I'm a bit torn on this one, but the more I think about it the more I'm inclined to side in favor of CO, despite my sympathy for the OP. Letter of the law? Sure, he gets bupkis. Airlines going after goodwill? Not in the era of 90%+ load factors.

The problem lies in this: CO is blind to a customer's reason for buying a Y ticket (flexibility or the auto-upgrade to first class). Since the customer did, in fact, buy it for the purpose of getting into first class, he rightfully feels upset that he has been duped on an element of the bargain.

BUT - CO sees the upgrade to F on a full Y fare as a 'perk' for those paying for flexibility -- much like free upgrades for elites. From a sales point of view, they do not consider it a way to buy into F -- and I think the OP, given his knowledge of how YUPs function should have been exected to understand this.