America's Cup Tolling Agreements a central issue

by Alinghi Media & Sailing Scuttlebutt on 1 Apr 2008 With the two parties in the 33rd America's Cup wrangle due to appear in front of Justice Herman Cahn in just over 24 hours, Alinghi have released a statement on their view of the tolling agreement and the parallels between the situation in the Mercury Bay vs San Diego YC dispute 20 years ago, and the current argument.

If the current legal wrangling over the fate of the America’s Cup sounds familiar, there’s a good reason. Back in 1987, the 27th America’s Cup wound up in a New York Court after challenger Mercury Bay Boating Club (MBBC) of New Zealand sued the defending San Diego Yacht Club (SDYC).

The court upheld the New Zealand yacht club’s right to be Challenger of Record; The MBBC had submitted a challenge – as outlined in the Deed of Gift that governs the America’s Cup – which the American Defender had rejected.

The 9 September was a key moment in this process when Justice Carmen Ciparick imposed a tolling order that stopped the clock and suspended the ten-month notice period of challenge as spelled out in the Deed of Gift pending determination of the motions and actions of the case.

This was only lifted on the 28 December, when the New York Supreme Court order was entered (a full month after the judgement): 'Ordered that the ten (10) month notice period in the valid notice of Challenge of The Mercury Bay Boating Club Inc. of July 15, 1987, previously tolled by the Court on September 9, 1987 pending determination of the motions and actions in Case 1 and Case 2, shall be resumed and continue to run from the date of service of a copy of this order and Judgment with notice of entry upon the attorney’s for the parties and on the office of the Attorney General of the State of New York.'

This decision gave the American Defender – who had received a complete and precise certificate of vessel from the challenger – the critical time needed to prepare its defence. In September 1988, ten months after the court order was issued, SDYC successfully defended the Cup.

Fast forward to today. First substitute the Golden Gate Yacht Club for the Mercury Bay Boating Club and Société Nautique Genève for the San Diego Yacht Club. Then add another telling difference: this time around the American club GGYC is demanding that the obligatory 10-month notice period of challenge spelled out in the Deed of Gift that governs the America’s Cup be drastically reduced to limit the ability of the Swiss Defender to build a vessel that can meet the challenge posed by their new 90ft multi-hull on the start line of the 33rd America’s Cup. In their attempt to limit SNG’s chances for a fair defence, GGYC have also provided a misleading and deceptive certificate of vessel.

Those with sharp memories will spot a common thread running through both controversies. Tom Ehman was spokesman and negotiator for the San Diego Yacht Club back in the 1980s and now, partnered with Russell Coutts, he holds the same role for BMW Oracle Racing and the GGYC. Clearly, the wind has shifted and Mr. Ehman has changed his tack. Not a beginner in his role of battling to win the America’s Cup in court, he even went on the record during the 27th America’s Cup telling the San Diego Union that if the races were ordered by the court: 'We [the Defender] will jimmy the rules to win this thing […]'.

The modern day American challenger is asking the same American court in New York to apply different rules than those applied in 1988. Instead of the suspension period ending when the court order was signed and served (19 March) as in 1988 – which would start the 10-month clock ticking again towards a Match in 2009 – BMW Oracle Racing is seeking to start the clock to their sole convenience from when the court gave a decision in November 2007. This critical loss of building time for the Defender means the Swiss team will not be ready for a 2008 Match and guarantees BMW Oracle Racing a mismatch.

Interestingly in the latest GGYC letter to Justice Cahn, GGYC’s lawyers request that the court issue an order to implement the court’s decision of 27 November 2007, clearly accepting that the November decision was not a final order. This would therefore negate their argument that the America’s Cup Match should be in October 2008.

The Americans automatically selected the Northern Hemisphere when they nominated July 2008 for their Deed of Gift Match and if the 1988 rules are applied, the 10-month notice period will end during the Deed’s ‘no-sailing period’ in the Northern Hemisphere of 1 November until 1 May. The Match would then need to be delayed until 1 May 2009 at the earliest, giving both competitors longer to prepare.

Footnote: Team Alinghi claim tha there was a tolling agreement heard and agreed on 10th September 2007. BMW Oracle's view is that an agreement was offered but not signed.

Sailing Scuttlebutt's Cory Friedman provides this explanation and analysis of the merits of the two arguments in this piece published on Monday (NZT):

Part 19 - Tolling Agreements 101
'I’ve never gone to bed with an ugly woman, but I’ve sure woke up with a few.' -- sung by Bobby Bare.

(March 30, 2008) In response to letters from both Societe Nautique de Geneve (SNG) and Golden Gate Yacht Club (GGYC), Justice Cahn has set a 9:30 am hearing on April 2, 2008, presumably to consider setting a date for AC 33, the Deed of Gift (DOG) Challenge. GGYC has set October 1, 3 and 5, 2008 as the dates and SNG is insisting on nothing earlier than May 1, 2009. SNG should be sitting pretty going into this hearing. Indeed, SNG should be in a position to push the Match out for years. Instead, thanks to a spectacular blunder, almost as bad as not going around a mark, SNG is going into the hearing with its pants around its ankles begging for mercy from Justice Cahn, whose decision on SNG’s last motions practically had 'we are not amused,' as the refrain.

How did SNG dig itself this hole? If, based upon past history, you chose (a) 'overreaching,' you win and move on to the next round. Ordinarily, the deadline to do anything is unaffected by litigation. In special cases, statutes provide a stay while litigation is pending. For example, governmental entities usually get an automatic stay of enforcement of a judgment while they appeal. Those statutory stays are relatively rare and none apply to this case. At the very first hearing on September 10, 2007, Justice Cahn suggested a tolling agreement to stop the clock on GGYC’s July 4, 6 and 8, 2008 challenge. Both sides supported in general terms a toll of the July 2008 dates, but with no specificity and no court reporter to take a detailed 'agreement' down, New York Civil Practice Law and Rules (CPLR) 2104 renders their statements unenforceable, unless reduced to a writing and signed by the parties, which customarily then would be submitted to Justice Cahn for his signature and entry on the docket.

Obviously, both parties thought they would have a tolling agreement, (although it is much more important to defendant SNG, which does not want the Match to happen), and Jim Kearney, GGYC’s lawyer at Latham & Watkins, sent David Hille, SNG’s lawyer at White & Case, a proposed stipulation. In an outbreak of 'irrational exuberance,' Kearney even signed the proposed stipulation and referred in his cover letter to 'the tolling agreement agreed to before Justice Cahn at the September 10, 2007 hearing.' Indeed, the proposed stipulation was extremely generous – perhaps too generous -- as it tolled the Match until 10 months after all litigation was completed, including appeals to the Appellate Division and the Court of Appeals. Thus, it could easily have tolled the Match for years if SNG decided to drag its feet.

For the remainder of this analysis http://www.sailingscuttlebutt.com/news/07/cf/#p19!click_here