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The Supreme Court decided 2/22/06 that a shareholder of a corporation cannot bring a claim under Section 1 of the Civil Rights Act of 1866, 42 U.S.C. § 1981, which prohibits discrimination in the making and enforcement of contracts, if the shareholder has no rights under the contract that he claims the defendant’s discrimination impaired. In this case, the plaintiff was the president and sole shareholder of a corporation that entered into a set of contracts with the defendant for the construction of four restaurants. The plaintiff sued, claiming violation of Section 1981, when the defendant terminated these contracts allegedly because the plaintiff is African American. In an opinion authored by Justice Scalia, the Supreme Court today held, based on the language of Section 1981, that a claimant can sue only for discrimination that impairs a contractual relationship if the claimant actually has rights under the contract at issue. In this case, the Court indicated, the plaintiff has no claim because the shareholder of a corporation has no rights and is exposed to no liability under a corporation’s contracts. This case is of interest to any business that forms contractual relationships because it limits the class of plaintiffs who can claim racial discrimination in the making and enforcement of contracts.

Decision Below: 107 Fed. App. 18 (9th Cir. 2004)