COURT OF CHANCERY

OF THE

SAM GLASSCOCK III

VICE CHANCELLOR

STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE

34 THE CIRCLE

GEORGETOWN, DELAWARE 19947

Date Submitted: October 21, 2016

Date Decided: November 14, 2016

Michael Busenkell, Esquire

Gellert Scali Busenkell & Brown, LLC

1201 North Orange Street, Suite 300

Wilmington, DE 19801

Gary J. Silversmith

1050 17th Street, N.W., Suite 600

Washington, D.C. 20036

John L. Reed, Esquire

DLA Piper LLP

1201 North Market Street, Suite 2100

Wilmington, DE 19801

Scott Czerwonka, Esquire

Wilks, Lukoff & Bracegirdle, LLC

4250 Lancaster Pike, Suite 200

Wilmington, DE 19805

Re: Sequoia Presidential Yacht Group LLC et al. vs FE Partners LLC, 

Civil Action No. 8270-VCG

Dear Counsel and Mr. Silversmith:

In Joseph Heller’s satirical take on the Biblical King David, David laments 

the stupidity of his son, King Solomon. David invokes Solomon’s famous decision 

resolving a case where two alleged mothers each claim the same baby—Solomon 

offered to cut the infant in two—which is considered the epitome of wisdom. David 

tells us the real story: Solomon was “dead serious.”1 It is with chagrin that I 

recognize that this lengthy litigation has been nearly as deleterious for its “baby”; 

 

1

Joseph Heller, God Knows 12 (Simon & Schuster, 2004). 
2

the famous ex-Presidential Yacht Sequoia. The Sequoia, an elderly and vulnerable 

wooden yacht, is sitting on an inadequate cradle on an undersized marine railway in 

a moribund boatyard on the western shore of the Chesapeake, deteriorating and, 

lately, home to raccoons. 

This suit involves a loan agreement between the lender, FE Partners LLC (“FE 

Partners”) and the borrowers, Gary Silversmith and the Sequoia Presidential Yacht 

Group, LLC. The loan agreement gives FE Partners an option to purchase the 

collateral for the loan—the Sequoia. A valuation of the Sequoia for purposes of 

securing the loan was established via fraud on the part of Gary Silversmith. Claims 

and counterclaims arising out of the loan agreement were litigated and eventually 

resolved by a settlement entered as a Court Order on August 29, 2013. All that 

remained for this Court was to oversee the computation of the amount due 

Silversmith from FE Partners under the settlement and loan documents, should FE 

Partners elect to acquire the Sequoia. Unexpectedly, and unfortunately, the resulting 

issues and litigation expenses involved in that inquiry have dwarfed the original 

litigation. This Letter Opinion expresses my post-hearing decision concerning the 

option price for the Sequoia. This inquiry was made simpler by the concession of 

FE Partners, expressed to this Court by letter of August 28, 2015,

2

that should it 

 

2 Def’s Letter to the Court dated August 28, 2015. The letter estimated that the option price as of 

that time was negative $1.6 million and stated “[a]lthough the provisions of the Default Judgment 

Order permit FE Partners to pursue Mr. Silversmith for any deficiencies if the Default Purchase 
3

exercise the option (and absent additional fraud or defensive issues absent here) it 

would not pursue contractual rights to recover sums due it under the settlement 

agreement to the extent they cause the option exercise price to be less than zero.3 In 

other words, FE Partners agreed to a minimum option price of zero dollars. For the 

reasons below, I find the option price to be zero.

FE Partners has indicated, by letter of October 24, 2016, that it has committed

to exercise its option rights once this Letter Opinion is released. With title issues 

resolved, it is possible that an investment is now reasonable to save the Sequoia from 

desuetude and otherwise-inevitable destruction. 

I. BACKGROUND

This matter is before me to determine the option exercise price (the “Exercise 

Price”) for the Sequoia based upon the parties’ contractual agreements and this 

Court’s prior decisions. The facts of this case, and the conduct of the parties, have

been set out in detail in earlier decisions,

4

and will not be repeated here. It is 

 

Price is less than zero, your Honor should be pleased to know that FE Partners only wishes to be 

done with Mr. Silversmith as quickly as possible and has no present intention of pursuing any such 

deficiencies, though it reserves the right to do so if it uncovers further fraud or needs to do so in a 

defensive proceeding.” Id. at n.12 (emphasis added). 

3

Id. In post-hearing briefing, FE Partners asks me to set a judgment amount to the extent the 

amounts owed it under the settlement exceed the option price. See Def’s Post-Hearing Opening 

Br. 58. To the extent they are attempting to withdraw the statement in the August 28, 2015 letter, 

they should so indicate, including the grounds for doing so, and I will allow Silversmith and the 

LLC to respond.

4

See e.g., Sequoia Presidential Yacht Grp. LLC v. FE Partners LLC, 2015 WL 4575795 (Del. Ch. 

July 30, 2015); Sequoia Presidential Yacht Grp. LLC v. FE Partners LLC, 2013 WL 3724946 

(Del. Ch. July 15, 2013). 
4

sufficient to state that the Plaintiff, Gary Silversmith, induced the Defendant, FE 

Partners,5to extend a loan to Silversmith’s company, the Sequoia Presidential Yacht 

Group, LLC (the “LLC”; in context, I refer to Gary Silversmith and the LLC, 

together, as “Silversmith”) with the Sequoia as collateral. Representations by 

Silversmith in connection with the loan were fraudulent. Silversmith initiated this 

action to enjoin FE Partners from pursuing its rights in connection with the loan, 

however once Silversmith’s fraud came to light, the parties entered into a settlement 

memorialized in a stipulated default judgment order on August 29, 2013 (the 

“Judgment Order”).

The operative loan documents here include the Amended and Restated Term 

Loan Agreement (the “Loan Agreement”), the First Priority Preferred Ship 

Mortgage (the “Mortgage Agreement”), and the Amended and Restated Option 

Agreement (the “Option Agreement”) (collectively the “Loan Documents”). Under 

the Loan Documents, FE Partners had an option to purchase either a 100% interest 

in the LLC or to buy the Sequoia itself,

6

for $7.8 million in the event of default. 

 

5 While technically the Defendant, FE Partners is also the counterclaim Plaintiff. In this action FE 

Partners is pursuing its rights under the loan documents. To avoid confusion, I will refer to the 

parties principally by name rather than litigation stance.

6 The yacht is the only asset held by the LLC, which itself is owned by Silversmith.
5

What followed was a morass of litigation,7 which is mercifully coming to an end.8 

This opinion addresses the remaining issue—what price FE Partners must pay to 

exercise its default option. In reaching the Exercise Price I am guided by the parties’

contractual agreements, including the Loan Documents,

9

and the law of this case as 

set out in prior opinions and orders,

10 as well as FE Partners’ aforementioned 

commitment to accept a floor option price of zero dollars. What follows is a 

discussion of the facts, contracts of the parties, and decisions of this Court necessary 

to calculate the Exercise Price, and bring an end to this litigation.

A. The Formula

The August 29, 2013 Judgment Order provides the basic formula to determine 

the Exercise Price.

11

 The Judgment Order states that I must subtract from the initial 

Exercise Price, defined in that order as $7.8 million,

12 the following items: FE 

Partners attorneys’ fees and expenses then-incurred in the Delaware action as 

 

7

I note a motion to strike portions of Silversmith’s answering brief, which brief raised issues for 

the first time, including, for example, lender liability, was filed on October 11, 2016. I have not 

considered issues raised for the first time in Silversmith’s answering brief, therefore I have also 

not considered the sur-reply filed as an exhibit to the October 11, 2016 motion.

8 Ever the optimist, I.

9

See Sequoia, 2015 WL 4575795, at *9 (stating that the decision generally reserves FE Partners’ 

remaining contractual rights).

10 As our Supreme Court has described, “[t]he law of the case doctrine is a self-imposed restriction 

that prohibits courts from revisiting issues previously decided, with the intent to promote 

efficiency, finality, stability and respect for the judicial system.” State v. Wright, 131 A.3d 310, 

320–21 (Del. 2016) (citations and internal quotations omitted).

11 JX 27 ¶ 6.

12 Id. at ¶ 2(c)(i).
6

determined by the process laid out in the Judgment Order;13 the total amount of FE 

Partners’ loan;

14 and, as determined by independent counsel, Michael Maimone, 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 LLC or its] interest in the Sequoia Presidential 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 interests in [the LLC], the final 

Default Option Price will be further reduced by the amount necessary 

to satisfy all outstanding debts against the LLC . . . . 

15

The Judgment Order provided that the cost of Maimone’s service as independent 

counsel was to be paid by Silversmith. I begin with the Judgment Order in 

calculating the Exercise Price. 

B. The Initial Exercise Price 

The parties entered into the Option Agreement on July 3, 2012.16 The 

subsequent August 29, 2013 Judgment Order affirmed FE Partners’ right to purchase 

the Sequoia, or the membership interests in the LLC, for an Exercise Price of $7.8 

million, as adjusted.

17

 

 

13 Id. at ¶ 6; see Sequoia, 2015 WL 4575795, at *3 (noting that the fee calculation provided for the 

Judgment Order was for “attorneys' fees and expenses then-incurred”).

14 JX 27 ¶ 6; see JX 13 § 8.2. 

15 JX 27 ¶ 6; see also Sequoia, 2015 WL 4575795, at *3.

16 JX 11. 

17 JX 27 ¶¶ 2(c)(i), 6.
7

Before turning to those adjustments called for in the Judgment Order, I briefly 

address Silversmith’s assertion, in his opening brief, that the Exercise Price should 

be adjusted upward. Silversmith asks that I add to the initial $7.8 million Exercise 

Price FE Partners’ equitable share of three items: the independent counsel’s fees, an 

existing rail line lien against the Sequoia,

18 and that portion of the costs necessary to 

put the Sequoia back into good working order and repair that Silversmith alleges are 

attributable to FE Partners.

19

 I decline to consider these three items as above the line

additions. The Judgment Order from which I am calculating the Exercise Price

makes no provision for such adjustments.

20

 With respect to the independent 

counsel’s fee, I have already rejected Silversmith’s request to shift the fee, and 

nothing warranting a deviation from that has occurred in the interim.21 I find no 

equitable reason to depart from the Judgment Order and attribute to FE Partners the 

storage costs for the Sequoia, including the rail line lien. Finally, with respect to FE 

Partners’ responsibility for repair costs, I address that with respect to a calculation 

of Silversmith’s contractual responsibility for the cost of putting the yacht in good 

repair. Thus the starting point for this analysis is the $7.8 million Exercise Price. 

 

18 The Sequoia is hauled out on a marine railway in Deltaville, Virginia, and the boatyard has a 

lien on her for accrued hauling and storage.

19 See Pls’ Post-Hearing Opening Br. 2, Ex. A. 

20 See JX 27 ¶ 2(c)(i). 

21 See Sequoia, 2015 WL 4575795, at *9. 
8

II. DISCUSSION

From the initial Exercise Price of $7.8 million, FE Partners is seeking thirtyeight line-item deductions.22

 There is over a $10 million variance between the 

parties’ positions on these proposed deductions.

23

 Some of the deductions sought 

are no longer in dispute. Others are only disputed to a limited extent. These 

categories are briefly addressed below to demonstrate that the maximum Exercise 

Price, after accounting for undisputed deductions, is currently $2,414,603. 

Silversmith accepts a deduction of $2,490,099 for the initial loan 

disbursement.24 He also accepts deductions, so long as they are verified, of $82,877 

for payments to crew members, $372,951 for insurance payments, and $33,352 for 

payments for shipyard and equipment expenses.25 I find these deductions are 

adequately supported by affidavits and corresponding billing records.26 

Additionally, Silversmith accepts deductions of $274,011 for a lien owed to his 

former counsel, Mike Weidinger, and $1,335,573 for attorneys’ fees calculated 

pursuant to the Judgment Order.27 Finally, Silversmith accepts a deduction of 

 

22 Def’s Post-Hearing Answering Br. Ex. A.

23 See id. 

24 Pls’ Post-Hearing Answering Br. (“Pls’ Ans. Br.”) 5. 

25 Id. 

26 See JX 63 ¶ 5, Ex. D (providing documentation for crew payments); id. at ¶ 4, Ex. C 

(providing documentation for insurance payments); id. at ¶ 6, Ex. E (providing documentation 

for shipyard and equipment payments); see also Supp. Aff. of L. Michael Cantor Sept. 26, 2016 

(providing documentation for additional insurance payments).

27 Pls’ Ans. Br. 5.
9

$171,654 for liabilities uncovered by the independent counsel.

28 The sum of these 

undisputed deductions is $4,760,397.

The amount of interest accrued under the loan remains in dispute. However, 

even with the modifications that Silversmith seeks to the default interest rate, the 

deduction for this item is, at a minimum, $625,000.29 This amount, combined with 

the other deductions discussed above, places the undisputed portion of the required 

deductions at $5,385,397.30 Thus the Exercise Price is, at most, $2,414,603, less

disputed but substantiated deductions. In other words, the Exercise Price must be 

further reduced by the deductions advocated by FE Partners—opposed, in whole or 

part, by Silversmith—to the extent I find them required by the Judgment Order and 

the underlying contracts preserved in that Order. I start with the deduction for the

amount required to bring the Sequoia into the state of repair that Silversmith was 

obliged by contract to maintain. Because the cost of the required structural repairs 

already exceeds $2,414,603, the Exercise Price is zero dollars, and I need not analyze

FE Partners remaining proposed deductions.

 

28 Id. I note Silversmith submits that this figure is subject to “adjustment” for any updates to the 

outstanding liabilities. Pls’ Post-Hearing Opening Br. Ex. A. 

29 Pls’ Post-Hearing Opening Br. 8. 

30 This calculation only includes the items discussed above, and does not include an unspecified 

amount of the rail line lien which Silversmith accepts responsibility for nor his responsibility for 

the cost of repairs, discussed infra.
10

A. Contractually Required Repairs

The Loan Documents required Silversmith to maintain the Sequoia in good 

working order and repair. It is undisputed that the Sequoia is not presently in the 

condition required by the parties’ contracts. I instructed the parties to file expert 

reports “regarding the cost to bring the Yacht back to ‘good working order and 

repair,’ as defined and required in the First Priority Preferred Ship Mortgage and 

Option Agreement . . . taking into account all relevant facts and circumstances.” (the 

“Contractual Condition”).31 The results are presented in full below. However, the 

following brief synopsis may be sufficient for the casual reader. 

I presented all parties with the opportunity to have a ship survey performed 

and for an expert to inform me as to the cost to restore the Sequoia to the condition 

at which Silversmith was contractually obligated to maintain her. FE Partners had a 

survey conducted,

32 and provided a thorough expert report. Its chief expert, Earl

McMillen, testified, credibly, that the hull of the Sequoia needed a complete rebuild 

before she could be returned to service, and that the repairs and rebuilding needed 

to put the hull into contractually-compliant shape will cost $2,750,100.33 

Silversmith’s expert, Donald McCann, by contrast offered an opinion only as to the 

 

31 Order dated Feb. 29, 2016. 

32 According to Earl McMillen, his report was partially based on the survey done by Kevin 

Clarke of Rhode Island Marine Survey. JX 51 at 6–7.

33 McMillen testified that other ship systems will require repair to be contractually-compliant, at 

additional cost. 
11

cost required to remedy a list created by the Coast Guard, based on a preliminary 

inspection, that McCann himself conceded was incomplete and inadequate to restore 

the Sequoia to the contractually-required standard. McCann candidly admitted that 

he could not provide an estimate to return the yacht to the Contractual Condition,

34

and that, if a hull rebuild was required, McMillen’s estimate of costs was 

reasonable.

35 I find the amount testified to by McMillen credible, and adopt it. Next, 

I find that while the contract excepts “wear and tear,” I accept McMillen’s testimony 

that none of the $2,750,100 required hull work was for repair of wear and tear items 

as the parties used that term in the contract, and I find further that Silversmith has 

failed to submit any evidence or opinion indicating that “wear and tear” could refer 

to a necessary total hull rebuild. Finally, I consider, and reject, Silversmith’s 

argument that in equity FE Partners should be assessed some of the costs in returning 

the Sequoia to the contractually-agreed condition, given what Silversmith describes 

as dilatory tactics on FE Partners’ part resulting in otherwise-avoidable deterioration 

of the Sequoia. McCann, Silversmith’s own expert, testified that the delay that has 

caused the yacht to sit on the railway for an extended period has had minimal impact 

on the current need for repairs.36 Therefore, I find that Silversmith’s obligation to 

keep the Sequoia, as collateral for FE Partners’ loan, in good working order and 

 

34 May 11, 2016 Default Option Hearing Tr. 268:23–71:9 (McCann).

35 Id. at 301:12–22 (McCann).

36 Id. at 252:14–53:13 (McCann).
12

repair, requires expenditure of $2,750,100 on the hull alone; this amount must be 

subtracted from the Exercise Price. The details in support of my reasoning follow.

1. Analysis of Required Repairs 

a. The Contractual Terms

The Mortgage Agreement provides, in relevant part, that the borrower 

will at all times and at its own cost and expense maintain and preserve 

the Vessel in good condition, working order and repair, ordinary wear 

and tear excepted, and will cause the Vessel to be kept fully equipped 

and such equipment to be kept in good condition, working order and 

repair, ordinary wear and tear excepted.37 

The Option Agreement defines its good working order and repair standard by 

reference to the above condition set by the Mortgage.38 

I find the contractual terms are not ambiguous, but rather, that the intent of 

the parties is clearly understood from the documents read as a whole.

39 The 

Contractual Condition provisions of “good condition, working order and repair” 

when read in their context, indicate that the vessel is to be kept in a condition which 

makes it fit for service in its intended use. This reading is supported by both parties’ 

 

37 JX 12 § 2.9.

38 See JX 11 § 7.2 (“Sequoia shall maintain the Vessel in good working order and repair in 

accordance with the provisions of the Ship Mortgage.”). I note that the Option Agreement is 

governed by New York law. See id. at § 9(a) (stating the agreement “shall be construed and 

enforced in accordance with the law of the State of New York . . .”). Silversmith also asserts that 

the “Sequoia loan documents apply New York law.” Pls’ Ans. Br. 12.

39 See Maser Consulting, P.A. v. Viola Park Realty, LLC, 936 N.Y.S.2d 693, 694 (App. Div. 

2012) (stating that under New York law it is fundamental that contracts are to be “construed in 

accord with the parties’ intent.”).
13

experts, whose testimony indicates that such standard is a term of art in the maritime 

industry, informed by the vessel’s use, and means the ship is at least a “safe working 

platform” within the scope of its intended use.

40 Regarding the “fully equipped” 

contractual mandate, that requires the vessel to be equipped for the services the ship 

is to perform.41 Here the intended use would be as a Potomac River charter cruise 

ship. I find under the contracts that Silversmith was obligated to maintain the vessel 

such that it was safe, structurally sound, and fully equipped for its intended use as a 

Potomac River cruise vessel. 

b. The Required Repairs

Unfortunately, as explained below, I am left with only one side’s expert 

reports and testimony that bear on the question of the cost of Silversmith’s obligation 

to maintain the Sequoia. For reasons not in the record, Silversmith did not direct his 

expert to do an inspection that would allow him to answer the pertinent question, 

which is what would it take to put this vessel in the Contractual Condition.42

McCann testified that he was instructed by Silversmith to only examine items on a 

 

40 See JX 55 at 45:4–14 (McCann). Silversmith’s expert also indicated that in layman’s terms this 

would mean the vessel would need to be in “safe working order” for its intended use, which here 

would be river passages in and around Washington, DC. See id at 45:15–46:12 (McCann). 

41 See May 11, 2016 Default Option Hearing Tr. 296:15–17 (McCann). Silversmith’s expert 

explained that this was the correct standard for “fully equipped” and that he would expect the 

vessel to have the appropriate items for its intended use, including for example, a depth sounder. 

Id. at 296:15–22 (McCann). 

42 Id. at 305:11–16. Following the hearing, I considered engaging a Court expert to do an 

independent survey of the Sequoia, but I determined that 1) the testimony of FE Partners expert 

witnesses was sufficient to a decision here, and 2) engaging a Court expert, under these 

circumstances, would only increase litigation effort, which already exceeded optimality.
14

preliminary Coast Guard work list dating to 2014 (the “Work List”), determine 

whether the Work List was “fair and reasonable,” and then classify which repairs 

should be treated as a “capital expense,” which according to Silversmith must be

excluded from the cost of repairs, as contrasted with maintenance expenses, which 

Silversmith indicated should be included.43 McCann testified he was not asked by 

his client to perform a full condition survey of the Sequoia which would allow him 

to have prepared an opinion on the Contractual Condition.44 In other words, 

Silversmith failed to provide an expert who could offer testimony on the question 

pertinent, the cost to restore the Sequoia to the Contractual Condition.45

Instead, Silversmith attempts to rely on a $309,650 quote to complete the 

Work List, from Chesapeake Boat Works (“CBW”), the yard in which the Sequoia 

is currently lying. Again, that estimate is insufficient to the purpose pertinent here. 

I note that the Work List itself states that the repairs it mandates “should not be 

construed as an inclusive list since there may be other deficiencies which have not 

been identified.”46 Silversmith’s expert, McCann, testified there would be additional 

costs beyond the Work List “because the Coast Guard investigation is not 

 

43 Id. at 239:4–14 (McCann). I note that Silversmith dropped the “capital expenses” line of 

argument at the hearing. Id. at 291:8–22. 

44 Id. at 268:23–71:9 (McCann).

45 I mean to convey no disrespect for Silversmith’s expert, Donald McCann, who I found to be 

competent and credible. He was unfortunately not instructed by his clients to opine on the 

relevant question here—what repairs are required, and what would they cost, to return the 

Sequoia to the Contractual Condition. 

46 JX 34. 
15

complete,”

47 and that he “would fully expect” additional Coast Guard required 

work.

48

McCann testified that without a full condition survey, he could not, and did 

not attempt to, render an opinion on what work was necessary to put the Sequoia in 

the Contractual Condition, nor did he prepare an opinion on what was required to 

make Sequoia fully equipped as defined in the contracts.49 McCann also did not 

prepare the cost of repairs for the Work List items independently, because the cost 

of repairs are not “within the parameters of what [he] does.”50 Rather he relied on 

CBW’s estimates and opined that those were “fair and reasonable given the list that 

was given” to him.51 Consistent with the opinion of FE Partners’ expert, discussed 

below, McCann stated that “there’s a great deal of decayed wood that needs to be 

rectified.”52 Such rectification, I note, is not fully addressed in the Work List. 

Having found the evidence presented by Silversmith inadequate to supply the cost 

to return the Sequoia to the Contractual Condition, I turn to the evidence provided 

by FE Partners. 

I have before me McMillen’s unrebutted opinion that the hull needs to be 

rebuilt in order to put the Sequoia into the Contractual Condition. McMillen reached 

 

47 May 11, 2016 Default Option Hearing Tr. 246:9–17 (McCann). 

48 Id. at 275:10–76:4 (McCann) (explaining that “there will be more lists—more on the list”). 

49 Id. at 268:23–71:9, 271:24–72:3 (McCann).

50 Id. at 240:8–16 (McCann).

51 Id. at 240:19–23 (McCann).

52 Id. at Tr. 242:1–2 (McCann).
16

this conclusion based on several factors including the condition of the frames inside 

the hull, the hull’s exterior planking, the vessel’s loss of proper hull shape,53 and 

damage incurred during the December 2014 haul out.54 When I asked McMillen

directly during his testimony if there was not a cheaper way to put the vessel into the 

Contractual Condition, he explained that given the state of disrepair and rot the 

vessel had reached, patchwork repairs, such as sistering frames,55 are no longer an

option. I find most instructive the following exchange:

THE COURT: Sir, if someone approached you to try to do this job in 

the most cost effective way by simply sistering the frames, using 

penetrating epoxy, doing a refastening job and trying to get [the 

Sequoia] in the water so that it could be used in the cheapest possible 

way safely, could that be done more cheaply than what you've done 

here, or is that not something you could do?

THE WITNESS: I certainly wouldn't assume any liability. The number 

that came back from CBW of several hundred thousand dollars, I can't 

imagine that they would stake their reputation and assume the liability 

that by merely making that amount of repair to the boat in her current 

condition. It would be a band-aid on a -- putting your thumb in the dike 

sort of thing. It's just -- there's so much there that -- the degradation of 

the structure is so widespread on the boat. You don't have any good 

frames to even sister to.

THE COURT: That's true even if her use was to be restricted to the 

river and use up and down the Potomac. 

 

53 Currently, the hull is “hogged.”

54 See JX 51 at 5–6.

55 When explaining a photo, located in JX 51 at 60, McMillen provided the following description 

of “sister”: “[a]gain, broken sister frames. A sister framing is a technique of making a repair which 

is a low-cost way of just driving another frame in alongside the other frame . . . . It's just an added 

frame that generally gives support in the turn of the bilge. And here you have broken frame next 

to broken sister frame.” May 11, 2016 Default Option Hearing Tr. 46:7–15 (McMillen). 
17

THE WITNESS: Correct. The fact that she's -- the frames have already 

been sistered, and those frames have now cracked or degraded. So the 

cheap repairs have been made at this point, and going that route has 

already been done once. In my opinion, it can't be done again.56

McMillen’s testimony was unrebutted, and, I find, credible. It is supported 

by photographic evidence depicting the hull’s poor condition.

57

 I find that the hull 

rebuild proposed by McMillen is required to put the Sequoia into the Contractual 

Condition. Although this is a major repair, it is not only required under the contract,

but also supported by equity. This loan, and the accompanying option were made 

under false pretenses of the Sequoia’s condition and value.58 If the vessel had been

in the condition represented, there would likely be no need for structural repairs now.

c. The Cost; Exception for Wear and Tear

Having found the hull rebuild required by the contract, I now must determine 

the appropriate deduction from the Exercise Price for this item. McMillen indicates 

that the required hull rebuild, not using (presumably more expensive) historic hull 

components, would cost $2,750,100.

59

 In evaluating this figure, I find instructive 

McCann’s testimony. Silversmith’s expert admitted that if a hull rebuild is done, 

McMillen’s estimate is “fair and reasonable.”60 I also find instructive an email 

 

56 May 11, 2016 Default Option Hearing Tr. 56:21–58:1 (McMillen) (emphasis added).

57 See JX 51 at 56–64 (compiling photos). 

58 See JX 7 (stating the “vessel is in excellent condition without qualifications as to the age of the 

vessel”); JX27 ¶ 2(d) (admitting that the loan was “fraudulently induced” through “fraudulent 

misrepresentation”).

59 JX 51 at 15. 

60 May 11, 2016 Default Option Hearing Tr. 301:12–22 (McCann).
18

Silversmith sent in 2014 where he stated “the estimated replacement cost of the hull 

is $2.5 MM.”

61

 I find a deduction of $2,750,100 to put the hull in the Contractual 

Condition appropriate.

Silversmith was required to maintain the Sequoia in the Contractual 

Condition, “ordinary wear and tear excepted.”

62

 Silversmith argues that rotted 

structural members requiring a hull rebuild are the type of “ordinary wear and tear” 

which the contract meant to exclude. His argument is contrary to the record and to 

common sense. Silversmith’s expert, McCann, had no opinion on what aspects of 

the Sequoia’s degradation, if any, would be considered “ordinary wear and tear” 

even though he agreed that it is a term of art in the industry.63 McMillen testified 

that “wear and tear” is a term of art—it refers in these circumstances to conditions 

that develop between the times regular maintenance is performed—paint work and 

bright work that need periodic renewal, for instance.64 In other words, Silversmith 

would not be in breach of contract because a paint job done yearly was in need of 

renewal in month eleven. The purpose of the Contractual Condition provision was 

to require Silversmith to maintain the condition, and thus the value, of the Sequoia 

as collateral for FE Partners’ loan. Excepting, as wear and tear, the complete loss of 

 

61 JX 31. 

62 JX 12 § 2.9 (emphasis added). I note that the Loan Agreement modifies its wear and tear 

provision with the word “reasonable,” rather than the word “ordinary” used in the Mortgage 

Agreement. See JX 13 § 5.7.

63 May 11, 2016 Default Option Hearing Tr. 272:4–13 (McCann).

64 See id. at 73:14–74:23 (McMillen).
19

structural integrity of the Sequoia’s hull is irreconcilable with this purpose.

McMillen testified, and I am persuaded, that wear and tear could include some 

woodwork for “damage done docking” but “a hull that is tremendously degraded in 

structure is well beyond normal wear and tear.”65 I find the plain meaning of this 

wear and tear exception requires that repairs necessitated on account of ordinary use 

are “excepted,” however, structural damage or damage caused by neglect or 

negligence are not.66 

Although he offers no evidence that “ordinary wear and tear” refers to the 

Sequoia’s current degraded state, Silversmith cites Weeks Marine, Inc. v. Picone, 

Inc.,

67 for the proposition that “wear and tear” is an ambiguous term that in context 

can mean structural degradation.

68

 That case is unhelpful. Weeks involved a ship 

 

65 Id. at 151:13–52:5 (McMillen). McMillen opined that other ship systems on the Sequoia require 

expenditures to bring her to the Contractual Condition. Because the deduction of the hull repairs 

alone brings the Exercise Price to zero dollars, I have not considered those repairs or whether they 

would fall within the “wear and tear” exception. 

66 See Wear and Tear, Black's Law Dictionary (10th ed. 2014) (“Deterioration caused by ordinary 

use; the depreciation of property resulting from its reasonable use”); see also Moran Towing Corp. 

v. M. A. Gammino Const. Co., 363 F.2d 108, 114 (1st Cir. 1966) (noting that “[t]he effects of 

negligence are not wear and tear, and they do not become wear and tear merely because they may 

be anticipated”); Otto Candies, Inc. v. McDermott Int'l, Inc., 600 F. Supp. 1334, 1343 (E.D. La. 

1985) (noting that “[s]tructural damage, on the other hand, is not considered wear and tear and 

must be repaired in order for a vessel to be certified for ocean-going service”). 

67 1998 WL 717615 (S.D.N.Y. Oct. 14, 1998). 

68 See Pls’ Post-Hearing Opening Br. 43–45; Pls’ Ans. Br. 20. I note that even if I were to consider 

this term ambigious, and turn to extrinsic evidence I would find the most compelling evidence of 

the parties’ intent is informed by representations that the Sequoia was in excellent condition. See 

JX 7 at 7 (stating the “vessel is in excellent condition without qualifications as to the age of the 

vessel); JX 27 ¶ 2(d) (admitting that the loan was “fraudulently induced” through “fraudulent 

misrepresentation”). 
20

lease for a barge meant to carry heavy bulk loads, and the contract required her to 

be returned in the same condition delivered, “wear and tear” excepted.69 The Weeks

court, unremarkably, looked to what degradation of the vessel would be expected 

given her intended use during the lease period.70 Here, by contrast, Silversmith was 

obligated to keep the Sequoia in good repair to maintain its value as loan collateral, 

and the excepted wear and tear, as expressed above, referred to minor degradation, 

not failure of structural integrity. Weeks does not support Silversmiths’ argument 

that the cost of bringing the yacht into “good working order and repair” with regard 

to a hull rebuild must be reduced as excepted wear and tear. The cost of that required 

repair I find to be $2,750,100. Once that amount is deducted from the Exercise Price, 

that price is reduced to the agreed minimum, zero dollars.

B. Additional Deductions

FE Partners seeks dozens of other deductions pursuant to the Judgment Order 

and the Loan Documents, which I decline to address here because the Exercise Price 

is zero. In light of FE Partners’ statement that it would treat a zero dollar Exercise 

Price as a minimum, and in light of the fact that it has irrevocably exercised the 

 

69 Weeks, 1998 WL 717615, at *1–2.

70 See id. at *6–8. I note that the Weeks court gave weight to the fact that the item for which the 

plaintiff sought replacement, the deck plating, was already worn thin at the start of the lease. Id. 

Further, in Weeks, there were competing experts who testified to what reasonable wear and tear 

was in light of the barge’s use. Id. at *3–6. Under those circumstance the Weeks court was 

persuaded that requiring the proposed repairs on items that were already worn at the start of the 

lease would result in an “inequitable” “windfall.” Id. at *8. That is clearly not the case here. 
21

option, I make no finding as to whether the Judgment Order would have allowed FE 

Partners to both pursue recovery of contractual damages and to exercise a zero dollar

Exercise Price, nor do I determine whether any of its additional proposed offsets 

have merit.

III. CONCLUSION

The adjusted Exercise Price is zero dollars. The parties should provide a form 

of order consistent with this Letter Opinion, and inform me of any reason that this 

matter should not be closed.