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Financial Exploitation Finding Affirmed by Court of Appeals

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Arizona’s Adult Protective Services Act protects Arizona’s large population of vulnerable adults from abuse, neglect and financial exploitation. The current version of the statute provides that a person who is acting in a position of trust and confidence must use a vulnerable adult’s assets solely for the adult’s benefit.  That statute was recently the subject of an Arizona Court of Appeals’ decision in the Estate of Domingo Rodriguez.

Factual Background

Domingo was an immigrant of Spain and did not speak or write English.  He had three adult children: John Rodriguez, Santiago Rodriguez, and Manuela Graca.  Domingo’s wife died in 2001, whereupon Domingo, then 80 years old, began living with Manuela and her husband, Manuel Graca.  At the time, Domingo had a pacemaker and needed assistance managing his finances.

The Gracas had extensive involvement in Domingo’s care and finances.

Over the next ten years, the Gracas provided all of Domingo’s care: arranged for and transported him to all medical appointments, administered his medications, assisted in all of his social and recreational activities, and cared for his dog. Manuela quit her job in 2001 to care for Domingo, but she eventually returned to work part-time and, later, full-time.

In 2002, they sold Domingo’s house and used some of the proceeds to expand their home to accommodate Domingo and make other renovations.  Later, they sold the home and used the funds to purchase another home.

While Domingo was living with them, the Gracas used funds from Domingo’s savings account, his monthly pension and Social Security to supplement their own income and help with household expenses.  However, importantly, the Gracas did not keep an accounting of their use of Domingo’s funds.

During at least the last two years of his life, Domingo suffered from dementia.  Domingo died in 2012 and John was appointed as personal representative of Domingo’s estate.  John then filed a complaint against the Gracas in which he alleged that they were liable for financial exploitation under Arizona’s Adult Protective Services Act, breached their fiduciary duties to Domingo, converted his money and enriched themselves with his property.  The Gracas denied wrongdoing and counter-sued for the value of the services that they rendered to Domingo as caregivers.

The Superior Court’s Decision

After a one day trial, the superior court found that the Gracas committed financial exploitation in violation of A.R.S. § 46-456 and breached their fiduciary duty to Domingo. The Court ordered the Gracas to pay Domingo’s estate damages in the amount of $15,527.26 and attorneys’ fees of $35,000.  The Gracas then appealed.

On appeal, the Gracas disputed the superior court’s decision, claiming it incorrectly applied Arizona law and unconstitutionally impaired their contract with Domingo.  The Court of Appeals affirmed the superior court.

At the outset, the Court of Appeals summarized its standard of review, which favors sustaining the decision: “we review the superior court’s legal conclusions de novo (anew), but we accept its factual findings unless they are clearly erroneous.  . .  A finding of fact ‘is not clearly erroneous if substantial evidence supports it, even if substantial conflicting evidence exists.'”  The Court found that the superior court’s factual findings were not clearly erroneous and that it correctly applied the law.

The Gracas Were Liable for Exploitation

The Court addressed the Gracas’ argument that the superior court applied the wrong version of the Act.

Originally, the Act provided that a person acting in a position of trust and confidence to a vulnerable adult must abide by the same standards as a trustee – “the trustee must deal with the trust assets as a prudent person dealing with the property of another.”  A person may be found to violate the prudent person standard where they fail to keep clear and accurate records, commingle funds and engage in self-benefiting transactions. Whether the adult consulted with his own attorney may also be considered.

In 2009, the legislature amended the act to provide that someone in a position of trust and confidence to a vulnerable adult must use the adult’s assets solely for the benefit of the adult.

Because some of the questioned transactions occurred before the 2009 amendment, the Gracas argued that the superior court erred by applying the “sole benefit,” rather than the “prudent person,” standard.  The Court rejected the argument, finding that the superior court applied the correct, “prudent person,” standard, but that in any event, the evidence supported that the Gracas violated both standards.  The Gracas did not keep clear and accurate accounting records, commingled Domingo’s funds with their own funds, engaged in self-dealing and did not use Domingo’s assets solely for his benefit.

The Court went on to explain:

Moreover, the fact that Domingo may have consented to the arrangement
and received caregiver services in exchange for the Gracas’ use of his funds
does not undermine the court’s rulings. The Gracas received money from
Domingo despite their fiduciary relationship and consequently were
required to explain how Domingo benefited from those transfers.  The Gracas offered some evidence of the value of their services and the amounts they spent for Domingo’s benefit, but the superior court found they had not shown that Domingo received goods and services equal to the full value of the money they received from him. That determination is not clearly erroneous.

The Court also found that the Gracas did not dispute the fundamental elements in order to trigger the Act – Domingo was a vulnerable adult and they were acting in a position of trust and confidence to Domingo.

The Court Did Not Unconstitutionally Impair the Agreement

The Court also rejected the Gracas’ argument that the superior court’s use of A.R.S. § 46-456 unconstitutionally impaired their contract with Domingo because the court imposed an accounting requirement that was not part of their agreement.  The Gracas presented evidence that Domingo agreed that he would live with them and that they would provide care-giving services to him.  But, the Court found that there was no evidence that Domingo agreed that they could use his savings, commingle funds or use some of his funds to benefit themselves without keeping an accounting.  Thus, the court did not impair their contract with Domingo.

Domingo’s Power of Attorney Did not Save the Gracas

Lastly, the Gracas argued that Domingo’s power of attorney provided a safe harbor and precluded claims against them.  Pursuant to A.R.S. § 46-456(A)(2), exploitation does not occur where “the transaction is specifically authorized in a valid durable power of attorney that is executed by the vulnerable adult.”  The Court found that Domingo’s power of attorney did not “specifically authorize” the transactions that were in question.

Therefore, the Court of Appeals affirmed the superior court’s decisions and awarded the Estate’s request for costs attorneys’ fees on appeal.

Berk Law Group is Here to Help

If you have any questions regarding an estate, probate or financial exploitation claim, our experienced attorneys are here to help.  Please just give us a call or send us an email to schedule a consultation.

You can also read more about financial exploitation claims or watch our on video on financial exploitation.

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About Kent Berk

Always wanting to own his own business, in 1996, Kent started his own law firm, now Berk Law Group, P.C. Since then, attorney Kent Berk has regularly handled all types of disputes, lawsuits and arbitrations, with particular emphasis on real estate, probate, trust, estate and property matters. Kent Berk's Google+ Profile

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