Arco Ingenierosm, S.A. v. CDM Int’l Inc., Civil Action No. 18-12348-PBS, 2019 BL 100779 (D. Mass. Mar. 22, 2019)
In November 2009, Tropical Storm Ida hit El Salvador, causing flooding, landslides, and the destruction of homes, roads, bridges, schools, health clinics, and other infrastructure. The United States Agency for International Development (“USAID”) provided $25 million in funding to rebuild damaged infrastructure. USAID retained Defendant CDM International Inc. (“CDM”) to conduct studies and assessment for the construction of eight schools and one health clinic (the “Projects”) and to create preliminary designs and technical specifications for these Projects. These preliminary designs were intended to constitute at least thirty percent of final designs for the Projects. Relying on the preliminary designs created by CDM, Plaintiff Arco Ingenieros, S.A. de C.V. (“ARCO”) submitted bids to act as the design-build contractor for the Projects. USAID awarded the Projects to ARCO.
ARCO filed suit against CDM, alleging that CDM produced defective site assessments and preliminary designs, which did not fulfill CDM’s obligations under its contract with USAID, causing ARCO to incur significant costs to complete its own contractual obligations to USAID. ARCO alleged that although it had no contractual privity with CDM, ARCO was an intended beneficiary of the CDM’s contract with USAID (the “CDM/USAID Contract”). CDM moved to dismiss the breach of contract cause of action under Federal Rule of Civil Procedure 12(b)(6).
A third party qualifies as an intended beneficiary only if “the language and circumstances of the contract show that the parties to the contract clearly and definitely intended the beneficiary to benefit from the promised performance.” Cumis Ins. Soc’y, Inc. v. BJ’s Wholesale Club, Inc., 455 Mass. 458, 918 N.E.2d 36, 44 (Mass. 2009).
The Massachusetts District Court found that the CDM/USAID Contract’s language lacked a clear indication that either USAID or CDM intended ARCO to benefit from their contract. Instead, the express purpose of the CDM/USAID Contract was for CDM to “provide professional architecture and engineering (A/E) services” for USAID. These tasks benefited USAID, not ARCO. Although ARCO would undoubtedly use CDM’s drawings, that was not enough to convey third party beneficiary status. Relying on caselaw from other jurisdictions, the Court noted that unless a construction contract specifically provides otherwise, it will not create enforcement rights in a third party. Similarly, the Court also found that courts in other jurisdictions have rejected third-party beneficiary claims made by contractors against architects or engineers who separately contracted with the project owner, and not with the contractor.
Since the CDM/USAID Contract did not indicate that USAID or CDM intended their contract to benefit ARCO, the Court granted CDM’s Motion to Dismiss ARCO’s breach of contract claim.
To view the full text of the court’s decision, courtesy of Bloomberg Law, click here.