## Facts

- Tutu Park Ltd. (owner/developer) contracted with Balfour Beatty, Inc. (contractor) in January 1992 to design and build a shopping center in St. Thomas, U.S. Virgin Islands.
- Kmart was an intended anchor tenant but did not sign the construction contract.
- Contract documents expressly incorporated Kmart-specific requirements, including schedule compliance with Kmart’s needs, submission of design drawings to Kmart, and execution and delivery of warranties in Kmart’s favor.
- The construction contract contained an arbitration clause covering disputes arising under the contract.
- In September 1995, Hurricane Marilyn damaged the shopping center roof, including the portion over Kmart’s premises.
- Kmart alleged the hurricane-related damage was attributable to defective design and construction.
- In August 1997, Kmart sued the contractor and others, asserting (among other claims) breach of contract as a third-party beneficiary and negligence.
- The contractor moved to dismiss for failure to state a claim, arguing Kmart lacked third-party beneficiary standing; alternatively, it sought a stay pending arbitration if Kmart were found to be a beneficiary.

## Issues

1. Whether Kmart was an intended (not incidental) third-party beneficiary of the owner–contractor construction contract with standing to sue for breach.
2. If Kmart was an intended beneficiary, whether it was bound by the contract’s arbitration clause such that the court action should be stayed pending arbitration.

## Decision

- The court held Kmart was an intended third-party beneficiary of the construction contract.
- The court denied dismissal of Kmart’s contract claim on third-party beneficiary grounds.
- The court held that, because Kmart sought to enforce rights under the contract, it was bound by the contract’s arbitration clause.
- The court stayed the action pending arbitration.

## Legal Principles

- A non-signatory may enforce a contract as an intended third-party beneficiary when the contract and circumstances show the contracting parties intended to confer enforceable benefits on that party.
- Contract provisions expressly directed to a third party—such as requirements to meet that party’s scheduling needs, submit designs for its review, or provide warranties in its favor—support intended beneficiary status rather than incidental benefit.
- A third-party beneficiary who sues to obtain benefits under a contract must accept the contract’s dispute-resolution terms; acceptance of benefits entails acceptance of burdens, including arbitration.
- When contract-based claims fall within an arbitration clause, the proper course is to stay the court proceeding pending arbitration rather than litigate the merits in court.

## Conclusion

The court recognized Kmart as an intended third-party beneficiary based on contract terms explicitly directed to Kmart, but required Kmart to arbitrate because its attempt to enforce the contract necessarily subjected it to the contract’s arbitration clause, warranting a stay pending arbitration.


Kmart Corp. v. Balfour Beatty, Inc., 994 F. Supp. 634 (D.V.I. 1998)