United States v. Ogden Technology Laboratories, Inc., 71-C-1432.

• Decision Date: 14 September 1973
• Docket Number: No. 71-C-1432.,71-C-1432.
• Parties: UNITED STATES of America, Plaintiff, v. OGDEN TECHNOLOGY LABORATORIES, INC., Defendant.
• Court: U.S. District Court — Eastern District of New York

406 F. Supp. 1090

UNITED STATES of America, Plaintiff, v. OGDEN TECHNOLOGY LABORATORIES, INC., Defendant.

No. 71-C-1432.

United States District Court, E. D. New York.

September 14, 1973.

Robert A. Morse, U. S. Atty., E. D. N. Y., for plaintiff; Henry A. Brachtl, Asst. U. S. Atty., of counsel.

Mendes & Mount, New York City, for defendant; Daniel M. Bianca, New York City, of counsel.

MEMORANDUM

BARTELS, District Judge.

Defendant, Ogden Technology Laboratories, Inc. ("Ogden"), moves to dismiss the first cause of action in the amended complaint of plaintiff Federal Government, based upon breach of contract, for failure to state a claim upon which relief can be granted, pursuant to F.R.Civ.P. Rule 12(b)(6). Defendant asserts that plaintiff cannot maintain this cause of action for breach of contract by Ogden because plaintiff was not in sufficient privity with defendant to subject defendant to liability.

Plaintiff alleges that through its agent, the Atomic Energy Commission, it entered into a contract with Minnesota Mining and Manufacturing Company ("3M") for the development and testing of certain thermo-electric power supply systems. In turn, 3M entered into a subcontract with the Linde Division of Union Carbide Corporation ("Linde") under which Linde was to design and fabricate and perform certain analytical work on "high temperature vacuum insulation system" ("HTVIS") units. Finally, plaintiff alleges that Linde entered into a contract with Ogden for the latter to test, in its laboratory, six prototype HTVIS units by subjecting them to prescribed shocks and programs of vibration and to report to Linde how the tests were conducted and their results.

After a number of successful tests on various units had been completed, a test of unit B-10-4 resulted in severe damage. Plaintiff alleges that the damage was caused not by any defect in the design of the HTVIS unit, but rather by Ogden improperly administering a shock greatly in excess of that specified in the contract.

Defendant, it is alleged, did not report to Linde the reason for the test failure, i. e., the excess shock. Plaintiff, not knowing of the excess shock administered and believing that the design of the units might have been faulty, caused 3M and Linde to reevaluate the design and determine the cause of failure. Because of the cost plus nature of the contracts between plaintiff, 3M and Linde, and because of clauses in these contracts placing risk of loss or damage to the units on the plaintiff, the plaintiff allegedly expended $500,000 for the reevaluation necessitated by Ogden's breach of its contractual duty to make a proper report of its shock treatment.

While we cannot be certain without further evidence, it appears from the complaint that there is a sufficient nexus between the plaintiff and Ogden to justify a claim for relief despite the fact that Ogden is not named as a party in any contract with the United States Government.

We reach this conclusion under the ancient theory of recovery for third-party beneficiaries which was first propounded in Lawrence v. Fox, 20 N.Y. 268 (1859), in that plaintiff in this case is an intended beneficiary of the testing contract between Ogden and Linde. The parties agree that New York contract law on third-party beneficiaries controls their rights under the Linde-Ogden contract, and that under New York law ". . . it is well settled that before a third party can enforce a contract in his favor it must clearly appear that the contract was made and intended for his benefit. . . . There must have been an intention on the part of the contracting parties to secure some direct benefit to him." 10 N.Y.Jur. "Contracts" § 239 at 160-62 (1960); Resinol v. Valentine Dolls, Inc., 14 A.D.2d 853, 220 N.Y.S.2d 884 (1st Dep't 1961); Stafford v. Polar S. S. Corp., 44 N.Y.S.2d 509 (Sup.Ct.1943), aff'd, 269 App.Div. 946, 58 N.Y.S.2d 101 (2d Dep't 1945). But Ogden does not agree that plaintiff Government was a contractual beneficiary of its contract with Linde. Its relation to the Government, it claims, is too far removed to infer or permit such an intention.

We are aware that in the present case there is no pecuniary obligation running from the promisee, Linde, to the third-party Government, as is typically the case where third-parties are permitted to recover on a contract. However, any third-party to whom the promisee owes any duty may be a third-party beneficiary of a contract to perform that duty. 4 Corbin on Contracts § 787 at 97-98 (1951). See Lait v. Leon, 40 Misc.2d 60, 242 N.Y.S.2d 776 (Sup.Ct. Queens Co. 1963). It is immaterial whether the duty of the promisee to the third-party beneficiary arises from a bargain between them or is created by an assumption by the promisee, acting as promisor in a previous contract, of some duty by another to the third-party beneficiary or is a non-contractual duty. RESTATEMENT OF CONTRACTS § 136, comment f at 161 (1932). Therefore, since Linde was obligated to report to the Government, albeit by way of an intervening contract with 3M, the Government...