NAF Holdings, LLC v. LI & Fung (Trading) Limited

The U.S. Court of Appeals for the Second Circuit certified a question of Delaware law arising out of an appeal from a decision issued by the U.S. District Court for the Southern District of New York. The question pertained to contract interpretation. Plaintiff-appellant NAF Holdings secured a contractual commitment of its contracting counterparty, defendant Li & Fung (Trading) Limited, to render a benefit to a third party. The counterparty breached that commitment. Could "the promisee-plaintiff bring a direct suit against the promisor for damages suffered by the plaintiff resulting from the promisor's breach, notwithstanding that (i) the third-party beneficiary of the contract is a corporation in which the plaintiff-promisee owns stock; and (ii) the plaintiff-promisee's loss derives indirectly from the loss suffered by the third-party beneficiary corporation; or must the court grant the motion of the promisor-defendant to dismiss the suit on the theory that the plaintiff may enforce the contract only through a derivative action brought in the name of the third-party beneficiary corporation?" The Delaware Supreme Court answered that under Delaware law, a party to a commercial contract who sues to enforce its contractual rights can bring a direct contract action under Delaware law. "Although the relationship of that party to the third-party beneficiary might well have relevance in determining whether the contract claim is viable as a matter of contract law, nothing in Delaware law requires the promisee-plaintiff's contract claim to be prosecuted as a derivative action. " View "NAF Holdings, LLC v. LI & Fung (Trading) Limited" on Justia Law