Opinion ID: 624415
Heading Depth: 3
Heading Rank: 1

Heading: Claims Involving Third-Party Beneficiary Status

Text: As mentioned above, during the time period at issue in this lawsuit, a new shipper was permitted to satisfy its duty deposit requirement by posting a Customs bond equal in value to the cash deposit otherwise required. As part of this process, sureties entered into contracts with importers to insure payment of deposits. Plaintiffs target these bond contracts in Counts 1, 2, and 6, arguing that they have a right to enforce the contracts as third-party beneficiaries. The Court of International Trade found otherwise, dismissing Counts 1, 2, and 6 after concluding that Plaintiffs did not qualify as intended third-party beneficiaries. Sioux Honey, 700 F.Supp.2d at 1348. We agree with the Court of International Trade. A plaintiff lacking privity of contract can nonetheless sue for damages under that contract if it qualifies as an intended third-party beneficiary. See Flexfab, L.L.C. v. United States, 424 F.3d 1254, 1263 (Fed.Cir.2005); Alpine Cnty., Cal. v. United States, 417 F.3d 1366, 1368 (Fed.Cir.2005); Chancellor Manor v. United States, 331 F.3d 891, 901 (Fed.Cir.2003). In order to prove third party beneficiary status, a party must demonstrate that the contract not only reflects the express or implied intention to benefit the party, but that it reflects an intention to benefit the party directly.  Glass v. United States, 258 F.3d 1349, 1354 (Fed.Cir.2001) (emphasis added). The intent of the parties to the contract is therefore the cornerstone of a claim for third-party beneficiary status. Flexfab, 424 F.3d at 1259; see also Astra USA, Inc. v. Santa Clara Cnty., Cal., ___ U.S. ___, 131 S.Ct. 1342, 1347, 179 L.Ed.2d 457 (2011) (A nonparty becomes legally entitled to a benefit promised in a contract ... only if the contracting parties so intend.). A party does not obtain third-party beneficiary status, however, merely because the contract would benefit them. FDIC v. United States, 342 F.3d 1313, 1319 (Fed.Cir.2003). Indeed, third-party beneficiary status is an exceptional privilege and should not be granted liberally. German Alliance Ins. Co. v. Home Water Supply Co., 226 U.S. 220, 230, 33 S.Ct. 32, 57 L.Ed. 195 (1912); Flexfab, 424 F.3d at 1259. That said, [t]he intended beneficiary need not be specifically or individually identified in the contract. Montana v. United States, 124 F.3d 1269, 1273 (Fed. Cir.1997). If not identified, however, the nonparty must still fall within a class clearly intended to be benefited thereby. Id. When the intent to benefit the third party is not expressly stated in the contract, evidence thereof may be adduced. Roedler v. Dep't of Energy, 255 F.3d 1347, 1352 (Fed.Cir.2001). Under our precedent, Plaintiffs (i.e., domestic producers) cannot qualify as intended third-party beneficiaries of the new shipper bond contracts. First, the contract language itself clearly treats the Government as the sole beneficiary. In particular, the language states that the importers and sureties agreed to bind themselves to the United States in the amount or amounts, as set forth below. The contracts also incorporate federal regulations indicating that the Government is the beneficiary. See, e.g., 19 C.F.R. § 113.62 (requiring principal and surety, jointly and severally to [p]ay, as demanded by Customs, all additional duties, taxes, and charges subsequently found due... on any entry secured by [a] bond). Plaintiffs do not argue to the contrary, acknowledging that each new shipper bond is a contract among an importer (the bond's principal and primary obligor); the issuing surety (the bond's secondary obligor); and Customs (the bond's sole identified beneficiary). The contracts do not identify the domestic producers as beneficiaries, also a conclusion Plaintiffs do not dispute. The bond contracts' (1) treatment of the Government as a beneficiary; (2) failure to identify the domestic producers as beneficiaries; and (3) failure to mention a class of third parties that could potentially encompass the domestic producers, see Montana, 124 F.3d at 1273, all combine to strongly support the conclusion that these contracts do not reflect[] an intention to benefit the domestic producers directly. See Glass, 258 F.3d at 1354. Instead, any benefit the domestic producers may derive from the bond contracts would come indirectly through the application of the CDSOA. The mere fact that the domestic producers stand to ultimately benefit from the bond contracts in some capacity does not automatically render them intended third-party beneficiaries. See, e.g., FDIC, 342 F.3d at 1319. The intended benefit must be direct. See Glass, 258 F.3d at 1354. Plaintiffs argue on appeal that they are intended third-party beneficiaries because the new shipper bond contracts are essential to achieving the antidumping statute's purpose of collecting duties, which are then redistributed to domestic producers under the CDSOA. According to Plaintiffs, the importers, Surety Defendants, and the Government knew the contracts they were involved in would operate within the CDSOA framework and that the domestic producers would benefit directly from the contracts. See Montana, 124 F.3d at 1273 (The intended beneficiary need not be specifically or individually identified in the contract and can merely fall within a class clearly intended to be benefited thereby.). As a result, contend Plaintiffs, the intent of the contracting parties to directly benefit the domestic producers exists. In further support of its position, Plaintiffs rely on Roedler, 255 F.3d at 1352, which states that when a contract involving the United States implements a statutory enactment, it is appropriate to inquire into the governing statute and its purpose when performing the third-party beneficiary analysis. Following the Supreme Court's recent guidance in Astra, we reject Plaintiffs' contentions. In Astra, a program created by a federal statute imposed limits on prices that drug manufacturers could charge healthcare facilities for medications. 131 S.Ct. at 1345. Drug manufacturers wishing to participate in state Medicaid systems had to enroll in this federal program. Id. To enroll, the drug manufacturers signed form contracts with the Department of Health and Human Services (HHS) that simply incorporate[d] statutory obligations. Id. at 1348. One statutory provision in the federal program provided for compensation to healthcare facilities overcharged by the drug manufacturers. Id. at 1347. Some healthcare facilities, believing they were overcharged for drugs, sued drug manufacturers under this federal statutory scheme. Id. Specifically, the healthcare facilities alleged that the overcharging constituted a breach of the manufacturers' enrollment contracts and that the facilities, as third-party beneficiaries of those contracts, could recover damages. [4] Id. at 1347 Despite acknowledging that the enrollment contracts specifically named the healthcare facilities as recipients of the drugs and that the very purpose of these agreements was to ensure that these facilities were not overcharged, the Supreme Court declined to accord the plaintiffs intended third-party beneficiary status. Id. at 1347-48. Instead, the Court held that suits filed by the statutorily-protected healthcare facilities to enforce the enrollment contracts were incompatible with the statutory regime. Id. at 1345. In reaching this conclusion, the Court emphasized that Congress placed the Secretary of HHS in control of the drug pricing scheme, not the healthcare facilities. Id. [HHS's] control could not be maintained were potentially thousands of [healthcare facilities] permitted to bring suits alleging errors in manufacturers' price calculations. Id. If [the healthcare facilities] may not sue under the statute, it would make scant sense to allow them to sue on a form contract implementing the statute, setting out terms identical to those contained in the statute. Id. Indeed, the Court reasoned that [t]he absence of a private right to enforce ... would be rendered meaningless if [the healthcare facilities] could overcome that obstacle by suing... instead. Id. at 1348. Under Astra, the fact that a private entity stands to benefit financially from a statutory scheme does not necessarily make it an intended third-party beneficiary of contracts operating within that scheme where no statutory private right of action exists. The present case is factually similar to Astra. First, both cases involve complex statutory schemes that offer the plaintiffs the potential of obtaining a financial benefit. Moreover, like the plaintiffs in Astra, Plaintiffs in this case attempt to recover under a contract intertwined with that statutory scheme, claiming intended third-party beneficiary status. Additionally, the contracts at issue in both cases are governed by federal laws. Perhaps most importantly, the statutes governing the contracts at issue in both cases do not grant the plaintiffs the right to bring a private lawsuit to recover the fees allegedly owed to them. See id. at 1347. Indeed, in the present matter, Congress vested the Government with the authority to enforce the Customs bond contracts, not the domestic producers. See 19 U.S.C. § 1623(a)-(c) (authorizing the Secretary of the Treasury or the Customs Service to enforce Customs bonds); see also id. § 1514(a)-(b) (after Customs makes a payment demand on the surety, the surety must either pay Customs or file an administrative protest with Customs which, if denied, may be challenged in the Court of International Trade). In a situation such as this, where no statutory private right to enforce the Customs bonds exists, permitting a party to sue as an intended third-party beneficiary would improperly render [t]he absence of [that] private right ... meaningless. See Astra, 131 S.Ct. at 1348. In sum, while the bond contracts treat the Government as a direct beneficiary, the same cannot be said of the domestic producers or a class that encompasses the domestic producers. This conclusion is supported by the fact that the antidumping statutes do not confer private enforcement rights on the domestic producers under the bond contracts. Any benefit the domestic producers derive from the bond contracts comes indirectly as a result of the operation of the CDSOA. Because Plaintiffs are not intended third-party beneficiaries of the bond contracts, they cannot enforce these contracts. Thus, we affirm the Court of International Trade's dismissal of Counts 1, 2, and 6 as asserted against the Government.