Kawa Leasing, Ltd. v. Yacht Sequoia

• Decision Date: 09 July 1982
• Docket Number: Civ. No. K-82-70.
• Citation: 544 F. Supp. 1050
• Parties: KAWA LEASING, LTD. and The PRESIDENTIAL YACHT TRUST v. YACHT SEQUOIA, her engine, boilers, tackle, apparel, etc., and Ocean Learning Institute, Inc.
• Court: U.S. District Court — District of Maryland

544 F. Supp. 1050

KAWA LEASING, LTD. and The PRESIDENTIAL YACHT TRUST

v.

YACHT SEQUOIA, her engine, boilers, tackle, apparel, etc., and Ocean Learning Institute, Inc.

Civ. No. K-82-70.

United States District Court, D. Maryland.

July 9, 1982.

Randall C. Coleman, Donald D. Greenman, Kevin A. Dunne and Ober, Grimes & Shriver, Baltimore, Md., for plaintiffs.

Thomas J. McGovern, Fort Lauderdale, Fla., and Elana R. Byrd, Annapolis, Md., for defendants.

FRANK A. KAUFMAN, Chief Judge.

The object of this suit is the 105 foot Yacht SEQUOIA, built in 1925 by the Mathis Company of Camden, New Jersey.Several years after she was built, the SEQUOIA was acquired by the Federal Government and became the Presidential yacht.She returned to private hands in 1977 when President Carter disposed of her as an economy measure.

In this suit plaintiffKawa Leasing, Ltd.(Kawa), the present owner of the SEQUOIA, and plaintiff Presidential Yacht Trust (Trust), the present operator of the vessel,¹ seek to remove an alleged cloud on Kawa's title to the SEQUOIA asserted by defendant Ocean Learning Institute (OLI), from which Kawa purchased the vessel.OLI has counterclaimed pursuant to Rule 13(a) of the Federal Rules of Civil Procedure against both Kawa and the Trust, seeking specific performance of an alleged contract with the Trust which obligated the Trust to make the SEQUOIA available for OLI's use during the winter months each year.At trial, OLI amended its counterclaim additionally to seek damages for breach of that alleged contract during the winter of 1981-82.By agreement of the parties, the liability and relief issues herein have been bifurcated.

Trial of this case was held on April 8 and 12, 1982.Many of the facts are undisputed, although certain critical facts are sharply controverted.This opinion constitutes this Court's findings of facts as well as conclusions of law.

I.FINDINGS OF FACT

The list of participants in the events relevant and material herein is somewhat extensive.Kawa is a California partnership with its principal place of business in that state.Richard W. Arendsee, the executive of a nationally-known business enterprise, is the general partner of Kawa, which was formed for the purpose of (1) purchasing the SEQUOIA from OLI and (2) leasing her to the Trust.

The Trust is a nonprofit District of Columbia corporation with its principal place of business in the District.The moving force behind its creation was Edgar M. Skinner, III.Skinner's idea was to set up a nonprofit corporation financed by tax deductible contributions, in order to make the SEQUOIA available to the President of the United States, other high ranking government officials, and to private individuals, corporations, and the like who, by virtue of their donations to the SEQUOIA's endowment fund, would become members of the SEQUOIA's "Admiralty."Skinner became Chairman of the Board of Trustees and President of the Trust upon its formation in June 1981.He held the former office until July 1981, and the latter office until November 1981 when he resigned for health reasons.

Skinner received help in the formation of the Trust from his friend, Michael Doud Gill, a Washington, D. C. consultant.Gill subsequently became Chairman of the Admiralty Review Board of the Trust.That Board was largely a ceremonial entity, as opposed to the Board of Trustees which was charged with the actual management of the Trust.The Admiralty Review Board was established to review and approve donations from persons or corporations who wished to become members of the SEQUOIA's Admiralty.Gill introduced Skinner to James K. Alford, a Washington, D. C. lawyer and retained Alford to help Skinner form the Trust.Alford handled for Skinner documentation relating to the Trust's incorporation as well as the drafting of the contracts pursuant to which Skinner first purchased the SEQUOIA from OLI and then assigned his contractual purchase rights to Kawa.Alford also drafted a charter for the lease of the SEQUOIA by Kawa to the Trust.

Ocean Learning Institute is a nonprofit Florida corporation with its principal place of business in West Palm Beach, Florida.OLI's primary purpose is to produce educational materials, particularly audio-visual materials, about the seas.It also operates educational programs in conjunction with several southeastern colleges and universities through which students take two week courses in marine geology, coastal zone management and the like.OLI's primary source of funding is through donations.A large percentage of such donations are of vessels, which OLI sells in order to raise funds.John C. Grant is the President and Chairman of the Board of Trustees of OLI.²

The SEQUOIA was maintained by the Federal Government as the Presidential yacht for approximately half a century.In that capacity, she served Presidents Hoover, Franklin D. Roosevelt, Truman, Eisenhower, Kennedy, Lyndon Johnson, Nixon and Ford, until she was sold at auction in 1977, during President Carter's term of office.After changing hands several times,³she was acquired by OLI in the Spring of 1980 for several purposes.First, OLI wanted to draw attention to itself.Second, OLI desired to participate in the preservation of the vessel, because of her historical value both in terms of her association with the Presidency as well as the fact that she is an example of marine architecture and construction which is uniquely American and now extinct.OLI, in a brochure about the SEQUOIA designed to attract potential buyers of the vessel, put it as follows:

Ocean Learning Institute acquired the USS SEQUOIA in order to bring national attention to its educational program and because it was important that somebody who understood the marine artistry and ship-wright craftsmanship that built these American, now extinct, coastal yachts be involved with her restoration and preservation.Also we must recognize that since the royal ship of Cheops in the 12th century B.C., the yachts and barges of rulers have been the setting for major historical decisions, and such is the case with SEQUOIA and eight of our presidents.The USS SEQUOIA stood on the roles of the U.S. Navy serving eight of our presidents for 47 years and, thereby, made an indelible mark on maritime history of the world.

Also, Grant believed that the SEQUOIA would aid OLI to raise funds and planned to open the SEQUOIA to the public, charging admission for tours and the like, and to make her available to groups who would make donations to OLI in return for such use.

After OLI purchased the SEQUOIA, she was surveyed.The surveyor recommended a long list of repairs to be made to the vessel, and she was taken to the Lantana Boatyard in Lantana, Florida, for that purpose.She remained in the boatyard undergoing refurbishing from the Spring to the Fall of 1980.⁴

After those repairs were completed, the SEQUOIA was docked in West Palm Beach, Florida, while Grant searched for a potential site for a permanent home port for the vessel.The vessel was not put on public display while docked in West Palm Beach, although OLI did allow various civic groups, such as the local YMCA, to hold meetings aboard.

Grant found what he thought would be an appropriate permanent site in Stuart, Florida, at a dock owned by one Peter Makris, who was also the owner of two nearby restaurants, Lord Chumley's Pub and Peter's Pier 4.Makris agreed to allow the SEQUOIA to be docked at his facility, and spent approximately $30,000—$40,000 in fixing up the dock so that it would be able to accommodate the SEQUOIA.OLI moved the SEQUOIA to Stuart in March 1981, but then took her back to the Lantana Boatyard for additional repair work on her bottom in April.Late in that month, with all the repairs to both ship and dock completed, the SEQUOIA was opened at Stuart to the public and remained there until June 12, 1981, the date of the closing of her sale to Kawa.Admission of $3.00 per head was charged.OLI took in approximately $2,500 during the period the SEQUOIA was open to the public at Stuart.

When OLI purchased the SEQUOIA in the Spring of 1980, the purchase price was $750,000.At that time OLI obtained an $800,000 mortgage from the First National Bank of Palm Beach in order to finance the purchase.The mortgage was payable in full in the Spring of 1982.Under the terms of that mortgage, only quarterly interest and no principal payments were required until the Spring of 1982.Grant testified during trial that OLI's net worth in 1982 was close to the $800,000 principal amount of the mortgage, and that he(Grant) needed to come up with a plan which would allow OLI both to retire the debt and to continue to use the SEQUOIA.The solution which Grant hit upon was to sell the SEQUOIA to a third party, who would lease her back to OLI for a number of years.Eventually, the third party would donate the vessel to OLI, taking a charitable deduction at the time.The proposal was outlined as follows in OLI's brochure:

... OLI proposes that the donor purchase the SEQUOIA for $1,300,000 and then: (1) lease the SEQUOIA back to OLI for an unspecified period of time in order that Ocean Learning Institute can put the SEQUOIA on display and utilize her for fund raising purposes, (2) a percentage (to be negotiated) of the earnings for the public exhibition and other uses for SEQUOIA will be paid to donor as the consideration for the lease, and (3) after a reasonable period of time (one year) re-evaluate the Fair Market Value of SEQUOIA, having been used as described, and then, presuming that the Fair Market Value is considerably higher than the purchase price, donate SEQUOIA back to OLI.

The OLI proposal was sent to a number of corporations, government agencies and museums.Prior to the time it came to Skinner's attention, it had generated three bona fide explorations, none of which came to fruition.OLI also received a few more inquiries from persons who wished to buy the...