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Use Contract Law to Enforce Third-Party
Beneficiary Claims Against Vendors and Agencies

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THIRD-PARTY
BENEFICIARY

Recent Cases Against
Private Parties and
Local Agencies

CLAIMS

By Rochelle Bobroff and Harper Jean Tobin
Rochelle Bobroff
Directing Attorney
Harper Jean Tobin
Staff Attorney
Herbert Semmel Federal Rights Project
National Senior Citizens Law Center
1444 I St. NW Suite 1100
Washington, DC 20005
202.289.6976 ext. 214
202.289.6976 ext. 210
rbobroff@nsclc.org
htobin@nsclc.org

P

rivate parties and local governments administer many of the benefits guaranteed by federal and state statutes that are funded by federal and state budgets.
For instance, health care under Medicaid and Medicare is delivered by doctors,
hospitals, and nursing homes. Federal housing services are administered by local
housing authorities. These private and local entities administer public benefits under
instructions contained in detailed contracts with a federal or state agency. Prisoners
frequently receive services from private contractors who agree to conditions regarding the quality of those services in contracts with the government. Injured individuals
may need to sue the private contractors or local governments to enforce their rights.
Contract law provides a possible avenue for enforcement of individual rights since
consumers may sue as third-party beneficiaries of a contract with the federal or state
government.
Here we review cases over the past six years regarding third-party beneficiary claims
against private contractors and local agencies.1 While there have been several recent
encouraging cases, claims generally fail when the contract includes a specific provision disavowing an intention to confer third-party rights.
1
For a detailed discussion of cases from 2001 and earlier, see Steve Hitov & Gill Deford, The Impact of Privatization on
Litigation, 35 Clearinghouse Review 590–97 (Jan.–Feb. 2002).

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Third-Party Beneficiary Claims: Recent Cases Against Private Parties and Local Agencies

I.	 Basic Principles of Third-Party
Beneficiary Claims

The federal courts as well as most state
courts follow the Restatement (Second)
of Contracts to determine third-party
beneficiary status.2 Yet approaches taken
by different state courts vary.
A.	 Restatement Provisions

The Restatement Section 302 sets forth
two conditions for contracts to confer
third-party rights. The first condition
is that “recognition of a right to performance in the beneficiary is appropriate
to effectuate the intention of the parties.”3 The second condition is that either the contractual promise will satisfy
a debt to the third party or “the circumstances indicate that the promisee intends to give the beneficiary the benefit
of the promised performance.”4 Section
302 contains the caveat that these conditions establish third-party beneficiary
rights “unless otherwise agreed between
promisor and promisee.”5 Numerous
commentators contend that third-party
claims for injunctive relief under government contracts should be analyzed
solely under Section 302.6
However, many courts have applied Restatement Section 313 when denying
third-party rights.7 Section 313(1) states
that Section 302 applies to government
contracts “except to the extent that ap-

plication would contravene the policy of
the law authorizing the contract or prescribing remedies for its breach.”8 Section 313(2) further provides:
(2) In particular, a promisor who
contracts with a government or
governmental agency to do an
act for or render a service to the
public is not subject to contractual liability to a member of the
public for consequential damages resulting from performance
or failure to perform unless
(a) the terms of the promise
provide for such liability; or
(b) the promisee is subject to
liability to the member of the
public for the damages and a direct action against the promisor
is consistent with the terms of
the contract and with the policy
of the law authorizing the contract and prescribing remedies
for its breach.9
Section 313(2)(b) has been commonly
interpreted to establish a presumption
against third-party enforceability “unless the contract contains specific language providing [plaintiffs] with the
right” to enforce its terms.10
Some courts hold that Section 313(2)
does not apply to all government con-

Restatement (Second) of Contracts § 302, Reporter’s Note (1981) (cases from forty states citing or adopting Section 302).

2

Id. § 302(1).

3

Id. § 302(1)(b).

4

Id. § 302(1).

5

See, e.g., Deborah Zalesne, Enforcing the Contract at All (Social) Costs: The Boundary Between Private Contract Law and
the Public Interest, 11 Texas Wesleyan Law Review 579, 603–4 (2005) (criticizing contrary cases); Michele Estrin Gilman, Legal
Accountability in an Era of Privatized Welfare, 89 California Law Review 569, 636 (2001); Robert S. Adelson, Third Party
Beneficiary and Implied Rights of Action Analysis: The Fiction of One Governmental Intent, 94 Yale Law Journal 875, 879
nn. 21, 24 (1985). See also Restatement (Second) of Contracts § 313 cmt. A (1981). (“excessive financial burden” is a chief
reason for limiting claims under third-party contracts).
6

See, e.g., Kremen v. Cohen, 337 F.3d 1024 (9th Cir. 2003) (Section 313 applies to all claims under government contracts,
and no third-party claim lies under a government contract unless the contract shows an intention to grant the third party
enforceable rights); Briggs v. Department of Human Services, 472 F. Supp. 2d 1288, 1293 (W.D. Okla. 2007) (invoking
Section 313 to reject a parent’s claim against a nonprofit that contracted to provide court advocates in family court cases);
Fort Lincoln Civic Association Incorporated v. Fort Lincoln New Town Corporation, No. 05-03740, 2008 WL 731562, at *6
(D.C. App. March 20, 2008) (invoking Section 313 to reject residents’ claims under urban redevelopment contract).

7

8

Restatement (Second) of Contracts § 313(1) (1981).

9

Id. § 313(2).

Jama v. U.S. Immigration and Naturalization Service, 334 F. Supp. 2d 662, 687 (N.J. 2004) (Clearinghouse No. 53,346)
(following Nguyen v. U.S. Catholic Conference, 719 F.2d 52 (3d Cir. 1983)).

10

100

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Third-Party Beneficiary Claims: Recent Cases Against Private Parties and Local Agencies

tracts. A line of decisions from the federal circuit holds that this subsection
applies only to suits “against promisors
who had contracted with the government
to render services to the general public
and, therefore, [is] not relevant to thirdparty beneficiary analysis.”11 Numerous commentators explain that Section
313(2) is intended to apply to commercial contracts with the government, not
to public benefit programs such as subsidized housing, Medicaid, and Medicare.12
This view is supported both by Section
313(1), which focuses on “the policy of
the law authorizing the contract,” and by
the Section 313 illustrations, which include contracts with mail carriers, utility companies, railway companies, and
construction firms.13 While the prospect
of money judgments against commercial
contractors might become an impediment to public works projects, injunctive
enforcement of public benefit contracts

by individual beneficiaries furthers the
goals of those programs.14
B.	 State Court Variations

Courts usually apply state law to thirdparty contract claims against private parties and local agencies.15 This is true even
where the contract is with a federal agency
under a federal-state program so long as
no federal agency is a party to the suit.16
State courts vary in their receptivity to
third-party claims, with many falling
into a few identifiable categories. In
some states, the courts apply a “strong
presumption” against finding thirdparty rights.17 A second group of state
courts refers to a presumption against
third-party rights but does not appear
to employ a strict standard.18 Courts in
a third group of states recognize such a
presumption but hold that it is overcome
whenever the contract requires rendering

Flexfab Limited Liability Company v. United States, 62 Fed. Cl. 139, 147 (2004), aff’d, 424 F.3d 1254 (Fed. Cir. 2005)
(following Schuerman v. United States, 30 Fed. Cl. 420 (1994), and Montana v. United States, 124 F.3d 1269, 1273 (Fed.
Cir. 1997)). But see Fort Lincoln, No. 05-03740, 2008 WL 731562, at *9 (acknowledging Montana’s repudiation of “intent
to give a right” test but nevertheless construing it to require “reasonable reliance” on an “intention to confer a right”).

11

See, e.g., Zalesne, supra note 6, at 603–4; Justin Massey, Applying the Third Party Beneficiary Theory of Contracts to
Enforce Clean Water Act § 404 Permits: A California Case Study, 18 Journal of Environmental Law And Litigation 129, 142–43
(2003); Adelson, supra note 6, at 879 n.21.
12

Restatement (Second) § 313 illus. 1-6.

13

See, e.g., Ayala v. Boston Housing Authority, 536 N.E.2d 1082, 1090 n.16 (Mass. 1989). But see County of Santa Clara
v. Astra USA Incorporated, No. 05-03740, 2006 WL 1344572, at *9 (N.D. Cal. 2006) (invoking Section 313 in rejecting
county’s third-party claim under Medicaid Pharmaceutical Pricing Agreement because policy of statute creating drug
discount program “is to remedy breaches via government action or the dispute-resolution process”).

14

See, e.g., Richards v. City of New York, 433 F. Supp. 2d 404, 430 (S.D.N.Y. 2006) (city contract with foster care agency);
5th Bedford Pines Apartments Limited v. Brandon, 262 F. Supp. 2d 1369, 1377–78 (N.D. Ga. 2003); Murns v. City of New
York, No. 00-9590, 2001 WL 515201, at *5 (S.D.N.Y. 2001) (city contract with private hospital for treatment of prisoners).
Courts apply state law to claims against state actors but apply federal law if the federal government is named in the suit.

15

16
See, e.g., Brown v. Sun Healthcare Group Incorporated, 476 F. Supp. 2d 848, 853 (E.D. Tenn. 2007) (Medicare and
Medicaid provider agreements); Johnson v. City of Detroit, 319 F. Supp. 2d 756, 780–81 (E.D. Mich. 2004) (U.S. Department
of Housing and Urban Development (HUD) contract); Wallace v. Chicago Housing Authority, 298 F. Supp. 2d 710, 723–24
(N.D. Ill. 2003) (Clearinghouse No. 55,072) (HUD contract). An exception to this general rule applies, however, where
“substantial rights or duties of the United States hinge on [the case’s] outcome.” Miree v. Dekalb County, 433 U.S. 25,
31 (1977). Compare, e.g., Owens v. Haas, 601 F.2d 1242, 1249–50 (2d Cir. 1979) (third-party claim by federal prisoner
against county officers, for injuries he suffered after a transfer to county custody under federal contract, implicates federal
duty to protect prisoners), with Smith v. Correctional Corporation of America, 19 Fed. App. 318, 320 (6th Cir. 2001) (no
federal jurisdiction over contract claim by District of Columbia prisoner against private operator based on contract with
District).

See, e.g., Seeck v. Geico General Insurance Company, 212 S.W.3d 129 (Mo. 2007); Shank v. H.C. Fields, 869 N.E.2d 261
(Ill. App. Ct. 2007); Ortega v. City National Bank, 97 S.W.3d 765 (Tex. App. 2003). See also Eastern Steel Constructors
Incorporated v. City of Salem, 549 S.E.2d 266 (W. Va. 2001) (stating that “in order to overcome [the] presumption [against
third-party rights] the implication from the contract as a whole and the surrounding circumstances must be so strong as
to be tantamount to an express declaration”).

17

See, e.g., Elsner v. Farmers Insurance Group Incorporated, 220 S.W.3d 633 (Ark. 2005); State ex rel. Stovall v. Reliance
Insurance Company, 107 P.3d 1219 (Kan. 2005); Smith v. Chattanooga Medical Investors, 62 S.W.3d 178 (Tenn. Ct. App.
2001). See also Meyer v. Tufaro, 934 So. 2d 861 (La. Ct. App. 2006) (third-party rights are “never presumed” and “must
be made manifestly clear”).

18

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Third-Party Beneficiary Claims: Recent Cases Against Private Parties and Local Agencies

performance directly to a third party.19 A
fourth group of state courts holds that,
when performance is rendered directly
to a third party, there is a presumption in
favor of third-party rights.20 State courts
also vary widely in their description of
third-party beneficiary status as a question of fact, a question of law, or a mixed
question of law and fact.21
II.	 Medicaid and Medicare Cases

In Smallwood v. Central Peninsula General Hospital the hospital admitted that
it automatically billed Medicaid recipients for charges rejected by the state, a
practice known as “balance billing.”22 Yet
federal and state Medicaid law, encapsulated in the hospital’s agreement with the
state, prohibits providers from billing
Medicaid patients for amounts beyond
authorized copayments that are not reimbursed by Medicaid. The Alaska Su-

preme Court held that Smallwood could
pursue injunctive and declaratory relief
as a third-party beneficiary of the contract between the hospital and the state.
The court found Section 313(2) “inapplicable” because the plaintiff was not seeking consequential damages, and Section
313(2) by its terms applies only to claims
for consequential damages.23 Following Restatement Section 302, the court
focused on the intent of the promisee,
(the State), rather than the promisor (the
hospital).24 The court concluded that “the
state intended that Medicaid recipients
like Smallwood benefit from providers’
promises not to balance bill.”25 The court
noted the specific prohibitions in both
the provider agreement and the applicable federal and state law against such
charges.26 The court assumed, without
deciding, that since the state manifested
an intention to benefit Medicaid recipients, “it also manifested an intention that

See, e.g., Mich. Comp. Laws § 600.1405 (1996) (“A promise shall be construed to have been made for the benefit of a
person whenever the promisor of said promise had undertaken to give or to do or refrain from doing something directly
to or for said person”); Wolverton v. Young, 131 Wash. Ct. App. 1020 (2006) (“There is a rebuttable presumption that
parties enter a contract for their own benefit and not for the benefit of a third party”); Ramos v. Arnold 169 P.3d 482, 487
(Wash. Ct. App. 2007) (“The key is whether performance of the contract would necessarily and directly benefit the party
claiming to be a third party beneficiary”); Dickerson v. Pinkerton Security Company, No. 257124, 2005 WL 3481437, at
*1 (Mich. Ct. App. 2005) (“A contract is presumed to have been made for the benefit of the parties to it,” and “[a] person
is a third-party beneficiary of a contract only when that contract establishes that a promisor has undertaken a promise
‘directly’ to or for that person”). See also Eischen Cabinet Company v. New Tradition Homes Incorporated, No. A06-220,
2006 WL 3593051 (Minn. Ct. App. 2006) (“If, by the terms of the contract, performance is to be directly rendered to a
third party, the third party is an intended beneficiary”); Gay v. Georgia Department of Corrections, 606 S.E.2d 53 (Ga. Ct.
App. 2004) (“A contract is intended to benefit a third party when the promisor engages to the promisee to render some
performance to a third person”).

19

See, e.g., Caprer v. Nussbaum, 825 N.Y.S.2d 55 (N.Y. App. Div. 2006) (“Where performance is to be made directly to a
third party, that party is generally deemed an intended beneficiary of the contract and is entitled to enforce it or there is,
at least, a presumption that the contract was for the benefit of the third party”); Prouty v. Gores Technology Group, 121
Cal. App. 4th 1225, 1232 (2004) (“If the terms of the contract necessarily require the promisor to confer a benefit on
a third person, then the contract, and hence the parties thereto, contemplate a benefit to the third person. The parties
are presumed to intend the consequences of a performance of the contract”); Countywide Federal Credit Union v. Safe
Auto Insurance, No. 04CA0006, 2004 WL 1490124, at *2 (Ohio. Ct. App. 2004) (“In order for [the plaintiff] to prevail
on its claim, there must be evidence that the promisee intended to directly benefit [the plaintiff] on a duty that [the
promisee] owed [the plaintiff]…. Then, the promisor … is presumed to have agreed to be bound by a promise implicit in
its agreement with the promisee to provide that benefit to the third party”).

20

21
Compare, e.g., In re Telluride Global Development Limited Liability Company, 380 B.R. 585, 594 (10th Cir. 2007)
(question of fact under Colorado law), and Souza v. Westlands Water District, 135 Cal. App. 4th 879, 891 (2006) (same
under California law), with Basic Capital Management v. Dynex Commercial Incorporated, No. 05-04-10358, 2008 WL
509385, at *6 (Tex. Ct. App. 2008) (question of law), and AgGrow Oils, Limited Liability Company v. National Union
Fire Insurance Company, 420 F.3d 751, 755 (8th Cir. 2005) (same under North Dakota law), and Flexfab Limited Liability
Company v. United States, 424 F.3d 1254, 1259 (Fed. Cir. 2005) (mixed question). See also Restatement (Second) of Contracts
§ 212(2) (1981) (interpretation of contracts is a question of law except where “it depends on the credibility of extrinsic
evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence”).

Smallwood v. Central Peninsula General Hospital, 151 P.3d 319 (Alaska 2006).

22

23

Id. at 325.

24

Id. at 324.

25

Id. at 325.

Id.; cf. Wogan v. Kunze, 623 S.E.2d 107, 119 (S.C. Ct. App. 2005) (third-party claim rejected regarding failure of provider
to submit claim when provider agreement did not require the submission of the claim).

26

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Third-Party Beneficiary Claims: Recent Cases Against Private Parties and Local Agencies

Medicaid recipients, as third-party beneficiaries, be able to enforce the provider
agreement.”27 The court also held that the
possibility of enforcement by the government did not foreclose Smallwood’s claim
because he had no assurance of enforcement in his case, and he was not entitled
to a state administrative hearing regarding the hospital’s improper billing.28
In Brown v. Sun Healthcare Group Incorporated a widow of a Tennessee nursing
home resident asserted a third-party
contract claim under Medicare and Medicaid provider agreements because she
believed that her husband’s death was
caused by the home’s neglect and misconduct.29 The Tennessee federal district
court denied the nursing home’s motion to dismiss her claim. The court held
that the lack of an implied private right
of action in the Medicaid and Medicare
statutes against nursing homes did not
preclude a third-party beneficiary action.30 The court found that in those laws
Congress did not intend to displace or
preempt state contract law.31 The court
concluded that Brown could pursue a
third-party beneficiary claim governed
by Tennessee law.32
A decision by a Pennsylvania trial court
is the only reported decision rejecting a
third-party claim under a Medicaid or

Medicare provider agreement. In Zaborowski v. Hospitality Care Center of Hermitage Incorporated the plaintiff claimed
that his mother died as a result of neglect
and misconduct by a nursing home in
violation of its Medicaid and Medicare
provider agreements.33 In holding that
the plaintiff’s mother was not an intended beneficiary the court engaged in little
substantive analysis, rejecting contrary
cases as “inconsistent with Pennsylvania
case law” that set forth a more stringent
test for government contracts based on
Restatement Section 313(2).34
III.	 Prisoner Cases

Shortly after its favorable decision in
Smallwood, the Alaska Supreme Court
also permitted a state prisoner to enforce
procedural rights through the state’s
contract with a private prison operator in
Rathke v. Corrections Corporation of America.35 The prisoner alleged that he was
held in administrative segregation for a
false positive drug test and was denied
his request to see the evidence against
him. The court again focused on the intent of the promisee.36 Quoting a leading
treatise, the court stated that as “a general rule, if the promised performance is
rendered directly to the beneficiary, ‘the
intent to benefit the third party will be

Smallwood, 151 P.3d at 324–25; accord Christian v. First Capital Bank, 147 P.3d 908, 913 (Okla. Civ. App. 2006)
(Oklahoma law “does not require that the contract expressly give the beneficiary the power to enforce it, but only that
the beneficial promise be express”).

27

28

Smallwood, 151 P.3d at 326– 27.

29

Brown, 476 F. Supp. 2d at 853.

30

Id. at 853 (quoting Brogdon v. National Healthcare Corporation, 103 F. Supp. 2d 1322, 1334 (N.D. Ga. 2000)).

Id.; accord Palmer v. Joseph Healthcare P.S.O. Incorporated, 77 P.3d 560, 562, 573–74 (N.M. Ct. App. 2003) (permitting
third-party claim under Medicare Plus Choice provider contract and rejecting preemption under the Medicare Act), cert.
dismissed, 101 P.3d 808 (N.M. 2004).

31

Brown, 476 F. Supp. 2d at 853 (contract claim, however, must satisfy state medical malpractice statute); accord Solter
v. Health Partners of Philadelphia Incorporated, 215 F. Supp. 2d 533, 539 n.8 (E.D. Pa. 2002) (no private right of action
under Medicaid Act but third-party beneficiary claim under state law available to enforce contract between managed care
organization and state regarding provision of medically necessary care).

32

Zaborowski v. Hospitality Care Center of Hermitage Incorporated, No. 2002-1188, 2002 WL 32129508, at 474 (60 Pa.
D. & C.4th 2002). The plaintiff did not submit a copy of the provider agreement, and this may have contributed to the
court’s conclusion that the complaint did not adequately allege that the state intended the resident to be a beneficiary of
the provider agreement (id. at 499 n.19).

33

Id. at 499 n.19 (citing Drummond v. University of Pennsylvania, 651 A.2d 572 (Pa. Commw. 1994), appeal denied, 651
A.2d 572 (Pa. 1995)).

34

35

Rathke v. Corrections Corporation of America, 153 P.3d 303 (Alaska 2007).

Id. at 310. The court refers to “the motives of the parties in executing a contract—especially the promisee” but in a
footnote quotes authorities indicating that the promisee’s intent is virtually the exclusive focus.

36

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Third-Party Beneficiary Claims: Recent Cases Against Private Parties and Local Agencies

clearly manifested.’”37 The court noted
that the contract incorporated procedural guarantees from a class action settlement agreement with the state, including prisoners’ right to access evidence
against them in disciplinary hearings.38
This language constituted a promise to
render performance directly to third
parties and an intention to benefit prisoners. Therefore the court held that “the
prisoners are intended third-party beneficiaries of the portions of the contract
which are taken directly” from the settlement agreement.39 The Ninth Circuit,
applying Alaska law, followed the Rathke
decision regarding third-party rights in
a case concerning medical services to
prisoners under the same contract.40
In Ogunde v. Prison Health Services Incorporated the Supreme Court of Virginia
allowed a prisoner, who alleged that he
was injured by inadequate medical care,
to enforce a contract between the state
and a private provider of medical services for prisoners.41 The contract aimed
to “provide cost effective, quality inmate
health care services for up to … inmates”
and defined the scope of services to be
provided to the prisoners.42 The court
found that the contract rendered a direct benefit to the inmates, and this was
clearly the intention of the contracting parties.43 The defendant argued that
Ogunde was not an intended beneficiary

because he could cease to be a prisoner.
The court held that a third-party contract
right “does not depend upon permanent
membership in the class of persons entitled to receive the benefit of the contract”
but instead exists so long as the person is
a part of that class.44
However, third-party claims brought by
detained asylum-seekers were rejected
in Jama v. U.S. Immigration and Naturalization Service.45 The plaintiffs claimed
that they had been tortured and abused
at a privately operated detention facility under contract with the federal government. The district court relied on
earlier case law that it characterized as
establishing “a recognized presumption
against third party beneficiary rights
under government contracts.”46 Under
this rule, third-party beneficiaries must
point to “specific language providing
them with the right to [sue].”47 Although
the contract between the agency and the
contractors contained promises that detainees would not be abused, it contained
“no provisions … that express specifically any intent to confer a right to performance on any of the detainees.”48
Moreover, in Moore v. Gaither a prisoner’s third-party claim was denied on
the basis of explicit language excluding
third-party rights.49 The prisoner challenged disciplinary actions by a private

37

Id. (quoting Richard A. Lord, Williston on Contracts § 37:8 at 70 (4th ed. 2000)).

38

Id. at 311.

39

Id.

Miller v. Corrections Corporation of America, 239 Fed. App’x. 396 (9th Cir. 2007). The Rathke court specifically
disapproved the lower court decision in Miller, which relied on a broad application of Restatement § 313(2).

40

Ogunde v. Prison Health Services Incorporated, 645 S.E.2d 520 (Va. 2007).

41

Id. at 526.

42

Id. (quoting Professional Realty Corporation v. Bender, 222 S.E.2d 810, 812 (Va. 1976)).

43

44
Id.; accord Murns v. City of New York, No. 00-9590, 2001 WL 515201, at *5 (S.D.N.Y. 2001) (prisoners were intended
beneficiaries where hospital “agreed to provide medical services to the inmates of City correctional facilities, and …
performed the contract by providing medical services directly to the inmates”).

Jama, 334 F. Supp. 2d at 662, 687. The court did not specify whether New Jersey or federal law applied and said that
either would lead to the same result. Id. at 686.

45

Id. at 688 (citing Nguyen, 548 F. Supp. 1333 (W.D. Pa. 1982), aff’d, 719 F.2d 52 (3d Cir. 1983)).

46

Id. at 688.

47

Id.

48

Moore v. Gaither, 767 A.2d 278 (D.C. 2001).

49

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corrections company, which had promised to follow District of Columbia regulations with regard to prisoners’ rights.
However, the contract with the district
contained boilerplate language that “the
provisions of this Agreement are for the
sole benefit of the Parties hereto and
shall not be construed as conferring any
rights on any other person.”50 Although
the right to counsel allegedly violated by
the company was clearly incorporated in
the agreement, the D.C. Court of Appeals
ruled that “Gaither cannot reasonably
claim the right she now seeks to assert in
light of this explicit and, in our view, dispositive provision.”51
IV.	 Housing Cases

Exclusionary clauses have also been a bar
to third-party claims in housing cases.
In Anderson v. District of Columbia Housing Authority the D.C. Court of Appeals
did not consider the merits of a public
housing tenant’s third-party beneficiary
claim because the local housing authority’s contract with the U.S. Department of
Housing and Urban Development (HUD)
stated that a family in public housing “is
not a party to or a third party beneficiary
of” the contract.52 The court held that the
third-party claim “must be rejected on
its face because of the plain language in
the [HUD] contract limiting her ability to claim such status.”53 Nearly iden50

tical language appears in HUD regulations and in its contracts with other local
authorities.54
Even without an exclusionary clause, public housing residents were unsuccessful
in Wallace v. Chicago Housing Authority,
which concerned relocation rights when
homes were demolished to make way
for mixed-income housing.55 Residents
claimed that the city housing authority
breached its agreement with HUD by failing to provide adequate relocation services. Since HUD was not a party, the district
court applied Illinois law, which has a
“strong presumption” against third-party
rights.56 Although the contract provided
that one of its purposes was to “design
and test innovative methods of providing
housing and delivering services to lowincome families,” the court concluded
that the language of the agreement generally focused on the obligations of the
federal and state agencies.57 The court
further stated that, although the contract
incorporated the housing authority’s contracts with residents, “the very fact that
the … Agreement envisions” separate
contracts for residents “undercut[ ]” the
plaintiff’s claims.58 Noting that Illinois
third-party law is “much more stringent”
than federal law, the court concluded that
the agreement did not show that the parties “unequivocally intended to confer a
benefit enforceable by Plaintiffs.”59

Id. at 282.

Id. at 288; accord Walters v. Kautsy, 680 N.W.2d 1 (Iowa 2004) (prisoners not third-party beneficiaries of contract
between Department of Corrections and state public defender due to exclusionary clause).

51

52

Anderson v. District of Columbia Housing Authority, 923 A.2d 853, 863 n.20 (D.C. 2007).

Id. at 863. See also Fort Lincoln, 2008 WL 731562, at *8–9 (invoking “no other person than a party” language to reject
residents’ third-party claim under urban redevelopment contract).

53

See 24 C.F.R. § 982.456(b)(1) (2007); Kirby v. Richmond Redevelopment and Housing Authority, No. 3:04-791, 2005
WL 5864797, at *6 (E.D. Va. 2005) (rejecting tenants’ third-party claim based on this language); Dewakuku v. Martinez,
271 F.3d 1031 (Fed.Cir. 2001) (rejecting claim against HUD based on exclusionary clause); Garreaux v. United States, No.
07-3021, 2008 WL 895825, at *9 (D. S.D. March 31, 2008) (same). See also Johnson v. Housing Authority of Jefferson
Parish, No. 04-1128, 2004 WL 2414095, at *2 n.2 (E.D. La. 2004) (plaintiffs abandoned third-party contract claim in light
of exclusionary clause). But see Maglies v. Estate of Guy, 936 A.2d 414, 433–34 (N.J. 2007) (Hoens, J., dissenting) (HUD
contracts and regulations, including exclusionary clause, draw “a sharp distinction” between tenants and other family
members).

54

55

Wallace, 298 F. Supp. 2d at 724–25.

56

Id. at 724.

57

Id.

58

Id.

Id. The court noted, however, that this conclusion did not preclude the plaintiffs from pursuing claims under their own
contracts with the Chicago Housing Authority in state court. Id.

59

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105

Third-Party Beneficiary Claims: Recent Cases Against Private Parties and Local Agencies

In Campbell v. Boston Housing Authority
the high court of Massachusetts affirmed
that public housing tenants generally had
enforceable third-party rights absent an
exclusionary clause.60 The court permitted a suit by a tenant harmed by lead poisoning in accord with court precedent but
stated that an exclusionary clause would
render that precedent “irrelevant.” 61
V.	 A Developing Area of Law

Contract law is an important avenue for
enforcing the rights of individuals who
receive services from private contractors
and local agencies under federal and state
contracts. Advocates need to familiarize
themselves with applicable state laws to
ascertain whether to bring such claims.
Equally important in deciding whether
to bring such claims is a careful review of
the contract language, particularly looking into whether a clause excludes enforcement by third-party beneficiaries.
There are good legal arguments why exclusionary clauses should not bar claims
by the beneficiaries of government contracts. One district court judge, whose
opinion was later overruled, said that a
contract simultaneously ensuring decent housing for low-income people and
removing any contract law remedy that
residents would have to cure defective
housing made a mockery of the federal
housing program.62 Whether the ordi-

nary discretion that the Restatement
confers upon contracting parties applies
to federal agencies in the face of a clear
legislative intent is unclear since programs such as Medicaid and Section 8
have no conceivable purpose other than
to benefit their recipients.63 Nevertheless, in the past six years there have been
no reported cases in which exclusionary
clauses in government contracts have
been overcome.
Administrative advocacy may be more
effective than litigation in the area of
third-party beneficiary claims especially
if a future administration is sympathetic
to the needs of the poor. For example,
since HUD has drafted regulations and
contracts that exclude third-party claims,
a new HUD administration could change
both the regulations and contract language to be receptive to enforcement by
residents. Advocacy with state administrative agencies could strengthen language in state contracts with Medicaid
and prison service providers to specify
the intent to permit beneficiary enforcement.
In sum, numerous recent cases hold that,
in the absence of an exclusionary clause,
a government contract can be enforced by
those who benefit from its terms. Advocates for the poor should seek out strong
cases that can contribute to this developing area of law.

60

Campbell v. Boston Housing Authority, 823 N.E.2d 363 (Mass. 2005).

61

Id. at 370–71.

62

Dewakuku v. Cuomo, 107 F. Supp. 2d 1117, 1134 (D. Ariz. 2000), rev’d, 271 F.3d 1031 (Fed. Cir. 2001).

See Hitov & Deford, supra note 1, at 593–94 (outlining arguments and citing cases); Restatement (Second) of Contracts
§ 313(1) (general contract rules apply to public contracts “except to the extent that application would contravene the
policy of the law authorizing the contract”). See also Prouty, 121 Cal. App. 4th (in a commercial contract case, specific
promise of employer to provide severance pay to laid-off employees trumped general exclusion of third-party claims).
63

106

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