Even though proposals to limit the scope of liability for banks, investment firms and other third parties for accepting invalid powers of attorney did not hit Governor Tom Corbett’s desk in the most recent legislative session, legislators and other proponents of reforming Pennsylvania’s power of attorney law said they are optimistic that such a measure will become law in the next session.
While advocates of changing Pennsylvania’s regime regarding powers of attorney want to see several changes, one of the main changes proponents desire is addressing the state Supreme Court’s 4-3 decision in Vine v. State Employees’ Retirement Board in which the higher court ruled that third parties, such as retirement systems or financial institutions, can face liability for acting on invalid or void powers of attorney because Pennsylvania law does not expressly set forth the circumstances in which good-faith acceptance of powers of attorney that are invalid or void are protected.
There are competing proposals on how to reform powers of attorney so that good-faith users of powers of attorney would not face liability: HB 1905, sponsored by state Representative Mark K. Keller, R-Perry, and SB 1092, sponsored by state Senator Stewart Greenleaf, R-Montgomery/Bucks.
Keller said he will reintroduce his bill because the “scope of individuals who in good faith rely upon” powers of attorney and do not face liability must be expanded.
Keller’s bill was passed in the House of Representatives last December, and Keller said if his bill could have passed out of Greenleaf’s committee it was “all teed up in the Senate” and it could have gone to the governor’s desk.
But Keller said “next session we should be able to work it out.”
Greenleaf said the Pennsylvania Bar Association and the Pennsylvania Bankers Association were in discussions back and forth to find common ground on certain issues, including requiring that powers of attorney executed after 2013 be acknowledged by a notary, and by adopting an explicit description of the scope of immunity provided when a third party in good faith accepts power of attorney instructions from an agent. The immunity provision derived from the Uniform Power of Attorney Act.
Greenleaf is expected to offer a compromise amendment under which, if a person in good faith accepts a power of attorney that is void, invalid or terminated, the power of attorney will be treated as if it is still genuine, valid and in effect.
Under the proposal, third parties must accept powers of attorney absent some good reason not to do so, but third parties would be able to demand a translation if the power of attorney was not in English; third parties would be able to require an affidavit if a power of attorney hinges on a specific event occurring, stating that the event has occurred; and third parties would be authorized to ask for a legal opinion paid for by the agent to show that an unusual power of attorney was legally valid.
Powers of attorney must be accepted unless there would be something on their face to raise questions.
Liability for third parties for accepting invalid powers of attorney hinges on what their employees know, and third parties are not protected if their employees deliberately ignore suggestions that there is something wrong with powers of attorney.
Daniel J. Reisteter, vice president of government relations for the bankers association, said that while the bankers originally favored Keller’s bill, they have worked out a compromise with the bar association that they hope to see executed in the next legislative session.
“That was our intent, to really get to the issue of third-party liability for acceptance of powers of attorney,” Reisteter said. “Some of our members accept thousands of these on a monthly basis.”
Greenleaf said his bill is “all about trying to make sure the signature is authorized and is truly the signature of the individual.” One way that would be accomplished is by requiring that all powers of attorney be acknowledged by a notary, Greenleaf said.
“I don’t think there’s any question that we could pass this next session,” Greenleaf said.
“It’s not really practical for them to do independent research on the power of attorney, which on its face is valid and, in fact, the vast majority are,” Greenleaf said.
The bills are largely the same in terms of addressing third-party liability and the Vine decision, but Greenleaf’s bill added other provisions advocated by the bar association and the Pennsylvania Association of Elder Law Attorneys.
The amendment also would clarify that a third party must accept a power of attorney, but can require an affidavit or other proof that the power of attorney is effective or request a “legal opinion or translation of a power of attorney not written in English.”
The amendment also would clarify that civil damages stemming from third parties who refuse to accept powers of attorney do not apply to powers of
attorney deriving from other states or used in transactions with the government. Money damages, but not injunctive relief, would be available otherwise.
Fred Cabell, director of legislative affairs for the bar association, said the damages available have “broad agreement. Obviously, Senator Greenleaf shared this opinion that money damages were the most important thing.”
One of the bar association’s concerns was over the liability for third parties refusing to accept powers of attorney, Cabell said.
The amendment that Greenleaf is expected to introduce also would define what is actual knowledge by employees of an organization that a power of attorney is invalid.
While the bankers wanted imputed knowledge only to mean actual knowledge, the meaning has been negotiated so that it means something beyond personal knowledge and that “you couldn’t be willfully blind” to something that appears problematic with a power of attorney, Cabell said. But in favor of the bankers, that knowledge will not be imputed “all the way up the chain to the command,” Cabell said.
Cabell said the association got into a dialogue with the bankers at the request of Greenleaf because he had concerns about HB 1905.
The association turned to experts from its real property, probate and trusts section and its elder law section, Cabell said.
The bill also addresses special rules for gifts made by agents under power of attorney in keeping with the Uniform Power of Attorney Act.
Robert Clofine, president of the Pennsylvania Association of Elder Law Attorneys, said this issue is important to his association.
“We want to tighten Pennsylvania law so if a principal wants to give an agent the authority to give gifts … they have to be very specific about it and they need to do it a knowing way,” Clofine said. “It was too easy for a principal to unknowingly grant really extensive powers to the agent.”
Karen C. Buck, executive director of the SeniorLAW Center, said exploitation of elders financially is a big issue. The legislation will improve Pennsylvania law, but it may not do enough, Buck said.
“What we do often see is individuals abusing the power of attorney document and violating their responsibilities and duties as an agent under POA,” Buck said. “I don’t think that notarizing these documents, which we do as best practice anyway, I don’t believe notarization will be the be-all and end-all. But it’s an important step forward.”
Buck said requiring witnesses would be the best thing to do because notarization is not fail-safe. In the context of fraudulent conveyances, conveyances will be regularly notarized, but there could still be extensive fraud, Buck said.
Clifford Scott Meyer, a partner with Montgomery McCracken Walker & Rhoads and a member of the firm’s trusts and estates, tax and nonprofit organization practice groups, said it would be an important advance to require that powers of attorney be notarized, but that even more could be done.
“I think that’s an important advance,” Meyer said. “Some places have gone further. Maybe we shouldn’t allow you just to write anything you want.”
Pennsylvania could go even further and require standardized power of attorney forms, Meyer said.
Meyer said he is sympathetic to the concern of financial institutions that they do not want to face liability for accepting invalid powers of attorney, while customers using powers of attorney need them to be executed so financial affairs can be managed for the principals granting those powers.
Legal reform would provide “greater surety for the people who want to use them and also for the institutions who have to receive them,” Meyer said.