E. Andrew Keeney, Esq. Kaufman & Canoles, P.C. 150 West Main Street, Suite 2100 Norfolk, VA (757) kaufcan.

Transcription

1 Powers of Attorney and Subpoenas The Risks, Abuses and Potential Liabilities to Credit Unions NAFCU

2 E. Andrew Keeney, Esq. Kaufman & Canoles, P.C. 150 West Main Street, Suite 2100 Norfolk, VA (757)

3 Demographics U.S. population over the age of 65 is expected to double within the next few decades Some studies report that as many as 40% of the individuals aged 85 and older will develop Alzheimer s With improvements in medical treatment, patients often survive strokes, but not always with their faculties intact A power of attorney provides a form of insurance

4 What is a Power of Attorney? A writing to an agent to stand in the shoes or to act in the place of the principal for financial matters Not necessary to use the term power of attorney Typically see spouse to spouse, parent to child or other family relationship Previously, powers of attorney became ineffective upon principal s incapacity or death Powers of attorney that survive principals incapacity become known as durable powers of attorney

5 Why Use a Power of Attorney? Incapacity or disability Aging Illness Foreign travel (i.e. deployment)

6 What Does a Credit Union Do When Presented With a Power of Attorney? Uniform Power of Attorney Act credit union can accept a power of attorney, in good faith, as long as the credit union has: No knowledge that the power of attorney has been forged, void, invalid and terminated; and No knowledge that agent s authority is void, invalid or terminated; and No knowledge that agent is exceeding the authority granted in the power of attorney Practical considerations credit union due diligence is a good business practice

7 Types of Durable Power of Attorney A general durable power of attorney grants the agent the authority to do virtually anything A special durable power of attorney limits the authority of the agent to one or more specific transactions

8 How to Create a Durable Must be in writing Power of Attorney Most states require language similar to: This power of attorney shall not be affected by subsequent disability or incapacity of the principal or lapse of time There are exceptions check your state law

9 Does the Member Have the Legal Capacity to Execute a Durable Power of Attorney? Principal must have the capacity to delegate an act or a transaction Many adults believe or have the legal presumption that all adults are presumed to have legal capacity Definition of incapacity varies from state to state Potential questions to ask: Does the member know who his or her agent is? Does the member know the names of their family members? Does the member understand the consequences of his actions?

10 What If the Durable Power of Attorney Appoints Co-Agents? Common practice since parents want to name all their children as co-agents to avoid showing favoritism Potential conflicts when co-agents act in perhaps different directions

11 Form and Execution Contains words to show the principal s intent no termination upon disability Some states only require a signature Other states allow for an individual directed by the principal to sign the principal s name In some states, there is no requirement for a notary Presumption of genuineness if the signature is acknowledged before a notary Some states require an agent execute an acknowledgement before he will have authority to act under the durable power of attorney Some states require that the durable power of attorney be witnessed or executed in the same manner as a will or deed Sometimes states prohibit the witnesses from being related

12 Form and Execution (cont.) Execution requirements can cause problems where the DPA is drafted and executed in one state, but must be used in another state Safest approach is for the principal s signature to be witnessed by two unrelated and disinterested witnesses and the signatures of the principal and the witnesses to be notarized with a seal attached

13 Revocation or Termination of an Agent s Authority Inform the agent of revocation Destroy all the originals No legal or formal requirements How does a credit union protect itself? How about an affidavit or letter executed by the agent stating the agent does not have actual knowledge of the termination of his authority by revocation or the principal s death? The trend in the law is to afford more protection for financial institutions and other third parties

14 What Are the Risks for Credit Unions? Although increased acceptance of POAs by the public, an increased risk of liability if a POA is not recognized by credit union. NEED A VALID REASON Examples Fraud The agent s authority has been revoked Agent is exceeding the authority granted to him Principal not a member Request for certification refused Standards to refuse include requirement for reasonableness, good faith Internal procedures in place for reviewing and accepting DPAs

15 Other Suggestions to Minimize Risk Require the POA to be executed on a credit union form Limit the types and amounts of transactions an agent may engage in at the credit union Require additional information an affidavit that the POA or the agent s authority has not been revoked any doubt, the credit union may decide to refer the matter to their legal counsel for review and comment

16 Checklist for Review Does the POA comply with the POA legal execution requirements (signature, witnesses, notary acknowledgement)? If the POA must be recorded, does it comply with the recording rules? Was the principal competent to sign the POA? Does the DPA comply with durability requirements? Is the DPA effective immediately? Is the principal alive?

17 Checklist for Review (cont.) Whom did the POA name as the agent? Has the agent been identified? If a successor agent is acting, have the conditions to the agent s succession occurred? If there are multiple agents, must they act jointly, by majority decision, or may they act independently of each other? Has the POA been terminated or revoked? Does the POA contain a termination date?

18 Checklist for Review (cont.) Would it be advisable to obtain an affidavit from the agent? Does the POA expressly authorize the agent to do what he seeks to do? Are there statutory requirements or restrictions on the action the agent wishes to undertake? Does the POA set out any restrictions, limitations or exclusions on the agent s authority to act? Are there any unusual facts or matters present that might indicate the POA should not be accepted?

19 Effect of Death A durable power of attorney is automatically invalidated by the death of the principal Exceptions: usually, if the agent does not have actual notice of the death or revocation of the power of attorney good faith transaction in process Hold harmless and indemnification agreements by credit union

20 Subpoenas The Risks, The Abuses, The Potential Liabilities to Credit Unions

21 Subpoenas Types of subpoenas When and how must a credit union respond to a subpoena Compliance issues State law Federal law Privacy concerns Reimbursement for costs and expenses

22 Subpoena is an order directed to the credit union or their agent that requires attendance at a particular time and place to testify as a witness OR To bring with the credit union s agent, books, documents, records or other filings under their control to produce as evidence

23 Types of Subpoenas Most common Subpoena duces tecum Request for production of documents, records and other information Witness Subpoena Summons an individual to testify before a court or a grand jury Garnishment Subpoena Either to enforce a garnishment order or to seek to garnish money from a member s account

24 Types of Subpoenas (cont.) Subpoena from State s law enforcement officer Criminal proceeding to determine if probable cause exists Subpoena from family law attorney Seeks documentation regarding adverse party s financial information and assets Subpoena pertaining to credit union litigation Discovery process in litigation Subpoena for attendance of a witness or custodian of records Other Department of Human Services

25 Receipt of a Subpoena Issued by: Judge Clerk Magistrate State s Attorney Attorney for a party Named Party, Individual or Custodian of Records

26 Receipt of a Subpoena (cont.) Service of a Subpoena/Service of Process (often personal or physical delivery) Individual State laws describe service of process and what a credit union can expect Federal Rules of Civil Procedure Rule 45 Service by any person 18 years or older and not a party Delivering a copy of the written document to named person AND if attendance payment required for 1 day s attendance and mileage

27 Receipt of a Subpoena (cont.) Who can be served: Credit union should establish procedures President/CEO vs. Receptionist BB&T Garnishment Example IRS Example Power of Attorney Litigation Example Bank of America Litigation Example If issuer of subpoena does not designate an individual, credit union may select an agent to testify on their behalf

28 Response to a Subpoena If a subpoena from a government agency If a subpoena from a court in the state where the credit union is headquartered If a subpoena from a court in a state where the credit union has a branch If a subpoena from a court that is in a state where credit union is neither headquartered nor has a branch Other

29 Response to a Subpoena (cont.) If a subpoena from a government agency Federal Law Right to Financial Privacy Government may subpoena the disclosure of financial records if 1. legitimate law enforcement inquiry; 2. copy of subpoena served on member on or before date subpoena served on credit union; and days expired from date of service or 14 days from date of government s mailing notice to member no timely legal objection by member

30 Violation = Strict Compliance by Credit Union Civil penalties equal to $100 plus actual damages to member plus punitive damages if willful or intentional breach plus costs of litigation and reasonable attorneys fees Not a violation to prepare to comply and assemble the records and be prepared to deliver to Government

31 Exceptions to Strict Compliance by Credit Union Federal Grand Jury Subpoena Credit union prohibited from notifying any person named in grand jury subpoena Potential penalties Loss of NCUA insurance Civil penalties from $5,000 to $1,000,000 USE EXTREME CAUTION

32 Gramm Leach Bliley Annual Credit Union Privacy Notice explains information collected by member and ways in which credit union shares information Does NOT apply to disclosure made to comply with properly authorized investigations or subpoenas

33 State Laws Vary Credit union headquartered in Virginia receiving subpoena issued by a Virginia court must respond and comply Conducting business in state Subjects itself to personal jurisdiction Credit union headquartered in Virginia receiving a subpoena issued by a Virginia licensed attorney (officer of court) must respond and comply Credit union headquartered in Virginia receiving subpoena issued by a Florida court need not comply Letter to issuer of subpoena (DOCUMENTATION) Comply due to reciprocity laws or savings in time and expense

34 How to Determine State Law Consult an attorney Google Example: Virginia Code of Laws Example: Virginia Rules of Supreme Court State statutes and rules detail procedural aspects of issuing, receiving and answering subpoenas

35 Examples of Safeguards Virginia permits right to object to the subpoena if the issuer gave less than 14 days to respond Oregon provides that a financial institution shall not disclose the financial records of a customer, in response to a subpoena, for 10 days after service Oregon provides that if a customer challenges the subpoena (moves to quash) within the 10-day period, no need to comply with subpoena unless customer consent or court order Check with counsel for credit union

36 Reimbursement Generally, credit union can charge issuer of a subpoena for costs associated with preparing and copying documents Costs of compliance Lost personnel time Document copying expenses Electronic discovery costs Attorney fees Witness fees

37 Reimbursement (cont.) Mileage Re: subpoenas issued by U.S. government authorities Photocopy - 25 per page Staff time for processing - $22 per hour Others reasonable costs to be reimbursed Witness subpoena

38 Reimbursement (cont.) Federal case fee must accompany subpoena Witness fee/appearance fee - $40 per day Mileage 48.5 per mile from place of business to court Recovery of reasonable copying costs Non-federal cases check state law

39 Reimbursement (cont.) New Jersey provides banks (?) not a party to lawsuit to recover, in advance, costs of complying with a subpoena Search and processing costs Transportation costs Reproduction costs Credit union should contact issuer of the subpoena and ask for reimbursement up front

40 Conclusion Risks and liabilities for non-compliance Observe federal law and state law Establish detailed policy and procedures Go slow

41 E. Andrew Keeney, Esq. Kaufman & Canoles, P.C. 150 West Main Street, Suite 2100 Norfolk, VA (757)

42 Powers of Attorney and Subpoenas The Risks, Abuses and Potential Liabilities to Credit Unions NAFCU