TEXTAINER EQUIPMENT MANGEMENT LIMITED, ET AL. v. USA
Filing
81
PUBLISHED OPINION: Denying plaintiffs' motion for leave to amend the complaint (ECF No. 73). Joint Status Report due by 1/20/2012. Signed by Judge Nancy B. Firestone. (lb) Copy to parties.
In the United States Court of Federal Claims
No. 08-610C
(Filed: January 10, 2012)
TEXTAINER EQUIPMENT
MANAGEMENT LIMITED, et al.,
Plaintiffs,
v.
THE UNITED STATES,
Defendant.
)
)
)
)
)
)
)
)
)
)
)
)
Motion to Amend Complaint; RCFC
15(a); Subcontractor Rights to
Payment; Assignment of Contract;
Third Party Beneficiary; AntiAssignment Act
Lars H. Liebeler, Washington, DC, for plaintiffs.
Robert C. Bigler, United States Department of Justice, Washington, DC, with whom were
Tony West, Assistant Attorney General, Jeanne E. Davidson, Director, and Brian M. Simkin,
Assistant Director, for defendant.
OPINION AND ORDER DENYING PLAINTIFFS’ MOTION FOR LEAVE TO
AMEND THE COMPLAINT
FIRESTONE, Judge.
Pending before the court is the motion of CAI International, Inc. (“CAI”), Cronos
Containers Limited (“Cronos”), and Textainer Equipment Management Limited
(“Textainer”), successor in interest to Capital Lease Limited (“Capital”) (collectively,
“plaintiffs”) to amend their complaint. Plaintiffs each own and/or manage a large fleet of
-1-
intermodal shipping containers, which plaintiffs leased to a third party company,
TOPtainer Container Management & Sales (“TOPtainer”). TOPtainer, in turn, leased
plaintiffs’ containers to the Army pursuant to a lease agreement (“Master Lease”)
between TOPtainer and defendant the United States (“the government”). The containers
were leased by the government for use in Iraq, Kuwait, and Afghanistan. Plaintiffs were
not parties to the Master Lease agreement.
Under the terms of the Master Lease, the government was allowed to buy any
containers that were “lost” at the end of the lease term. Pursuant to this authority, the
government paid TOPtainer for approximately 1000 containers that the government could
not find after the lease between TOPtainer and the Army expired. Although the
government paid TOPtainer for these “lost” containers, TOPtainer never paid plaintiffs.
TOPtainer is no longer in existence and cannot be found.
Plaintiffs filed their original complaint in this court on September 2, 2008, alleging
that the government had taken their property, i.e. their containers, without just
compensation in violation of the Fifth Amendment of the Constitution of the United
States. Plaintiffs moved for summary judgment on their claim. On June 17, 2011, the
court denied plaintiffs’ motion. The court determined that genuine issues of material fact
precluded summary judgment on plaintiffs’ taking claim, finding that there were disputed
issues of fact regarding whether the government was acting in its sovereign capacity
when it assumed ownership of plaintiffs’ containers under the terms of the buyout
provisions in the Master Lease. The court agreed with the government that if the facts
establish that the government was acting in its proprietary capacity rather than in its
-2-
sovereign capacity when it assumed ownership of the containers, the government cannot
be liable for a taking. Rather, plaintiffs will be left with only contract remedies, if any.
Following the summary judgment ruling, plaintiffs filed the pending motion seeking
leave to amend their complaint to include two contract claims against the government.
For the reasons set forth below, plaintiffs’ motion for leave to amend their complaint is
DENIED.
I.
BACKGROUND
Many of the background facts are set forth in the court’s June 7, 2011, opinion on
summary judgment and will not be repeated here. See Textainer Equip. Mgmt. Ltd. v.
United States, 99 Fed. Cl. 211 (2011). The facts relevant to plaintiffs’ proposed contract
claims are taken from plaintiffs’ proposed First Amended Complaint unless otherwise
indicated.
Plaintiffs leased their containers to TOPtainer on the following dates: Capital
entered into a lease with TOPtainer on or about March 1, 1999, CAI on or about
November 4, 2002, and Cronos on or about September 17, 2003. Thereafter, TOPtainer
leased plaintiffs’ containers to the Army. In the spring of 2004, TOPtainer stopped
making payments to plaintiffs under their respective leases, placing TOPtainer in default
of those leases. On August 4, 2004, one of the plaintiffs, Capital, sent an email to one of
the government’s contracting officials, Leonard Priber, to inform him that TOPtainer was
in default of its lease with Capital, and that TOPtainer had no further rights to possess
any containers under the Capital/TOPtainer lease. Mr. Priber responded, informing
Capital that he could not recognize the notice of default, and that Capital should contact
-3-
legal counsel with the United States Surface Deployment and Distribution Command
(“SDDC”). The next day, Capital contacted SDDC, which, on August 13, 2004, rejected
Capital’s notification that TOPtainer was in default.
Meanwhile, on July 1, 2004, the 1997 Master Lease between TOPtainer and the
Army expired. Textainer, 99 Fed. Cl. at 215. Pursuant to the Master Lease agreement,
the Army notified TOPtainer that it could not locate certain containers that it had leased
from TOPtainer, and that it would instead conduct a buyout of the containers in
accordance with clause H-7 of the Master Lease. Under that provision, the government
was to pay TOPtainer for any lost containers in accordance with a schedule set in the
Master Lease. Textainer, 99 Fed. Cl. at 214-15. During late 2004 and 2005, TOPtainer
submitted invoices to the Army, and the Army paid the invoices directly to TOPtainer.
The buyout involved approximately 477 containers leased by Capital/Textainer, 435
leased by CAI, and 103 leased by Cronos.
Each contract between plaintiffs and TOPtainer expressly prohibited the sale or
transfer of containers to any third party. 1 The United States did not request or obtain
plaintiffs’ consent for the buyout. The government also rejected various requests from
CAI and Capital/Textainer that the government make payments directly to those
plaintiffs. TOPtainer never paid plaintiffs for the containers.
1
As discussed in the opinion on summary judgment, each of plaintiffs’ contracts with TOPtainer
also contained a provision regarding “lost” containers. These provisions required TOPtainer to
pay plaintiffs in the event containers were lost and could not be found. Textainer, 99 Fed. Cl. at
213-14, 218-19.
-4-
On January 8, 2007, plaintiffs filed a contract claim for compensation with the
contracting officer at the SDDC under FAR § 33.206. On March 14, 2007, the SDDC
denied plaintiffs’ demand for compensation. On September 2, 2008, plaintiffs filed their
initial complaint in this court alleging a taking of their property without just
compensation in violation of the Fifth Amendment of the Constitution of the United
States. They did not allege any contract claims in their original complaint. Plaintiffs
filed the pending motion for leave to amend their complaint following the court’s denial
of their motion for summary judgment. Plaintiffs allege in Count II of the amended
complaint that they were assigned the Master Lease between the government and
TOPtainer “by operation of law” and that the government breached its assigned
agreement with plaintiffs when it paid TOPtainer, instead of plaintiffs, for the unreturned
containers. In Count III of the amended complaint, plaintiffs allege that they were third
party beneficiaries of the Master Lease agreement between TOPtainer and the
government, and that the government breached its obligations to them by failing to ensure
that the buyout payments made to TOPtainer were forwarded to plaintiffs.
II.
STANDARD OF REVIEW
Rule 15(a) of the Rules of the United States Court of Federal Claims (“RCFC”)
govern when and how a party may amend its pleadings. Where, as here, the party
seeking to amend must first obtain permission from the court, Rule 15(a)(2) applies.
The decision to grant leave to amend is within the discretion of the trial court.
Tamerlane, Ltd. v. United States, 550 F.3d 1135, 1146-47 (Fed. Cir. 2008). Motions to
amend should as a general matter, be granted freely. Spalding & Son, Inc. v. United
-5-
States, 22 Cl. Ct. 678, 680 (1991); Foman v. Davis, 371 U.S. 178, 182 (1962) (finding
that so long as “the underlying facts or circumstances relied upon by a plaintiff may be a
proper subject of relief, he ought to be afforded an opportunity to test his claim on the
merits”). However, the court may deny such motions in cases where there has been
“undue delay that would prejudice the nonmoving party, [a finding] that the moving party
has acted in bad faith, or [a finding] that the amendment would be futile.” Kemin Foods,
L.C. v. Pigmentos Vegetales Del Centra S.A. de C.V., 464 F.3d 1339, 1353 (Fed. Cir.
2006) (discussing analogous Federal Rule of Civil Procedure); see also Foman, 371 U.S.
at 182; Herndon v. United States, 36 Fed. Cl. 198, 202-03 (1996), aff’d, 121 F.3d 727
(Fed. Cir. 1997) (table). “The existence of any one of these criteria is sufficient to deny a
motion to amend, the theory being that the amendment would not be necessary to serve
the interests of justice under such circumstances.” Spalding, 22 Cl. Ct. at 680.
The government opposes plaintiffs’ motion to amend their complaint primarily on
the grounds of undue delay in asserting the contract claims and futility. A futility
objection may be based on jurisdictional grounds, requiring a finding that plaintiffs’
proposed amendments would not withstand a motion to dismiss based on lack of subject
matter jurisdiction under RCFC 12(b)(1), or that plaintiffs fail to sufficiently allege
privity of contract with the government and therefore lack standing. See, e.g., Wolfchild
v. United States, Nos. 03-2684L, 01-568L, 2011 WL 3438414, at *20 (Fed. Cl. Aug. 18,
2011). A motion to amend may also be deemed futile if it cannot withstand a motion to
dismiss for failure to state a claim: “When a party faces the possibility of being denied
leave to amend on the ground of futility, that party must demonstrate that its pleading
-6-
states a claim upon which relief could be granted, and it must proffer sufficient facts
supporting the amended pleading that the claim could survive a dispositive pretrial
motion.” Kemin Foods, 464 F.3d at 1355; see also Merck & Co., Inc. v. Apotex, Inc.,
287 F. App’x 884, 888 (Fed. Cir. 2008) (analyzing analogous Federal Rule of Civil
Procedure). The court therefore discusses the standards attendant to dismissal for lack of
jurisdiction and for failure to state a claim below.
A.
Dismissal for Lack of Standing or Subject Matter Jurisdiction
It is well-settled that the government may only be sued to the extent it consents to
be sued. Flexfab, L.L.C. v. United States, 424 F.3d 1254, 1263 (Fed. Cir. 2005) (citing
United States v. Lee, 106 U.S. 196, 207 (1882)). With respect to contract cases, the
“government consents to be sued only by those with whom it has privity of contract.”
Flexfab, 424 F.3d at 1263 (quoting Erickson Air Crane Co. v. United States, 731 F.2d
810, 813 (Fed. Cir. 1984)) (internal quotation omitted). Therefore, unless an exception
applies, subcontractors, such as plaintiffs, lack privity and may not bring direct suits
against the government. Flexfab, 424 F.3d at 1263. “One such exception allows suit
against the government by an intended third party beneficiary despite the lack of privity.”
Id. (citing First Hartford Corp. Pension Plan & Trust v. United States, 194 F.3d 1279,
1289 (Fed. Cir. 1999)). If third party beneficiary status can be shown, a subcontractor
will have standing to bring a suit against the government. However, if a subcontractor
cannot establish that it was a third party beneficiary to the contract between the prime
contractor and the United States, the subcontractor will lack standing to bring suit.
Flexfab, 424 F.3d at 1259.
-7-
In addition to standing, a plaintiff also has the burden of establishing that the court
has subject matter jurisdiction over a suit against the federal government. United States
v. White Mountain Apache Tribe, 537 U.S. 465, 472 (2003). The Tucker Act serves as a
waiver of sovereign immunity and grants this court jurisdiction over “any claim against
the United States founded upon . . . any express or implied contract with the United
States.” 28 U.S.C. § 1491(a)(1) (2006). However, the Tucker Act alone does not create a
substantive cause of action, and the plaintiff must identify a separate source of
substantive law that creates the right to money damages. Blueport Co. v. United States,
533 F.3d 1374, 1383 (Fed. Cir. 2008) (quoting Jan’s Helicopter Serv., Inc. v. Fed.
Aviation Admin., 525 F.3d 1299, 1306 (Fed. Cir. 2008)). “Allegations of a contract with
the government and breach of that contract can suffice for this purpose, so long as
monetary relief is sought.” Liberty Ammunition, Inc. v. United States, No. 11-84C, 2011
WL 5150221, at *3 (Fed. Cl. Oct. 31, 2011).
The Federal Circuit has made clear that, to establish subject matter jurisdiction for
a contract claim under the Tucker Act, plaintiffs must provide “a non-frivolous allegation
of a contract with the government.” Engage Learning, Inc. v. Salazar, 660 F.3d 1346,
1353 (Fed. Cir. 2011). “The actual existence of a contract is not a jurisdictional matter
but rather a decision on the merits of the case.” Liberty Ammunition, 2011 WL 5150221,
at *4 (citing Engage Learning, 660 F.3d at 1354). The existence of a contract is thus
determined under RCFC 12(b)(6). See Engage Learning, 660 F.3d at 1354 (“[W]hen the
Court of Federal Claims determines that the plaintiff has failed as a matter of law to
-8-
establish the existence of an alleged contract with the government, the proper disposition
is to dismiss for failure to state a claim, rather than for lack of jurisdiction.”).
B.
Dismissal for Failure to State a Claim Under RCFC 12(b)(6)
To avoid dismissal for failure to state a claim upon which relief may be granted
under RCFC 12(b)(6), the complaint must contain facts sufficient to “‘state a claim to
relief that is plausible on its face.’” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The plaintiff’s factual
allegations must “raise a right to relief above the speculative level” and cross “the line
from conceivable to plausible.” Bell Atl. Corp., 550 U.S. at 555. “A pleading that offers
‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action
will not do.’ . . . Nor does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of
‘further factual enhancement.’” Iqbal, 129 S. Ct. at 1949 (quoting Bell Atl. Corp., 550
U.S. at 555, 557). In considering a motion under RCFC 12(b)(6), “the court must accept
as true the complaint’s undisputed factual allegations and should construe them in a light
most favorable to the plaintiff.” Cambridge v. United States, 558 F.3d 1331, 1335 (Fed.
Cir. 2009) (citing Papasan v. Allain, 478 U.S. 265, 283 (1986); Gould, Inc. v. United
States, 935 F.2d 1271, 1274 (Fed. Cir. 1991)). “[T]he Court of Federal Claims has both
the power and the obligation to dismiss cases in which no claim has been properly
stated.” Brach v. United States, No. 2011-50889, 2011 WL 4821969, at *4 (Fed. Cir.
Oct. 12, 2011).
-9-
III.
DISCUSSION
The government argues that plaintiffs’ motion to amend their complaint to add
assignment and third party beneficiary claims should be denied because plaintiffs waited
too long to amend their complaint and because pursuit of the contract claims would be
futile. Specifically, as to the assignment claim, the government argues that plaintiffs
have failed to allege sufficient facts to show that a valid assignment occurred. Def.’s
Resp. at 6 (“[P]laintiffs provide no support for the assignment other than to claim that
TOPtainer’s default on its contract with plaintiffs assigned TOPtainer’s contract” with the
government to plaintiffs.). The government contends that plaintiffs’ attempt to “stand in
the shoes” of TOPtainer impermissibly “circumvent[s] the well-established rule that the
Government is not liable to unpaid subcontractors” when the prime contractor has already
been paid by the United States. Id. at 5-6. In regard to plaintiffs’ third party beneficiary
claim, the government argues that plaintiffs have not alleged sufficient facts to
demonstrate that they have standing to sue the government because plaintiffs have not
identified any facts to show an intent to benefit plaintiffs. Id. at 7-8. For these reasons,
the government argues that the motion to amend the complaint should be denied.
Plaintiffs generally respond that the proposed assignment and third party
beneficiary claims identified in the proposed amended complaint “are too complex in
nature to resolve on a motion for leave to amend,” and that under the liberal standard of
RCFC 15(a)(2), their motion should be granted. Pls.’ Mot. at 2. Plaintiffs contend that
their First Amended Complaint presents allegations sufficient to withstand the abovenoted jurisdictional and procedural arguments. Plaintiffs also assert that their proposed
-10-
contract claims were not unduly delayed and that permitting the motion to amend would
not cause prejudice to the government. Id. at 4-5.
After careful consideration, the court agrees with the government that allowing
plaintiffs’ assignment claim and plaintiffs’ third party beneficiary claim would be futile. 2
2
To the extent that plaintiffs allege an “implied-in-fact” contract separate from their third party
beneficiary claim, see First Am. Compl. ¶ 71, the court also agrees with the government that
plaintiffs complaint does not sufficiently allege the elements of an implied-in-fact contract to
avoid dismissal under RCFC 12(b)(6), and is therefore futile. To establish the existence of an
implied-in-fact contract, plaintiffs must demonstrate: (1) mutual intent to contract; (2)
consideration; (3) lack of ambiguity in an offer and acceptance; and (4) actual authority on the
part of the government representative to bind the United States in contract. City of El Centro v.
United States, 992 F.2d 816, 820 (Fed. Cir. 1990) (citing Russell Corp. v. United States, 537
F.2d 474, 482 (Ct. Cl. 1976)).
An implied-in-fact contract with the government may not exist without evidence of a meeting of
the minds with the United States. Smith v. United States, 58 Fed. Cl. 374, 383 (2003), aff’d, 110
F. App’x 898 (Fed. Cir. 2004); AG Route Seven P’ship v. United States, 57 Fed. Cl. 521, 536-37
(2003) (“Acceptance of the offer must be manifested by conduct, which, reviewed objectively,
indicates assent to the proposed bargain.”), aff’d, 104 F. App’x 184 (Fed. Cir. 2004). Here,
plaintiffs do not allege conduct by the United States that demonstrates a mutual intent to
contract. In fact, the First Amended Complaint reveals that the government refused to contract
with plaintiffs or to provide payment to any entity other than TOPtainer for plaintiffs’ containers.
See First Am. Compl. ¶ 17 (“[Government contractor] Mr. Priber . . . did not agree to transfer the
management of Capital’s containers under lease from TOPtainer to Textainer’s management.”);
id. ¶ 41 (describing the payment of funds to TOPtainer for the containers deemed “lost” by the
government). These facts stand in contrast to plaintiffs’ allegation that the government displayed
“an intent that its payments [to TOPtainer] benefit the plaintiffs.” Id. ¶ 71.
In addition, plaintiffs do not allege that a government representative with actual authority agreed
to bind the United States to a contract, a crucial element to an implied-in-fact contract claim.
See, e.g., Flexfab, 424 F.3d at 1260. For these reasons, to the extent that plaintiffs are alleging
an implied-in-fact contract, this claim is also futile. Furthermore, to the extent that plaintiffs are
alleging an implied-in-law contract, this court lacks jurisdiction to hear that claim. Trauma Serv.
Group v. United States, 104 F.3d 1321, 1324-25 (Fed. Cir. 1997).
The government also opposes plaintiffs’ motion to amend, “even if plaintiffs were in privity of
contract with the United States,” based on several allegedly unfulfilled procedural requirements
of the Contract Disputes Act (“CDA”), 41 U.S.C. §§ 7101-09 (2006). The government argues
that the CDA applies “to the extent plaintiffs’ allege [] an implied-in-fact contract” between
themselves and the government. Def.’s Resp. at 9-13. Because the court holds that plaintiffs do
-11-
Thus, for the reasons discussed in greater detail below, plaintiffs’ motion for leave to
amend their complaint is DENIED.
A.
Plaintiffs’ Assignment Claim is Futile
Plaintiffs first seek to add a breach of an assigned contract claim as Count II of
their complaint. Plaintiffs allege that they became assignees of the Master Lease between
the government and TOPtainer by “operation of law” when TOPtainer defaulted under its
contracts with each plaintiff. See First Am. Compl. ¶ 61-63. Plaintiffs argue that
because the assignment was by “operation of law,” they did not need government
approval under the Anti-Assignment Act. See 41 U.S.C § 15; 31 U.S.C. § 3727 (2006).
They contend that they have stated a claim for relief based on the government’s failure to
pay them once the assignment by “operation of law” took effect following TOPtainer’s
default.
The court agrees with the government that allowing plaintiffs to file an amended
complaint based on an assignment theory would be futile because plaintiffs have failed to
sufficiently allege a valid assignment. Plaintiffs do not point to any facts or law
demonstrating that a default on the part of a prime contractor against a subcontractor
gives rise to an “operation of law” assignment of a government contract to the
subcontractor. Instead, plaintiffs offer only conclusory allegations that, here, the
assignment of the Master Lease to plaintiffs occurred by “operation of law.”
not sufficiently allege an “implied-in-fact” contract with the United States, the court does not
address this aspect of the government’s argument.
-12-
In support of their claim, plaintiffs first allege that, when TOPtainer defaulted
under its contracts with each plaintiff, TOPtainer had no further rights with respect to
plaintiffs’ containers under its Master Lease with the United States. First Am. Compl. ¶
61. Plaintiffs next allege that the United States was informed of TOPtainer’s default
under TOPtainer’s contracts with plaintiffs. Id. ¶ 62. Plaintiffs then summarily conclude
that “by operation of law, Plaintiffs became assignees of TOPtainer under the Master
Lease with the United States” after the default. Id. ¶ 63.
While TOPtainer may have defaulted on its contracts with plaintiffs, the court
agrees with the government that this fact alone does not result in the assignment of the
Master Lease. Plaintiffs’ amended complaint does not identify any mechanism by which
the Master Lease was assigned to plaintiffs. Plaintiffs do not allege that the government
consented to the assignment of the Master Lease itself or its proceeds. In fact, plaintiffs
concede that the government refused to transfer management of the containers from
TOPtainer to Capital. See First Am. Compl. ¶ 17.
Furthermore, plaintiffs do not identify any authority which recognizes an
“operation of law” assignment in these circumstances. Nor do plaintiffs allege any facts
that would allow the court to analogize plaintiffs’ case to any recognized “operation of
law” transfer. Assignments by “operation of law” are involuntary transfers of
government contracts that occur “without any act of the parties” and that are “compelled
by law.” United States v. Aetna Cas. & Sur. Co., 338 U.S. 366, 374 (1949) (quoting
United States v. Gillis, 95 U.S. 407, 416 (1877)); see also Restatement (Second) of
Contracts § 316(d) (1981). In the context of government contracts, assignments by
-13-
“operation of law” have been found in cases involving involuntary transfer by intestate
succession or testamentary disposition, by judicial sale, by bankruptcy, by subrogation to
an insurer, and by consolidation or merger to a successor of a claimant corporation.
Tuftco Corp. v. United States, 614 F.2d 740, 745 (Fed. Cir. 1980); Liberty Ammunition,
2011 WL 5150221, at *7 (finding that alleged assignee might qualify for a recognized
“operation of law” assignment and rejecting a motion to dismiss); Centers v. United
States, 71 Fed. Cl. 529, 534-35 (2006) (citations omitted). The court declines plaintiffs’
invitation to broadly extend this category by allowing an assignment of a government
contract by “operation of law” to occur when a prime contractor defaults under a lease
with a subcontractor. To do so would contravene the law of assignments of government
contracts as established by the precedent of the Federal Circuit.
Ultimately, plaintiffs allege only that, because of TOPtainer’s default under its
contracts with plaintiffs, TOPtainer had no further legal rights to plaintiffs’ containers.
Without more, this fact is not enough to support the bald assertion of an assignment to
plaintiffs by “operation of law.” 3 It is well-settled that “naked assertions” without
“further factual enhancements” are not sufficient to withstand a motion to dismiss. See
Bell Atl. Corp., 550 U.S. at 555-57; see also Iqbal, 129 S. Ct. at 1949 (“Threadbare
recitals of the elements of a cause of action, supported by mere conclusory statements, do
not suffice.”). Here, plaintiffs have not alleged sufficient facts to demonstrate that there
3
Plaintiffs concede that the First Amended Complaint would only “restate and expand on facts”
that were already established in plaintiffs’ motion for summary judgment. Pls.’ Mot. at 2.
Further proceedings would therefore not provide any additional facts that would allow plaintiffs
to support their breach of contract claims.
-14-
had been an assignment of the Master Lease to plaintiffs. TOPtainer’s default by itself
was not enough to create an assignment of a government contract by “operation of law.”
Therefore, the court finds that plaintiffs’ assignment claim in Count II of the First
Amended Complaint does not set forth a valid assignment. 4 As such, plaintiffs cannot
establish the existence of a contract that would allow them to withstand a 12(b)(6)
motion. Accordingly, the court DENIES plaintiffs’ request for leave to add Count II to
their original complaint on the grounds of futility.
B.
Plaintiffs’ Third Party Beneficiary Claim is Futile
Plaintiffs also seek leave to add a third party beneficiary claim to their complaint.
Plaintiffs assert that a “contract also arose between the United States and each Plaintiff
because each Plaintiff was a direct third party beneficiary of the original Master Lease
between the United States and TOPtainer.” First. Am. Compl. ¶ 73. In support, plaintiffs
allege that “[a]t all relevant times the United States knew that each Plaintiff was an
intended third party beneficiary of the Master Lease between TOPtainer and the United
States.” Id. ¶ 74. Plaintiffs claim that the United States breached this implied contract
“by failing and refusing to pay per diem rental charges to [Capital/Textainer] and to
adjust container losses and ‘deemed’ losses with all plaintiffs, and by failing to take
4
Plaintiffs also suggest, relying on D & H Distributing Co. v. United States, 102 F.3d 542 (Fed.
Cir. 1996), that TOPtainer’s default under its contract with plaintiffs resulted in an assignment of
proceeds of the Master Lease between the government and TOPtainer, and that, therefore, the
government should have paid plaintiffs’ directly for their containers under the Master Lease.
Pls.’ Reply at 6-7. This claim would also be futile. Plaintiffs do not allege that they received an
express assignment of proceeds from TOPtainer, or that they provided notice to the government
of such an assignment. See Produce Factors Corp. v. United States, 467 F.2d 1343, 1348-49 (Ct.
Cl. 1972); Nelson Constr. Co. v. United States, 79 Fed. Cl. 81, 87-88 (2007). In such
circumstances, plaintiffs cannot state a claim for payment.
-15-
commercially reasonable steps to insure that payments made to TOPtainer were conveyed
to plaintiffs for the benefits received by the United States.” Id. ¶ 75.
As noted above, generally, a subcontractor may not bring a direct breach of
contract claim against the government because they lack privity of contract with the
government. However, the Federal Circuit has recognized “limited exceptions to that
general rule.” Sullivan v. United States, 625 F.3d 1378, 1380 (Fed. Cir. 2010) (citing
First Hartford, 194 F.3d at 1289). One such exception allows suit against the government
by an “intended third party beneficiary” despite lack of privity. Flexfab, 424 F.3d at
1264 (citing First Hartford, 194 F.3d at 1289). Under the “intention to benefit” test, to
establish third party beneficiary status, a plaintiff must show that the “contract . . .
reflect[s] 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). Without third
party beneficiary status, a subcontractor lacks standing to sue the government directly.
Flexfab, 424 F.3d at 1259.
In order to show intention to benefit, a third party beneficiary “need not be
specifically or individually identified in the contract, but must fall within a class clearly
intended to be benefited thereby.” Id. at 1260 (quoting Montana v. United States, 124
F.3d 1269, 1273 (Fed. Cir. 1997). Additionally, the party asserting third party
beneficiary status 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); Flexfab, 424
F.3d at 1259. As a result, only direct or intended beneficiaries, established by the intent
-16-
of the contracting parties, may obtain third party beneficiary status. 5 As the Federal
Circuit has explained:
[F]or third party beneficiary status to lie, the contracting officer must be put
on notice, by either the contract language or the attendant circumstances, of
the relationship between the prime contractor and the third party
subcontractor so that an intent to benefit the third party is fairly attributable
to the contracting officer.
Flexfab, 424 F.3d at 1263. The Federal Circuit has further held that “one way to
establish intent is to ‘ask [. . .] whether the beneficiary would be reasonable in relying on
the promise as manifesting an intention to confer a right on him.’” FloorPro, Inc. v.
United States, 98 Fed. Cl. 144, 148 (2011) (quoting Flexfab, 424 F.3d at 1260).
However, the Federal Circuit has also recognized that third party beneficiary status is an
“exceptional privilege” that “should not be granted liberally.” Flexfab, 424 F.3d at 1259
(citing German Alliance Ins. Co. v. Home Water Supply Co., 226 U.S. 220, 230 (1912)).
The government argues that plaintiffs have not established the “exceptional
privilege” of third party beneficiary status in this case because they have failed to allege
any facts to support the “intention to benefit” standard outlined by the Federal Circuit.
Def.’s Resp. at 8. Specifically, the government contends that plaintiffs have not and
cannot allege that anything in the 1997 Master Lease demonstrates an intent to benefit
plaintiffs, and that plaintiffs have not alleged any facts to show that the government’s
contracting officer by word or deed manifested any intent to confer third party
beneficiary status on plaintiffs. The court agrees.
5
Intended beneficiaries stand in contrast to incidental beneficiaries: “Performance of a contract
will often benefit a third person. But unless the third person is an intended beneficiary . . . no
duty to him is created.” Restatement (Second) of Contracts § 302, cmt. e (1981).
-17-
In support of their third party beneficiary claim, plaintiffs allege that the
government “knew that each plaintiff was an intended third party beneficiary of the
Master Lease.” First Am. Compl. ¶ 72. Yet this assertion, without more, is not sufficient
to confer third party beneficiary status on plaintiffs, even at the pleadings stage. See
Iqbal, 129 S. Ct. at 1949. Plaintiffs do not allege that the language in the Master Lease
demonstrates the government’s intent to benefit plaintiffs or a class of beneficiaries to
which plaintiffs belong, as required under the “intention to benefit” test. Plaintiffs also
do not allege any facts that demonstrate that a contracting officer intended to assume a
contractual obligation to plaintiffs in the Master Lease. In short, the First Amended
Complaint does not contain any facts that show plaintiffs were meant to directly benefit
from the Master Lease.
Nor do plaintiffs allege any facts to show that, in their efforts to secure payment
from the government, a government contracting official with authority to bind the United
States indicated that plaintiffs were entitled to third party beneficiary status. While
plaintiffs allege that government contracting personnel learned that plaintiffs and not
TOPtainer owned the subject containers, this knowledge alone is not sufficient to
demonstrate that the government intended to confer on plaintiffs any contractual right to
payment under the Master Lease. To the contrary, the government expressly rebuffed
Capital’s request for payment and rejected Capital’s notification of TOPtainer’s default.
First Am. Compl. ¶ 17, 21.
At best, plaintiffs have alleged that they had hoped to benefit from TOPtainer
receiving funds from the government. This is an incidental, not a direct, benefit. As
-18-
incidental beneficiaries, plaintiffs cannot obtain third party beneficiary status. See
Restatement (Second) of Contracts § 302 (1981); Carter v. United States, No. 10-048C,
2011 WL 5998867, at *9 (Fed. Cl. Nov. 30, 2011) (“[I]t is not enough that plaintiff
would have ultimately benefited from the agreement—i.e., because it was merely an
incidental beneficiary—rather, the federal and state governments must have intended the
third-party to receive the promised performance.”). Having failed to allege sufficient
facts to demonstrate third party beneficiary status, plaintiffs lack standing to bring their
claim directly against the government. 6 Accordingly, the court DENIES as futile
plaintiffs motion to amend the complaint to include the third party beneficiary claim of
Count III. 7
IV.
CONCLUSION
For the foregoing reasons, plaintiffs’ motion to amend the complaint is DENIED.
The parties shall file a joint status report by January 20, 2012, indicating which dates the
parties are available for pre-trial conference and trial within the following weeks:
Pre-Trial Conference:
February 20, 2012 – March 2, 2012
Trial:
March 12, 2012 – March 17, 2012
March 19, 2012 – March 24, 2012
6
To the extent that plaintiffs argue under D & H Distributing Co. v. United States that “a
complete or partial assignment of the right to be paid the proceeds of a contract” can also be
construed as a third party beneficiary claim, 102 F.3d at 547; see Pls.’ Reply at 6-7, this
argument fails because plaintiffs have not sufficiently alleged a valid assignment. See note 4,
supra, and accompanying text.
7
Because the court denies the entirety of plaintiffs’ motion to amend on futility grounds, it does
not reach the parties’ arguments concerning undue delay.
-19-
IT IS SO ORDERED.
s/Nancy B. Firestone
NANCY B. FIRESTONE
Judge
-20-
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?