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Golden Gate Yacht Club v. De Geneve

April 2, 2009


The opinion of the court was delivered by: Ciparick, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

This appeal involves the preeminent international sailing regatta and match race, the America's Cup. We had occasion once before to examine the charitable trust that governs the competition. In Mercury Bay Boating Club v San Diego Yacht Club (76 NY2d 256 [1990]), we strictly construed the provisions of the trust instrument, the Deed of Gift, to allow multihulled vessels to compete in the America's Cup race. Today, we are called upon to re-examine the Deed of Gift to determine the eligibility criteria for a Challenger of Record specifically whether the phrase "having for its annual regatta" requires a yacht club to hold an annual regatta on the sea prior to issuing its challenge (Deed of Gift, October 24, 1887, ¶ 4). We conclude that it does.

The story of the America's Cup begins on August 22, 1851, after the schooner yacht, America, entered a race against British sailing vessels around the Isle of Wight, winning a large silver cup. In honor of the winning boat, the trophy was christened the "America's Cup," which became the corpus of a charitable trust created under the laws of New York and donated pursuant to a Deed of Gift to the New York Yacht Club in 1857. The Deed of Gift establishes the rules governing the America's Cup and provides that the holder of the Cup becomes its sole trustee and is succeeded only by a successful challenger in a race at sea. The original Deed of Gift required only that the challenger be an "organized" yacht club.

During the first 30 years after its inception, problems arose with the administration of the competition. As a result, the America's Cup was twice returned to George L. Schuyler, the sole-surviving donor, after two disappointing America's Cup races were sailed by Canadian Great Lake yacht clubs under the command of Captain Alexander Cuthbert. Neither of the challenging vessels could withstand the rigors of open sea competition. The Countess of Dufferin, the first challenging vessel, was described as having "fresh water written all over her. . . [h]er hull lacked finish, being as rough as a nutmeg grater. . . and had little of the shipshape appearance expected of a cup challenger."*fn1 The Atalanta, the second challenging vessel, was also denounced by critics as being "a new yacht, hastily built, totally untried, and miserably equipped. . ."*fn2 To deal with this "unseaworthiness" issue, Schuyler amended the Deed of Gift with the intent of precluding Great Lakes yacht clubs from competing and reconveyed the America's Cup to the New York Yacht Club to hold in trust. In addition to requiring that a challenger be an "organized" yacht club, the amended Deed of Gift, dated October 24, 1887, added new eligibility requirements that a challenger must meet, including that it be "incorporated, patented or licensed by the Legislature, admiralty or other executive department, having for its annual regatta an ocean water course. . ." (Deed of Gift, October 24, 1887, ¶ 4). The Deed further provides that the Cup "shall be preserved as a perpetual Challenge Cup for friendly competition between foreign countries."*fn3

The Cup has been defended 32 times and it is the events that occurred after the conclusion of the 32nd America's Cup held on July 3, 2007, in Valencia, Spain, which give rise to this appeal. SociÉtÉ Nautique de GenÈve (SNG),*fn4 won the Cup on March 2, 2003, in the 31st America's Cup match and successfully defended its right to continue as trustee of the America's Cup in the July 3, 2007 race. Club NÁutico EspaÑol de Vela (CNEV),*fn5 on that very same day, submitted a Notice of Challenge to SNG for the 33rd America's Cup, which was accepted.

The Deed of Gift provides that once a Defender accepts a challenge, the two yacht clubs may negotiate and set the conditions of the next America's Cup competition through their mutual consent. Although not named as such by the Deed of Gift, the sailing community refers to the resulting agreement as the "protocol" and the challenging yacht club with the right to negotiate the protocol is called the Challenger of Record. Since 1970, other yacht clubs that wish to compete in the America's Cup have been allowed to participate in the race when the Defender and the Challenger of Record agree to such an arrangement and provide in their protocol for such participation. Traditionally, challengers that are allowed to participate based upon the mutual agreement of the Defender and the Challenger of Record pursuant to their resulting protocol, are known as Mutual Consent Challengers. However, should the Defender and the Challenger of Record fail to reach an agreement as to the terms under which they will race, the Deed of Gift contains a default match provision for a one-on-one race between the Defender and the Challenger of Record.

On July 5, 2007, SNG as the Defender and CNEV as Challenger of Record, published a protocol for the 33rd America's Cup setting forth the conditions of the competition that includes an arbitration provision to resolve disputes. On July 11, 2007, plaintiff Golden Gate Yacht Club (GGYC),*fn6 disputing the validity of CNEV's challenge, primarily on the basis that CNEV was not a bona fide yacht club formed only a few days before submitting its challenge and had never held an annual regatta, presented its own Notice of Challenge. SNG rejected GGYC's challenge on the basis that CNEV's challenge was first in time and since CNEV's challenge had already been accepted, no other challenge could be considered until after CNEV's challenge had been decided.

On July 20, 2007, SNG, seeking to resolve the validity of CNEV's challenge, initiated an arbitration proceeding pursuant to the dispute resolution mechanism provided for in the 33rd protocol. The 33rd America's Cup Arbitration Panel invited GGYC to participate in the arbitration. GGYC rejected the invitation and commenced this present litigation because it could participate in the arbitration, only by agreeing to the protocol, thereby exposing itself to possible disqualification at SNG's sole discretion. The Arbitration Panel ultimately found that the Deed of Gift does not require a challenging club to have held an annual regatta prior to issuing its Notice of Challenge and therefore CNEV's Notice of Challenge was valid. All parties concede that the arbitration decision is not binding upon us.

In the present action, GGYC alleges that SNG breached the Deed of Gift and its fiduciary duty as trustee by accepting CNEV's challenge because CNEV failed to comply with the challenger eligibility criteria set forth in the Deed of Gift since CNEV was not an organized yacht club and had never conducted an annual regatta*fn7. Both sides moved for summary judgment. Although Supreme Court dismissed GGYC's breach of fiduciary duty claim, it declared that the Notice of Challenge issued by CNEV was indeed invalid because CNEV failed to meet the Deed of Gift's eligibility requirements as it had not held an annual regatta on an ocean water course prior to submitting its Notice of Challenge to SNG. Supreme Court, strictly interpreting the Deed of Gift, declared GGYC to be the Challenger of Record. A divided Appellate Division reversed, holding the language of the Deed to be ambiguous and declaring the Notice of Challenge issued by CNEV valid, and CNEV the rightful Challenger of Record. GGYC appealed pursuant to CPLR 5601(a) dissent grounds and we now reverse.

In Mercury Bay, where we resolved a dispute regarding a type of vessel that arose relating to the 27th America's Cup match, we stated that the

"[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. It is only where the court determines the words of the trust instrument to be ambiguous that it may properly resort to extrinsic evidence" (id. 76 NY2d at 267).

The relevant provisions of the Deed of Gift, to be construed here at paragraph 4 provide that:

"[a]ny 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, ...

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