Golden Gate Yacht Club v. Société Nautique de Genève

Nardelli, J.

(dissenting). Because I find, inter alia, that the motion court properly concluded that the relevant wording of the Deed of Gift is unambiguous and, therefore, that the challenge of Club Náutico Español de Vela is invalid, I respectfully dissent.

The America’s Cup1 is a silver trophy which is the corpus of a charitable trust, having derived its name from the schooner America, which won a yacht race around the Isle of Wight against numerous British challengers in 1851. The six owners of America and the Cup donated it to the New York Yacht Club in 1857, but it was twice returned to George Schuyler, the sole surviving Cup donor, when questions arose regarding the terms *34of the trust under which the Cup was to be held. In 1887, Schuyler again donated the Cup to the New York Yacht Club pursuant to the current Deed of Gift (Deed), dated October 24, 1887,2 3“upon the conditions that [the Cup] shall be preserved as a perpetual Challenge Cup for friendly competition between foreign countries.”

The Deed provides that the holder of the Cup is its sole trustee until such time as a successful challenge is mounted by a qualified challenger.3 The Deed specifically delineates what criteria must be met for a yacht club to be considered an eligible challenger, and therefore entitled to challenge for the Cup, and it is that provision, which follows, that is at the core of the current controversy:

“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” (emphasis added).

The first club that issues a challenge provides the defender with 10 months’ written notice (Notice of Challenge), names the days for the proposed race in accordance with the Deed restrictions,4 **and provides certain technical information about the challenging vessel, becomes the Challenger of Record. As noted by the Court of Appeals in Mercury Bay (76 NY2d at 261), there is nothing in the Deed which limits the design of the defending club’s vessel other than the length on water-line limits applicable to all competing vessels. Further, the vessels are not limited to monohulls, and there is no requirement that the vessel defending the Cup have the same number of hulls as the challenger, or even that the competing vessels be substantially similar.

*35The Deed gives the defending club and the Challenger of Record the freedom to promulgate all of the particular details of the races, and states that the parties “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.” Historically, the defender and the Challenger of Record have, pursuant to the foregoing provision, come to terms and issued an agreed-upon protocol which, inter alia, allows for other yacht clubs, as “Mutual Consent Challengers,” to participate in an elimination regatta for the right to race the defender. In the event the parties cannot mutually agree upon the terms of a match,5 “then three races shall be sailed, and the winner of two of such races shall be entitled to the Cup.” The Deed provides the terms and conditions for such a one-on-one match.

Finally, the Deed provides that “when a challenge from a Club fulfilling all the conditions required by this instrument has been received, no other challenge can be considered until the pending event has been decided.”

Defendant Société Nautique de Genéve (SNG) is a Swiss yacht club and the Cup’s current defending club and trustee, having, through its Team Alinghi, initially won the 31st America’s Cup on March 2, 2003, and thereafter successfully defended its title in the 32nd America’s Cup match on July 3, 2007. Plaintiff Golden Gate Yacht Club (GGYC) was the Challenger of Record for the 32nd America’s Cup in which 12 yacht clubs raced, although it was eliminated in the challenger series and did not compete in the final match.

Initially, Real Federación Española de Vela (RFEV), a Spanish sailing federation, contemplated becoming the Challenger of Record for the 33rd America’s Cup, but was advised by its lawyers that because it was a federation of yacht clubs, and not a yacht club itself, its status of Challenger of Record could be disputed. Accordingly, in an attempt to sidestep controversy, RFEV incorporated defendant Club Náutico Español de Vela *36(CNEV) on June 19, 2007® as a private Spanish sports club, with unlimited duration, for the purpose of promoting sailing practices through the organization of national and international regattas and to organize at least one regatta per year in the open sea.

On July 3, 2007, CNEV tendered a formal Notice of Challenge for the 33rd America’s Cup, asserting that it was a valid challenger under the terms of the Deed, in that it was a foreign yacht club organized under Spanish law and that it agreed to hold two annual regattas prior to the racing of the 33rd America’s Cup match. SNG accepted CNEV as the Challenger of Record on the same day, and on July 5, 2007, the parties publicly released “The Protocol Governing the Thirty-Third America’s Cup” (Protocol).

While a number of international yacht clubs signed on to the Protocol shortly after its publication,6 7 an equal or greater number of clubs signed a letter which not only condemned the Protocol as “the worst text in the history of the America’s Cup and more fundamentally [because] it lacks precisely the mutual consent items which are required,” but also questioned the legitimacy of the “newly created and purely instrumental entity” CNEV “to advance a Challenge under the provisions of the Deed of Gift.” The letter further propounds that the Protocol so heavily favors the Defender by shifting the balance of the competition in its favor that it “jeopardizes the . . . survival of the event.”

GGYC, on July 11, 2007, issued its own formal Notice of Challenge, noting that it:

“(a) is incorporated in the United States of America, in the State of California;
“(b) maintains a membership of more than 200 members;
“(c) operates as a yacht club and has objectives consistent with the furtherance of yachting activities;
“(d) is a member of our national sailing authority, US SAILING; and
*37“(e) has an annual regatta, the Sea Weed Soup Perpetual Trophy that, among other GGYC regattas, is and has been held annually on an arm of the sea, namely San Francisco Bay.”

Accordingly, GGYC contended that it is an organized yacht club that fulfills all of the conditions of a Challenger of Record under the terms of the Deed.

SNG, by letter dated July 23, 2007, formally rejected GGYC’s challenge, stating that it had already received a valid challenge from CNEV and that the Deed barred consideration of GGYC’s challenge until the pending challenge of CNEV has been decided. In the interim, on July 20, 2007, SNG commenced an arbitration proceeding pursuant to the arbitration provisions of the Protocol,8 seeking a ruling as to the validity of CNEV’s challenge. The arbitration panel invited GGYC’s participation in the proceedings, but GGYC, by letter dated July 27, 2007, declined to do so, poignantly stating, inter alia, that:

“It is subterfuge to have SNG and CNEV’s hand picked arbitrators, replaceable at . . . their whim, sitting in a forum and under rules wholly controlled by SNG and CNEV and judging an issue that the parties to the arbitration do not dispute. The disgrace and shame brought upon the America’s Cup by this charade threatens to inflict a crippling blow to the sport. This arbitration, if it chooses to proceed, will not and cannot have any involvement from GGYC, and will be viewed with the same disdain by the public and sailing community as CNEV’s sham regatta.”

On September 10, 2007 the panel ruled that CNEV qualified as a valid Challenger of Record and that the Deed did not require that an annual regatta have been held prior to the issuance or acceptance of a newly formed yacht club’s notice of challenge.

GGYC, on the same date that SNG had initiated the arbitration proceeding, commenced the within action against SNG by *38the service of a summons and verified complaint, which interposed two causes of action. The first cause of action sounds in breach of fiduciary duty and asserts that SNG, as trustee of the Cup, has a duty to enforce the terms of the Deed and that it breached that duty and engaged in self-dealing when it accepted CNEV’s challenge, and when it entered into the Protocol without engaging in the process set forth in the Deed’s “mutual consent” clause. The second cause of action, which alleges breach of the Deed, states that CNEV’s Notice of Challenge and challenges were invalid in that they failed to conform to the terms of the Deed. The complaint seeks9 a declaration that the purported challenge and the Protocol are void; a declaration that GGYC’s challenge is Valid; judgment enjoining SNG from promulgating rules and regulations pursuant to the Protocol and directing SNG to reject CNEV’s challenge; and judgment enjoining SNG to accept GGYC’s Notice of Challenge and to implement the terms of the Deed by participating with GGYC in the establishment of a protocol through a consensual process or, failing that, to proceed with a match under the express rules of the Deed.

SNG subsequently moved for summary judgment dismissing the complaint on the ground that CNEV satisfied all of the requirements of the Deed. GGYC opposed the motion and cross-moved for summary judgment in its favor, arguing that CNEV is not an “organized” yacht club and has not held an annual regatta10 as required by the terms of the Deed. GGYC contends that CNEV is controlled by RFEV and that it is a shell entity that has refused to identify its members, has no vessels, no telephone number other than that of the base facility of its racing team, and no Web site.

The motion court, in a memorandum decision dated November 27, 2007, dismissed GGYC’s cause of action for breach of fiduciary duty, but granted it summary judgment on its cause of action for breach of the terms of the Deed (18 Misc 3d 1111[A], 2007 NY Slip Op 52496[U]). The court found that the wording in the Deed, “having for its annual regatta,” requires that the challenging yacht club must have had one or more regattas in *39the past, and will continue to have them in the future. Since CNEV had not yet held an annual regatta at the time it issued its challenge, the court ruled that CNEV was not a qualified challenger under the terms of the Deed. Having reached that conclusion, the court did not reach GGYC’s alternative argument that CNEV is not an “organized” yacht club as prescribed by the Deed. Furthermore, the court ruled that GGYC’s Notice of Challenge comported with the requirements of the Deed and, therefore, that GGYC was the Challenger of Record. The court rejected SNG’s argument that GGYC should be denied such a declaration under the doctrine of unclean hands.

SNG subsequently moved for leave to renew and reargue the court’s decision on the grounds that the court improperly adjudicated the validity of GGYC’s challenge, as that issue was not properly before the court, and that in any event, GGYC’s challenge and certificate did not meet the requirements of the Deed. The court thereafter issued an order to show cause why GGYC’s challenge should not be declared invalid and noncom-pliant with the Deed. After conducting a hearing on the validity of GGYC’s challenge, the court consolidated SNG’s motion for renewal and reargument with its motion to declare GGYC’s Notice of Challenge invalid and denied both motions (2008 NY Slip Op 30782[U]). On or about May 12, 2008, the court issued an order reflecting the foregoing decisions, as well as a separate order directing that the 10-month notice period provided for in the Deed, which is designed to allow the defender to prepare for the race, should commence at the time the order was served (2008 NY Slip Op 32296CU]).

SNG appeals and I vote to affirm.

Clearly, the lynchpin on which this appeal turns is the interpretation to be afforded the phrase “having for its annual regatta” as it is used in the Deed. Our analysis, then, begins with the well established proposition that the settlor’s intent controls, and that “[l]ong-settled rules of construction preclude an attempt to divine a settlor’s intention by looking first to extrinsic evidence. Rather, the 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, 76 NY2d at 267 [citations omitted]; see also Matter of Piel, 10 NY3d 163, 166 [2008] [it is a “fundamental premise that a court must first look within the four corners of a trust instrument to determine the grantor’s intent”]; Central Union Trust Co. v Trimble, 255 NY 88, 93 [1930] [“We are to *40search, not for the probable intention of the settlor merely, but for the intention which the trust deed itself, either expressly or by implication, declares. We are to ascertain the intention from the words used and give effect to the legal consequences of that intention when ascertained”]).

As previously noted, the Deed sets forth an explicit framework within which a yacht club must fall to be considered an eligible challenger for the Cup. That provision expressly states:

“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” (emphasis added).

Giving the phrase “having for its annual regatta an ocean water course” its “plain and natural meaning” (Mercury Bay, 76 NY2d at 267), I am in agreement with Justice Cahn that such phrase plainly means that the organization must be in possession11 of an annual regatta or, stated another way, that it has held one or more annual regattas in the past and will continue to do so in the future. Indeed, in order to realize the interpretation propounded by SNG, the Deed would have had to state “having, or intending to have, for its annual regatta” but it does not, and to extrapolate that interpretation from the current language, in my view, strains its meaning beyond reason.

Moreover, taking into consideration the language of the foregoing provision in its entirety, it is clear that the donor’s intent was to allow for challenges for the Cup from established yacht clubs that regularly hold annual regattas and not from a club merely organized just for the purpose of challenging for the Cup, without any experience in holding a regatta of this magnitude. While, as a sailing federation, RFEV may very well be capable of organizing and carrying out such an event as a Cup race, that is simply not what the Deed requires and, in my view, it is error to hold otherwise.

*41To the extent that SNG argues custom and practice in that other challengers which had never held annual regattas were permitted to sail for the Cup in the past,12 while this is so, those clubs were Mutual Consent Challengers that qualified under the Protocol promulgated by the defender and the Challenger of Record at that time and, thus, fall outside the requirements of the Deed, which only delineates the criteria for the Challenger of Record and leaves “any and all other conditions of the match” to the Challenger of Record and the current trustee. Indeed, the elimination series, which allows for challengers in addition to the Challenger of Record, appears to be a relatively recent development in the history of the Cup, having been instituted in the late 1950s by the New York Yacht Club (see Mercury Bay, 76 NY2d at 262).

I am also in agreement with the motion court that GGYC’s Notice of Challenge is in compliance with, and therefore valid under, the provisions of the Deed. In Mercury Bay, the Court of Appeals noted that the Deed “broadly defines the vessels eligible to compete in the match” (76 NY2d at 266), and “permits the competitors to both construct and race the fastest vessels possible so long as they fall within the broad criteria of the deed . . . [which document makes it] clear that the design and construction of the yachts as well as the races, are part of the competition contemplated” (id. at 269).

Here, GGYC’s notice and certificate contain all the information required by the Deed, although SNG takes issue with GGYC’s description of the challenging vessel in the certificate as a “keel yacht” while specifying dimensions suggestive of a multi-hulled vessel, such as a catamaran, thereby creating an ambiguity and rendering the challenge invalid. It is clear, however, that even if the certificate contained a possible ambiguity, SNG was not at any time actually confused or misled by the certificate, as the record indicates that SNG fully understood that GGYC was going to race a catamaran. The general counsel of SNG’s representative racing team, in an affidavit submitted in support of SNG’s motion for summary judgment, averred that the dimensions delineated in the certificate “can only be for a multi-hulled vessel—presumably a catamaran,” while not referring to any confusing or inconsistent language on that *42point. Moreover, SNG’s protestations of confusion are belied by its own reply brief in which SNG acknowledges that GGYC has proposed to compete with a “catamaran goliath.”

Accordingly, since SNG has failed to raise any material issues of fact, I find GGYC’s Notice of Challenge valid.

Moskowitz and Acosta, JJ., concur with DeGrasse, J.; Saxe, J.E, and Nardelli, J., dissent in a separate opinion by Nardelli, J.

Orders, Supreme Court, New York County, entered March 18, 2008 and May 13, 2008, reversed, on the law, with costs, Club Náutico Español de Vela declared the Challenger of Record, and the 10 months’ notice period tolled until service of a copy of this order.

. The following historical background of the America’s Cup has been gleaned from the decision of the New York State Court of Appeals in Mercury Bay Boating Club v San Diego Yacht Club (76 NY2d 256 [1990]), as well as from those parts of the parties’ submissions which are undisputed.

. The Deed was amended by two orders of the New York State Supreme Court, dated December 17, 1956 and April 5, 1985.

. The Deed also provides a mechanism for the transfer of the Cup “[slhould the Club holding the Cup be for any cause dissolved.”

. Pursuant to the terms of the Deed, races must be scheduled between May 1 and November 1 if they are to be held in the Northern Hemisphere, and between November 1 and May 1 in the Southern Hemisphere.

. Since 1970, a multi-challenger match race has been conducted every three to four years, with the defending club and the Challenger of Record agreeing on a protocol, except for the 27th America’s Cup match, held in 1988, which resulted in a two-boat match and which eventually led to the Court of Appeals’ decision in Mercury Bay.

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

. SNG maintains that additional qualified yacht clubs have signed on to the Protocol since the summary judgment motions were filed in Supreme Court.

. Part D of the Protocol, entitled “DISPUTE RESOLUTION AND ENFORCEMENT,” provides, in relevant part, that “[a]ny dispute, protest or claim arising out of or in relation to this Protocol and/or the Applicable Documents . . . shall be resolved by arbitration in accordance with the provisions of this Protocol.” The Protocol at that time further allowed SNG and CNEV to privately select the arbitration panel members and to “dismiss and replace them ... at their discretion at any time.”

. CNEV subsequently sought, and was permitted, to intervene in this action. However, CNEV has made no submissions in connection with this appeal.

. Initially, SNG maintained that CNEV had held two regattas, one of which turned out to have been held for children, and the other of which SNG no longer argues qualifies under the Deed.

. See generally Webster’s Third New International Dictionary 1040 (2002 ed).

. The Mercury Bay Boating Club, which was a Challenger of Record, was apparently incorporated only nine months prior to its challenge, but was an established yacht club for approximately 40 years which held approximately 25 races per year.