Summary
recognizing that status as a third-party beneficiary does not make that beneficiary subject to suit for breach of a contract to which the beneficiary was not a party
Summary of this case from Eagle Railcar Services-Roscoe, Inc. v. NGL Crude Logistics, LLCOpinion
No. SA-02-CA-1175-RF
September 5, 2003
Before the Court is Plaintiff Focus Direct Inc.'s ("Focus Direct") Rule 12(b)(6) Motion to Dismiss Counterclaims for Failure to State a Claim ("Motion to Dismiss Counterclaims"), filed on August 18, 2003, and Defendants' Motion for Leave to File First Amended Counterclaims ("Motion for Leave"), filed on September 2, 2003. After due consideration, the Court is of the opinion that Plaintiff's Motion to Dismiss Counterclaims should be GRANTED, and the Motion for Leave should also be GRANTED.
FACTUAL AND PROCEDURAL BACKGROUND
On July 25, 2003, Defendants American Center for Law and Justice ("ACLJ") and Christian Advocates Serving Evangelism, Inc. ("CASE") filed counterclaims against Plaintiff in this case. In their identically worded claims, Defendants state that they (the two Defendants) entered into agreements "in which [Plaintiff] was, at best, a third-party beneficiary." Defendants then state a claim for breach of contract, asserting that Plaintiff "failed to provide services as required by the 1999 contract."
Def.'s Answer, Affirmative Defenses, Counterclaim and Cross-Claim (Docket # 47) at 11 ¶ 8; Def.'s Answer, Affirmative Defenses, Counterclaim and Cross-Claim (Docket #48) at 13 ¶ 8.
Def.'s Answer, Affirmative Defenses, Counterclaim and Cross-Claim (Docket #47) at 12 ¶ 11; Def.'s Answer, Affirmative Defenses, Counterclaim and Cross-Claim (Docket #48) at 14 ¶ 11.
On August 18, 2003, Plaintiff filed its Motion to Dismiss Counterclaims. In its Motion, Plaintiff points to Defendants' own statement that Plaintiff was not a party to the 1999 contract between ACLJ and CASE, but was rather, "at best, a third-party beneficiary." As such, Plaintiff argues that it cannot be sued for breach under that contract. Defendants responded to Plaintiff's Motion to Dismiss Counterclaims on September 2, 2003.
STANDARD OF REVIEW
For purposes of a 12(b)(6) Motion to Dismiss for failure to state a claim, the complaint must be liberally construed in favor of the plaintiff, and all the facts pleaded in the complaint must be taken as true. Dismissal on this basis is a disfavored means of disposing of a case, and district courts should avoid such dismissals "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." "The question therefore is whether, in the light most favorable to the plaintiff and with every doubt resolved in his behalf, the complaint states any valid claim for relief."
Campbell v. Wells Fargo Bank, N.A., 781 F.2d 440, 442 (5th Cir. 1986).
Kennedy v, Tangipahoa Parish Library Ed. of Control, 224 F.3d 359, 365 (5th Cir. 2000).
Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102 (1957).
Brown v. Nationsbank Corp., 188 F.3d 579, 586 (5th Cir. 1999) (citing 5 CHARLES ALAN WRIGHT ARTHUR MILLER, FEDERAL PRACTICE AND PROCEDURE § 1357, at 601 (1969)).
DISCUSSION
As Plaintiff points out in its Motion, "[u]nder Texas law, privity of contract is an essential element for recovery under a breach of contract theory." In other words, the general rule is that there must be "privity existing between the party damaged and the party sought to be held liable for the repudiation of the agreement." An exception to this rule, however, is that "one who is not privy to the written agreement may demonstrate satisfactorily that the contract was actually made for his benefit and that the contracting parties intended that he benefit by it so that he becomes a third-party beneficiary and eligible to bring an action on such agreement."
Bass v. Hendrix, 931 F. Supp. 523, 532 (S.D. Tex. 1996).
Boy Scouts of America v. Responsive Terminal Sys., 790 S.W.2d 738, 747 (Tex. App-Dallas 1990, writ denied).
Id. (citing Republic Nat'l Bank v. Nat'l Bankers Life Ins. Co., 427 S.W.2d 76, 79 (Tex.Civ.App.-Dallas 1977, no writ)).
In their counterclaim, Defendants expressly state that Plaintiff is not a party to the 1999 contract, but rather, at best, a third-party beneficiary. Under Texas law, however, third-party beneficiary status only authorizes the beneficiary to sue, notwithstanding the absence of privity of contract. Defendants have not cited, and the Court has not found, any authority for the proposition that a third-party beneficiary may be sued for breach of a contract to which the beneficiary was not a party.
see id.
Rather, Defendants argue in their Response to Plaintiff's Motion to Dismiss Counterclaims that "Sidebottom acted as Plaintiff's broker in effecting the execution of the 1999 contract with [Defendants]," and thus the contractual relationship established privity between Plaintiff and Defendants. This assertion, however, is not only absent from Defendants' counterclaim, it is in direct contrast to their assertion that only Defendants were parties to the contract and that Plaintiff was, at best, a third-party beneficiary. For purposes of a motion to dismiss, the Court confines itself to the four corners of the complaint. On the basis of the facts alleged in the counterclaim itself, the Court finds that Defendants have not alleged that Plaintiff was a party to the contract, nor that any privity existed between Plaintiff and Defendants.
Def.'s Resp. to Pl.'s Mot. to Dismiss Def.'s Counterclaims (Docket #64) at 3; Def.'s Resp. to PL's Mot. to Dismiss Def.'s Counterclaims (Docket #65) at 3.
See, e.g., Moffett v. Halliburton Energy Servs., Inc., 291 F.3d 1227, 1231 (10th Cir. 2002).
In the absence of a contract between Defendants and Plaintiff (and consequently the absence of privity), Defendants have not demonstrated the existence of any contractual obligation owed to Defendants by Plaintiff. Furthermore, Defendants have not alleged that they are third-party beneficiaries to a contract to which Plaintiff is a party, thus enabling them to recover for breach against Plaintiff. On the face of their pleadings, therefore, Defendants have failed to state a claim for breach of contract against Plaintiff. Defendants' counterclaims should therefore be DISMISSED.
A dismissal on this basis, however, is not final or on the merits and does not prevent amendment or reassertion of the claim if the defect can be cured. In connection with their Response to Plaintiff's Motion to Dismiss Counterclaims, Defendants have filed a Motion for Leave to File First Amended Counterclaims. In light of the policy in favor of such requests, the Court GRANTS Defendants' Motion for Leave, pursuant to Rule 15(a) of the Federal Rules of Civil Procedure.
5A CHARLES ALAN WRIGHT AND ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1349, p. 191 (2d ed. 1990).
FED. R. CIV. P. 15(a) ("[L]eave shall be freely given when justice so requires."); Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 594, 597 (5th Cir. 1981) (stating that Fed.R.Civ.P. 15(a) "evinces a bias in favor of granting leave to amend").
CONCLUSION
For the foregoing reasons, the Court is of the opinion that Defendants have failed to state a claim for breach of contract against Plaintiff.
It is therefore ORDERED that Plaintiff's Rule 12(b)(6) Motion to Dismiss Counterclaims for Failure to State a Claim (Docket #61) is GRANTED.
It is ORDERED that Defendant American Center for Law and Justice's and Christian Advocates Evangelism, Inc.'s Counterclaims, filed on July 25, 2003, against Plaintiff are DISMISSED WITHOUT PREJUDICE.
It is further ORDERED that Defendants' Motion for Leave to File First Amended Counterclaims (Docket #63) is GRANTED.