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Recap of Yesterday’s Argument: Domino’s Pizza, Inc., et al. v. John McDonald

Disclaimer: Darien Shanske participated in Stanford’s Supreme Court Litigation Clinic this semester; the Clinic worked on the briefs on behalf of the respondent.

The Supreme Court yesterday heard argument in Domino’s Pizza, Inc., et al. v. John McDonald, No. 04-593. The briefing in the case was discussed in this earlier post.

The case involves the interpretation of 42 U.S.C. 1981, which provides that “[a]ll persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts.” The question presented was whether a plaintiff may state a claim under Section 1981 even though he does not have a contractual relationship with the defendant. In this case the respondent, McDonald, was the sole owner and operator of a corporation that had a contract with Domino’s Pizza. He brought a Section 1981 suit against Domino’s alleging that the defendant terminated its contract with his corporation because of McDonald’s race.

At the argument, the Court focused on procedural and policy issues to the almost complete exclusion of textual or historical arguments. There were also relatively limited discussions of case law.

Again and again, counsel for Domino’s, Maureen E. Mahoney, argued that McDonald should not recover under Section 1981 because at common law third-parties generally may not sue for violation of a contract to which they are not parties and Congress intended the courts to apply that same rule in construing Section 1981. In response to questions from Chief Justice Roberts and Justices Ginsburg and Breyer, Mahoney specified that the common law in question was not that of the states but a general federal common law, one not limited to the common law at the time that 42 U.S.C. 1981 was originally passed. At any rate, she argued, under no version of the common law could a plaintiff such as the respondent have standing to sue. Thus, for instance, in response to a question from Chief Justice Roberts as to whether a sole shareholder such as respondent might be protected under Section 1981, Mahoney responded that they were excluded because the common law of third-party beneficiaries would have required that the respondent be named in the contract and McDonald was not.

But it was not the authority of the common law alone that Domino’s relied upon, but its underlying policy concerns in connection with the cabining of liability. McDonald had argued in his brief that Section 1981 provides a claim to any person who is a “direct target” of discrimination that interferes with his ability to make, enforce or enjoy the benefits of a contract even if the plaintiff was not a party to the contract. Domino’s repeatedly argued that such a theory provides no limiting principle. Why, for example, couldn’t every employee of a large corporation, such as GM, sue another large corporation, say IBM, under this theory if they were all the actual targets of the discrimination (i.e. if they all had reason to believe that IBM violated a contract with GM in order to hurt GM’s minority employees)? It seems safe to say that the fate of respondent’s first theory of liability is tied up with this hypothetical.

In response to McDonald’s alternative theory that Domino’s interfered with contracts between McDonald and McDonald’s corporation, counsel argued that such a claim might be available if the McDonald were able to satisfy the traditional criteria for a tortious interference claim. However, counsel argued, any such theory of recovery was waived in this case. Particularly effective was Mahoney’s detailed narrative concerning the plaintiff’s complaint, which apparently contained no direct reference to such a contract.

Counsel for respondent, Allen Lichtenstein, began by emphasizing that it would be perverse to require individuals such as McDonald to choose between the protections of Section 1981 and the corporate form. He did not get much further before Chief Justice Roberts asked why McDonald had not waived his second theory; the Chief Justice seemed particularly concerned that this theory was not even raised in the Brief in Opposition. Justice Breyer suggested that it was reasonable for the Court to hear McDonald’s primary and broader theory, namely that privity is not a requirement in Section 1981, and then remand on his second, narrower theory, namely that there was in fact a contract that Domino’s interfered with.

Justice Scalia then redirected the questions back to the first theory. Justice Scalia seemed to acknowledge that McDonald’s case was somewhat more sympathetic because his corporation’s claim was settled in bankruptcy, but noted that in the general course of events a sole shareholder would have had complete control over its settlement with Domino’s. Further, even in this case, McDonald had benefited from the corporate form insofar as he did not suffer personal losses from its bankruptcy. Justice Scalia wanted to know why McDonald should not have to take the good with the bad, enjoying the benefits of the corporate form but having to cede any potential Section 1981 claim to the corporation. Lichtenstein answered that this was not a case of giving plaintiffs a second chance to collect for the same harm because the corporation could never have collected on McDonald’s personal dignitary and economic harms. Counsel returned to this point again in responding to Justice Ginsburg, emphasizing, along with the Ninth Circuit, that there are separate injuries to be remedied in the separate actions brought by a corporation and its injured employee(s) and there would be no double recovery. Several Justices asked whether the Court had ever established that such damages are recoverable under Section 1981.

Relatedly, in response to Justice Souter, Lichtenstein made it clear that McDonald’s position is that Section 1981 incorporates general tort law concepts beyond tortious interference with contract.

As for the question of cabining liability in connection with the first theory, Lichtenstein, in response to Justice Scalia, seemed to grant that in the GM-IBM scenario sketched by the Justice (basically the same one as above) there could be Section 1981 liability under respondent’s theory. However, counsel noted, this scenario is both unlikely and egregious; the implication being that this imagined horrible should not be allowed to limit recovery in this real case, especially since it is not such a horrible if such a mass discriminator were to face mass liability.

On rebuttal, Mahoney emphasized that there was no reason to remand on respondent’s second theory since McDonald had conceded that he did not have a case under the common law of tortious interference, which is what should govern Section 1981. In response to Justice Stevens, counsel also made it clear that Domino’s position is that corporations themselves can sue under Section 1981, even though a corporation has no race, consistent with Domino’s’ earlier argument that allowing claims such as McDonald’s would interfere with the ability of corporations to decide for themselves whether to pursue or settle a Section 1981 claim.

To the extent that oral argument is a guide to the outcome, McDonald’s second theory is in deep trouble on procedural grounds, though perhaps Justice Breyer’s compromise will prevail. As for McDonald’s primary theory, several justices seemed receptive to the idea that McDonald, at least as a sole shareholder, had some claims under Section 1981 that were not extinguished by JWM’s settlement. On the other hand, at least as many justices seemed concerned as to how a decision could be crafted that would allow cases like McDonald’s to proceed, but would not unleash a flood of litigation.