Domino's Pizza, Inc. v. McDonald

• Decision Date: 22 February 2006
• Docket Number: No. 04-593.,04-593.
• Citation: 546 U.S. 470,126 S. Ct. 1246,163 L. Ed. 2d 1069
• Parties: DOMINO'S PIZZA, INC., ET al. <I>v.</I> McDONALD
• Court: U.S. Supreme Court

546 U.S. 470

126 S. Ct. 1246

163 L. Ed. 2d 1069

DOMINO'S PIZZA, INC., ET al.v.

McDONALD

No. 04-593.

Supreme Court of United States.

Argued December 6, 2005.

Decided February 22, 2006.

Respondent McDonald, a black man, is sole shareholder and president of JWM Investments, Inc. (JWM). He sued petitioners (collectively Domino's) under 42 U.S.C. § 1981, alleging, inter alia, that JWM and Domino's had entered into several contracts, that Domino's had broken those contracts because of racial animus toward McDonald, and that the breach had harmed McDonald personally by causing him to suffer monetary damages and damages for emotional injuries. The District Court granted Domino's motion to dismiss on the ground that McDonald could bring no § 1981 claim against Domino's because McDonald was party to no contract with Domino's. Reversing, the Ninth Circuit acknowledged that an injury suffered only by the corporation would not permit a shareholder to bring a § 1981 action, but concluded that when there are injuries distinct from those of the corporation, a nonparty like McDonald may nonetheless sue under § 1981.

Held: Consistent with this Court's case law, and as required by the statute's plain text, a plaintiff cannot state a § 1981 claim unless he has (or would have) rights under the existing (or proposed) contract that he wishes "to make and enforce." The statute, originally enacted as § 1 of the Civil Rights Act of 1866, now protects the equal right of "[a]ll persons" to "make and enforce contracts" without respect to race, § 1981(a), and defines "make and enforce contracts" to "includ[e] the making, performance, modification, and termination of contracts, and the enjoyment of all benefits . . . of the contractual relationship," § 1981(b). This cannot be read to give McDonald a cause of action because he "made and enforced contracts" for JWM as its agent. The right to "make contracts" protected by the 1866 legislation was not the insignificant right to act as an agent for someone else's contracting, but was rather the right, denied in some States to blacks, to give and receive contractual rights on one's own behalf. The statute's text makes this common meaning doubly clear by speaking of the right to "make and enforce" contracts. When the 1866 Act was drafted, a mere agent, who had no beneficial interest in a contract he made for his principal, could not generally sue on that contract. Any § 1981 claim, therefore, must initially identify an impaired "contractual relationship," § 1981(b), under which the plaintiff has rights. McDonald's complaint identifies a contractual relationship between Domino's and JWM, but it is fundamental corporation and agency law that a corporation's shareholder and contracting officer has no rights and is exposed to no liability under the corporation's contracts. McDonald's proposed new test for § 1981 standing— whereby any person may sue if he is an "actual target" of discrimination and loses some benefit that would otherwise have inured to him had a contract not been impaired—ignores the explicit statutory requirement that the plaintiff be the "perso[n]" whose "right . . . to make and enforce contracts," § 1981(a), was "impair[ed]," § 1981(c), on account of race. Shaare Tefila Congregation v. Cobb, 481 U.S. 615, 618; Runyon v. Mc-Crary, 427 U.S. 160, 168; and Goodman v. Lukens Steel Co., 482 U.S. 656, 669, distinguished. McDonald's policy argument that many discriminatory acts will go unpunished unless his reading of § 1981 prevails goes beyond any expression of congressional intent and would produce satellite litigation of immense scope. Pp. 474-480.

107 Fed. Appx. 18, reversed.

SCALIA, J., delivered the opinion of the Court, in which all other Members joined, except ALITO, J., who took no part in the consideration or decision of the case.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Maureen E. Mahoney argued the cause for petitioners. With her on the briefs was J. Scott Ballenger.

Allen Lichtenstein argued the cause for respondent. With him on the brief were David T. Goldberg, Eric Schnapper, and Pamela S. Karlan.^*

JUSTICE SCALIA delivered the opinion of the Court.

We decide whether a plaintiff who lacks any rights under an existing contractual relationship with the defendant, and who has not been prevented from entering into such a contractual relationship, may bring suit under Rev. Stat. § 1977, 42 U.S.C. § 1981.

I

Respondent John McDonald, a black man, is the sole shareholder and president of JWM Investments, Inc. (JWM), a corporation organized under Nevada law. He sued petitioners (collectively Domino's) in the District Court for the District of Nevada, claiming violations of § 1981. The allegations of the complaint, which for present purposes we assume to be true, were as follows.

JWM and Domino's entered into several contracts under which JWM was to construct four restaurants in the Las Vegas area, which would be leased to Domino's. After the first restaurant was completed, Domino's agent Debbie Pear refused to execute the estoppel certificates for JWM required by the contracts to facilitate JWM's bank financing. The relationship between the parties further deteriorated when Pear persuaded the Las Vegas Valley Water District to change its records to show Domino's, rather than JWM, as the owner of the land JWM had acquired for restaurant construction. McDonald had to go to the Water District to prove JWM's ownership of the land. In the course of what were apparently many and fruitless discussions between McDonald and Pear, McDonald "explained that he intended to see [the contracts] through to completion," even though Pear made clear that unless he agreed to back out of the contractual relationship, he would suffer serious consequences. App. to Pet. for Cert. 12-13. At one point Pear said to McDonald, "`I don't like dealing with you people anyway,'" refusing to specify what she meant by "`you people.'" Id., at 13. Pear threatened to use Domino's attorneys to "bury" McDonald if he should sue. Ibid. The contracts between Domino's and JWM ultimately remained uncompleted.

At least in part because of the failed contracts, JWM filed for Chapter 11 bankruptcy. The trustee for JWM's bankruptcy estate initiated an adversary proceeding against Domino's for breach of contract. For whatever reason, the trustee chose not to assert a § 1981 claim alleging Domino's interference with JWM's right to make and enforce contracts. The breach-of-contract claim was settled for $45,000, and JWM gave Domino's a complete release. Consequently, no further claims arising out of the same episode could be pursued on JWM's behalf.¹ While the bankruptcy proceedings were still ongoing, McDonald filed the present § 1981 claim against Domino's in his personal capacity.

The gravamen of McDonald's complaint was that Domino's had broken its contracts with JWM because of racial animus toward McDonald, and that the breach had harmed McDonald personally by causing him "to suffer monetary damages and damages for pain and suffering, emotional distress, and humiliation." Id., at 16. The complaint demanded that Domino's discharge its "obligations under the contracts which McDonald would have received, but for the discriminatory practices, including, but not limited to front pay, back pay and other lost benefits," as well as "compensatory damages for pecuniary losses, including pain and suffering, emotional distress, mental anguish, and humiliation," and punitive damages. Id., at 17.

Domino's filed a motion to dismiss the complaint for failure to state a claim. It asserted that McDonald could bring no § 1981 claim against Domino's because McDonald was party to no contract with Domino's. The District Court granted the motion. It noted that Domino's had "rel[ied] on the basic proposition that a corporation is a separate legal entity from its stockholders and officers," id., at 6, and concluded that a corporation may have "standing to assert a § 1981 claim" but that "a president or sole shareholder may not step into the shoes of the corporation and assert that claim personally," id., at 7 (citing Guides, Ltd. v. Yarmouth Group Property Management, Inc., 295 F.3d 1065, 1072-1073 (CA10 2002)).

The Court of Appeals for the Ninth Circuit reversed. It agreed that an "injury suffered only by the corporation" would not permit a shareholder to bring a § 1981 action. 107 Fed. Appx. 18 (2004). But relying on its earlier decision in Gomez v. Alexian Bros. Hospital of San Jose, 698 F. 2d 1019, 1021-1022 (1983), the Ninth Circuit concluded that when there are "injuries distinct from that of the corporation," a nonparty like McDonald may nonetheless bring suit under § 1981. 107 Fed. Appx., at 18-19. The Court of Appeals acknowledged that this approach set it apart from other Circuits. Ibid. We granted certiorari. 544 U.S. 998 (2005).

II

Among the many statutes that combat racial discrimination, § 1981, originally § 1 of the Civil Rights Act of 1866, 14 Stat. 27, has a specific function: It protects the equal right of "[a]ll persons within the jurisdiction of the United States" to "make and enforce contracts" without respect to race. 42 U.S.C. § 1981(a). The statute currently defines "make and enforce contracts" to "includ[e] the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship." § 1981(b).

McDonald argues that the statute must be read to give him a cause of action because he "made and enforced contracts" for JWM. On his reading of the text, "[i]f Domino's refused to deal with the salesman for a pepperoni manufacturer because the salesman was black, that would violate the section 1981 right of the salesman to make a contract on behalf of his principal." Brief for Respondent 12. We think not. The right to "make contracts" guaranteed by the statute was not the insignificant right to...