Be cautious relying on boilerplate contract language disclaiming obligations
to nonparties because it may be ineffective if the overall substance of the contract
suggests otherwise. This was the lesson learned in the case of City of Shreveport v. CDM Smith
Inc., 426 So.3d 186 (La. 2025).
Background of the Case
A federal court consent decree required the City of Shreveport,
Louisiana ("City"), to improve its wastewater collection system. To comply, the City
hired Burk-Kleinpeter, Inc. (BKI), to create a hydraulic model that would simulate
the City's wastewater system and guide the design and construction of necessary
improvements.
The City's contract with BKI expressly designated BKI as an independent contractor and stated that neither party's officers, agents, or employees would be deemed agents, servants, employees, partners, or joint venturers of the other.
BKI then subcontracted with Black & Veatch Corporation ("B&V") to perform professional services on the project, including consulting, engineering, construction management, and program management. The BKI-B&V subcontract ("Subcontract") contained language stating that nothing in the agreement was to be construed as giving rights or benefits to anyone other than BKI and B&V, and that all duties and responsibilities were undertaken solely for their own benefit, not for the benefit of any other party.
The Dispute
The hydraulic model was delivered to the City in 2015. In 2019,
the City discovered what it claimed were serious defects in the model. In 2022, the
City sued BKI, B&V, and others, alleging gross negligence, breach of contract,
and financial improprieties, and sought compensation for the cost of the defective
work, penalties, and the cost of repairing or replacing the faulty sewer system.
The City argued that the Subcontract constituted a "stipulation
pour autrui" (Louisiana's civil law term for a third-party beneficiary arrangement),
which gave the City the right to sue B&V for breach of contract even though the
City was not a party to the Subcontract. B&V countered that the City had no
contract with B&V and, therefore, no right to sue for breach of contract.
B&V pointed to the Subcontract's express disclaimer of any benefit to parties
other than BKI and B&V. B&V also argued that the City's tort claims should
be dismissed on statute-of-limitations grounds.
The trial court dismissed B&V from the suit with prejudice;
the City appealed.
The Appeal
The City argued that the trial court wrongly gave more weight to the boilerplate "no third-party beneficiary" language than to the substance of the Subcontract, which the City claimed was clearly created to benefit the City. The Louisiana Court of Appeal, Second Circuit, agreed with the City and reversed the trial court's decision.
The Legal Test
To determine whether a nonparty has enforceable rights under a
contract, Louisiana courts consider the following three factors.
Whether the stipulation for the third party is manifestly clear
Whether there is certainty as to the benefit to the third party
Whether the benefit is not a mere incident of the contract
Such a benefit is never presumed, and the party claiming the benefit bears the burden of proof.
Why the Court Found a Benefit Despite the Disclaimer
The court concluded that, despite the disclaimer language, the Subcontract as a whole was specifically geared toward services that would benefit the City. The Subcontract repeatedly referenced the "prime agreement" between the City and BKI and mentioned the sewer system project throughout. B&V received a copy of the City's plans for the project and would continue to receive drawings, specifications, schedules, and other materials pertinent to its subcontracted services.
The Subcontract also acknowledged that BKI's ability to timely perform its obligations to the City depended on B&V's timely performance. Additionally, B&V's payment was conditioned on the City's payment to BKI, and the Subcontract would terminate automatically if the prime agreement terminated.
Applying the three-factor test to these facts, the court found that the numerous references to the prime agreement and provisions tying B&V's performance to that agreement clearly manifested an intent to benefit the City. The benefit was certain because the Subcontract referred specifically to the hydraulic model project for the City. Finally, the benefit was not incidental because B&V was unquestionably performing work on the project that benefited the City.
The court acknowledged that the disclaimer was intended to prevent the City from claiming third-party beneficiary status. However, Louisiana law requires each contract provision to be interpreted in light of the other provisions, so that each is given the meaning suggested by the contract as a whole. Because the Subcontract as a whole clearly established a benefit to the City, any ambiguity created by the disclaimer had to be resolved in the City's favor—particularly since the City, as a third-party beneficiary, did not supply the disclaimer language.
The court concluded that the Subcontract was "clearly intended to benefit the owner of the project, the City," and that it was specifically designed for B&V to perform a subset of the work defined in the prime agreement, making the City a third-party beneficiary.
Key Takeaways for Design Professionals
The most obvious takeaway is that design professionals cannot rely solely on boilerplate disclaimer language when the substance of the agreement contradicts that language. Courts will look at the contract as a whole, not just isolated clauses. If you want to effectively disclaim third-party beneficiary status, you must avoid contract provisions that create structural ties to nonparties, such as repeated references to the prime contract or owner, payment conditioned on owner payment, automatic termination upon prime contract termination, direct delivery obligations to the owner, or receipt of owner plans, specifications, and project materials.
Design professionals and their counsel should ensure that disclaimer language is consistent with the overall structure and obligations in the contract. If the substance of your work clearly benefits a nonparty, disclaimer language alone may not protect you from liability to that party. The lesson from this case is to align form with substance throughout the entire agreement.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
Be cautious relying on boilerplate contract language disclaiming obligations to nonparties because it may be ineffective if the overall substance of the contract suggests otherwise. This was the lesson learned in the case of City of Shreveport v. CDM Smith Inc., 426 So.3d 186 (La. 2025).
Background of the Case
A federal court consent decree required the City of Shreveport, Louisiana ("City"), to improve its wastewater collection system. To comply, the City hired Burk-Kleinpeter, Inc. (BKI), to create a hydraulic model that would simulate the City's wastewater system and guide the design and construction of necessary improvements.
The City's contract with BKI expressly designated BKI as an independent contractor and stated that neither party's officers, agents, or employees would be deemed agents, servants, employees, partners, or joint venturers of the other.
BKI then subcontracted with Black & Veatch Corporation ("B&V") to perform professional services on the project, including consulting, engineering, construction management, and program management. The BKI-B&V subcontract ("Subcontract") contained language stating that nothing in the agreement was to be construed as giving rights or benefits to anyone other than BKI and B&V, and that all duties and responsibilities were undertaken solely for their own benefit, not for the benefit of any other party.
The Dispute
The hydraulic model was delivered to the City in 2015. In 2019, the City discovered what it claimed were serious defects in the model. In 2022, the City sued BKI, B&V, and others, alleging gross negligence, breach of contract, and financial improprieties, and sought compensation for the cost of the defective work, penalties, and the cost of repairing or replacing the faulty sewer system.
The City argued that the Subcontract constituted a "stipulation pour autrui" (Louisiana's civil law term for a third-party beneficiary arrangement), which gave the City the right to sue B&V for breach of contract even though the City was not a party to the Subcontract. B&V countered that the City had no contract with B&V and, therefore, no right to sue for breach of contract. B&V pointed to the Subcontract's express disclaimer of any benefit to parties other than BKI and B&V. B&V also argued that the City's tort claims should be dismissed on statute-of-limitations grounds.
The trial court dismissed B&V from the suit with prejudice; the City appealed.
The Appeal
The City argued that the trial court wrongly gave more weight to the boilerplate "no third-party beneficiary" language than to the substance of the Subcontract, which the City claimed was clearly created to benefit the City. The Louisiana Court of Appeal, Second Circuit, agreed with the City and reversed the trial court's decision.
The Legal Test
To determine whether a nonparty has enforceable rights under a contract, Louisiana courts consider the following three factors.
Such a benefit is never presumed, and the party claiming the benefit bears the burden of proof.
Why the Court Found a Benefit Despite the Disclaimer
The court concluded that, despite the disclaimer language, the Subcontract as a whole was specifically geared toward services that would benefit the City. The Subcontract repeatedly referenced the "prime agreement" between the City and BKI and mentioned the sewer system project throughout. B&V received a copy of the City's plans for the project and would continue to receive drawings, specifications, schedules, and other materials pertinent to its subcontracted services.
The Subcontract also acknowledged that BKI's ability to timely perform its obligations to the City depended on B&V's timely performance. Additionally, B&V's payment was conditioned on the City's payment to BKI, and the Subcontract would terminate automatically if the prime agreement terminated.
Applying the three-factor test to these facts, the court found that the numerous references to the prime agreement and provisions tying B&V's performance to that agreement clearly manifested an intent to benefit the City. The benefit was certain because the Subcontract referred specifically to the hydraulic model project for the City. Finally, the benefit was not incidental because B&V was unquestionably performing work on the project that benefited the City.
The court acknowledged that the disclaimer was intended to prevent the City from claiming third-party beneficiary status. However, Louisiana law requires each contract provision to be interpreted in light of the other provisions, so that each is given the meaning suggested by the contract as a whole. Because the Subcontract as a whole clearly established a benefit to the City, any ambiguity created by the disclaimer had to be resolved in the City's favor—particularly since the City, as a third-party beneficiary, did not supply the disclaimer language.
The court concluded that the Subcontract was "clearly intended to benefit the owner of the project, the City," and that it was specifically designed for B&V to perform a subset of the work defined in the prime agreement, making the City a third-party beneficiary.
Key Takeaways for Design Professionals
The most obvious takeaway is that design professionals cannot rely solely on boilerplate disclaimer language when the substance of the agreement contradicts that language. Courts will look at the contract as a whole, not just isolated clauses. If you want to effectively disclaim third-party beneficiary status, you must avoid contract provisions that create structural ties to nonparties, such as repeated references to the prime contract or owner, payment conditioned on owner payment, automatic termination upon prime contract termination, direct delivery obligations to the owner, or receipt of owner plans, specifications, and project materials.
Design professionals and their counsel should ensure that disclaimer language is consistent with the overall structure and obligations in the contract. If the substance of your work clearly benefits a nonparty, disclaimer language alone may not protect you from liability to that party. The lesson from this case is to align form with substance throughout the entire agreement.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.