Tennessee courts have long followed the “American Rule” when it comes to deciding whether attorneys’ fees should be awarded to the prevailing party in a lawsuit. Under the American Rule, a prevailing party is entitled to an award of attorneys’ fees only under three circumstances. Those are: (1) Where the parties have a contract which contains a term providing for the award of attorneys’ fees; (2) where a statute provides for the award of attorneys’ fees; or (3) where there is some recognized exception to the American Rule which has been established by Tennessee courts.
There are very few recognized exceptions which fall into category three (3) above. Very few. One of those exceptions is where someone has deliberately used a power of attorney to benefit himself or herself. That exception to the American Rule was recently employed by the Court of Appeals of Tennessee in the case of Ellis v. Duggan (2021).
In the Ellis case, a niece had used a power of attorney granted to her by her aunt to pay about $175,000 for a house which was titled in the niece’s name. The large majority of the funds for the purchase were taken from an annuity, the beneficiaries of which were three grandsons of the aunt. The niece was not a beneficiary of the annuity.
The heirs who sued the niece for breach of fiduciary duty for misusing the power of attorney prevailed at trial, but the trial court did not grant their request that they be awarded the attorneys’ fees they had incurred. The trial court refused to make an award of attorneys’ fees, reasoning that such an award was not permissible under the American Rule because there was no “basis in case law” for such an award.
In Ellis, the court of appeals found that there was a basis in Tennessee case law for the award of attorneys’ fees against a fiduciary, which the niece was, where the fiduciary had “knowingly violated the power of attorney to benefit herself.” The court of appeals characterized the niece’s conduct as a “deliberate abuse of her position.”
The “basis in case law” which allowed an exception to the American Rule, which was referred by the court of appeals in the Ellis case, included the cases of Martin v. Moore (Tenn. Ct. App. 2003) and Lewis v. Lewis (Tenn. Ct. App. 2015).
The holder of the power of attorney in the Martin v. Moore case abused her power of attorney just as egregiously as did the niece in the Ellis case. The holder of the power of attorney in the Martin v. Moore case was the wife of Mr. Moore, to whom she has been married for over eighteen years. The wife used the power of attorney to withdraw $47,000 from an account of her husband, Mr. Moore. She sent the $47,000 to her brother in the Philippines who bought a chicken ranch with it, which he titled in his and his sister’s names. The court of appeals held that an exception to the American Rule existed in that case because the wife was a fiduciary who had deliberately breached her fiduciary duties to enrich herself.
In Lewis v. Lewis, a son used a power of attorney, among other things, to withdraw $600,000 from an account owned by his father. The son deposited those funds into an account owned by he and his wife. The court of appeals, in that case, upheld the trial court’s award of attorneys’ fees against the son.
This exception to the American Rule is remarkable given that other types of equally egregious conduct are not excepted from the American Rule and a prevailing plaintiff in cases involving that conduct cannot recover attorneys’ fees. For example, no matter how egregious, deliberate and self-serving the intentional misrepresentation or conversion committed by a defendant, a prevailing party cannot recover attorneys’ fees from a defendant in cases where liability is found for one of those causes of action. (The prevailing party may recover punitive damages, but, notably, the burden of proof for obtaining those is quite high).
(There is a somewhat related topic I feel compelled to address since defendants who abuse powers of attorney are also, frequently, the cause of will contest cases because they exert undue influence to procure wills beneficial to them. Parties who prevail in will contest actions, or other actions which create a monetary recovery for the estate of the deceased, should be aware that, under Tennessee law, they are entitled to an award of attorneys’ fees. This award is made from the assets of the estate and is not against the defendant who procured the invalid will.)
If you believe that a power of attorney has been used improperly, you should consult with a qualified Tennessee attorney to understand better your rights.