December 7, 2022

Volume XII, Number 341

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December 06, 2022

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December 05, 2022

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Should Contracts Abjure Any Unstated Motivating Purposes?

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 in City 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.

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XII, Number 259
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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