Domino's Pizza, Inc. v. McDonald

PETITIONER: Domino's Pizza, Inc., et al.
RESPONDENT: John McDonald
LOCATION: Board of Immigration Appeals

DOCKET NO.: 04-593
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 546 US 470 (2006)
GRANTED: Apr 25, 2005
ARGUED: Dec 06, 2005
DECIDED: Feb 22, 2006

ADVOCATES:
Allen Lichtenstein - argued the cause for Respondent
Maureen E. Mahoney - argued the cause for Petitioners

Facts of the case

John McDonald was the president and sole shareholder of JWM Investments. After Domino's terminated its contract with JWM, McDonald brought suit under a section of the Civil Rights Act of 1866 (42 U.S.C. Section 1981). McDonald claimed that Domino's had ended its contract because he was black, and that he therefore had a right to sue under the Civil Rights Act, which gives all citizens, regardless of race, the right to make and enforce contracts. Domino's moved to dismiss the case, arguing that McDonald had not been a party to the contract (it had been between Domino's and JWM) and therefore did not have standing to sue. The district court sided with Domino's, but the Ninth Circuit Court of Appeals reversed, finding that McDonald had suffered injuries separate from those of JWM and therefore had standing to sue.

Question

May a person who is not a party to a contract but suffers personal injuries from its termination sue under 42 U.S.C. Section 1981, claiming that the contract was terminated because of race?

Media for Domino's Pizza, Inc. v. McDonald

Audio Transcription for Oral Argument - December 06, 2005 in Domino's Pizza, Inc. v. McDonald

Audio Transcription for Opinion Announcement - February 22, 2006 in Domino's Pizza, Inc. v. McDonald

John G. Roberts, Jr.:

Justice Scalia has the opinion in No. 04-593, Domino’s Pizza versus McDonald.

Antonin Scalia:

This case is here on writ of certiorari to the Court of Appeals for the 9th Circuit.

The respondent, John McDonald, a black man, is the sole shareholder and president of JWM Investments, Inc.

The petitioners here -- collectively, I will refer to them as “Domino’s Pizza” -- contracted with McDonald's corporation, JWM, to construct four restaurants in the Las Vegas area.

Problems developed between JWM and Domino’s after the first restaurant was completed.

To make a long story short, the contracts between JWM and Domino’s remained uncompleted, and at least in part for that reason JWM filed for Chapter 11 bankruptcy.

In the bankruptcy proceedings, the breach-of-contract claim against Domino’s was settled by the trustee in bankruptcy for $45,000, and JWM gave Domino’s a complete release.

In his personal capacity and separate from JWM’s bankruptcy proceedings, McDonald's brought the present claim under 42 U.S.C. §1981.

This provision originally, part of the Civil Rights Act of 1866, protects the equal right of, “all persons within the jurisdiction of the United States to make and enforce contracts,” without regard to race.

The statute defines the term “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”.

McDonald alleged that Domino’s broke its contract with JWM because of racial animas towards McDonald and that this breach harmed McDonald personally.

The District Court granted Domino’s motion to dismiss for failure to state a claim, since McDonald himself was party to no contract with Domino’s.

The Court of Appeals for the 9th Circuit reversed.

Relying on its own precedent, it concluded that McDonald's injury was, “distinct from that of the corporation,” and that he therefore could bring his own 1981 claim.

The 9th Circuit acknowledged that its approach set it apart from other circuits.

In an opinion filed today with the Clerk, we reverse the judgment of the 9th Circuit.

The contractual relationship that was allegedly impaired for racially discriminatory reasons was between Domino’s and JWM.

McDonald points out that in his capacity as president of JWM, he did, “make and enforce” contracts for JWM.

But the rights under those contracts belonged to JWM itself.

McDonald chose to conduct business through the corporate form and acted as agent of the corporation.

This carries with it certain advantages; for example, McDonald was not personally liable in JWM’s bankruptcy.

But the bitter must be taken with the sweet.

Here, the corporate form prevents McDonald from claiming JWM’s injuries or rights as his own.

McDonald's role as an agent of JWM does not give him the ability to state a claim under 1981, because that statute does not protect one’s right to act as the agent of someone else’s contracting; it instead protects the right to give and receive contractual rights of one’s own.

McDonald alleges that his race was the reason Domino’s breached its contracts with JWM and that he was the actual target of Domino’s actions.

But the reason for the impairment does not change the fact that McDonald had no rights under the contractual relationship that was impaired.

Section 1981 is a powerful remedy for racial discrimination in contracting, but it has always been limited to remedying race-based impairments to one’s own existing or proposed contractual relationships.

The 9th Circuit therefore erred in reversing the District Court’s dismissal, and its judgment is reversed.

The opinion is unanimous; Justice Alito took no part in the consideration or decision in the case.