Opinion ID: 545493
Heading Depth: 2
Heading Rank: 3

Heading: Gonzalez's Other Arguments

Text: 25 Plaintiffs make a variety of other arguments in support of their complaint, some of which may merit further consideration in the district court. They contend (1) that the complaint against Home and Home Indemnity may be sustained on the ground that Home and Home Indemnity covertly imposed on them discriminatory terms in making the 1982 Agreement, (2) that Patterson does not foreclose a Sec. 1981 claim for discriminatory termination of a contract, (3) that they should be allowed to pursue a Sec. 1981 claim on the basis that the defendants refused to enter into insurance contracts with Gonzalez's clients on the basis of Gonzalez's race, and (4) that, in any event, Patterson should not have been applied to their complaint retroactively. Though we reject most of these contentions, we conclude that leave to replead is warranted. 26
27 Gonzalez argues that the 1982 Agreement with Home and Home Indemnity contained covertly discriminatory terms. The nature and validity of this argument are not entirely clear. If plaintiffs mean that that agreement contained some terms that differed from the terms agreed to with white agents, the discriminatory motivation for which became known only later, such a claim would be actionable under Sec. 1981 as interpreted by Patterson. If plaintiffs mean instead that the 1982 Agreement with Home and Home Indemnity contained precisely the same terms as the companies' agreements with white agents but masked the companies' then-existing intent to discriminate against Gonzalez, the effect of Patterson is not clear. 28 In dissenting in part in Patterson, Justice Brennan expressed the view that Sec. 1981 authorizes an action when the acts constituting harassment [are] sufficiently severe or pervasive as effectively to belie any claim that the contract was entered into in a racially neutral manner. 109 S.Ct. at 2389 (Brennan, J., dissenting in part). The Patterson majority disagreed with this view, stating that post-contract-formation harassment cannot be called a refusal to make a contract. Id. at 2376. Nonetheless, the majority 29 agree[d] that racial harassment may be used as evidence that a divergence in the explicit terms of particular contracts is explained by racial animus. Thus, for example, if a potential employee is offered (and accepts) a contract to do a job for less money than others doing like work, evidence of racial harassment in the workplace may show that the employer, at the time of formation, was unwilling to enter into a nondiscriminatory contract. However, and this is the critical point, the question under Sec. 1981 remains whether the employer, at the time of the formation of the contract, in fact intentionally refused to enter into a contract with the employee on racially neutral terms. 30 Id. at 2376-77 (emphasis in original; footnote omitted). 31 Though we read this passage as allowing a Sec. 1981 claim where there is a divergence of racially neutral terms that is explained by racial animus, it is not clear whether it was intended also to allow a Sec. 1981 claim that, as to a contract with nondivergent terms, the employer had no intention of honoring the terms in a racially neutral manner. Given the fact that the complaint was drafted long prior to the decision in Patterson, the lack of certainty as to plaintiffs' proffer, and the lack of clarity in the thrust of Patterson itself, we conclude that plaintiffs should be given an opportunity to amend the complaint. Though defendants protest that plaintiffs did not seek leave to amend in the district court, and we note that plaintiffs did not make such a request after Patterson was decided, they had in fact previously requested leave to amend as an alternative to dismissal of the complaint. We conclude that, especially since the matter must be remanded for further proceedings against Home of Indiana and City Insurance, the circumstances warrant giving plaintiffs an opportunity to file an amended complaint stating, if they can, claims against the two remaining defendants under Sec. 1981 in light of Patterson. 32
33 Gonzalez also contends that Patterson does not foreclose an action under Sec. 1981 for the discriminatory termination of a contract. Prior to Patterson, this Court and others had viewed discriminatory contract termination as falling within the prohibition of Sec. 1981. See, e.g., Ramseur v. Chase Manhattan Bank, 865 F.2d 460, 464 (2d Cir.1989); Rowlett v. Anheuser-Busch, Inc., 832 F.2d 194, 202 (1st Cir.1987); Pollard v. Rea Magnet Wire Co., 824 F.2d 557, 558 (7th Cir.), cert. denied, 484 U.S. 977, 108 S.Ct. 488, 98 L.Ed.2d 486 (1987). The Patterson Court, though it did not otherwise address whether discriminatory termination is within the scope of Sec. 1981, stated that the concept of contract formation does not encompass breach of the terms of the contract. 109 S.Ct. at 2373. In the wake of Patterson, courts have divided as to whether a viable claim for discriminatory termination of a contract may still be brought under Sec. 1981. Compare Lavender v. V & B Transmissions & Auto Repair, 897 F.2d 805, 807-08 (5th Cir.1990) (no viable claim for termination under Sec. 1981), and Courtney v. Canyon Television & Appliance Rental, Inc., 899 F.2d 845, 849 (9th Cir.1990) (same), with Hicks v. Brown Group, Inc., 902 F.2d 630, 635-48 (8th Cir.1990) (Patterson does not foreclose Sec. 1981 claim for termination). See also Jett v. Dallas Independent School District, --- U.S. ----, 109 S.Ct. 2702, 2710, 105 L.Ed.2d 598 (1989) (assuming ... without deciding, that petitioner's rights under Sec. 1981 have been violated by his removal and reassignment); Lytle v. Household Manufacturing, Inc., --- U.S. ----, 110 S.Ct. 1331, 1336 n. 3, 108 L.Ed.2d 504 (1990) (instructing circuit court on remand to consider the impact of Patterson on Sec. 1981 claims of discriminatory dismissal and retaliation). 34 In general, we are not inclined to view the termination of a contract as involving either its mak[ing] or its enforce[ment], and to the extent that the complaint in the present case alleges a run-of-the-mine claim that the termination of plaintiffs' contracts was discriminatory, we conclude that that claim was properly dismissed in light of Patterson. Nonetheless, just as a person might enter into a contract while having no intention of performing it in a racially neutral manner, as discussed in Part II.C.1. above, such a person might enter the contract having the intent, at the time of formation of the contract, to terminate it for racially discriminatory reasons. If plaintiffs can in good faith allege such an intent, we believe they should be allowed to do so, as Patterson may well not foreclose such a claim. 35 Accordingly, plaintiffs are free, if they can do so consistently with Fed.R.Civ.P. 11, to include in their amended complaint a claim under Sec. 1981 that one or more of the defendants entered into an agency agreement with them while harboring the intent to terminate the agreement because of plaintiffs' race. 36
37 Plaintiffs argue, as they did in the district court, that they are entitled to sue under Sec. 1981 for defendants' failure to enter into insurance contracts with Gonzalez's clients on account of Gonzalez's race. We disagree. As agents, plaintiffs do not make the insurance contracts; they merely broker them. An agent who arranges a contract for a disclosed principal does not become a party to that contract. See Seguros Banvenez, S.A. v. S/S Oliver Drescher, 761 F.2d 855, 860 (2d Cir.1985); Restatement (Second) of Agency Sec. 320 (1958). Thus, defendants' rejections of proffered customers did not constitute a refusal to make a contract with Gonzalez.
38 Finally, plaintiffs contend that the district court should not have applied Patterson to their claims retroactively because (a) so much time had been spent in discovery under pre-Patterson law, and (b) their relationship with defendants was not that of employee-employer, and hence they cannot bring an action under Title VII of the Civil Rights Act of 1964, 42 U.S.C. Secs. 2000e to 2000e-17 (1982) (Title VII), and they have no other federal remedy available to them for discriminatory performance of the contracts. We are unpersuaded. 39 A federal court generally will apply the law in effect at the time it renders its decision. See Bradley v. School Board of Richmond, 416 U.S. 696, 711, 94 S.Ct. 2006, 2016, 40 L.Ed.2d 476 (1974); Bolden v. Alston, 810 F.2d 353, 357 (2d Cir.), cert. denied, 484 U.S. 896, 108 S.Ct. 229, 98 L.Ed.2d 188 (1987). The court may depart from this rule in a particular case in light of the three criteria articulated in Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971): 40 First, the decision to be applied nonretroactively must establish a new principle of law, [as] by overruling clear past precedent on which litigants may have relied.... Second, ... 'we must ... weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will further or retard its operation.' ... Finally, we have weighed the inequity imposed by retroactive application.... 41 Id. at 106-07, 92 S.Ct. at 355-56 (quoting Linkletter v. Walker, 381 U.S. 618, 629, 85 S.Ct. 1731, 1738, 14 L.Ed.2d 601 (1965)). However, when the Supreme Court, in announcing a new principle, itself applies it retroactively to the case at bar, generally  'no sound reason exists for not doing so'  in a later appeal. Welyczko v. U.S. Air, Inc., 733 F.2d 239, 241 (2d Cir.) (quoting Holzsager v. Valley Hospital, 646 F.2d 792, 797 (2d Cir.1981)), cert. denied, 469 U.S. 1036, 105 S.Ct. 512, 83 L.Ed.2d 402 (1984). Since the Supreme Court applied the principles announced in Patterson to the facts in that case, which had been litigated to final judgment, we are unpersuaded by plaintiffs' argument that retroactivity should be denied here on account of the large amount of time spent in discovery. Accord Lavender v. V & B Transmissions & Auto Repair, 897 F.2d at 806-07 (applying Patterson to previously-rendered district court judgment); Carroll v. General Accident Insurance Co. of America, 891 F.2d 1174 (5th Cir.1990) (same); Courtney v. Canyon Television & Appliance Rental, 899 F.2d at 849 (same). 42 We also reject plaintiffs' contention that Patterson should not be applied to their case retroactively because they have no Title VII remedy. Though the Supreme Court mentioned in Patterson that the plaintiff in that case did have a Title VII remedy, we do not believe the Court meant to imply that the mak[ing] and enforce[ment] of contracts as used in Sec. 1981 has broader scope when the contract is for goods or services other than employment.