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African Diaspora Maritime Corp. v. Golden Gate Yacht Club

Supreme Court of New York, First Department

June 25, 2013

African Diaspora Maritime Corporation, Plaintiff-Appellant,
v.
Golden Gate Yacht Club, Defendant-Respondent.

Plaintiff appeals from an order of the Supreme Court, New York County (Barbara R. Kapnick, J.), entered January 18, 2013, which granted defendant's motion to dismiss the complaint.

McDermott Will & Emery LLP, New York (Andrew B. Kratenstein, Banks Brown and Audrey Lu of counsel), for appellant.

Boies, Schiller & Flexner LLP, New York (Philip M. Bowman and Julia C. Hamilton of counsel), for respondent.

Peter Tom, J.P., Rolando T. Acosta, Paul G. Feinman Darcel D. Clark, JJ.

ACOSTA, J.

The primary issue in this case is whether plaintiff, which submitted a timely application to compete in the upcoming America's Cup sailing regatta and was rejected, sufficiently pleaded a breach of contract claim to survive a CPLR 3211 motion to dismiss. Although defendant, the current trustee of the trophy, has discretion in selecting the defender, we find that plaintiff has alleged the existence of an enforceable contract between the parties and bad faith on defendant's part sufficiently to state a breach of contract cause of action. Contrary to the dissent's position, given the rules of the race, submission of an entry application with the appropriate fee binds defendant to review the application in good faith, and its failure to do so is a breach of contract. Whether plaintiff can ultimately establish its claim is irrelevant at this juncture since the sole consideration on a CPLR 3211 motion is whether the complaint sufficiently states a cause of action.

The America's Cup is governed by a Deed of Gift. The Deed of Gift is a trust instrument executed under the laws of New York State. The corpus of the trust is the well-recognized trophy, simple possession of which spurs the sailing competition.

Since the 1970s, the America's Cup has allowed boats from multiple nations to participate in America's Cup events. A formal, initial "Challenger" triggers each competition for the Cup. In accordance with the Deed of Gift, the winner of the preceding competition (the Defender) and the Challenger must agree on rules, i.e., a protocol, for the next competition. Accordingly, defendant, Golden Gate Yacht Club (GGYC), the winner of the 33rd America's Cup held February 14, 2010, and the nonparty Club Nautico di Roma (CNR), the challenger, agreed on "The Protocol Governing the 34th America's Cup" (the Protocol). Pursuant to the Protocol, additional participants from countries other than the country that holds the Cup are candidates for "Challenger"; additional participants from the country that possesses the cup are called "Defender-Candidates." Challenger candidates, as well as the Challenger, must engage in an elimination series called the "Louis Vuitton Cup" to determine which single boat, from a single foreign country, may vie to compete against the Defender for the Cup. Similarly, Defender candidates, potentially including the last winner of the Cup, may (but are not required to) have their own elimination series to deermine which organization's boat will represent the Defender's interest in a scheduled America's Cup event [1]. "Defender Candidate" is defined as "a team selected by GGYC to participate in the America's Cup Defender Series, if any."

Pursuant to the Deed of Gift, the Protocol states that the holder of the Cup (i.e., GGYC) acts as "trustee" in managing the Cup event, and must "act in the best interests of all Competitors collectively" and "not unreasonably favor the interests of any Competitor over another."

Plaintiff African Diaspora Maritime Corporation (ADM), a sailing organization based in North Carolina, alleges that on or about July 7, 2010, it contacted GGYC to inquire about applying to become a Defender Candidate in the 34th Cup. ADM was allegedly instructed by GGYC to contact the chairman of the America's Cup Committee, Tom Ehman. ADM claims that GGYC had already formed a "Competitor Forum" (for the purpose, as defined in the Protocol, of "consultation and communication with Competitors) and could have put ADM in contact with its liaison to the Competitor Forum, Anthony Romano. Instead, ADM claims that between July 8, 2010 and March 26, 2011, it contacted GGYC, through Ehman, on a monthly basis, seeking information about becoming a Defender Candidate. ADM alleges that GGYC exhibited a pattern of continuing avoidance, providing it with little information until it was almost too late for ADM to enter the 34th Cup as a Defender Candidate. On March 26, 2011, GGYC referred ADM to Romano, and Romano provided ADM with information critical to its application, which allegedly had been made available to the Competitor Forum months earlier.

On March 31, 2011, just one day before the deadline, ADM was able to submit an application to be considered as a Defender Candidate for the 34th Cup. Along with its application, ADM paid the required $25, 000 fee.

The Defender Application states in relevant part:

"(2) The Defender Candidate by this Notice hereby challenges for the 34th America's Cup in accordance with the Protocol Governing the 34th America's Cup dated 31 August 2010 as amended. The Defender Candidate hereby agrees to be bound by and undertakes to comply with the terms of the said Protocol and all other rules set forth in its Article 11, and any amendments to the Protocol or those rules.
"(3) Details of the Defender Candidate's corporate structure, registered business address and team management. We agree to provide further details of our challenge as GGYC may request to review and consider this application."

In paragraph (4) the Defender Application provides in relevant part that the Defender Candidate is bound by the terms of the Deed of Gift, the Protocol, and documents that are noted in Article 11 of the Protocol.

Article 8 of the Protocol, called "Acceptance of Defender Candidates, " provides:

"8.1 GGYC will accept applications to be a Defender Candidate from 1 November 2010 until 31 March 2011. There after, applications may be accepted at the discretion of GGYC upon such terms as it may determine. "8.2 Defender Candidates shall comply with the Protocol and shall submit the documents and fees as set out in Article 9. "8.3 GGYC will review Defender Candidate applications and will accept those it is satisfied have the necessary resources (including but not limited to financial, human, and technological) and experience to have a reasonable chance of winning the America's Cup Defender Series."

ADM alleges that from April 1, 2011 through April 15, 2011, GGYC falsely and repeatedly claimed that its application was deficient due to the lack of a signature and the lack of a document that evidenced payment of the $25, 000 fee.

ADM alleges that it met all other application requirements, inasmuch as it had, inter alia: (1) assembled a qualified sailing team; (2) secured the services of a renowned boat designer (Dave Pedrick); (3) lined up commitments of "several wealthy African-Americans" to fund ADM's pursuit of a defender opportunity; (4) organized "a plan" with North Carolina's Secretary of Commerce and the State's Department of Tourism "to build a boat park' in Raleigh"; and (5) had "detailed plans... to create a media frenzy around its team (for both publicity and fundraising efforts)." As for its sailing team, ADM alleges that it included "three Olympians, an All-American, [and] several additional talented, experienced, and award-winning sailors." Further, ADM alleges that other "world class African-American sailors intended to join ADM's campaign" if "GGYC accept[ed] ADM as a Defender Candidate." ADM alleges that Pedrick is "an America's Cup award-winning yacht designer."

ADM further alleges that GGYC informed it that since ADM did not have a contract with Pedrick (Pedrick had conditioned his participation with ADM on ADM's obtaining Defender Candidate status), the information in its application was not accurate. ADM alleges that GGYC's objections to its application were "technical objections" that were "groundless." For instance, ADM alleges, GGYC "twist[ed]" Pedrick's statement that he had a conditional arrangement with ADM to mean that Pedrick had "denied" his association with ADM. ADM alleges that emails from Pedrick to ADM, as well as an April 15, 2011 email from Pedrick to GGYC, establish Pedrick's intent to design for ADM.

By letter dated April 15, 2011, GGYC advised ADM that its application had been rejected. According to ADM, GGYC's stated reason was that it was "not satisfied that ADM has, or will have the necessary resources (including but not limited to financial, human, and technological) and experience to have a reasonable chance of winning the America's Cup Defender Series."

In December 2011, ADM commenced this action against GGYC alleging three causes of action: (1) breach of contract; (2) breach of trust; and (3) breach of fiduciary duty. With respect to the breach of contract claim, the complaint alleges that a contract was formed between ADM and GGYC when ADM accepted GGYC's offer/invitation to participate as a Defender Candidate. ADM asserts that its submission to GGYC of a completed Defender Candidate application, together with the $25, 000 required under the Protocol, constituted an acceptance of the Defender Candidate offer, and that GGYC's failure to review the application in good faith breached the contract.

ADM alleges that GGYC had no basis to claim a lack of "satisfaction" with its application, since ADM stated that it would provide further details upon request, and GGYC never attempted to verify the status of ADM's team, its proposed funding sources, or its proposed team's experience. ADM alleges that GGYC knew that potential competitors typically do not draw funding until they are granted competitor status. ADM also alleges that GGYC had provided material and financial help to some struggling competitors, such as yachts or design packages, but not to all competitors, thus breaching its duty to treat all competitors equally. ADM seeks compensatory damages and numerous forms of equitable relief, including an order directing GGYC to accept its application.

In May 2012, GGYC moved to dismiss the complaint pursuant to CPLR 3211(a)(1), (3) and (7), arguing, inter alia, that the complaint fails to state a cause of action.

As to the breach of contract claim, GGYC argued that the Protocol was a binding agreement between the Challenger (CNR) and itself only. At best, GGYC contended, the Protocol could be construed as a solicitation of bids, which, under New York law, would make a potential candidate's application the equivalent of an offer to participate in the Defender Series. Even assuming, arguendo, the existence of a binding contract between itself and ADM under the terms of the Protocol, GGYC further argued, ADM failed to show how it breached the terms of the Protocol in relation to ADM, since the Protocol expressly affords GGYC unfettered discretion to decide if an applicant meets the qualifications to compete. GGYC also argued that it gave ADM more than a fair opportunity to demonstrate its capacity to assemble a competitive, financially backed team that could compete in a Defender Series. GGYC stated that ADM did not allege that a proposed team member of ADM had ever competed in an America's Cup or that the ADM team had ever competed together on the same boat in a regatta. By contrast, GGYC noted, among the potential defenders for the 34th Cup, is Team Oracle, the victor in the 33rd Cup. Thus, GGYC argued, ADM's allegations failed to establish that its rejection of ADM's application was not reasonable and not in good faith. GGYC also argued that ADM failed to allege damages arising from a purported breach of contract, since, even if its application were accepted (based on an alleged contract), there was no guarantee that ADM would be selected as a Defender Candidate or that it would prevail in a Defender Series and win the 34th Cup.

ADM opposed the motion, arguing, inter alia, that it stated a contract claim by alleging that it accepted the offer in the Protocol for defender applications and submitted a completed application and the requisite $25, 000 fee. ADM argued that it did not have to allege that but for GGYC's wrongful rejection of its application it would have made a successful bid for the 34th Cup, and therefore was damaged, since GGYC's deprivation of its opportunity to compete constitutes compensable harm in and of itself.

By order entered January 18, 2013, the motion court dismissed the complaint in its entirety, with prejudice. Since we find that ADM stated a breach of contract claim, we modify the order to reinstate that claim.

The sole criterion for deciding a motion to dismiss a complaint pursuant to CPLR 3211(a)(7), "is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail" (Guggenheimer v Ginzburg, 43 N.Y.2d 268, 275 [1977]). As the Court of Appeals instructed in 511 W. 232nd Owners Corp. v Jennifer Realty Co. (98 N.Y.2d 144, 151-152 [2002]),

"In furtherance of this task, we liberally construe the complaint, and accept as true the facts alleged in the complaint and any submissions in opposition to the dismissal motion. We also accord plaintiffs the benefit of every possible favorable inference. Dismissal under CPLR 3211 (a)(1) is warranted only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law" [internal citations and quotation marks omitted]).

Indeed, "[w]hether a plaintiff... can ultimately establish its allegations is not taken into consideration in determining a motion to dismiss" (Philips S. Beach, LLC v ZC Specialty Ins. Co., 55 A.D.3d 493, 497 [1st Dept 2008] [emphasis added], lv denied 12 N.Y.3d 713 [2009]).

Here, viewing the alleged facts in the light most favorable to ADM, we find that the complaint states a breach of contract claim so as to avoid dismissal. "[T]he rules of a contest constitute a contract offer and... the participant's [entry into] the contest constitute[s] an acceptance of that offer, " creating a binding contract (Sargent v New York Daily News, L.P., 42 A.D.3d 491, 493 [2d Dept 2007] [internal quotation marks omitted]; see also Robertson v United States, 343 U.S. 711, 713 [1952] [contestant's acceptance of the contest sponsor's offer to compete in a symphonic works contest created an enforceable contract]).

Articles 8 and 9 of the Protocol set forth the procedure for applying to become a Defender Candidate in "definite and certain detail" by specifying the dates during which applications will be accepted and the required documentation and application fee, and Schedule Two to the Protocol provides applicants for Defender Candidate ("Defender Applicants") with the exact language that should be used in their applications (see Keis Distrib. v Northern Distrib. Co., 226 A.D.2d 967, 969 [3d Dept 1996] [internal quotations marks omitted]; see also Caride v Alonso, 78 A.D.3d 466, 467 [1st Dept 2010], lv dismissed in part, denied in part, 16 N.Y.3d 806 [2011]). Thus, the Protocol constituted an offer.

The duties that GGYC offered to undertake to an applicant that submitted the prescribed application along with the $25, 000 fee were also definite and certain. GGYC agreed to "review" the application and to accept the applicant as a Defender Candidate

if it was "satisfied" that the applicant had a "reasonable chance of winning" the America's Cup Defender Series. The Protocol's terms demonstrate GGYC's unequivocal intent to be bound by those terms.

The dissent attempts to distinguish Sargent (42 A.D.3d at 491) and Robertson (343 U.S. at 711) by noting that in those cases the plaintiffs had already won, while in the present case, "the applicant must first be approved by the defender to be qualified and then participate in a series of yacht races with the objective of winning the ACCS." The dissent misses the point. The Protocol in this case creates a mutual obligation between GGYC as trustee and Defender Applicants: a Defender Applicant is obligated to abide by the Protocol and GGYC is obligated to administer the Protocol in good faith (see Curtis Props. Corp. v Greif Cos., 212 A.D.2d 259, 265-266 [1st Dept 1995] ["courts avoid an interpretation that renders a contract illusory and therefore unenforceable for lack of mutual obligation and prefer to enforce a bargain where the parties have demonstrated an intent to be contractually bound"] [internal citation omitted]).

ADM accepted GGYC's offer by timely submitting its "Application of Defense" in the required form along with the required fee, thus creating an enforceable contract (see Robertson, 343 U.S. at 713; see also Kowalchuk v Stroup, 61 A.D.3d 118, 122 [1st Dept 2009]).

ADM's acceptance of GGYC's offer obligated GGYC to review ADM's application in "good faith" (Dalton v Educational Testing Serv., 87 N.Y.2d 384, 389 [1995] ["Where the contract contemplates the exercise of discretion, this pledge includes a promise not to act arbitrarily or irrationally in exercising that discretion"]; see also Peacock v Herald Sq. Loft Corp., 67 A.D.3d 442, 443 [1st Dept 2009] ["Even if the... agreement does not, on its face, set limits on the board's ability to refuse to approve the scope of work, the contract's implied covenant of good faith and fair dealing would prevent defendants from exercising that power arbitrarily"]); C & E 608 Fifth Ave. Holding, Inc. v Swiss Ctr., Inc., 54 A.D.3d 587, 588 [1st Dept 2008] ["exercise of an apparently unfettered discretionary contract right breaches the implied obligation of good faith and fair dealing if it frustrates the basic purpose of the agreement and deprives plaintiffs of their rights to its benefits"] [internal quotation marks omitted]). The dissent is correct in noting that our holding gives "expansive scope to Woody Allen's observation" that "eighty percent of success is showing up." Success, however, is accomplished in this case by having GGYC, as trustee of the Cup, review properly submitted applications in good faith. Thus, contrary to GGYC's and the dissent's contention, the contract did not give it unfettered discretion to reject ADM's application (see Dalton, 87 N.Y.2d at 389). Rather, GGYC had the discretion to reject applications which in good faith it deemed unsatisfactory. Moreover, whether GGYC acted in good faith is not appropriately decided on a motion to dismiss (see Peacock, 67 A.D.3d at 443 ["Whether defendants acted arbitrarily or unreasonably presents questions of fact"]).

ADM alleges facts sufficient to raise the question whether GGYC acted in bad faith. Specifically, ADM alleges that: GGYC attempted to sabotage its efforts to submit an Application of Defense by excluding it from the Competitor Forum, thereby preventing it from obtaining information critical to the application; GGYC initially sought to deny ADM's Application of Defense on various technicalities, including that it was not signed and did not include a document evidencing payment of the $25, 000 fee; GGYC falsely asserted that ADM had lied about its proposed team, claiming that Pedrick, ADM's yacht designer, had denied being a member of ADM's team; and GGYC falsely claimed that it rejected ADM's Application of Defense because it was not satisfied that ADM "[would] have the necessary resources" to compete, even though America's Cup teams do not obtain funding until after their applications are accepted.

We reject GGYC's argument that the complaint fails to allege damages. ADM does not have to plead that, had its Application been accepted, it would have beaten Team Oracle or won the Cup. Rather, denying ADM fair consideration of its application was harm in and of itself (see Dalton, 87 N.Y.2d at 393 ["Dalton is entitled to relief that comports with ETS's contractual promise -good-faith consideration of the material he submitted to ETS"]). As GGYC recognizes, under Dalton, "GGYC would... be required to consider ADM's application in good faith."

The dissent, citing Matter of Pollak v Conway (276 App Div 435, 437 [3rd Dept 1950], lv denied 301 NY 816 [1950]), notes that an organization "may set such standards for candidates as it deems appropriate" and that courts should decline to interfere in administrative matters. Although that may generally be true, the deed of trust has expressly made New York courts the arbiter of its disputes (see Mercury Bay Boating Club Inc. v San Diego Yacht Club, 150 A.D.2d 82 [1st Dept 1989], affd 76 N.Y.2d 256 [1990]; Golden Gate Yacht Club v Société Nautique de Genève, 55 A.D.3d 26 [1st Dept 2008], revd 12 N.Y.3d 248 [2009]; Golden Gate Yacht Club v Société Nautique de Genève, 68 A.D.3d 552 [1st Dept 2009]), and its Protocol guides this Court in deciding those disputes. In the end, this is a sporting competition, and the winner should be decided in the open waters, rather than in a courtroom. After all, it is not a competition if the defender wins by default (see Norimitsu Onishi, When Billionaire Sets Rules, It's an Exclusive Race, NY Times, June 4, 2013, § A at 1, col 2). Although plaintiff does not have the right to be deemed a challenger, it is entitled to have its timely submitted application reviewed in good faith.

ADM's remaining arguments have no merit since it has no basis for asserting a beneficiary interest in the charitable trust (see Alco Gravure, Inc. v Knapp Found., 64 N.Y.2d 458, 465 [1985]). Nor does it have standing to assert a breach of fiduciary duty claim (see Matter of Rosenthal, 99 A.D.3d 573 [1st Dept 2012], lv dismissed in part, denied in part 20 N.Y.3d 1058, [2013]).

Accordingly, the order of the Supreme Court, New York County (Barbara R. Kapnick, J.), entered January 18, 2013, which granted defendant's motion to dismiss the complaint, should be modified, on the law, to deny the motion as to the breach of contract claim, and otherwise affirmed, without costs.

All concur except Tom, J.P. who dissents in an Opinion:

TOM, J.P. (dissenting)

This is ostensibly an action for breach of contract, to which plaintiff has appended claims of an asserted breach of trust, based on defendant's rejection of plaintiff's application to participate in the America's Cup yacht race, to be held this year. Since no contract between the parties ever arose, the contract claim must be dismissed. Further, any right to participate in the America's Cup competition that plaintiff might be said to possess is bestowed solely by the agreement or "Protocol" between defendant Golden Gate Yacht Club (GGYC), as Defender and trustee of the trophy under the Deed of Gift, and nonparty Club Nautico di Roma, as Challenger of Record [2]. Because plaintiff is not a prospective beneficiary under the Deed of Gift, it lacks standing to assert any claim based upon the trust instrument. Thus, the complaint fails to state a cause of action.

Contrary to the position adopted by the majority, true contract actions [3] are amenable to summary disposition on the basis of the documents comprising the parties' agreement, except where a legitimate ambiguity requires resort to extrinsic evidence to establish the parties' intent. It is settled that the interpretation of a contract is a question of law for the court (West, Weir & Bartel v Mary Carter Paint Co., 25 N.Y.2d 535, 540 [1969]; Eden Music Corp. v Times Sq. Music Publs. Co., 127 A.D.2d 161, 164 [1st Dept 1987]), and where, as here, no cause of action is discernable, further proceedings will be futile. What the majority fails to appreciate is that, in a contract action, the four corners of the complaint are constrained by the four corners of the agreement.

The race for the America's Cup is regarded as the most prestigious event in yacht racing, and it is certainly one of the most highly contested — both on and off the water. In the last quarter century, it has been the subject of three controversies brought before this Court. The first involved the propriety of challenging a single-hulled vessel with a catamaran, abrogating what has become the custom of racing yachts of a similar design or class (Mercury Bay Boating Club v San Diego Yacht Club, 150 A.D.2d 82 [1st Dept 1989], affd 76 N.Y.2d 256 [1990]). The second concerned the requirement that to be recognized as a bona fide challenger for the Cup, a yacht club must have held an annual regatta before giving its notice of challenge; the result there was the disqualification of the challenger designated by the defending club (Golden Gate Yacht Club v Societe Nautique de Geneve, 55 A.D.3d 26 [1st Dept 2008], revd 12 N.Y.3d 248 [2009], on remand 68 A.D.3d 552 [1st Dept 2009]). This third action, like the others, involves the distinction between what is required by the Deed of Gift and what is mutually agreed upon by the two contenders subject to its terms, as a matter of contract.

The prestige of winning the America's Cup attracts sailing organizations from around the world, which vie to win and retain possession of the silver Cup for what is typically a champion- reigning period of three to four years, that is, until the next "Challenger" for the trophy officially initiates a new worldwide competition. The trophy derives its name from the schooner America, to which it was awarded after the vessel won a race at Cowes, England on August 21, 1851. By Deed of Gift dated October 24, 1887, the Cup was transferred by its sole surviving owner, George L. Schuyler, to the New York Yacht Club "upon the conditions that it shall be preserved as a perpetual Challenge Cup for friendly competition between foreign countries."

The Deed of Gift is a trust instrument executed under the laws of New York State (subsequently amended by orders of the Supreme Court of the State of New York dated December 17, 1956 and April 5, 1985). The corpus of the America's Cup trust is the trophy itself, and the honor and recognition bestowed by the mere possession of the coveted prize is the impetus for the worldwide interest in the sailing competition. Any yacht club to which the Cup is transferred must agree to comply with the terms and conditions of the Deed of Gift. The trust instrument provides:

"Any organized Yacht Club of a foreign country... shall always be entitled to the right of sailing a match of this Cup, with a yacht or vessel propelled by sails only and constructed in a country to which the Challenging Club belongs, against any one yacht or vessel constructed in the country of the Club holding the Cup."

Once a notice of challenge (required to be made on 10 months' notice) has been received and accepted, the Challenger and Defender of the Cup "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." If the contenders "cannot mutually agree upon the terms of a match, then three races shall be sailed, and the winner of two of such races shall be entitled to the Cup." The Deed of Gift prescribes the type, length and minimum depth of the courses, the timing of the races and the rules to be applied. The default provisions conclude, "The challenged Club shall not be required to name its representative vessel until at a time agreed upon for the start, but the vessel when named must compete in all the races, and each of such races must be completed within seven hours."

Defendant was represented in the 33rd America's Cup event by a racing syndicate known as Team Oracle Racing (not a party to this litigation). Consistent with the cycle of recent America's Cup events, Team Oracle prevailed in the 33rd Cup's initial elimination series, earning the right to compete against the 32nd Cup winner and Defender, nonparty Societe Nautique de Geneve of Switzerland. Defendant succeeded to the position of Defender and trustee of the America's Cup when its yacht, sailed by Team Oracle, won that match on February 14, 2010.

In February 2010, defendant announced that it had accepted the notice of challenge from Club Nautico di Roma, designating that yacht club as the Challenger of Record under the Deed of Gift against defendant, as the Defender, trustee and holder of the Cup. The two yacht clubs then entered into the agreement known as "the Protocol" dated September 13, 2010, the stated purpose of which "is to promote a competitive regatta for all Competitors consistent with the provisions of the Deed of Gift." The Protocol recites that applications will be accepted from other yacht clubs. It states that the parties "have agreed to hold a series of races to select the challenger for the Match, " designated the America's Cup Challenger Series [4]. As pertinent to this dispute, the Protocol provides that defendant "may hold a series of races to select the Defender to represent GGYC in the Match." Section 8.3 of the Protocol provides that defendant "will review Defender Candidate applications and will accept those it is satisfied have the necessary resources (including but not limited to financial, human, and technological) and experience to have a reasonable chance of winning the America's Cup Defender Series." Defendant and Club Nautico di Roma also entered into a "34th America's Cup Host and Venue Agreement, " which selected San Francisco as the situs of the current America's Cup race.

The complaint alleges that defendant's failure to accept plaintiff's application to be a Defender Candidate constitutes a breach of contract, breach of trust and breach of fiduciary duty because, it asserts, plaintiff has all the requisite qualifications set forth in the Protocol to qualify as a Defender Candidate, and defendant failed to consider its application in good faith. The complaint states that defendant's reason for rejecting plaintiff's application was that it was "not satisfied that [plaintiff] has, or will have the necessary resources (including but not limited to financial, human, and technological) and experience to have a reasonable chance of winning the America's Cup Defender Series."

The Deed of Gift is the instrument of a charitable trust (see Golden Gate Yacht Club v Societe Nautique de Geneve, 12 N.Y.3d 248 [2009]; Mercury Bay Boating Club v San Diego Yacht Club, 76 N.Y.2d 256, 260 [1990]). Generally, the Attorney General is the party vested with statutory authority to enforce the provisions of a charitable trust on behalf of its beneficiaries (EPTL 8-1.1[f]; 8-1.4; see Lefkowitz v Lebensfeld, 51 N.Y.2d 442, 445 [1980]), following the well-settled rule that "a possible beneficiary of a charitable trust, or a member of a class of possible beneficiaries, is not entitled to sue for enforcement of the trust" (Alco Gravure, Inc. v Knapp Found., 64 N.Y.2d 458, 465 [1985]). A limited exception, which has been applied in other America's Cup cases entertained by the courts, is that standing may exist where "a particular group of people has a special interest in funds held for a charitable purpose... and the class of potential beneficiaries is sharply defined and limited in number" (id.). [5]

The express provisions of the Deed of Gift govern the match race to be held between the Defender of the Cup, as trustee, and the Challenger of Record, as potential beneficiary (see Mercury Bay Boating Club, 76 N.Y.2d at 267). Within the ambit of potential beneficiaries are the trustee and the yacht club formally recognized by the trustee as the Challenger of Record. Also accorded standing, as exemplified by Golden Gate Yacht Club, is a club claiming the right to be designated as the Challenger on the ground that the Challenger recognized by the Defender fails to meet the eligibility requirements stated in the Deed of Gift, in which case the would-be Challenger is deemed to possess a sufficient special interest in the corpus of the trust to be entitled to sue for its enforcement.

In sum, standing has been limited to the Defender of the Cup, the recognized Challenger, and a yacht club claiming the right to be designated as the Challenger. Patently, plaintiff can assert no claim to be the Defender because the capacity of Defender and trustee under the Deed of Gift is fulfilled by defendant. Equally, plaintiff can assert no claim to be designated Challenger of Record because it is not a foreign yacht club. Finally, plaintiff does not attack the qualifications of the Challenger recognized by the Defender. Thus, plaintiff cannot accede to the position of one of the two parties recognized under the trust instrument.

There is no merit to plaintiff's theory that it should be considered a potential beneficiary of the trust because it desires to compete as a Defender Candidate in the America's Cup Challenger Series and ultimately might succeed in being chosen to represent defendant in the match for the America's Cup. Even if this eventuality were to arise, plaintiff would not be promoted to the position of Defender under the trust instrument. The Defender is defendant Golden Gate Yacht Club. The Deed of Gift affords the Defender the right to designate its vessel at any time before the start of the match. The most to which plaintiff can aspire is the right to sail on behalf of the Defender as the defending vessel; it cannot become the Defender, as that term is used in the trust instrument. Even if plaintiff were designated to sail on behalf of the Defender and won the match, it would merely become the winning yacht. Possession of the trophy would remain in defendant in its capacity as Defender and trustee. Finally, were plaintiff permitted to proceed with its trust claims, standing could be asserted by all of the yacht clubs chosen to participate in the regatta, as well as all those who applied but were not chosen to participate. This is a potentially numerous and amorphous class that is neither "limited in number" nor "sharply defined" so as to come within the exception to the general rule enunciated in Alco Gravure (64 N.Y.2d at 465). Thus, plaintiff lacks standing, and its causes of action for breach of trust and breach of fiduciary duty were properly dismissed.

As to plaintiff's contract claim, it is elementary that before a court can enforce a contract, it must establish, first, that the parties intended to be mutually bound by an agreement and, second, what the agreement requires of them, both factors implicating the doctrine of definiteness (Cobble Hill Nursing Home v Henry & Warren Corp., 74 N.Y.2d 475, 482 [1989], cert denied 498 U.S. 816 [1990]; see also Charles Hyman, Inc. v Olsen Indus., 227 A.D.2d 270, 275-276 [1st Dept 1996]). It is plaintiff's theory that the parties are mutually bound because the Protocol constitutes an offer, extended by defendant and accepted by plaintiff upon submission of its application and accompanying fee. It concludes that a contract was thereby formed requiring defendant to exercise good faith in reviewing the application, which defendant is alleged to have breached in various ways set forth in the complaint. Plaintiff posits that the Protocol "memorializes the Deed of Gift's hopes for fair play, " and charges that defendant breached this duty by manufacturing "lame" excuses to deny plaintiff the right to participate in the competition as a Defender Candidate.

Dispositive of the question of contract formation in general is whether indeed an offer has been made (see Kasowitz, Benson, Torres & Friedman, LLP v Duane Reade, 98 A.D.3d 403 [1st Dept 2012], affd 20 N.Y.3d 1082 [2013]); if so, whether the offer invites acceptance by the means used (see Defeo v Amfarms Assoc., 161 A.D.2d 904 [3d Dept 1990]); and whether all conditions required for a valid acceptance have been fulfilled (see King v King, 208 A.D.2d 1143 [3d Dept 1994]). By imposing a contractual obligation on defendant, when there is none, the majority ignores the clear language of the Protocol relating to Defender applications.

The Protocol, by its express terms under section 8.3, extends only an invitation to prospective Defender Candidates to submit an application that, after review, defendant "will accept" if "it is satisfied" that the applicant meets the specified criteria. This provision clearly negates any mutual assent by defendant to be bound to an agreement with an applicant for Defender Candidate (see generally Thome v Alexander & Louisa Calder Found., 70 A.D.3d 88, 103-104 [1st Dept 2009], lv denied 15 N.Y.3d 703 [2010] [language contained in invitation does not manifest an intent to be bound, warranting dismissal of breach of contract claim]; Kowalchuk v Stroup, 61 A.D.3d 118, 121 [1st Dept 2009] ["To establish the existence of an enforceable agreement, a plaintiff must establish an offer, acceptance of the offer, consideration, mutual assent, and intent to be bound"]).

There is nothing in the unambiguous language of section 8.3 or within the four corners of the contract that would impose a contractual duty upon defendant to accept an applicant for Defender Candidate upon submission of a compliant application. Rather, the solicitation of applications initiates a process of evaluation of the credentials and capabilities of the applicants for the purpose of determining those that are most suitable for a particular purpose (see Wright v Ford Motor Co., 111 A.D.2d 810 [2d Dept 1985]). The soliciting organization may set such standards for candidates that it deems appropriate, and where the issue has been directly considered, the courts have declined to interfere in what has been regarded as an administrative matter (see Matter of Pollak v Conway, 276 App Div 435, 437 [3d Dept 1950], lv denied 301 NY 816 [1950]). Thus, an organization is free to accept or reject any applicant in the exercise of its judgment (see Sabetay v Sterling Drug, 69 N.Y.2d 329, 333 [1987] [employment]; Sitomer v Half Hollow Hills Cent. School Dist., 133 A.D.2d 748 [2d Dept 1987] [participation in high school athletics program] ; Matter of Lesser v Board of Educ. of City of N.Y., 18 A.D.2d 388, 390 [2d Dept 1963] [college admission]). Since defendant did not accept plaintiff's application, no contract arose for which an action for breach can be maintained.

The Protocol's use of the term "satisfied" indicates that the assessment of an applicant's likelihood of winning the America's Cup Defender Series is to be made in the exercise of defendant's unfettered judgment (see Fursmidt v Hotel Abbey Holding Corp., 10 A.D.2d 447, 449-450 [1st Dept 1960]). As the Fursmidt Court stated, "The performance here called for is much removed from that involving mechanical fitness, utility or marketability, " which is subject to some "positive, objective standard" (id. at 450 [internal quotation marks omitted]). Rather, "in cases involving taste and judgment such standards of reasonableness cannot be established" (id.). Thus, even assuming a valid contract, the determination whether to utilize plaintiff's services as a competitor in its regatta is a matter relegated to the exercise of defendant's judgment and is not subject to judicial interference.

There is no merit to plaintiff's suggestion that the assessment of a prospective Defender Candidate implicates defendant's fiduciary duties, irrespective of the recitation under Article 3 of the Protocol that "GGYC (in its capacity as trustee), Challenger of Record (in its capacity as Challenger of Record) [and others involved in the regatta]... shall: (i) act in the best interests of all Competitors collectively... and (ii) not unreasonably favor the interests of any Competitor over another." These provisions clearly make reference, and pertain, to Defender Candidates (and Challenger Candidates) as competitors. This language has no application to plaintiff, which is not a "Competitor" (defined in the Protocol as "a Defender Candidate or a Challenger") since its application to compete in the contemplated regatta as a Defender Candidate has not been accepted. Merely reciting defendant's capacity as Defender in the Protocol does not implicate defendant's fiduciary duties under the Deed of Gift. In that regard, it should be noted that the Deed of Gift expressly governs only the match between Defender and Challenger (see Mercury Bay Boating Club, 76 N.Y.2d at 267 ["the deed ensures a "match" which will be a one-on-one competition"]), with the proviso that the contestants "may, by mutual consent, " depart from "any and all other conditions of the match." The Deed of Gift is silent about such preliminaries as how the defending yacht is to be chosen, except to require that the selection be made by race time. Thus, the Defender and Challenger are free to contract as they deem appropriate with respect to the manner in which the competing vessels are designated. Since defendant's obligations with respect to the selection of contestants are, by contract, subject to its own satisfaction, defendant was entitled to accept or reject plaintiff's application as it saw fit.

To support its contention that a binding contract was formed, plaintiff relies on Sargent v New York Daily News, L.P., 42 A.D.3d 491 [2d Dept 2007]), for the proposition " that the rules of a contest constitute a contract offer and that the participant's [entry into] the contest constitute[s] an acceptance of that offer'" (at 493, quoting Diop v Daily News, L.P., 11 Misc.3d 1083 [A], 2006 NY Slip Op 50671[U], *3 [2006]), which plaintiff advances as a general principal of law. Thus, plaintiff reasons, merely by submitting to defendant its application to be a participant in the racing events with the required fee provided in the Protocol, a binding contract was formed, imposing upon defendant the obligation to exercise good faith in the selection of Defender Candidates.

There is no question that under certain circumstances the mere participation in a contest imposes a contractual obligation on the sponsor. In Sargent, the use of a daily game card by the plaintiff was held to constitute the acceptance of an offer to join the contest, binding the plaintiff to the rules printed on the reverse side (see also Fujishima v Games Mgt. Servs., 110 Misc.2d 970 [Sup Ct, Queens County 1971]). The matter before this Court, however, is readily distinguishable from such contests, since it involves considerably more than a claim to winnings under circumstances where participation is limited to the purchase, or even the mere use, of a game card. The process at issue is not, by analogy, the mere purchase of a game card; rather, the applicant must first be approved by the Defender and then participate in a series of yacht races with the objective of winning the America's Cup Defender Series. Notably, the game card cases and others cited by plaintiff involve winners or asserted winners of a contest. To consider plaintiff's submission of an application comparable to the presentation of a winning ticket would accord overly expansive scope to Woody Allen's observation, "Eighty percent of success is showing up." Here, plaintiff's application was rejected as unsatisfactory before the contest had even begun.

Plaintiff cites Robertson v United States (343 U.S. 711, 713 [1952]) for the proposition that "acceptance by the contestants of the offer tendered by the sponsor of the contest creates an enforceable contract." Unlike plaintiff, however, the contestant in Robertson had actually won the musical competition in question. Moreover, the narrow issue decided was whether, for tax classification purposes, the payment of winnings by a sponsor of a contest comprises the discharge of a contractual obligation, rather than a gift (id. at 713). Since the Robertson Court was not confronted with an executory contract but one that had been fully performed, the issue of formation — particularly whether the sponsor of the musical competition had made an offer that the winning contestant could accept — was not before it. Likewise, Dalton v Educational Testing Serv. (87 N.Y.2d 384, 389 [1995]) sheds no light on the question whether the submission of an application to participate in a sporting event constitutes an acceptance of an offer to participate. In Dalton, the Court of Appeals did not discuss formation, but simply stated that "[b]y accepting [Educational Testing Service]'s standardized form agreement... Dalton entered into a contract with ETS." It should also be noted that, in marked contrast to the matter at bar, Dalton does not involve qualifications that an applicant must meet in order to participate in the testing process.

The law imposes no obligation on an organization to exercise its judgment to select any particular applicant for a particular function, no matter how qualified; rather, it is expected that an organization will act in its own best interests, which would not be served by rejecting qualified candidates. Here, defendant points out that plaintiff does not allege that a proposed team member of plaintiff has ever competed in an America's Cup race or that the plaintiff team has ever competed together on the same boat in a regatta. It is further noted that plaintiff's ability to raise capital and secure the services of an expert boat designer appears to depend on defendant's granting its application. Even assuming, arguendo, that there were a contractual right to be enforced, which clearly there is not, plaintiff's limited experience as a competitive sailing organization and its questionable ability to raise capital, retain an expert boat designer and assemble a competitive, financially backed team that could successfully compete in the Defender Series undermine its claim of bad faith.

The majority's holding deprives defendant of its contractual right under the Protocol to decide what is in its best interests in promoting the America's Cup Defender Series, a duty it was charged with as Defender under the trust instrument, and substitutes some ad hoc standard to be judicially formulated at trial. As the Second Department noted in Matter of Pollak (276 App Div at 437-438), the courts are ill equipped to devise the criteria for assessing a candidate's qualifications or to administer the organization's application of those criteria, a sentiment that finds particular application in the context of such a high-level sailing event.

Finally, plaintiff's claim must be rejected as a matter of policy. To permit a contract action to be maintained by any person or group that has been denied the right to participate in an athletic event would subject the courts to a potentially enormous volume of litigation and involve them in the assessment of athletic abilities, an area in which they lack expertise. It is simply not the province of the courts to decide, for instance, whether any particular applicant should be accorded the right to participate in the New York City Marathon or whether a promising player should be selected to play for a professional sports team or, for that matter, whether a particular seventh-grader should be permitted to play on a local high school tennis team (see Sitomer, 133 A.D.2d at 748).

Whether plaintiff has the necessary qualifications "to have a reasonable chance of winning the America's Cup Defender Series" and so to be selected as a Defender Candidate, as the Protocol provides, " is a knotty point, and should have been submitted to the arbitration of sportsmen'" (Mercury Bay Boating Club, 150 A.D.2d at 101 [Rubin, J., concurring], quoting Pierson v Post, 3 Caines 175, 180 [1805] [Livingston, J., dissenting]). The substance of the complaint, with its emphasis on defendant's asserted failure to exercise "good faith, " is that defendant has been treated unfairly in the selection process. As stated in Pierson and reiterated in Mercury Bay, in the absence of fiduciary or equitable considerations, the function of the courts is to decide what is within the bounds of the law, an assessment that does not embrace determining what is fair in the context of a sporting event.

Accordingly, the order should be affirmed.

Order, Supreme Court, New York County (Barbara R. Kapnick, J.), entered January 18, 2013, modified, on the law, to deny the motion as to the breach of contract claim, and otherwise affirmed, without costs.

All concur except Tom, J.P. who dissents in an Opinion.

Tom, J.P., Acosta, Feinman, Clark, JJ.


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