In the Matter of the Estate of Calvin Graves, a Protected Individual, ___Mich App___ (2009), #286674, 10/27/09 (Opinion Vacated 12-3-09)
Return to Probate Review MenuCalvin Graves, a minor, was involved in an automobile accident on January 20, 2000. His mother, Preshus Graves, commenced a civil action arising from the accident. She, also, was appointed as conservator for Calvin Graves. William R. Ford was her attorney. The probate court issued letters of conservatorship to Preshus Graves containing the following restriction:
Funds to be received may not be used without prior written authority of the Court. Funds are to be deposited in an account; certificate of deposit; money market certificate; or a combination of these, in a bank; credit union; or savings and loan association insured by an instrumentality of the federal government which accepts these conditions: The funds may not be withdrawn from the depository until further order of the Court. Ownership of the funds must be in the conservator as fiduciary of the minor. The depository must complete a form entitled “Verification of Deposit in Fiduciary Account” and “Agreement on Withdrawal of Funds” and mail this form to this Court within five days from initial receipt of funds. The depository will thereafter, at least annually and as requested, furnish this Court a Verification of Funds on Deposit form. No real estate asset of the estate may be sold without further order of the Court.Preshus Graves, through Ford as her attorney, filed an acceptance of appointment and bond of fiduciary to secure her appointment. Ford received “Notice to Attorney of Duties Under Conservatorship of a Minor” that included the following instructions:
Upon receipt of funds, you must accompany the fiduciary of the estate to the bank, credit union, or savings and loan association of their choice to deposit the funds in an insured account or certificate of deposit which identifies the account as being a fiduciary account. You are to see that the fiduciary furnishes the depository a copy of the Letters of Authority setting forth any limitations of powers and that the depository understands and accepts the funds with these limitations. You are further to see that the representative of the depository executes a Verification of Deposit in Fiduciary Account Form, which must be returned to this Court within 5 days from the deposit.Preshus Graves also received a “notice to fiduciary of duties” that similarly specified that “ownership of the funds must be in the conservator as fiduciary for the minor.”
Preshus Graves subsequently petitioned the probate court, through Ford as her attorney, to approve a settlement in the personal injury lawsuit. The court approved the settlement for a total of $6,122. Ford Issued two checks from his client trust account, for $2,200 and $3,922, payable directly to Preshus Graves, individually. She cashed the checks and never placed any of the proceeds in a restricted account or other account for the benefit of Calvin Graves. Ford claimed he advised Preshus Graves to keep the money in a separate account, but he did not accompany her to the bank or communicate with the bank as he had been instructed by the court notice. Preshus Graves admitted that Ford gave her a Verification of Deposit form, but she did not complete or return it. The probate court after sending Ford and Preshus Graves repeated notices that they had failed to file an inventory and failed to file a verification of funds, removed Preshus Graves as conservator.
The probate court appointed a special fiduciary. The special fiduciary immediately filed a petition to surcharge Preshus Graves and Ford for $6,000 plus fees, costs and interest. The trial court held a hearing on May 12, 2004. Preshus Graves and Ford arrived at the hearing ready to participate. Ford told the special fiduciary prior to the hearing that he had informed Preshus Graves of her duties and the special fiduciary told Ford he would be released. Ford then left and did not participate in the hearing. The special fiduciary informed the court that he had released Ford, and Preshus Graves agreed to sign a promissory note to repay the money. No order was entered pertaining to Ford.
Preshus Graves did not sign the promissory note or repay anything to the estate. The trial court issued a show cause order and a bench warrant for her arrest. Her whereabouts eventually became unknown. More than 6 months later, the special fiduciary filed a notice of deficiency stating the estate had received no assets. On September 7, 2005, the special fiduciary filed a motion to compel Ford to produce copies of the checks issued to Preshus Graves “to determine whether or not there is any liability of individuals or institutions to reimburse the Estate for the net settlement.” The check copies were produced. The special fiduciary then filed a new petition to surcharge Comerica Bank, Preshus Graves and Ford. The petition was similar to the claims made in 2004 alleging that Ford failed to take appropriate and necessary measures to ensure that the checks were deposited into a proper restricted account.
The parties all filed motions for summary disposition against each other. Ford asserted that the claims against him were barred pursuant to the doctrine of res judicata because he had been released on May 12, 2004. Ford also asserted that the probate court lacked jurisdiction. He argued that the only possible basis for the claims against him sounded in professional negligence and that “there was never any basis to surcharge” him in the first place. The probate court granted summary disposition against Ford in favor of the special fiduciary. The probate court based its ruling on the fact that even though the Letter of Conservatorship were restricted, Ford issued two checks to Preshus Graves, individually, and those check were never properly deposited. Ford appealed, and the Court of Appeals affirmed the probate court.
The Court of Appeals first rejected the argument that the probate court lacked subject matter jurisdiction. They stated that the probate court has exclusive jurisdiction over “a proceeding that concerns a guardianship, conservatorship or protective proceeding.” MCL 700.1305(c). Additionally, the probate court has concurrent subject matter jurisdiction in cases involving protected individuals to “hear and decide a claim by or against a fiduciary or trustee for the return of property” and to “hear and decide a contract proceeding or action by or against an estate, trust or ward.” MCL 700.1303(1)(h-i) They go on to state that the purpose of the concurrent jurisdiction is “to simplify the disposition of an action or proceeding involving a decedent’s, a protected individual’s, a ward’s or a trust estate by consolidating the probate and other related actions or proceeding in the probate court.” MCL 700.1303(3). The Court of Appeals concluded that this is a case that concerns a conservatorship and in which the probate court is hearing and deciding an action by the estate for the return of property, and it is within the context of an already-existing probate case that is more efficiently and simply resolved by keeping it in the probate court.
The Court of Appeals next rejected Ford’s argument that the claims against him were barred by res judicata. The Court began by stating the requirement of res judicata. “For the doctrine [of res judicata] to apply (1) the former suit must have been decided on the merits, (2) the issues in the second action were or could have been resolved in the former one, and (3) both actions must involve the same parties or their privies.” The Court then pointed out that in this case there was no decision on the merits in any prior action since no order issued concerning Ford. Further, the May 12, 2004, hearing was part of the same ongoing action regarding the administration of Calvin Graves’ estate and res judicata is not applicable within the same action. “Finally, the first petition was based only on the fact that Calvin Graves’ settlement proceeds had not been properly deposited. Because Ford did not disclose significant facts pertaining to the checks he issued to Preshus Graves, res judicata would be inapplicable because of a change in the known facts.
Finally, the Court of Appeals rejected Ford’s argument that there exists no authority under which the probate court could sanction him because he did not violate any order, statute, rule or other law. The Court agreed that Ford did not violate any court order. However, Ford was Preshus Graves’ attorney, but because she was a personal representative, Ford’s “client” effectively includes the estate, not just the fiduciary thereof, in her personal capacity. Therefore, they concluded the attorney would be subject to a proceeding to surcharge pursuant to MCR 8.122 by a replacement fiduciary. (MCR 8.122 is the rule governing claims by clients against attorneys.) A conservator is also a fiduciary of an estate, subject to the same obligations and standards as a trustee. A court is permitted to impose a surcharge for unauthorized acts. Ford engaged in an unauthorized act by issuing Calvin Graves’ money to a person other than Calvin Graves’ conservator. The checks were issued to her in her individual capacity. Therefore, they were simply made out to an unauthorized third party, resulting in Calvin Graves’ estate losing the money altogether.
The Court of Appeals concluded that there was no genuine question of material fact that Ford gave Calvin Graves’ settlement money to the wrong person, that he failed to execute his duty to refrain from disgorging Calvin Graves’ money to unauthorized third parties, and that as a consequence the money was never received into Calvin Graves’ estate. The probate court’s conclusion that Ford was liable for the surcharge against him was correct.
I agree that an attorney should be liable under the circumstances of this case. However, I believe the reasoning used by the Court of Appeals to reach such liability is flawed. The Court justify holding the attorney liable by stating:
Ford was Preshus Graves’ attorney, but because she was a personal representative, Ford’s “client” effectively includes the estate, not just the fiduciary thereof in her personal capacity. See Steinway v Bolden, 185 Mich App 234 (1990). As a consequence, the attorney would be subject to a proceeding to surcharge pursuant to MCR 8.122.The above language infers that Ford was the attorney for the estate. This ignores MCR 5.117 (A) which states, “An attorney filing an appearance on behalf of a fiduciary shall represent the fiduciary.” An official note to this court rule explains “Subrule A, amended effective April 1, 1992, clarifies that the attorney represents the fiduciary or trustee and not the estate.” The amendment of the rule was a response to Steinway and the confusion over whether an attorney represented the estate or the fiduciary. Clearly, the attorney represents the fiduciary and not the estate according to MCR 5.117(A). I do not believe the Court of Appeals was intentionally disapproving MCR 5.117(A). If that was their intent, they would have explicitly done so. Unfortunately, the case may be read as doing so and lead us back into the confusion over representation existing before the rule was adopted.
Probate courts have a responsibility to protect the assets of protected individuals. They generally accomplish this by requiring the conservator to be bonded in the case of adults. In the case of minors it is generally accomplished by requiring assets to be placed in restricted accounts. This saves the minor from the burden of a bond premium. However, there is a danger of assets being misappropriated by the unbonded conservator between the conservator’s receipt of the assets and their placement in a restricted account. Probate courts usually rely upon the attorneys who received the proceeds of a settlement to fill the gap by physically seeing the assets deposited in restricted accounts. Attorneys are truly performing as officers of the court in doing so. When an attorney fails to perform his duty to the court and fails to give the settlement proceeds to the minor or the minor’s conservator or other individual who may be authorized to receive them, he or she should be held liable.
What should we take from this case? First, attorneys who do not follow the instructions of the court in protecting and handling the assets of a protected individual may be held liable for a loss suffered by the protected individual’s estate. Second, I believe we should still follow the mandate of MCR 5.117(A) that an attorney represents the fiduciary and not the estate until such time as the Court of Appeals specifically addresses this rule.
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