931 F.2d 1565 (D.C. Cir. 1991), 89-5482, Gersman v. Group Health Ass'n, Inc.

Docket Nº:89-5482.
Citation:931 F.2d 1565
Party Name:Alan F. GERSMAN, et al., Appellants, v. GROUP HEALTH ASSOCIATION, INC.
Case Date:May 07, 1991
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit

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931 F.2d 1565 (D.C. Cir. 1991)

Alan F. GERSMAN, et al., Appellants,



No. 89-5482.

United States Court of Appeals, District of Columbia Circuit.

May 7, 1991

Rehearing Denied July 5, 1991.

Argued Feb. 7, 1991.

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Appeal from the United States District Court for the District of Columbia (Civil Action No. 88-01820).

David H. Shapiro, with whom Richard A. Salzman, Washington, D.C., was on the brief, for appellants.

Anita Barondes, with whom Christopher A. Weals, Washington, D.C., was on the brief, for appellees.

Before WALD, BUCKLEY and SENTELLE, Circuit Judges.

Opinion for the Court filed by Circuit Judge SENTELLE.

Dissenting opinion filed by Circuit Judge WALD.

SENTELLE, Circuit Judge:

Appellants Alan F. Gersman and Computer Security International ("CSI") appeal the district court's decision dismissing their claims against Group Health Association, Inc. ("GHA") for lack of standing and for a failure to state a claim under both Sec. 1981 of the Civil Rights Act and the District of Columbia Human Rights Act ("DCHRA"), D.C.Code Sec. 1-2501 et seq. 725 F.Supp. 573. We find that appellant CSI had standing to bring the present claims, but agree with the district court's conclusion that appellant fails to state a claim under either statute. We therefore affirm the district court's dismissal of this case.

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    Appellant corporation CSI is engaged in the business of providing commercial storage of computer software, as well as other software services. From 1983 until 1987, CSI maintained a contractual relationship with health maintenance organization GHA for storage and delivery of GHA's computer software. The original contract specified a one-year term, subject to renewal and modification. The terms of the original contract state:

    The initial term of this agreement shall be for 1 year. After expiration of the initial term, this agreement shall automatically renew for successive one month periods until terminated by either party upon receipt of written notice thirty days before the end of any of these successive periods. For renewal terms, notice of adjustment in the fixed charges shall be supplied in writing not less than forty-five (45) days prior to the renewal date at which the changes will take effect.

    Thus, the initial contract governed the relationship from August 1983 until August 1984, and the contract continued to renew automatically on a monthly basis until GHA notified CSI that it was discontinuing the relationship in October 1987.

    Appellant Gersman is the president of CSI; he and his wife are also CSI's only shareholders. According to Gersman, CSI and GHA maintained a healthy working relationship until late 1986, when Mohammed Ghafori became the manager of GHA's Management Information System. Gersman alleges that Ghafori had an assistant ask Gersman whether or not he was Jewish and, upon finding that he was, determined to end the contractual relationship between CSI and GHA for that reason. While GHA had been satisfied with CSI's service prior to that time, Gersman began hearing rumors that GHA was dissatisfied. He approached GHA's upper management, who admitted awareness of Ghafori's indirect inquiry, but maintained that there was no link between this inquiry and GHA's recent dissatisfaction. In a final effort to save the contract, Gersman proposed a modification to the contract with terms more favorable to GHA. However, in October 1987, GHA notified Gersman that it was ending its contractual relationship with CSI.

    CSI and Gersman brought this action in the district court, alleging that GHA's actions violated both Sec. 1981 of the Civil Rights Act and Sec. 1-2511 of the DCHRA. The district court dismissed both claims upon a motion by GHA, on the grounds that appellants Gersman and CSI lacked standing to bring any discrimination claims against GHA, and that the complaint failed to state a claim under either statute. Appellants then filed this appeal.


    1. Standing

      The district court held that neither Gersman nor CSI had standing to bring discrimination claims against GHA. First, the court determined that Gersman lacked standing because CSI, rather than Gersman, suffered the alleged injury, as it was CSI that had been party to the contractual relationship with GHA. With this we agree. The court then determined that CSI had suffered the alleged injury, but that CSI lacked standing to litigate that injury because a corporation had no racial identity and therefore could not be a legally cognizable victim of discrimination. This we reject.

      The court relied on dicta from the Supreme Court's opinion in Arlington Heights v. Metropolitan Housing Dev. Corp., 429 U.S. 252, 97 S.Ct. 555, 50 L.Ed.2d 450 (1977). There, the Court stated that "a corporation ... has no racial identity and cannot be the direct target of the petitioners' alleged discrimination." Id. at 263, 97 S.Ct. at 562. The district court found this assertion to be consistent with the nature of a corporation as a legally constructed entity with "an identity separate and distinct from that of its members or organizers."

      The court implied that there may be exceptions where "a functional nexus exists between the purpose or activity of the corporation

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      and the identity of the members of that corporation," citing the Second Circuit's opinion in Hudson Valley Freedom Theater, Inc. v. Heimbach, 671 F.2d 702 (2d Cir.), cert. denied, 459 U.S. 857, 103 S.Ct. 127, 74 L.Ed.2d 110 (1982). In Hudson Valley, the Second Circuit held that a not-for-profit, tax-exempt theatre organization created to serve local black and Hispanic communities had standing to bring civil rights claims against county officials who allegedly denied the organization's funding application for racial reasons. The district court here ruled that even if the Second Circuit is correct, CSI gained no standing because "CSI does not serve to advance Plaintiff Gersman's racial or religious identity but simply his economic interests." Accordingly, CSI lacked a racial or religious identity and therefore had no standing to bring a discrimination claim against GHA.

      In our view, however, the determination whether a corporation has a racial identity is not determinative of whether that corporation has standing to bring a discrimination claim. Rather than assume that racial identity is a predicate to discriminatory harm, we might better approach the problem by assuming that, if a corporation can suffer harm from discrimination, it has standing to litigate that harm. As the Supreme Court stated in Warth v. Seldin, 422 U.S. 490, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975), the test for prudential standing "is whether the constitutional or statutory provision on which the claim rests properly can be understood as granting persons in the plaintiff's position a right to judicial relief." Id. at 500, 95 S.Ct. at 2206 (footnote omitted). Assuming Sec. 1981 and DCHRA Sec. 1-2511 to be applicable, we believe that both provisions can be understood to provide relief to a corporate plaintiff.

      The Supreme Court has held that a party need not be a member of a protected minority in order to suffer harm from discrimination. For example, in Sullivan v. Little Hunting Park, Inc., 396 U.S. 229, 90 S.Ct. 400, 24 L.Ed.2d 386 (1969), a white homeowner and member of the Little Hunting Park, a nonstock corporation that operated a playground and park in the neighborhood, rented a home to a black person and attempted to transfer his share in the Park to the tenant. The Park refused to approve the assignment because the tenant was black, and expelled the white homeowner from the Park for protesting the refusal. The Supreme Court held that the homeowner had standing to bring a Sec. 1982 action against the Park, because the homeowner was "punished for trying to vindicate the rights of minorities protected by Sec. 1982." Id. at 237, 90 S.Ct. at 404. According to the Court, the homeowner must have standing to bring the Sec. 1982 action because "the white owner is at times 'the only effective adversary' of the unlawful restrictive covenant." Id. (citation omitted).

      The Court relied on its earlier opinion in Barrows v. Jackson, 346 U.S. 249, 73 S.Ct. 1031, 97 L.Ed. 1586 (1953). In that case, a party to a restrictive covenant forbidding homeowners in the neighborhood from renting or selling their homes to non-Caucasians sued another party to the covenant for damages based on a breach of that covenant. The Supreme Court allowed the defendant to claim that the covenant violated the Fourteenth Amendment, even though the defendant herself was a white woman. The Court found that the woman had been injured by the discriminatory covenant because her co-covenantor was seeking damages for breach of the covenant. Id. at 256, 73 S.Ct. at 1035. Moreover, the Court concluded that "[t]he relation between the coercion exerted on respondent and her possible pecuniary loss thereby is so close to the purpose of the restrictive covenant, to violate the constitutional rights of those discriminated against, that respondent is the only effective adversary of the unworthy covenant in its last stand." Id. at 259, 73 S.Ct. at 1036. Accordingly, the Court concluded that "[s]he will be permitted to protect herself and, by so doing, close the gap to the use of this covenant, so universally condemned by the courts." Id. See also Des Vergnes v. Seekonk Water Dist., 601 F.2d 9, 14 (1st Cir.1979) ("a [white] person has an implied

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      right of action [under Secs. 1981 and 1982] against any other person who, with a racially discriminatory intent, injures him because he made contracts with non-whites"); see generally Winston v. Lear-Siegler, Inc., 558 F.2d 1266 (6th Cir.1977) (white plaintiff had...

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