Opinion ID: 2811945
Heading Depth: 1
Heading Rank: 1

Heading: introduction

Text: The U.S. Court of Appeals for the Second Circuit has certified the following question of law arising out of an appeal from a decision issued by the U.S. District Court for the Southern District of New York: Where the plaintiff has secured a contractual commitment of its contracting counterparty, the defendant, to render a benefit to a third party, and the counterparty breaches that commitment, may the promisee-plaintiff bring a direct suit against the promisor for damages suffered by the plaintiff resulting from the promisor‘s breach, notwithstanding that (i) the third-party beneficiary of the contract is a corporation in which the plaintiff-promisee owns stock; and (ii) the plaintiffpromisee‘s loss derives indirectly from the loss suffered by the third-party beneficiary corporation; or must the court grant the motion of the promisor-defendant to dismiss the suit on the theory that the plaintiff may enforce the contract only through a derivative action brought in the name of the thirdparty beneficiary corporation?1 For reasons we explain more fully, the answer under Delaware law is, ―a promisee-plaintiff [may] bring a direct suit against the promisor for damages suffered by the plaintiff resulting from the promisor‘s breach, notwithstanding that (i) the third-party beneficiary of the contract is a corporation in which the promisee-plaintiff owns stock; and (ii) the promisee-plaintiff‘s loss derives indirectly from the loss suffered by the thirdparty beneficiary corporation.‖ In other words, a party to a commercial contract who sues to enforce its contractual rights can bring a direct contract action under Delaware law. Although the relationship of that party to the third-party beneficiary might well have relevance in determining whether the contract claim is viable as a matter of contract 1 NAF Holdings, LLC v. Li & Fung (Trading) Ltd., 772 F.3d 740, 750 (2d Cir. 2014). 1 law, nothing in Delaware law requires the promisee-plaintiff‘s contract claim to be prosecuted as a derivative action. The case law under Tooley v. Donaldson, Lufkin & Jenrette2 and its progeny deal with the distinct question of when a cause of action for breach of fiduciary duty or to enforce rights belonging to the corporation itself must be asserted derivatively. That body of law has no bearing on whether a party with its own rights as a signatory to a commercial contract may sue directly to enforce those rights.