A Strong Offense
A Stronger Defense
An attorney-in-fact owes fiduciary duties to his or her principal when acting pursuant to a power of attorney. When an attorney-in-fact acts contrary to his or her principal’s instructions, then they may end up breaching their fiduciary duties. In Georgia, the same may hold true for successor attorneys-in-fact under a power of attorney because that’s what happened to Se Ill Choi in Lee v. Choi.
John Blackwell executed a power of attorney naming his wife, Ki Tae Lee, as attorney-in-fact, and naming Choi as her successor in the event the wife was unable to serve. It was a typically broad power of attorney, providing for bank, business, real property, personal property, tax and insurance transactions, borrowing money, the commencement and prosecution of disputes, and granting access to safe deposit boxes.
The Blackwells also agreed to open a joint investment account naming Choi and Blackwell’s wife as account holders. The account was funded with $100,000, and the Blackwells agreed that Choi could keep for himself half of any earnings from investing the $100,000.
It’s the intersection of the power of attorney and the investment account that led to a breach of fiduciary duty verdict against Choi.
In 2010, the Blackwells fired Choi, who acted as Blackwell’s wife’s interpreter and provided assistance with the family’s finances. Around the same time, the Blackwells placed a “hold” or “freeze” on the joint investment account, but when the hold was lifted, Choi withdrew the $49,000 remaining in the account and deposited it in his own personal banking account.
When the Blackwells sued Choi for breach of fiduciary duty, he claimed that he did not owe a fiduciary duty to Blackwell’s wife with respect to the joint account, and that he did not breach any fiduciary duty owed to the Blackwells because he “had every right to withdraw the funds in the Joint Account set up for his benefit.”
The appellate court found that Choi owed a fiduciary duty to Blackwell pursuant to the power of attorney he had over Blackwell’s financial affairs and there was evidence he breached that fiduciary duty when he withdrew funds contrary to Blackwell’s instructions. When Choi accepted the appointment as successor attorney-in-fact in the event that Blackwell’s wife was unable to serve, Choi acknowledged that he owed Blackwell “a duty of loyalty and good faith,” and that he must use the powers granted to him only for the benefit of Blackwell. Choi also acknowledged that he “must protect and conserve, and exercise prudence and caution in [his] dealings with, [Blackwell’s] funds and other assets.” The evidence showed that Choi had lost half the funds in the account in trading, but then withdrew the remaining $49,000 after he was fired. And that’s how a successor attorney-in-fact ended up breaching the fiduciary duty he owed to his principal.
So, when someone offers to name you as a successor fiduciary in a power of attorney, will, or trust, you may want to take some time to think about the implications because, even if you don’t get bumped up to the main role, in Georgia you may still owe fiduciary duties to the one naming you. There is some ambiguity to the ruling because Choi apparently took at least one act as Blackwell’s attorney-in-fact. And it is significant that Choi apparently accepted appointment as successor attorney-in-fact because most successors don’t “accept” appointment until the first named fiduciary declines to serve, dies, or otherwise refuses to act and the successor then actually performs some act under the instrument.
As an interesting additional note, the Georgia Court of Appeals also found that Choi was in a confidential relationship with the Blackwells thereby causing him to owe fiduciary duties to the Blackwells because he was in a position of trust and confidence by virtue of his role as interpreter and assistant.