Sole Corporate Shareholder Plaintiff & Section 1981

Under Section 1981, may a plaintiff bring a claim of discrimination as the sole corporate shareholder that is authorized to make and enforce contracts for the shareholder’s corporation as its agent? Here’s my point of view (NOTE: please read our DISCLAIMER before proceeding).

THE CIVIL RIGHTS ACT OF 1866:  § 1981

A plaintiff cannot state a Section 1981 claim unless he has (or would have) rights under the existing (or proposed) contract that he wishes to make and enforce. Domino’s Pizza, Inc. v. McDonald, 546 U.S. 470, 126 S.Ct. 1246, 163 L.Ed.2d 1069 (2006) (internal quotation marks omitted).

The statute, originally enacted as §1 of the Civil Rights Act of 1866, now protects the equal right of all persons to make and enforce contracts without respect to race and defines “make and enforce contracts” to include “the making, performance, modification, and termination of contracts, and the enjoyment of all benefits ... of the contractual relationship.” See id. (internal quotation marks omitted).

Importantly, this cannot be read to give a sole corporate shareholder a cause of action because he “made and enforced contracts” for his corporation as its agent. See id.  The right to “make contracts” protected by the 1866 legislation was not the insignificant right to act as an agent for someone else’s contracting, but was rather the right, denied in some States to blacks, to give and receive contractual rights on one’s own behalf. Id.

Any § 1981 claim, therefore, must initially identify an impaired “contractual relationship,” § 1981(b), under which the plaintiff has rights.

POSSIBLE EXCEPTION: DOMINO'S PIZZA, INC. v. MCDONALD

However, the court in Domino’s Pizza, Inc. v. McDonald, 546 U.S. 470, n. 3, 126 S.Ct. 1246, 163 L.Ed.2d 1069 (2006), alluded to a potential exception, but elected not to decide it because the plaintiff made no such claim.

The court stated, “[W]e do not mean to exclude the possibility that a third-party intended beneficiary of a contract may have rights under § 1981.” Id. (referencing 2 Restatement (Second) of Contracts §304, p. 448 (1979) (“A promise in a contract creates a duty in the promisor to any intended beneficiary to perform the promise, and the intended beneficiary may enforce the duty”)). “Neither do we mean to affirm that possibility.” Id. (referencing Blessing v. Freestone, 520 U.S. 329, 349, 117 S.Ct. 1353, 137 L.Ed.2d 569 (1997) (SCALIA, J., concurring) (“Until relatively recent times, the third-party beneficiary was generally regarded as a stranger to the contract, and could not sue upon it”)).

CONCLUSION

It appears that a sole corporate shareholder plaintiff will probably not be able to pursue a cause of action under § 1981 simply because the shareholder “made and enforced contracts” for her corporation, as its agent, that establish the basis for claims of discrimination. However, if the sole corporate shareholder is able to argue that the plaintiff-corporation was a third-party intended beneficiary under the subject contract(s), then the shareholder-plaintiff might be able to pursue a viable § 1981 claim.

LEARN MORE

If you would like to learn more, then consider contacting an experienced Washington State Employment Discrimination Attorney as soon as possible to discuss your case. Please note: the information contained in this article is not offered as legal advice and will not form an attorney-client relationship with either this author or Williams Law Group, PS; please see our DISCLAIMER.

–gw