CARTER et al v. USA
Filing
54
PUBLISHED OPINION granting in part and denying in part 37 Motion for Summary Judgment; denying 48 Motion for Discovery. Signed by Senior Judge Eric G. Bruggink. (tt1) Copy to parties.
In the United States Court of Federal Claims
No. 10-048C
(Filed: November 30, 2011)
**********************
RICHARD CARTER AND JERRY
GOODWIN, d/b/a R&J FEED,
Plaintiffs,
Contract; third-party beneficiary;
Astra; mutuality; consideration
v.
THE UNITED STATES,
Defendant,
**********************
Stephen Quesenberry, Provo, Utah, with whom was Michael
Quesenberry, for plaintiffs.
Michael Paul Goodman, United States Department of Justice, Civil
Division, Washington, D.C., with whom were Tony West, Assistant
Attorney General, Jeanne E. Davidson, Director, Kirk Manhardt, Assistant
Director for defendant.
_________
OPINION
_________
BRUGGINK, Judge.
This is an action for breach of an asserted contract between the United
States Department of Agriculture, acting through the Commodity Credit
Corporation (“CCC”), and beneficiaries of a drought relief program
coordinated by the government and several states. Under the program, the
federal government provided large quantities of nonfat dry milk to individual
states, which distributed the nonfat dry milk to livestock producers. Before the
1
court is defendant’s motion for summary judgment and plaintiff’s1 motion for
Rule 56(d) discovery. The matter is fully briefed. Oral argument was held on
September 6, 2011. For the reasons discussed below, we grant in part and
deny in part defendant’s motion for summary judgment and deny plaintiff’s
motion for additional discovery.
BACKGROUND 2
The early 2000s were a time of severe drought in western states,
resulting in a significant shortage in livestock feed. To ameliorate the effects
of the drought, the United States Department of Agriculture (“USDA”) created
a drought relief program in 2002 pursuant to 7 U.S.C. § 7285 (2006)3 . The
program allowed the USDA to contract with drought-afflicted states for the
distribution of nonfat dry milk (“NDM”) to foundation livestock producers and
feed dealers. The program continued through 2004.
The NDM program was administered primarily by the CCC, a whollyowned government corporation designed to aid and support agricultural
producers. Each participating state executed a uniform document with the
CCC, entitled “Nonfat Dry Milk Sales Agreement between the Commodity
Credit Corporation and the State of ________.”4 Under the sales agreement,
the CCC agreed to provide the state with NDM at a price of $1 per 21-ton
truckload. It also provided a formula for determining the quantity of NDM
which each state could request. The CCC also agreed to pay for transportation
costs to deliver NDM to the states.
1
Although two individuals appear as plaintiffs, because they are doing
business as a single entity, we refer to them in the singular throughout.
2
The material facts are not contested and are drawn from the plaintiff’s
second amended complaint and the undisputed proposed findings of fact.
3
The statute provides that “The [CCC] may sell any commodity owned
or controlled by the [CCC] at any price that the Secretary determines will
maximize returns to the Corporation.” 7 U.S.C. § 7285.
4
This document is attached to several of the parties’ filings before the
court. E.g., Def.’s Mot. Dismiss App. 1-2, July 26, 2010, ECF No. 18. We
refer to the uniform document as the “NDM Agreement” throughout this
opinion.
2
The standard agreement contained certain terms and conditions limiting
the states’ distribution to certain recipients and the recipients’ use of the NDM.
Each participating state agreed in section III of the agreement, “STATE
COMMITMENTS,” to:
1. Purchase NDM using documents provided by CCC . .
. and to refrain from assigning or transferring any rights or
obligations under this Agreement without written approval of
CCC.
2. Establish and maintain distribution points capable of
receiving, unloading from trucks, moving into storage, and
distributing NDM to eligible producers.
3. Be responsible for all costs associated with the
operation of the distribution points and all costs of delivery . . .
.
4. Take action that the State determines to be appropriate
to ensure that only producers of foundation herd livestock . . .
receive NDM . . . .
5. Report to CCC the quantity of NDM purchased from
CCC that exceeds the quantity authorized under this Agreement
....
NDM Agreement 2. The USDA retained the responsibility to enforce the
limits on the use of NDM acquired by “third parties” other than states and
eligible livestock producers.
Each participating state subsequently entered into form agreements,
each entitled “Agreement to Participate in the 2003 NDM Livestock Feed
Assistance Program,” with feed dealers and livestock producers for the
distribution and use of that state’s share of the NDM. Plaintiff entered into
such a standard agreement with several states. Plaintiff has offered the
agreement between it and the state of Utah as representative of these
agreements and transactions. That agreement contained the same restrictions
enumerated above on the use of NDM. After signing the agreement, plaintiff
then had to complete a voucher issued by the state authorizing receipt of a
stated quantity of NDM and requesting a delivery date and location. Vouchers
were issued by and returned to Utah and, like the sales agreement, contained
3
the same limitations on NDM use discussed above. Plaintiff submitted NDM
order forms for the 2003 NDM program, and apparently received some NDM.
In January 2004, however, CCC denied plaintiff’s request for additional NDM.
R&J filed suit here in January of 2010, alleging that it had a contractual
right to receive NDM and that the United States had breached that agreement.
R&J subsequently amended its complaint, seeking $21 million in damages, and
alleging five causes of action: (1) breach of implied-in-fact contract, (2) breach
of third-party beneficiary contract, (3) breach of written contract, (4) breach
of the covenant of good faith and fair dealing, and (5) equitable estoppel.
Defendant filed a motion to dismiss under Rules 12(b)(1) and 12(b)(6)
of the Rules of the Court of Federal Claims (“RCFC”). We granted the motion
to dismiss in part, eliminating all counts except the third-party beneficiary
claim. See Order, Apr. 29, 2011, ECF No. 34. Defendant then filed the
present motion for summary judgment under RCFC 56 directed at that
remaining claim. It argues that there was no enforceable contract between the
government and the states, and even if there was, plaintiff is nevertheless
precluded from recovering as a third-party beneficiary. In response, plaintiff
contends there was a valid and enforceable contract, but that it is unable to
fully respond to the motion without additional discovery under RCFC 56(d).
DISCUSSION
We are presented with a contract interpretation issue. Interpreting a
contract is a question of law amenable to summary judgment, assuming there
are no relevant disputed facts. Varilease Tech. Group, Inc. v. United States,
289 F.3d 795, 798 (Fed. Cir. 2002). Defendant offers a number of theories to
support its position that there was not an enforceable contract. Although we
ultimately agree in part with some of those theories, we address first an
argument with which we disagree.
I.
The subject matter of the agreement does not insulate it from treatment
as a contract
Defendant argues that even if the NDM Agreement was otherwise
binding, liability is nevertheless precluded because the government was acting
in its sovereign capacity when it entered into the NDM Agreement.5 The
5
It is important to note that the government is not using a “sovereign
acts” doctrine defense as contemplated by United States v. Winstar Corp., 518
4
government relies primarily on Kentucky v. United States, 27 Fed. Cl. 173, 180
(1992), for the proposition that no express or implied contract can arise from
acts performed by the government in its sovereign capacity. In this case, it
contends, no contract was actually formed because the government was acting
as sovereign, not as a contractor; the government’s motivations were charitable
and not commercial. In opposition, plaintiff argues that the NDM program
was not a sovereign act and that additional discovery is required to show that
the CCC’s real purpose was to reduce costs to itself as well as to benefit
drought states.
In Kentucky, the United States Army Corps of Engineers assumed
control and operation over a series of locks and dams that the Commonwealth
of Kentucky had built in the mid-1800s. See 27 Fed. Cl. at 174. In addition
to rehabilitating the locks, the Corps built additional locks along the river. In
1979, as some of the locks approached nearly 140 years in age and experienced
serious deterioration, the Corps decided that several of the locks no longer
served their purpose. Accordingly, in an attempt to make more efficient use
of funds and manpower, the Corps sought to close the deteriorating locks.
After a public notice, the Corps formally decided to cease maintenance of
certain locks and prepare for their divestiture. Id. Afterwards, Kentucky,
acting through its Natural Resources and Environmental Protection Cabinet,
expressed interest in continuing the operation of the locks and dams. After a
series of meetings and negotiations between the Corps and the state, a
memorandum of understanding (“MOU”) was executed in 1985.
Pursuant to the MOU, the Corps would provide one-time maintenance
and repairs to the covered locks. Kentucky was to make good-faith efforts to
bring about legislation and appropriations to effectuate a fee-simple transfer
of the locks to it. The state also agreed to maintain the locks during a
transition period, which was defined as the time from execution of the MOU
until the earlier of October 15, 1988, or when title was transferred. Id. at 175.
U.S. 839 (1996), which is implicated when a governmental action or
legislation interferes with a pre-existing contract. See Def.’s Reply Sum. J. 11.
Rather, as the government states: “Our defense is more fundamental than the
sovereign act doctrine. We are asserting that there is no contract between the
states and the Federal Government enforceable against the United States in the
first place because the United States entered into those agreements in a
sovereign, rather than contractual, capacity.” Id.
5
Kentucky claimed that the Corps breached the MOU by not performing
the one-time maintenance and repairs sufficiently to prevent a collapse of the
locks. It also alleged that the Corps had not performed specific repairs
identified by the state. Id. Kentucky therefore brought suit here for breach of
contract.
The principal basis for the court’s rejection of Kentucky’s claim was
that the MOU was not an express contract. The court continued its analysis,
however, and discussed whether the government could be contractually liable
for acts that are performed in its sovereign capacity. The court noted, “[e]ven
if elements of a contract could be identified in the MOU, contract liability . .
. ‘does not extend to every agreement, understanding, or compact which can
be stated in terms of offer or acceptance or meeting of the minds.’” Id. at 179
(quoting Kania v. United States, 650 F.2d 264, 268 (Ct. Cl. 1981)). More
specifically, the court noted that “the Government is not liable for damages
resulting from sovereign acts performed by it in its sovereign capacity.” Id.
Whether an act is sovereign or proprietary depends on “the nature of the
Government’s action and the nature of the parties involved.” Id.
The court noted that the government was not entering into the
marketplace to sell lands, goods, or services. Id. Additionally, the government
did not derive a benefit in spending its resources on repairs, and all actions
taken to repair the covered locks was in the public interest for the public
benefit. See id. at 179-80. Therefore, the court held that “because no express
or implied contract can arise from acts performed by the Government in its
sovereign capacity, the MOU cannot establish the basis for Claims Court
jurisdiction.” Id. at 180 (internal citations omitted).
In reliance on the decision in Kentucky, defendant here argues that the
NDM program was strictly an act of benevolence, not a commercial
arrangement or sale. It contends that the government was divesting itself of
NDM to benefit the states and for the public good. Defendant characterizes
the NDM program as a “gift from the Government, through the states, to the
program’s beneficiaries . . . in pursuance of federal policies.” Def.’s Mot.
Summ. J. 11 (internal citations omitted). Additionally, according to defendant,
the NDM program was done for the common good and general welfare.
Plaintiff, on the other hand, argues that the NDM program was not a
benevolent act but was rather intended to stop the financial hemorrhaging
resulting from the costs of managing and warehousing NDM.
6
We reject defendant’s argument. Kania v. United States, on which
Kentucky depends, involved an alleged agreement not to prosecute plaintiff in
exchange for his cooperation in a criminal investigation. 650 F.2d at 265-67.
The Court of Claims, obviously uncomfortable treating a relationship created
during a criminal investigation as a contract, viewed such an arrangement as
beyond its jurisdiction, analogizing it to the relationships between civilian
employees and military personnel to the government. See id. at 268-69. Kania
largely has been limited to the context of criminal proceedings. See Sadeghi
v. United States, 46 Fed. Cl. 660, 662 (2000) (“[T]his court has consistently
found that it lacks jurisdiction over suits asserting the breach of plea bargains,
immunity agreements, and witness protection agreements.”); Drakes v. United
States, 28 Fed. Cl. 190, 193 (1993) (“Administering the criminal justice system
is an activity that lies at the heart of sovereign action. As such, breach of a
contract arising out of that system does not give rise to an action under the
Tucker Act for money damages.”); see also Sanders v. United States, 252 F.3d
1329 (Fed. Cir. 2001); Woodson v. United States, 89 Fed. Cl. 640 (2009);
United States v. Zajanckauskas, 346 F. Supp. 2d 251 (D. Mass. 2003); Doe v.
United States, 37 Fed. Cl. 74 (1996); Grundy v. United States, 2 Cl. Ct. 596
(1983).
The court in Kania distinguishes Texas v. United States, 537 F.2d 466
(Ct. Cl. 1976), which we view as much closer to the present facts. In Texas,
the court held that an assistance agreement was a contract and thus enforceable
by the state: “defendant’s valid execution of a document, which it prepared and
titled ‘Federal-State Disaster Assistance Agreement,’ specifying that ‘Federal
assistance will be made available in accordance with (various specified laws,
Executive Orders and regulations)’ obligates defendant to provide such
assistance as called for by the parties’ Agreement.” Id. at 468; see also
Arizona v. United States, 494 F.2d 1285 (Ct. Cl. 1974). The teaching of these
cases is that the government can contractually bind itself even when it is
undertaking charitable or assistance actions. See Moore v. United States, 48
Fed. Cl. 394, 397 (2000) (“[I]n cases involving grants and cooperative
agreements, this court has . . . [often held] that jurisdiction exists to consider
whether such agreements were breached.”). The possibility that the
government was promoting some larger policy aim by making NDM available
for purchase does not mean that a contract did not come into existence. The
contract does not become unenforceable merely because the government
remains sovereign throughout. Nor is the act of selling commodities at a
substantial discount so uniquely a sovereign function that any promises made
in the process are unenforceable. We conclude that the subject matter of the
7
exchange is not inherently inappropriate for treatment as a contract. Therefore,
we reject this defense, and discovery to counter it is unnecessary.
II.
The agreement between the states and USDA was not a binding and
enforceable contract
A.
The agreement lacked mutuality of obligation and consideration
The defendant argues that the agreements between the states and the
USDA are unenforceable for two reasons: (1) they lacked any obligation by the
respective states, and (2) there was no consideration given to the government.
Accordingly, the agreements do not constititute binding contracts, and
therefore cannot create third-party benefits. Plaintiff counters by arguing that
the contract was supported by consideration because the states agreed, inter
alia, to pay $1.00 per truckload, assume the risk of loss of the NDM, use
specified order forms, establish distribution points, and bear the costs of
delivery. Moreover, plaintiff believes it can demonstrate that the government
received additional consideration in the form of cost savings by no longer
having to store the NDM.
A contract requires “a bargain in which there is a manifestation of
mutual assent to the exchange and a consideration.” Restatement (Second)
Contracts § 17 (1981); see Franklin Fed. Sav. Bank v. United States, 431 F.3d
1360, 1367 (Fed. Cir. 2005). Consideration is generally a bargained for
exchange consisting of an act, forbearance, or return promise. See
Restatement (Second) Contracts §§ 71, 72 (1981); see also J. Cooper &
Assocs., Inc. v. United States, 53 Fed. Cl. 8, 18 (2002). Moreover, government
officials “lack authority to enter into contracts under which the government
receives nothing.” Aviation Contractor Emps., Inc. v. United States, 945 F.2d
1568, 1573 (Fed. Cir. 1991). Thus, for the contract to be binding,
consideration must flow simultaneously to the government. It is therefore
necessary to determine what, if any, consideration flowed to the government
at the time the agreement was struck.
Plaintiff points to section III of the agreement, “STATE
COMMITMENTS,” to demonstrate the consideration the government received
in terms of promises by the state as to how it would enforce the program. In
addition, plaintiff argues that cost savings which would inure to the
government by virtue of disposing of the NDM are also sufficient
8
consideration to support the agreement.6 Finally, it is undisputed that the
government made certain commitments under the agreement to sell NDM at
$1.00 per truck to the states.
The Supreme Court has held that a contract lacks consideration and
mutuality, and is therefore unenforceable, when it does not require the
government to take or limit its demand to an ascertainable quantity. Willard,
Sutherland & Co. v. United States, 262 U.S. 489, 493 (1923). In Modern
Systems Technology Corp. v. United States, 979 F.2d 200 (Fed. Cir. 1992), for
example, the Federal Circuit construed a basic pricing agreement involving the
United States Postal Service as unenforceable. In that case, even though the
pricing agreement contained standard contract provisions, it was unenforceable
until orders were placed. The court found that under the agreement, “the
Postal Service is not obligated to place any orders, and that the contractor is
not bound unless it accepts an order.” Id.
The agreement here is similarly deficient in mutual exchanges of
binding promises. There is nothing in the NDM Agreement which
affirmatively obligates a state to purchase any NDM. Like the agreement in
Modern Systems, the NDM Agreement simply provided those contract terms
that would apply once a state placed an order for NDM. None of the asserted
consideration flowed to the government unless a state actually placed an order.
The NDM Agreement was, in effect, an offer by the USDA to sell
under certain terms. The offer was not accepted, however, by a state’s bare
agreement to adhere to certain terms. That agreement was conditioned on
placement of an order. The commitments to which plaintiff points might be
sufficient consideration if and only if a state actually ordered NDM. There was
not a specified minimum quantity, thus until a state submitted an order to the
CCC, it was not bound in any way.
The Restatement (Second) of Contracts describes an illusory promise
as one “which by [its] terms make performance entirely optional.”
Restatement (Second) Contracts §77 (1981); see also Ridge Runner Forestry
v. Veneman, 287 F.3d 1058, 1062 (Fed. Cir. 2002) (“[A] valid contract cannot
6
The plaintiff submitted an e-mail between government officials noting
that selling NDM even at a substantial discount would result in overall cost
savings to the government. See Quesenberry Decl. Ex. E at 2, Jan. 7, 2011,
ECF No. 29-1.
9
be based upon the illusory promise of one party.”). Illustration 1 of the
Restatement provides an example:
A offers to deliver to B at $2 a bushel as many bushels of wheat,
not exceeding 5,000, as B may chose to order within the next 30
days. B accepts, agreeing to buy at that price as much as he
shall order from A within that time. B’s acceptance involves no
promise by him, and is not consideration.
Restatement (Second) Contracts § 77 illus. 1 (1981); see Torncello v. United
States, 681 F.2d 756, 769 (Ct. Cl. 1982) (citing Illustration 1 of Restatement
(Second) Contracts § 77(1981)).
The NDM Agreement parallels Illustration 1. A state could purchase
all the NDM it wanted, or none at all. This left the state’s “future action
subject to [its] own will, just as it would have been had [it] said no words at
all.” Ridge Runner, 287 F.3d at 1062. Because the states were not bound to
any particular course of action at execution, the NDM Agreement, in the
absence of an order for NDM, did not constitute a binding and enforceable
contract.
Even though the agreement is denominated a “Sales Agreement,” and
includes terms such as “sales,” “purchase,” “shall,” and other contract
language, a “court is not bound by what the contract is called, it must look to
the terms in deciding what it is.” Ralph Constr., Inc. v. United States, 4 Cl. Ct.
727, 731 (1984). Because the NDM lacked mutuality of obligation and
consideration, those terms do not transform an otherwise non-binding
arrangement into a contract.
B.
The NDM Agreement is neither a requirements nor indefinite
quantity contract
To escape the conclusion that the agreement is not supported by
consideration and mutual obligation, plaintiff argues that the agreement was
either a requirements contract or an indefinite quantity contract. If the NDM
Agreement is either of these, it would be supported by consideration and
mutual obligation. Plaintiff’s RCFC 56(d) motion for discovery seeks
discovery to support this argument.
As the Federal Circuit has noted, supply contract terms generally “fit
into one of three possible types of contracts: those for a definite quantity, those
10
for an indefinite quantity and those for requirements.” Ace-Federal Reporters,
Inc. v. Barram, 226 F.3d 1329, 1331 (Fed. Cir. 2000) (quoting Torncello, 681
F.2d at 761-22). A requirements contract is formed when “the seller has the
exclusive right and legal obligation to fill all of the buyer’s needs for the goods
or services described in the contract.” Modern Systems, 979 F.2d at 205. The
sine qua non of a requirements contract is “the promise by the buyer to
purchase the subject matter of the contract exclusively from the seller.” Id.
Regarding consideration, “[i]t is now beyond question that contracts for
requirements do not lack mutuality and are enforceable.” Locke v. United
States, 283 F.2d 521, 523 (Ct. Cl. 1960).
An indefinite quantity contract is another form of variable quantity
contract in which the government obligates itself to buy, or, in this case, sell,
at least a stated minimum quantity. See Varilease, 289 F.3d at 799; see also
John Cibinic, Jr. & Ralph C. Nash, Jr., Formation of Government Contracts
1238 (3d ed.1998). An indefinite quantity contract differs from a requirements
contract in that it does not obligate the buyer to purchase more than the stated
minimum. See Varilease, 289 F.3d at 799. Just like requirements contracts,
indefinite quantity contracts are not unenforceable for want of mutuality of
obligation or consideration. One contracting party is making a promise to
purchase the minimum quantity. Therefore, if the NDM Agreement is either
a requirements contract or an indefinite quantity contract, it would be
enforceable.
Plaintiff can point to nothing in the NDM Agreement which supports
either a requirements or indefinite quantity contract, i.e., an exclusivity
promise or a minimum quantity promise. Plaintiff suggests, however, that if
it were allowed to conduct discovery, it might be able to offer evidence as to
the following: (1) that the drought states did not receive NDM from any other
sellers, (2) that the CCC intended to fill all received NDM orders until it
invoked the termination clause in the agreement, and (3) that the drought
states’ conduct, course of dealings, trade norms, and customs demonstrate an
intent to be bound by the NDM Agreement. Plaintiff offers nothing to support
these speculations, but more importantly, even if these assertions were true,
they would not cure the problem because they cannot supply the necessary
missing terms.
First, plaintiff asserts that given additional discovery, it could show that
the states obtained NDM only from the CCC. It would take more than that,
however, to create a legally enforceable right within the federal government
to force the states to purchase all NDM they “required.” A commitment to
11
buy is not a term which merely gives clarity or definition to an established
contractual relationship. The missing term marks the difference between an
ongoing series of offers and acceptances relating in this case to a virtually free
commodity and a contractually binding relationship. We must consider the
uniqueness of this program: the fact of receipt of multiple truckloads of NDM
at $1 per ton, a price tantamount to giving the NDM away, would never be
sufficient proof that the states were committing to continue purchasing the
product.
Second, plaintiff seeks discovery into the intent behind and the parties’
understanding of the thirty-day supply and termination provisions. The thirtyday supply provision provided that, “A 30 day supply of NDM for the State
will be calculated at the rate of two pounds of NDM per eligible cow and bison
per day, and one half pound NDM per sheep and goat per day.” NDM
Agreement 1. The termination provision provided that, “This Agreement shall
remain in force and effect until terminated by CCC or the State upon written
notice.” NDM Agreement 2. Plaintiff hopes additional discovery into these
provisions will shed light on whether “CCC intended to fill all NDM order
submitted by the designated drought states until invoking the termination
provision, or whether the CCC intended to unilaterally reject orders . . . prior
to invoking the termination provision.” Pls’ Mem. Opp. Summ. J. 13. We fail
to see how any possible outcome bears on whether the NDM Agreement is a
requirements or minimum quantity contract. Whether CCC intended to honor
orders submitted to it, or the manner in which CCC could terminate the
agreement, relate to the issues of performance and breach of an already
enforceable contract; they do not create an enforceable contract where one did
not otherwise exist.
Third, plaintiff wants an opportunity “to discover the designated
drought states’ conduct to establish their belief in entering into an enforceable
contract.” Pls’ Mem. Opp. Summ. J. 13. Plaintiff is hoping to establish that
the states, by their conduct, demonstrated their belief that they had entered into
enforceable contracts with some minimum guaranteed amount. Not a shred of
support is offered to suggest that such evidence exists or that plaintiff itself
operated on that assumption. In the face of apparent plain meaning of an
integrated document, and the burden plaintiff would face in using it to
12
contradict that plain meaning,7 we decline to authorize what would amount to
a fishing expedition.
We are, therefore, presented only with the document itself to determine
whether it is a requirements or indefinite quantity contract. We conclude that
it is neither. The NDM Agreement cannot be read as a requirements or
minimum guaranteed quantify contract. This does not preclude, however, the
NDM Agreement from becoming enforceable by the parties’ subsequent
conduct. Thus, while we agree with the defendant that the NDM Agreement
was not enforceable at its execution, as we explain below, we nevertheless
hold that a binding contract was formed when the states submitted an order
under the NDM Agreement.
III.
To the extent that an order was placed, a contract was formed to which
plaintiff is a third-party beneficiary
While the NDM Agreement at its inception was not enforceable, this
does not mean that it could not become enforceable by the subsequent actions
of the parties, i.e., a state accepting the terms of the agreement by submitting
an order. In Willard, the Supreme Court held that although an agreement was
not enforceable at execution because it lacked mutuality of obligation, “it
became valid and binding to the extent that it was performed.” Willard,
Sutherland & Co. v. United States, 262 U.S. 489, 494 (1923). As in Willard,
to the extent that an order was placed and performed, the NDM Agreement
became binding. By submitting an order to the USDA, a state accepted and
7
Although not always with consistency, the Federal Circuit is one of the
less receptive circuits with respect to the use of extrinsic evidence to elucidate
an otherwise plain contract. See Coast Fed. Sav. Bank v. United States, 323
F.3d 1035, 1038 (Fed. Cir. 2003) (holding that contract terms were “clear and
unambiguous” and as such had to be given their plain and ordinary meaning,
“and we may not resort to extrinsic evidence to interpret them”); see also
Connor’s Pest Control, Inc. v. Cuomo, 154 F.3d 1302, 1306 (Fed. Cir. 1998)
(“[A] contract lacking [a minimum quantity term] cannot be construed as a
valid indefinite quantity contract.”). Crown Laundry & Dry Cleaners v.
United States, 29 Fed. Cl. 506 (1993), cited by plaintiff, is inapplicable.
Although the court allowed extrinsic testimony to determine whether the
parties intended a requirements contract, the court found the contract was
ambiguous and could be interpreted as either a requirements or indefinite
quantity contract. See Crown Laundry, 29 Fed. Cl. at 518 n.5. Such ambiguity
does not exist here.
13
bound itself to the terms of the NDM Agreement. At that point in time,
therefore, all the elements of a binding contract were present: offer,
acceptance, and consideration. Upon submitting an order form under the
program, a state agreed to be bound by the terms of the NDM Agreement with
respect to the ordered NDM, thus curing the deficiency present at the
agreement’s execution. At oral argument, plaintiff’s counsel represented that
there were such orders initiated by plaintiff which had not been filled. That
issue, however, has not been the focus of discovery or briefing.
Assuming plaintiff could demonstrate that orders were placed under the
program and those orders were not filled, the issue of whether plaintiff is a
third-party beneficiary still needs to be resolved. Defendant points out that it
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. See Restatement (Second) Contracts § 302 (1981).
The appropriate test for an intended third-party beneficiary is that the
contract must “reflect[] the intent of the parties to the contract to benefit the
third party.” Dewakuku v. Martinez, 271 F.3d 1031, 1041 (Fed. Cir. 2001).
The benefit to the third party must be direct, see German Alliance Ins. Co. v.
Home Water Supply Co., 226 U.S. 220, 230 (1912), but that intent may be
express or implied. See Caguas Cent. Fed. Sav. Bank v. United States, 215
F.3d 1304, 1309 (Fed. Cir. 2000). Indeed, the third party need not even be
specifically identified in the contract as long as it “fall[s] within a class clearly
intended to be benefited thereby.” See Montana v. United States, 124 F.3d
1269, 1273 (Fed. Cir. 1997).
The stated purpose of the NDM Agreement was to provide NDM “for
distribution to livestock producers suffering from drought conditions.” NDM
Agreement 1. To accomplish this goal, the terms of the NDM Agreement had
very specific guidelines regarding those producers and third-parties who could
receive NDM.8 There is no doubt that the beneficiaries of the NDM
8
The NDM Agreement provided the following limits to all users of the
NDM program:
(1) the NDM may not be used as a replacement for whey or
whey products; (2) the NDM may not be processed for or used
for human consumption; (3) ultimate consumption of the NDM
so acquired must be “in-state,” that is, in the state allocated the
NDM; (4) such NDM may, however, be processed outside that
14
Agreements were to be the livestock producers. The states were mere conduits
to funnel the NDM to the producers, who would actually use and benefit from
the NDM. Plaintiff asserts that it was a livestock producer and hence
presumptively within the class of intended third-party beneficiaries. It would
appear, then, that the contract “reflect[ed] the intent of the parties to the
contract to benefit the third party,” Dewakuku, 271 F.3d at 1041, which in this
case was livestock producers.
Defendant contends, however, that there is an additional requirement
present when one of the parties to the contract is the United States. It argues
that the putative third-party beneficiary must also demonstrate that the contract
expressly indicates that the third-party has enforcement rights under the
contract. A previous decision of this court indeed held that a contract must
give the third-party the direct right to compensation or the ability to enforce
that right against the promisor. See Baudier Marine Elecs. v. United States,
6 Cl. Ct. 246, 249 (1984). That holding in Baudier, however, was explicitly
rejected by the Federal Circuit in Montana v. United States, 124 F.3d 1269,
1273 (Fed. Cir. 1997); see also Schuerman v. United States, 30 Fed. Cl. 420
(1994).
In Montana, the Federal Circuit intimated, however, the possibility that
a greater showing could be warranted when “members of the public bring suit
against promisors who contract with the government to render a public
service.” 124 F. 3d at 1273 n.6. The scenario envisioned, though, is one in
which the contract is to provide a public service of general application, such
as water or fire protection, e.g., H. R. Moch Co. v. Rensselaer Water Co., 159
N.E. 896 (N.Y. 1928), where there clearly can be no presumed intent to create
enforcement rights in individual members of the public.
state if returned by or from the processor directly to the
originating state (the state that was allocated the NDM under
this agreement) and consumed in the originating state; (5)
consumption of the NDM by livestock normally housed in-state
will be considered to be consumption “in-state” even thought the
herd is quartered temporarily elsewhere; (6) the third party must
acknowledge and agree to these limitations; (7) the third party
shall, upon inquiry, certify the disposition of the NDM for the
proper use and certify to compliance with all other limitations of
this agreement on the use of the NDM and the products made
from it.
NDM Agreement 1.
15
The government nevertheless believes that the possibility intimated in
Montana has now been recognized by the Supreme Court in Astra USA, Inc.
v. Santa Clara County, 563 U.S. __, 131 S.Ct. 1342 (2011), in such a way that
all putative third-party beneficiaries must point to specific contract language
giving them enforcement rights,9 thus, in effect, resurrecting the test set forth
in Baudier. We disagree.
Astra involved section 340B of the Public Health Services Act, 42
U.S.C. § 256b (West Supp. 2011). Section 340B imposes ceilings on the
prices drug manufacturers charge for medicine sold to certain health care
facilities. Astra, 131 S. Ct. at 1345. Drug manufacturers opt into the 340B
program by signing a uniform agreement called the Pharmaceutical Pricing
Agreement (“PPA”). The PPAs are uniform agreements which recite the
provisions of section 340B. Id. In Astra, the health care providers conceded
that Congress did not intend to create a private right of action under section
340B for those entities who charge prices exceeding the statutory ceiling. Id.
The issue was whether they could sue as third-party beneficiaries under the
PPAs. Id. The Supreme Court held that they could not: “PPAs simply
incorporate statutory obligations and record the manufacturers agreement to
abide by them.” Id. at 1348. Therefore, “[t]he absence of a private right to
enforce the [statute] . . . would be rendered meaningless if 340B entities could
overcome that obstacle by suing to enforce the contract’s ceiling price
obligations instead.” Id. According to the Court, “[t]he statutory and
contractual obligations, in short, are one and the same.” Id. Because private
suits to enforce section 340B and third-party suits to enforce the contract
9
To support this proposition, the government cites to Alpino v.
JPMorgan Chase Bank, Nat. Ass’n, 2011 WL 1564114 (D. Mass. 2011). The
government asserts that the Alpino court endorsed its reading of Astra. In
Alpino, the issue was whether homeowners were third-party beneficiaries of
an agreement between the federal government and mortgage servicers under
the Home Affordable Modification Program. Under the program and pursuant
to the agreements, mortgage servicers were to consider loans for modification.
The Alpino court held that homeowners were not third-party beneficiaries.
The specific agreement in that case limited the class of persons who could
enforce the agreement (a fact not present here). Id. at *4. The court also cited
prior pre-Astra decisions construing the same agreement to preclude thirdparty enforcement. Id.; see also Speleos v. BAC Home Loans Servicing, 1011503, 2010 WL 5174510 (D. Mass. Dec. 14, 2010) (declining third-party
beneficiary status to homeowners under the same agreement).
16
implementing section 340B were effectively the same in substance, “[t]heir
treatment, therefore, must also be the same.” Id. at 1345.
The Court noted that the statute itself contains a mechanism by which
the federal government could bring enforcement actions against drug
companies and recover penalties payable to the health care providers. Id. at
1350. A money remedy, in other words, already existed under the statute.
Plaintiffs were in effect circumventing Congress’s intent not to provide a
private cause of action by bringing a breach of contract claim.
Defendant directs us to the portion of Astra in which the Court quotes
Corbin on Contracts, “‘The distinction between an intention to benefit a third
party and an intention that the third party should have the right to enforce that
intention is emphasized where the promisee is a governmental entity.’” 131
S. Ct. 1348 (quoting 9 J. Murray, Corbin on Contracts § 45.6, p. 2 (rev. ed.
2007)). We view this observation to be consistent with the concerns expressed
in Montana and Moch. As the Restatement expresses it: “Government
contracts often benefit the public, but individual members of the public are
treated as incidental beneficiaries unless a different intention is manifested.”
Restatement (Second) Contracts § 313, cmt. a (1981).
The NDM program here was very different from the statutory scheme
in Astra or the public service circumstances contemplated in Moch. There was
no enforcement mechanism in the NDM program with which a private remedy
could overlap or compete. The NDM Agreement was not based on any
comprehensive statutory scheme like that in Astra in which particular contract
provisions were dictated by the statute. The statute here merely allowed the
CCC to sell any commodity it owned. See 7 U.S.C. § 7285 (2006). The
concerns presented in Astra thus are not present. The NDM Agreement has
much more of the appearance of a commercial arrangement than a contract
facilitating the government’s provision of utilities or other general services.
The general test set forth in Montana remains the appropriate one.
Accordingly, we hold that livestock producers who qualified under the
agreements and submitted NDM orders are third-party beneficiaries. Plaintiff
asserts that it was a livestock producer. We note, however, that we make no
judgment as to whether such a contract was breached. We decide today only
that plaintiff may pursue a breach action as a third-party beneficiary, assuming
it qualifies under the NDM Agreement as a livestock producer, with respect
to specific orders by a state for NDM.
17
CONCLUSION
For the reasons stated above, we grant defendant’s motion for summary
judgment in part with respect to NDM that was never ordered. We deny
summary judgment with respect to any NDM to which an order form was
submitted to the USDA from a state on behalf of plaintiff.
s/ Eric G. Bruggink
Eric G. Bruggink
Judge
18
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