July 2, 2012
Authored by: Luke Lantta
The issue of standing regularly arises in fiduciary litigation. Generally, to establish standing to sue, a plaintiff must have suffered an injury in fact, the injury must be traceable to the conduct complained of, and it must be likely that the injury will be redressed by a decision in the plaintiff’s favor.
Lack of standing can be a good defense in fiduciary litigation cases because many estate planning documents are ambulatory and can be changed at any time. How can a person have suffered harm – an injury in fact – if they could have been written out of a will, taken off an account, or removed as the beneficiary of an insurance policy at any time?
The issue of standing in a fiduciary litigation context was recently before the United States District Court for the Northern District of Georgia in Hill v. Clark (2012 WL 1903265). Let’s take a quick look at the background.
According to the plaintiffs, in March 2004 and in April 2008, Bill Clark executed two powers of attorney both designating Randy Clark as Bill’s attorney-in-fact. While both POAs were durable and included broad grants of authority to Randy Clark, neither specifically granted Randy Clark the power to change designated beneficiaries of Bill’s testamentary or other gifts.
According to the plaintiffs, Randy Clark, without Bill’s permission, removed the plaintiffs’ names as beneficiaries from certain CD accounts opened by Bill.
Plaintiffs sued Randy for breach of fiduciary duty, conversion of property, fraud, tortious interference with inheritance, and tortious interference with contract. Plaintiffs claimed that Randy exceeded the scope of the POAs when he removed them as beneficiaries because the POAs did not grant Randy the specific authority to take such action. Randy moved to dismiss on the grounds that the plaintiffs lacked standing, and the court agreed.
Plaintiffs conceded that the 2004 POA was valid, and Randy claimed that the POA gave him authority to change the beneficiaries of Bill’s accounts. If Randy had authority to remove the plaintiffs as beneficiaries under the terms of the 2004 POA, then the plaintiffs suffered no injury to a legally protected interest and therefore lacked standing to sue.
Under Alabama law, the court determined that Randy had authority under the 2004 POA to remove the plaintiffs as beneficiaries, and, thus, the plaintiffs had no legally protected interest over which they could sue.
Plaintiffs had argued that under Alabama law, a POA cannot confer on the attorney-in-fact the authority to change or remove a beneficiary unless that authority is specifically stated. The 2004 POA did not contain an express grant of authority to change beneficiaries. Nevertheless, the court determined that the POA clearly granted Randy the authority to remove plaintiffs as beneficiaries through a provision granting Randy the power to
make deposits or investments in, or withdrawal from, any account, holding, or interest which [Bill Clark] may now or hereafter have, or be entitled to, in any banking, trust, or investment institution . . . [and] to exercise any right, option, or privilege pertaining thereto . . .
Here’s an important postscript: for Alabama POAs executed on or after January 1, 2012, the authority to create or change a beneficiary designation must be expressly granted.
This case demonstrates that, when drafting POAs, it may be worth considering whether to expressly grant or deny an attorney-in-fact the ability to change beneficiary designations.