Golden Gate Yacht Club v. Société Nautique de Genève

55 A.D.3d 26, 865 N.Y.S.2d 1

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: July 29, 2008
• Status: Published

Opinions

OPINION OF THE COURT

DeGrasse, J.

Defendant Société Nautique de Geneve (SNG) appeals from an order that, insofar as is relevant to this appeal, declared plaintiff Golden Gate Yacht Club (GGYC) the Challenger of Record for the upcoming America's Cup race and invalidated the challenge by which such status was claimed by intervenordefendant Club Náutico Español de Vela (CNEV).

The America’s Cup is a silver cup trophy that constitutes the corpus of a charitable trust created in the 19th century under New York law (see Mercury Bay Boating Club v San Diego Yacht Club, 76 NY2d 256, 260 [1990]). The Cup was first won in 1851 by the yacht America in a race around the Isle of Wight. George L. Schuyler, the sole survivor of the Cup’s six owners, donated the trophy to the New York Yacht Club by Deed of Gift dated October 24, 1887 on condition that it be preserved “as a perpetual Challenge Cup for friendly competition between foreign countries.” The America’s Cup competition has become one of the world’s premier international sporting events. Under the Deed, the holder of the Cup becomes its sole trustee, to be succeeded only by a successful challenger in a race at sea. The Cup has been defended 32 times since the inception of the competition. SNG, the current trustee or Defender, won the Cup on March 2, 2003 in the 31st America’s Cup match and defended its title on July 3, 2007 in the 32nd America’s Cup match. Pursuant to the Deed of Gift:

“Any organized Yacht Club of a foreign country, incorporated, patented, or licensed by the legislature, admiralty, or other executive department, having for its annual regatta an ocean water course on the sea, or on an arm of the sea, or one which combines both, shall always be entitled to the right of sailing a match for this Cup, with a yacht or vessel propelled by sails only and constructed in the country to which the Challenging Club belongs, against any one yacht or vessel constructed in the country of the Club holding the Cup.”

The Challenger of Record is the first club to issue a challenge with respect to a given America’s Cup. Under the Deed, the Challenger of Record must meet the annual regatta requirement, which will be discussed hereinafter, and must be (1) organized as a yacht club, (2) foreign, and (3) incorporated or licensed by its government. The Deed requires the Challenger of Record to give 10 months’ written notice of the days for the proposed races, with the proviso that no race shall be held between November 1 and May 1 in the Northern Hemisphere or between May 1 and November 1 in the Southern Hemisphere. The 10 months’ notice must detail the name, ownership, rig, and specified dimensions of the challenging vessel. The Deed precludes the Defender from entertaining any other purported challenge of record while the challenge of a qualified Challenger of Record is pending. Once a challenge is accepted, the Defender and the Challenger of Record may, under the Deed, set the conditions of the competition as follows:

“The Club challenging for the Cup and the Club holding the same may, by mutual consent, make any arrangement satisfactory to both as to the dates, courses, number of trials, rules and sailing regulations, and any and all other conditions of the match, in which case also the ten months’ notice may be waived.”

Through this “mutual consent” provision, every America’s Cup match since 1970, save one, has been an event in which challengers from different countries competed in an elimination series for the opportunity to have a one-on-one race with the Defender (see Mercury Bay Boating Club at 262). The Deed provides for a three-race match between the Defender and the Challenger of Record in the event of the parties’ inability to agree upon the terms of a match. In such a case, the Defender chooses the courses of the races as well as the applicable race rules and sailing regulations. The winner of two of the three races is entitled to the Cup. In the last 38 years, only the 27th America’s Cup match, held in 1988, was conducted as a two-boat race because the parties could not agree on terms. The 27th Cup match was also the subject of the Court of Appeals’ decision in Mercury Bay Boating Club v San Diego Yacht Club (76 NY2d 256 [1990], supra).

On July 3, 2007, immediately after its victory in the 32nd Cup match, SNG accepted CNEV’s formal challenge for the 33rd Cup match. By way of background, CNEV was incorporated as a sporting association under the laws of the Valencia region of Spain on June 19, 2007, by Real Federación Española de Vela (RFEV).¹ Established under Spanish law in 1990, RFEV is not a yacht club but a federation of sports clubs and individuals who promote the sport of sailing. Nevertheless, it competed in the challenger elimination series for the 32nd America’s Cup. CNEV was incorporated for the express purpose of challenging for the 33rd Cup and avoiding lingering controversy regarding the capacity of a sailing federation, such as RFEX( to become a challenger and potential trustee under the Deed of Gift. Upon acceptance of CNEV’s challenge, and in keeping with the Deed’s “mutual consent” provision, SNG and CNEV entered into a protocol setting out the terms of the 33rd America’s Cup match. When it filed its challenge, CNEV had not held an annual regatta. By letter to SNG dated July 11, 2007, GGYC, the Challenger of Record for the 32nd America’s Cup, disputed CNEV’s challenge as follows:

“We respectfully submit that the challenge is invalid. Among other deficiencies, it is not from a bona fide yacht club, but from an entity organized in the form of a yacht club only a few days before the challenge was accepted by SNG and which has never had an annual regatta on an open water course on the sea or an arm of the sea as required by the Deed of Gift. It is also apparent that this ‘Challenger of Record’ has not performed any of the duties of the Challenger as contemplated by the Deed of Gift, but has simply delegated to the Defender the authority to determine all of the ‘conditions’ governing the match. This undermines the fundamental purpose of the Deed of Gift to preserve this competition as a Challenge Cup.”²

GGYC proffered its own purported challenge with the letter and demanded recognition by SNG as the Challenger of Record for the 33rd America’s Cup match. By its Notice of Challenge, GGYC proposed July 4, 2008 as the date of the first race and July 6 and 8, 2008 as the dates for the second and, if necessary, third races.

On July 20, 2007, invoking the arbitration provision of the protocol it entered into with CNEV SNG applied to the 33rd America’s Cup Arbitration Panel for a determination regarding CNEV’s challenge. SNG’s arbitration petition reads as follows:

“There has been issued raised [sic] by prospective competitors in the 33rd America’s Cup, including the Golden Gate Yacht Club, as to the validity of the challenge of Club Náutico Español de Vela. SNG as Trustee of the America’s Cup makes an application to the Panel for a declaration that the challenge received from Club Náutico Español de Vela on 3rd July 2007 and accepted by SNG on the same date, is a valid challenge under the terms of the Deed of Gift of 24th October 1887, and that SNG is obliged to meet that challenge under the terms of the Deed of Gift.”

July 20, 2007 is also the date on which GGYC commenced this action alleging that SNG breached the Deed of Gift and its fiduciary duty as trustee by accepting CNEV’s challenge. GGYC contended that CNEV’s challenge is invalid under the Deed because it was made when CNEV (1) was not an organized yacht club and (2) had not conducted an annual regatta. SNG moved and GGYC cross-moved for summary judgment with respect to the entire complaint. The motion court denied SNG’s motion and granted GGYC’s cross motion, vacating CNEV’s challenge on the ground that CNEV had failed to meet the Deed’s annual regatta requirement. Having made that determination, the motion court found it unnecessary to reach the question whether CNEV was an organized yacht club. SNG subsequently moved for leave to renew and reargue, asserting that GGYC’s challenge is deficient, based upon its description of its vessel. The court denied that motion (2008 NY Slip Op 30782[U]). An order incorporating the motion court’s determination was entered on May 13, 2008 (2008 NY Slip Op 32296[U]). Noting that SNG’s 10-month preparation period had been interrupted by this litigation, the court directed that the first challenge match race be held 10 months from the date of service of a copy of its order with notice of entry and that the second be held two business days thereafter and the third, if necessary, two business days after that. The court further directed that the 33rd America’s Cup match be held in Valencia, Spain, the venue designated upon SNG’s acceptance of CNEV’s challenge, or at a different location upon notice prescribed by the order.

This appeal turns on the meaning of the words “having for its annual regatta” as used in the Deed of Gift. In making its determination, the motion court found that the phrase is “plainly understood to mean that it is an on-going activity; the activity has taken place and is continuing” (18 Misc 3d 1111[A], 2007 NY Slip Op 52496[U], *7). The court further found that the phrase “implies that the organization has had one or more regattas in the past, and will continue to have them in the future” (id.). Accordingly, the court reasoned that CNEV was not a qualified Challenger of Record because it had not held an annual regatta as of the date of its challenge. The Deed of Gift, a trust instrument, “is to be construed as written and the settlor’s intention determined solely from the unambiguous language of the instrument itself’ (Mercury Bay Boating Club, 76 NY2d at 267). As SNG would have it, the annual regatta requirement can be satisfied where the yacht club “intends to hold an annual regatta and does so prior to the date of its proposed match.” GGYC disputes SNG’s construction, arguing that “ ‘[Waving’ as commonly used in the law does not mean ‘not having now.’ It means ‘possess.’ And, in this context, it means, ‘possess’ an annual regatta.” GGYC’s argument is untenable because, as a matter of standard English usage, the noun “regatta” cannot be the proper object of the verb “possess.”

The record includes an excerpt from An English Grammar For the Use of High School, Academy, and College Classes, by W. M. Baskervill and J. W. Sewell (1896). According to this treatise, participles, such as “having,” are verbals that “express action in a general way, without limiting the action to any time, or asserting it of any subject.” ‘Participles “cannot be divided into tenses (present, past, etc.), because they have no tense of their own, but derive their tense from the verb on which they depend.” An example given in the treatise is “fulfilling,” which depends on the past-tense verb, “walked,” in the following: “He walked conscientiously through the services of the day, fulfilling every section the minutest, etc.” A further example is “dancing,” which depends on a present-tense verb in the following verse:

“Now the bright morning star, day’s harbinger, Comes dancing from the East.”

In accordance with the foregoing, “having for its annual regatta” can only be interpreted through strained English usage. If explicable at all, the phrase is subject to conflicting interpretations. We therefore hold that the Deed of Gift’s annual regatta requirement is ambiguous. GGYC argued below that the participle “having,” in the Deed, derives its tense from the words “shall always be entitled.” “Shall,” however, is a word used to form the future tense (Lutz and Stevenson, The Writer’s Digest Grammar Desk Reference § 1C, at 16-17). Accordingly, GGYC’s argument only confirms the ambiguity of the annual regatta requirement.

A court may resort to extrinsic evidence to construe an ambiguous provision of a trust instrument (see Mercury Bay Boating Club, 76 NY2d at 267). In this instance, the Cup’s recent history is a source of relevant extrinsic evidence. SNG challenged for the 31st America’s Cup by letter to the Royal New Zealand Yacht Squadron (RNZYS), the then trustee, on August 18, 2000. SNG, a Swiss yacht club, is situated on Lake Geneva and, as of the date of its challenge, had never held a regatta on an ocean water course, as required by the Deed. As a precautionary measure, SNG and RNZYS applied to the 31st America’s Cup Arbitration Panel (ACAP 31) for a ruling regarding the validity of SNG’s challenge and “seeking interpretations of the Deed of Gift relating to the criteria for future challengers by yacht clubs not located on the sea or an arm of the sea.” ACAP 31 received submissions from three other yacht clubs, including the New York Yacht Club, none of which disputed the validity of SNG’s challenge. ACAP 31 resolved the issue by determining that the Deed of Gift has no provision requiring the annual regatta to have been held prior to the lodging of a challenge. GGYC attempts to dismiss ACAP 31’s decision as “unremarkable” because SNG was not the Challenger of Record for the 31st Cup but merely a so-called “Mutual Consent Challenger.” However, the Deed itself makes no such distinction with respect to the annual regatta requirement. Adoption of the distinction would mean that a yacht club, such as SNG in 2000, could win the Cup, serve as its trustee, and defend it, but lack the capacity to be a Challenger of Record. Nothing in the Deed of Gift calls for such an incongruous result.

As noted above, the motion court did not address GGYC’s argument that CNEV is not an “organized Yacht Club,” a status required but not defined by the Deed. An entity is “organized” if it has taken all steps “necessary to endow [itself] with the capacity to transact the legitimate business for which it was created” (Matter of Corporation of Yaddo, 216 App Div 1, 5 [1926]). According to its certificate of incorporation, CNEV was incorporated as a sports entity whose purpose is to support “sports activities practiced on the sea, and especially to promote the sport of sailing by organizing national and international regattas held in national territory.” It has an address, bylaws and a board of directors. In addition, as indicated it is registered with the Valencian Registry of Sports Organizations. Based upon the foregoing attributes, we hold that CNEV was organized as a yacht club at the time of its challenge. GGYC cites no authority to support its argument that a yacht club must have vessels to be organized. Therefore, CNEV met the Deed of Gift’s organizational and annual regatta requirements. In light of the foregoing, we need not reach the issue whether GGYC’s purported challenge was deficient.

Accordingly, the orders of the Supreme Court, New York County (Herman Cahn, J.), entered March 18, 2008 and May 13, 2008, which, inter alia, declared CNEV’s challenge invalid and GGYC the Challenger of Record under the Deed of Gift, should be reversed, on the law, with costs, CNEV declared the Challenger of Record, and, in keeping with the Deed of Gift’s requirement that the Defender be given at least 10 months’ written notice to prepare for the challenge, the 10-month notice period should be tolled until service of a copy of this order.

1 . CNEV was duly registered with the regional Registry of Sports Organizations (Registro de Entidades Deportivas de la Comunitat Valenciana) on June 28, 2007.

2 . CNEV subsequently held its regatta on November 24 and 25, 2007 in Valencia, Spain.