COURT OF CHANCERY OF THE S AM G LASSCOCK III V ICE C HANCELLOR STATE OF DELAWARE C OURT OF C HANCERY C OURTHOUSE 34 T HE C IRCLE G EORGETOWN , D ELAWARE 19947 Date Submitted: May 5, 2014 Date Decided: June 12, 2014 Michael A. Weidinger Kevin M. Capuzzi Pinckney, Weidinger, Urban & Joyce LLC 1220 N. Market Street, Suite 950 Wilmington, DE 19801 John L. Reed Scott B. Czerwonka DLA Piper LLP (US) 1201 N. Market Street, Suite 2100 Wilmington, DE 19801

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

Dear Counsel: This case involves litigation over a loan agreemen t that was secured by the historic Sequoia presidential yacht. That agreemen t has been the subject of extensive proceedings, and the underlying facts hav e elsewhere been described. 1 The parties have now entered into a settlement agre ement under which the Plaintiff, Sequoia Presidential Yacht Group LLC, ha s voluntarily dismissed its claims against Defendant FE Partners, LLC, and agre ed to a default judgment on the Defendant’s counterclaims alleging breach of th e loan agreement. The loan agreement supplies an interest rate of 8.75%. 2 The parties agree that the contract rate governs interest on the loan prior to entry of a judgment, but dispute whether

1 See, e.g. , Sequoia Presidential Yacht Grp. LLC v. FE Partners, LLC , 2013 WL 3724946 (Del. Ch. July 15, 2013). 2 Def.’s Submission Regarding Post-Judgment Interest at 2.2

the contract rate, or the lower statutory interest rate under 6 Del. C. § 2301(a), governs post-judgment interest. I assume for purpo ses of this Letter Opinion, as did the parties in briefing this matter, that the l oan agreement in question is subject to Delaware law and governed by Section 2301 of Tit le 6 of the Delaware Code. Chapter 23 of Title 6 of the Delaware Code contain s Delaware’s usury law. 3 Specifically, Section 2301(c) governs the rate of i nterest that may be charged by

unlicensed lenders 4 of a sum greater than $100,000 not secured by a mo rtgage, while Section 2301(a) provides the rate of interest that may be charged by unlicensed lenders for loans falling outside of sub section (c). As stated since 2012, Section 2301 provides, in par t: (a) Any lender may charge and collect from a borrow er interest at any rate agreed upon in writing not in excess of 5% ove r the Federal Reserve discount rate including any surcharge there on. Where there is no expressed contract rate, the legal rate of in terest shall be 5% over the Federal Reserve discount rate including any sur charge as of the time from which interest is due; provided, that whe re the time from which interest is due predates April 18, 1980, the legal rate shall remain as it was at such time. Except as otherwise provided in this Code, any judgment entered on agreements governed b y this subsection, whether the contract rate is expressed or not, shall, from the date of the judgment, bear post-judgment intere st of 5% over the Federal Reserve discount rate including any surchar ge thereon or the contract rate, whichever is less.

3 See 6 Del. C. § 2304(a) (“Usury is the charge to a borrower by a lender, directly or indirectly, of a higher rate of interest than that permitted by law.”). 4 See 5 Del. C. § 2202(a) (“Every person desiring to transact the b usiness of lending money in this State shall be required to obtain a license . . . provided, however, that a person that makes not more than 5 loans within any 12-month period sh all be deemed not to be transacting the business of lending money. Except as otherwise pro vided by law, loans made by any such unlicensed lender shall fall under Chapter 23 of Ti tle 6.”).3

. . . (c) Notwithstanding any other provision in this cha pter to the contrary, there shall be no limitation on the rate of interest which may be legally charged for the loan or use of money, wh ere the amount of money loaned or used exceeds $100,000, and where re payment thereof is not secured by a mortgage against the pr incipal residence of any borrower. 5 At first blush, as the Plaintiff argues, subsection (a) of the 2012 statutory revision appears to reflect a legislative intent to limit po st-judgment interest to the lower of the legal rate of interest or the contract rate. H owever, the Section operates such that, for any loan under subsection (a) providing c ontractually for a particular interest rate, the interest rate post-judgment shall be the contract rate, so long as that rate is lawful (that is, 5% over the Federal R eserve discount rate or less). In other words, where the parties have agreed to a (no n-usurious) interest rate in a loan agreement, under subsection (a), post-judgment interest continues to accrue at this agreed-upon rate. In fact, the current version of the statute is iden tical in its effect to the April 18, 1980 version, which provided (in language perha ps clearer than the current statute): (a) The legal rate of interest on a judgment shall be at any rate expressed in the contract sued upon, or where there is no expressed contract rate, a 5% over the Federal Reserve discou nt rate including any surcharge, on the date of judgment, charged by the Federal Reserve Bank in the district encompassing the State of Delaware. Any lender may charge and collect from a borrower i nterest at any

5 6 Del. C. § 2301.4

rate agreed upon in writing not in excess of 5% ove r the Federal Reserve discount rate including any surcharge there on. 6 The April 1980 version of the statute was amended i n May 1980; that version of subsection (a) provided the same maximum interest r ate (5% over the Federal Reserve discount rate), and for post-judgment inter est “at the rate in the contract sued upon.” 7 The synopsis of the current version of the statut e—the 2012 revision—explains that the purpose of the amendment is to clarify that in “personal loans” governed by subsection (a), post-judgment in terest shall accrue at the “lesser of the legal interest rate or the contract rate”—in other words, at the nonusurious interest rate provided for in the applicab le loan agreement. The lawful rate of interest specified in a loan agreement gove rned by subsection (a) will always be less than or equal to the legal rate. The loan agreement at issue here falls not under su bsection (a), but under subsection (c), which states that “there shall be n o limitation on the rate of interest which may be legally charged for the loan or use of money, where the amount of money loaned or used exceeds $100,000 . . . .” 8 That subsection does not address the rate at which post-judgment interest accrues, b ut speaks only to the rate of interest that may be legally charged. Notwithstand ing the subsection’s silence on post-judgment interest, as noted above it is clear from the statutory scheme under

6 6 Del. C. § 2301(a) (Apr. 18, 1980). 7 6 Del. C. § 2301(a) (May 13, 1980). 8 6 Del. C. § 2301(c).5

subsection (a) that the legislature intended, in ci rcumstances where a lawful contract rate is specified, for the contract rate t o set the post-judgment interest rate. The only limitation on post-judgment interest in su bsection (a) is that the rate agreed upon must be no more than the “legal” rate; that restriction is explicitly absent from loans under subsection (c). Consistent with the legislative rationale expressed in subsection (a), the post-judgment inte rest rate should be that to which the parties lawfully agreed—here, 8.75%. 9 It is unclear to what extent I may exercise my disc retion to depart from a post-judgment interest rate consistent with Section 2301, 10 but in any event, I find

9 Where the interest rate agreed to lawfully exceeds the “legal” rate, there are policy reasons for allowing post-judgment interest at the contract rat e, as well as for limiting it to the legal rate. A s to the former, as the Defendant points out, the par ties have negotiated an interest rate consistent with the risks involved, and to allow the borrower to receive a lower rate on default incurs moral hazard. On the other hand, the risks inherent in t he loan are transmuted upon judgment to the difficulties of collecting that judgment, in which endeavor the lender will be aided by the mechanism of the state, and the legislature could c onclude that such a consideration warrants a lower interest rate post-judgment than that agreed to in the loan agreement. Having found that the legislative intent is consistent with applying, post-judgment, the agreed rate of interest, I have not addressed the policy considerations raised by t he parties in reaching my decision here. 10 See Summa Corp. v. Trans World Airlines, Inc ., 540 A.2d 403, 409 (Del. 1988) (“While the legal rate of interest has historically been the be nchmark for pre-judgment interest , a court of equity has broad discretion, subject to principles of fairness, in fixing the rate to be applied.”) (citations omitted) (emphasis added); Brandin v. Gottlieb , 2000 WL 1005954, at *29 (Del. Ch. July 13, 2000) (“In the Court of Chancery the legal rate is a mere guide, not the inflexible rule.”) (internal quotation marks omitted); Kirkpatrick v. Caines Landing Wildlife Pres. Ass’n , 1992 WL 383382, at *1 (Del. Ch. Dec. 15, 1992) (explaining that, in its discretion, the Court may segment pre- and post-judgment interest rates); but see Wilmington Country Club v. Cowee , 747 A.2d 1087, 1097 (Del. 2000) (“Delaware law provides that Post-Judgment Interest is a right belonging to the prevailing plaintiff and is not dependent up on the trial court’s discretion.”).6

no equitable reason to depart from it here. Accord ingly, I find that both pre- and post-judgment interest shall accrue at the agreed-u pon contract rate of 8.75%. 11 To the extent the foregoing requires an Order to t ake effect, IT IS SO

ORDERED. Sincerely,

/s/ Sam Glasscock III

Sam Glasscock III

11 Because I have determined that the contract rate p rovides the applicable post-judgment interest rate, I need not address the Defendant’s contention that the Plaintiff waived its right to argue that the lower statutory legal rate governs post-judgmen t interest. Further, I reject the Plaintiff’s contention that the Defendant waived its right to a rgue that the contract rate governs postjudgment interest.