Racers have no special rights
So the skipper of "Race" Boat 2 was wrong when he said "We're racing", implying that they had special rights because they were racing.
And I agree with Hesper, 10 feet isn't "close" when racing. When you get to a few feet, that is a little dicey. However, my wife thinks that if two boats are within 300 ft, they're too close to each other.
Again, not saying that you did anything incorrectly, but I would have been a little more attentive to the situation and positioned myself further from the two boats, earlier than later, to avoid an potential conflicts. You were the boat with the Standon Rights and the race boat was not more privileged because they were racing.
If you liked my advice/response, give me some rep points. If you didn't......well what do you expect, it was free.