Transcript

IN THE SUPREME COURT OF THE UNITED STATES

DOMINO'S PIZZA, INC., ET AL., Petitioners v. JOHN MCDONALD.

No. 04-593

December 6, 2005

The above-entitled matter came on for oral argument before the Supreme Court of the United States at 11:07 a.m.

APPEARANCES: MAUREEN E. MAHONEY, ESQ., Washington, D.C.; on behalf of the Petitioners.

ALLEN LICHTENSTEIN, ESQ., Las Vegas, Nevada; on behalf of the Respondent.

PROCEEDINGS

(11:07 a.m.)

CHIEF JUSTICE ROBERTS: We'll hear argument next in Domino's Pizza v. McDonald.

Ms. Mahoney.

ORAL ARGUMENT OF MAUREEN E. MAHONEY

ON BEHALF OF THE PETITIONERS

MS. MAHONEY: Mr. Chief Justice, and may it please the Court:

The complaint in this case actually alleges that Domino's breached its obligations under a contract with JWM. It does not allege that any of the terms of McDonald's own contracts were violated.

The Ninth Circuit, nevertheless, held that Mr. McDonald could recover damages so long as he could show that he had suffered some distinct injury arising out of the violation of the contracts between his company and Domino's.

We -- we ask this Court to reverse that holding for two principal reasons.

First, Mr. McDonald did not hold any rights under the contracts between his company JWM and Domino's, and that's disqualifying under section 1981.

Second, the injuries that he alleges are simply too indirect to be cognizable under an implied right of action. This Court, even in the context of express rights of action, whether RICO or the Clayton Act, has looked to the background principles of the common law to define the scope of a damage recovery. And these kinds of injuries, which are really the classic form of derivative injury, have never been recoverable.

JUSTICE KENNEDY: Can -- can you tell me, Ms. Mahoney, just in -- in a case where the person is directly implicated -- he was the one discriminated against. He obtains in a suit the damages for the loss of the profits in the contract. What are the other damages? Does he get emotional distress?

MS. MAHONEY: If -- if he's -- yes, you can get emotional distress under section 1981, and --

JUSTICE O'CONNOR: If -- if you're contracting for yourself --

MS. MAHONEY: That's correct.

JUSTICE O'CONNOR: -- in your own behalf.

MS. MAHONEY: Absolutely. There is no standalone cause of action under Federal law simply for emotional distress that is suffered as a result of racially discriminatory conduct. Presumably Congress, you know, might do that some day, but it has not done so. And in fact, even under title VII, racially disparaging comments can cause distress to a worker and they're still not actionable unless it rises to the level of a hostile work environment.

JUSTICE KENNEDY: And what was the plaintiff's -- it wasn't here. What kind of damages was he asking for?

MS. MAHONEY: He is asking -- it's -- it's -- the complaint is a little unclear, but he's asking for losses that arise out of the company's failure to have revenues that would have passed through the company to him in either his capacity as a shareholder or possibly as an employee. In fact, it's important to stress how indirect these injuries really are. The gravamen --

JUSTICE SOUTER: Well, I thought they were -- they were essentially, as I guess you said a moment ago, emotional distress kinds of injuries because otherwise he'd be claiming a double recovery. So he doesn't do that because they -- they settled the contract case with the corporation for what? $46,000?

MS. MAHONEY: $45,000, Your Honor.

JUSTICE SOUTER: So -- so that the only thing he -- he's not claiming an economic injury, as I understand it, or am I wrong?

MS. MAHONEY: I think you're wrong, Your Honor. He actually in his complaint asked for economic damages. He doesn't specify them, but in an affidavit that he submitted to the district court, he said that his net worth had declined $8 million and he is saying that he --

JUSTICE SOUTER: But I -- I guess that's where I went wrong. I thought those were the reasons that he was claiming that he had been distressed emotionally.

MS. MAHONEY: I don't think so, Your Honor.

JUSTICE SOUTER: But you're -- you're saying he wants the --

MS. MAHONEY: But either way, the outcome should be the same because emotional distress is not a standalone claim. He has to establish that he had rights to make and enforce a contract that were violated, and even if he did that, he still has to show that the damages that -- that were caused by Domino's were sufficiently direct to be cognizable.

CHIEF JUSTICE ROBERTS: What if you have a --

JUSTICE GINSBURG: What -- what he's saying is treat me as a sole proprietor. Yes, I created this corporation so I can be insulated from liability, but this is a one-person show and so I am bringing a 1981 claim and say forget the corporation. I'm the only human that's involved in this activity.

MS. MAHONEY: Your Honor, I think there's a couple of problems with that. I mean, first of all, these were contracts where Domino's had rights under these contracts as well, and if it had sued Mr. McDonald under the terms of the contract for failing to perform, he would have rightly said, that's not my contract.

And I don't think that we can think that Congress intended this Court to simply disregard those principles that have always governed where you -- if you take the benefits of avoiding liability, you can't turn around and say, well, now that it's time to recover against Domino's, it is my contract. That's not the way the law works. He can't disown the -- the force of the law when he's taken the benefits of the law.

And now, the burden here is really a moderate one. It's one that says that the recovery that is owed will come through the corporate entity. He will get whatever his share of that is through the -- the corporate processes, and he won't be able to have an independent claim for emotional distress. But --

CHIEF JUSTICE ROBERTS: Counsel, what if you have a case where a company says we are not going to deal with any companies that have an African American as the CEO? Couldn't that CEO, the individual, claim that that policy interferes with his ability to make contracts with his company to be the CEO?

MS. MAHONEY: Well --

CHIEF JUSTICE ROBERTS: And shouldn't he then have a right to bring a claim under section 1981?

MS. MAHONEY: Your Honor, if his company fired him because he couldn't make contracts -- in other words, they said, we -- we don't want you to be our CEO. We don't want a black CEO because, after all, we're going to lose business with these other companies -- then I think under an interference theory, that he probably could sue under 1981, sue both his company and also the third party that induced the interference.

If we look to common law principles, the common law of tortious interference established various rules that were designed to provide recovery for interference when the causation was sufficiently direct, and the common law says -- this is section 766 of the Restatement and cases that follow that -- that, in essence, if the third party -- or if the defendant induces the breach, essentially, you know, tells them, this is how we want it done, we want you to fire so and so if you want our business, if they induce the breach or induce the violation, then they can be liable as well.

JUSTICE KENNEDY: Suppose that McDonald had had a contract with the corporation that he gets 80 percent of the gross from every contract. Could he then sue?

MS. MAHONEY: No, Your Honor. There are two different things. I mean, one -- one part of it is that here his -- he doesn't say that his contract wasn't performed, but he also would have to show that Domino's was the direct cause of his loss. And the common law, under section 766, for instance, says, look, if a -- if a third party or if the defendant just made it more difficult for your employer to perform or for your company to meet its obligations, its contractual obligations, by causing it to have less money, that doesn't count. That's not inducing a breach.

JUSTICE KENNEDY: Well, but -- but in this case, it's pretty obvious they didn't care about the corporation. They cared about him. He was the target.

MS. MAHONEY: Well, he may have been the reason for the discrimination, but the target, in terms of the direct victim of the conduct that is alleged, was clearly JWM. It's JWM whose contracts were supposedly breached.

And -- and the point is, Your Honor, the -- the law has made it clear that simply breaching a contract in a manner that makes it more difficult for somebody else to perform is not a sufficiently direct cause of the -- of the failure to perform all of the succeeding downstream contracts. Otherwise, the -- the rules of privity would simply be eroded. So instead, it's a very narrow category of cases where a breach of contract can be viewed as the direct cause of another party's failure to perform a separate contract with the plaintiff.

And let me give you an example, just to -- to show what it's talking about. If, for instance, there is a contract where I am the defendant and I have the right to approve an assignment, and the plaintiff has a contract with a third party and I refuse to approve that assignment. Then I have retained the legal control under the terms of my contract as to whether the plaintiff's contract can be performed or not. And in that circumstance, if -- if I deny approval on the basis of race, I have made it literally impossible for the other parties to perform.

And that's the -- the narrow exception. It's either inducing the breach, inducing the breach of a contract, or it's making it literally impossible, but not simply making it more expensive or more difficult.

And -- and I think it's important to emphasize why these rules were developed under the common law this way. In -- in part, it is to protect the very reasonable and legitimate interests of -- of innocent third parties. In -- in -- take the corporate context. If General Motors has a dispute with a major customer, and imagine that there is some sense that that -- that the customer may have breached its contracts because it -- it thought GM's work force had too many black faces, GM has got to figure out what to do about that. It's not going to capitulate and fire its work force, but it has to decide whether it wants to settle, whether it wants to litigate. It may litigate and then want to settle. But that's its claim, its contract claim, and it has to have the freedom to figure out how it ought to be settled.

If every black employee at GM could file an action under section 1981 for emotional distress or for wage increases that they might not have gotten because GM lost this big piece of business, then GM would lose the ability to control the settlement of its own claim. And so -- and it's an innocent party in this fact pattern.

So the law has been designed under -- under the common law to make sure that everybody's interests are sufficiently protected.

And what the Ninth Circuit's, you know, ruling does here and what the plaintiffs are really asking for is to just blow through all of those rules that -- that have been designed to -- to make sense out of contracts -- contract laws and still allow some room for tortious interference sorts of principles. And under -- under the Court's cases, I don't think there is any basis to think that Congress intended the Court to create an implied right of action that is completely divorced from the common law principles that would have foreclosed these kinds of remedies.

JUSTICE KENNEDY: Are there any --

JUSTICE GINSBURG: Did you say there is or --

JUSTICE KENNEDY: -- are there any cases where we pierced the corporate veil in order to help the shareholder?

MS. MAHONEY: Not that I know of, Your Honor. And I --

JUSTICE KENNEDY: This is kind of an inverse --

MS. MAHONEY: Yes, inverse -- reverse piercing.

JUSTICE KENNEDY: -- corporate veil piercing.

MS. MAHONEY: Not that I know of, and I don't -- and I -- I think if you did that, would you do it for employees too? Can all the employees sue? I mean, where -- where does it stop? Can -- if Domino's violated a term of a contract because it was -- it wanted to cause economic loss to the employee of a subcontractor, can -- can he then sue?

I mean, looking at the theory of damage in this case shows just how indirect it is. If you look at paragraphs 24 through 27 of the complaint, the sole theory of harm here is that Domino's had an obligation to provide a letter to -- to JWM, certifying that JWM wasn't in breach of any terms of the lease, and that it refused to provide that letter, and when it did so, the bank denied some financing on a project, and then that caused JWM not to have money to invest in other projects. And so then it didn't have enough money to pay its creditors, and so then it went into -- had to declare Chapter XI bankruptcy. And then McDonald didn't get as much money from the corporation as he otherwise would have.

JUSTICE BREYER: There are two separate arguments here, and I'm trying to separate them. I guess that many States have a doctrine in two areas of law. Third party beneficiaries can sometimes recover; sometimes they can't. Victims of efforts to interfere with a contract sometimes recover; sometimes they can't. And one question is whether this particular individual fits within those doctrines. And you have to be an expert on contract law to know.

But in respect to the civil rights law, I guess your position is -- and this is what I want to know -- that whatever those doctrines are, they have to be the same for white people as for black people.

MS. MAHONEY: I think the language of the statute says that it's protecting the -- the right of all -- the same right to make and enforce --

JUSTICE BREYER: All right. So -- so they might apply. One thing you couldn't do if you're a State is have a different rule for black people that treated them worse than white people.

MS. MAHONEY: I think that's correct, Your Honor, but --

JUSTICE BREYER: All right. And has there ever been a case in respect, whether it's affirmative action or some other thing, that interprets that -- that -- this particular civil rights statute to say that for whatever historical reasons, et cetera, black people are entitled to more protection under contract law than white?

MS. MAHONEY: Not that I can think of, Your Honor. And I think the language of this statute, though -- I mean, certainly though -- of course, the Court in McDonald did interpret this statute to -- to also protect white person -- white -- white people, people of all color, despite the language that says, you know, rights the same as -- as whites. But --

JUSTICE GINSBURG: Do corporations have a color?

MS. MAHONEY: No, they don't, Your Honor, but all of the courts of appeals have, in effect, imputed race to corporations under circumstances where their -- their contractual rights have been violated because of the race of their shareholders or employees. And that has been well-settled, at least in the courts of appeals.

JUSTICE BREYER: So how do we deal with this? That is to say, do I have to become an expert on contract law, or do I say to the Ninth Circuit or the circuit, look, the -- the question here is not what the contract law is except insofar as it's relevant to whether there's a differential in treatment?

MS. MAHONEY: Well, Your Honor, I -- I don't think you have to be an expert on contract law. I think that this Court already held in Patterson, for instance, that section 1981 was designed to have its own Federal content, but that when we look at the term, the right to make and enforce contracts, certainly we have to interpret that in light of common law rules. And under the common law of contracts, only parties and third party beneficiaries have -- hold rights under those contracts.

Under section 302 of the Restatement, it defines who a third party beneficiary is, and I think that's a good starting place. It shows us that children, you know, as in this Court's case in Runyon, are third party beneficiaries. Union members are third party beneficiaries of collective bargaining agreements under that -- under the comments in the Restatement. But the plaintiff acknowledges that the shareholders and employees are not intended third party beneficiaries of the contract.

CHIEF JUSTICE ROBERTS: Well, maybe not -- maybe not shareholders in general, but what if you have a situation, like here, where you're dealing with sole shareholders? Why is that a real stretch to say that that person is a third party beneficiary of the contracts of his corporation?

MS. MAHONEY: Well, the -- for two reasons. First, the contract has to actually identify third party beneficiaries. In other words, parties need to agree on who's a third -- on who the beneficiaries are supposed to be. And here, of course, there's nothing in the contracts. They haven't alleged there's anything in the contracts to identify him as that.

And also, if -- if --

CHIEF JUSTICE ROBERTS: There was nothing in these contracts requiring anything in the way of personal guarantees or anything of that sort?

MS. MAHONEY: I don't believe so, Your Honor. It's certainly not alleged in the complaint that there is a personal guarantee. And -- and I don't think so because when Domino's sued JWM, it did not sue Mr. McDonald. And -- and as I say, if -- if they had, I'm sure Mr. McDonald would have put up his hand and said, no, thank you, that's not my contract.

And I -- so I don't -- I think that really what we are asking the Court to do is just to look at the language and -- and read it in light of these well- established principles because that's what Congress would have intended the Court to do, and that he is not a third party beneficiary. He is not a party. And so the Ninth -- the rationale of the Ninth Circuit would need to be reversed because that's all it relied upon.

And then the alternative theory --

JUSTICE BREYER: Well, but that's exactly what I'm asking. If -- if you win, this case is reversed, sent back. I mean, what do -- would I tell them? And why not tell them, instead of having to delve into this, is, look, it's plausible here that third party beneficiary doctrine might cover this person? It's also plausible not. We're not experts. We don't know. You figure out what the normal rule is and apply that normal rule.

MS. MAHONEY: Well, I don't think we need to do that because there's been a concession in this case that Mr. McDonald is not a third party beneficiary under the normal rules and is asking, instead, that the Court create new rules, rights greater than third --

JUSTICE BREYER: Well, what about the other part of it, which is the -- the interference with the contract? Could we say the same thing there? We send it back, say, look, we're not experts on this, it's a matter of State law typically, and be absolutely sure, please, that whatever doctrine you normally apply is applied to this case too because it's plausible. He's the sole shareholder. He's the sole beneficiary.

MS. MAHONEY: Your Honor, I -- I -- we would ask that this Court not do that for two reasons, that the alternative theory of tortious interference was never pled. It was never argued, and the district court dismissed this complaint with prejudice because there was no alternative theory. They did not move for leave to amend.

So I think this Court should say one of two things about the alternative theory. Either, number one, it is waived, or number two, based on the arguments that have been advanced and the allegations of the complaint, it could not possibly be cognizable. And I -- I don't think you have to be an expert on interference law in order to reach that conclusion because --

JUSTICE GINSBURG: Are you saying this is a matter of Federal contract law, common law, Federal common law, are -- or are you saying you go State by State, in which case 1981 is some places it will be third party beneficiary, some it won't?

MS. MAHONEY: I -- I think, Your Honor, that in -- in the prior cases, in Patterson in particular, that the Court rejected the idea that it ought to be the State -- the law of each State that governs the scope of the rights. That argument, I believe, was advanced by the Solicitor General, and this Court said, no, they didn't think that was correct.

And similarly, in Haddle v. Garrison, which is a section 1985 case, this Court looked to common law. But it -- it said that it's really Federal common law that controls these issues.

So I think it's looking just to -- to the State law principles to inform what Congress may have had in mind when it -- it allowed for persons to recover for violations of the rights to make and enforce contracts. Here --

CHIEF JUSTICE ROBERTS: But is it State law today or State law back when section 1981 was passed?

MS. MAHONEY: This Court has looked to both, but in Associated General -- Associated General Contractors, for instance, this Court said that it's not bound by the terms of common law that existed at the time that the statute was adopted, and -- but rather, that common law evolves, and so it's appropriate to -- to look beyond that.

I think it bears emphasis, though, that the common law of tortious interference at the time that this statute was adopted in 1866 was narrower than it is today. But even under the broader views of tortious interference, the plaintiffs concede that they would not be able to recover under those theories, and instead, have said to this Court 1981 should be -- go well beyond the terms of common law interference principles.

JUSTICE KENNEDY: Well, in a -- in a sense this is stronger than some tortious interference claims because here the target is this -- this party.

MS. MAHONEY: That's always true in tortious interference claims, Your Honor, and --

JUSTICE KENNEDY: You mean that -- that the injured party has to be the target?

MS. MAHONEY: Absolutely. The injured party has to allege that the defendant knew about the contract and specifically intended to interfere with the performance of the plaintiff's contract. But, nevertheless, we know of no --

JUSTICE KENNEDY: To interfere but not necessarily to injure him.

MS. MAHONEY: And to injure. Well, to injure him, to prevent his performance for -- for purposes of injury, yes.

And, nevertheless, we are aware of no case that has ever found that an employee of a company or a shareholder of a company could recover under common law tortious interference theory simply because it suffered losses arising out of a breach of contract with its own corporation that made it more difficult or more expensive for the corporation to recover.

And I think it -- it is -- also bears emphasis of where this theory would take the Court if it were to recognize this. It would go far afield from the core requirement that there not be discrimination in the terms of an employment contract because this -- the tortious interference theory, of course, is based solely on the concept that he may have had some sort of implied employment agreement with JWM.

What this would mean then is that if -- in the case of GM, if a major customer cancels a contract and GM doesn't give raises to its work force, all of the black workers would have causes of action because of the injuries that were intended because the contract was canceled on the basis of race, but their similarly situated white coworkers would not. They would have suffered exactly the same injury, but they would have completely different rights. And that shows why this derivative injury theory just doesn't fit section 1981 because at its core, it has to be about preventing discrimination in the terms of the actual contract.

And here, there is no allegation that JWM subjected McDonald to any discriminatory terms of employment, and therefore, it is not -- or that it -- a breach was induced. And therefore, it isn't the paradigm case, and it would create problems down the road to recognize this -- this kind of theory.

So I don't -- I don't think that we are asking the Court to do anything radical, and I think the whole issue of tortious interference can be avoided, if the Court would prefer, because the -- the theory was unquestionably waived.

There are 14 paragraphs of facts in this complaint laying out the factual allegations. Paragraph 11 says that Mr. McDonald is the president, sole shareholder, and operator of the company. Nowhere in those 14 paragraphs does it say that he had an employment contract with JWM.

Similarly, the cause of action paragraphs -- I believe there are 15 of them -- repeatedly identify the contracts between Domino's and JWM as the contract at issue, the contract that was breached, the terms that were violated. Nowhere does it refer to an employment contract.

This complaint, as the district court recognized, only pled one theory, and that was the theory that Mr. McDonald was entitled to enforce the rights of JWM. It does not plead any theory about violations of his own employment contract. And as I said, that -- even if -- even if you could infer it, you would still have to find that it's not a cognizable theory because he doesn't allege that the terms of that contract were actually violated. And in fact, at page 45 of his brief -- or 44, he concedes that JWM did perform the terms of the contract. And second, even if there had been a failure of performance, he cannot show that Domino's was a sufficiently direct cause of that failure of performance.

Just -- just to give, you know, yet another example, I mean, if I -- if my employer has a -- a bad year this year because somebody breached a contract with the employer and I don't get a bonus, I -- you know, I may say I suffered some -- some loss. The value of my contract, my employment contract, may be reduced, but my rights under that contract have not been impaired or abrogated. I have the same rights. They're just worth something less.

And all that this statute does is to protect rights, the same rights as white people have. It doesn't say that you are protected from any kind of discriminatory conduct in the economy that may, in some sense, make your rights less valuable.

I'd like to save the remainder of my time for rebuttal.

CHIEF JUSTICE ROBERTS: Thank you, counsel.

Mr. Lichtenstein.

ORAL ARGUMENT OF ALLEN LICHTENSTEIN

ON BEHALF OF THE RESPONDENT

MR. LICHTENSTEIN: Mr. Chief Justice, and may it please the Court:

The issue here is whether, by choosing to operate as a solely owned corporation, John McDonald forfeited his 1981 protection.

Rather than federalizing State contract law, section 1981 imposes a nonnegotiable nondiscrimination duty that is neither a contractual provision nor governed by contract law. Intentional racial discrimination is not merely a breach of contract terms. As this Court has already noticed -- noted, it is more akin to a tort.

Domino's question presented asks that both plaintiff and defendant had to be parties to the contract. Yet, Domino's notes that non-parties without privy of contract are also protected, citing third party beneficiaries and the fact there were employers, such as supervisory employees or prime contractors. Thus, even Domino's concedes that the answer to the question presented is no. Section 1981 protection is not limited to parties to the contract.

There's still, however, the remaining question of whether John McDonald fits within the statute's protection. Clearly, if he had been a sole proprietor, there would be no question of stating a cause of action. We contend that he's still protected based on three grounds: one, the intended language of section 1981; two, John McDonald's relationship with Domino's; and three, John McDonald's relationship with JWM.

CHIEF JUSTICE ROBERTS: Well, let's take that last one first, if you don't mind, since the argument is that you've waived that argument by not -- not raising it below.

MR. LICHTENSTEIN: Well, we believe that it has been sufficiently raised below. 1981 does not have any special or enhanced pleading requirements. This is notice --

JUSTICE O'CONNOR: Where in the complaint does it allege a tortious interference claim?

MR. LICHTENSTEIN: It doesn't allege a tortious interference claim, and this really isn't a tortious interference claim as petitioners suggest. This is a 1981 discrimination claim, and very clearly that was alleged.

In terms of the requirement for wages, back wages and front wages, that is on -- I believe it's page 17.

CHIEF JUSTICE ROBERTS: No. The --

JUSTICE SCALIA: Excuse me.

CHIEF JUSTICE ROBERTS: -- the allegation I'm looking for -- and I -- I guess you probably didn't -- you didn't have to raise it below, given the state of the Ninth Circuit law I would suppose. But in your brief in opposition, where it is raised that this interferes with the contract between you and -- between McDonald and JWM?

MR. LICHTENSTEIN: I don't think it does appear there specifically. But again, the -- the question was a fairly narrow one, which is what is Ninth Circuit law. Does Gomez apply? And it went up to the Ninth Circuit on that particular level.

CHIEF JUSTICE ROBERTS: But coming here, I would have thought our rules say that if you're going to rely on this as a ground for affirmance here, we should see it in the brief in opposition.

MR. LICHTENSTEIN: The brief in opposition at the Ninth Circuit you're referring to or --

CHIEF JUSTICE ROBERTS: Here.

MR. LICHTENSTEIN: -- this brief? The allegations concerning our argument about --

JUSTICE SCALIA: Brief in opposition to the petition for certiorari. You -- you did not raise this.

MR. LICHTENSTEIN: They did not raise that -- that --

JUSTICE SCALIA: So -- it's -- it's brand new to us. We -- we didn't think this was in the case at all.

MR. LICHTENSTEIN: Well, again, I think that if the issue is whether it was raised below or should be, then perhaps a remand back to flesh out that particular argument would be the appropriate response.

I think that in terms of --

JUSTICE GINSBURG: It wouldn't just be an argument. You'd have to amend your complaint because it wasn't set out in the complaint.

MR. LICHTENSTEIN: If the Court believes that it more specifically needs to be set out in the complaint, then clearly that would be one of the remedies. We don't really believe that that is necessary in a sense when dealing with the question presented. Both of our arguments are really sort of formulations of the same argument. The question is did Domino's actions aim at John McDonald. Was he the precise target? That was clearly set out, and --

JUSTICE BREYER: Is targeted enough? I mean, I'm thinking here not necessarily your case, but in general. Is a claim of discrimination -- I don't know the state of the law, but maybe if a minority shareholder -- a minority person is the sole shareholder of a corporation, maybe that corporation could assert protection, or maybe it couldn't.

But here, I take it that the corporation JWM brought an action and won or settled for $45,000. So they're out of it.

Now we're just thinking about the sole shareholder, and the sole shareholder says there's another action here. And as to the two most plausible ones that I would like to assert an action as a third party beneficiary, we've heard the other side say that you've conceded you have no right there. And as to the other one, which might be protected in many cases, that the -- knowing that what was going to happen, they deliberately interfered with the contractual relation between me and the corporation. That's what we're asking about now. And you say, well, I didn't raise that.

Now, is there a reason you should be given an opportunity to raise it?

MR. LICHTENSTEIN: I believe that the opportunity to raise that is part of the -- the same argument. This isn't really a question of third party beneficiary. This is an issue of --

JUSTICE BREYER: You conceded that out.

MR. LICHTENSTEIN: -- discrimination and this was claimed in terms of discrimination. If in fleshing this out, it was not specified in the various ways that this discrimination was affected, that oversight shouldn't preclude the basic argument that is really the same --

JUSTICE BREYER: Because?

MR. LICHTENSTEIN: Because it still is responsive to the question presented, which is, is the privity issue one that precludes recovery for John McDonald? And that seems to be the same issue, regardless -- regardless of how it's formulated. And the answer to that question I think is -- is clearly no in terms of the tort -- tortious behavior by the -- by Domino's in terms of the discrimination. It is not -- also, the --

JUSTICE SCALIA: Excuse me. I -- I thought the question presented -- I didn't think. I'm reading it from the petition for writ of certiorari. In the absence of a contractual relationship with the defendant, are allegations of personal injuries alone sufficient to confer standing on a plaintiff pursuant to 42 U.S.C., section 1981? So, I mean, the question presented was -- was precisely if your client did not have a contractual relationship, would the mere allegation of personal injury, which you're now alleging, be enough to confer standing.

MR. LICHTENSTEIN: Well, it's -- the allegation of both -- well, discrimination is a personal injury. In Goodman, this Court has said that violation of section 1981 is a personal injury. It's not a contract injury. So the question presented --

JUSTICE SCALIA: Well, the question is -- I mean, that begs the question, whether there has been a violation of section 1981, and the argument here is that there's no violation of section 1981 unless you're interfering with a contract of the plaintiff.

MR. LICHTENSTEIN: And the response of the -- of the respondent is it is not simply your own contract or your contract with the defendant that is subject to 1981 protection. There are several instances -- and we've cited them in our brief -- such as Shaare Tefila and Runyon -- where the actual target of the discrimination is not in contractual privity with the defendant. And --

JUSTICE KENNEDY: Are you referring to Runyon, for instance? The parents always had a special relation to the child. It's something of a stretch to say that the corporation has that same relation with its own shareholder.

MR. LICHTENSTEIN: I think in this particular case it isn't a stretch. The discrimination was aimed at John McDonald. There was not --

JUSTICE BREYER: That might --

JUSTICE KENNEDY: There's no doubt he's the target. That's the --

MR. LICHTENSTEIN: But, I mean, the -- Domino's itself viewed JWM as John McDonald. The statement, we don't want to do business with you people -- you people isn't anyone else other than John McDonald. And the allegations go further than simply back wages and even the dignitary damages which are available under section 1981 but not under contract law is also alleged that by going after his credit and going after the banks that he had relationships with and given guarantees to and going after him personally, that this wasn't simply derivative of JWM's damages, that he had his own separate damages that, in fact, could not have been recovered by JWM had JWM filed a 1981 action.

JUSTICE GINSBURG: Was there any overlap? The -- what damages could the corporation JWM have collected under -- had it brought a 1981 suit?

MR. LICHTENSTEIN: It had -- it could bring the -- a suit for the damages of the lost revenue that it could have gotten from its contract. We believe, looking at State law, because we think it is a matter of State law, that here JWM would get its net profits. The wages that would be paid out would be recoverable by John McDonald. Different States may look at this differently, but that really wasn't the issue that this case had been --

JUSTICE BREYER: Then the argument for sending it back, if I understand it, is this, that when you look at the question presented, no one could possibly file a lawsuit -- and you didn't -- on the theory, well, I'm hurt, so somebody should pay me. That isn't the legal theory.

MR. LICHTENSTEIN: That is correct.

JUSTICE BREYER: Rather, the legal theory here was that this contract-related section of the law is violated. And you want to say the simple fact that the contract wasn't between McDonald and JWM, that's a separate matter. That doesn't bar you from bringing your claim. So, on the one hand, you argue that I can bring my claim as long as I'm a target and the motive as to why they breached some other contract, the one between the two corporations.

And we seem to have it conceded that even if that's too broad, there are at least some circumstances where you could bring your claim. One is if you were a third party beneficiary. That's not present here. And the second is if you are a target such that their action violates and interferes with a contract between you and your own corporation. At least you have that going for you. So you say, well, if I was wrong about the broader theory, give me a chance to allege the narrower.

MR. LICHTENSTEIN: Well, I don't --

JUSTICE BREYER: Is that right?

MR. LICHTENSTEIN: Well, I don't really think --

JUSTICE BREYER: I'm trying to be helpful in this respect.

(Laughter.)

MR. LICHTENSTEIN: I understand, and I do appreciate it.

I don't think the broader theory, number one, was if I was a target, that's all there is.

JUSTICE BREYER: No. You have to say the certain kind of target. The kind of target is that they --

MR. LICHTENSTEIN: Also --

JUSTICE BREYER: -- were discriminatory, aiming at me, et cetera.

MR. LICHTENSTEIN: Yes. I think that there are circumstances, in terms of alleging particular injuries and interference with the making, enforcing, or performance of contract. I don't --

JUSTICE SCALIA: Which you didn't allege and didn't even raise in the brief in opposition here.

MR. LICHTENSTEIN: I -- I think we alleged that in terms of the ability of Mr. McDonald to perform on the contract, even though it was --

JUSTICE GINSBURG: But those contracts --

JUSTICE SCALIA: His contract with -- with the corporation?

MR. LICHTENSTEIN: The --

JUSTICE SCALIA: No.

MR. LICHTENSTEIN: The statute doesn't say that it has to be his own contract with the defendant.

JUSTICE SCALIA: That's exactly the issue. And --

MR. LICHTENSTEIN: And that's --

JUSTICE SCALIA: -- and that's how I understood this came -- case came up here. The contract you're relying on is the contract between the corporation -- between the corporation and Domino's. And can you -- can you sustain a lawsuit for the violation of that contract? There was no mention of any other contract. I don't know why we should send it back down so you can mention a contract that you haven't even thought of even when you filed the brief in opposition.

So that's the issue, whether the violation of the contract between McDonald -- between Domino's and your client's corporation will allow your client to get -- to get some damages inasmuch as he was the target. That's how I understood the lawsuit.

MR. LICHTENSTEIN: Well, that is clearly the main thrust of -- of our position.

JUSTICE SCALIA: Now, could you tell me when -- the -- the claim was settled when your client's corporation was in bankruptcy. Right?

MR. LICHTENSTEIN: Yes.

JUSTICE SCALIA: And I assume your client had no -- nothing to say about -- about whether the settlement would be -- would be accepted by the trustee or not.

MR. LICHTENSTEIN: Absolutely. He -- it was out of his hands.

JUSTICE SCALIA: It was out of his hands, which means that, you know, you're -- you're sort of pleading the advantage of a corporation, limited liability and all of that, and went through bankruptcy taking that advantage, one of the consequences of which was that you left it to the corporation to settle this claim.

And now you want to disclaim the advantage of a corporation and say, oh, although the -- you know, the corporation settled it out -- you know, I was no longer in control of it because of the bankruptcy -- I want to bring the claim on my own. I mean, I can understand why it would be nice for you to get that, but it doesn't seem to me that you should be able to play dog in the manger that way. You either -- you either accept the corporate form or you don't.

MR. LICHTENSTEIN: The corporate form gives certain protections, largely from personal responsibility for corporate debt has some tax advantages. It certainly is not going to protect any corporate officer or shareholder from their own, for example, tortious behavior.

JUSTICE GINSBURG: But you'd have to concede at a minimum that now that the corporation has settled the breach of contract claim, that to the extent that the corporation could have recovered under 1981, that's gone too because those two claims were intimately related, and you would be precluded from bringing such a claim. So to the extent that there's an overlap, you face a res judicata bar.

MR. LICHTENSTEIN: Your Honor, even if that claim had not been precluded by bankruptcy -- and there were two plaintiffs in this case, JWM and McDonald -- there certainly couldn't be double recovery. Anything that would be recoverable in any form by JWM clearly cannot be recovered by John McDonald as an individual. And the Ninth Circuit said that. They were talking about his own separate and distinct injuries. So double recovery would never be possible.

JUSTICE GINSBURG: So they -- the Ninth Circuit's view is there are two potential plaintiffs in this situation. Both can sue and one gets -- the damages are not identical. That's --

MR. LICHTENSTEIN: I'm sorry.

JUSTICE GINSBURG: The shareholder can sue. The sole shareholder can sue. The corporation can sue. Both have 1981 claims. It's not either/or.

MR. LICHTENSTEIN: Correct.

JUSTICE GINSBURG: They both have 1981 claims, but the damages are different in the case of the individual than in the case of the corporation.

MR. LICHTENSTEIN: Absolutely.

JUSTICE STEVENS: May I ask just -- did the individual plaintiff assert the 1981 claim at any time before the settlement of the corporate claim?

MR. LICHTENSTEIN: Yes, I believe that the -- and I would have to check on the timing of this, but I believe that the suit was filed prior to the settlement of the 1981 claim -- of the bankruptcy --

JUSTICE STEVENS: I would have assumed --

MR. LICHTENSTEIN: I'm sorry. Of the bankruptcy claim.

JUSTICE STEVENS: -- there wouldn't have been a settlement first without taking care of the second, if they had known both were on the table. But you say the first had been -- both of them had been --

MR. LICHTENSTEIN: That is my understanding. I -- I would have to really check on that, but that is my understanding.

And again, we are looking at this particular situation. We keep talking about actual target. The petitioner keeps talking about derivative, incidental claims. This isn't a derivative, incidental claim. There is no one who has a race in this case that is relevant other than John McDonald. JWM, John W. McDonald, didn't get its financing, didn't get its credit based on the fact that it was just created as a corporation. It was John McDonald.

Here, you have the situation where -- and it's kind of a unique one -- where there's a claim that John McDonald, the actual person who was being discriminated against, can't recover but some other entity can. That sort of turns section 1981 on its head.

JUSTICE SCALIA: Well, it was his -- it was his corporation, and until he went bankrupt, any recovery by that corporation would have been a recovery by -- by John McDonald. What -- what created your problem is the fact that -- that the corporation went bankrupt.

MR. LICHTENSTEIN: Your Honor, I don't think that's the --

JUSTICE SCALIA: But, you know, that's -- that's one of the -- one of the consequences of taking advantage of the corporate form.

MR. LICHTENSTEIN: Your Honor, I don't think that's the case because if there was, for example, this two-party suit, JWM could not recover for dignitary damages. Only an individual can do that.

JUSTICE SOUTER: Well, can you -- can you do that under a general contract theory?

MR. LICHTENSTEIN: I don't believe you can do it under a general contract --

JUSTICE SOUTER: So you're reporting not merely the -- the tort of tortious interference, but some general, broader concept of tort law as being subsumed with -- under 1981. Aren't you?

MR. LICHTENSTEIN: Yes, and I think the -- the case law indicates that, that this is not simply just federalization of State law. This -- looking at the history of section 1981, this was designed to combat not tortious interference claims in common law, but the black codes during Reconstruction that prohibited black individuals, individuals just like John McDonald, from being able to pursue their trades, operate --

JUSTICE SOUTER: All right, but the -- the focus of it is, as -- as I understand it, and the -- the kernel of it is -- is the capacity to contract. And we can certainly understand, I guess, how tortious interference with contracts might come under that umbrella, but you're going further and you're saying, I take it, any tort that would give a recovery -- recognize a recovery for -- for dignitary injury would be subsumed with -- within the concept of what 1981 was intended to -- to cover, which is a broader proposition.

MR. LICHTENSTEIN: I think that what we are saying I think is what the Court has said -- is that this is a personal injury, and that dignitary claims are subsumed under 1981. I don't think it's expand -- I don't think --

JUSTICE SOUTER: Well, contract -- I -- you -- you pointed out the -- the terminology which includes contract damages or -- or contract harm as personal harm, but it doesn't necessarily follow from that that every harm or every injury that is personal falls under -- conceptually under the 1981 umbrella.

MR. LICHTENSTEIN: No. Discrimination is a personal injury. This Court said that in Burke and I believe in Goodman also. So we're talking about personal injury here, not just contract harm.

JUSTICE SCALIA: But it doesn't -- it doesn't talk about personal injury that -- that broadly. It talks about the right to make and enforce contracts. That's the portion of it you have to be relying upon. It doesn't talk about --

MR. LICHTENSTEIN: Well, it's --

JUSTICE SCALIA: -- personal injury. It's not a --

MR. LICHTENSTEIN: -- it's --

JUSTICE SCALIA: -- it's not a more generalized tort. If want to call it a tort, it is a tort that goes to your ability to make and enforce contracts. I don't see anything --

MR. LICHTENSTEIN: I believe, Your Honor --

JUSTICE SCALIA: -- dignitary about that.

MR. LICHTENSTEIN: -- that it goes to your right to not suffer discrimination within the realm of making, performing, and enforcing contracts. The focus is on discrimination, which is a personal injury and a personal harm, and the --

JUSTICE SCALIA: And you're saying it means discrimination that relates to the making and enforcing of a contract with somebody else. And you're saying that since the discrimination was targeted at you, even though the contract was with -- was with somebody else, you have a claim under this language of 1981.

MR. LICHTENSTEIN: Yes, in this circumstance where the contract with someone else was the mechanism that was used to target an individual. And, again, when you're dealing with --

JUSTICE SOUTER: Yes, but there's no way to confine it to the individual, is it? I mean, the -- on your -- on your target theory, a -- a general discriminatory animus as a basis for breaching a contract with General Motors would give a right of action to -- to every minority employee of General Motors. Isn't that correct?

MR. LICHTENSTEIN: If there is a circumstance, as I understand the hypothetical, where there is blatant and intentional discrimination, racial discrimination, by a multinational corporation like General Motors, who say we're not going to do business with any company that hires black people -- and clearly there's an uphill battle for any kind of proof, but you'd have to show that there was actual targeting, that it really did interfere with the ability to perform contracts, and that there were specified individual damages. But if that were the case and could be proven, that would be pretty egregious and probably something that 1981 should cover.

JUSTICE SCALIA: But -- but when you say damages that can be proven, the only damages you -- you insist upon proving is the fact that you were a target and that it -- it insulted you. It -- it was -- you know. That's the only damage you require. So you're saying that every -- every minority employee of all of the companies with whom GM, or whoever it is didn't do business, would automatically have a cause of action.

MR. LICHTENSTEIN: No, Your Honor, I don't believe we're saying that because --

JUSTICE SCALIA: No. Okay. Well, then -- then what do they have to show? They have to show that -- that their salaries were -- were reduced? But -- but you haven't shown that here. You didn't plead that here. They have to show -- show that a contract with them was breached? But you didn't plead that here and you didn't show it here. So the -- the only thing that -- that you -- you can answer is they would all have causes of action if their -- their honorific values were somehow impugned.

MR. LICHTENSTEIN: I don't believe so, and I think that what was pled and we believe is not just the wages that were not paid, but also the dignitary damages and also the damages specifically aimed at John McDonald in terms of ruining his credit, going to the banks, and in a sense slandering him, and those kinds of damages that were not recoverable by JWM but were specifically John McDonald.

JUSTICE SCALIA: That was -- that was the consequence of the bankruptcy of his corporation. I mean, that didn't -- didn't --

MR. LICHTENSTEIN: No, sir. There were actually allegations of statements we are going to ruin you personally and actions that went to ruin him personally. This was not just simply derivative from the corporation.

JUSTICE SOUTER: But none of the ruin occurred, as I understand it, until the corporation went bankrupt. In other words, there was no direct -- the bank, for example, didn't say we're not doing any more business with -- with you, McDonald. As I understand it, all the -- all the -- leaving dignitary harm aside, all the actual loss was -- was as a consequence of the loss to the corporation. His stock fell, you know, whatever. But it -- it seems all derivative from the corporate loss.

MR. LICHTENSTEIN: I don't believe so, sir. And the opposition to the motion to dismiss talked very specifically about the statements to the banks that were specific to John McDonald that hurt John McDonald individually that really was not derivative from the bankruptcy --

JUSTICE BREYER: Do you have an action --

JUSTICE SOUTER: Well, can you give me an example?

JUSTICE BREYER: -- on that in California? Wouldn't you have an action in the State if somebody goes and deliberately interferes with your credit and so forth?

MR. LICHTENSTEIN: Well, I think the action that Mr. McDonald took was just this, the 1981 action, saying that there was a Federal violation, that this was done to discriminate against him, and this seems to fit in with the 1981 cause of action and the purpose of 1981, which is why this case was filed.

JUSTICE GINSBURG: If it fits, it's because of some cases. So -- because this whole area, 1981, didn't take off until Runyon against McCrary. So we're starting with what? 1976. So to -- to flesh out what that claim is, you must be relying on some decisions of this Court when you talk about dignitary damages.

MR. LICHTENSTEIN: Well, again, we -- I think we could look at Shaare Tefila as -- as a good example of the kinds of damages. This was the Nazi swastika on a synagogue.

JUSTICE GINSBURG: But I thought that didn't go into anything. That was a two-page per curiam, and it was just was there a claim. And it didn't --

MR. LICHTENSTEIN: Well, the claim was still -- it was certainly not because of any kind of -- of privity. It was damages based on --

JUSTICE GINSBURG: I thought that that was about does the -- does the act cover religion or -- or does it cover that situation, or is it limited to race, or does anti-semitism count as race. I thought that's what was all that was decided.

MR. LICHTENSTEIN: Well, at that time, that -- it said that anti-semitism counted as race, but certainly they were able to recover once that threshold was met because of the dignitary harms.

JUSTICE GINSBURG: Well, I don't see anything in the opinion about -- I just see the issue before the Court was does this come under the heading race.

MR. LICHTENSTEIN: My reading of that was -- was a bit broader I think.

Also, you could look at cases such as Sullivan where the right not to be discriminated against was compensable for the black family that was not allowed into the club. So the cases that we have cited --

CHIEF JUSTICE ROBERTS: Both Sullivan and Shaare Tefila, of course, though, were 1982 cases. Right?

MR. LICHTENSTEIN: Correct.

CHIEF JUSTICE ROBERTS: Not 1981 cases.

MR. LICHTENSTEIN: Right. But this Court has said that the language is so similar that they should, for these purposes, be viewed as having the same rules. And clearly, it would make no sense to have -- have different ones. So they were 1982 claims, but the idea that discrimination in terms of housing should have dignitary claims, as well, discrimination in terms of contract should not is something this Court has never accepted.

CHIEF JUSTICE ROBERTS: Thank you, counsel.

MR. LICHTENSTEIN: Thank you.

CHIEF JUSTICE ROBERTS: Ms. Mahoney, you have 4 minutes remaining.

REBUTTAL ARGUMENT OF MAUREEN E. MAHONEY

ON BEHALF OF THE PETITIONERS

MS. MAHONEY: Thank you, Your Honor.

I'd like to focus on the issue of whether there is any need for a remand.

The district court dismissed the complaint with prejudice, and I think that it's fair to say that at that point, the plaintiff was under an obligation to seek leave to amend if it had any other alternative theory that it wanted to advance in this case. Otherwise, we're left with the situation where they can see that dismissal with prejudice, litigate up to the Ninth Circuit, and then we litigate here. We go back down and we keep doing this seriatim. It would make no sense. The dismissal with prejudice was proper, and certainly in a 1981 case, despite liberal rules of pleading, you have to identify the contract that was supposedly violated, as well as, you know, the other elements.

Second, I think that if this were a harder case about tortious interference principles, even if it hadn't been waived, I might understand the Court's reluctance to get into it. But we know from the briefing that the plaintiff has conceded that his claim would not be cognizable under the common law of contract, third party beneficiary, or tortious interference, and that is very plain from the brief at pages, I think, 43 through 46 where they acknowledge that under section 76 of the Restatement, they would not be able to -- to recover. And they say, so what. This isn't a federalized version of common law of interference.

So given that concession, I think all this Court would have to say is that the alternative theory that wasn't even pled can't possibly state a claim because it -- it asks us to go far beyond what the common law did.

JUSTICE STEVENS: Ms. Mahoney, may -- may I ask you one brief question that I should have asked on direct? I hope you have time for it.

But supposing a fact situation in which a wholly owned -- a -- a corporation wholly owned by an African American starts to negotiate with your client, and your client says, we have a policy of not dealing with companies owned by African Americans. Would the corporation or the individual have a lawsuit under section 1981?

MS. MAHONEY: I think the corporation would, Your Honor.

JUSTICE STEVENS: You think the corporation would.

MS. MAHONEY: Absolutely because they -- a refusal to deal -- it covers rights to make and enforce contracts, and if -- if the defendant said, I will not deal with this company, then I think that they have a right.

And in this case, there was a claim that was brought by the company for -- based on -- for breach of contract.

JUSTICE STEVENS: But not under 1981.

MS. MAHONEY: No, Your Honor, but the trustee makes a finding that the -- the causation -- or reports to the court that causation principles could not be established, and so there was no point in bringing a 1981 claim because he actually found in -- in materials that are in the record of the bankruptcy proceeding --

JUSTICE STEVENS: But -- but in your view, to the extent that racial discrimination might have affected negotiations, that would be an element of the corporation's claim under 1981 rather than an individual claim.

MS. MAHONEY: Yes, Your Honor.

JUSTICE STEVENS: Yes.

MS. MAHONEY: Because if the -- if they were negotiating on behalf of the company, that is the company's right to contract. It is not the individual's right.

CHIEF JUSTICE ROBERTS: And you attribute the shareholder's race to the corporation?

MS. MAHONEY: That's what the courts of appeals all do. Judge Friendly in Hudson Valley Freedom Theater looked at this issue and said that it was the best way to approach this issue, that -- that -- and explained that it doesn't make sense to impute the corporation's contract rights to somebody else, give them power to enforce their contract rights. And it wasn't a 1981 case, but it was analogous, and that it made sense to, under those circumstances, impute race, in effect.

And I think that the way that courts have done it is also linked to the word discrimination, which appears in 1981(c). In -- in Jackson v. Birmingham for the -- for instance, this Court did find that a -- a male coach had been subjected to discrimination on the basis of sex, even though he's obviously not a woman, because it's a form of discrimination. And I think the courts have looked at that as well.

But this -- the -- the -- all of the exact same issues that are alleged in this complaint were already raised and litigated through depositions and discovery in the bankruptcy court. And this presents all of the problems that this court addressed in Associated General Contractors about why there's such a strong presumption against derivative claims because here you can't trace the losses. You have no idea whether or not the monies that JWM would have recovered from Domino's would have been used to pay other creditors or used to do new projects or perhaps given to -- to McDonald.

Thank you, Your Honor.

CHIEF JUSTICE ROBERTS: Thank you, counsel.

The case is submitted.

(Whereupon, at 12:07 p.m., the case in the above-entitled matter was submitted.)