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CHAPLIN v. CONSOLIDATED EDISON CO. OF NEW YORK

February 10, 1984

PHYLLIS CHAPLIN, on behalf of herself and all others similarly situated, and EPILEPSY FOUNDATION OF AMERICA, Plaintiffs,
v.
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., et al., Defendants



The opinion of the court was delivered by: LASKER

LASKER, D.J.

 In this action based on section 504 of the Rehabilitation Act of 1973 (the "Act"), 29 U.S.C. § 794 (1976 & Supp. III), and on contracts entered into between the federal government and defendant Consolidated Edison Company of New York ("Con Ed") pursuant to section 503 of the Act, 29 U.S.C. § 793 (1976 & Supp. III), Phyllis Chaplin, on behalf of herself and all others similarly situated, and the Epilepsy Foundation of America seek compensatory and injunctive relief based on Con Ed's refusal to hire Chaplin and other qualified job applicants who have epilepsy. As originally filed, the complaint alleged a cause of action based directly upon section 503 of the Act, as well as a cause of action based on section 504. This Court denied Con Ed's motion to dismiss the section 503 cause of action, holding, inter alia, that section 503 provides a private cause of action to victims of handicap discrimination. *fn1" Thereafter, the Court of Appeals for this Circuit ruled to the contrary in a separate case, holding that no private cause of action was created by section 503 of the Act. *fn2"

 Following the Second Circuit's ruling in Davis, plaintiffs filed an amended complaint with leave of court, adding a cause of action based upon plaintiffs' alleged status as third-party beneficiaries of contracts between Con Ed and the federal government in which Con Ed has promised, as required by § 503 of the Act, not to discriminate against qualified job applicants on the basis of handicaps. Con Ed now moves pursuant to Rule 12 (b)(6) of the Federal Rules of Civil Procedure ("Fed.R.Civ.P.") to dismiss the amended complaint. Con Ed contends that the contracts in question do not confer third-party beneficiary status on plaintiffs. Con Ed also contends that the section 504 claim should be dismissed because the federal financial assistance received by Con Ed is inadequate to support a section 504 claim, and because in any event the position for which Chaplin applied was not funded with federal assistance. Plaintiffs cross-move pursuant to Fed. R. Civ. P. 37 to compel defendants to submit to deposition on the subject of the nature of the federal assistance received by Con Ed and the use to which it has been put in Con Ed's operations.

 For the reasons set forth below, Con Ed's motion to dismiss is granted as to plaintiffs' third-party-beneficiary claim and denied without prejudice as to plaintiffs' section 504 claim. Plaintiffs' motion to compel discovery is granted.

 I.

 Section 503(a) of the Act, 29 U.S.C. § 793(a), requires that certain federal contracts include a clause by which the party contracting with the federal government agrees to take affirmative action to hire and promote handicapped persons. *fn3" Under section 503(b) of the Act, the Department of Labor is required to investigate complaints filed by handicapped persons as to a contractor's failure to comply with these provisions of its contract. *fn4" A representative contract between Con Ed and the General Services Administration contains the following provisions, as required by 503(a):

 
"ARTICLE 26. EMPLOYMENT OF THE HANDICAPPED. (a) The contractor will not discriminate against any employee or applicant for employment because of physical or mental handicap in regard to any position for which the employee or applicant for employment is qualified. The contractor agrees to take affirmative action to employ, advance in employment and otherwise treat qualified handicapped individuals without discrimination based upon their physical or mental handicap in all employment practices such as the following: employment, upgrading, demotion or transfer, recruitment, advertising, layoff or termination, rates of pay or other forms of compensation, and selection for training, including apprenticeship."
 
"(b) The contractor agrees to comply with the rules, regulations, and relevant orders of the Secretary of Labor issued pursuant to the Rehabilitation Act of 1973, as amended." *fn5"

 Plaintiffs allege that Con Ed has failed to fulfill its duty under contracts such as these, and claim that as third-party beneficiaries of the contracts they are entitled to enforce Con Ed's nondiscrimination and affirmative action obligations. They argue that the language of the contract evidences a clear intent to benefit handicapped persons, and that under settled principles of contract law the intended beneficiaries of a contract have the same right to enforce its terms as the contracting parties. *fn6" Con Ed, while agreeing that the intent of the parties is the controlling factor, contends that the parties intended to create a duty on Con Ed's part owing only to the federal government, not to individual job applicants, to promote the hiring of handicapped persons.

 Our analysis of whether the parties to the contracts intended to create rights directly enforceable by individual victims of discrimination must be guided by the Court of Appeals' decision in Davis v. United Air Lines, Inc.,7 which addressed a closely-related question in determining that section 503 of the Act created no private right of action. In so holding, the Davis Court examined the four factors set out in Cort v. Ash, 422 U.S. 66, 45 L. Ed. 2d 26, 95 S. Ct. 2080 (1975): first, "is the plaintiff 'one of the class for whose especial benefit the statute was enacted;' *fn8" second, "is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one;" *fn9" third, "is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff;" *fn10" and fourth, "is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law?" *fn11"

 Davis held that although section 503 "was generally intended to benefit handicapped persons," the statute was not intended to create rights enforceable by individual victims of discrimination. *fn12" The Court emphasized that the language of section 503 creates a duty on the part of the federal government to obtain affirmative-action pledges in its contracts with employers, rather than a right on the part of individuals to obtain employment. The Court also examined the legislative history and concluded that it did not support the conclusion that private litigants were intended to be granted a privately enforceable right under the statute. Moreover, the Court held that implication of a private remedy would be inconsistent with the "rather complete administrative scheme" which is provided in the statute and implementing regulations. *fn13"

 Of course, plaintiffs' claim as third-party beneficiaries of contracts containing the assurances required by section 503 is conceptually distinct from a claim based directly on the statute. As a practical matter, however, the considerations determining the validity of the former overlap to a substantial extent those determining the validity of the latter. Third-party beneficiary status may be inferred only when the parties intended to confer a direct benefit on the third party in contracting with each other. *fn14" In cases in which a contract has been executed in connection with a legislative scheme, it is appropriate to consult the legislative history in determining the parties' intent. *fn15" Davis rejected the argument that the legislative history of section 503 evidences an intent by Congress to create a privately enforceable remedy, and it is because of section 503's requirements that the contract provisions at issue here were included in the contracts. In short, although the language of the contracts, viewed in isolation, may well suggest that handicapped persons were intended beneficiaries of the contracts, such an interpretation would be inconsistent with the conclusion in Davis that section 503 was not intended to create a private right for victims of discrimination. *fn16"

 Plaintiffs argue that under Owens v. Haas,17 another Second Circuit decision, the question whether a party may sue as a third-party beneficiary of a contract is independent of the question whether a private right of action exists under the statute pursuant to which the contract was executed. In Owens, a federal prisoner sued county prison officials and the county itself based on a severe beating he had received while housed at the county prison pursuant to a contract between the federal government and the county. Among the theories of recovery advanced by the plaintiff was the claim that 18 U.S.C. § 4002 (1976), which authorizes the United States to contract with local authorities for the imprisonment of federal prisoners, creates a private right of action for prisoners injured while in local custody, and the claim that the plaintiff was a third-party beneficiary of the contract executed under this authority. The Court rejected the argument that a private right of action existed under the statute, but held that the complaint stated "what may be a valid claim as a beneficiary of the contract". *fn18"

 It is true that the outcome which we believe Davis mandates for plaintiffs' third-party claim may be at odds with the outcome suggested by Owens. A possible ground for distinguishing the two cases exists, however, in Owens ' reliance on the fact that the United States owes a duty of care to ...


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