Litigation and legislation have shaped the extent to which third parties can be held liable when agents abuse their authority under Powers of Attorney (POAs). A landmark Pennsylvania Supreme Court ruling known as the Vine case previously put third parties in the difficult position of having to ensure a POA’s validity before following an agent’s instructions, while subjecting the third party to potential lawsuit for not following the instruction of the agent. But subsequent legislation eased that burden somewhat by protecting third parties who act in good faith and are unaware that a POA may be invalid or the agent is acting improperly.
Teresa M. Vine had a rude awakening in 2003 when her husband filed for divorce and she discovered that, several years earlier, he had not acted in her best interests as her agent under her POA.
Vine, who worked for the state of Pennsylvania for 29 years and is a member of the State Employees‘ Retirement System (SERS), was paralyzed in a car accident in 1998 and suffered a stroke two days later that rendered her temporarily unable to speak or comprehend. Just four days after her stroke Vine executed a POA that gave her husband authority to, among other things, make retirement plan decisions on her behalf. Her signature on the notarized POA document consisted of an “X” mark.
When Vine retired one month after the accident, a SERS retirement counselor explained the disability retirement option to her husband, Robert Vine. Rather than selecting that option, he instead chose a different option that allowed him to withdraw an amount for his benefit equal to his wife’s total accumulated deductions.
Upon filing for divorce, Vine subsequently tried to change her election to the disability retirement option based upon her permanent paralysis, but the SERS Board denied her request. Vine sued SERS under the premise that SERS had improperly accepted the instructions of her then husband who did not have the authority to act under an invalid POA and the Pennsylvania Commonwealth Court found in favor of SERS, ruling that Vine was unable to show that SERS employees either failed to act in good faith, or had reasonable cause to question the POA’s validity or her husband’s authority to act under it.
On appeal, Vine argued to the state Supreme Court that the SERS counselor had reasonable cause to question the POA’s validity because she had been in a serious accident and did not normally sign her name with just an “X.” It was also apparent that Vine’s then-husband was waiving important disability benefits for her in order to obtain survivorship benefits for himself, she argued.
In 2010, the state Supreme Court concluded that no protection from liability exists for a third party if the POA it relies upon is invalid under Pennsylvania law. The decision put the burden squarely on third parties to ensure the validity of a POA before following the instructions or directions of the agent. In other words, third parties had to determine the principal’s competency to execute the POA, whether the POA agent had authority to act, and the authenticity of the principal’s signature – all before accepting the agent’s authority to act.
The enactment of Act 95 in 2014 reduced the third party’s burden a bit. Under Section 5608(d), a third party that accepts a POA in good faith and without actual knowledge that the POA or the agent’s authority is void, invalid or terminated, or that the POA agent is exceeding or improperly exercising his or her authority, is protected from liability. Act 95 also protects third parties that accept a POA in good faith and without actual knowledge that a signature is not genuine.
For third party entities that could get caught in the crossfire of a POA dispute, Act 95 is a clear guide to their responsibilities to the potential red flags that may arise.
Prior posts on POAs can be found here and here.
