The state of Alaska entered into a contract with Corrections Corporation of America (CCA), a private company, to house Alaska’s inmates. The contract required CCA to abide by the terms of a settlement agreement between the state and its inmates known as the Cleary FSA. This agreement listed Alaska’s duties to its prisoners and also provided a list of permissible disciplinary procedures. 

Gus Rathke was an Alaska inmate at a CCA prison located in Arizona. A routine drug test revealed marijuana in his system. Rathke’s level of marijuana was within the limit allowed by the Cleary FSA (50 ng/ml) but exceeded Arizona’s limit (20 ng/ml). CCA applied the more stringent Arizona standard. As a result, Rathke spent thirty days in punitive segregation and lost his prison job.

Rathke sued CCA, seeking lost wages and an apology. He claimed that CCA breached its contract with Alaska when it punished him according to the stricter marijuana standard. Rathke argued that as an Alaska inmate, he was an intended third-party beneficiary of the contract between Alaska and CCA.

The trial court disagreed with Rathke. It held that, even though he was entitled to certain rights under the Cleary FSA, he was not a third-party beneficiary of the CCA/Alaska contract. It reasoned that the Clearly FSA duties were only between Alaska and the inmates, while the duties in the CCA/Alaska contract were only between CCA and the state. Rathke appealed to Alaska’s Supreme Court. 

Questions:

1. Was Rathke an intended beneficiary of the contract between the state of Alaska and CCA?

2. Who is the intended beneficiary in this case?

3. What is the definition of a third-party beneficiary?

4. On what source did the Court rely to determine the definition of an “intended beneficiary?”