                            COURT OF CHANCERY
                                  OF THE
 SAM GLASSCOCK III          STATE OF DELAWARE                  COURT OF CHANCERY COURTHOUSE
  VICE CHANCELLOR                                                       34 THE CIRCLE
                                                                 GEORGETOWN, DELAWARE 19947


                           Date Submitted: April 15, 2015
                            Date Decided: July 30, 2015

Michael A. Weidinger, Esquire                 John L. Reed, Esquire
Kevin M. Capuzzi, Esquire                     Scott B. Czerwonka, Esquire
Pinckney, Weidinger, Urban & Joyce LLC        DLA Piper LLP (US)
1220 North Market Street, Suite 950           1201 North Market Street, Suite 2100
Wilmington, Delaware 19801                    Wilmington, Delaware 19801

              Re:    Sequoia Presidential Yacht Group LLC et al. v. FE Partners,
                     LLC, Civil Action No. 8270-VCG

Dear Counsel:

      I am unable to locate a legal-Latin expression or equitable maxim stating,

pithily, that a judge should, in his own interest, beware entering orders in which the

parties stipulate that the Court shall retain jurisdiction to resolve lurking issues.

Such an expression or maxim would be apt here. This matter involves the former

presidential yacht, Sequoia (the ―Yacht‖), whose owner, Plaintiff Sequoia

Presidential Yacht Group LLC (the ―LLC‖), and its sole member, Plaintiff Gary

Silversmith, co-induced Defendant FE Partners, LLC (―FE Partners‖) by means of

fraud to extend the LLC a loan with the Yacht as collateral. I will not reiterate that

particular facet of this case, which has been set forward at length elsewhere. It is

sufficient to this Letter Opinion to note that the Plaintiffs brought this case to

enjoin FE Partners from pursuing its rights in connection with the loan, that FE
Partners counterclaimed, and that once the fraud came to light, the Plaintiffs

entered a stipulated order in default judgment on August 29, 2013 (the ―Judgment

Order‖). Under the operative loan documents, which include the Amended and

Restated Term Loan Agreement (the ―Loan Agreement‖), the First Priority

Preferred Ship Mortgage (the ―Mortgage Agreement‖), the Guaranty, and the

Amended and Restated Option Agreement (the ―Option Agreement‖) (collectively,

the ―Loan Documents‖), FE Partners had an option to purchase up to a 100%

interest in either the LLC or the Yacht itself (the ―Option‖), either at an enterprise

value of $7.8 million in the case of a default by the Plaintiffs of the Loan

Documents, or otherwise at an enterprise value of $13 million. As of the time of

the default judgment, FE Partners had given notice to the Plaintiffs of its intent to

exercise the Option to purchase a 100% interest in the Yacht. The Judgment Order

provided that FE Partners was entitled to exercise its rights under the Loan

Documents, specifically including the Option, and further that the final option

price would be determined by deducting, among other things, the LLC’s or the

Yacht’s outstanding liabilities, whichever is applicable, from the $7.8 million

default enterprise value (the ―Default Option Price‖). To facilitate FE Partners’

exercise of the Option, the Judgment Order also provided for the appointment of an

independent counsel to determine outstanding current and potential liabilities of

the LLC and the Yacht (the ―Sequoia Liabilities‖). Notably, the Judgment Order

                                          2
retained this Court’s jurisdiction to hear disputes arising out of the ―accounting and

calculation of the final Default Option Price‖ in connection with the independent

counsel’s investigation, as well as ―any disputes arising out of the interpretation

and enforcement of this order.‖1

         After entry of the Judgment Order, Michael M. Maimone, Esquire, was

appointed independent counsel (the ―Independent Counsel‖) and produced a

detailed report concerning the Sequoia Liabilities (the ―Report‖). The Plaintiffs

have accepted the Report, while FE Partners vehemently disagrees with the

conduct of the Independent Counsel and his conclusions regarding contingent

liabilities that may constitute liens against the LLC or the Yacht. The parties have

expended disproportionately large legal efforts to place their respective positions

before this Court.            The initial loan, under which FE Partners provided

approximately $2.5 million to Silversmith, has resulted in Independent Counsel

fees alone of $857,487.26. Moreover, and in validation of the chimerical maxim

alluded to above, my entry of the Judgment Order has placed the issues of the

parties’ rights under that Order, together with the validity of the conclusions in the

Independent Counsel’s Report, before the Court. Meanwhile, a tangible piece of

American history sits deteriorating on a marine railway on the Western Shore,

awaiting resolution of the legal issues that complicate its future.


1
    Order dated Aug. 29, 2013, ¶¶ 7, 8.
                                            3
         A. Factual Background

         The Parties executed the Loan Documents, including the Option Agreement,

on July 3, 2012. Pursuant to the Option Agreement, FE Partners’ right to exercise

the Option was to last for five years from that date or until the maturity of the loan,

whichever was later.        The Option Agreement also provided that, before FE

Partners could exercise the Option, it had to provide the Plaintiffs with written

notice specifying the size and nature of the interest it intends to purchase and the

contemplated closing date, but that ―FE Partners may, in its sole and absolute

discretion, elect to rescind an Exercise Notice at any time prior [to] the

consummation of the purchase contemplated therein for any reason or for no

reason.‖2

         The Loan Agreement called for an initial funding of $5 million in loan

proceeds. FE Partners funded $2,501,272.67 towards these initial proceeds before

halting funding, purportedly after discovering that the LLC was in breach of a

number of provisions in the Loan Agreement. After delivering a number of default

notices to the LLC, on November 24, 2012, FE Partners delivered to the Plaintiffs

a notice that it was ―exercising the option granted pursuant to [the Option

Agreement] to purchase all of [the LLC’s] interest in the [Yacht],‖ with closing to




2
    Compl. Ex. 3, § 4(a).
                                          4
take place on December 1, 2013 (the ―First Option Notice‖).3 The First Option

Notice stated that, because FE Partners’ exercise of the Option stemmed from the

LLC’s uncured default of the Loan Documents, the purchase price for the Yacht

would be $7.8 million.

         On February 1, 2013, the Plaintiffs filed their Verified Complaint in this

action seeking to enjoin FE Partners from exercising the Option. On June 13,

2013, after preliminary discovery, FE Partners filed a Motion for Default Judgment

and Other Sanctions for Fabrication of Evidence, Alteration of Evidence,

Destruction of Evidence and Witness Intimidation, alleging several instances of

misconduct on behalf of the Plaintiffs. As a result of that Motion and the conduct

alleged therein, the Plaintiffs consented to a default judgment against themselves

and in favor of FE Partners on all the parties’ claims and counterclaims, as well as

the shifting of FE Partners’ attorneys’ fees and expenses.    However, the parties

could not come to an agreement on several of the terms of the final default

judgment order, including how the default judgment would affect the purchase

price for FE Partners’ Option. Both parties agreed that the approximately $2.5

million loan proceeds already delivered to the LLC would be deducted from the

option purchase price, that the option purchase price should be based on an

enterprise value of $7.8 million because the Plaintiffs were in default of the Loan


3
    Compl. Ex. 10.
                                          5
Documents, and that the Plaintiffs had to deliver the Yacht or LLC membership

interest, whichever is applicable, free and clear of any liens at that price. However,

due to its lack of trust in the Plaintiffs to deliver free and clear title and its express

interest in obtaining the Yacht as part of any remedy, FE Partners lobbied the

Court for a system, problematic on its face, whereby FE Partners would assume

control over ensuring clear title: it would investigate and determine the Sequoia

Liabilities and deduct those liabilities from the $7.8 million default enterprise

value. FE Partners also sought the right to deduct its award of attorneys from the

option purchase price and to seek damages against the Plaintiffs in the case that, as

a result of all of the deductions, the option purchase price fell below $0.00. The

Plaintiffs argued that the Option Agreement did not give FE Partners a right to

determine the Sequoia Liabilities, and thus too the option purchase price; they also

objected to the inclusion of an express right to damages tied to the option purchase

price. Conceding that they had an obligation to deliver either the LLC or the Yacht

free and clear of any liens, however, the Plaintiffs offered instead to pay for a

neutral third party ―to aid in clearing the title to ensure it occurs.‖4     The parties

submitted their competing proposed orders along with a stipulation that a default

judgment would be entered against the Plaintiffs and in favor of FE Partners and




4
    Pls.’ Letter to the Court dated July 17, 2013.
                                                     6
that they consented to the Court’s determination of the specific form of judgment

order carrying out that default judgment.5

         On August 29, 2013, I entered the Judgment Order, which combined many

of the provisions from the Plaintiffs’ and FE Partners’ proposed orders. Among

other things, the Judgment Order permits FE Partners to pay the reduced Default

Option Price based, in part, on the Sequoia Liabilities, but calls for independent

counsel to determine those liabilities.6 Specifically, the Judgment Order provides

that the Default Option Price will be calculated by deducting from the $7.8 million

default enterprise value under the Option Agreement: FE Partners’ attorneys’ fees

and expenses then-incurred, to be determined according to the process laid out

elsewhere in the Judgment Order; the amount of proceeds FE Partners had

extended under the Loan Agreement; and, as determined by independent Delaware

counsel at the Plaintiffs’ expense, the amount of:

         the outstanding and pending or potential tax or other applicable
         liabilities of [the LLC] that must be satisfied to deliver all legal and
         beneficial right, title and interest in and to either the membership
         interests in the [the LLC] or [the LLC’s] interest in the [Yacht], in
         each case free and clear of all liens, encumbrances, claims, rights of
         first refusal, options, warrants, calls, security interests, charges,
         pledges, or restrictions on transfer of any nature whatsoever. With
         respect to any exercise of the option for the interest in [the LLC], the




5
    See Stipulation Regarding Default Judgment dated Aug. 7, 2013.
6
    Order dated Aug. 29, 2013, ¶¶ 2(c)(i), 5, 6.
                                                7
       final Default Option Price will be further reduced by the amount
       necessary to satisfy all outstanding debts against the [the LLC].7

The Judgment Order provided that, if after making these adjustments, the Default

Option Price amounted to a negative figure, FE Partners could seek damages

against the Plaintiffs.8 Further, it states that ―[a]ny disputes arising out of the

accounting and calculation of the final Default Option Price . . . shall be brought

exclusively in the Delaware Court of Chancery,‖ as well as that this Court ―shall

retain jurisdiction for any dispute arising out of the interpretation or enforcement

of this Order.‖9 Shortly after the Judgment Order, the parties stipulated to the

appointment of Mr. Maimone, the Independent Counsel, to determine the Sequoia

Liabilities in furtherance of the Judgment Order.10

       The Independent Counsel was not able to complete his work by December 1,

2013, the day that FE Partners was to close on its purchase of the Yacht under the


7
  Id. ¶ 6. I note that this Paragraph refers to liabilities attaching to either the Yacht or the LLC,
while Paragraph 5, which provides for the future appointment of independent counsel, refers
only refers to liabilities attaching to the Yacht. This discrepancy is no doubt a remnant of the
fact that, at the time, FE Partners’ expressed intent—via the First Option Notice—was to
purchase the Yacht, not the LLC. That contemporary understanding is further evidenced by my
letter to counsel accompanying the Judgment Order, which stated that ―I have included the
Plaintiffs’ suggestion that I appoint an independent attorney to oversee the sale of the Sequoia
Presidential Yacht to FE Partners, LLC.‖ Letter to Counsel dated Aug. 29, 2013. It is not
necessary for me to determine what effect this discrepancy has on the role of the Independent
Counsel, however, because the parties submitted a subsequent stipulation, which was entered as
an order of this Court, that the independent counsel would determine the outstanding liabilities
attaching to the Yacht and the LLC. See Stipulation and Order Confirming Appointment dated
September 30, 2013.
8
  Id. ¶ 7.
9
  Id. ¶¶ 7, 8.
10
   Stipulation and Order Confirming Appointment dated Sept. 30, 2013.
                                                 8
First Option Notice. Instead, on that day, FE Partners provided the Plaintiffs with

written notice that it was rescinding the First Option Notice and, in its place,

―exercising the option granted pursuant to [the Option] Agreement to purchase

100% of Silversmith’s interests in [the LLC],‖ with closing to take place on

December 1, 2014 or such earlier date that the Independent Counsel’s investigation

is completed and accepted by this Court (the ―Second Option Notice‖).11 The

Second Option Notice provided that the purchase price for the LLC at closing

would not be the price called for in the Loan Documents—under which the

property transferred was to be free and clear of liens—but rather would be at the

Default Option Price, as defined in the Judgment Order. It further stated that FE

Partners reserved its right to amend the notice in the future to instead purchase the

Yacht.

       Shortly after its Second Option Notice, in a meeting on December 3, 2013,

FE Partners communicated to the Independent Counsel its interest in purchasing

the LLC rather than the Yacht.12 In the same meeting, FE Partners suggested to the

Independent Counsel that the liabilities of both the LLC and the Yacht (both

secured and unsecured) be satisfied at the closing of the sale of either the LLC or

the Yacht by Plaintiffs to FE Partners.13 In other words, FE Partners proposed that


11
   Capuzzi Aff. in Supp. of Pls.’ Mot. to Enforce Def.’s Compliance with Final Order, Ex. I.
12
   Report of Ind. Counsel at 15.
13
   Id.
                                                9
the Default Option Price reflect the combined outstanding current and potential

liabilities of the LLC and the Yacht, regardless of which of the two assets was

actually being purchased in the exercise of the Option. The Independent Counsel

subsequently relayed FE Partners’ suggestion to Silversmith, who purportedly

agreed to the term.14

       By letter dated May 20, 2014, the Independent Counsel notified the Court

that it had reached a preliminary finding as to the Sequoia Liabilities and that a

final report would be forthcoming.           Before he could issue a final report, the

Plaintiffs on August 13, 2014 moved for the Court to enforce FE Partners’

compliance with the Judgment Order. Specifically, the Plaintiffs asked the Court

to:

       (a) excuse all interest on the Loan since the December 1, 2013 closing
       date that FE Partners selected and later rescinded on that date; (b)
       direct that the Independent Counsel’s fees be shared equally by the
       parties due to FE Partners’ bad faith and lack of cooperation; (c)
       compel FE Partners to either (i) close on the Option Agreement to
       purchase the [Yacht] (as suggested by Independent Counsel) within
       30 days after the determination of this Motion, or (ii) accept rescission
       of the transaction, i.e., full payment on the Loan, including legal fees
       as ordered by the Court; and (d) order FE Partners to pay Plaintiffs’
       attorneys’ fees and costs, together with interest . . . , incurred in
       connection with this Motion and any subsequent briefing or hearing
       thereon.15



14
  Id. at 17.
15
  Pls.’ Opening Br. in Supp. of Their Mot. to Enforce Def.’s Compliance with Final Order at
36–37.
                                              10
In a teleconference with the parties on October 3, 2014, I determined that the

Plaintiffs’ Motion was premature, and should await the Independent Counsel’s

final report.

       The Independent Counsel submitted the Report on October 15, 2014, in

which he determined the Sequoia Liabilities to be $171,634.65. FE Partners filed

its objections to the Report on January 16, 2015, attacking both the legal

conclusions of the Independent Counsel and his impartiality, and asking the Court

to disregard the Report in its entirety. Following further briefing, including a

Supplement to the Report in which the Independent Counsel responded to the

objections raised by FE Partners, I heard oral argument on April 10, 2015, on FE

Partners’ objections to the Report and the Plaintiffs’ Motion to Enforce

Defendant’s Compliance with the Final Order.16 This Letter Opinion addresses

both of these issues.

       B. Objections to the Independent Counsel’s Report

       I turn first to FE Partners’ objections to the Independent Counsel’s findings

in the Report as to the Sequoia Liabilities.17 FE Partners’ briefing on its objections


16
    Following argument, the Independent Counsel, at my request, submitted an affidavit of his
fees on April 15, 2015, at which time the matter was fully submitted.
17
   As a preliminary matter, I note that in its brief in response to the Report and at oral argument,
FE Partners alluded, in a conclusory fashion, that its due process rights would be violated if the
Court were to do anything with the Independent Counsel’s report besides reject it outright. Even
if I assume that the issue is properly before me, I note that FE Partners was given three months to
present its objections to the Report, as well as the opportunity to submit document evidence in
support of its objections, which it did, and the opportunity to present its objections and
                                                11
focused on two issues: what FE Partners considers the inappropriate

communications and ―bias‖ in favor of the Plaintiffs exhibited by the Independent

Counsel; and the Independent Counsel’s conclusion regarding contingent liabilities

which may constitute a lien against the Yacht or the LLC.                        In addition, at

argument, FE Partners raised a related issue: whether the Independent Counsel had

himself violated the Judgment Order in not reaching resolution of tax liabilities or

violations of liquor laws which may impair the value of the Yacht or the LLC.

Due to all of these issues, FE Partners argues that I should disregard the Report.

FE Partners’ arguments, however, are without merit.

               1. Independent Counsel Complied with the Judgment Order

       I will consider first FE Partners’ argument, raised for the first time at oral

argument, that the Report should be discarded because the Independent Counsel

failed to comply with the Judgment Order by not obtaining certain settlements or

releases relating to tax and liquor laws. To the extent that FE Partners did not

waive this argument by failing to raise it in the briefing, I nevertheless disagree



supporting evidence in a full hearing. In addition, as I find below, I find no merit to FE Partners’
argument that the Independent Counsel was anything but an impartial arbiter of the Sequoia
Liabilities, and, in any event, I have conducted an independent evaluation of those liabilities.
        To the extent that FE Partners argues that it is disadvantaged by having entered a default
judgment that precludes it from demonstrating the amount of contingent liabilities at a full trial
on the merits, I point out that the parties agreed to a default judgment, provided competing
proposed forms of order for that default judgment, and consented to the Court both crafting a
final order and interpreting that order. As detailed in this Letter Opinion, that order provided
benefits to FE Partners not conferred by the Loan Documents. Having accepted those benefits,
FE Partners cannot now complain that it has been deprived of the advantages of the forgone trial.
                                                12
with FE Partners’ interpretation of the Judgment Order.    Pursuant to the terms of

the Judgment Order and the subsequent stipulation and order appointing Mr.

Maimone as the Independent Counsel, the Independent Counsel was charged with

determining the Sequoia Liabilities, that is, any liabilities of the Plaintiffs that

encumber or could encumber the Yacht or the LLC, and the Plaintiffs were

charged with ―enter[ing] into any agreements, compromises, settlements or

arrangements for payments to insure that clear title to the [Yacht] may be delivered

to FE Partners at closing consistent with findings of the [Independent Counsel].‖18

The Judgment Order provides that:

       the respective amount of the outstanding tangible personal property
       tax sales and use tax and other applicable taxes for the District of
       Columbia and other relevant jurisdictions, if any, shall be determined
       and established by written agreement of the parties and/or settlements
       between the District of Columbia government, the government of such
       other jurisdictions, if any, and the Plaintiffs.19

It also states that any alleged, outstanding, or pending liability for possible

violations of the liquor laws or the District of Columbia, Maryland, or Virginia

―shall be determined and established, or satisfied and resolved, as the case may be,

as the [relevant] governments shall require.‖20 As I read the language quoted

above, the Independent Counsel was to determine the Sequoia Liabilities; it is up

to the parties to take action to resolve them at or before closing. Therefore, the

18
   Order dated Aug. 29, 2013, ¶ 5.
19
   Id. ¶ 6.
20
   Id.
                                        13
Independent Counsel did not violate the Judgment Order by failing to resolve these

liabilities.

                2. Independent Counsel Was Not Biased

       I next turn to the allegations that the Independent Counsel acted

inappropriately out of bias toward the Plaintiffs. I have reviewed the extensive,

and often ad hominem, complaints of the parties in this regard, which are of an

unfortunate whole with the progress of this litigation in general. In short, I find

nothing indicating that the Independent Counsel did anything other than faithfully

execute his duties arising under the Judgment Order, as he reasonably construed

those duties.

                3. Independent Counsel’s Determination of the Sequoia Liabilities is
                Accepted

       FE Partners’ more serious, although still unavailing, arguments involve

whether there should be some adjustment to the contingent liability section of the

Report. I address each of these arguments, in turn, below.

       FE Partners’ directs much of its attention in its objections to the

determination of tax liabilities. In the Report, the Independent Counsel determined

that the Plaintiffs’ total District of Columbia tax liability, including liability for

personal property taxes, sales and use taxes, and unincorporated franchise taxes,

which liability could pose a lien against the Yacht, totaled approximately

$87,000.00, including interest then accrued (I assume interest and penalties are still

                                           14
accruing). In reaching that conclusion, the Independent Counsel relied upon an

audit conducted by the District of Columbia Office of Tax and Revenue as to the

LLC’s and Silversmith’s tax liability. FE Partners argues that its evaluation of the

tax liability is much higher, up to $10 million in fact, and further that the figure

quoted by the District of Columbia Office of Tax and Revenue is meaningless

because Silversmith induced the settlement of his tax liability through fraud.

However, through his interaction with the District of Columbia Office of Tax and

Revenue, the Independent Counsel has determined that the approximately

$87,000.00 figure is a ―final‖ amount. I therefore adopt that amount together with

interest and penalties it has accrued in the interim as the operative figure for the

Plaintiffs’ District of Columbia tax liability.

      Next, FE Partners argues that the Independent Counsel’s determination that

no sales or use tax was owed for Virginia or Maryland, and further that no lien for

illegal alcohol sales was reasonably likely to arise against the Yacht from any

jurisdiction, was based on insufficient evidence. It is true that the Independent

Counsel failed to prove a negative, but because he has been informed by the

District of Columbia government that no liability for alcohol will be asserted, and

because no liability has been asserted by Maryland and Virginia for taxes or

alcohol sales, I find the conclusion of the Report that these items should not factor

into the Sequoia Liabilities to be reasonable.

                                           15
      Next, FE Partners contends that liability for certain loans to the LLC and

Silversmith personally constitute Sequoia Liabilities. The allegation that the loan

from Arkadi Urman to Leonid Zharkovsky, and in turn from Zharkovsky to

Silversmith, could constitute a lien against the Yacht or the LLC is disproved by

the releases executed by Urman and Zharkovsky that the Independent Counsel has

in hand.    Similarly, I independently agree with the Independent Counsel’s

conclusion that the personal loan by Conrad Muhly to Silversmith does not

constitute a lien against the Yacht or the LLC.

      Next, FE Partners points to an approximately $1 million judgment owned by

a corporate entity, EnviroFinance Group LLC, which has a remote, but according

to FE Partners, tangible possibility of resulting in a lien against the Yacht or the

LLC. This concern is moot, as an FE Partners-related entity has acquired the right

to recover this judgment against Silversmith, as ―insurance.‖ The seriousness of

the risk that this judgment might support a lien against the Yacht or LLC is,

moreover, adequately demonstrated by noting that the FE Partners-related entity

purchased the right to enforce the judgment against Silversmith himself for only

$5,000.00 plus a sharing of any recovery with the creditor.

      Finally, FE Partners raises a number of additional, scatter-shot objections to

the Independent Counsel’s conclusions in the Report, including alleged potential

liability in connection with outstanding amounts due to past and current crew,

                                         16
inadequate insurance coverage, missing log books, and legal and other professional

fees. I find these objections to be unavailing for the same reasons set forth by the

Independent Counsel in the Report and the Supplement to the Report.

             4. Conclusion

      After considering de novo each of the arguments raised by FE Partners,

along with the record generated as to the Sequoia Liabilities by both FE Partners

and the Independent Counsel, and for the foregoing reasons, I independently

conclude that FE Partners’ arguments are without merit and the Report of the

Independent Counsel as to the Sequoia Liabilities is accepted in toto.

      C. Plaintiffs’ Motion to Enforce Compliance with the Judgment Order

             1. Exercise of the Option

      I now address the parties’ rights going forward. In the Loan Documents, FE

Partners purchased an option right upon default which persists until at least five

years from the contracting date, that is, at least until July 3, 2017. The Option

Agreement allowed FE Partners, upon default, to specify a date upon which the

Option would be exercised, no sooner than seven days after notice, but also to

cancel the exercise of the Option at any time prior to closing. The parties disagree

as to what rights in the Option would remain upon such a cancellation: FE

Partners argues that it received the right to serially cancel and renew notices to

exercise the Option cabined only by good faith; the Plaintiffs argue that the Option,


                                         17
once noticed and then cancelled, was not thereafter exercisable. I assume for

purposes of this Letter Opinion that FE Partners’ interpretation is correct.

      However, that leaves the question of how those rights were modified in the

Judgment Order. The Judgment Order was crafted, with the express consent of the

parties, to allow FE Partners to consummate its desire and contractual right to

purchase the Yacht or the LLC at the default enterprise value, free and clear of

liens. The parties were, therefore, in search of a mechanism to ensure that the

price paid was reduced to allow FE Partners to clear the property. The mechanism

suggested by the Plaintiffs, which I ultimately embodied in the Judgment Order,

was to employ independent counsel at the Plaintiffs’ sole expense to determine the

proper adjustment to the purchase price to account for liens. The parties agreed

that I would retain jurisdiction to resolve disputes about the proper exercise price

and the interpretation of the Judgment Order.

      The Plaintiffs ask me to provide an exercise date for the Option, by which

FE Partners must close on the Yacht or the LLC, or relinquish the Option and

pursue its other contractual remedies. FE Partners, however, contends that, despite

the Judgment Order and the consummation of the determination of the Sequoia

Liabilities (and thus in turn the Default Option Price) called for therein, it can

withdraw its notice of exercise of the Option, and then at any time during the

remaining Option period re-notice and buy the Yacht or the LLC, presumably

                                         18
under the conditions as then obtain. FE Partners points out that the Judgment

Order provides that ―the Loan Documents are valid and binding obligations of the

Sequoia parties, enforceable against the Sequoia parties in accordance with their

terms and the Sequoia parties are in default thereunder;‖21 that ―the Sequoia parties

ha[ve] no defenses, setoffs, claims, controversies, counterclaims or causes of

action of any kind or nature whatever against FE Partners;‖22 and that FE Partners

―is entitled to exercise any or all of its rights under the Loan Documents,‖

including both ―[i]ts Option to acquire’ the Yacht or the LLC ―based upon a $7.8

million default enterprise value . . . reduced as provided in this Order and

Judgment,‖ and the ―remedies available to FE Partners pursuant to the [Loan

Documents].‖23 FE Partners concludes from this language that its rights, including

the serial notice and rescission right accompanying its Option, remain through the

end of the Option period.

       FE Partners’ position is fundamentally incompatible with not only the

Judgment Order, but also with the representations of FE Partners’ counsel at the

time I was considering that Order. At the telephone conference at which the

parties presented their competing proposed forms of order for the default

judgment, from which forms I crafted the Judgment Order, I expressed my concern


21
   Order dated Aug. 29, 2013, ¶ 2(a).
22
   Id. ¶ 2(b).
23
   Id. ¶ 2(c).
                                         19
that FE Partners might contend that it could decide to forgo closing upon a

determination of price under the proposed order and instead exercise the Option

later in the contractual Option period, which concern was squarely put to bed by

counsel for FE Partners:

          [COUNSEL FOR FE PARTNERS]: Part of the complicated
      process—the thing that complicates this [default judgment order] is
      this was principally a declaratory judgment action on both sides.
      From our perspective, the core of our action was seeking of [a]
      declaration that they were in default under the applicable agreement,
      and we were, therefore, entitled to exercise at the default option price
      of 7.8 as opposed to 13.
          Our proposed form of order does what you would expect if the
      Court were entering a default judgment on all the claims and
      counterclaims in the case. It determines that the plaintiffs were in
      default under the applicable agreement. It determines that FE Partners
      has the right to exercise its option at the default option price. It
      preserves all of our remedies under the bargained for provisions of the
      applicable agreements, and it awards reasonable attorneys’ fees. It
      describes how the default option price is to be calculated. And while
      it contemplates future jurisdiction for enforcement of the order, it does
      not involve any kind of continued, you know, recurrent involvement
      or monitoring by the Court.
          THE COURT: Does it provide that FE Partners has five years to
      decide whether to exercise on the option?
          [COUNSEL FOR FE PARTNERS]: Well, Your Honor, that’s
      what the agreement says. We are 18 months into an agreement that
      said we have five years to do that. . . .
          THE COURT: But surely the parties didn’t contemplate that there
      would be a default judgment before the loan was fully advanced, but
      that the full five-year term could be used before a closing at the
      default rate, did they?
          [COUNSEL FOR FE PARTNERS]: No, Your Honor.
          THE COURT: That can’t be the case.
          [COUNSEL FOR FE PARTNERS]: No, I agree. The reason I
      raise the five years in our letter is because what I’m saying is we
      shouldn’t be bound by any absolute time line to be able to determine
                                         20
         what the actual enterprise value is, which is what the default is. The
         default is—
             This is really the principal hang up in the entire order; otherwise,
         this would be very, very easy. How do you determine what the
         default price is? . . .24

         I relied on these representations of counsel in crafting the Judgment Order.

That Order did not simply enforce FE Partners’ rights under the Option

Agreement, it also modified those rights, with the Plaintiffs’ consent, in FE

Partners’ favor. The Judgment Order appointed independent counsel to determine

potential liabilities against the Yacht and the LLC to ensure that FE Partners would

receive clear title upon exercise of its Option, and it further provided a mechanism

whereby FE Partners could pay the reduced Default Option Price for such

liabilities that it assumed at closing. I note also that the parties subsequently

agreed to an amendment to this latter right whereby FE Partners would be entitled

to reduce the option purchase price even by liabilities that it would not assume at

closing, that is, liabilities attached to the LLC would reduce the price even if FE

Partners bought only the Yacht. The Judgment Order placed the cost of the price-

determining mechanism—the Independent Counsel—solely on the Plaintiffs.

Pursuant to that obligation, which arose solely under the Judgment Order and not

the Loan Documents, the Plaintiffs have become responsible for over $850,000 for

the Independent Counsel alone. This does not include the very substantial legal


24
     Teleconference Tr. 14:17–16:22 (Aug. 7, 2013).
                                               21
fees and other expenses the Plaintiffs themselves have incurred in connection with

this process.

      The process described above has now made it possible to determine the

Default Option Price, based upon the Sequoia Liabilities, as determined by the

Independent Counsel. FE Partners has exercised its right, under the Judgment

Order, to contest certain of the Independent Counsels’ findings before this Court,

and to submit evidence by affidavit and argument in support of its position. I have,

based on the report of the Independent Counsel and in light of FE Partners’

submissions, decided the Sequoia Liabilities from which the Default Option Price

can be calculated. It is clear that FE Partners may exercise its Option at this price,

or forgo the Option to pursue its other rights under the Loan Documents. To say,

as FE Partners does, that it may forgo the Option at this price and then tomorrow or

some other day again elect to exercise the Option, which FE Partners makes clear it

believes would require an entire recalculation of the option purchase price, would

be to render the process described above potentially an expensive nullity.        FE

Partners has consistently represented that what it wants to do is buy the Yacht or

the LLC. It was never my intention in entering the Judgment Order to put in place

a costly and exhaustive process, borne entirely by the Plaintiffs, together with a

review by this Court that has taken substantial judicial resources, without FE

Partners being put to the option to exercise or forgo purchase of the Yacht or the

                                         22
LLC at the conclusion of that process. Such an election is required under the

Judgment Order.

       To allow this process to drag out, moreover, would be particularly

inequitable in light of the fact that the initial agreement contemplated an option to

purchase based on two scenarios: The first premised on a completed contract in

which FE Partners would provide up to $7.5 million in loan proceeds and buy the

Yacht or the LLC, if at all, at an enterprise value of $13 million; and a second

default situation operative here in which the purchase price would be at the

reduced default enterprise value of $7.8 million.                  Given the default, only

approximately $2.5 million of loan proceeds were transferred to the LLC. It is

unquestionable that the circumstances surrounding the default were the fault of

Silversmith and his fraud in connection with the loan. However, at present, the

Yacht is unfunded and the uncertainties as to its future cause it to lie deteriorating

in a boatyard. Both sides have indicated that it needs major refit to be usable.

       All parties consented to this Court determining the final terms of the order

carrying out their settlement. I read my Judgment Order as permitting the exercise

of the Option once the Sequoia Liabilities were determined by the Independent

Counsel and adjusted by this Court. That has occurred.25 I did not mean to permit

the Yacht to lie in limbo until the end of the original contractual Option term of

25
  The Independent Counsel should provide a figure for tax liabilities that includes interest and
penalties up to the closing date that is to be set by the parties pursuant to this Letter Opinion.
                                               23
July 2017. Therefore, FE Partners must exercise the Option, if at all, within a

reasonable amount of time. Under the terms of the Loan Documents, the exercise

of the Option becomes irrevocable at closing. A reasonable time for closing is 60

days following the date of this Letter Opinion. The closing date itself may be

adjusted by agreement of the parties or, upon cause shown, by this Court upon the

application of FE Partners. However, the exercise shall be irrevocable after the

original closing date as set by the parties in accordance with this Letter Opinion—

such closing date to be no later than 60 days hereof—regardless of when the

closing itself occurs.     This decision reserves all of FE Partners’ remaining

contractual rights against the Plaintiffs.

             2. Other Relief Sought

      In their Motion, the Plaintiffs also seek tolling of interest and shifting of

both their and Independent Counsel’s fees and expenses onto FE Partners. This

litigation, initiated by the Plaintiffs, stems from a loan arrangement that was

procured, and litigated upon, in part through the Plaintiffs’ fraud.              Once FE

Partners discovered that fraud and other wrongdoing, the Plaintiffs agreed in the

settlement to pay for the costs of the Independent Counsel. Although it is clear to

me that FE Partners has not moved the dispute resolution process along with the

alacrity that it deserves, I do not find, under the circumstances, that the Plaintiffs

are entitled to any legal or equitable tolling of interest or shifting of fees.


                                             24
        D. Conclusion

        For the foregoing reasons, I find that FE Partners must exercise its Option, if

at all, within 60 days of this Letter Opinion at the Default Option Price, as defined

by the Judgment Order. The deduction for the Sequoia Liabilities used in reaching

the Default Option Price are as stated in the Report of the Independent Counsel,

plus any additional interest or penalties accrued by such liabilities by closing.

        The parties should confer and submit an appropriate form of order to the

Court, which should include a closing date. The parties should also confer and

notify the Court as to whether any action is required by the Court on FE Partners’

Motion to Take over Possession, Maintenance and Operation of the U.S.S. Sequoia

Presidential Yacht in light of this Letter Opinion, which Motion appears to be

moot.



                                               Sincerely,

                                               /s/ Sam Glasscock III

                                               Sam Glasscock III




                                          25
