      IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

DUANE C. HARDY,                          )
                                         )
             Plaintiff,                  )
                                         )
      v.                                 )
                                         )          C.A. No. 7531-VCP
SHERRY L. HARDY and MICHAEL T.           )
HARDY, individually and as Trustees      )
of the Duane C. Hardy 2011 Trust, and    )
TOLMIROS, LLC,                           )
                                         )
             Defendants.                 )

                           MEMORANDUM OPINION

                           Date Submitted: April 16, 2014
                            Date Decided: July 29, 2014


William X. Moore, Esq., Edward H. Wilson, II, Esq., ROEBERG, MOORE &
FRIEDMAN, P.A., Wilmington, Delaware; Attorneys for Plaintiff Duane C. Hardy.

Richard K. Goll, Esq., LAW FIRM OF RICHARD K. GOLL, Millville, Delaware;
Represented Defendants Sherry L. Hardy, Michael T. Hardy and Tolmiros, LLC at trial,
but was permitted to withdraw as counsel on April 16, 2014.

Sherry L. Hardy and Michael T. Hardy, Pro Se Defendants.


PARSONS, Vice Chancellor.
       The plaintiff, Duane C. Hardy, received a large cash settlement as a member of the

class that brought sexual abuse charges against the Catholic Diocese of Wilmington (the

―Diocese‖), among others. In anticipation of receiving his first settlement payment, the

plaintiff, with the assistance of counsel, created a trust, naming himself as the

beneficiary, and appointed his sister and nephew, Sherry L. Hardy and Michael T. Hardy,

respectively, as co-trustees. The plaintiff‘s choice of trustees proved to be disastrous.

This case arises out of the beneficiary‘s allegations that the trustees breached their

fiduciary duties by engaging in self-interested transactions and failing to administer the

trust for its intended purpose. By the time of trial, the trust accounts had a zero balance.

Duane1 seeks to recover losses the trust incurred as a result of the trustees‘ breaches of

fiduciary duties. The relief he requests includes an award of money damages with

prejudgment interest, the imposition of a constructive trust on items purchased with the

trust corpus, and an award of his attorneys‘ fees and expenses.

       In response, Sherry and Michael deny any liability, because, they allege, Duane

consented to all or most of their self-interested transactions. In addition, the defendants

contend that, even if they may have breached their fiduciary duty, they are absolved from

any monetary damages by the exculpation clause of the Trust Agreement.

       For the reasons stated in this post-trial opinion, I hold Sherry and Michael jointly

and severally liable for their self-interested purchases and for many of the other

1
       Because the three main actors in this dispute have the same surname, i.e., Hardy, I
       refer to them by their first names in the interest of brevity and clarity. No
       disrespect is intended.


                                             1
expenditures the plaintiff challenged based on their failure to account for money

withdrawn from the trust. I do not find the defendants liable for approximately $30,000

that was gifted to Duane‘s friends and family, allegedly at Duane‘s behest, and for certain

of the other challenged expenditures. By way of relief, I award Duane money damages

and I have imposed a constructive trust on the two vehicles the defendants purchased

with trust assets and on Sherry‘s 8.3% property interest in a residence located at 412 W.

3rd Street, Wilmington, DE, 19801. Based on Sherry and Michael‘s breaches of their

duties to the Trust, their egregious pre-litigation conduct, and certain actions taken

vexatiously or in bad faith during the course of this litigation, I award Duane his

attorneys‘ fees and expenses in connection with this litigation.

       Finally, this Memorandum Opinion reflects my findings of fact and conclusions of

law on Plaintiff‘s recently filed motions to set aside Michael‘s fraudulent transfer of one

of the automobiles and for contempt. The defendants did not respond to these motions.

Based primarily on my finding that the disputed transfer was fraudulent, I grant most of

the relief sought by these two motions.

                                I.        BACKGROUND

                                     A.    The Parties

       Plaintiff, Duane, is the settlor and beneficiary of the Duane C. Hardy 2011 Trust

(the ―Trust‖).

       Defendant Sherry and her son Michael are the co-trustees of the Trust

(collectively, ―Trustees‖ or ―Defendants‖). Sherry is Duane‘s older sister and Michael is

Duane‘s nephew.

                                             2
       Defendant Tolmiros, LLC (―Tolmiros‖) was a business entity formed under the

laws of Delaware on October 31, 2011. Michael established Tolmiros for the purpose of

making investments, but it never engaged in any actual business transactions. The Court

entered a default judgment against Tolmiros on January 16, 2013, due to Tolmiros‘s

failure to obtain legal counsel as required under Delaware law.2 The January 16 Order

stated that a hearing on damages against Tolmiros would be scheduled to coincide with

the trial on the merits against Defendants Sherry and Michael. No material evidence or

argument was presented at trial on behalf of Tolmiros. Therefore, to the extent a money

judgment or constructive trust is entered against Sherry or Michael, the Court also will

award the same relief, jointly and severally, against Tolmiros.

                                     B.       Facts3

                             1.      Creation of the Trust

       Duane was a party in a class action suit, which ultimately ended in a settlement,

against the Diocese for abuse he endured as a child. Under the settlement, Duane was to

receive an initial disbursement of $533,508.13, followed by two smaller disbursements.

Before he received the funds, Duane, who suffers from bi-polar disorder and

schizophrenia, and has struggled with drug and alcohol addiction, indicated to his


2
       Scheduling Conference and Pl.‘s Mot. for Default Judgment as to Def. Tolmiros,
       LLC and the Court‘s Ruling at 3, 6 (D.I. No. 103); See Poore v. Fox Hollow
       Enters., 1994 WL 150872, at *2 (Del. Super. Mar. 29, 1994).
3
       The facts recited herein constitute the Court's post-trial findings of fact. Unless
       otherwise noted, these facts are drawn from the stipulated facts section of the
       parties‘ Joint Pre–Trial Stipulation and Order, filed September 18, 2013.


                                             3
attorney that to preserve his money, he wanted others to manage his settlement proceeds.

Duane has stated that he drinks a six-pack of beer daily.4 Duane also has only a ninth

grade education.5 On August 31, 2011, Duane created an irrevocable trust, the Duane C.

Hardy 2011 Trust, of which he was both the Settlor and the Beneficiary. His older sister

Sherry and her adult son Michael were appointed co-trustees of the Trust. At the time of

the Trust‘s inception, an attorney explained to Defendants the duties and obligations

required of them as trustees and reviewed with them the terms of the Trust.6

      The stated purpose of the Trust was ―to insure that . . . the physical necessities,

comfort, happiness and best interests of the Beneficiary . . . be met.‖ 7       The Trust

Agreement states that the Beneficiary, Duane, ―has a disability‖ and that the Grantor‘s

wish was that ―the Beneficiary attain the highest level of life satisfaction and

achievement, consistent with the Beneficiary‘s disability.‖8 In order to prevent the Trust

from supplanting Duane‘s Social Security Disability Insurance income of $650.00 per

month, the Trust Agreement provided that the Trust funds were to supplement any public




4
      Tr. 196.
5
      Id. at 171 (Duane).
6
      Tr. 9–10 (Sherry); id. at 118 (Michael). Citations in this format are to the trial
      transcript. If the identity of the witness is not clear from the associated text, the
      witness‘s name is indicated parenthetically.
7
      JX A at 1.
8
      Id.


                                            4
assistance Duane received.9     Article 2 of the Trust Agreement further clarified that

despite any language to the contrary within that agreement, ―no trust or principal shall be

paid to or expended for the benefit of the Beneficiary, so long as his care, comfort and

welfare needs are adequately provided by programs designed to provide support needs to

beneficiaries with disabilities . . . .‖10 The Trust Agreement provided the Trustees ―sole

and uncontrolled discretion‖ to ―distribute or apply as much of the net income or

principal of the Trust for the care, comfort, welfare, education or training of the

Beneficiary,‖ as the Trustees deemed to be in Duane‘s best interest.11 Article 8 required

the Trustees to ―prepare an annual report of receipts and disbursements to the

Beneficiary‖ and to make Trust records available for the Beneficiary‘s inspection at all

reasonable times.12

       Under an exculpation clause in Article 7, the Trustees are ―not liable for any act or

omission in the administration of the trust or for the loss or damage to trust property,

except as caused by the Trustee‘s intentional misconduct or gross negligence.‖13




9
       Id.
10
       Id.
11
       Id. at 2.
12
       Id. at 6.
13
       Id. at 5.


                                             5
                        2.         Rapid depletion of the accounts

                             a.       Initial deposit in October

       On October 27, 2011, Duane received the initial distribution of his settlement

proceeds, totaling $345,676.88 after payment of attorney fees and costs. The next day

Defendants deposited $336,676.88 of the funds into two separate accounts at Wilmington

Saving Funds Society (―WSFS‖) —$172,838.44 into a money market account (―Account

1‖) and $163,838.44 into a high interest bearing checking account (―Account 2‖).14

Notably, the initial deposits totaled $9,000 less than the amount of the settlement check.

Defendants have provided varying accounts as to what happened to the $9,000. That

question and the facts related to the disbursements made from the Trust accounts are

discussed in the Analysis infra.

                        b.         Payments to friends and family

       The first significant withdrawals from the Trust accounts included a $15,000

check written out to cash on November 4, 2011, and a $21,700 debit withdrawal on

November 8, 2011, for a total of $36,700.15 Michael testified that, at Duane‘s behest, he

gifted a majority of the $36,700 to various family members and friends of Duane.16

According to several witnesses, Duane made a list of names and corresponding dollar

amounts reflecting gifts he wished to give his family and friends from the settlement


14
       JX C at 1; JX E at 1.
15
       JX E at 1.
16
       Tr. 114.


                                               6
proceeds.17 Defendants did not attempt to put any list in evidence, but did provide copies

of the cashier‘s checks given to each donee.18 For his part, Duane denied making a list

and maintained that he only authorized two payments in the nature of gifts, totaling

$3,000.19

                    c.      Sherry and Michael buy themselves cars

     In the years preceding Duane‘s settlement, Sherry did not own a car.20 At various

times throughout his adult life, Duane was in prison.21         During his most recent

incarceration, Duane apparently wrote his sister Sherry a letter, dated September 23,

2009, updating her on his pending case against the Diocese.22 After reminding Sherry to

send him money, Duane concluded the letter by stating ―I saw your car in the paper—

Lincoln MKX. You desirve [sic] it sis[.] I hope you enjoy it.‖23 Before he actually




17
        Tr. 318–19 (Allen Hardy); id. at 258 (Shalon Hardy); id. at 303 (Rashon Hardy).
        [I found this testimony credible, even though Allen, Shalon, and Rashon each
        benefitted from gifts they received from the Trust. Tr. 318 (Allen); id. at 271-72
        (Shalon); id. at 305 (Rashon)].
18
        See JX L at 1–16.
19
        Tr. 209–10 (Duane).
20
        Tr. 22 (Sherry).
21
        Tr. 205–06 (Duane).
22
        JX X at 1. Duane denies having written this letter or causing it to be sent. Tr.
        180.
23
        Id.


                                            7
received any money from the class action settlement, Duane told Sherry, 24 her daughter

Shalon,25 and others26 that he expected to receive as much as $44 million in the

settlement. Just over two years after he allegedly wrote the September 23, 2009 letter,

Duane received his first settlement payment. Then, within two weeks of depositing the

funds from the settlement into the Trust accounts, Sherry purchased a 2011 Lincoln MKX

(the ―Lincoln‖) for $49,920 with funds from the Trust. Relying on the 2009 letter, Sherry

testified that Duane wanted her to have the vehicle.27

       The Lincoln was titled to Tolmiros, a ―financing‖ business Michael started shortly

after he became a Trustee, and was Tolmiros‘s sole asset.28 Michael described his

business plan for Tolmiros as being to ―look[] for rental properties that [he] could invest

Duane‘s money in.‖29 Michael also believed that a luxury car would attract potential

investors for the now-defunct business.30




24
       Tr. 80 (Sherry).
25
       Id. at 257 (Shalon).
26
       Id. at 80 (Sherry).
27
       Tr. 21.
28
       Id. at 23–25 (Sherry).
29
       Id. at 120 (Michael).
30
       Id.


                                             8
      On the same day Sherry purchased the Lincoln, Michael bought himself a 2006

Mercedes Benz CL5 (the ―Mercedes‖) for $33,120 and spent an additional $5,362.81 on

an extended warranty. All of the money for these purchases came from the Trust.

      By the end of November 2011, after Defendants had spent $83,402.81 on the

Lincoln and the Mercedes, dispersed gifts to Duane‘s family and friends, and made

various cash withdrawals, more than half of the original $345,676.88 was gone.31 Only

$162,033.63 remained in the Trust.32

                   d.    Renovating the 412 W. 3rd Street property

      Duane and his sister Sherry each inherited from their mother an 8.3% interest in a

property located at 412 W. 3rd Street, Wilmington, Delaware (the ―Hardy Residence‖).

Both Defendants reside permanently in the Hardy Residence. Duane lived there on and

off through the years. After his release from prison in June 2011, he returned to the

Hardy Residence and remained there until approximately November 7, 2011, when

Defendants moved Duane to an apartment in Newark, Delaware.33 Sherry and Michael

spent approximately $2,500 from the Trust furnishing that apartment.34

      In late November 2011, after Duane moved to Newark, Defendants began a major

renovation project at the Hardy Residence. Ultimately, Sherry and Michael spent over


31
      JX C at 3; JX E at 7.
32
      JX C at 3; JX E at 7.
33
      JX H at 2.
34
      Id. at 4.


                                           9
$75,000.00 on various upgrades and repairs.35 Among other things, they purchased all

new appliances for the house and installed granite counter tops in the kitchen. 36 When

questioned at her deposition about the renovation expenditures, Sherry stated that Duane

gave her permission to use Trust funds to pay them, because it would have made his

mother ―proud to see the house fixed.‖37 Michael considered the renovation a good

investment for Duane. He apparently believed that using Duane‘s Trust to fund the

improvements would somehow increase Duane‘s 8.3% ownership interest.38

                     e.     Duane signs the Consent Document

      At some point in December 2011, people close to Duane began to express

concerns regarding Sherry and Michael‘s spending habits.39         In order to ―cover

[themselves] just in case somebody would try to sue [them] outside of Duane,‖40

Defendants drafted a document (the ―Consent Document‖) for Duane‘s signature that




35
      Tr. 33–34 (Sherry).
36
      JX N at 1–2.
37
      JX K at 58 (Sherry‘s Dep.).
38
      JX P at 27.
39
      Tr. 151 (Michael).
40
      Tr. 153.


                                          10
effectively would give Defendants carte blanche to use the Trust funds any way they

wanted.41 The document states as follows:

              I, Duane Hardy, gave Michael Hardy and Sherry Hardy[,] my
              trustees[,] the consent to use my trust fund to buy new and
              used cars for business and personal use. Also to repair 412
              W. 3rd Street, Sherry Hardy‘s home, as much funds as
              possible to complete the task. Duane Hardy has also gave
              [sic] the consent to Michael Hardy and Sherry Hardy to use
              Duane Hardy‘s trust funds for any other personal uses.42

      Sherry and Michael took Duane to have the Consent Document notarized on

December 20, 2011, at which point the Trust held $106,972.97. By the end of December,

$93,972.97 remained.43

         f.         Defendants close the original accounts and open new ones

      Shortly after signing the Consent Document, Duane received further warnings

regarding Sherry and Michael‘s spending.44       Frustrated that Defendants had yet to

provide him with any Trust records or account statements despite his repeated requests,

Duane visited a local WSFS branch and obtained account information directly from a

bank teller.45 Seemingly in response, on January 19, 2012, Defendants withdrew the


41
      Sherry testified that the document was intended to protect Duane from ―greedy
      family members,‖ Tr. 65, but I do not find her testimony credible. By its terms,
      the Consent Document purports to protect only Defendants themselves.
42
      JX U at 1.
43
      JX C at 6; JX E at 11.
44
      Tr. 176–77 (Duane).
45
      Id. at 177.


                                            11
entire balances of Account 1, $64,536.16, and Account 2, $4,201.12,46 and deposited the

money in two new accounts at WSFS (―Account 3‖ and ―Account 4,‖ respectively).

After the transfer, Defendants continued to draw from the accounts, by, for example,

making out sizeable checks to cash. There is no evidence however, that Defendants

advised Duane about the existence or status of the new accounts. By the end of January,

2012, Accounts 3 and 4 had a combined balance of $56,277.25.47

       In a further attempt to conceal the status of the Trust accounts, on February 8,

2012, Sherry sent to Jacobs and Crumplar, P.A., the law firm that handled the lawsuit

against the Diocese and helped create Duane‘s Trust, a letter requesting that only

members of the firm, the co-trustees, and their attorneys receive information about the

Trust.48 Sherry further requested that Jacobs and Crumplar ―not follow the directions of

Mr. Duane C. Hardy, his lawyer, or anyone who holds Mr. Hardy‘s power of attorney.‖49

                    3.         The continued dissipation of the Trust

       On February 28, 2012, when only $34,385.58 remained in the Trust,50 Duane filed

a complaint against Defendants in this Court alleging a breach of trust through intentional




46
       JX C at 9; JX E at 14.
47
       JX D at 1; JX F at 1.
48
       JX I at 1. Duane was not copied on the letter.
49
       Id.
50
       JX D at 5; JX F at 2.


                                             12
misconduct and gross negligence.51 Two days after Michael and Sherry formally were

served, Michael signed and had notarized a written statement in which he promised: (1)

to show Duane bank statements at Duane‘s request; and (2) to purchase Duane a

vehicle.52 On March 15, 2012, Duane dismissed his complaint without prejudice.53

      Undeterred by the threat of litigation, Defendants continued to withdraw large

amounts of money from the Trust.54 Defendants‘ recordkeeping system, or lack thereof,

however, makes it difficult to determine how most of the remaining Trust funds were

spent. Defendants claim to have kept receipts for some of the purchases they made, but

the only consistent records reflecting disbursement of Trust funds were the actual bank

statements. Unfortunately, those statements generally do not show what the money was

spent for or to whom it was paid. The bank statements do show, however, that the

account balance declined precipitously and, by the end of March, only $3,654, or roughly

1% of the original deposit into the Trust, remained.55 Thus, in a period of only five

months, virtually all of Duane‘s settlement with the Diocese was gone.




51
      Verified Compl. ¶ 4, Hardy v. Hardy, No. 7288-ML (Del. Ch. dismissed Mar. 15,
      2012).
52
      JX W at 1.
53
      Notice of Dismissal, Hardy v. Hardy, No. 7288-ML (Del. Ch. dismissed Mar. 15,
      2012).
54
      JX D at 6; JX F at 7.
55
      JX D at 5, 7.


                                           13
                               4.      The receipt book

      With only a negligible balance remaining in the Trust and facing the possibility

that Defendants would have access to the funds from the two smaller settlement

distributions, totaling $30,118.54,56 Duane initiated this action by filing another

complaint against his sister and nephew on May 15, 2012. During their depositions on

August 7, 2012, Duane‘s counsel questioned Sherry and Michael regarding their

recordkeeping for the Trust. Neither Defendant could identify any specific procedure

they had implemented for documenting Trust expenditures.57 In fact, both Defendants

seemed unsure about whether any records existed, and said they would have to go home

and look.58 For example, Sherry testified as follows:

             Q:      So you didn‘t keep track of where the money went?
             A:      Sometimes I did and sometimes I didn‘t.
             Q:      Well, when you did, how did you do that?
             A:      I may have written it down. I‘m not sure.
             Q:      So, is what you are telling me, you don‘t know if you
                     did or didn‘t keep track of where the money went.
             A:      I probably did.59

Michael gave similarly ambiguous and vague responses.

             Q:      Do you have any sort of records of the trust
                     expenditures?
             A:      Possibly.


56
      JX J at 1–2.
57
      JX K at 44–45 (Sherry‘s Dep.); JX P at 24–25 (Michael‘s Dep.).
58
      JX K at 44–46; JX P at 24–25.
59
      JX K at 46.


                                           14
             Q:     Okay. Where do you think that might be?
             A:     I would have to look around.60

      On January 22, 2013, Duane‘s counsel served a Request for Production, seeking

―copies of all financial records maintained by trustees, but not limited to accounting

books, spreadsheets, checking account balances, and other related documents indicating

withdrawals and deposits from the Duane C. Hardy 2011 Trust.‖61 Yet, Sherry and

Michael failed to turn over any additional records in response to that request.62 On May

1, 2013, the Court granted Motion to Compel by Plaintiff and ordered Defendants to

respond within five days. Once again, Sherry and Michael failed to produce any records.

On August 5, 2013, Plaintiff filed a second Motion to Compel. The Court also granted

that motion and imposed a deadline of September 4, 2013 for Defendants to produce any

responsive documents or be barred from introducing or referencing any documents not

produced by the deadline. On September 4, Defendants produced to Plaintiff‘s counsel

copies of numerous receipts from an alleged receipt book.63

      Several characteristics of the receipts Defendants produced, however, raise

questions about their authenticity and reliability. First, neither Defendant mentioned the
60
      JX P at 24–25.
61
      Pl.‘s Mot. to Compel Ex. A (D.I. No. 66).
62
      Plaintiff filed his first Motion to Compel on February 20, 2013. Shortly thereafter,
      Defendants hand-delivered a response to the Second Request for Production,
      which stated, ―We do not have all of the documents requested.‖ Pl.‘s Post-Trial
      Opening Br. 21.
63
      Although Sherry testified that the receipts Defendants produced came from a
      receipt book, Defendants never produced the receipt book itself. Tr. 38.


                                           15
receipts during their deposition, despite specific questions regarding trust recordkeeping.

Second, although, the receipts presumably were bound in a book initially, no book or

portion of a book was produced. Third, the receipts bear preprinted numbers and have

blanks to fill in information about the expenditure, including the date. Yet, when the

receipts Defendants produced are placed in sequential order based on the receipt number,

the handwritten dates on the receipts are not in order. For example, receipt number

465809 is dated November 9, 2011, but the immediately preceding receipt number

465808 is dated April 24, 2012.64      Even receipts bearing the same date are not in

consecutive order; instead, they are spread throughout the receipt number sequence.65

       In addition, the compilation of receipts contains instances where the receipts

suggest that, on the same day, Duane received multiple disbursements of the same

amount of money. For example, on March 28, 2012, the receipts show that Duane

received three separate payments of $1,225.66 When the corresponding receipts are

arranged in receipt number order, they are: 465831, 465801, and 465854. Furthermore,

the bank records indicate that on March 28, 2012, there were two, rather than three,




64
       JX Z at 9–10.
65
       JX Z at 38, 67 (February 7, 2012); JX Z at 9, 27 (April 24, 2012).
66
       JX Z at 6, 24, 46.


                                            16
separate withdrawals from the Trust accounts in the amount of $1,225.67 Lastly, Duane‘s

signature on each of the receipts varies greatly throughout the receipt compilation.68

                              C.       Procedural History

       Duane‘s May 15, 2012 complaint (the ―Complaint‖) accused Sherry and Michael

of breach of trust through intentional misconduct and gross negligence and asserted a

claim against Tolmiros, LLC for unjust enrichment.           The Trustees and Tolmiros

answered on June 27, 2012. On January 15, 2013, Plaintiff moved for default judgment

against Tolmiros. The Court granted that motion on January 16, 2013, and ordered

Tolmiros to assign title of the Lincoln to Plaintiff‘s attorney within seven days. On the

same day, January 16, however, Plaintiff learned that Tolmiros had transferred title of the

Lincoln to Sherry the day before. Duane then moved to set aside the transfer of the

Lincoln to Sherry based on the Delaware Uniform Fraudulent Transfer Act.69 On January

29, 2013, after hearing argument, the Court granted the motion to set aside the fraudulent

transfer.

       The parties actively engaged in discovery in the latter part of 2012 and much of

2013. As mentioned supra, that included two motions to compel by Plaintiff. The Court
67
       See JX D at 6; JX F at 5. There are also other instances in which the receipts do
       not align with the bank statements. For example, the receipts indicate that on
       April 3, 2012, Defendants gave Duane three separate payments of $1,000. JX Z at
       7, 25, 54. Yet, the bank statements indicate only two separate $1,000 withdrawals
       on April 4. JX F at 5. See also Pl.‘s Post-Trial Opening Br. 24 for additional
       examples.
68
       See JX Z at 1–71.
69
       6 Del. C. §§ 1301–1311.


                                            17
held a two-day trial on the merits of this action on October 14 and 15, 2013. Duane and

Defendants submitted post-trial briefs, and on April 16, 2014, the Court heard post-trial

oral argument. By the time of the argument, Duane‘s counsel had learned that Michael

had transferred title to the Mercedes to a third party, in apparent violation of the Court‘s

January 29, 201370 and October 15, 201371 Orders, reflected in transcript rulings

prohibiting the undisclosed transfer or conveyance by Defendants of any asset purchased

with funds from the Trust. On April 22, 2014, Plaintiff filed a motion for contempt and a

motion to set aside Michael‘s conveyance of the Mercedes as fraudulent. Defendant

never responded to those motions. This Memorandum Opinion constitutes my post-trial

findings of fact and conclusions of law on the issues presented at trial and my rulings on

the motions for contempt and to set aside the conveyance.

                              D.      Parties’ Contentions

       Duane contends that Defendants, in their role as trustees, breached their fiduciary

duties by engaging in self-interested transactions, failing to administer the trust for its

intended purpose, and failing to maintain adequate records or to inform Duane of all

material facts relating to expenditures made from the trust. Duane seeks money damages

against Defendants and the imposition of a constructive trust over the Lincoln, the

Mercedes, and Sherry‘s 8.3% interest in the Hardy Residence, among other things.



70
       Scheduling Conference and Pl.‘s Mot. for Default Judgment as to Def. Tolmiros,
       LLC and the Court‘s Ruling at 9-10 (D.I. No. 103).
71
       Tr. 347.


                                            18
Additionally, Duane requests that the Court remove Defendants as trustees and appoint a

professional trustee to manage the remainder of the Trust.

      Defendants maintain that they did not breach any fiduciary duties owed to Duane

because Duane knew of and consented to most of their self-interested purchases. While

Defendants admit that they could have kept more accurate and complete records,72 they

insist that they regularly informed Duane of how they used the Trust funds and assert that

they did not provide Duane with bank statements in order to protect him from outside

influences.

                                      II.      ANALYSIS

                  A.      The Trustees’ self-interested transactions

                                 1.         The legal standard

      Inherent in the trust relationship is the duty of loyalty, which requires a trustee to

administer the trust solely for the interest of the beneficiary and exclude all selfish

interests and all consideration of the interests of third persons.73        Self-interested

transactions by fiduciaries are not prohibited altogether, but require the beneficiary‘s

voluntary consent to the transaction after full disclosure.74 Under Delaware law, when a

fiduciary has a close confidential relationship with the beneficiary, such consent requires




72
      Defs.‘ Post-Trial Br. 7.
73
      George Gleason Bogert, The Law of Trusts and Trustees, § 543, at 217–18 (2d rev.
      ed. 1993).
74
      Estate of Carpenter v. Dineen, 2008 WL 859309, at *12 (Del. Ch. Mar. 26, 2008).

                                                19
impartial advice from a competent and disinterested third person, sufficient to allow the

beneficiary to make an informed decision.75

       Self-interested transactions involving a fiduciary or one in a confidential

relationship with another are presumptively fraudulent76 and voidable in equity.77 ―[I]f

the transaction is challenged, the burden of persuasion to justify upholding the transaction

is on the fiduciary. ‗That burden is even greater where the transfer of property is made

without consideration.‘‖78

              2.       Sherry and Michael breached the duty of loyalty

                        a.      The Lincoln and the Mercedes

       Sherry and Michael‘s automobile purchases were self-interested transactions,

which benefitted Defendants at Duane‘s expense. As self-interested transactions, they

are presumptively voidable. To overcome the presumptive invalidity of the transactions,

Defendants argue that Duane consented to and even encouraged the purchases, offering

the notarized Consent Document as proof. Duane‘s written consent is ineffective in the

circumstances of this case, however, for at least two reasons. First, Sherry and Michael

have not shown that Duane received any material consideration in exchange for the use of

his Trust fund to buy the two automobiles. In addition, Sherry and Michael failed to

75
       Schock v. Nash, 732 A.2d 217, 229 (Del. 1999); see also Dorman v. Plummer,
       2001 WL 32645, at *5 (Del. Ch. Jan. 9, 2001).
76
       Peyton v. William C. Peyton Corp., 7 A.2d 737, 746–47 (Del. 1939).
77
       Estate of Carpenter, 2008 WL 859309, at *12.
78
       Id.


                                            20
prove that Duane was fully informed as to the state of his Trust, the cost of the Lincoln

and Mercedes, and other relevant facts before he allegedly consented to those purchases.

       Second, Sherry and Michael had a confidential relationship with Duane.         ―A

confidential relationship exists where ‗circumstances make it certain the parties do not

deal on equal terms but on one side there is an overmastering influence or on the other

weakness, dependence or trust, justifiably reposed.‘‖79      In determining whether a

confidential relationship exists, this Court has considered factors such as ―reliance on

another for physical, emotional, or decisional support, a query informed by the

beneficiary‘s disposition and mental and physical capabilities, as well the existence and

extent of any additional support network. Kinship by blood or marriage is also a factor,

but is not itself determinative.‖80

       Several factors in this case suggest that in addition to the formally recognized

fiduciary relationship between Defendants and Duane, as Trustees and Beneficiary, a

confidential relationship existed as well.    Defendants are blood relatives of Duane.

Sherry is his older sister, and Michael is his nephew. Sherry and Michael also assisted

Duane in various ways, such as taking him shopping, helping him get his own apartment,

and occasionally providing transportation. Michael testified that ―[Sherry and I] would




79
       In re Will of Wiltbank, 2005 WL 2810725, at *6 (Del. Ch. Oct. 18, 2005) (quoting
       In re Will of Szewzcyk, 2001 WL 456448, at *5 (Del. Ch. Apr. 26, 2001)).
80
       Mitchell v. Reynolds, 2009 WL 132881, at *9 (Del. Ch. Jan. 6, 2009).


                                             21
drop whatever we were doing and we would make sure he was okay,‖81 which confirms

Duane‘s reliance on Defendants. In addition, Defendants‘ willingness to assume the role

of Duane‘s caretakers, in light of Duane‘s mental illness and struggles with substance

abuse, put them in a ―relatively superior position‖82 with respect to Duane. In fact, the

Trust Agreement signed by Duane, Sherry, and Michael at a time when Duane had the

benefit of impartial advice from a competent and disinterested third person acknowledges

that Duane has a ―disability,‖ and describes the Trust‘s purpose and intent as follows:

              By this trust, Grantor [Duane] intends to insure that, to the
              best extent possible, the physical necessities, comfort,
              happiness and best interests of Beneficiary [Duane] will be
              met. It is the Grantor‘s wish that the Beneficiary attain the
              highest level of life satisfaction and achievement, consistent
              with the Beneficiary’s disability.83

       In contrast, nothing in the Trust Agreement authorizes Defendants, as Trustees, to

engage in self-interested transactions. Therefore, I find that Sherry and Michael had a

confidential, fiduciary relationship with Duane at all times relevant to this litigation. This

conclusion is buttressed by the fact that the Trust is designated as a Spendthrift Trust.

Specifically, Article 6A, entitled ―Spendthrift Clause‖ states: ―No Beneficiary will be

allowed to assign, transfer (voluntarily or involuntarily), pledge or anticipate any interest

in income or principal held or payable, and no Beneficiary‘s creditors (including a spouse



81
       Tr. 159 (Michael).
82
       Swain v. Moore, 71 A.2d 264, 267 (Del. Ch. Feb. 7, 1950).
83
       JX A at 1 (emphasis added).


                                             22
or former spouse of the Beneficiary) will be allowed to attach or otherwise reach any

such interest.‖84    This clause in the Trust Agreement suggests that, at a minimum,

Duane‘s ability to consent to the Trustee‘s making self-interested gifts or payments to

themselves would be limited.      As previously noted, Duane was disabled in that he

suffered from bi-polar disorder and schizophrenia and has struggled with drug and

alcohol addiction.

       Because the Court finds the existence of a confidential relationship, Sherry and

Michael‘s automobile purchases are presumed fraudulent, and therefore voidable, absent

proof that Duane consented to those transactions by signing the Consent Document or

otherwise after he received impartial advice from a competent and disinterested third

party. Sherry and Michael presented no evidence that Duane received such impartial

advice. Therefore, as to their respective purchases of the Lincoln and the Mercedes, I

find that Sherry and Michael breached their duty of loyalty. 85

       In arguing that Duane did give his informed consent to the purchase of the two

automobiles, Defendants rely most heavily on the notarized Consent Document signed on

or about December 20, 2011. First, I note that there is no evidence that Duane received

any impartial advice from a competent and disinterested third party in connection with


84
       Id. at 3.
85
       Whether Defendants can be held personally liable for these and the other alleged
       breaches of duty discussed in this Memorandum Opinion depends on whether their
       conduct is exculpated under the Trust Agreement. I address that issue in Section
       II. E infra.


                                             23
his signing that document. The record indicates that he dealt only with Sherry and

Michael in that regard, and they both were interested in that consent because it purported

to ratify and facilitate their engaging in self-interested transactions. For that reason

alone, the Consent Document is ineffectuated. Even if impartial advice were not needed

in this instance, however, I still do not find that the Consent Document constitutes

credible evidence that Duane gave his informed and voluntary consent to, for example,

Defendants‘ use of Trust funds to purchase the Lincoln and the Mercedes.

       As Trustees, Defendants had to obtain Duane‘s fully informed consent regarding

the automobile purchases. Section 97 of the Restatement of Trusts provides in relevant

part that:

              ―A beneficiary who consented to or ratified, or released the
              trustee from liability for, an act or omission that constitutes a
              breach of trust cannot hold the trustee liable for that breach
              provided . . . the beneficiary (or the beneficiary‘s
              representative), at the time of the consent, ratification, or
              release, was aware of the beneficiary‘s rights and of all
              material facts and implications that the trustee knew or should
              have known relating to the matter . . . .‖86

In this case, Defendants presented no credible evidence that Duane ever received such

full disclosure.

                   b.      The Renovations to the Hardy Residence

       The use of the Trust to pay for various renovations to the Hardy Residence are

also self-interested transactions, because Duane no longer lived at the residence and

86
       Restatement (Third) of Trusts § 97 (2012).



                                             24
Sherry and Michael directly benefitted from the transactions. Accordingly, to meet the

requirements of the duty of loyalty and overcome the presumption that all transactions

related to the Hardy Residence renovations were invalid, Sherry and Michael, as

Trustees, had to prove that Duane voluntarily consented to the transactions after full

disclosure. Because Sherry and Michael had a close confidential relationship with Duane

as related to the Trust fund, they also had to prove that he received competent and

impartial, third-party advice.     Again, Sherry and Michael failed to produce any

persuasive evidence on either of these issues. Therefore, I find that, as to the money

spent on repairs to the Hardy Residence, Defendants breached their duty of loyalty.

                           B.      Gifts to family and friends

       During their tenure as Trustees, Sherry and Michael gave money to Duane‘s

friends and family members, allegedly at Duane‘s behest, and they now have provided

documentation purporting to show that $30,200 of the Trust was allocated to these gifts.

Duane insists that he only instructed Sherry and Michael to give monetary gifts to two of

his friends, Mr. Sal and Harold Gregory, amounting to a total of $3,000.87 Duane

specifically denied authorizing such gifts to anyone else.88

       Trust principles allow Duane, as beneficiary, to transfer his interests in the Trust,

absent any trust provisions to the contrary.89 Fiduciaries owe Duane, as beneficiary, not


87
       Tr. 208.
88
       Id.
89
       See Restatement (Second) of Trusts § 132 (1959).


                                             25
only a duty of loyalty, as previously discussed, but also a duty to exercise due care.90

That is, Sherry and Michael have a duty to administer the trust with ―the skill and care

that a man of ordinary prudence would exercise in dealing with his own property in light

of the situation existing at the time.‖91 The Trust Agreement for Duane‘s Trust gives

broad discretion to the Trustees.     The only limitation on Defendants‘ authority to

effectuate gratuitous transfers to third parties at Duane‘s request relevant in this case is

their fiduciary duty of care.

       The ultimate issue as to whether Defendants breached their duty of care regarding

the gifts is whether Duane directed the transactions, as Defendants maintain, or whether

Sherry and Michael gave the money away on their own volition, as Duane asserts. The

Court evaluates such a claim using a preponderance of the evidence standard.92 In

support of this aspect of his Complaint, the only limitations on discretion relied upon by

Duane were the requirements that the Trust be administrated for Duane‘s benefit and that

the Trustees comply with their duty of care.93 As Plaintiff, Duane bears the burden of

proof and must show by a preponderance of the evidence that he is entitled to relief.



90
       Wilmington Trust Co. v. Coulter, 200 A.2d 441, 448 (Del. 1964).
91
       Id.
92
       Estate of Osborn v. Kemp, 2009 WL 2586783, at *4 (Del. Ch. Aug. 20, 2009).
93
       Duane does not allege or argue that the Trustees‘ actions with respect to the gifts
       were self-interested, even though a number of the donees are blood relatives of
       Sherry and Michael. That may be because those same individuals are blood
       relatives of Duane, as well, and natural objects of Duane‘s bounty. In any event,
       because the transactions have not been challenged as self-interested, they are not

                                            26
       To resolve the conflicting evidence regarding the disputed gifts, the Court must

evaluate Duane‘s credibility as a witness. Based on his testimony at trial, I do not

consider Duane a particularly reliable witness. There is no dispute as to his being

diagnosed with bipolar disorder and schizophrenia. In addition, he currently has an

addiction to alcohol; he admittedly drinks, on average, at least a six pack of beer a day.94

In some respects, Duane fell back on his alcohol addiction as a crutch or excuse for

providing unhelpful or evasive testimony. In certain other respects, however, Duane‘s

testimony was coherent and credible. One example involved his efforts to gain access to

his bank records from Defendants and from WSFS. In yet other instances, Duane‘s

answers were so absolute and unqualified that they strained credulity. In that regard, I

find not credible Duane‘s denial that he ever visited the Hardy Residence after he was

moved to the Studio Green apartments in Newark, Delaware, especially because several

other witnesses testified to the contrary. When asked whether he had visited 412 West 3d

Street at any time in the two and one-half years before trial, for example, Duane

responded: ―No, not whatsoever. Since the house been fixed or since I left there, no, I




       presumptively void and the burden of proof does not shift to Defendants to justify
       upholding those transactions.

       Plaintiff did not contend that the Spendthrift Clause of the Trust Agreement
       limited his or the Trustees‘ ability to make gifts from the Trust. Accordingly, I do
       not address that issue.
94
       Tr. 171, 196 (Duane).


                                            27
haven‘t been there.‖95 Duane further asserted that any witness who testified to the

contrary would be lying.96 In a similar vein, Duane denied that he ever authorized any

gifts to anyone from the Trust other than to two individuals – namely, Mr. Sal and Harold

Gregory. Duane swore that they were ―the only two people that I ever gave money to,

because they‘re my best friends.‖97 That testimony, however, conflicts with the evidence

provided by several other witnesses and with a number of trial exhibits. Thus, while I do

accept some aspects of Duane‘s testimony, I find his testimony on the subject of gifts

from the Trust to be unreliable.

       More than one witness stated that shortly after Duane received his settlement

money, he created or effectively dictated a list of family members and friends to whom

he wanted to make modest gifts.98 No such list was ever produced in the litigation or

made an exhibit at trial.    Nevertheless, several witnesses identified certain specific

individuals who received gifts and the amounts they received. In addition, Joint Trial

Exhibit (―JX‖) L consists of a number of cashier‘s checks that allegedly reflect gifts

Defendants contend Duane authorized. There are copies of sixteen cashier‘s checks in

Exhibit L. Two of the checks, dated November 9 and November 16, 2011, respectively,




95
       Tr. 203.
96
       Id. at 204.
97
       Id. at 209-10.
98
       Tr. 318-19 (Allen); Tr. 258 (Shalon).


                                           28
are to Sal Panariello for $3,000 and to Harold Gregory for $1,000.99 This evidence

corresponds fairly closely to Duane‘s testimony regarding the gifts he authorized to Mr.

Sal and Harold Gregory.100 With only three exceptions, all of the cashier‘s checks in JX

11 bear dates in November 2011, the first full month the Trust was in effect. The

exceptions are a check to Julius Allen Hardy for $700 dated January 23, 2012, one to

Vernell Hardy for $500 dated January 19, 2012, and one to Shalon Hardy for $1,000

dated March 9, 2012. Shalon, who helped Duane on occasion, testified that she asked

Duane for the $1,000 check to her.101 Based on the relatively small amounts of the gifts

to Julius and Vernell, and the fact that cashier‘s checks were used, I find that Duane did

authorize those gifts, as well.

       The elements of a claim for breach of fiduciary duty are: (i) that a fiduciary duty

exists; and (ii) that a fiduciary breached that duty. 102 In considering a party‘s claims, ―the

relative weight given to any particular piece of evidence, and particularly witness

testimony, is a matter for the court to determine as the trier of fact.‖103 To disprove

Duane‘s testimony that he authorized only two gifts from the Trust, totaling $3,000,


99
       JX L at 12, 14.
100
       The only deviation is that Duane said he had given ―Mr. Sal‖ $2,000, instead of
       $3,000 as reflected on the cashier‘s check.
101
       Tr. 272-73 (Shalon).
102
       Heller v. Kiernan, 2002 WL 385545, at *3 (Del. Ch. Feb. 27, 2002), aff’d, 806
       A.2d 164 (Del. 2002).
103
       In re IAC/InterActive Corp., 948 A.2d 471, 493 (Del. Ch. 2008).


                                              29
Defendants produced copies of cashier‘s checks they dispersed to a number of Duane‘s

family and friends. Defendants also called several witnesses who testified that Duane

promised them the money they received. Having considered all the evidence on the issue

of these gifts, I find that Duane did ask Sherry and Michael to give monetary gifts to a

select group of donees beyond the two persons Duane identified.

       Considering Duane‘s history of reliance on others for money, housing, and other

necessities throughout his life, I find incredible his testimony that he did not intend to

make a relatively small monetary gift to a single member of his family after he received

his settlement.    Furthermore, Defendants presented convincing contrary evidence,

including the fact that the Trustees used cashier‘s checks instead of cash for the alleged

gifts. By using cashier‘s checks, Defendants created a more reliable and transparent

record of what they had done. Because this supports Sherry and Michael‘s defense, I find

that Duane has failed to sustain his burden of proving by a preponderance of the evidence

that the disputed gifts were not authorized. Accordingly, I hold that Sherry and Michael

did not breach any fiduciary duty in connection with the $30,200 in documented gifts to

the indentified third parties. I deny, therefore, Duane‘s claim to that extent.




                                             30
                          C.        Unverifiable expenditures

                               1.     The duty to account

      As fiduciaries, trustees have a duty to account to beneficiaries for their disposition

of trust assets and bear the burden of proving that a disposition was proper.104

―[I]ncluded within the duty to account is a duty to maintain records that will discharge

the fiduciaries‘ burden, and that if that duty is not observed, every presumption will be

made against the fiduciaries.‖105 The other items for which Duane asserts claims for

breach of fiduciary duty and monetary relief generally relate to the failure of Sherry and

Michael to account to Duane for the performance of the Trust and to the existence of

numerous unverifiable expenditures. I turn to those issues next.

         2.      The $9,000 that was never deposited into the Trust account

      While Duane‘s initial settlement disbursement was for $345,676.88, only

$336,676.88 was deposited into the Trust bank accounts.         Each Trustee provided a

different explanation for how the missing $9,000 was spent. According to Sherry, Duane

received about $3,000 and about $6,000 went to household bills. When questioned

further, she also said some of the money may have gone to family members. Michael

testified that all of the money went to Duane, who spent most of it on a trip to Atlantic

City and gave the rest to family members. Because Sherry and Michael produced no

records to support their ―accounting‖ for the disposition of the $9,000, every presumption

104
      Technicorp Int’l II, Inc. v. Johnston, 2000 WL 713750, at *3 (Del. Ch. May 31,
      2000).
105
      Technicorp Int’l II, Inc., 2000 WL 713750, at *3. Id.


                                            31
must be made against them. Duane admitted that he took three separate trips to Atlantic

City and received $2,000 in cash from the Trust for each trip. 106 One of those trips

occurred immediately after he received the funds from the settlement. In addition, Duane

testified that the cost of his hotel room in Atlantic City was paid for in advance, so that

the $2,000 he received in cash was in addition to that.107 Assuming the cost of the hotel

room for a couple of nights was approximately $1,000, but otherwise making any

presumptions in favor of Duane and against Defendants, I find that Sherry and Michael

have failed to account for $6,000 of the $9,000 that was not deposited in the Trust

accounts in October 2011. Therefore, Sherry and Michael breached their duty to account

for that item to the extent of $6,000.

                         3.      The unaccounted for $121,688

       Of the $336,676.88 Sherry and Michael did deposit into the Trust accounts,

Plaintiff contends they withdrew approximately $319,100 of it in cash.108 Defendants

provided sufficient records or credible evidence to demonstrate how some, but not all, of

that cash was spent, leaving $121,688 unaccounted for. As Trustees, Sherry and Michael

bear the burden of proving that the disposition of the $121,688 was proper. In their

testimony, which Duane controverted, Defendants averred that Duane frequently asked

for large amounts of cash in order to support his drug addiction and pay off debts,


106
       Tr. 190-91.
107
       Tr. 215.
108
       Pl.‘s Post-Trial Opening Br. 44 n.20.


                                            32
presumably drug or alcohol-related, and that Defendants feared that Duane might be

harmed if they did not give him the money to repay the ―loans.‖ To resolve this factual

dispute, I must address a threshold issue regarding the admissibility and reliability of a

compilation of receipts Defendants produced at the end of the discovery period.

            4.        Is Defendants’ compilation of receipts (JX Z) admissible?

      Defendants Sherry and Michael principally rely on their compilation of receipts to

rebut Duane‘s claims that they breached their duty to account as to more than $100,000 in

allegedly undocumented and unverifiable Trust dispositions. Defendants maintain that

the receipts show that most of the funds unaccounted for went directly to Duane in the

form of cash. Duane vigorously disputes the authenticity of the receipts and seeks to

have them excluded from evidence.

      Several factors make the authenticity of the receipts highly suspect.       Notably,

neither Sherry nor Michael mentioned the receipts during their depositions when asked

how they recorded transactions involving the Trust funds. The earliest receipt is dated

November 2, 2011, and the latest April 24, 2012. Sherry was deposed on August 7, 2012.

At that time, the bank records had been produced, but not the receipts. After Plaintiff‘s

counsel inquired about the numerous checks made out to cash, the following exchange

occurred:

                 Q:     Did you keep track of how [the money was spent]?
                 A:     Somewhere, I guess. I have to check. I will have to
                        check.
                 Q:     Did you have a checkbook, a check regist[er]?
                 A:     I will have to check.
                 Q:     But you are not answering my question. Did you write
                        it down? Did you type it into a computer?

                                              33
              A:     I’m not sure.
              Q:     So you kept track of what all the money was for, but
                     you are not sure how?
              A:     Well, you can ask Michael that.
              Q:     Well, I‘m asking you.
              A:     I didn‘t do the stuff here.
              Q:     So you didn‘t keep track of where the money went?
              A:     Sometimes I did, and sometimes I didn‘t.
                                              …
              Q:     So is what you are telling me, you don‘t know if you
                     did or didn‘t keep track of where the money went?
              A:     I probably did.
              Q:     You probably did, and if you did, you wrote it down?
              A:     Possibly.109

Sherry never mentioned the existence of the receipt book in her deposition. In fact,

Defendants did not disclose the existence of the receipts until September 4, 2013–a

deadline set by the Court after a later motion to compel.

       Michael also was deposed on August 7, 2012. He, too, did not disclose the

existence of a receipt book:

              Q:     Do you have any sort of records of the trust
                     expenditures?
              A:     Possibly.
              Q:     Okay. Where do you think that might be.
              A:     I would have to look around.
              Q:     Well, I will ask you another question. Did you make it
                     a habit when an expenditure was made of writing
                     down? You cashed all these checks. Did you write
                     down where the money went?
              A:     No. That‘s what bank records are for.
              Q:     But the bank records just shows a check made out to
                     cash.
              A:     Right.110
109
       JX K at 44-46 (emphasis added).
110
       Tr. 242 (Michael) (emphasis added).


                                             34
       During the trial, however, Sherry and Michael both purported to describe in detail

the procedure they followed when Duane asked for money. That procedure allegedly

involved filling out the receipt book, having Duane sign the receipt every single time,

Michael keeping the yellow copy, and Duane receiving the white.111 If Defendants had a

consistent procedure for giving Duane money, it is unlikely that either Sherry or Michael

could have forgotten about the receipt book, especially considering how frequently they

claimed Duane asked for money. Indeed, Michael asserted at trial that he did not forget

about the receipts, but instead lied under oath during his deposition. Despite his evasive

answers during his deposition, Michael insisted at trial that he always recorded any

transactions in the receipt book, and simply ―chose not to tell the truth‖ during the

deposition.112 Michael‘s directly contradictory testimony on this issue undermines his

credibility generally and also raises serious questions about the authenticity of the

receipts.

       Additionally, the belated timing of the production of the receipts raises questions

about whether the receipt book even existed before Defendants‘ depositions or, instead,

was created later.   Sherry and Michael failed to mention the receipt book in their

depositions or in response to either of Plaintiff‘s two motions to compel Defendants‘


111
       Tr. 236 (Michael). Duane denied signing or having any such receipts, and
       apparently did not have any of them in his possession. See Tr. 182 (Duane stating
       that the first time he saw the receipts was in his attorney‘s office).
112
       Tr. 244 (Michael).


                                           35
production of ―copies of all financial records maintained by trustees, but not limited to

accounting books, spreadsheets, checking account balances, and other related documents

indicating withdrawals and deposits from the Duane C. Hardy 2011 Trust.‖

       Moreover, the receipts themselves contain multiple discrepancies that undermine

their validity. As previously stated, the dates of the receipts do not appear in the logical

order that one would expect if the receipts, in fact, were filled out each time Duane asked

for money. Also, Duane‘s signature on the receipts is inconsistent and the receipts often

do not match up to the bank statements.            Further, the receipts indicate that Duane

received from Defendants $154,708.20 in cash. Yet, the verified expenditures, including

the Mercedes and the Lincoln, the renovations to the Hardy Residence, and Duane‘s rent

and other expenses,113 account for $214,988. If the receipts are accurate, then Defendants

spent $369,696, when the Trust only contained $345,676.88. Inferences reasonably

drawn from Defendants‘ contradictory testimony, the suspicious timeline of when

Defendants produced the receipt book, and the multiple discrepancies within the receipts

support the conclusion that Defendants created the receipt book after Duane initiated this

litigation, in an effort to avoid or minimize his liability. Therefore, I find that the receipts




113
       The following are the documented transactions for the benefit of Duane: $8,516
       for Duane‘s rent, $2,491 to furnish his apartment, $5,060.34 in MoneyGrams,
       $549.18 for groceries, approximately $9,500 for trips to Atlantic City.


                                              36
do not constitute reliable evidence, and I will not consider them in the analysis of whether

the Defendants breached their duty to account and to maintain records.114

       Despite Defendants‘ lack of records, after listening to Duane‘s testimony and even

drawing all reasonable inferences in his favor, I am convinced that at least some

relatively modest portion of the unaccounted for Trust funds went to Duane or to pay

―debts‖ he incurred to various individuals. Duane has struggled with drug and alcohol

addiction, although he claims he has not been using illegal drugs for more than three

years.115 In fact, during the trial, he asserted that he was intoxicated on a few specific

occasions to avoid responsibility for and circumvent the legal consequences of his

actions. For example, Duane claimed that when he signed the Consent Document, he did

not know what he was signing in part because he was ―under the influence of alcohol.‖116

In addition, I note that Duane created the Trust because he doubted his ability to manage

his money responsibly and knew that he was susceptible to the influence of others. To a

limited degree, therefore, I credit Defendants‘ poorly documented testimony that Duane

involved himself with and indebted himself to questionable people. For similar reasons, I




114
       Essentially, Defendants failed to authenticate the compilation of receipts by failing
       to present probative evidence sufficient to support a finding that they are what
       Defendants claim. See D.R.E. (901)(a).
115
       Duane was released from prison in June 2011. Tr. 174 (Duane). He denies having
       used any illegal drugs since that time. Tr. 197.
116
       Tr. 187 (Duane).


                                            37
do not consider trustworthy Duane‘s unqualified denial that he knew or owed money to

any of the people Defendants or other witnesses mentioned in their testimony at trial.

       While I believe that at least some of the unaccounted for money went to Duane or

was spent for his benefit, in deciding how much, I must balance Duane‘s culpability with

the duty of care and the duty to account Sherry and Michael owed Duane. As Trustees,

Sherry and Michael are ―under a duty to the beneficiary in administering the trust to

exercise such care and skill as a man of ordinary prudence would exercise in dealing with

his own property.‖117 Sherry and Michael had a duty to exercise care and to account with

regard to all of the Trust transactions they engaged in as Trustees, including transactions

made at Duane‘s request. In establishing the Trust, Duane sought to rely on the Trustees‘

judgment, rather than his own, in order to protect his assets. Sherry and Michael insist

that all of the inadequately documented $121,000 in expenditures went to Duane. Even if

they had sufficient records to support that allegation, however, Defendants failed to

present any persuasive evidence that would justify their having given Duane such a large

percentage of his Trust in less than a year. While it might be prudent to give money to an

individual who may otherwise be in danger, distributing a total of over $120,000 in cash

within a six-month period in a series of numerous transactions to a person who suffers

from mental illness and drug addiction is grossly inconsistent with ―ordinary prudence.‖

In considering the circumstances and the evidence, therefore, I find that Defendants



117
       In re Cook’s Trust Estate, 171 A. 730, 731 (Del. Ch. 1934).


                                            38
breached their duty of care and duty to account as to $90,000 of the $121,685.87 in

unaccounted for Trust assets.

D.      Are Sherry and Michael entitled to exculpation under the Trust Agreement
                       for any of their breaches of fiduciary duty?

       Under the Trust Agreement‘s exculpation clause (Article 7B), there are limits to

Sherry and Michael‘s liability. Article 7B provides in relevant part: ―The Trustee shall

not be liable for any act or omission in the administration of the trust or for the loss or

damage to trust property, except as caused by the trustee‘s intentional misconduct or

gross negligence.‖118 Thus, to succeed in holding Sherry or Michael or both liable for

monetary damages for breach of any fiduciary duty or loss of trust property, Duane must

prove that they engaged in intentional misconduct or acted with gross negligence. I turn

next, therefore, to a brief analysis of each of the instances in which Sherry and Michael

breached one or more of their fiduciary duties to determine whether their acts or

omissions in connection with that breach are exculpated.

       Sherry and Michael breached their duty of loyalty to Duane and the Trust when

they spent over $158,000, nearly half of Duane‘s settlement, on luxury vehicles for

themselves and renovations to the Hardy Residence, where Duane no longer lived and in

which he held only a small ownership interest. Those actions directly contravened the

purpose and terms of the Trust and were not preceded or attended by any voluntary and

fully informed consent by Duane, let alone a consent based on the impartial advice of a


118
       JX A at 6.


                                            39
competent and disinterested third person. I find, therefore, that as to these breaches of

duty, Sherry and Michael engaged in intentional misconduct or, at a minimum, were

grossly negligent in the performance of their duties as Trustees.119 Thus, Sherry and

Michael are liable for any damages resulting from the purchase of the automobiles or the

improvements to the Hardy Residence not properly allocated to Duane.

      As to the $6,000 of unaccounted for losses from the Trust principal that occurred

immediately before the opening of the two accounts at WSFS in late October 2011,

Plaintiff failed to prove that loss resulted from either intentional misconduct or gross

negligence.   Rather, it appears to have been the product of simple negligence and

inadequate recordkeeping. I hold, therefore, that Sherry and Michael are not liable for

the loss of that $6,000 based on Article 7B of the Trust Agreement.

      Finally, I address Defendants‘ breach of duty in failing to account for the

disposition of $90,000 of the Trust. In that regard, I note that Sherry and Michael

withheld from Duane bank statements and related information regarding the Trust


119
      Gross negligence in the civil context is defined as a higher level of negligence
      representing an extreme departure from the ordinary standard of care. In other
      words, a finding of gross negligence requires more than ordinary inadvertence or
      inattention. The Delaware Supreme Court has referred to gross negligence as the
      functional equivalent of criminal negligence, which is defined as the failure to
      perceive a risk of harm of such a nature and degree that the failure to perceive it
      constitutes a gross deviation from the standard of conduct a reasonable person
      would observe. The words willful and wanton imply a degree of negligence
      higher than gross negligence. In order for conduct to be willful or wanton, it must
      reflect a conscious indifference or an ‗I don‘t care‘ attitude. Brown v. United
      Water Del., Inc., 291, 2010 WL 2052373, at *276 (Del. Super. May 20, 2010)
      (internal quotations omitted).


                                           40
accounts, transferred the remainder of the Trust to two new bank accounts after learning

that Duane had gained access to account information regarding the original accounts, and

instructed the law firm handling the remainder of Duane‘s settlement to withhold from

Duane all information regarding the Trust. Based on Defendants‘ efforts deliberately to

conceal information from Duane and their failure to keep adequate records of the

expenditures they made, to whom, and for what purpose, I find that Sherry and Michael

engaged in willful misconduct or were at least grossly negligent with respect to the

$90,000 in unaccounted for funds. Therefore, I conclude that the exculpation clause does

not insulate Defendants from liability for that loss.120

                               E.      Removal of Trustees

       Part of the relief Duane seeks in this action is the removal of Sherry and Michael

as Trustees and the appointment of a professional trustee. The Court of Chancery has the

power to remove a trustee, but does so sparingly.121 Removal of a trustee is reserved for

situations in which the trust property is ―endangered by a lack of capacity, honesty or

fidelity,‖ and is not appropriate for ―some mere negligent breach of duty, arising largely

from an honest mistake.‖122


120
       If Defendants‘ decision to comply with Duane‘s requests was merely imprudent
       and violative of their of care duty, the exculpatory clause could conceivably
       protect Sherry and Michael from liability for ordinary negligence. JX A at 5.
       Their evidence shows, however, that Defendants‘ actions were significantly more
       culpable than that.
121
       In re Catell’s Estate, 38 A.2d 466, 469–70 (Del. Ch. 1944).
122
       Id.


                                              41
       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.   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.‖123 For the reasons stated in

Section II.A supra, I have determined that, in several instances, Sherry and Michael‘s

misadministration of the Trust not only breached their fiduciary duties, but also

constituted gross negligence or intentional misconduct. Defendants spent nearly half of

the Trust on self-interested transactions, while failing to leave Duane with enough money

to pay his rent much beyond the end of this year, 2014. Further, I am convinced by

Defendants‘ conduct, including their attempts to conceal account information from

Duane, lying under oath, and fraudulently conveying the Mercedes in direct violation of

the Court‘s orders, that if they remained as Trustees, their lack of honesty would

endanger what little additional funds Duane has left from his settlement with the

Diocese.124 Therefore, I conclude that Defendants‘ actions since the creation of the Trust

in October 2011 justify removing Sherry and Michael from their roles as Trustees.




123
       Defs.‘ Post-Trial Br. 5.
124
       The two smaller distributions Duane received from his settlement currently are
       being held in escrow by Jacobs & Crumplar.


                                            42
       By way of further relief, Duane seeks the appointment of Life Solutions, Inc., or

its equivalent, as substitute trustee.125 The Court of Chancery possesses the authority to

appoint a trustee if the trust instrument fails to do so. 126 ―Where the terms of the trust

provide a method for filling vacancies by some method other than by appointment of the

court, however, the designated method of replacement should be followed.127 Article 10

of the Trust Agreement deals with Successor Trustees. It provides:

              At such time as SHERRY L. HARDY or MICHAEL T.
              HARDY is no longer willing to serve as co-Trustee
              hereunder, the other co-Trustee then serving shall continue as
              Trustee hereunder, serving as the sole Trustee. If a trustee is
              serving as sole trustee, that trustee may appoint one or more
              persons or institutions to serve either (or both) as co-trustee or
              as successor trustee (in that order named by the sole trustee).

              Trustee may at any time appoint a qualified nonprofit
              organization, such as Delaware CarePlan, Inc., to serve as
              successor Trustee, and may amend this Trust Agreement,
              without the need for court approval, to conform the terms of
              this Agreement to those customarily used by such successor
              trustee.128

Having concluded that both Sherry and Michael intentionally or with gross negligence

repeatedly violated their fiduciary duties to the Trust, I will order that they be removed as




125
       Pl‘s Post-Trial Opening Br. 46; Joint Pre-Trial Stip. and Order § IV.A(3).
126
       McNeil v. McNeil, 798 A.2d 503, 513 (Del. 2002).
127
       Id. (citing Austin Wakeman Scott & William Franklin Fratcher, Scott on Trusts,
       § 388 (4th ed. 1987)).
128
       JX A at 6-7.


                                             43
Trustees. Consequently, neither Michael nor Sherry will be in a position to appoint a

Successor Trustee.

       Nothing in the terms of the Trust Agreement appears to provide an alternative

method for filling vacancies other than by a Trustee‘s appointment of nonprofit

organization or implicitly by appointment of the Court. The last paragraph of Article 10

of the Trust Agreement indicates that Duane, as Settlor of the Trust, was amenable to the

appointment of a qualified non-profit organization to serve as Successor Trustee. To the

extent possible, I will attempt to honor that expression of intent in appointing a Successor

Trustee.

       Nothing in the record indicates that the successor Trustee requested by Plaintiff in

this litigation, Life Solutions, Inc. is a qualified non-profit organization129 as specified in

Article 10 of the Trust Agreement. Therefore, I provisionally will deny Duane‘s request

to have Life Solutions, Inc. appointed as substitute trustee, and appoint, instead,

Delaware CarePlan, Inc. to serve as successor trustee. If Delaware CarePlan is unwilling

to serve, the Court directs Plaintiff‘s counsel to submit a list of other qualified non-profit

organizations in Delaware that could fulfill that role, and to indicate any preference

Duane has in that regard. If there is no other qualified non-profit organization, the Court

will appoint Life Solutions, Inc. in accordance with the authority granted in 12 Del. C.

§§ 3501 and 3502.


129
       I have no reason otherwise to question the competence of Life Solutions, Inc. to
       fill the role of Successor Trustee.


                                              44
                       F.        Duane’s attorneys’ fees and costs

                     a.      The American Rule and its exceptions

        Plaintiff requests that the Court hold Sherry and Michael liable for the entirety of

Duane‘s attorneys‘ fees and expenses on two grounds: (1) their egregious pre-litigation

conduct; and (2) their bad faith conduct during litigation. Under the American Rule,

litigants are generally responsible for their own legal fees, regardless of which party

prevails.130 Delaware law provides, however, that ―[i]n judicial proceedings involving

breaches of trust, the court, as justice and equity may require, may award costs and

expenses, including reasonable attorneys‘ fees, to any party, to be paid by another party

or from the Trust that is the subject of the controversy.‖131 In addition, an exception to

the American Rule exists where the party against whom attorneys‘ fees are sought to be

assessed acted in bad faith in bringing a case or in pursuing it in a way that increased the

litigation‘s cost or in the conduct that gave rise to the litigation, such that attorneys‘ fees

may be considered an appropriate part of damages.132 The decision to award attorneys‘

fees is within the Court‘s discretion.133




130
       Tandycrafts, Inc., v. Initio P’rs, 562 A.2d 1162, 1164 (Del. 1989).
131
       12 Del. C. § 3584.
132
       Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate Fund,
       68 A.3d 665, 687, 2013 WL 1914714, at *12 (Del. 2013).
133
       McNeil v. McNeil, 798 A.2d 503, 514 (Del. 2002).


                                              45
                    b.    Attorneys’ fees for pre-litigation conduct

      With respect to pre-litigation conduct, not ―every case of intentional fiduciary

wrongdoing justifies fee-shifting.‖134 Rather, the exception is normally applied only in

instances of bad faith, ―where the pre-litigation conduct of the losing party was so

egregious as to justify an award of attorneys‘ fees as an element of damages.‖135

      Duane created the Trust Agreement on August 31, 2011 and the settlement funds

first were deposited in the Trust‘s accounts on October 28, 2011. Duane filed his

Complaint on May 15, 2012.        On October 27, 2011, the Trust principal was over

$345,000.   By the end of March 2013, all that remained was $3,654.                 Thus, on

Defendants‘ watch as Trustees, approximately 99% of Duane‘s Trust was dissipated in

five months with virtually no tangible benefit to Duane being evident.

      Defendants‘ mishandling of the Trust demonstrates a glaring lack of financial

acumen and an utter disregard for Duane‘s best interest. The Trustees, who both were

unemployed when they assumed their fiduciary positions, never had managed a large sum

of money and had no money management training other than their ―life experience.‖136 If

their mismanagement of the Trust had stemmed predominantly from their lack of

education and financial training, I probably would not be inclined to find bad faith.

Sherry and Michael‘s actions, however, were more culpable than that. Within two weeks

134
      Venhill Ltd. P’ship ex rel. Stallkamp v. Hellman, 2008 WL 2270488, at *33 (Del.
      Ch. June 3, 2008).
135
      Estate of Carpenter v. Dinneen, 2008 WL 2950764 (Del. Ch. Mar. 6, 2008).
136
      JX P at 24.


                                            46
of obtaining the settlement funds, they each bought themselves luxury automobiles at

Duane‘s expense without informing him in advance of what they were doing or making

any reasonable effort to ensure that he understood the situation and its ramifications and

gave his fully informed consent to those transactions. Sherry and Michael also engaged

in similarly self-interested transactions regarding the improvements to the Hardy

Residence. In addition, Defendants not only breached their duty to account for the

performance of the Trust, Sherry and Michael actively restricted Duane‘s access to

account information and tried to conceal that information from him by opening new

accounts without telling Duane about them. Based on the evidence adduced at trial, I

find that Sherry and Michael acted egregiously and with utter disregard for the purpose of

the Trust–i.e., ―to insure that, to the best extent possible the physical necessities, comfort,

happiness and best interests of [Duane] will be met.‖ I conclude, therefore, that Sherry

and Michael‘s pre-litigation conduct amounted to bad faith and will require them to pay

Duane‘s reasonable attorneys‘ fees and expenses in connection with the prosecution of

this action as part of his resulting damages.

                     c.      Attorneys’ fees for bad faith litigation

       Plaintiff also seeks attorneys‘ fees on the grounds Sherry and Michael conducted

this litigation in bad faith. In extraordinary circumstances, Delaware courts have relied

on the bad faith exception to the American Rule and awarded attorneys‘ fees where

―parties have unnecessarily prolonged or delayed litigation, falsified records or




                                                47
knowingly asserted frivolous claims.‖137 To satisfy the bad faith requirement, a party‘s

conduct ―must rise to a high level of egregiousness, such that their actions extend beyond

the realm of zealous advocacy.‖138 The Court does not lightly apply this exception and

imposes a ―stringent evidentiary burden of producing clear evidence of bad faith conduct
                                          139
on the party seeking an award of fees.‖         The Delaware Supreme Court, in Johnston v.

Arbitrium (Cayman Islands) Handels AG,140 upheld this Court‘s award of attorneys‘ fees

when the litigants unnecessarily required the institution of litigation, delayed litigation,

falsified evidence, asserted frivolous motions, and provided inconsistent testimony to suit

their needs.141

       Plaintiff contends that Defendants‘ refusal to respond to discovery requests, late

production of relevant documents, fraudulent transfers of the Lincoln and Mercedes in

contravention of the Court‘s order, and Michael‘s false statements under oath, among

other things, warrant fee shifting in this case. Defendants‘ disregard for the Court‘s

explicit orders as to the automobiles unnecessarily increased Duane‘s litigation expenses.

In addition, Michael admittedly lied during his deposition when asked about the existence

of accounting records for the admitted purpose of misleading opposing counsel. I find,


137
       Johnston v. Arbitrium (Cayman Is.) Handels AG, 720 A.2d 542, 546 (Del. 1998).
138
       Estate of Carpenter, 2008 WL 2950764, at *17.
139
       Id.
140
       720 A.2d 542 (Del. 1998).
141
       Id. at 564.


                                                48
therefore, that Plaintiff has shown that Defendants acted in bad faith during the course of

this litigation and award Duane his attorneys‘ fees on the basis of that misconduct and

Defendants‘ various breaches of their fiduciary duties as Trustees. Thus, Defendants are

liable for the reasonable attorneys‘ fees and expenses Duane incurred in connection with

this action.

      G.        Plaintiff’s motions to set aside Michael’s transfer of the Mercedes as
                                    fraudulent and for contempt

                                  a.     Background facts

           On April 22, 2014, over six months after the trial, Duane moved to set aside an

alleged fraudulent transfer of the Mercedes from Michael to a woman who shared the

same address with him in Pennsylvania. The motion also sought to hold Michael in

contempt for the transfer. Despite the passage of more than three months since the filing

of that motion, neither Michael nor Sherry has responded to it. Accordingly, I consider

the motion ripe for decision at this time.

           On May 15, 2012, Plaintiff filed his Complaint against Sherry and Michael

alleging intentional misconduct, gross negligence, and unjust enrichment in their capacity

as Trustees of the Trust.142 The Complaint specifically focused, among other things, on

Michael‘s purchase of the Mercedes with funds from the Trust. Duane alleged, and this

Court has found, that Michael purchased the Mercedes with funds from the Trust. A title

search conducted by Plaintiff‘s counsel indicated that Michael received title to the



142
           Compl. ¶ 5.


                                              49
Mercedes in Delaware on November 6, 2011.143 The search listed the Hardy Residence

as Michael‘s address.144 At the trial of this matter on October 15, 2013, Plaintiff‘s

counsel requested an order from the court that none of the Trust assets that were left be

sold or encumbered, pending the Court‘s decision on the merits.145 The Court granted

that request, stating that no ―assets from the trust should be transferred, conveyed, spent

[or] paid to anybody until [this] matter is resolved‖ (the ―October Order‖).146 Michael

was present when the Court issued that directive, and had testified earlier that same

day.147 Therefore, Michael knew the Mercedes was not to be transferred or conveyed.

       The day after the October Order was entered, Duane‘s counsel requested a vehicle

record abstract for the Mercedes. The record, dated October 16, 2013, indicated the

Mercedes still was registered to Michael, but not at the Hardy Residence. Instead,

Michael‘s address was listed as 209 S. 4th Street, Apt. 2, Darby, Pennsylvania.148 An

updated vehicle record obtained on April 4, 2014 indicated that title to the Mercedes then




143
       Pl.‘s Mot. to Set Aside Michael T. Hardy‘s Fraudulent Transfer and Mot. for
       Contempt Ex. A (D.I. No. 102) (hereinafter ―Pl.‘s Mot. for Fraudulent Transfer
       and Mot. for Contempt).
144
       Id.
145
       Tr. 346.
146
       Tr. 347.
147
       Tr. 235-53.
148
       Pl.‘s Mot. for Fraudulent Transfer and Mot. for Contempt Ex. B (D.I. No. 102).


                                            50
was held by Kristina Monique Moses,149 residing at the same address that had been listed

for Michael on the October 16 record.150 There is no evidence that any consideration was

paid for this transfer of title.

          In Duane‘s motions, he argues that Michael violated the October Order by

transferring title to the Mercedes to Moses. Duane also asserts that the conveyance of the

Mercedes to Moses was fraudulent under the Delaware Uniform Fraudulent Transfer

Act.151

                       b.      Was the transfer to Moses fraudulent?

          Section 1304(a)(1) declares as fraudulent:

                 ―a transfer made or obligation incurred by a debtor as to a
                 creditor, whether the creditor‘s claim arose before or after the
                 transfer was made or the obligation was incurred, if the debtor
                 made the transfer or incurred the obligation with actual intent
                 to hinder, delay or defraud any creditor of the debtor.‖152

To prove Michael‘s transfer of the Mercedes to Moses was fraudulent under Section

1304(a)(1), therefore, Duane must show Michael actually intended to hinder, delay or

defraud him. Section 1304(b) lists eleven numbered factors that may be considered in

determining actual intent.




149
          Id. Ex. C.
150
          Id. Ex. B.
151
          Pl.‘s Mot. for Fraudulent Transfer and Mot. for Contempt ¶ 24.
152
          6 Del. C. § 1301(a)(1).


                                               51
      With relevance to this case, the following factors support a finding of actual intent

―to hinder, delay or defraud‖: (1) if the transfer or obligation was disclosed or

concealed;153 and (2) if before the transfer was made or obligation was incurred, the

debtor had been sued or threatened with suit.154 Both of these factors listed in Section

1304(b) support a finding that Michael had an actual intent to defraud here.155 First, the

transfer was concealed from both Duane and the Court.           The Mercedes was first

registered in Delaware, then changed to Pennsylvania, and finally transferred to Moses.

No disclosure about the transfer was made to Plaintiff or to the Court even though

Michael was on notice that he could not sell or transfer the Mercedes without providing

advance notice to the Court until resolution of this case.156 Second, before the transfer

was made, Michael not only had been sued by Duane regarding the Trust, but Duane‘s

153
      6 Del. C. § 1301(b)(3).
154
      6 Del. C. § 1301(b)(4).
155
      Several other factors under 6 Del. C. § 1301(b) also support the conclusion that
      Michael had an actual intent to hinder delay or defraud. For example, factor b(1)
      focuses on whether the transfer was made to an insider. The Act defines an
      ―insider‖ of a debtor who is an individual to include ―[a] relative of the debtor.‖ 6
      Del. C. § 1301(a)(1). Moses shares the same address as Michael. Therefore, she
      conceivably could be an insider under the Act. Additionally, factors b(2) and b(7)
      similarly support this conclusion.
156
      On January 16, 2013, during oral argument on Plaintiff‘s Motion to Set Aside
      Tolmiros, LLC‘s Fraudulent Transfer to Sherry L. Hardy, the Court notified
      Michael that he was not to transfer or sell the Mercedes without disclosing his
      intentions to the Court. Specifically, the Court ordered: ―If you are planning to
      sell the Mercedes or some sort of thing like that you are going to have to let the
      [Plaintiff] and [the Court] know.‖ Scheduling Conference and Pl.‘s Mot. for
      Default Judgment as to Def. Tolmiros, LLC and the Court‘s Ruling at 9-10 (D.I.
      No. 103).


                                           52
claims had been tried and Michael was awaiting a possible judgment against him.157

Hence, I find that Michael‘s transfer of the Mercedes to Moses was made with actual

intent to hinder, delay or defraud Duane, and thus constitutes a fraudulent transfer. 158

             c.      Did Michael act in contempt of the October Order?

       Court of Chancery Rule 70(b) authorizes the Court to provide relief ―[f]or failure

to obey a restraining or injunctive order, or to obey or to perform any order,‖ upon

defendant‘s knowledge of the order and facts constituting disobedience. In this case, the

Court orally granted Plaintiff‘s request for, in effect, a status quo order at trial.159

Specifically, the Court stated that ―no assets from the trust should be transferred . . . to

anybody until [this] matter is resolved.‖160 Michael knew from the pretrial proceedings

and the trial proceedings that same day that the Mercedes was alleged to be an ―asset

from the trust.‖

       Because Michael was present when the Court gave the October Order, he was

aware of the Order when he transferred the Mercedes to Moses, apparently for no

consideration. Indeed, Michael was on notice since January 16, 2013, that the Mercedes

could not be sold or transferred without disclosing his intentions to the Court in




157
       Hardy v. Hardy, No. 7531-ML (filed May 15, 2012).
158
       6 Del. C. § 1304(a)(1).
159
       Tr. 347.
160
       Id.


                                             53
advance.161 The Mercedes was purchased with money from Duane‘s Trust and, therefore,

was subject to the October Order. The vehicle record abstracts from the Pennsylvania

Department of Transportation demonstrate that Michael transferred title to the Mercedes

to Moses sometime after the October Order and before April 4, 2014. Based on these

facts, I find that Michael acted in contempt of the Court when he transferred the

Mercedes to Moses.

               d.      Relief for the fraudulent transfer and contempt

       The relief Plaintiff seeks for the fraudulent conveyance and contempt largely

overlaps, so I discuss those issues together.     First, Duane seeks to have Michael‘s

registration of the Mercedes in Pennsylvania for the apparent purpose of divesting this

Court of jurisdiction over it and his later conveyance of title in the vehicle to Moses set

aside as fraudulent transfers. I will grant this relief. As of February 15, 2013, the

Mercedes was registered to Michael in Delaware. In a telephone conference with the

parties and counsel on January 16, 2013, I directed that no changes be made with respect

to the Mercedes without prior notice to Plaintiff and the Court. On October 15, 2013, I

ordered that no assets from the Trust, which would include the Mercedes, be transferred

or conveyed pending the resolution of this matter. As of October 16, 2013, the Mercedes

was registered to Michael in Pennsylvania, and then by April 10, 2014 it was registered

in Pennsylvania to Moses. Under Section 1307(a) of the Uniform Fraudulent Transfer

Act, a creditor, such as Duane, may obtain ―[a]voidance of the transfer or obligation to

161
       See supra, note 156.


                                            54
the extent necessary to satisfy the creditor‘s claim.‖ That relief is appropriate here.

Therefore, I will set aside the transfer from Michael to Moses of the Mercedes and order

Michael to have the Mercedes promptly reregistered in Delaware.

       Plaintiff also seeks an order directing Michael to transfer title and the keys to the

Mercedes to Plaintiff‘s counsel, as Plaintiff‘s representative, within five days of the

Court‘s order, and that a constructive trust be placed on the vehicle. Consistent with the

broad remedies for a fraudulent transfer authorized by Section 1307, I will grant that

relief in the sense that I will impose a constructive trust on the Mercedes and direct that it

be held by Plaintiff‘s counsel pending further order of the Court.

       Finally, based on the Court‘s finding that Michael acted in contempt of the

October Order, I grant Plaintiff‘s request for an award of its attorneys‘ fees and expenses

in prosecuting the motions to set aside the transfer and for contempt. Thus, I will order

Michael to pay those fees and expenses.

                                  III.   CONCLUSION

       For the reasons stated in this Memorandum Opinion, I conclude as follows:

       (1)    that Sherry and Michael breached their fiduciary duty of loyalty to the Trust

and Duane, as the Beneficiary, in connection with the purchase of the Lincoln and the

Mercedes and as to the Trust funds spent on repairs to the Hardy Residence, and are

liable to Duane for $158,402.81 in damages as a result of those breaches;

       (2)    that Duane failed to prove his claim for breach of fiduciary duty as to the

$30,200 in gifts that were made from Trust funds to identified family and friends of

Duane, and that aspect of his claim will be dismissed with prejudice;

                                             55
       (3)    that as to the $9,000 from the settlement with the Diocese that was not

deposited into the Trust‘s two accounts at WSFS in October 2011, Sherry and Michael

breached their duty to account for $6,000 of that amount, but are exculpated from liability

for that breach under the Trust Agreement; therefore, this aspect of Plaintiff‘s claim will

be dismissed with prejudice;

       (4)    As to the $121,685.87 of the Trust funds that Plaintiff claims were not

accounted for, Sherry and Michael breached their duty of care and to account as to

$90,000 of that amount; I deny Plaintiff‘s claim for breach of fiduciary duty for anything

above that $90,000 and will dismiss with prejudice that aspect of Plaintiff‘s claim;

       (5)    that the breach by Sherry and Michael referenced in subparagraph 4 above

is not exculpated; so they are liable to Plaintiff for $90,000 on that aspect of his claim;

       (6)    that Sherry and Michael promptly shall be removed as Trustee of the Trust;

       (7)    that the Court will appoint Delaware CarePlan, Inc. (―DCP‖) as successor

trustee, subject to DCP‘s agreement to serve in that role and obtaining any necessary

modifications to the Trust Agreement; if complications arise in that regard, the Court will

proceed as stated in Section II. E of this Memorandum Opinion;

       (8)    that Plaintiff is entitled to reimbursement from Sherry and Michael for the

attorneys‘ fees and expenses Duane reasonably incurred in pursuing this action;

       (9)    that Duane is entitled to pre-judgment interest at the legal rate of interest

under 6 Del. C. § 2301(a), compounded quarterly, on the following amounts of damages

owed, jointly and severally, by Sherry and Michael from the dates indicated:



                                              56
              (a)    for the Lincoln and Mercedes, $83,402.81 from
                     November 30, 2011;

              (b)    for improvements to the Hardy Residence, $75,000,
                     from November 30, 2011 from December 31, 2011, by
                     which time it appears most, if not all, of the $75,000
                     had been spent;

              (c)    for $90,000 in unaccounted for Trust funds from
                     December 31, 2011.

       (10)   that Plaintiff is entitled to the imposition of a constructive trust for Duane‘s

benefit on: (a) the 8.3% interest Defendant Sherry holds in the Hardy Residence; and (b)

the Lincoln and the Mercedes.162

       For the reasons stated in this Memorandum Opinion, I also grant Plaintiff‘s

Motion to Set Aside Fraudulent Transfer and Motion for Contempt, both of which relate

to the Mercedes. On that basis, I will set aside the transfer of the Mercedes from Michael

to Moses and order Michael promptly to have the registration of the Mercedes changed

from Pennsylvania back to Delaware. I also will order Michael to transfer title and the

keys to the Mercedes to Plaintiff‘s counsel, as Plaintiff‘s representative, within ten days

of the Order that is being entered on this same date based on the rulings in this


162
       Plaintiff also requests the Court to impose a constructive trust on items purchased
       to renovate the hardy Residence. Pl.‘s Post-Trial Opening Br. 44. A constructive
       trust is an equitable remedy as to which one factor a court generally considers is
       the balance of equities. See Real Estate of Shockley v. Foraker, 2004 WL 51260,
       at *4 (Del. Ch. Jan. 6, 2004) (internal citations omitted). I deny without prejudice,
       this aspect of Plaintiff‘s request for relief, because I consider such relief to be
       premature and potentially overly disruptive and unnecessary at this point. The
       relief could involve for example, attempts to remove appliances and fixtures such
       as granite countertops from the Hardy Residence.


                                             57
Memorandum Opinion, and will place a constructive trust on the Mercedes for Duane‘s

benefit. In addition, based on my findings that Michael engaged in a fraudulent transfer

and acted in contempt of this Court‘s October 15, 2013 Order, I grant Plaintiff‘s request

for an award against Michael of his reasonable attorneys‘ fees and expenses incurred in

prosecuting the Motion to Set Aside the Fraudulent Transfer and the Motion for

Contempt.

      Plaintiff‘s counsel shall file with the Court and promptly serve on Defendants

within twenty days of the Order accompanying this Memorandum Opinion appropriate

documentation for the reasonable attorneys‘ fees and expenses Plaintiff seeks to recover

in connection with the prosecution of this action and the recent motions. Defendants

shall have twenty days from the filing of that submission to object to the claimed

attorneys‘ fees and expenses on any appropriate grounds, including that specific fees and

expenses claimed are unreasonable in the circumstances. Thereafter, the Court will

determine the appropriate amount of attorneys‘ fees and expenses to be awarded on the

basis of the rulings set forth in this Memorandum Opinion.




                                           58
