Supreme Court Decides Case Involving Third-Party Beneficiaries Issue
Last week, the U.S. Supreme Court issued its opinion in Astra USA v. Santa Clara County in which it unanimously overturned a decision of the Ninth Circuit Court of Appeals. The case was brought by Santa Clara County, which operates several 340B entities, that is, public hospitals or community health organizations involved in delivering medical services to the poor. The county claimed a right to sue for overcharges on prescription medications provided through a PPA, or Pharmaceutical Pricing Agreement entered into between drug manufacturers and a division of the Department of Health and Human Services. Although no statute created a private right of action to sue on such PPAs, the county claimed that it could sue as a third-party beneficiary of the PPAs to which the drug manufacturers had agreed.
Justice Ginsburg, writing for the Court, determined that permitting such third-party beneficiary suits would be incompatible with the statutory design. The 340B program and its attendant PPAs are to be administered by the Secretary of HHS and her agents. HHS oversight would be impossible if third-parties were permitted to set themselves up as independent enforcement agencies. This is so because the drug companies are required under the statute to provide price information to the government so that it can set price ceilings. In return, the government agrees not to disclose the price information. If 340B entities could sue to challenge prices, the regulation would become a mechanism through which the drug companies’ trade secrets would routinely be made public.
Citing to the Restatement of Contracts, the Court observed that a nonparty is legally entitled to benefit from a promise contained in a contract only if the parties to the contract so intended. The county reasoned that the entire purpose of the statute that created 340B entities and PPAs was to benefit entities such as itself. The Court disagreed, noting that the PPAs merely incorporated statutory language, rendering a suit to enforce the PPAs identical to a suit to enforce the underlying statute. The U.S. government, as amicus curiae, argued — and the Court agreed — that Congress did not intend to share the burden of enforcement of the the statute with 340B entities. The county objected that Congress has acknowledged that HHS lacks the resources to effectively monitor and police the PPAs. The Court was unmoved. Congress addressed the issue in the 2010 Patient Protection and Affordable Care Act with a new dispute resolution procedure, plus new penalties for drug manufacturers who overcharge 340B entities.
Hanrahan v Minister For Agriclture, Fisheries And Food  IEHC 442 (26 November 2010)
11. It is well established that a plaintiff may recover such damages for a breach of contract ‘as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of things’ or ‘such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result of the breach of it’. This test was set out in Hadley v Baxendale (1854) 9 Ex 341 at 354-355, and has been approved in numerous Irish decisions such as Lennon v. Talbot Ireland Ltd (Unreported, High Court, 20th December 1985), and Lee v. Rowan (Unreported, High Court, 17th November, 1981,).
12. The plaintiff is entitled to such damages as would put him as nearly as possible into the position in which he would have been had the animals been returned as agreed. In the absence of the cattle themselves, a sum of money to represent their value should be awarded. Additionally, the plaintiff claims he is entitled to profits lost and expenditure incurred because of the breach of the agreement. In the present case, these primarily relate to his loss of milk from the milking cows not returned. These may also include losses resulting from his particular circumstances so far as they are foreseeable by the defendant. Such losses are sometimes described as “consequential loss” in Anglo American usage. The third claim for damages by the plaintiff occurs under the heading of inconvenience and distress caused to him as a result of the failure to return the animals on 5th May, 2006.
13. In assessing his losses under the above headings, however, the plaintiff must bring into account any compensating gains which will be offset against his losses: he is only entitled to his net losses. Moreover, in calculating what gains he would have made if there had been no breach, the cost of realising such gains are compensatory savings which must be deducted, to quantify the net gain only at the end of the day. In the present case, the defendant argues that there were cost savings for the plaintiff in calculating his losses from a lower mild yield, insofar as, since it is a theoretical exercise, he would not have (or should not have) incurred labour or land costs in the event, as, in fact, the cattle were not returned. I will deal with this argument in more detail below.
14. Where a breach of contract occurs, the aggrieved party is obliged to take reasonable steps to reduce his losses. He is obliged to mitigate his losses. Costs reasonably incurred by the plaintiff in such an exercise are recoverable.
15. These are the principles applicable to the present case and are not difficult to state in the abstract. The difficulties here arise in applying them to the facts of the case and in quantifying the losses in monetary terms. Some of these difficulties must be attributed to the plaintiff’s failure to keep proper farm accounts, not only prior to the seizure in 2006, but also subsequently, when it became obvious that an action against the State was contemplated. Perhaps it is too much to expect the plaintiff to change his life long practices in this regard, at this late stage of his life, but it must be noted that it presents difficulties for the court.
16. Nevertheless, the court must do its best. The fact that damages are difficult to assess does not disentitle the plaintiff to compensation for losses resulting from the defendant’s breach of contract. As Finlay P. stated in Grafton Ct. Limited v. Wadson Sales: the court “should be alert, energetic and if necessary ingenious to assess damages where it is satisfied that a significant injury has flowed from breach”. (Unreported, High Court, 17th February, 1975 at p. 21).
[McMahon J considered that the available damages comprised the value of the animals not returned, the loss of associated profit, and the loss of a winter milk bonus; and he continued]
40. Because I have awarded the plaintiff a sum in respect of loss of profits during the years 2006-2010, as a result of the failure to return the animals as agreed, I do not believe that any sum for interest is due to the plaintiff for the delay in the payment of the capital sum, that is the sum I have valued the unreturned herd as of 5th May, 2006. There is no evidence before the court that the loans which the plaintiff got from others, and particularly from his brother in-in-law, were anything other than non-interest bearing loans from close friends and relatives.
41. Due to the stress, upset and inconvenience caused to the plaintiff, as a result of the breach of the agreement by the defendant, I award the plaintiff an additional sum of €25,000.
42. This brings the total award of damages to the plaintiff to €304,320.
- Carey v Independent Newspapers (Ireland) Ltd  IEHC 67 (7 August 2003)
- Mallett & Son (Antiques) Ltd v Rogers  2 ILRM 471,  IEHC 131 (12 May 2005)
- ESL Consulting Ltd trading as VoIP Ireland v Verizon (Ireland) Ltd  IEHC 369 (27 November 2008)
- Moloney v Fox  IEHC 72 (22 February 2010).
MCD PROMOTER Denis Desmond is pursuing Prince through the American courts to recover €2.2 million in damages which have not been paid.
Documents filed in the Central District of the Los Angeles Superior Court are seeking recognition of the High Court judgment given last year against Prince.
If judgment is granted, Mr Desmond will be able to target Prince’s assets, including his home, if he does not pay.
I’ve discussed the background to this claim here.
Various legal bloggers have commented on the surprising number of legal issues addressed in the recent Coen Brothers’ movie True Grit. There are contract issues, evidence issues, and federalism problems, among others. The protagonist, Mattie Ross, succeeds in large part because of her extensive legal knowledge. As a property professor, I was happy to see that she knows what a writ of replevin is, and uses the threat of getting one to good advantage.
True Grit also includes some interesting law and economics concepts about incentives.
Friday January 14 2011
THE National Asset Management Agency has four legal ways to overturn property transfers — including transfers by developers to spouses, children and other third parties — that it believes were aimed at defrauding current or future creditors. …
If a developer is bankrupt, transfers in the two years leading up to the bankruptcy can be set aside. Transfers in the previous five years can also be set aside in a bankruptcy unless a developer can prove that he was solvent at the time he transferred or gifted the asset.
If property was transferred before 2009, NAMA can use the 1634 Conveyancing Act Ireland which allows property conveyances and other transactions to be declared void if they are made for the purpose of delaying, hindering or defrauding creditors. If property was transferred after December 1, 2009, the 2009 Land and Conveyancing Reform Act allows for transfers to be set aside if there was an intention to defraud a creditor.
Finally, the NAMA Act itself contains a miscellaneous provision that gives the toxic loans agency powers to void transfers effected by debtors and those who provided loan guarantees, including personal guarantees.
Section 211 of the National Asset Management Agency Act, 2009 provides that a disposition made to defeat, delay or hinder the acquisition by NAMA of an asset, or to impair the value of an asset can be set aside by a court. Section 10 of the Conveyancing Act (Ireland) 1634, in wonderfully overblown seventeenth century legalese provides that all transactions “devised and contrived of malice, fraud, covin, collusion or guile, to the end, purpose and intent to delay, hinder or defraud creditors and others of their just and lawful actions” are “utterly void, and of none effect”. The Act was repealed (with effect from 1 December 2009) by the Land and Conveyancing Law Reform Act 2009, and section 10 of the 1634 Act was replaced by section 74 of the 2009 Act:
(1) … any voluntary disposition of land made with the intention of defrauding a subsequent purchaser of the land is voidable by that purchaser. …
(3) … any conveyance of property made with the intention of defrauding a creditor or other person is voidable by any person thereby prejudiced. …
In fact, the range of remedies is probably greater. There is a wide range of doctrines such as fraudulent preferences and similar in liquidation and bankruptcy, but there are also basicrules of equity: the family donees are not thrid party purchasers for value without notice, so if NAMA have an equity, the donees take subject to it; and there may be a constructive trust or similar equitable proprietary claim, perhaps founded on fraud or wrongdoing (see, eg, AG for Hong Kong v Reid  1 AC 324 (PC)).
Marital property agreements (pre-nuptial and post-nuptial agreements)
On 11 January 2011 we published a consultation paper. This reviews the current law of marital property agreements, discusses options for reform and puts forward questions for consultees. The consultation closes on 11 April 2011.
For the position in Ireland, compare the Report of the Study Group on Pre-nuptial Agreements (2007). Unless and until these reports are implemented, the leading case in the UK is Radmacher v Granatino UKSC 42 (20 October 2010); the most recent case in Ireland is S v S  IEHC 579 (27 July 2009); and the leading case is still MacMahon v MacMahon  IR 428, in which the Court of Appeal (Palles CB, Holmes and Cherry LJJ) held that pre-nuptial agreements were invalid, unless made between married but separated parties to achieve a re-union (though many of the authorities relied on in that case were less persuasive in Radmacher).
In this recent blog post I explained why I’m not a fan of imposing on a contract party an obligation that it doesn’t have control over. Rather than engage in that sort of indirect and counterintuitive risk allocation, I’d rather make my risk allocation explicit. One way to do that is by providing for indemnification.