ARKANSAS COURT OF APPEALS
NOT DESIGNATED FOR PUBLICATION
DIVISION I

CA02-1067

September 17, 2003

BOBBY D. PERRY AN APPEAL FROM PULASKI

APPELLANT COUNTY CIRCUIT COURT

[CV02-918]

V. HON. JOHN WARD, JUDGE

BAPTIST HEALTH

APPELLEE AFFIRMED

Wendell L. Griffen, Judge

Dr. Bobby D. Perry appeals from the dismissal of his amended complaint alleging that Baptist Health breached a contract to which he was an intended third-party beneficiary. Appellant argues that the trial court erred in finding that he failed to state sufficient facts to show that he was entitled to relief. We find no error and affirm.

I. Factual History

Appellant is a trauma surgeon and is a member of Arkansas Trauma Surgeons, P.L.L.C. ("Group"). The Group was formed to enter into an exclusive services agreement with Baptist Health ("Baptist") to provide trauma call services for Baptist's emergency department. Baptist agreed to pay the Group $1,000 per day for each day of designated trauma call coverage. The agreement requires the Group to provide to Baptist a list of physicians who were eligible to participate in the trauma call schedule when the agreement was executed. Morever, the Group must obtain Baptist's approval before adding any physicians to the call list who were not on the list when the services agreement was executed. Under the agreement, the Group and the individual Group physicians are independent contractors with respect to their relationships with Baptist.

The agreement further provides that a Group physician who is on call may schedule elective surgery while on call if he or she has arranged for another Group physician to serve as a back-up for trauma call. The agreement states that Baptist shall have no control or direction over the methods by which Group physicians exercise medical judgment in providing services thereunder. However, Baptist may direct that a Group physician be removed from the trauma call schedule if Baptist determines, "in its reasonable judgment", that the physician "is unsatisfactory in the performance of his duties."

Appellant, a member of the Group when the agreement was executed, was on trauma call on June 6, 2001. On that date, he was scheduled to perform an appendectomy at St. Vincent's Infirmary, and made arrangements for another Group physician to serve as his back-up. While performing the appendectomy, appellant received a telephone call from a Jacksonville hospital regarding a patient who had been injured in a motor-vehicle accident and who was being treated in that hospital's emergency room.

Appellant concluded that the patient could be treated at Jacksonville and should not be transferred. Appellant was contacted by a Baptist administrator, who unsuccessfully attempted to persuade him to transfer the patient. The patient died while receiving emergency care at Jacksonville. At Baptist's direction, the Group removed appellant from the trauma call rotation.

Appellant subsequently sued Baptist, asserting breach of contract and breach of the implied covenant of good faith and fair dealing. He argued that Baptist did not reasonably exercise its judgment in demanding that he be removed from the trauma call list because he made the decision within his best medical judgment. Appellant further argued under both counts that Baptist and the Group clearly intended to benefit him and other Group Physicians under the Services Agreement, and that he is therefore an intended third-party beneficiary under the Services Agreement.

Appellee filed a motion to dismiss on the ground that appellant did not state facts sufficient to demonstrate that he was an intended third-party beneficiary and therefore, had failed to demonstrate that he was entitled to relief. After a hearing, the trial court granted appellee's motion to dismiss.

II. Analysis

Appellant appeals from the dismissal of his complaint under Ark. R. Civ. P. (12)(b)(6), which allows a trial court to dismiss a complaint if a plaintiff fails to state facts upon which relief can be granted. It is well-settled that in Arkansas the pleader must state facts showing that the pleader is entitled to relief. See Arkansas Rule of Civil Procedure 8(a)(1); Harvey v. Eastman Kodak Co., 271 Ark. 783, 610 S.W.2d 582 (1981).

When we review a trial court's decision on a Rule 12(b)(6) motion, we treat the facts alleged in the complaint as true and view them in the light most favorable to the party seeking relief. See Rippee v. Walters, 73 Ark. App. 111, 40 S.W.3d 823 (2001). However, the complaint must state facts, and not mere conclusions, to support the plaintiff's cause of action. Where the complaint only states conclusions without facts, we will affirm a trial court's dismissal on a 12(b)(6) motion. See id. We hold that the trial court did not err, because appellant failed to state facts sufficient to demonstrate that he was entitled to relief as a third-party beneficiary.

Appellant maintains that the trial court failed to properly construe the facts asserted in his pleadings and in the plain language of the contract. He argues that the express terms of the service agreement, as contained in his pleadings, are sufficient to establish that in executing the services agreement, Baptist and the Group intended to confer a direct benefit upon each Group physician, including himself.1 Appellant asserts it defies logic to conclude that Baptist is a third-party beneficiary of each Group physician's obligation to perform under the operating agreement, but that each Group physician is not a third-party beneficiary of the services agreement.

As proof that Group physicians were intended as third-party beneficiaries, appellant points to numerous statements in his complaint dealing with the formation of the Group for purposes of performing trauma services and the performance of the services by Group physicians under the express terms of the service agreement.2 He asserts that his pleadings establish that the Group entered an arrangement by which the Group physicians would individually receive pecuniary benefits. In addition, appellant maintains that the Group, as promisee, intended to give the individual Group physicians the benefit of Baptist's promised performance to exercise reasonable judgment in the removal of individual physicians from the trauma call rotation.

Appellee counters that appellant's statements are merely conclusory and that appellant's relationship with the Group and his provision of services under the services agreement makes him, at most, an incidental beneficiary.3 It urges this court to reject appellant's argument that because the Group was formed in contemplation of the services agreement contract, that every member of that Group is a third-party beneficiary. We agree with appellee.

Because the presumption is that parties contract only for themselves, a contract will not be construed as having been made for the benefit of third parties unless it clearly appears that was the intention of the parties. See Little Rock Wastewater Utility v. Larry Moyer Trucking, Inc., 321 Ark. 303, 902 S.W.2d 760 (1995). A third party may not recover upon a contract under which the parties did not intend to benefit him and under which he is a mere incidental beneficiary. See Cook v. U.S. Fidelity & Guaranty Co., 216 Ark. 743, 227 S.W.2d 135 (1950). However, a contract is actionable by a third party where there is substantial evidence of a clear intention to benefit that third-party. See Moyer Trucking, supra. It is not necessary that the person be named in the contract, and if he is otherwise sufficiently described or designated, he may be one of a class of persons if the class is sufficiently described or designated. See Howell v. Worth James Constr. Co., 259 Ark. 627, 535 S.W.2d 826 (1976); see also Moyer Trucking, supra.

Here, Baptist promised the Group the opportunity to have its physicians serve on trauma call, to provide the facilities and support staff, and to pay the group $1,000 for each day of designated trauma call coverage. The Group promised to provide physiciansqualified to serve on trauma call. Appellant claims that he is the intended third-party beneficiary of this arrangement.

While we agree with appellee that appellant did not demonstrate his entitlement as a third-party beneficiary, we are not persuaded by appellee's argument that under Thompson-Holloway Agency v. Gribben, 3 Ark. App. 119, 623 S.W.2d 528 (1981), privity is required in order to establish entitlement as a third-party beneficiary. In Gribben, a corporate broker had been employed by property owners to sell their property. However, the homeowners entered into a separate real estate contract with other parties in which the other parties agreed to purchase the property. The broker sued when the parties failed to execute the contract. In dismissing the complaint in Gribben, supra, the trial court improperly relied on the lack of a showing of privity, as is required in real estate cases. However, because this case does not involve a real-estate contract, we decline to apply the Gribben rule. Instead, we apply the general rule that the party claiming to be a third-party beneficiary may demonstrate entitlement by showing a clear intention to benefit that party. Howell, supra; Moyer Trucking, supra.

There appears to be no Arkansas case with facts similar to the case at bar. However, Howell, supra, and Moyer Trucking, supra, are instructive. The Howell court held that a construction company that installed water and sewer lines for a development corporation was a third-party beneficiary to the subsequent contract between the development corporation and a power cable installer. In Howell, the contract betweenthe development corporation and cable installer waived the performance bond of the cable installer and provided that the developer would retain 40% of any amount due to the cable installer until any damage to other utility lines was repaired. The court rejected the developer's argument that the contract was designed to protect the developer, and not a third-party. Instead, the Howell court found that the developer acted as a surety for the cable installer and that the construction company was an intended third-party beneficiary, even though it was not specifically named in the contract.

In Moyer Trucking, supra, the Arkansas Supreme Court held that a subcontractor of a prime contractor, who entered into an agreement with the Arkansas State Highway Commission, was a third-party beneficiary of the Commission's separate agreement with Little Rock Wastewater Utility. In that case, the Commission entered into a contract with the Little Rock Wastewater Utility to relocate the Utility's sewer lines near Baseline Road. The contract stated that the Utility would complete the work in a manner that would result in no avoidable interference or delay of the construction work the Commission was undertaking on Baseline Road.

The Commission subsequently entered into a separate contract with Southern Pavers, Inc., to widen Baseline Road and to surface the road. Southern Pavers subcontracted with Larry Moyer Trucking to clear and to install drainage and related facilities. Moyer Trucking experienced delays that were due to the Utility's failure to perform its contract with the Commission. The court determined that Moyer Trucking was in a class to be benefitted by the Commission-Utility contract and rejected the argument that the third-party benefit was limited to the prime contractor, Southern Pavers, because the party that did the actual work, Moyer Trucking, was the party that was intended to benefit from the agreement.

As these cases indicate, the issue here may be stated as follows: Is appellant a party or the type of party that the contract was designed to benefit? We hold that the purpose of the services agreement is to protect and benefit Baptist and the Group, and only incidentally, to benefit individual physicians who are members of the Group.

Appellant is correct that it is not necessary that the agreement name him specifically in order for him to be a third-party beneficiary. See Howell, supra. Appellant is also correct that the service agreement is replete with references to Group physicians. However, the bulk of the references to Group physicians are either to benefits the physicians will receive as members of the Group, (such as the $1,000 payment to the Group), or to the physicians' responsibilities to Baptist without which, this type of agreement would be meaningless (such as the required completion of all medical records and administrative records after a Group physician's termination from the trauma call schedule). Unlike the contract in Howell, supra, the terms of the service agreement do not support a finding that Baptist intended to assume any obligation to Group physicians individually.

This case is distinguishable from Howell, supra, and Moyer Trucking, supra, in that the purpose of the contracts in those cases was clearly to protect certain parties from damages caused by other parties with whom the beneficiary had not contracted. This case is further distinguishable from Moyer Trucking because the contract in that case was designed to benefit the party performing the actual work 4

The main benefits alleged by appellant are that Group physicians were allowed to bill patients for their trauma services, and that the Group, as promisee, intended to give Group physicians the benefit of Baptist's promised performance in section 4.08 to exercise reasonable judgment in determining whether a Group physician's performance is unsatisfactory. Appellant misconstrues the terms of the agreement.

First, Group physicians are required to bill for their services; Baptist specifically disclaims responsibility for billing. Undoubtedly, it is a benefit for the Group physicians to be paid for their services, but it is not necessarily a benefit to them to be responsible for the actual billing.

Second, section 4.08 does not indicate any promise to convey a benefit to Group physicians. This section provides that Baptist may, in its reasonable judgment, determine that a Group physician has performed unsatisfactorily and may require the Group to remove such a physician from the trauma rotation. This section requires Baptist to give written notice to the Group's liaison, at which point the Group shall immediately remove the physician from the trauma call schedule until the matter is resolved. The Group liaison shall promptly take steps to remedy the situation to Baptist's satisfaction or to replace the physician within a reasonable period of time.

Appellant maintains that the presumption in section 4.08 that the determination should be reasonable, highlights the appropriateness of recognizing his right to enforce the reasonableness requirement. However, this section focuses on Baptist's right to remedy the situation to its satisfaction, or at the least, for Baptist and the Group to resolve the situation between them. The most that can be said is that this provision recognized the Group's right to enforce the reasonableness of the determination. No similar provision is made in section 4.08 for a Group physician who has been removed from the trauma rotation.

There is no doubt that appellant, as a Group physician, incidentally benefitted from this contract. However, a party claiming status as a third-party beneficiary must show more than the fact that he or she benefits from the performance of the contract. See Cook, supra. Moreover, simply because benefits are recognized in a contract does not mean the receiver of those benefits is a third-party beneficiary, where the remainder of the contract does not evince that clear intent. In other words, the mere mention in a contract that a party will receive benefits does not mean, ipso facto, that the contract was negotiated in order to secure those benefits and does not elevate an incidental beneficiary to the status of a third-party beneficiary. It is true that the Group was formed, necessarily, so that the Group could enter into a services agreement that admittedly would be performed by individual Group physicians. Further, it is true that section 2.01 of the agreement states that Group physicians and the Group are independent contractors with respect to their relationships to Baptist, but that does not change the result here. Section 2.01 does not purport to give individual Group physicians a benefit or a right to sue. A Group physician, as a member of that Group and only by virtue of membership in that Group, has certain obligations under the service agreement. Group physicians may not enter into an independent contract with Baptist to provide trauma services, because the contract with the Group is an exclusive contract.

Further, section 2.01 also states that neither the Group nor Group physicians are employees of Baptist. Therefore, the purpose of this section is to bestow a benefit on Baptist by protecting the hospital from respondeat superior liability. As such, it does not "defy logic" to conclude that Baptist is a third-party beneficiary of the operating agreement but that Group physicians are not third-party beneficiaries of the service agreement. Appellant presents no authority to support a finding that this type of arrangement creates such a reciprocal relationship between the parties.

Finally, appellee relied upon the Restatement (Second) of Contracts § 302 (1981) below, and both parties cite to this provision on appeal. Section 302 provides:

(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either:

(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or

(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.

Our decision is consistent with this provision. Under the Restatement test, appellant would be a third-party beneficiary only if: 1) recognition of a right to performance in appellant is appropriate to effectuate the intention of Baptist and the Group; and 2) the circumstances indicate that the Group intended to give the beneficiary the benefit of the promised performance. Even if the first prong of this test is met, the second prong is not. The right of performance under the service agreement is not appellant's right to perform trauma services, but is Baptist's right to have Group physicians to perform trauma services, and the Group's right to have its physicians, and no one else's, perform trauma call services at Baptist. As previously stated, the services agreement simply does not support the contention that the Group physicians are anything other than incidental beneficiaries of this agreement.

Affirmed.

Gladwin and Bird, JJ., agree.

1 Appellant's complaint references the operating agreement between the Group and Group physicians. In addition, both appellant and appellee refer to the operating agreement in their arguments. The operating agreement is the contract between the Group physicians and the Group that determines how the doctors will be placed on trauma call. Section 3.04 of the service agreement specifically states that Baptist is a third-party beneficiary of the operating agreement.

2 For example, under section 1.04 of the service agreement, Baptist recognized that the proper operation of its trauma service requires physicians who specialize in trauma surgery. Section 6.03 of the agreement stated that Group physicians would be responsible for charges for surgical and other professional services provided to Baptist's trauma patients who were treated by Group physicians. In addition, section 9.03 of the agreement specified actions that will result in the immediate termination of Group physicians from providing services under the contract, including the failure to respond in a timely manner when summoned on a trauma call.

3 Appellee also argues that appellant's status as a member of a limited liability company does not give him standing under Arkansas Code Annotated § 4-32-305 (Repl. 2001) to sue. However, this statute is not applicable because this suit is not by, or againsta limited liability company (the Group). Rather, it is against Baptist Health, and, as appellee correctly notes, appellant does not purport to sue on behalf of the Group.

4 Appellant also cites to an Iowa case, Tredrea v. Anesthesia & Analgesia P.C. et al., 584 N.W.2d 276 (Iowa 1998). In that case, the Iowa Supreme Court affirmed the right of independent anesthesiologists to sue as third-party beneficiaries where a hospital signed an exclusive contract with an anesthesiology group for that group to provide anesthesiology services, and where the independent anesthesiologists/plaintiffs signed contracts with the group. The Tredrea court stated that the necessary inquiry is not the intent of the parties, but is whether the promised performance will be of pecuniary benefit to the third-party and whether the contract is so expressed as to give the promisor reason to know that such benefit is contemplated by the promisee as one of the motivating causes of his making the contract. Under that test, the Tredrea court found that the independent anesthesiologists were third-party beneficiaries of the group's contract with the hospital.

Tredrea is first distinguishable on its facts. The Tredrea plaintiffs were individually named in the contract. While it is not necessary that the beneficiary be named under Arkansas law, the Iowa court specifically relied on that fact. Further, the Treadrea plaintiffs were independent contractors who were not members of the group and who sued the group, not the hospital. In addition, Tredrea does not apply here because that court minimized the intent element required under Arkansas law, and applied a test that Arkansas courts have not yet adopted.