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A Catholic priest sexual-abuse victim’s relatives must be removed from overseeing a trust created to manage his settlement money after they spent most of the $345,676 to purchase themselves cars, jewelry and home renovations, the Delaware Court of Chancery has ruled.

Duane C. Hardy received a large cash settlement as a member of a class action lawsuit that filed sexual-abuse charges against the Catholic Diocese of Wilmington. He suffers from alcoholism, schizophrenia and bipolar disorder and told his attorney at the time that he thought others would better manage his settlement proceeds, according to court documents. Hardy’s older sister, Sherry Hardy, and her adult son, Michael Hardy, were appointed as the co-trustees.

Under the trust agreement, Sherry and Michael Hardy have “sole and uncontrolled discretion” to distribute or apply the funds “for the care, comfort, welfare, education or training” of Duane Hardy.

Duane Hardy received the initial payment of his proceeds in October 2011 and he split the amounts into two separate accounts at Wilmington Savings Fund Society. The two deposits totaled $9,000 less than the settlement’s total of $345,676. Roughly one week later, the first significant withdrawals from the trust accounts occurred. A $15,000 check written out to cash and a $21,700 debit withdrawal four days later were used to provide various gifts to Duane Hardy’s family and friends, according to court documents. However, Hardy denies that he authorized the withdrawals and contended that he only approved two gift payments totaling $3,000.

Other expenditures included Sherry Hardy purchasing a 2011 Lincoln MKX for $49,920 and Michael Hardy paying $33,120 for a Mercedes Benz CL5 with an additional $5,362 for an extended warranty. Within the first month, only $162,033 remained in the trust, according to court documents. The co-trustees also spent $2,500 from the trust to move Duane Hardy to Newark and furnish an apartment for him. After Duane Hardy was relocated, Sherry and Michael Hardy spent over $75,000 on various upgrades and repairs to their Wilmington home, according to court documents.

In December 2011, Duane Hardy’s friends became concerned about the trustees’ spending habits and Sherry and Michael Hardy became concerned someone would file a lawsuit against them. They drafted a consent decree giving the co-trustees carte blanche to use the trust funds. Once Duane Hardy signed the consent decree, Sherry and Michael Hardy closed the accounts and created two new accounts with balances totaling $68,737.

Duane Hardy filed a Chancery Court lawsuit in February 2012 when only $34,385 remained in the trust, according to court documents. The defendants continued to withdraw large amounts of money from the trust and only $3,654 remained by March 2012. Eventually, the accounts had a zero balance, according to court documents.

Duane Hardy contends the defendants breached their fiduciary duties by engaging in self-interested transactions and failing to administer the trust for its intended purposes. He also seeks monetary damages and removal of Sherry and Michael Hardy as trustees. The defendants countered that Duane Hardy consented to their purchases, so the transactions were not self-interested.

Vice Chancellor Donald F. Parsons Jr. ruled the majority of the co-trustees’ transactions were self-interested and ordered their removal as trustees of the settlement. The vice chancellor also awarded Duane Hardy roughly $248,400 in damages.

“There is no better evidence to suggest that the trust property is ‘endangered by a lack of capacity, honesty or fidelity’ than the zero balance that remains in both of the trust accounts,” Parsons said in Hardy v. Hardy. “In fact, even defendants acknowledge that they should have first declined to serve and once they agreed to serve, they should have considered hiring a third party to assist them in the administration of the trust.”

Parsons appointed Delaware CarePlan Inc., a nonprofit government agency, as trustee of Duane Hardy’s remaining funds. Hardy’s funds will include the damage awards and the attorney fees and expenses he can recover under Parsons’ decision. The vice chancellor said he was awarding the attorney fees because the co-trustees acted in bad faith.

“If their mismanagement of the trust had stemmed predominately from their lack of education and financial training, I probably would not be inclined to find bad faith,” Parsons said. “Sherry and Michael’s actions, however, were more culpable than that. Within two weeks of the settlement funds, they each bought themselves luxury automobiles at Duane’s expense without informing him in advance of what they were doing.”

William X. Moore of Roeberg Moore & Friedman represented Duane Hardy.

Sherry and Michael Hardy were represented by Richard K. Goll, a Millville attorney, but he withdrew as counsel in April. The defendants continued in the case pro se. 

Jeff Mordock can be contacted at 215-557-2485 or jmordock@alm.com. Follow him on Twitter @JeffMordockTLI.