Domino's Pizza v. McDonald

The rights protected by Section 1981

42 U.S.C. § 1981 provides that “[a]ll persons…shall have the same right…to make and enforce contracts…as is enjoyed by white citizens.” 42 U.S.C. § 1981(a). Under the Section, “to make and enforce contracts” includes the right to make, perform, modify, and terminate a contract. 42 U.S.C. § 1981(b). Accordingly, § 1981 prohibits a person from breaching or refusing to enter into a contract based on the race of the other contracting party. See 14 C.J.S. Civil Rights § 43 (citing Faraca v. Clements, 506 F.2d 956 (5th Cir. 1975)). One court has stated that the policy behind § 1981 is to eliminate discriminatory practices by providing remedies to the victim that place him in the same “economic position he would have been in had there been no discrimination.” 14 C.J.S. Civil Rights § 43 (citing Minor v. Lakeview Hospital, 421 F.Supp. 485 (D.C. Wis)).

Insufficiency of the Ninth Circuit’s decision

The Ninth Circuit held that McDonald may recover damagesunder § 1981 for personal injuries that he suffered, which are “separate and distinct from contract damages suffered by JWM Investments, Inc.” McDonald v. Domino’s Pizza, 107 Fed. Appx. 18 (9th Cir. Jun 18, 2004). This decision was based on a rule that the Ninth Circuit established in a similar case, Gomez v. Alexian Bros. Hosp., 698 F.2d 1019, 1021 (9th Cir. 1983). In Gomez, for allegedly racial reasons, a hospital rejected the contract of a corporation that employed a physician of Hispanic origin. Id. The court held that § 1981 gave the physician standing to sue the hospital—that is, the right to make or have a court enforce a legal claim against the hospital, See Black’s Law Dictionary, 8th Ed. 2004. Gomez, 698 F.2d at 1021. The court reasoned that the racial discrimination allegedly caused the physician to suffer personal injuries that were distinct from any injuries the corporation suffered, including loss of employment, humiliation, and embarrassment. Id. Similarly, because McDonald allegedly suffered personal injuries, including significant monetary loss, personal defamation, and humiliation, the Ninth Circuit held that he had standing to sue under § 1981. Id.

Domino’s now argues, contrary to the Ninth Circuit’s holding in this case, that McDonald’s alleged personal injuries are insufficient to provide him with the right to sue under § 1981. Brief of Petitioner at 13. Domino’s argues that McDonald failed to demonstrate, and the Ninth Circuit failed to determine, whether he established the requisite statutory standing to sue. Id. Establishing statutory standing requires a court to determine whether Congress has granted a litigant judicial relief for violations of a right created by statute. Sierra Club v. Morton, 405 U.S. 727, 732 (1972). This determination involves two presumptions that a plaintiff must satisfy: 1) a plaintiff cannot base his claim on the legal rights or interests of a third party, Warth v. Seldin, 422 U.S. 490, 499 (1975); and 2) a plaintiff has standing to sue only if his claim falls within “the zone of interests to be protected” by the statute at issue. Ass’n of Data Processing Serv. Orgs v. Camp, 397 U.S. 150, 153 (1970).

Domino’s argues that McDonald has not overcome either of these presumptions, and that the Ninth Circuit erred in failing to inquire into whether McDonald had established statutory standing. Brief of Petitioner at 13.

The right to “make and enforce” contracts under Section 1981

According to Domino’s, McDonald has not established statutory standing to sue under § 1981, because he has never been denied the right to “make and enforce contracts,” as provided under § 1981. Id. at 20. According to Domino’s, the “make and enforce” provision of § 1981 is triggered only by injuries that a plaintiff suffers when making and enforcing his own contract with the defendant. Id at 20-21. Thus, where a plaintiff does not have his own contract with the defendant, but instead, has one with a third party who contracts with the defendant, neither the injuries of the third party nor the plaintiff can provide the plaintiff with standing to sue the defendant under § 1981. Id. For example, a plaintiff cannot sue if her injuries consist merely of increased expenses or labor in fulfilling her contract with the third party, Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 532 n.25 (1983), or are based on the injuries of the third party. Warth, 422 U.S. at 509.

Applying the foregoing rules to this case, Domino’s first argues that McDonald has no claim under § 1981, because he has not alleged that he was personally a party to any contract with Domino’s. Brief of Petitioner at 25. This conclusion is not weakened by McDonald’s status as president and sole shareholder of JWM, because, in general, “[t]he contract of a corporation is the contract of the legal entity, and not of the shareholders individually.” 1 William Meade Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 29, at 497, 500. Further, Domino’s argues that McDonald cannot assert a right through JWM (the third party), because, as described earlier, § 1981 does not suggest that a non-party to a contract has the right to make and enforce it. Brief of Petitioner at 28.

Even assuming that McDonald could sue through a third party intermediary, such as JWM, Domino points out that McDonald had no contract with JWM, and that their relationship is nothing more than that between a corporation and its sole shareholder. Id. at 32. To be sure, McDonald never alleges the existence of an employment contract, and courts are reluctant to presume the existence of one without evidence that one exists. See e.g., Bellows v. Amoco Oil Co., 118 F.3d 268, 275 (5th Cir. 1997).

McDonald responds in several ways. First, he argues that he had two contractual relations with JWM—one as an employee and the other as a shareholder. Respondent’s Brief at 37. Federal law required that McDonald be considered an employee and be paid wages because he performed services for JWM as its president. Id at 37 (citing Spicer Accounting, Inc. v. United States, 918 F.2d 90, 93 (9th Cir. 1990)). As a former employee, he now claims entitlement to wages that he would otherwise have earned absent the alleged discrimination. Id at 37-8. McDonald further argues that contrary to Domino’s assertion, “the relationship between a corporation and its shareholders is contractual.” Id. at 39 (citing 7A William Meade Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 3634, at 216). In reply, Domino’s argues that no contractual relationship exists because simply “characterizing someone as an ‘employee’ for purposes of federal tax statute does not create a contract under state law.” Petitioner’s Reply Brief at 10.

In addition to asserting a contractual relationship between himself and JWM, McDonald argues in large part that he does not need to contract with Domino’s in order to establish standing under § 1981. Respondent’s Brief at 22. He highlights past Supreme Court cases, such as Goodman v. Lukens Steel Co., 482 U.S. 656 (1987), that conferred standing under § 1981 to persons who were the “actual targets” of contract-related discrimination, regardless of whether the persons actually contracted through another party. Respondent’s Brief at 10 (citing in addition Shaare Tefila Congregation v. Cobb, 481 U.S. 615 (1987); Runyon v. McCrary, 427 U.S. 160 (1976)).

Domino’s, however, argues that McDonald’s “actual target” test simply has no support in either the plain language of § 1981 or the case law. To be sure, Domino’s argues that McDonald’s reliance on past Supreme Court cases is seemingly reasonable but incorrect. For instance, although the plaintiffs in Runyon v. McCrary and other cases were not parties to the underlying contracts, they were intended beneficiaries of the contracts. It is this status as intended beneficiaries, and not simply as the actual targets of discrimination, that creates standing, according to Domino’s. In the present case, McDonald does not argue that he was an intended beneficiary.

McDonald does argue, however, that as a practical matter Domino’s narrow interpretation of § 1981 as requiring a contractual relationship between the plaintiff and defendant would exclude millions of minority workers from the protections of § 1981and would create a serious gap in the enforcement of § 1981. Respondent’s Brief at 24-6. Millions of workers would be excluded because they hold employment contracts, not with a party that discriminates against them, but with their employers, oftentimes corporations or temporary employment agencies. Id. If these employers choose not to sue the wrongdoer—perhaps to avoid upsetting an important customer—the employees are left without a basis to assert a § 1981 claim. Id at 26, 30. If the employees cannot assert a claim, and the employers choose not to do the same, the wrongdoer would in many instances escape liability under § 1981. Id at 26. This situation would only exacerbate racial discrimination and create a serious gap in the enforcement of § 1981 claims. Id. Further, because an agent is rarely a party to an underlying contract between two corporations, Domino’s cramped construction of § 1981 leads to the absurd result that a corporation is left as the only entity with the right to sue under § 1981— which is absurd because a corporation has no racial identity. Id at 14 (citing Village of Arlington Heights v. Metro. Housing Dev. Corp., 492 U.S. 252, 263 (1977)). Finally, a gap is also created under Domino’s interpretation because racial discrimination oftentimes results in non-economic injury, including pain and suffering, mental anguish, and humiliation. Id at 27. Only an individual, however, can seek relief for these types of injuries; “corporations do not themselves have feelings.” Id. at 27-8.

In response to McDonald’s policy argument in favor of broadly interpreting § 1981, Domino’s posits that small entrepreneurial companies, such as JWM, can overcome these barriers erected by a narrow interpretation of § 1981. Specifically, Domino’s questions why the president or sole shareholder of an entrepreneurial business cannot simply elect to conduct business as an individual and not through incorporation. Id. at 31. This arrangement would allow the president to be a party to a business contract, and thus sue under § 1981. Such a choice, McDonald argues, is no choice at all and is prohibitively unworkable in a competitive business environment. Id. “Forcing minority entrepreneurs to forsake incorporation in order to retain the full protection of § 1981 would place them at a serious, perhaps fatal, competitive disadvantage in relation to white entrepreneurs, and would therefore be in itself an improper discriminatory practice.” Id. at 31-32.

McDonald also notes that the core interests protected by § 1981 are the interests of the person who is the target of the discrimination, not the corporation. Id. at 14. Specifically, the core interest in this case is McDonald’s “ability to engage in business and sell his labor free from racial discrimination.” Id. at 15. This conclusion is evinced from the legislative history of § 1981. When Congress enacted § 1981, it relied heavily on a report by Major General Carl Schurz, who, in describing the conditions in the South, “recounted that the newly freed slave ‘is positively prohibited from working or carrying on a business for himself.’” Id. at 16 n.7 (citing the Report of C. Schurz, S. Exec. Doc. No. 2, 39th Cong., 1st Sess. (1865) [link]). The predecessor to § 1981, the 1866 Civil Rights Act, was also adopted to abolish the “Black codes, which severely limited economic rights of the newly freed slaves.” Id. (citing Harold M. Hyman & William M. Wiecek, Equal Justice Under Law 319-20 (1982)).

This legislative intent in promulgating § 1981 also shows that protecting against racial discrimination in the course of business satisfies the requisite show of a “zone of interests to be protected” by§ 1981, see Ass’n of Data Processing Serv. Orgs v. Camp, 397 U.S. at 153. Id. at 17. This zone of interests is distinct from that protected by traditional contract law, as apparent from the main purpose of Reconstruction: “not to deal with a sudden rash of contract violations, but to secure the freedom of the former slaves, and to assure that they could participate in the economic life of the nation unencumbered by race discrimination.” Id.

McDonald’s interpretation of § 1981 as reflecting the goal of eradicating all vestiges of racial discrimination from our economy is too broad, according to Domino’s. Petitioner’s Reply Brief at 3-4. Domino’s suggests a narrower reading of § 1981; one confined to the plain language of § 1981, which protects the right to “make and enforce contracts,” but not to economic equality in general. Id. Domino’s further focuses on the “make and enforce” language of § 1981 by noting that the section mentions nothing about “conferring a substantive right to be free from the derivate consequences of a violation of someone else’s right to make and enforce contracts.” Id. at 16.