It is not uncommon for a business owner’s child to help manage the business. But, will managing a business permit a child to protect a parent by suing on the parent’s behalf? Consider the following…

The sad circumstances…

The issue in question is centered around a tavern owned and operated by an individual, Maurice Hagan. Hagan’s daughter, the plaintiff in the case, worked at the tavern. Over a period of several years, Hagan suffered several severe health problems that ultimately left him virtually unable to function or communicate on any meaningful level. During this time, Hagan’s daughter cared for her father and managed the tavern. After a brief period, Hagan’s live-in significant other of forty years presented at the tavern together with officers of the Alcoholic Beverage Commission (ABC), and demanded that she vacate the premises. The authority to eject Hagan’s daughter from the tavern was based upon a power of attorney purportedly signed by Hagan at the time he was suffering severe cognitive problems. After an expert analyzed the power of attorney, it seemed clear that the document was not genuine.

The case…

Hagan’s daughter commenced a lawsuit against Hagan’s life companion on behalf of Hagan. In essence, the suit sought a declaration that Hagan’s life companion had no legal ownership of, or authority to control, the tavern, and demanded that same be transferred to Hagan’s daughter. Regrettably, Hagan had never been legally declared incompetent, no action for the appointment of a legal guardian for Hagan was ever commenced, and Hagan never executed a power of attorney authorizing his daughter to act on his behalf. As a result, the court dismissed the case due to a lack of standing—that is, Hagan’s daughter lacked the legal authority to commence a lawsuit on Hagan’s behalf. On appeal, Hagan’s daughter argued that assumption of operational authority of the business gave her standing to file suit on Hagan’s behalf. The appeals court affirmed the trial court’s ruling and held that, in the absence of any evidence that Hagan authorized his daughter to act on his behalf, merely operating a business for a business owner does not confer standing to bring a lawsuit on behalf of the business owner.

Conclusion…

Business succession planning is critically important—particularly in the case of a business having only one owner. In this case, even a relatively simple and inexpensive power of attorney could have likely avoided the debacle that followed Hagan’s disability. Please feel free to contact me for more information about business succession planning or the case.

DISCLAIMER: This blog is merely for the general interest of the reader. It is not legal advice or opinion and it does not create an attorney-client. Please call me at 973-921-0600 if you’d like to have a free initial telephone consultation or learn more about me or my practice. Thank you.