Caltex Plastics, Inc. v. Lockheed Martin Corp.
824 F.3d 1156
9th Cir.2016Background
- Caltex alleges Lockheed's federal defense contracts require use of MIL-PRF-81705E packaging, which Caltex is the sole approved manufacturer.
- The Navy maintains a Qualified Products List and issued advisories warning against non‑qualified packaging.
- Caltex contends Lockheed failed to use MIL-PRF-81705E, causing Caltex $5,000,000 in damages.
- Caltex sued for breach of contract (as an intended third‑party beneficiary) and for unfair/unlawful business practices under Cal. Bus. & Prof. Code § 17200.
- The district court dismissed for failure to state a claim; Caltex appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal common law governs third‑party rights under defense contracts | Caltex: contracts require MIL‑PRF‑81705E; uniform federal rule not needed to adjudicate its beneficiary claim | Lockheed: national‑security contracts implicate a dominant federal interest, so federal law governs | Held: Federal common law governs third‑party beneficiary questions for national‑security defense contracts |
| Whether Caltex is an intended third‑party beneficiary | Caltex: exclusive supplier status and qualification lists show parties intended to grant it rights | Lockheed: allegations show at best incidental benefit; no allegation that parties intended to confer enforceable rights | Held: Caltex failed to plead facts showing clear intent to confer enforceable rights; claim dismissed |
| Sufficiency of pleading / whether lack of contract text defeats pleading | Caltex: cannot access contract terms without discovery so dismissal premature | Lockheed: plaintiff bears burden to plead facts showing intent; allegations must plausibly suggest entitlement | Held: Pleading on information and belief could allege contract terms; Caltex’s allegations were conclusory and implausible |
| Validity of § 17200 unfair/unlawful claim predicated on breach and alleged federal statute violation | Caltex: § 17200 claim based on Lockheed’s contract breaches and alleged violation of 18 U.S.C. § 2156 | Lockheed: cannot bootstrap UCL claim from failed contract claim; no facts show requisite intent under § 2156 | Held: § 17200 claim fails—Caltex may not bootstrap from an insufficient contract claim and did not plausibly allege § 2156 intent |
Key Cases Cited
- Boyle v. United Techs. Corp., 487 U.S. 500 (federal interest can displace state law for government contract matters)
- Miree v. DeKalb Cty., 433 U.S. 25 (third‑party beneficiary issues under some federal contracts may be governed by state law absent a dominant federal interest)
- Smith v. Cent. Ariz. Water Consewation Dist., 418 F.3d 1028 (federal law governs interpretation of certain federal‑law contracts)
- New SD, Inc. v. Rockwell Int’l Corp., 79 F.3d 953 (uniform federal rule needed for some government contract liability issues, including national security)
- Orff v. United States, 358 F.3d 1137 (incidental third‑party beneficiaries have no enforceable rights under federal common law)
- Cty. of Santa Clara v. Astra USA, Inc., 588 F.3d 1237 (high bar to overcome presumption that government contract beneficiaries are incidental)
- GECCMC 2005‑C1 Plummer St. Office Ltd. P’ship v. JPMorgan Chase Bank, Nat’l Ass’n, 671 F.3d 1027 (federal common law can govern third‑party beneficiary questions in government contract contexts)
- Sherwood Partners, Inc. v. Lycos, Inc., 394 F.3d 1198 (federal interest can preclude enforcement of state law where uniformity is required)
- Berryman v. Merit Prop. Mgmt., Inc., 152 Cal.App.4th 1544 (California law bars bootstrapping a UCL claim from a failed contract claim)