Emphasis added.) Thus, Rodney’s designation as Thomas’s agent under the POA, and the attendant powers to act on Thomas’s behalf, would be triggered if, and only if, the designated attorney-in-fact (Doris) died, became incompetent, or refused to accept the agency. Until any of those events occurred, Rodney had no power of attorney under the document, and therefore nо common-law fiduciary duty to exercise such power according to Thomas’s interests. In sum, it is the power to act as a principal’s attorney-in-fact that creates a fiduciary duty as a matter of law. Until that power is actually conferred, there can be no corresponding fiduciary duty to use that power for the principal’s benefit.
¶ 24 Having found that Thomas’s designation of Rodney as a successor agent under the POA did not create a common-law fiduciary relationship, we proceed to the second question noted above: namely, whether the estate established that Doris was incompetent at the time of the conveyance in 2011 (and, therefore, that Rodney became Thomas’s agent-in-fact at that time under the POA) through Dr. Jurak’s physiciаn’s report, even though that report was prepared and signed approximately two years later. The trial court answered this question in the negative.
¶ 25 As noted, Thomas’s POA names Rodney as a successor agent only if the designated attorney-in-fact (Doris) “shall *** become incompetent.” The next sentence states that “[f]or purposes of this paragraph ***, a person shall bе considered to be incompetent if and while the person is a minor or an adjudicated incompetent or disabled person or the person is unable to give prompt and intelligent consideration to business matters, as certified by a licensed physician.” (Emphasis added.) Although the POA does not expressly state when the physician’s certification must take place, when the paragraph is read as a whole, the clear implication is that the certification must occur before the successor power of attorney becomes the attorney-in-fact. Unless the originally designated attorney-in-fact is disabled or a minor, she does not “become incompetent” for purposes of the POA unless she is adjudicated incompetent or сertified incompetent by a licensed physician. Moreover, the POA expressly states that the original agent will be considered incompetent “if and while” such certification and adjudication takes pace. (Emphasis added.) The most straightforward reading of these provisions is that the physician’s certification, like an adjudication of incompetency, is meant to serve as a triggering event that nullifies the primary agent’s authority at the time of the certification and in the future, until the certification is rescinded. Nothing in Thomas’s POA suggests that a physician’s certification prepared years after the fact may retroactively nullify the designated agent-in-fact’s authority to act under the POA. Because written POAs must be strictly construed in Illinois (In re Estate of Romanowski, 329 Ill. App. 3d 769 (2002); Amcore Bank, N.A. v. Hahnaman-Albrecht, Inc., 326 Ill. App. 3d 126 (2001)), we will not read such intent into the instrument by implication where the text does not clearly support that interpretation.
¶ 26 Moreover, there are good policy reasons for reading a standard form POA in this manner. Allowing incompetency determinations to be made years after the fact could create uncertainty and lead to situations where an acting power of attorney makes financial decisions for a long period of time before he or she is declared incompetent and replaced with a successor POA.
Principals, acting agents, successor agents, and third parties need to know with certainty who has the authority to act on the principal’s behalf (and who has fiduciary duties to the principal) at a particular time. If an attorney-in-fact’s authority can be nullified retroactively by a doctor’s certification years after the fact, the designated successor agents would never be certain when their powers and duties under the POA were triggered. A successor agent under the POA might reasonably believe that the attorney-in-fact is competent, only to discover years later that she had been incompetent for years, and that the successor agent has been inadvertently shirking his duty throughout that entire period. This would create a regime of instability and uncertainty which could upset the settled expectations of principals, attorneys-in-fact, successor agents, and third parties who have transacted business with an attorney-in-fact. Moreover, allowing retroactive certification of an agent’s incompetency would likely spawn litigation
¶ 27 Accordingly, we affirm the trial court’s dismissal of the amended estate citation in appeal No. 3-14-0163.
2. The Dismissal of Doris’s Estate’s Claim Against Rodney
¶ 29 In Case No. 3-14-0685, Ruth Ann, as executor of Doris’s estate, argues that the trial court erred in dismissing Doris’s estate’s claim against Rodney for breach of fiduciary duty as a successor trustee under section
¶ 30 The complaint in this case alleged that, on December 1, 2011, Thomas violated his fiduciary duty as Doris’s agent under Doris’s POA by transferring all of Doris’s interest in the farm to Rodney and Rodney’s wife without reserving a life estate in Doris at a time when Doris was incompetent and in need of income from the property. The complaint alleged that Rodney “participated in such breach of fiduciary duty” by Thomas in violation of section
Act (
¶ 31 Section
“An agent is not liable for the actions of another agent, including a predecessor agent, unless the agent participates in or conceals a breach of fiduciary duty committed by the other agent. An agent who has knowledge of a breach or imminent breach of fiduciary duty by another agent must notify the principal and, if the principal is incapacitated, take whatever actions may be reasonably appropriate in the circumstances to safeguard the principal’s best interest.” (Emphasis added.)
755 ILCS 45/2-10.3(b) (West 2010)).
¶ 32 In dismissing the complaint, the trial court held that, because Rodney was only a successor agent who never became an actual agent of Doris’s under the POA, no fiduciary duty ever arose as a matter of law. However, although we agree that Rodney did not have a fiduciary duty to Doris under the POA or under the common law, that does not resolve the matter. The complaint in this case was based upon section
¶ 33 Moreover, section
¶ 34 Thus, by its plain terms, section
interest; and (3) Rodney “participated in such breach of fiduciary duty” by Thomas in violation of section
¶ 35 Rodney argues that, when the Act is read as a whole, it is clear that section
¶ 36 We disagree. Section
¶ 37 Moreover, section
¶ 38 In his partial dissent in case No. 3-14-0685, Justice Carter maintains that our decisions in these two consolidated appeals are inconsistent. See infra ¶ 47. We disagree. In the first appeal
(No. 3-14-0163), we hold that a successor agent under a POA has no fiduciary duty to the principal under the common law until he becomes the acting agent (or attorney-in-fact). In the second appeal (No. 3-14-0685), Justice Schmidt and I hold that a successor agent has a limited statutory duty under section
¶ 39 We also disagree with Justice Carter’s conclusion that “the references to the ‘agent’ in section
¶ 40 Moreover, contrary to Justice Carter’s conclusion (infra ¶ 47), our reading of section
¶ 41 For the reasons set forth above, we reverse the trial court’s dismissal of Doris’s estate’s claim.
CONCLUSION
¶ 43 The judgment of the circuit court of Grundy County in appeal No. 3-14-0163 is affirmed. The judgment of the circuit court of Grundy County in appeal No. 3-14-0685 is reversed and remanded for further proceedings.
¶ 44 No. 3-14-0163, Affirmed: No. 3-14-0685, Reversed and remanded.
¶ 45 JUSTICE CARTER, concurring in part and dissenting in part.
¶ 46 I concur with the majority’s decision affirming the trial court’s dismissal of the amended estate citation in appeal No. 3-14-0163. Specifically, I agree with the analysis in paragraphs 18 through 27.
¶ 47 However, for the reasons that follow, I also respectfully dissent from the majority’s decision reversing the trial court’s dismissal of the estate’s claim in appeal No. 3-14-0685. Specifically, I dissent from paragraphs 28 through 41. First, in my opinion, the majority’s decisions in the two consolidated appeals are inconsistent with one another as the majority finds in the first appeal (No. 3-14-0163) that a successor agent under a POA has no fiduciary duty to the principal until he becomes the acting agent but reaches the exact opposite conclusion in the second
¶ 48 JUSTICE SCHMIDT, concurring in part and dissenting in part.
¶ 49 Because I would reverse the trial court’s dismissal of the amended estate citation in appeal No. 3-14-0163, I respectively dissent from that portion of the majority opinion which affirms it. Supra ¶¶ 18-27.
¶ 50 The majority explains, supra ¶ 26, that the sky will fall if we were to read a standard form POA to allow a retroactive declaration of incompetency. I suggest that the majority’s view allows a successor agent under a POA, who knows full well that the designated attorney-in-fact is incompetent, to engage in self-dealing before either seeking a physician’s declaration of incompetency, or a court order to the same effect. In a case such as this, we have the opinion and medical records of Doris’s former treаting physician, not simply a hired expert. If the estate can show that Doris was indeed incompetent at the relevant times, I see no reason, not to allow the estate to challenge the transactions that benefitted Rodney. If a retroactive declaration of incompetency only affects transactions that benefit the successor agent directly, or even indirectly, then that should alleviate most of the majority’s concerns. Supra ¶ 26.
¶ 51 I concur with Justice Holdridge’s analysis and reversal of the trial court with respect to appeal No. 3-14-0685. Supra ¶¶ 29-41.