Court Opinion

ID: 179965
Source: CourtListenerOpinion
Date Created: 2010-11-29 16:32:14+00
Date Added: 2024-06-11T09:05:47.169261
License: Public Domain

NOTE: This disposition is nonprecedential.

  United States Court of Appeals
      for the Federal Circuit
              __________________________

NORMA C. SULLIVAN AND DONALD E. SULLIVAN,
             Plaintiffs-Appellees,

                           v.
                  UNITED STATES,
                  Defendant-Appellant.
              __________________________

                      2010-5091
              __________________________

    Appeal from the United States Court of Federal
Claims in case no. 99-CV-754, Senior Judge Loren A.
Smith.
              __________________________

              Decided: November 29, 2010
              __________________________

    ALBERT E. GRADY, Office of Albert E. Grady, of Brock-
ton, Massachusetts, for plaintiffs-appellees.

    J. REID PROUTY, Senior Trial Attorney, Commercial
Litigation Branch, Civil Division, United States Depart-
ment of Justice, of Washington, DC, for defendant-
appellant. With him on the brief were TONY WEST, Assis-
SULLIVAN   v. US                                         2

tant Attorney General, JEANNE E. DAVIDSON, Director,
and MARK L. MELNICK, Assistant Director.
              __________________________

Before BRYSON, PLAGER, and CLEVENGER, Circuit Judges.
PER CURIAM.

     The issue in this breach of contract case is whether a
person injured in a vehicular accident caused by a gov-
ernment contractor can properly sue the United States for
failing to enforce a contract provision requiring the con-
tractor to obtain additional automobile insurance. The
trial court rendered judgment for the Sullivans on a
breach of contract theory by finding that the Sullivans
were third party beneficiaries of the contract between the
contractor and the Postal Service, and that the Govern-
ment was liable for breach of the contract. Regardless of
whether the court properly categorized the Sullivans as
third party beneficiaries, the Government’s failure to
enforce a contractual provision necessitating additional
insurance does not amount to a breach of contract by the
Government. Accordingly, we conclude that Mr. and Mrs.
Sullivan cannot recover in this action against the Gov-
ernment; the judgment of the trial court is reversed.

                      BACKGROUND

    The Sullivans’ claim arises from an automobile acci-
dent that occurred in Easton, Massachusetts, in 1995. A
truck operated by TNT Transportation Company (TNT)
under a contract with the United States Postal Service
ran into the back of the Sullivans’ car while they were
stopped at a traffic light. Mrs. Sullivan was injured and
was awarded $20,000 from the truck company’s insurance
policy, the maximum liability coverage under the policy.
Pursuant to the Postal Service contract, which was exe-
3                                            SULLIVAN   v. US

cuted one month earlier, TNT was required to obtain
liability insurance of at least $750,000. At the time of the
accident, TNT had neglected to obtain the additional
insurance and instead only carried the then-applicable
Massachusetts compulsory minimum bodily injury cover-
age limit of $20,000 per person.

    The Sullivans filed this suit against the United States
in 1999 in the United States Court of Federal Claims.
The Government responded by filing a motion to dismiss
the complaint for lack of subject matter jurisdiction. The
trial court denied the motion, finding that the Sullivans
had raised a triable issue regarding their status as third
party beneficiaries. Sullivan v. United States, 54 Fed. Cl.
214, 216 (2002). Following discovery, the parties filed
cross-motions for summary judgment as to liability.

    The Sullivans contended that they were third party
beneficiaries to the contract between the Government and
TNT because highway motorists were the persons in-
tended to benefit from the contractually required insur-
ance policy. The trial court found that the Sullivans were
the contemplated third party beneficiaries of the negoti-
ated federal contract and that the Government had
breached the contract by failing to enforce the explicit
terms. Consequently, the trial court granted the Sulli-
vans’ motion for summary judgment of liability based on
the administrative record. Sullivan v. United States,
2005 WL 6115387 (Fed. Cl. July 22, 2005). Subsequently
the court held a two-day hearing on damages and
awarded the Sullivans $32,592.00. Sullivan v. United
States, No. 99-754 C, 91 Fed. Cl. 23 (2010). The Govern-
ment appealed. We have jurisdiction over the appeal
pursuant to 28 U.S.C. § 1295(a)(3).
SULLIVAN   v. US                                          4

                          DISCUSSION

    We review the Court of Federal Claims’ grant of
summary judgment without deference, Norfolk Dredging
Co. v. United States, 375 F.3d 1106, 1108 (Fed. Cir. 2004),
and the court’s factual findings under the clearly errone-
ous standard, Blue & Gold Fleet, L.P. v. United States,
492 F.3d 1308, 1312 (Fed. Cir. 2007).

             I.    Third-Party Beneficiary Status

    A plaintiff must be in privity with the United States
to have standing to sue the sovereign on a contract claim.
Anderson v. United States, 344 F.3d 1343, 1351 (Fed. Cir.
2003). Not only is privity a fundamental requirement of
contract law, but it is particularly important in cases
involving government contracts because the “government
consents to be sued only by those with whom it has privity
of contract.” Erickson Air Crane Co. of Wash. v. United
States, 731 F.2d 810, 813 (Fed. Cir. 1984). This Court has
recognized limited exceptions to that general rule when a
party standing outside of privity “stands in the shoes of a
party within privity.” First Hartford Corp. Pension Plan
& Trust v. United States, 194 F.3d 1279, 1289 (Fed. Cir.
1999). Therefore, to properly bring this suit against the
Government, the Sullivans need to prove that they are
third party beneficiaries of the contract between the
Government and TNT, and then to then win in the suit,
while “standing in the shoes” of TNT they must prove that
there was a breach of contract by the Government.

    For third party beneficiary status to be conferred on a
party, the “contract must reflect the express or implied
intention of the [contracting] parties to benefit the third-
party.” Montana v. United States, 124 F.3d 1269, 1273
(Fed. Cir. 1997). While the third party does not need to
5                                             SULLIVAN   v. US

be specifically identified in the contract, third party
beneficiary status can only be bestowed on those parties
that “fall within a class clearly intended to be benefited”
by the contract. Id. “[M]erely because a third party may
derive a benefit, purely incidental and not contemplated
by the contracting parties, from the performance of a
contract does not entitle that party to enforce the con-
tract.” Williston on Contracts § 37:7. Hence, in order for
the Sullivans to be third party beneficiaries, they need to
be within the class that the Postal Service intended to
benefit from the insurance and not simply be incidental
beneficiaries.

    The trial court found that the Sullivans were third
party beneficiaries by assuming that “[w]hen liability
insurance is purchased it is for the purpose of compensat-
ing people who might otherwise sue you.” Sullivan, 2005
WL 6115387 at *3. The court further assumed that the
“purpose of the insurance [policy] was to protect innocent
highway drivers from undercompensated losses from
judgment proof or underinsured contractors doing the
government’s business.” Id. at *4. These assumptions
are at best open to question. It is equally plausible, if not
more likely, that people do not purchase liability insur-
ance in order to compensate unknown others. Ordinarily,
liability insurance is purchased to protect the insured
party from paying potential loses from their own pocket.
Furthermore, in this case there was little doubt as to the
Government’s intention in requiring TNT to purchase
additional liability insurance. The USPS Procurement
Manual, which governs contracts between the Postal
Service and its contractors, explicitly states that “contrac-
tors may be required to carry insurance only when neces-
sary to protect the interest of the Postal Service.” Id.
Thus, the Government’s intent in requiring the carrier to
carry additional liability insurance is to protect the Postal
SULLIVAN   v. US                                           6

Service from potential risk to the Postal Service—not to
compensate others. See id.

                   II.   Breach of Contract

    Regardless of whether the trial court properly classi-
fied the Sullivans as third party beneficiaries, the Sulli-
vans still could not succeed in this breach of contract
action against the Government. TNT, in whose shoes the
Sullivans must stand, breached the contract, not the
Government.

    Contrary to the trial court’s findings, by failing to ob-
tain the additional insurance required by the federal
contract, TNT was the party who committed the breach
and not the Postal Service. The most that can be said of
the Postal Service is that it failed to enforce a contract
provision that it was entitled to enforce—that is not a
breach of contract by the Government. There are no
provisions within the contract imposing a duty upon the
Postal Service to ensure that TNT carries the proper
insurance. Consequently, even if the Sullivans were third
party beneficiaries, there is no cause of action against the
Government because the Government did not breach. See
Restatement (Second) of Contracts § 235(2) (defining
breach of contract as anything short of full performance
under the contractual provisions).

    Accordingly, we reverse the trial court’s judgment and
direct the trial court to enter judgment consistent with
this opinion.
7                                          SULLIVAN   v. US

                      REVERSED

                          COSTS

    Each party shall bear its own costs.