Bookkeeper Allegedly Stole $2M+ From Failing 85 Year Old Client

This was originally published on the SGR Blog.

Court Examines Claim for Breach of Fiduciary Duty

Litigation arose from the alleged theft by Ruth Treglia of more than $2 million from Cora Tanner, an 85 year-old widow, between April 2013 and December 2015, while Treglia was employed as Tanner’s personal bookkeeper. Tanner was retired, had no children, and supported herself with savings that she and her late husband accrued from work. In December 2012, Tanner suffered a physical collapse as a result of an alcohol induced neuropathy rendering her unable to walk, bathe, dress, cook, and other tasks, or manage her financial affairs. She was subsequently diagnosed with dementia.

The complaint (by Karen Couzens, Tanner’s niece as attorney-in-fact) accused Treglia of taking advantage of Tanner’s age and medical condition by transferring monies from Tanner’s accounts to her own. Allegedly, Treglia falsely delineated some of these transfers as payments of legitimate expenses and labeled others as gifts to Tanner’s family members. She then also paid herself tens of thousands of dollars each month as “wages” for her bookkeeping services, without authorization for those amounts from Tanner or any other person.

Tanner moved for summary judgment on her causes of action seeking damages for breach of fiduciary duty, restitution under the faithless servant doctrine, conversion, fraud, and unjust enrichment as well as for an accounting. Tanner’s health aide, Betty Murray, settled the claims against her, and was dismissed from the action. Treglia made a motion for summary judgment seeking to dismiss the complaint.

The Court found that, in early 2013, Couzens became more involved in Tanner’s affairs. Tanner’s sister, Margaret D’Arcy, moved in with Tanner so that D’Arcy’s home health aide, Betty Murray could provide both sisters with medical assistance, and help with shopping and other tasks. Murray then introduced Couzens to Treglia and on or about April 20, 2013. Couzens hired Treglia to perform bookkeeping and bill paying services for Tanner. According to Couzens, she hired Treglia with the understanding that Treglia would work approximately three to four hours each week at Tanner’s home. But, to the Court’s dismay, neither Couzens nor Tanner supposedly ever discussed any payments terms with Treglia.

At the time Teglia became the bookkeeper, Tanner’s investment accounts were valued at more than $4.24 million; her checking account was about $25,000; and a certificate of deposit was valued at more than $16,000. She also maintained five accounts to assist with her young relatives’ educational expenses, which were collectively valued at more than $40,000. From April 20, 2013, until she left Tanner’s employ in early December 2015, Treglia caused Tanner’s stock holdings to be liquidated in amounts ranging from $70,000 to $90,000 every month. Teglia allegedly was aware that those stock sales triggered tax liabilities for Tanner, but Treglia never kept track of those liabilities or set aside any funds to pay them. Rather, when Tanner’s quarterly taxes came due, Treglia liquidated additional assets to pay them, which triggered even more tax liabilities. Couzens contended that Treglia wrote thousands of checks to herself and to “Cash” and deposited them or kept the proceeds.

According to Treglia, all of these payments were for her wages and reimbursement of unspecified, undocumented expenses. Teglia paid herself $2,150 per week, and then she nearly tripled her weekly pay to approximately $6,000 per week by early 2015. The niece proffered that in early May 2013, Treglia began issuing herself a second weekly check, often writing expenses or supplies in the memo line. Those additional checks initially amounted to $250 weekly, but by June 2015 the second check amounted to an additional $5,995 per week. There seemed to be no explanation for those alleged expenses, insofar as she did not routinely advance expenses for Tanner – whose groceries, medication and other supplies were procured and paid for by Murray. Treglia allegedly wrote herself an additional 88 checks each bearing the notation “Caroline, which references Mrs. Tanner’ niece” for a total of $220,000. Couzens summed up that the cumulative harm to Tanner totaled $186,195 in 2013, $624,662 in 2014, and $763,186, in 2015. In less than three years, Treglia collected at least $1.574 million.

Gary B. Rosen, a Certified Public Accountant and financial professional with over 40 years of experience in public accounting, reviewed the record. He indicated that throughout her employment as a bookkeeper, Treglia often made numerous disbursements to herself from Tanner’s accounts in a single day. Rosen pointed out specific checks that Treglia wrote to herself, cashed and/or deposited the checks and kept the proceeds. The record contained numerous other examples in which three or more checks aggregating more than $10,000 were written on the same day and cashed or deposited by Treglia. The accountant explained that, in the Anti-Money Laundering field, the illegal act of splitting cash withdrawals or deposits into smaller amounts to stay under a currency reporting threshold is known as “Structuring.” In his experience, individuals engaged in fraud often used Structuring to attempt to avoid suspicion and detection of their activities.

It was his expert opinion that Treglia structured numerous payments to herself from Tanner’s accounts to try to avoid drawing attention to the large amounts she was withdrawing each week. He attested that a properly trained and experienced bookkeeper working 50 hours per week and time and a half for overtime, could expect an annual salary of $55,525 per year. A bookkeeper of Treglia’s training and experience working in a position suited to her abilities and limitations, could expect a salary of $52,455. In was his expert opinion that Treglia’s receipt of $1,578, 488.08 in a period of less than three years vastly exceeded any legitimate wages she could have earned.

Treglia explained that the checks were salary payments for her work on behalf of Tanner, D’Arcy, and their family members. Further, during the same time period in which she alleged that Treglia took advantage of Tanner, Tanner gave Couzens $1,500 per week, $1,000 a week for Couzens daughter Charlotte, and $2,500 per month for Couzens daughter Caroline. Tanner also gave Couzens $1,500 per week in 2013, to support Couzens as she was going through a divorce. Each payment made from Tanner to Couzens, Charlotte and Caroline during 2013 was made via a check signed by Tanner and prepared by Treglia.

Treglia testified that she did not keep written records of her hours worked, was paid an unspecified standard salary, and worked between 50 to 70 hours per week. Couzens instructed that stock be sold with the proceeds transferred to her checking account. On a monthly basis, Treglia would only receive checks for her wages. Every check that she gave Tanner to sign was explained in full detail. Caroline (Tanner’s niece) received a check once a month for $2,500 and would also get paid for her work for Couznes and her daughters and mother. She wrote checks for the daughter’s schools. For weekly work, Treglia wrote some checks from Tanner for expenses of her family. Many of the checks were given for Couznes’ family. When she wrote checks for Tanner, she paid for utility bills, and did initial preparation for her tax returns. She wrote two separate checks so that they could be deposited in two separate bank accounts.

Treglia also claimed that she would get alleged bonus checks in addition to her 50 to 70 hours per week that she worked. Treglia accused Couzens of wanting to deplete Tanner’s accounts, and she was very uncomfortable. She also asserted that Couzens wanted her aunt’s will changed, and the will was changed so that, upon Tanner’s death, Couzens would be the beneficiary of Tanner’s condominium that was worth about $700,000. Treglia testified that she never signed Tanner’s name to any of the numerous checks shown at the deposition, and that Tanner that personally signed each of the checks.

In order to establish a breach of fiduciary duty, a plaintiff must prove the existence of a fiduciary relationship, misconduct by the defendant, and damages that were directly caused by the defendant’s misconduct.  In order to establish a conversion claim, a plaintiff must show that he had an immediate superior right of possession to the identifiable fund and the exercise by defendants of unauthorized dominion over the money in question to the exclusion of plaintiff’s rights.

As a general rule, the question of whether a relationship is a fiduciary one is a question of fact for the jury. However, here, Treglia was in charge of Tanner’s affairs and took care of her finances. Such a relationship may exist where one party reposes confidence in another and reasonably relies on the other’s superior expertise or knowledge, but an arms-length business relationship does not give rise to a fiduciary obligation. Here, it was clear to the Court that Treglia was more than just a bookkeeper to Tanner, which gave rise to a confidential and fiduciary relationship. Treglia worked in the Tanner home for many more hours than she was initially hired.

As for the misconduct component for breach of fiduciary duty, allegedly Treglia took more than $1.5 million from Tanner’ account in less than three years, without obtaining prior authorization. In opposition, Treglia argued that there was no evidence that her compensation was not authorized by Tanner, or that Treglia presented false invoices.

Alarm bells and sirens rang loudly of wrongdoing, stupidity, and neglect from all directions. But the Court’s job on the motion for summary judgment was to determine whether issues of fact existed. It was not the Court’s function on a motion for summary judgment to assess credibility. Neither party made out a prima facie case for their respective motions. It was incomprehensible that the terms of Treglia’s employment with Tanner had not been set forth on the record, and the deposition testimony of Couzens and Treglia did not provide Treglia’s employment conditions.

Treglia also argued that Couzens could not maintain her conversion cause of action because it was undisputed that Tanner executed each of the checks that Clouzens alleged were improperly caused by Murray and Treglia. As such, Treglia argued that Couzens could not assert that Treglia wrongfully exercised dominion over funds in derogation of Tanner’s ownership because Tanner executed the checks. Couzens failed to offer evidence of any misrepresentation made by Treglia to induce Tanner’s reliance or any promise by Treglia to pay for certain expenses—inducing Tanner to pay purported invoices—and then failing to pay them.

Treglia further argued that Couzens claim that Tanner was fraudulently induced, or that she was unfit to execute her own checks, was undermined by Couznes own testimony that she wrote checks for Tanner and Tanner was capable of understanding the need to pay bills and why she was signing those checks, and, because Tanner verified the original complaint in the action dated November 21, 2016, she must have been able to understand and properly execute checks from April 2013 through December 2015.

In reply, Couzens submitted for the first time an affidavit of Yves A. Lebrun, MD, board certified by the American Board of Psychiatry and Neurology. The Court considered the affidavit as it addressed the argument that had been raised in opposition papers as to Tanner’s capacity.  LeBrun attested that Tanner had been under his care since May 2013, and continued to be under his care to present. He had been treating her for symptoms relating to her memory loss, hallucinations due to alcohol, and dementia. It was his opinion that, during the period from May 2013 through December 2015, Tanner suffered from dementia, major short term memory loss, and hallucination and was not capable of managing her own affairs. Taking into consideration the parties’ arguments, the Court found again that neither party made out a prima facie case and that branch of their motions for summary judgment was denied.

As for the cause of action sounding in fraud, a plaintiff must allege that the defendant knowingly misrepresented or concealed a material fact for the purpose of inducing another party to rely upon it, and that the other party justifiably relied upon such misrepresentation or concealment to his or her own detriment.

Undue influence is seldom practiced openly, but it is, rather, the product of persistent and subtle suggestion imposed upon a weaker mind and calculated, by the exploitation of a relationship of trust and confidence, to overwhelm the victim’s will to the point where it becomes the willing tool to be manipulated for the benefit of another. But existing triable issues of fact remained as to the terms of employment, and the understanding between Couzens, Tanner and Treglia, and the final destination of all of Tanner’s monies transferred by Treglia.

Under the faithless servant doctrine, persons who are engaged in repeated acts of disloyalty risk complete and permanent forfeiture of compensation, deferred or otherwise. One who owes a duty of fidelity to a principal and who is faithless in the performance of his or her services is generally not entitled to recover compensation, whether commissions or salary. Notably, Treglia attached multiple checks that were paid to the order of cash that Couzens deposited allegedly for her own benefit or for the benefit of her daughters. The gravaman of Couzens’ claims were that Treglia deliberately concealed the true purpose of the checks she gave Tanner to sign, which was to enrich Treglia at Tanner’s expense.

On the record, clearly there were triable issues of fact. What was evident was that there were numerous people who freely used and benefitted immensely from Tanner’s resources. The faithless servant doctrine is applicable upon a showing of a persistent pattern of disloyalty, of which neither party showed a prima facie case. However, affidavits and evidence of checks submitted by Treglia raised triable issues of fact as to whether the transactions were authorized by Tanner, and whether Tanner had capacity to authorize those checks. That also held true for the unjust enrichment cause of action if Treglia was greatly enriched at Tanner’s expense.

Finally, the Court directed Treglia to provide an accounting of Tanner’s assets.  Couzens had amply showed a confidential relationship existed between Treglia and Tanner, who had access to all of Tanner’s assets.

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