In Wm. T. Burnett Holding LLC v. Berg Brothers Company, 235 Md. App. 204 (2017), the Court of Special Appeals found that Wm. T. Burnett and Ellicott Dredges, LLC (together, “Burnett/Ellicott”), neighbors of Berg Brothers Company in South Baltimore, were not intended beneficiaries of an agreement between Berg and the City and therefore Burnett/Ellicott did not have the right to enforce the provisions of the agreement.
Berg ran a junkyard surrounded by an unsightly ten-foot high fence in the Carroll Camden Urban Renewal Area next door and across the street from the offices, meeting rooms, and manufacturing and warehouse facilities of Burnett/Ellicott. Burnett/Ellicott complained repeatedly. The City Department of Housing and Community Development (“DHCD”) issued violation notices to Berg, and Berg appealed to the Board of Municipal and Zoning Appeals (“BMZA”). Burnett/Ellicott filed an opposition to the appeals. After negotiations among Berg, Burnett/Ellicott and DHCD, Berg and DHCD reached an agreement that required that Berg take steps to improve its property.
One of the covenants in the agreement was that Berg would construct a new wall by a set date. Because of unforeseen difficulties, the wall was not timely built. Although DHCD issued a notice of default and order to cure the non-compliance by May 23, 2014, Burnett/Ellicott brought suit to enforce the agreement against Berg in the Circuit Court for Baltimore City on May 16, 2014. The circuit court dismissed the action, and on appeal, the Court of Special Appeals affirmed.
The court noted the distinction between an “intended” beneficiary and an “incidental” beneficiary of an agreement. To be an intended beneficiary, the person must be the real promisee, that is, the real party in interest. On the other hand, an incidental beneficiary acquires no right against the promisor or the promise.
In order to determine whether in any particular case a person is an intended or an incidental beneficiary, it is important to determine the intention of the parties to the agreement. The court found that the purpose of the agreement between Berg and DHCD was to resolve outstanding violation notices and appeals. It is up to DHCD to enforce the Baltimore City building and zoning laws. Although Burnett/Ellicott was a neighbor and therefore a party who was able to participate in a hearing and any judicial review, the court did not find that Burnett/Ellicott was the primary party in interest. The Court of Special Appeals noted that other courts have held that third party beneficiaries of government contracts are generally assumed to be merely incidental beneficiaries and may not enforce those contracts if there is not clear intent to the contrary. The Court of Special Appeals found that the circuit court had ample evidence to conclude that Burnett/Ellicott was not intended to have the authority to enforce the agreement between Berg and DHCD.
The Court of Special Appeals also found that Burnett/Ellicott could not claim a right to enforce the agreement under the doctrine of promissory estoppel.
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