Definition of financial abuse.

                    W & I 15610.30 provides:

                    "(a) 'Financial abuse' of an elder or dependent adult occurs when a person or entity does any of the following:

                            (1) Takes, secretes, appropriates, or retains real or personal property of an elder or dependent adult to a wrongful use or with intent to defraud, or both."

What does "person or entity" mean?

            The word "person" includes a corporation as well as a natural person. (CC § 14.) The word “entity” appears to include all manner of organizations, associations, and affiliations, both formal and informal -- while no statute or case precisely defines the word “entity,” there are many statutes which expressly apply to “persons or entities.” Included among examples of entities are natural persons, partnerships, joint ventures, corporations, limited liability companies, loosely affiliated individuals, and informal business organizations. (See CCP § 369.5, Juneau Spruce Corp. v. International Longshoremen's and Warehousemen's Union (1953) 119 Cal.App.2d 144, 147, and HLC Properties Ltd. v. Superior Court (2005) 35 Cal.4th 54.) Thus the definition of financial abuse contemplates that non-natural persons may be directly liable for financial abuse. However, a non-natural person must normally act through a natural person. Therefore, including non-natural persons in the definition of financial abuse suggests that wrongful conduct might sometimes be imputed from a natural person to a non-natural person. While it is possible to conceive of a non-natural person acting through someone other than an employee, it would seem that by far the most common situation in which an elder might be financially victimized by a non-natural person would be where the conduct is performed by an employee. The implication that a non-natural person can be vicariously liable for the wrongful acts of another is, to some extent, contradicted by the language of W & I 15657.5(b)(2), which requires additional proof before an employer may be liable for "any damages."

What does "takes, secretes, appropriates, or retains" mean?

                   The conduct required for financial abuse ("takes, secretes, appropriates, or retains") is not elsewhere defined. However, each of these verbs suggests conduct by which the elder is deprived of property through some form of artifice.

                    The word “take” has been defined: “To lay hold of; to gain or receive into possession; to seize; to deprive one of the use or possession of; to assume ownership.” (Black’s Law Dictionary.)

                    The word “secrete” has been defined: “To conceal or hide away.” (Black’s Law Dictionary.)

                    The word “appropriate” has been defined: “To make a thing one’s own; to make a thing the subject of property; to exercise dominion over an object to the extent, and for the purpose of making it subserve one’s own proper use or pleasure.” (Black’s Law Dictionary.)

                    The word “retain” has been defined: “To continue to hold, have, use, recognize, etc., and to keep.” (Black’s Law Dictionary.)

There are currently no decisions which clarify this element.

What is "property of an elder"?

                    W & I Code sec 15610.30(a)(1) defines financial abuse as the wrongful taking of "property of an elder." Where the property taken is owned by the elder outright, it clearly constitutes property of an elder. However, where the property taken is held in trust, or a conservator of the estate has been appointed, legal title to the property is held by the trustee or the conservator. If the trustee or conservator is not an elder, the question may arise of whether the taking is of "property of an elder."

                    Every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute. (CCP § 367.) In general, the real party in interest is the person possessing the right sued upon by reason of the substantive law. (Powers v. Ashton (1975) 45 Cal.App.3d 783, 787.) Where substantive law provides a remedy for harm to trust property, an action on behalf of the trust must be brought by the trustee and not in the name of the trust because a trust is not an entity separate from its trustees. (Lazar v. Estate of Lazar (1962) 208 Cal.App.2d 554, 557.) Thus, where a cause of action is prosecuted on behalf of a trust, the trustee is the real party in interest because he is the one in whom title to the cause is vested. (Powers v. Ashton (1975) 45 Cal.App.3d 783, 787.) Moreover, the beneficiary of a trust has no standing to sue on behalf of the trust. (Saks v. Damon Raike & Co. (1992) 7 Cal.App.4th 419.) While the definition of financial abuse refers only to the taking of property “of an elder,” it would be inconsistent with EADACPA's purpose to exclude from this definition property held by an elder in a trust or by a conservator. For the purposes of elder financial abuse, the trustee or conservator of such property is merely a nominal owner of the property. For example, where an elder has placed his property in a trust and designated his non-elder child trustee, such property should be characterized as property “of an elder” notwithstanding the age of the trustee; to do otherwise would defeat the clear purpose of the Legislature in providing elders with a remedy for financial abuse. Conversely, taking property from a trust in which the beneficiary is a child and the trustee (perhaps a professional trustee of a financial institution) is 65 years old, should not be characterized as elder financial abuse simply because the trustee is 65 or older.

                    The definition of what is property may also be disputed. If a wrongdoer improperly influences an elder to change his will but the change is corrected, has property been taken? In an unpublished decision, the First District applied a broad characterization of the word "property" to include the right to dispose of property, even if the disposition is limited or contingent. (Abernathy v. County of Marin (1st Dist. 2006) 2006 WL 418486.)

What does "intent to defraud" mean?

                    Financial abuse of an elder requires that two conditions be met: the wrongdoer (1) must engage in particular conduct (“takes, secretes, appropriates, or retains”); and (2) must do so with a particular purpose or state-of-mind (“to a wrongful use or with intent to defraud, or both”). Thus both conduct and some form of intent are required to satisfy the definition of elder financial abuse. 

                    In its most obvious form, a defendant who takes the property of an elder with the actual intent to defraud him commits financial abuse. “To defraud” describes conduct which wrongs a person’s property rights by dishonest methods or schemes and usually signifies the deprivation of something of value by trick, deceit, chicane, or overreaching. (McNally v. U.S. (1987) 483 U.S. 350.) The term “intent to defraud” can be distinguished from the more specific and well-established definition of a cause of action for fraud. A cause of action for fraud requires the plaintiff to prove five elements: (1) a misrepresentation (including concealment or nondisclosure); (2) knowledge of the falsity of the misrepresentation (scienter); (3) intent to induce the victim's reliance on the misrepresentation; (4) justifiable reliance; and (5) resulting damages. (Cadlo v. Owens-Illinois (2004) 125 Cal.App.4th 513, 519.) Thus, the conduct required for fraud consists of the wrongdoer’s misrepresentation and the victim’s reliance; the state-of-mind required is the wrongdoer’s knowledge of the falsity of the representation, coupled with his intent to mislead the victim. The statutory definition of elder financial abuse requires only that the wrongdoer have the "intent to defraud" and not for fraud to have occurred; therefore, only element three (intent to induce the victim's reliance on the misrepresentation) must exist. Can a wrongdoer intend to induce a victim's reliance on a misrepresentation where there has been no misrepresentation? -- that is, in the absence of element one? While not likely, this might be possible where the wrongdoer believes a representation to be false, but it is later determined that the representation is not false. Such a situation would not constitute fraud because there has been no misrepresentation but might constitute financial abuse because the wrongdoer intended to defraud. Similarly, can a wrongdoer intend to induce a victim's reliance on a misrepresentation where the wrongdoer does not have knowledge of the falsity of the misrepresentation? -- that is, in the absence of element two? This might be possible where a wrongdoer has no knowledge whether a representation is either true or false; such a situation would not constitute fraud but might constitute financial abuse, particularly where a reasonable person would be aware of the falsity of the representation. (See W & I 15610.30(b)(2).) It seems reasonably clear that while justifiable reliance is a requirement for fraud, it is not a requirement for financial abuse. Accordingly, an elder who is deceived into relinquishing property may suffer financial abuse even where a reasonable person would not have been misled. Such an interpretation is consistent with the Legislature’s recognition that elders are more subject to the risks of abuse (W & I Code § 15600(b)) and has a responsibility to protect them (W & I Code § 15600(a)). The absence of a requirement for justifiable reliance also raises the possibility that elder financial abuse may occur not only where reliance might not be reasonable, but also where reliance is absent. For example, in circumstances similar to the now infamous Anna Nicole Smith matter, a cause of action for elder financial abuse might exist (perhaps asserted later by the elder’s heirs) even if the elder were fully aware of his young suitor’s romantic dishonesty. Thus, the statute appears to protect an elder from foolishly, yet knowingly, divesting assets – something a younger person may clearly do.

What does "to a wrongful use" mean?

                    While conduct which constitutes actual fraud may at the same time constitute elder financial abuse, it seems clear that elder financial abuse may exist in the absence of fraud as the statutory definition includes situations where the wrongdoer takes the property of an elder “to a wrongful use.” The phrase “to a wrongful use” raises a number of questions. What does it mean to take something “to” a wrongful use? In normal usage, a person “puts” something “to a wrongful use.” Such a construction would appear to focus on the character of what is done with the property, rather than on the wrongdoer’s purpose or state-of-mind. Conversely, taking something “for” a wrongful use suggests an examination of the wrongdoer’s purpose rather than on how the property is used. The statute adds to this confusion by later repeating the phrase -- however, this time using the preposition “for” in place of “to." (W & I Code § 15610.30(b).) It is usually assumed that in using a different word, the Legislature intended to subscribe a different meaning. (Expressio unius est exclusio alterius; see People v. Anzalone (1999) 19 Cal.4th 1074, 1078.) Here, it is difficult to discern what different meanings might be assigned to the use of these two prepositions in such similar contexts.

            The word “wrongful” is also problematic, as it carries with it an implicit conclusion that the behavior is prohibited or somehow contrary to law but does not, in itself, provide a standard by which to measure the wrongdoer’s purpose. The Legislature has previously used the word “wrongful” in several different contexts, including wrongful death (CC §§ 43.9, 852, and 853), wrongful injury (CC § 50, wrongful disclosure (CC § 1798.57), and wrongful acts (CC §§ 2224, 2338, and 2343). For example, in connection with bailor liability, Civil Code § 1836 provides that a “depositary is liable for any damage happening to the thing deposited, during his wrongful use thereof . . . .” Thus, unauthorized use of the property is contrary to the bailee’s ownership interest and would be characterized as “wrongful." (Hillhouse v. Wolf (1958) 166 Cal.App.2d Supp. 833.) Similarly, where a person acquires legal title to property to which another has a superior right, the court may convert the taker into a constructive trustee on the basis of the “wrongful act." (Civil Code § 2224; Meader v. Norton (1870) 78 U.S. 442.) This appears to be similar to at least one method by which “wrongful use” might occur in elder financial abuse -- that is, where an unauthorized taking or other act is inconsistent with the superior right of the elder. However, a problem arises where the taking occurs by way of an ordinary commercial transaction. The encyclopedia salesman who “takes” an elder’s remaining savings (perhaps desperately needed for medication) through a fully enforceable written agreement will argue that his conduct cannot be characterized as wrongful because his right to payment is neither inconsistent with nor inferior to the elder’s rights. However, the statute seems to support the notion that “wrongful use” may, at least sometimes, mean conduct which simply falls below the community’s expectations of how elders should be treated. It provides that a person shall be deemed to have taken property for a wrongful use when he does so in “bad faith" (W & I Code § 15610.30(b)), that bad faith exists where the wrongdoer knew or should have known that the elder had the right to have the property transferred or made readily available (W & I Code § 15610.30(b)(1)), and the wrongdoer should have known better where it would be obvious to a reasonable person (W & I Code § 15610.30(b)(2)). This again raises the question of whether the statute protects an elder from imprudent or foolish decisions which are not otherwise prohibited. It also raises the question (rather than answers it) of when an elder has the right to have property transferred or made readily available.

What does "bad faith" mean?

                    W & I Code 15610.30(b) provides: “A person or entity shall be deemed to have taken, secreted, appropriated, or retained property for a wrongful use if, among other things, the person or entity takes, secretes, appropriates or retains possession of property in bad faith.” The inclusion of the term "among other things" suggests that at least several states-of-mind might satisfy the requirement of "wrongful use" and that one such state-of-mind is where the wrongdoer acts in "bad faith." Thus, a factual finding of bad faith satisfies the state-of-mind requirement for financial abuse.

                    The concept of bad faith arises in a number of different contexts, including: malicious prosecution (Choy v. Redland Ins. Co. (2002) 103 Cal.App.4th 789, 799); partnership disputes (Heller v. Pillsbury Madison & Sutro (1996) 50 Cal.App.4th 1367); litigation tactics (Javor v. Dellinger (1992) 2 Cal.App.4th 1258); settlement agreements (CCP 877.6); contracts (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 995); employment litigation (Kuhn v. Dept. of General Services (1994) 22 Cal.App.4th 1627, 1637); insurance claims (Essex Ins. Co. v. Five Star Dye House, Inc. (2006) 38 Cal.4th 1252); and judicial misconduct (Broadman v. Commission on Judicial Performance (1998) 18 Cal.4th 1079). In general, it implies a culpable state-of-mind in which the wrongdoer engages in conduct harmful to the victim and contrary to the reasonable expectations of the parties. In some circumstances it is akin to specific intent while in others a "knew or should have known" standard is sufficient. (See Broadman v. Commission on Judicial Performance (1998) 18 Cal.4th 1079, 1081.)

                    W & I 15610.30(b)(1) expressly casts bad faith in elder financial abuse as the latter; it provides:

                    "A person or entity shall be deemed to have acted in bad faith if the person or entity knew or should have known that the elder or dependent adult had the right to have the property transferred or made readily available to the elder or dependent adult or to his or her representative."

                    W & I 15610.30(b)(2) is even more specific and specifies when a person "should have known"; it provides:

                    "For purposes of this section, a person or entity should have known of a right specified in paragraph (1) if, on the basis of the information received by the person or entity or the person or entity's authorized third party, or both, it is obvious to a reasonable person that the elder or dependent adult has a right specified in paragraph (1)."

Thus, the standard for determining whether a wrongdoer "should have known" is that of a reasonable person. This suggests that a person might have no subjective wrongful intent, yet commit elder financial abuse if it would be obvious to a reasonable person. In other words, the statute imputes a culpable state of mind using a standard analogous to negligent conduct. This would be consistent with the Legislature’s recognition that elders are particularly vulnerable to “abuse, neglect, or abandonment” (W & I Code 15600(a), emphasis added) -- that is, that EADACPA is intended to protect elders not only from intentional abuse but also from negligent conduct resulting in similar harm. But what is it that the wrongdoer should have known and which would have been obvious to a reasonable person? Paragraph (2) answers this with "a right specified in paragraph (1)." And the rights expressed in paragraph (1) are that of the elder to have his property "transferred or made readily available." This language is problematic and resembles the seemingly circular meaning of the word “wrongful”: an elder would have the right to the property (and this right should be obvious to a reasonable person) where the law otherwise provides the elder with that right (and presumably creates a corresponding remedy). Again, this echoes the question of the extent to which elder financial abuse creates new rights and remedies or merely provides enhanced remedies for existing rights.

                    W & I 15610.30(a)(1) provides that financial abuse can occur where the wrong-doer takes the elder’s property “to a wrongful use or with intent to defraud, or both” (emphasis added). The possibility that the intent to defraud and taking the property to a wrongful use might both exist in the same occurrence raises some additional questions. If “intent to defraud” is akin to specific intent and taking property "to a wrongful use" may involve a state of mind which could range from bad faith to negligently taking an elder’s property, how might two such different states-of-mind exist simultaneously?