Feb. 12 (Bloomberg) -- The owner of the former presidential yacht Sequoia and a lender agreed to a 60-day cease-fire in a dispute over a $5 million loan.
The lender FE Partners LLC agreed to a temporary restraining order during a hearing today with Delaware Chancery Court Judge Sam Glasscock III. The agreement keeps the status quo for 60 days while the case plays out in court, a lawyer for Sequoia’s owner Gary Silversmith and a spokesman for the lender said in separate e-mails. The agreement couldn’t immediately be verified in court documents.
The accord follows accusations by FE Partners that Silversmith’s Sequoia Presidential Yacht Group LLC outstanding debt and mounting legal violations triggered defaults on the loan.
“The plaintiffs’ concealment of their significant debts and their potential contingent liabilities constitute material breaches of the express warranties in the loan documents,” lawyers for FE Partners said in the Feb. 10 filing.
Silversmith, president of the partnership that bought the vessel in 2000, sued FE Partners in the same court on Feb. 1, accusing the lender of wrongfully attempting to seize the 88-year-old vessel in a dispute over its loan. The owners asked a judge to bar FE Partners, whose investors include an Indian business family, from laying claim to the 104-foot boat.
FE Partners funded only half the loan before manufacturing defaults in an attempt to seize the yacht, lawyers for the Sequoia partnership said in the complaint.
“This is their attempt to steal this boat by manufacturing false claims,” Larry Hutcher, an attorney for Silversmith with the law firm Davidoff Hutcher & Citron LLP, said today in a phone interview. “None of these things are true.”
L. Michael Cantor, a director for FE Partners, countered in an affidavit that the lender uncovered “a string of outstanding unpaid debts and legal violations,” triggering a modification to the loan agreement. The changes included an increase in the initial interest rate and a decrease in the price at which FE was entitled to purchase the Sequoia or Silversmith’s interest in the vessel.
The amended agreement also called for an additional 40 percent decrease in the purchase price if FE Partners gave notice of its intention to exercise its purchase option at the time of a default.
FE Partners claimed it was forced to issue multiple notices of default after discovering that Sequoia owed more than $28,000 in wages to crew members, faced $10 million in potential penalties for years of unpaid sales and property tax to the District of Columbia and had been selling alcohol for more than a decade aboard the vessel without a liquor license.
Each of the defaults “represented serious violations of the parties’ agreement,” FE Partners said in the filing.
“They exposed the Sequoia venture to potentially hundreds of thousands of dollars of liability, if not more, and possible actions by local and federal governmental authorities,” the lender said in court papers.
For many of the defaults, the Sequoia owners either failed to dispute the core facts or failed to respond at all, according to the filing.
Hutcher denied the allegations, noting that the money owed to crew were for bonuses not yet due. There is no lien filed by the District of Columbia and no claims were ever asserted against Silversmith and the Sequoia group for illegal alcohol sales, Hutcher said.
“It’s shameful that they are resorting to these types of claims to justify their own wrongful conduct,” he said.
FE Partners paid about $2.5 million to a prior lien holder but failed to fund the remainder of the first tranche of the $5 million loan due on July 6, 2012, Hutcher said. FE Partners also didn’t fund the second tranche of the loan.
Hutcher said earlier today that Silversmith was seeking a court order forcing FE Partners to accept full payment of the monies paid out so far and release its lien against the Sequoia so that a new lender could be found.
The temporary restraining order agreed to by both parties bars FE Partners from taking any action for 60 days, Hutcher said in an e-mail. Lawyers will decide on a schedule for gathering pre-trial evidence later this week, Hutcher said.
Built in 1925, the Sequoia served as the official presidential yacht for 50 years before former President Jimmy Carter, a Democrat, sold the vessel in 1977 as part of an effort to cut governmental expenses. The wooden-hulled yacht was designated as a National Historic Landmark in 1987.
The Sequoia served more than nine presidents including Harry Truman, who was allegedly on board when he decided to drop the atomic bomb on Hiroshima, according to a history of the vessel on the Sequoia group’s website. President Dwight D. Eisenhower allowed Britain’s Queen Elizabeth to use the yacht during a visit, and Winston Churchill spent time with Franklin D. Roosevelt on the Sequoia.
Truman once became so enraged during a poker game that he damaged a table with a cigar cutter, according to the Sequoia website. He later installed a piano in the main salon where he and Richard Nixon both played.
Nixon used the Sequoia on at least 88 occasions often sailing down the Potomac River to Mount Vernon. During Watergate, he allegedly believed the vessel was bugged and demanded that an electronic shield be built around the entire yacht requiring small pinholes drilled six inches apart on the entire railing, according to the Web site.
President John F. Kennedy, the crew’s favorite, also celebrated his last birthday on the yacht, according to the history.
The case is Sequoia Presidential Yacht Group LLC v. FE Partners LLC, CA 8270, Delaware Chancery Court (Wilmington).
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