Suing for a Slice of Domino's
D omino's Pizza v. McDonald , case No. 04-593: The dispute to be argued before the Supreme Court at 11 a.m. tomorrow sounds like a contest between fast-food giants. All that's missing is a friend-of-the-court brief from Papa John, or maybe Jared, the guy who lost 245 pounds eating at Subway.
Actually, Domino's Pizza v. McDonald is more like a Goliath v. David affair. The respondent has no relation to the Golden Arches people: He is Las Vegas real estate developer John W. McDonald, a small-business man who says that Domino's, acting on racial animus, violated contracts it had made with McDonald's company.
Those claims, which Domino's denies, have never been tested in court--because it is not clear whether the law even permits McDonald, who is black, to sue. A federal district judge in Nevada dismissed McDonald's case; but the U.S. Court of Appeals for the 9th Circuit, based in San Francisco, reinstated the lawsuit last year. Domino's appealed to the Supreme Court.
At issue is a legal problem so arcane that it is difficult to express in plain English. Yet the real-world implications of the case for minority business owners, and the corporations and governments that make contracts with them, could be significant.
The question is this: Since 1866, a federal civil rights law has protected the right of black people to make and enforce contracts on an equal basis with all others. But does that law extend to the harm a black entrepreneur allegedly suffers personally when someone breaks a deal with a company the black person owns?
Domino's says no. The firm says it contracted not with McDonald, but with JWM Investments, McDonald's company, to build four restaurants in the Las Vegas area. The plan was for Domino's to lease the locations from JWM once they were built. But, Domino's says, JWM didn't deliver on its end of the bargain; McDonald's firm completed the first store on time, but there were too many construction delays on the remaining ones. So Domino's canceled the deal. Domino's says it later settled with JWM, paying JWM's creditors $45,000 and dropping its claims against JWM for $200,000 in lost revenue and other costs.
"Our perspective is that this was purely a company-to-company relationship that ended because the company we hired to do a job didn't do the job," said Tim McIntyre, vice president of communications for the international chain based in Ann Arbor, Mich. Asked if race had anything to do with the dispute, McIntyre replied, "No, sir."
Domino's notes that its version of events is supported by Gene Collins, a Las Vegas-based leader of Al Sharpton's National Action Network, and a former Democratic state legislator. Collins says he investigated the situation at McDonald's request, but found no evidence of racial bias. To the contrary, he said in an interview, McDonald "blew a golden opportunity not only for himself, but for other African Americans."
McDonald tells a different story, a key part of which is the fact that it's hard to tell where JWM ends and John W. McDonald -- the company's president and sole shareholder -- begins.
In January 1997, JWM signed four separate contracts to build and lease future Domino's. At the time, McDonald believed he was the only black developer working for Domino's in the southwestern United States.
He says construction bogged down because Domino's refused to honor a promise to give potential financial backers written proof of the pizza chain's interest in leasing the buildings. Without those "certificates of estoppel," JWM could not get loans. He also alleged that a Domino's official threatened him with financial reprisals and said "I don't like dealing with you people anyway." McDonald said, in addition, the official disparaged him to the chief lending officer of a local bank.
McDonald said the clash with Domino's drove JWM into bankruptcy; cost him several million dollars in personal net worth; and inflicted pain, humiliation and emotional distress.
In 2002, he filed a personal suit for $8 million in damages under the 1866 civil rights law; McDonald said that to deny him a day in court would, in effect, punish black small-business owners for choosing to do business in corporate form, as a majority of firms do.
The "injuries alleged in this complaint are not corporate," McDonald's Supreme Court brief says. "Rather they involve personal injuries to McDonald caused by discriminatory acts directed at him as a black small-business owner."
McDonald's suit is backed by Illinois, Iowa, Massachusetts, Montana, New York, Vermont, Wisconsin and the Virgin Islands, as well as a coalition of civil rights organizations.
Domino's is supported by the U.S. Chamber of Commerce and the Equal Employment Advisory Council, an organization of large employers. Their friend-of-the-court brief says that a decision in favor of McDonald could have "horrendous implications" because it would expose companies to litigation by anyone who is even tangentially harmed by the disruption of a contractual relationship.
Alabama, Colorado, Kansas, Michigan, Nevada, Ohio, Oregon, Tennessee, Utah, Washington and Puerto Rico have also sided with Domino's, arguing that states, too, could face a blizzard of lawsuits if McDonald wins. The states backing McDonald dispute that.