banking

Here's a recent piece I wrote for the Connecticut Law Tribune about reforms to that state's power of attorney law:

Sweeping changes have been made to Connecticut's power-of-attorney law, including making it harder for banks to upend the wishes of people who do estate planning by rejecting power-of-attorney forms.

Reforms to the law came into effect Oct. 1. Leaders in the Connecticut field say this is the first time the law has been updated for decades.

Paul Knierim, probate court administrator for Connecticut, said it has been commonplace for banks to frustrate the purpose of estate planning by rejecting power-of-attorney forms (POAs) at a stage when a senior citizen or a person with disabilities no longer has the competency to execute a form that would meet the bank's liking.

"The whole purpose of a durable power of attorney is to plan ahead … but [when] a bank won't accept the power of attorney the very purpose of the power of attorney gets frustrated," Knierim said.

The law will ensure that people will not have their "long-term estate planning upended by the whim of a bank teller," said Deborah Tedford, an estate attorney with the Tedford Law Firm in Mystic who was involved in drafting the new POA forms.

With the law change, family members can now go to probate court to enforce POAs and be awarded attorney fees and other costs if a bank or another third party is not following the law, Knierim said. The probate courts have been granted new authority to compel financial institutions to accept POAs.

On the other hand, bank personnel can also ask the court to review the actions of a person who has a POA if they have concerns that the person who granted the POA is being exploited, Knierim said.

The law also provides safe harbors to financial institutions who accept POAs, Tedford said.

There is now a POA long form and a POA short form that have been put into the law, said Tedford and Suzanne Brown Walsh, a partner at Murtha Cullina who focuses on trusts and estates and also helped shape the statutory forms.

Connecticut adopted a model law promulgated by the Uniform Law Commission, but further tweaks were made this year because the 2015 law was enacted in a hurry by Connecticut legislators, Tedford and Walsh said. The 2015 law envisioned one long form, but the revisions have resulted in a short form and a long form, they said.

The short form can be used to grant a power of attorney for real estate transactions and is signed at the end, Tedford and Walsh said.

The long form allows the person doing estate planning to initial certain types of powers they want to grant on the POA to their agent, including things such as making gifts, changing beneficiary designations and creating and terminating trusts. There is a third option under the law for attorneys to draft their own forms, Tedford and Walsh said.

The new law also is important because Connecticut is joining 20 other states that have enacted the model law, Walsh said. This means that it should be easier for elderly people, who relocate to be closer to their caregivers in other states, to have their POAs recognized, she said.

Another big change in the law is the expansion of the authority of Connecticut's probate courts to deal with people who are abusing the POA they have been granted, Knierim said.

"Powers of attorney are a double-edged sword," Knierim said. "They are an excellent tool for planning for incapacity. On the other hand, they are a very powerful instrument that a person who wants to do mischief can exploit. In the probate courts, we see, unfortunately, instances where agents under powers of attorney have abused the trust" placed in them.

As a result of those type of abuses, the category of people who can raise concerns about POA abuses has been expanded. For example, the law now states that a caregiver or a person who "demonstrates sufficient interest in the principal's welfare" can petition the court to review the actions of a POA agent.

Agents who abuse the POAs they have been granted also now can be ordered to reimburse for financial losses.

Connecticut's new POA law also has changed it so that POAs are assumed to be durable.

Attorneys should be aware that the new law does not address whether agents should be granted control in a POA over someone's email, social media accounts and other digital assets, Walsh said. Attorneys will have to add that authority in their own POA forms, she said.

The new law also is attempting to synthesize POAs with when courts authorize a conservatorship and appoint a guardian to manage the financial affairs of an elderly person or a person with disabilities, Knierim said. It used to be that the appointment of a conservator automatically terminated a POA.

Now, if someone has appointed a POA, the court has to determine if the POA can work in tandem with the conservator, Knierim said. This honors the first choice of people on who they wanted to have manage their affairs, Knierim said.

The Connecticut Supreme Court is considering an issue of first impression: does public policy prohibit exculpatory clauses in deposit agreements between banks and customers? I wrote about the case for the Connecticut Law Tribune:

Nine years ago, the Connecticut Supreme Court ruled that a ski resort couldn't limit its liability through contractual clauses. Now the court has to decide if the banking industry can be permitted to do what the winter recreational industry cannot.

The justices heard oral arguments last month in a case, the banking industry says, could have profound influence on its future financial health. Bank of America is seeking to overturn a $823,777 verdict returned by a jury that found the financial institution liable for the money a Catholic school employee swindled from the school.

The case begins with Salvatore Licitra, who started out as a part-time bus driver at St. Bernard School of Montville. Over time, his duties expanded to making bank deposits, working on accounts payable and accessing the school's computer system to prepare checks from the school's account. He had access to third-party checks written to the school and blank checks in the school's name.

Licitra's duties expanded, Bank of America said in court papers, even though the school never ran a background check on him and his criminal record "includes several convictions for forgery, larceny, altering prescriptions, issuing bad checks, improper use of credit cards, and burglary."

He continued his criminal activities in 2002 by opening an account with the school's tax identification number. He proceeded to deposit into the account, over the course of four years, more than 1,000 checks, some payable to the school and others drawn on the school's operating fund account.

"Bank employees knew him and came over to shake his hand and joke around with him when he visited the branch," according to the school's court papers. "In the years to follow, the defendant [Bank of America] sent statements for the account to Licitra's home address; issued Licitra an ATM card; and processed hundreds of transactions on the account for Licitra."

Licitra's embezzlement continued until his position at the school was eliminated in 2006. He was arrested in July 2007, after officials at the Diocese of Norwich discovered the scam, and is currently serving a seven-year prison sentence.

In the meantime, St. Bernard filed a civil lawsuit in an attempt to recoup some of its losses.

The school, noting that it was a longtime customer of Bank of America, argued that the bank violated its own policies and let Licitra open a checking account in the school's name even though he was not an authorized signer of documents for the school's accounts. The bank even failed to disclose the existence of the illicit account to the school's accountants for four years in a row, the school complains.

After hearing all of the evidence, the jury found that Bank of America was negligent, breached its contract with the plaintiff, and violated sections of Connecticut banking law and Uniform Commercial Code. Jurors found Bank of America 95 percent liable for Licitra's actions and St. Bernard 5 percent liable.

Bank of America's legal position has been that the lawsuit should have been thrown out because St. Bernard officials took too long to notify the bank about the unauthorized transactions. The bank has deposit account agreements which require customers to review monthly bank statements and to report any questionable transactions within 60 days. Any customer not acting within this time frame, according to the agreements, is barred from bringing "any legal proceeding or action against us to recover any amount alleged to have been improperly paid out of your account."

During the trial, New London Superior Court Judge James Devine declared that those exculpatory clauses—requiring St. Bernard to notify Bank of America about problems within 60 days in order to be able to sue the bank—were contrary to Connecticut public policy. He cited the 1995 case of Hanks v. Powder Ridge Restaurant Corp., in which the Supreme Court held that it was against the public interest to allow a ski resort to limit its liability through an exculpatory contract clause.

And so, in an apparent issue of first impression, Devine interpreted Connecticut General Statute Section 42a-4-103 to find that the Bank of America deposit agreements were unenforceable. The law states: "Parties to the agreement cannot disclaim a bank's responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack of failure. However, the parties may determine by agreement the standards by which the bank's responsibility is to be measured if those standards are not manifestly unreasonable."

Devine reasoned that the "exculpatory language in the agreement affects the public interest adversely, and, therefore, it is unenforceable because it violates public policy."

The result of the judge's ruling, Bank of America said, was that the trial jury was not permitted to see the deposit account agreements that were in effect at the time.

In appealing the trial court ruling, Bank of America says that the point of the deposit account agreement is not to absolve the bank of liability if it fails to operate in good faith and with ordinary care. Instead, the bank argues, the agreement is just setting out a procedure that customers—including the school—must follow in order to make a legal claim.

Other jurisdictions allow banks to have similar-length notice periods, Bank of America further argued.

The Connecticut Bankers Association has filed an amicus brief in the case. That brief argues that public policy does support exculpatory clauses in the contractual relationship between banks and their depositors. The organization said the bank's exculpatory clause isn't really comparable to that of the ski resort, which is designed to limit liability for physical injuries sustained by customers who are invited onto the resort's property.

"While the invitee to the ski area may have no ability to control the risk they take in using the ski area, the depositor has control over its deposits insofar as it can review activity in its account on a monthly basis," Jeffrey Mirman and David Wiese, of Hinckley, Allen & Snyder in Hartford, wrote in the bankers' amicus brief.

Contractual provisions limiting the amount of time account holders have to notify banks of account irregularities are vital to detecting fraudulent activity early on. If the trial court decision is not overturned, the association said Connecticut will become an outlier in fraud prevention in the United States. Fraud losses will skyrocket, the association warns.

St. Bernard counters that the reason for barring exculpatory clauses exists outside of the context of winter recreation. Exculpatory clauses have no place in the banking industry, the school countered, because account agreements are "contracts of adhesion," meaning banks have "a decisive advantage of bargaining strength" over their patrons.

To allow exculpatory clauses, such as the one used by Bank of America, "would allow banks to run roughshod over our legislature and their customers alike," St. Bernard's lawyers said.

Further, the school's lawyers argue, even if St. Bernard had a responsibility to review its bank statements for suspect transactions, that requirement applied only to the bank officials operating a fund account, not a fraudulent account that school officials had no idea even existed.

Gerald Garlick, of Krasow, Garlick & Hadley in Hartford, is representing Bank of America. He declined comment. Cassie Jameson and Michael Colonese, of Brown Jacobson in Norwich, are representing the school. They, too, declined comment.

But Ryan Barry, of Barry and Barall in Manchester, and former cochairman of the General Assembly's Banks Committee, said that Devine is a well-regarded judge and his reasoning could be persuasive to the Supreme Court. Even though Connecticut would be in the minority of states in barring banks from putting contractual limits on how much time depositors have to flag fraudulent account transactions, Connecticut does not have to follow the majority rule, said Barry, who has no role in the case.

"The courts in our state sometimes lead the way in many areas of the law," Barry said.