ARTICLE
16 September 2022

Should Contracts Abjure Any Unstated Motivating Purposes?

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Allen Matkins Leck Gamble Mallory & Natsis LLP

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Allen Matkins, founded in 1977, is a California-based law firm with more than 200 attorneys in four major metropolitan areas of California: Los Angeles, Orange County, San Diego, and San Francisco. The firm's areas of focus include real estate, construction, land use, environmental and natural resources, corporate and securities, real estate and commercial finance, bankruptcy, restructurings and creditors' rights, joint ventures, and tax; labor and employment, and trials, litigation, risk management, and alternative dispute resolution in all of these areas. For more information about Allen Matkins please visit www.allenmatkins.com.
The City of Oakland was not happy with the decision of the Oakland Raiders football team to move to Las Vegas, Nevada and it was filed a lawsuit alleging that it was a third party beneficiary of the league's relocation policies.
United States Corporate/Commercial Law

The City of Oakland was not happy with the decision of the Oakland Raiders football team to move to Las Vegas, Nevada and it was filed a lawsuit alleging that it was a third party beneficiary of the league's relocation policies. In an opinion published yesterday, the California Court of Appeal affirmed the trial court's decision sustaining the defendants' demurrers on all causes of action without leave to amend.City of Oakland v. The Oakland Raiders et al., 2022 WL 4243101.

The Court of Appeal's opinion enunciates a tripartite test for establishing status as a third party beneficiary:

  • The party is likely to benefit from the contract;
  • The motivating purpose of the contracting parties is to provide a benefit to the party; and
  • Permitting the party to bring its own breach of contract action is consistent with the reasonable expectations of the contracting parties.

The parties agreed that the first test was met and the Court of Appeal found that the City had sufficiently alleged the second test. In doing so, the Court found that the motivating purpose need only be a purpose and not an overriding purpose. The Court rejected as "not persuasive" a ruling by Chief Magistrate Judge Joseph C. Spero inCity of Oakland v. Oakland Raiders, 2019 WL 3344624.The City lost on the third element because the Court of Appeal because the defendants in adopting the relocation policy would not reasonably expect a host city to sue them.

The fact that the City was able to meet the second test suggests that if contracting parties wish to avoid breach of contract actions from others, they could expressly abnegate any purpose to providing a benefit to anyone who is not a party to the contract.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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