Domino's Pizza, Incorporated vs. John McDonald

John McDonald, the respondent in this petition for certiorari, is the sole shareholder and the president of JWM Investments, Incorporated (JWM). And he is a black man. Domino's Pizza Incorporated (Domino's) contracted JWM for the construction of four restaurants in Las Vegas. The contract was for JWM to acquire the lands and build the four restaurants thereon and lease these restaurants to Domino's. However, during the performance stage of the contract, Debbie Pear, the agent of Domino's wiith respect to the aforesaid contract, refused to sign the estoppel certificates require by the contract.

In addition, she had the lands involved in the contract appear to be owned by Domino's instead of JWM. Discussions between Domino's, represented by Pear, and JWM, represented by McDonald were had in order to iron out the anomalies. During the discussions it appears that Domino's wants to back out of the contractual agreement and wants Jwm to acquiesce to it. On the other hand, JWM's stand was to see the contract through completion.

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In the end, the contracts were not completed. And at one point, Pear said to McDonald, “I don't like dealing with you people anyway. Since the contracts did not push through, JWM was forced to file for bankruptcy. During the pendency of the bankruptcy proceedings, filed this present controversy under U. S. C. §1981 against Dominos, in his personal capacity. He alleged that Domino's breached its contracts with JWM because of racial discrimination against Mcdonald. He further alleged that the breach caused him monetary and emotional suffering and then claimed specific performance, compensatory damages and punitive damages.

Domino's filed a motion to dismiss for failure to state a claim.

U. S. C. §1981 states: (a) Statement of equal rights. All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other. (b) ''Make and enforce contracts'' defined.

For purposes of this section, the term ''make and enforce contracts'' includes the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship. (c) Protection against impairment. The rights protected by this section are protected against impairment by nongovernmental discrimination and impairment under color of State law. District Court Ruling The District Court of Nevada granted the motion to dismiss.

The gist of its decision is based on the legal principle that a corporation has a separate legal perrsonality from that of its officers and stockholders. This meant that McDonald had no legal standing to pursue a breach of contract claim belonging to JWM even though he is its sole shareholder and president. Court of Appeals Ruling The Court of Appeals reversed the decision of the District Court. It relied on its previous decision which stated that “when there are injuries distinct from that of the corporation, a nonparty (like McDonald) may nonetheless bring suit under §1981.

As a personal note, the Court of Appeals seems to have added an exception to the corporate veil doctrine. It is here saying that the corporate veil may be disregarded if there are injuries involved which are distinct from that of the corporation. AND now, the corporate veil may be disregarded by the corporation itself. The Supreme Court, however, did not criticize this part of the decision of the Court of Appeals. Supreme Court Ruling The Supreme Court reversed the decision of the Court of Appeals.

The main principle on which the Supreme Court based its decision is that a corporation has a separate legal personality from that of its officers and stockholders. Preliminarily, §1981 does not give him a cause of action. The statute guarantees the right to “make and enforce contracts” only to those who are actually parties to the contracts or proposed contracts. The purpose behind the statute is to give contractual rights to blacks. The statute contemplates only those who have beneficial interests in a contracnt. The statute does not contemplate the insignificant right of agents to make and enforce contracts on behalf of another.

True that §1981 offers relief when racial prejudice prevents the creation off a contractual relationship or when it impairs the perforrmance of a contract. However, for a suit under §1981 to be successful, there must first be a contractual relationship. In this case, McDonald is not a party to the contract. He may have acted as agent for JWM in making the contract and he played such an important role in forging the agreement but the fact remains that he is not a party to it. Thus, no contractual relationship was created between him and Domino's.

This deprives him of a cause of action under §1981 against Domino's. The SupremeCourt went on further and stated what would be the effect should McDonald be granted a cause of action under §1981. It said that such a happenstance “would become a strange remedial provision designed to fight racial animus in all of its noxious forms but only if the animus and the hurt it produced were somehow connected to somebody's contract. ” Indeed, such an interpretation would unduly broaden the scope of the statute. There are many civil rights statutes protecting against racial discrimination. 1981 is only one of them and was created for a specific purpose. It is limited only to those which involves contracts. It is not an catch-all statute which provides relief for all kinds of racial discrimination. It matters not even if McDonald is the “actual target” of discrimination, assuming that there indeed was discrimination. The statute just cannot be given such an interpretation so as to give McDonald legal standing to bring this suit. COMMENTS Interestingly, the Supreme Court did not categorically state what was McDonald's remedy. It only stated that it is not §1981.

The decision simply states that he has no cause of action for breach of contract for racial discrimination under §1981 because he has no legal standing. This seems to make the adjudication of the case to be based only on a technicality. I think it was somehow established that the breach of contract on the part of Domino was racially motivated. Moreover, there was bad faith on the part of Domino because of the racially discriminatory remarks and secondly, it made to appear that the lands were under its ownership when the contract specifically states that such land shall be under the ownership of JWM and Domino shall only be the lessee.

The Supreme Court should have granted some relief to McDonald if only by stating what he could do about the racially-motivated breach of contract. Another interesting fact is that the Supreme Court impliedly said that since JWM is the party to the contract, then only it can bring the suit for breach of contract due to racial discrimination under §1981 against Domino's. This creates an absurd situation where a juridical person, like JWM which has no race or color or creed and which cannot suffer mental anguish or social humiliation, sues for racial discrimination.

Clearly, this is also a situation not contemplated by the statute involved in this case. And I would also like to stress the fact that the Court of Appeals did not discuss in detail the errors of the decision of the Court of Appeals, specifically, the part where it seemingly added and exception to the corporate veil doctrine. The Supreme Court should have at least discussed this part. Could it really be possible for the corporation itself to disregard its own corporate veil to vindicate the injured rights of its stockholders and officers?

Is it really true that a nonparty like McDonald may nonetheless bring suit under §1981 when there are injuries distinct from that of the corporation existing? Does this mean that a corporation can bring a suit in behalf of its stockholders and officers for perrsonal injuries sustained by the latter? If so, does this mean that the corporation can act as agent for its shareholders and officers in bringing a personal injuries suit? I find the Court of Appeals decision really controversial and it is unfortunate that the Supreme Court did not address or even criticize its decision in greater detail.