Domino's Pizza, Inc. v. McDonald
Encyclopedia
Domino's Pizza, Inc. v. McDonald, 546 U.S. 470 (2006), is a decision by the Supreme Court of the United States
involving claims for racial discrimination against the right to make and enforce contracts under 42 U.S.C.
§ 1981, a key civil rights
provision in U.S. law that was originally enacted as part of the Civil Rights Act of 1866
. The Court ruled unanimously, in an opinion by Justice
Antonin Scalia
, that because agents of parties to contracts do not personally have rights under those contracts, they cannot state a claim under section 1981.
entrepreneur, was the sole shareholder
and president of JWM Investments, Inc. (JWM), a company organized
under Nevada
law. JWM and the restaurant chain Domino's Pizza
entered into several contracts, under which JWM was to construct four restaurants in the Las Vegas
area and then lease
them to Domino's. McDonald claimed that after the first restaurant was built, Domino's agent refused to execute documents that the contracts required to facilitate JWM's bank financing, and convinced the Las Vegas Valley Water District
to change its recorded ownership of the land slated for restaurant construction from JWM to Domino's (which McDonald managed to subsequently change back).
McDonald wanted to see the contracts completed, but claimed that the agent threatened "serious consequences" if he did not back out. The agent was alleged to have said to McDonald "I don't like dealing with you people anyway," a phrase she did not explain. The contracts were never completed, and at least in part because of that JWM filed for Chapter 11 bankruptcy
.
The bankruptcy trustee for JWM initiated an adversary proceeding
against Domino's for breach of contract
, which was settled for a $45,000 payment to JWM and a complete release
of all claims between the parties. While the bankruptcy proceedings were still ongoing, McDonald personally filed a lawsuit in the United States District Court for the District of Nevada
under 42 U.S.C. § 1981 on the argument that Domino's broke its contracts with JWM because of racial animus towards McDonald. McDonald claimed that the breach had harmed him personally by causing monetary damages
, pain and suffering, emotional distress
, and humiliation.
Domino's filed a motion to dismiss the complaint for failure to state a claim. It argued that because McDonald was not himself a party to a contract with Domino's, he could not bring a § 1981 claim against it. The District Court granted the motion and dismissed McDonald's suit, stating that Domino's had "relied on the basic proposition that a corporation is a separate legal entity from its stockholders and officers," which means that "a president or sole shareholder may not step into the shoes of the corporation and assert that claim personally."
The United States Court of Appeals for the Ninth Circuit
reversed the dismissal. Though it agreed that an "injury suffered only by the corporation" would not permit a shareholder to bring a § 1981 action, the court concluded that, based on its prior decision in Gomez v. Alexian Bros. Hospital of San Jose, 698 F.2d 1019 (9th Cir. 1983), a nonparty like McDonald may nonetheless bring suit under § 1981 when he has suffered "injuries distinct from that of the corporation." The court acknowledged that this approach set it apart from the precedents of other Circuits. The U.S. Supreme Court subsequently granted certiorari
.
. The Court ruled that 42 U.S.C. § 1981 only applies to those who have enforceable rights under the contract.
Section 1981 protects the equal right of "all persons within the jurisdiction of the United States" to "make and enforce contracts" without respect to race. The statute currently defines "make and enforce contracts" to "include the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship."
The Court rejected McDonald's argument that the statute applied to him because he had "made and enforced contracts" on behalf of JWM. It believed that the right to "make contracts" guaranteed by the statute "was not the insignificant right to act as an agent for someone else's contracting—any more than it was the insignificant right to act as amanuensis
in writing out the agreement, and thus to ‘make’ the contract in that sense." The right protected was instead the right to give and received contractual rights on one's own behalf, which many states
had denied to African Americans when the Civil Rights Act of 1866
was drafted. The Court further noted that at that time, it was a well accepted legal principle that "a mere agent, who has no beneficial interest in a contract which he has made on behalf of his principal, cannot support an action thereon."
A § 1981 claim must therefore identify an impaired "contractual relationship" under which the plaintiff personally has rights, whether to make a contract not yet formed or to enforce one already made. The Court stated that "it can be said to be the whole purpose of corporation and agency law" that shareholders and contracting officers of corporations have no rights or liability under the corporation's contracts. McDonald's argument that because he "negotiated, signed, performed, and sought to enforce the contract," Domino's
could not insist that the contract was not his own, the Court believed "makes light of the law of corporations and of agency," and "contradicts McDonald's own experience." It noted that during JWM's bankruptcy, Domino's filed a proof of claim against the corporation rather than McDonald personally. His personal assets were protected by the limited liability
of the corporate form and the rules of agency, which "similarly deny him rights under those contracts."
The Court rejected McDonald's alternative argument that § 1981 standing
be extended to anyone who was the "actual target" of discrimination, and who loses some benefit that he would have received had a contract not been impaired. The Court believed this theory ignored the "explicit statutory requirement" that the plaintiff be the person whose rights were impaired on account of race. Past cases in which McDonald characterized the plaintiff's contractual relationship as unclear (and therefore, he argued, undermining a requirement of a contractual relationship) provided no support for his position, because those cases simply did not discuss or decide that issue.
McDonald also argued that "many discriminatory acts will go unpunished" if his interpretation of the statute was not adopted. The Court instead believed that the parties who actually suffered a breach of contract
would likely pursue available remedies. In response to numerous hypothetical examples of unpunished discrimination described in McDonald's brief
, including a scenario in which "Domino's officials had beaten up McDonald in an attempt to intimidate him," the Court simply noted that there are other laws available, particularly criminal law, to address such conduct. "The most important response, however, is that nothing in the text of § 1981 suggests that it was meant to provide an omnibus remedy for all racial injustice. If so, it would not have been limited to situations involving contracts." Giving it a more expansive reading would "produce satellite § 1981 litigation of immense scope," for example permitting class action
s by all the minority employees of a nonbreaching party to a broken contract.
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
involving claims for racial discrimination against the right to make and enforce contracts under 42 U.S.C.
United States Code
The Code of Laws of the United States of America is a compilation and codification of the general and permanent federal laws of the United States...
§ 1981, a key civil rights
Civil rights
Civil and political rights are a class of rights that protect individuals' freedom from unwarranted infringement by governments and private organizations, and ensure one's ability to participate in the civil and political life of the state without discrimination or repression.Civil rights include...
provision in U.S. law that was originally enacted as part of the Civil Rights Act of 1866
Civil Rights Act of 1866
The Civil Rights Act of 1866, , enacted April 9, 1866, is a federal law in the United States that was mainly intended to protect the civil rights of African-Americans, in the wake of the American Civil War...
. The Court ruled unanimously, in an opinion by Justice
Associate Justice of the Supreme Court of the United States
Associate Justices of the Supreme Court of the United States are the members of the Supreme Court of the United States other than the Chief Justice of the United States...
Antonin Scalia
Antonin Scalia
Antonin Gregory Scalia is an American jurist who serves as an Associate Justice of the Supreme Court of the United States. As the longest-serving justice on the Court, Scalia is the Senior Associate Justice...
, that because agents of parties to contracts do not personally have rights under those contracts, they cannot state a claim under section 1981.
Background of the case
John McDonald, an African AmericanAfrican American
African Americans are citizens or residents of the United States who have at least partial ancestry from any of the native populations of Sub-Saharan Africa and are the direct descendants of enslaved Africans within the boundaries of the present United States...
entrepreneur, was the sole shareholder
Shareholder
A shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....
and president of JWM Investments, Inc. (JWM), a company organized
Incorporation (business)
Incorporation is the forming of a new corporation . The corporation may be a business, a non-profit organisation, sports club, or a government of a new city or town...
under Nevada
Nevada
Nevada is a state in the western, mountain west, and southwestern regions of the United States. With an area of and a population of about 2.7 million, it is the 7th-largest and 35th-most populous state. Over two-thirds of Nevada's people live in the Las Vegas metropolitan area, which contains its...
law. JWM and the restaurant chain Domino's Pizza
Domino's Pizza
Domino's Pizza, Inc. is an international pizza delivery corporation headquartered in Ann Arbor, Michigan, United States of America. Founded in 1960, Domino's is the second-largest pizza chain in the United States and has over 9,000 corporate and franchised stores in 60 countries and all 50 U.S....
entered into several contracts, under which JWM was to construct four restaurants in the Las Vegas
Las Vegas, Nevada
Las Vegas is the most populous city in the U.S. state of Nevada and is also the county seat of Clark County, Nevada. Las Vegas is an internationally renowned major resort city for gambling, shopping, and fine dining. The city bills itself as The Entertainment Capital of the World, and is famous...
area and then lease
Lease
A lease is a contractual arrangement calling for the lessee to pay the lessor for use of an asset. A rental agreement is a lease in which the asset is tangible property...
them to Domino's. McDonald claimed that after the first restaurant was built, Domino's agent refused to execute documents that the contracts required to facilitate JWM's bank financing, and convinced the Las Vegas Valley Water District
Las Vegas Valley Water District
The Las Vegas Valley Water District is a not-for-profit water supply agency that has been providing water to the Las Vegas Valley since 1954...
to change its recorded ownership of the land slated for restaurant construction from JWM to Domino's (which McDonald managed to subsequently change back).
McDonald wanted to see the contracts completed, but claimed that the agent threatened "serious consequences" if he did not back out. The agent was alleged to have said to McDonald "I don't like dealing with you people anyway," a phrase she did not explain. The contracts were never completed, and at least in part because of that JWM filed for Chapter 11 bankruptcy
Bankruptcy in the United States
Bankruptcy in the United States is governed under the United States Constitution which authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States." Congress has exercised this authority several times since 1801, most recently by adopting the Bankruptcy...
.
The bankruptcy trustee for JWM initiated an adversary proceeding
Adversary proceeding
An Adversary proceeding in bankruptcy, is a lawsuit in the American legal system filed by a party called a "plaintiff" against a party called a "defendant".-Procedure:...
against Domino's for breach of contract
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
, which was settled for a $45,000 payment to JWM and a complete release
Legal release
A legal release is a legal instrument that acts to terminate any legal liability between the releasor and the releasee, signed by the releasor. A release may also be made orally in some circumstances...
of all claims between the parties. While the bankruptcy proceedings were still ongoing, McDonald personally filed a lawsuit in the United States District Court for the District of Nevada
United States District Court for the District of Nevada
The United States District Court for the District of Nevada is the Federal district court whose jurisdiction is the state of Nevada. The court has locations in Las Vegas and Reno....
under 42 U.S.C. § 1981 on the argument that Domino's broke its contracts with JWM because of racial animus towards McDonald. McDonald claimed that the breach had harmed him personally by causing monetary damages
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...
, pain and suffering, emotional distress
Stress (medicine)
Stress is a term in psychology and biology, borrowed from physics and engineering and first used in the biological context in the 1930s, which has in more recent decades become commonly used in popular parlance...
, and humiliation.
Domino's filed a motion to dismiss the complaint for failure to state a claim. It argued that because McDonald was not himself a party to a contract with Domino's, he could not bring a § 1981 claim against it. The District Court granted the motion and dismissed McDonald's suit, stating that Domino's had "relied on the basic proposition that a corporation is a separate legal entity from its stockholders and officers," which means that "a president or sole shareholder may not step into the shoes of the corporation and assert that claim personally."
The United States Court of Appeals for the Ninth Circuit
United States Court of Appeals for the Ninth Circuit
The United States Court of Appeals for the Ninth Circuit is a U.S. federal court with appellate jurisdiction over the district courts in the following districts:* District of Alaska* District of Arizona...
reversed the dismissal. Though it agreed that an "injury suffered only by the corporation" would not permit a shareholder to bring a § 1981 action, the court concluded that, based on its prior decision in Gomez v. Alexian Bros. Hospital of San Jose, 698 F.2d 1019 (9th Cir. 1983), a nonparty like McDonald may nonetheless bring suit under § 1981 when he has suffered "injuries distinct from that of the corporation." The court acknowledged that this approach set it apart from the precedents of other Circuits. The U.S. Supreme Court subsequently granted certiorari
Certiorari
Certiorari is a type of writ seeking judicial review, recognized in U.S., Roman, English, Philippine, and other law. Certiorari is the present passive infinitive of the Latin certiorare...
.
The court's decision
The Supreme Court unanimously reversed the Ninth Circuit in a decision delivered by Justice Antonin ScaliaAntonin Scalia
Antonin Gregory Scalia is an American jurist who serves as an Associate Justice of the Supreme Court of the United States. As the longest-serving justice on the Court, Scalia is the Senior Associate Justice...
. The Court ruled that 42 U.S.C. § 1981 only applies to those who have enforceable rights under the contract.
Section 1981 protects the equal right of "all persons within the jurisdiction of the United States" to "make and enforce contracts" without respect to race. The statute currently defines "make and enforce contracts" to "include the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship."
The Court rejected McDonald's argument that the statute applied to him because he had "made and enforced contracts" on behalf of JWM. It believed that the right to "make contracts" guaranteed by the statute "was not the insignificant right to act as an agent for someone else's contracting—any more than it was the insignificant right to act as amanuensis
Amanuensis
Amanuensis is a Latin word adopted in various languages, including English, for certain persons performing a function by hand, either writing down the words of another or performing manual labour...
in writing out the agreement, and thus to ‘make’ the contract in that sense." The right protected was instead the right to give and received contractual rights on one's own behalf, which many states
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...
had denied to African Americans when the Civil Rights Act of 1866
Civil Rights Act of 1866
The Civil Rights Act of 1866, , enacted April 9, 1866, is a federal law in the United States that was mainly intended to protect the civil rights of African-Americans, in the wake of the American Civil War...
was drafted. The Court further noted that at that time, it was a well accepted legal principle that "a mere agent, who has no beneficial interest in a contract which he has made on behalf of his principal, cannot support an action thereon."
A § 1981 claim must therefore identify an impaired "contractual relationship" under which the plaintiff personally has rights, whether to make a contract not yet formed or to enforce one already made. The Court stated that "it can be said to be the whole purpose of corporation and agency law" that shareholders and contracting officers of corporations have no rights or liability under the corporation's contracts. McDonald's argument that because he "negotiated, signed, performed, and sought to enforce the contract," Domino's
Domino's Pizza
Domino's Pizza, Inc. is an international pizza delivery corporation headquartered in Ann Arbor, Michigan, United States of America. Founded in 1960, Domino's is the second-largest pizza chain in the United States and has over 9,000 corporate and franchised stores in 60 countries and all 50 U.S....
could not insist that the contract was not his own, the Court believed "makes light of the law of corporations and of agency," and "contradicts McDonald's own experience." It noted that during JWM's bankruptcy, Domino's filed a proof of claim against the corporation rather than McDonald personally. His personal assets were protected by the limited liability
Limited liability
Limited liability is a concept where by a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership with limited liability. If a company with limited liability is sued, then the plaintiffs are suing the company, not its...
of the corporate form and the rules of agency, which "similarly deny him rights under those contracts."
The Court rejected McDonald's alternative argument that § 1981 standing
Standing (law)
In law, standing or locus standi is the term for the ability of a party to demonstrate to the court sufficient connection to and harm from the law or action challenged to support that party's participation in the case...
be extended to anyone who was the "actual target" of discrimination, and who loses some benefit that he would have received had a contract not been impaired. The Court believed this theory ignored the "explicit statutory requirement" that the plaintiff be the person whose rights were impaired on account of race. Past cases in which McDonald characterized the plaintiff's contractual relationship as unclear (and therefore, he argued, undermining a requirement of a contractual relationship) provided no support for his position, because those cases simply did not discuss or decide that issue.
McDonald also argued that "many discriminatory acts will go unpunished" if his interpretation of the statute was not adopted. The Court instead believed that the parties who actually suffered a breach of contract
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
would likely pursue available remedies. In response to numerous hypothetical examples of unpunished discrimination described in McDonald's brief
Brief (law)
A brief is a written legal document used in various legal adversarial systems that is presented to a court arguing why the party to the case should prevail....
, including a scenario in which "Domino's officials had beaten up McDonald in an attempt to intimidate him," the Court simply noted that there are other laws available, particularly criminal law, to address such conduct. "The most important response, however, is that nothing in the text of § 1981 suggests that it was meant to provide an omnibus remedy for all racial injustice. If so, it would not have been limited to situations involving contracts." Giving it a more expansive reading would "produce satellite § 1981 litigation of immense scope," for example permitting class action
Class action
In law, a class action, a class suit, or a representative action is a form of lawsuit in which a large group of people collectively bring a claim to court and/or in which a class of defendants is being sued...
s by all the minority employees of a nonbreaching party to a broken contract.
See also
- List of United States Supreme Court cases, volume 546
- List of United States Supreme Court cases
- Corporate personhoodCorporate personhoodCorporate personhood is the status conferred upon corporations under the law, which allows corporations to have rights and responsibilities similar to those of a natural person. There is a question about which subset of rights that are afforded to natural persons should also be afforded to...