Gonzalez v. The Home Insurance Company Brief of Defendants-Appellees

    «

:es (Court of Appta

E dward F. Gonzalez, Ana T. Gonzalez 
AND A.T.O. AGENCY, INC.,

■?' /—against—

Company
Defendants-A ppellees.

: W illkie Farr & Gallagher 
One Citicorp Center 
153 East 53rd Street 
New York, New York 10022 
(212) 935-8000
Attorneys fo r  Defendants-Appellees

O f Counsel 
Lawrence O. Kamin 
Mitchel H. Ochs



TABLE OF CONTENTS
Page

TABLE OF AUTHORITIES........................................ (iii)
PRELIMINARY STATEMENT........................................  1
STATEMENT OF ISSUE PRESENTED.................................  2
STATEMENT OF THE CASE........................................  2

A. Background............................................ 3
B. Nature of the Action.................................  5
C. The Proceedings Below................................  6
D. The District Court's Decision........................  7

SUMMARY OF ARGUMENT...........................................  5
ARGUMENT....................................................  11

POINT I
THE DISTRICT COURT CORRECTLY CONCLUDED 
THAT THE COMPLAINT FAILED AS A MATTER 
OF LAW TO STATE A CLAIM FOR RELIEF
UNDER SECTION 1981................................  H
A. The District Court Correctly 

Concluded That The Complaint 
Asserted Discriminatory Conduct 
By The Home Solely In Connection 
With Activities Which Occurred 
After The Formation And Execution 
of Gonzalez's Contract, And 
Therefore Failed to State A Claim
Under Section 1981........................... 11

B. Appellants' Claims Of Discrimination 
By The Home In The "Making" Of 
Contracts With Them Are Entirely 
Without Merit................................  16

(i)



Page
1. The execution of the Addendum,

adding two parties to the Agency 
Agreement, does not amount to 
discrimination in the making of 
contracts because the Addendum was 
not discriminatory in nature and 
did not create a new and distinct 
relation................................  17

2. Gonzalez's claim that post-formation
conduct may establish pre-formation 
discrimination stems from a 
misreading of Patterson and
cannot support the claims here
at issue.................................  23

3. Gonzalez's claim that The Home
refused to enter into contracts
with third parties is irrelevant
under Section 1981 as it does not 
relate to Gonzalez's right to
contract.........   26

C. The District Court Correctly Concluded 
That Appellants' Claim Of Wrongful 
Termination Failed To State A Claim 
Under Section 1981............................ 34

POINT II
APPELLANTS' REQUEST ON APPEAL THAT THEY 
BE PERMITTED TO PROCEED ON THEIR LEGALLY 
DEFICIENT CLAIMS SHOULD BE DENIED IN ITS
ENTIRETY...........................................  40
A. Appellants Should Not Be Entitled 

To Amend Their Complaint And To
. Conduct Discovery.............................  40

B. Appellants Have Not Made The
Extraordinary Showing Required To Deny 
Retroactive Application of Patterson.... . ... 42

CONCLUSION..................................................  4 5
APPENDIX

STATEMENT OF INTERESTED PARTIES.......................  1(a)

(ii)



TABLE OF AUTHORITIES

Albert v. Carovano, 851 F.2d 561 (2d Cir. 1988).......  26
Alexander v. New York Medical College, 721 F. Supp. 587

(S.D.N.Y. 1989).......................................  35
Becton v. Burlington Northern R.R., 878

F . 2d 1436 (6th Cir. 1989)............................. 21
Birdwhistle v. Kansas Power and Light Co.,

723 F. Supp. 570 (D. Kan. 1989)......................  36
Brackshaw v. Miles, Inc., 723 F. Supp. 60 (N.D.

111. 1989).............................................  43
Busch v. Pizza Hut, Inc., No. 88 C. 8241 (N.D. 111.

Sept. 28, 1989)(1989 U.S. Dist. LEXIS 11974)..........  35
Carter v. Aselton, 50 Fair Empl. Prac. Cas.

(BNA) 251 (M.D. Fla. Jun. 20, 1989)..................  36, 41
Carter v. O'Hare Hotel Investors, No. 88
C. 10713 (N.D. 111. Nov. 1, 1989M1989 U.S. Dist.
LEXIS 13156) . ........................................... 34 , 39

Chevron Oil Co. v. Huson, 404 U.S. 97 ( 1971)........... 42
Danqerfield v. Mission Press, 50 Fair Empl. Prac.

Cas. (BNA) 1171 (N.D. 111. July 27,
1989)..................................................  23

Dicker v. Allstate Life Ins. Co., No. 89 C. 4982
(N.D. 111. Oct. 19, 1989)(1989 U.S. LEXIS 12482)....  21

Eklof v. Bramalea Ltd., No. 89-5312 (E.D. Pa.
Oct. 27, 1989)( 1989 U.S. LEXIS 12836)................  35

English v. General Dev. Corp., 717
F. Supp. 628 (N.D. 111. 1989)......................... 25, 32

Cases Page

(iii)



I

Cases Page
Faraca v. Clements, 506 F.2d 956, cert, denied, 422

U.S. 1006 (5th Cir. 1975)............................. 30
Flanagan v. Aaron E. Henry Community Health

Serv. Center, 876 F . 2d 1231 (5th Cir. 1989).........  36
Frank B. Hall & Co. v. Rushmore Ins. Co., 92

F.R.D. 743 (S.D.N.Y. 1981)...........................  29
Gersman v. Group Health Ass'n, No. 88-1820 (D.D.C.

Nov. 13, 1989M1989 U.S. Dist.
LEXIS 13449)........................................... 21, 22, 26,

30, 31, 32, 
35, 39

Gillespie v. First Interstate Bank, 717 F. Supp. 649
(E.D. Wis. 1989)......................................  43

Greggs v. Hillman Distrib. Co., 719 F. Supp.
552 (S.D. Tex. 1989)..................................  35

Hall v. County of Cook, 719 F. Supp. 721
(N.D. 111. 1989)......................................  35, 43, 44

Hannah v. Philadephia Coca-Cola Bottling Co., No.
89-0699 (E.D. Pa. Jun. 26, 1989)(1989 U.S. Dist.
LEXIS 7200)........................................... 41

James v. Dropsie College, Civ. A. No. 89-4429 
(E.D. Pa. Nov. 22, 1989)(1989 U.S. Dist.
LEXIS 14103)...........................................  42

Jett v. Dallas Indep. School Dist., 109 S. Ct. 2702,
(1989).................................................  36

Jones v. Pepsi-Cola Gen. Bottlers, Inc., No.
88-0739-CV—W-l (W.D. Miss. Aug. 29, 1989)
(1989 U.S. Dist. LEXIS 10307)......................... 40

Kolb v .Ohio, No. C 87-1314 (N.D. Ohio July 10,
1989) ( 1989 U.S. Dist LEXIS 10489)................. ... 35

Lockhart v. Sullivan, 720 F. Supp. 699
(N.D. 111. 1989)....................................... 41

Lytle v. Household Mfg., Inc., 109 S. Ct. 3239
(1989)..........................................  38

(iv)



Cases Page
Mackey v. Nationwide Ins. Co., 724 F .2d

419 (4th Cir. 1984)...................................  31
Malhotra v. Cotter S> Co. , 885 F.2d 1305

( 7th Cir . 1989)........................................ 21
Martin v. New York State Dep't of Mental

Hygiene, 588 F.2d 371 (2d Cir. 1978).................  33
Mathis v. Boeing Military Airplane Co., 719 F. Supp.

991 (D. Kan. 1989)....................................  35
Matthews v. Northern Telecom, Inc., No. 88 Civ.

0583 (S.D.N.Y. Nov. 1, 1989)(1989 U.S. Dist.
LEXIS 12926)...........................................  35

McGinnis v. Ingram Eguipment Co., 888 F .2d
109 (11th Cir . 1989)..................................  43

Morgan v. Kansas City Area Transp. Auth.,
720 F. Supp. 758 (W.D. Mo. 1989).....................  39, 43

Moviecolor Ltd, v. Eastman Kodak Co., 288 F .2d
80 (2d Cir.), cert, denied, 368 U.S. 821 (1961).....  41, 42

Overby v. Chevron USA, Inc., 884 F.2d 470 (9th
Cir. 1989).............................................  35

Padilla v. United Air Lines, 716 F. Supp. 485
(D. Colo. 1989)........................................ 36

Patterson v. McLean Credit Union, 109 S. Ct. 2363
(4th Cir. 1989)........................................ passim

Phelps v. The Wichita Eagle-Beacon, 886 F .2d 1262
(10th Cir . 1989)....................................... 27

Prather v. Dayton Power & Light Co., No. C-3-85-491 
(S.D. Ohio Sept. 7, 1989)(1989 U.S. Dist. LEXIS
10756).................................................  35 , 41 , 43

Rick Nolan's Auto Body Shop, Inc, v. Allstate
Ins. Co., 718 F. Supp. 721 (N.D. 111. 1989).........  21, 22, 39

(v)



Cases Page

Seguros Banvenez, S.A. v. S/S Oliver Drescher,
761 F . 2d 855 (2d Cir . 1985)........................... 29

Sofferin v. American Airlines, Inc., 717 F.
Supp. 597 (N.D. 111. 1989)............................ 21, 22

The Dartmouth Review v. Dartmouth College,
No. 89-1466 (1st Cir. Nov. 9, 1989)(1989
U.S. App. LEXIS 16928)................................  27, 41, 42

Thomas v. Beech Aircraft Corp., No. 78-4338
(D. Kan. Sept. 25, 1989)(1989 U.S. Dist. LEXIS
11284).................................................  43

Thompson v. Johnson & Johnson Management 
Information Center, No. 86-319 (CSF)
(D.N.J. Nov. 20, 1989)(1989 U.S.
Dist. LEXIS 14223)....................................  42

United States v. Van Diviner, 822 F .2d 960
(10th Cir . 1987)......................................  29

Vance v. Southern Bell Tel, and Tel. Co., 863 F.2d
1503 ( 11th Cir. 1989).................................  36

Warde v. Kaiser, 887 F.2d 97 (6th Cir.
1989)..................................................  29, 41

Williams v. Nat'1 R.R. Passenger Corp.,
716 F. Supp. 49 (D.D.C. 1989)........................  21, 22, 35,

43
OTHER AUTHORITIES
42 U. S. C. §1981 ( 1983)................................  11
3 J. Moore, Moore's Federal Practice 1f 15.11

(2d ed. 1989)..........................................  41
Restatement (Second) of Agency §320 ( 1958).............  28

§363 ( 1958).............  29
§373 ( 1958).............  29

(vi)



IN THE
UNITED STATES COURT OF APPEALS 

FOR THE SECOND CIRCUIT

EDWARD F. GONZALEZ, ANA T. GONZALEZ 
AND A.T.G. AGENCY, INC.,

Plaintiffs-Appellants,
-against-

THE HOME INSURANCE COMPANY,
THE HOME INDEMNITY COMPANY,
THE HOME INSURANCE COMPANY OF INDIANA 
AND CITY INSURANCE COMPANY,

Defendants-Appellees.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT 
FOR THE SOUTHERN DISTRICT OF NEW YORK

BRIEF OF DEFENDANTS-APPELLEES

PRELIMINARY STATEMENT
Defendants-Appellees The Home Insurance Company, The 

Home Indemnity Company, The Home Insurance Company of Indiana 
and City Insurance Company (hereinafter collectively "The 
Home"), submit this brief in opposition to the brief of 
Plaintiffs-Appellants Edward F. Gonzalez, Ana T. Gonzalez and
A.T.G. Agency Inc. (hereinafter collectively "Appellants" or 
"Gonzalez") who appeal from a Final Judgment entered on August 
2, 1989, upon the District Court's Memorandum and Order dated



July 31, 1989 (Cannella, J.), which granted The Home's motion 
pursuant to Rule 12(c) of the Federal Rules of Civil Procedure 
to dismiss Appellants' claim under Title 42 United States Code, 
Section 1981 ("Section 1981"), and thereupon dismissed the 
Complaint in its entirety. See Joint Appendix, filed November
13, 1989 (hereinafter "J.A. at ____ "), at A424. By its
Memorandum and Order, the District Court concluded, based upon 
the Supreme Court's recent decision in Patterson v. McLean 
Credit Union, 109 S. Ct. 2363 (1989)("Patterson"), that none of 
the claims of discriminatory conduct by The Home alleged in the 
Complaint implicated an abridgement of any right of Appellants 
protected by Section 1981, and that The Home was therefore 
entitled to judgment as a matter of law.

STATEMENT OF ISSUE PRESENTED
Whether the District Court correctly determined that 

Gonzalez failed to state a claim for relief under Section 1981, 
which prohibits discrimination only in the making and enforcing 
of contracts, where the Complaint alleged only that The Home 
treated Gonzalez's agency differently than other agencies 
during the course of the agency relationship and terminated the 
agency relationship, all on the basis of his race.

STATEMENT OF THE CASE
While much of the factual matters raised by Appellants 

in their brief on appeal go beyond the pleadings and therefore 
are without bearing on the issues presented by this appeal. The

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Home nevertheless responds to those matters to the extent they 
unfairly describe the record below.
A. Background

This action arises out of the termination of 
Appellants eighteen-month agency relationship with The Home.
By way of background, on or about December 28, 1982, Gonzalez 
and The Home entered into a standard form Agency Agreement 
pursuant to which Gonzalez was to act as property/casualty 
insurance agent for The Home. J.A. at A4. The standard Agency 
Agreement between Gonzalez and The Home established the 
contractual terms which governed the parties' respective 
rights, duties and obligations. Paragraph I of the Agency 
Agreement provided that "The Agent is an independent contractor 
and not an employee of the Company." That paragraph also 
provided that the Agent is authorized to receive and accept 
proposals "covering such classes of risks as the Company may 
from time to time authorize" and that the Agent is "subject to 
such restrictions on binding authority as may be established by 
the Company." Paragraph III further provided that the agent 
would receive commissions, in accordance with a Schedule of 
Commissions agreed to between the agent and The Home, "as full 
compensation on business placed with the Company pursuant to 
authority granted under Section I." Paragraph VII of the 
Agreement provided that “This Agreement shall terminate:

-3-



. . . (3)[u]pon either party giving ninety (90) days' written
notice to the other."

The standard Agency Agreement had signature lines for 
all four appellees, but only The Home Insurance Company and The 
Home Indemnity Company signed the Agreement as of December 28, 
1982. By addendum to the standard Agency Agreement, effective 
October 21, 1983, the two other appellees, The Home Insurance 
Company of Indiana and City Insurance Company were formally 
added as signatories to the Agreement. Contrary to Gonzalez's 
assertions in his brief on appeal, the addendum included no 
other terms or provisions, nor did it expressly incorpprate the 
terms of the standard Agency Agreement.1

In total, Gonzalez acted as property/casualty agent 
for The Home, pursuant to the standard Agency Agreement, for 
approximately 20 months. The Complaint alleges that after the 
first nine months of this relationship —  beginning in 
September of 1983 —  The Home began to impose discriminatory 
conditions upon Gonzalez and made it difficult for him to 
succeed. Contrary to Gonzalez's suggestions in his statement 
of the case, the record established plainly that, during that 
period of time, The Home made every effort to work with

1 Copies of the Agreement and the Addendum To Agency
Agreement are annexed as Exhibits D and E respectively, 
to the affidavit of Kim Sperduto, sworn to January 21, 
1988, submitted in support of The Home's motion before 
the District Court and included as part of the record on 
appeal.

-4-



Gonzalez and to assist him to write business which conformed 
with the established uniform underwriting guidelines and 
marketing objectives of The Home. See, e .g ., J.A. at A37, A49 
and A61. Indeed, despite special efforts by The Home —  
including specialized training and formal rehabilitation 
efforts implemented after the agency relationship was 
established and during the course of the agency relationship 
Gonzalez never demonstrated an ability to meet even minimum 
performance levels established for all agents of The Home. See 
id.

In light of Gonzalez's demonstrably poor record of 
performance over that period of time, on or about August 15, 
1984, The Home —  in accordance with the terms and provisions 
of the standard Agency Agreement —  provided Gonzalez’ 90 days’ 
written notice that the standard Agency Agreement would be 
terminated. J.A. at A 8 . The agency relationship ended on 
November 15, 1984. See id.
B . Nature of the Action

The gravamen of the Complaint is that The Home 
breached the terms of the standard Agency Agreement and 
terminated the Agreement solely because of race. In 
particular, Gonzalez contends, inter alia, that approximately 
nine months after the parties entered into the standard Agency 
Agreement, The Home began to frustrate his ability to perform 
under the Agreement and prevented him from earning commissions

-5-



under the Agreement by, inter alia, refusing to write policies
proposed by Gonzalez that it would normally write for 
non-minority agencies; cancelling policies that it did not 
normally cancel when proposed by non-minority agencies; failing 
to cooperate with Gonzalez in the same manner as it did with 
non-minority agencies; and placing discriminatory conditions 
and restrictions on Gonzalez's agency not imposed on other 
non-minority agencies. J.A. at A2. Gonzalez maintained 
throughout the course of the proceedings before the District 
Court that such conduct was actionable under Section 1981.
See, e . q ■ , J.A.- at A176, A252 and A414.
C . The Proceedings Below

The parties engaged in approximately two and one-half 
years of discovery all directed at the single theory alleged by 
Gonzalez in the Complaint —  that during the course of the 
agency relationship, his agency was treated differently than 
other non-minority agencies solely on the basis of his race.
On January 11, 1988, after the close of all discovery, The Home 
moved for judgment on the pleadings or, in the alternative, for 
summary judgment. J.A. at A28.

On June 15, 1989, during the pendency of The Home's 
motion, the United States Supreme Court decided Patterson. By 
letter dated June 27, 1989, The Home advised Judge Cannella of 
the Patterson decision and of its view that Patterson was 
dispositive of Gonzalez's sole federal claim in this action.

-6-



J .A . at A362. Thereafter, at Judge Cannella's direction, the 
parties were afforded the opportunity to make further 
submissions addressed to the legal sufficiency of the Complaint 
in light of Patterson. J.A. at A414-21.
D . The District Court's Decision

By Memorandum and Order dated July 28, 1989, the 
District Court granted The Home's motion for judgment, on the 
pleadings and dismissed Appellants' sole federal claim, with 
prejudice, dismissed the remaining state law claims without 
prejudice, and thereupon dismissed the Complaint in its 
entirety. J.A. at A424. Specifically, the District Court 
concluded, based upon the plain language of Section 1981 and 
the clear teaching of Patterson, that Section 1981 prohibits

t

discriminatory conduct only in the making and enforcement of 
contracts. J.A. at A427-28. The District Court further 
determined that Appellants' claim that the The Home treated 
them differently than other non-minority agencies solely on 
the basis of their race, was limited to alleged discriminatory 
treatment by The Home after the formation of the contract 
relationship with them and during the course of the agency 
relationship, and in connection with the termination of the 
agency relationship. J.A. at A429-30. Inasmuch as such 
allegations clearly did not implicate an impairment of the 
rights of Appellants either to make or enforce a contract with 
The Home, the District Court concluded that such claims were 
not actionable under Section 1981 as a matter of law. See id.

-7-



Gonzalez appealed the District Court's decision on 
August 25, 1989. J.A. at A438. On appeal, Appellants now 
attempt to reformulate the claims of racial discrimination 
originally alleged in the Complaint in a transparent attempt to 
avoid the consequences of Patterson. In that connection, 
Gonzalez now advances the following theories of the case:

First, that the Addendum to the standard Agency 
Agreement which added The Home Insurance Company of Indiana and 
City Insurance Company as parties to the standard Agency 
Agreement, constituted a "new and distinct" contract which was 
entered into on discriminatory grounds and therefore provides a 
basis for a claim of discrimination in the "making" of 
contracts with these two later-added parties. See Brief, of 
Plaintiffs-Appellants, dated November 13, 1989 ("Appellants 
br."), at 11-12. Second, that the standard Agency Agreement 
itself was entered into on discriminatory grounds. Appellants 
br. at 12-15. Third, that by refusing to write policies of 
insurance with third parties proposed by Gonzalez on the basis 
of race. The Home impaired Gonzalez's right to make a contract 
with The Home on non-discriminatory grounds. Appellants br. at 
18-23. Fourth, that The Home's decision to terminate the 
agency relationship was a refusal to "re-contract" on 
discriminatory grounds. Appellants br. at 24-30. None of 
these theories is presented in the Complaint, and none of them 
supports reversal of the decision below.

-8-



SUMMARY OF ARGUMENT
The District Court was entirely correct in concluding 

that the allegations of racially-motivated disparate treatment 
alleged in the Complaint all arose out of and related to the 
performance and termination of the established agency 
relationship and not the right of Appellants to make or enforce 
contracts with The Home. See Point IA, infra.

The Complaint does not allege, and the 
incontrovertible facts demonstrate that Gonzalez cannot show, 
that the addition of two parties as signatories to the standard 
Agency Agreement during the course of the agency relationship 
impaired Gonzalez's right to make contracts on 
non-discriminatory terms. Moreover, Gonzalez has not alleged 
and cannot show that the decision to add affiliated entities of 
The Home to the standard Agency Agreement constituted a "new 
and distinct" agency relationship within the meaning of 
Patterson. See Point IB(1), infra.

Gonzalez's reliance upon allegations of discriminatory 
conduct by The Home in the performance of the standard Agency 
Agreement is unavailing. Patterson makes clear that 
post-formation conduct may not be relied upon to establish that 
a contract containing non-discriminatory terms was formed on 
discriminatory grounds. See Point IB(2), infra.

-9-



Gonzalez has not alleged and cannot demonstrate that a 
refusal by The Home to contract with third parties proposed by 
Gonzalez impaired any right of Gonzalez protected by Section 
1981. Moreover, Gonzalez lacks standing to assert claims, if 
any, that these third parties might have as a result of The 
Home's refusal to contract with them. See Point IB(3), infra■ 

The District Court correctly determined, consistent 
with the clear weight of authority, that the reasoning of 
Patterson extends to bar Gonzalez's claims of racially-based 
contract termination. Gonzalez cannot overcome this result by 
characterizing his termination as a refusal to make a new 
contract, as such an argument is disingenuous as a matter of 
fact and specious as a matter of law. See Point IC, infra■

Finally, Gonzalez has presented no persuasive reasons 
for continuing with the litigation of this claim in the federal 
court. His request for further discovery and/or to amend his 
Complaint is untimely and would be fruitless. See Point IIA, 
infra. Moreover, Gonzalez has failed to establish any basis 
for denying the retroactive application that all case law 
merits. See Point IIB, infra.

-10-



ARGUMENT
POINT I

THE DISTRICT COURT CORRECTLY CONCLUDED THAT 
THE COMPLAINT FAILED AS A MATTER OF LAW TO 
STATE A CLAIM FOR RELIEF UNDER SECTION 1981

A. The District Court Correctly Concluded That The 
Complaint Asserted Discriminatory Conduct By The 
Home Solely In Connection With Activities Which 
Occurred After The Formation And Execution Of 
Gonzalez's Contract, And Therefore Failed To State 
A Claim Under Section 1981._________________________

In Patterson v. McLean Credit Union, the Supreme Court 
directly considered the application of Section 1981's language 
prohibiting discrimination in the "making and enforcing" of 
contracts to claims involving private contract relations.2 
The Supreme Court concluded that while Section 1981 applies to 
private contracts, claims of discrimination in connection with 
the performance of an established contract are not actionable 
under Section 1981 as a matter of law. As the present case 
concerns solely the charge of such discriminatory "harassment" 
during the performance of a contract, the District Court 
correctly dismissed the Complaint.

Patterson involved a suit by a former employee arising 
out of the termination of her employment. Plaintiff alleged

Section 1981 provides as follows: "All persons within
the jurisdiction of the United States shall have the same 
right in every State and Territory to make and enforce 
contracts, to sue, be parties, give evidence, and to the 
full and equal benefit of all laws and proceedings for 
the security of persons and property as is enjoyed by 
white citizens, and shall be subject to like punishment, 
pains, penalties, taxes, licenses, and exactions of every 
kind, and to no other."

-11-



that her employer had harrassed her, failed to promote her and
terminated her employment because of race. Plaintiff
maintained, inter alia, that such action constituted a
violation of Section 1981.

The Supreme Court rejected plaintiff's contentions.
Emphasizing that the language of Section 1981, by its express
terms, afforded specifically equal rights to "make and enforce"
contracts, the Court reasoned that Section 1981 does not extend
as a matter of law or logic to discrimination in all aspects of
contract relations. In particular, the Court concluded that
the first right —  the right to make contracts —  extends only
to discrimination in the initial formation of a contract and
not to post-formation conduct interfering with the performance
of established contract rights:

The first of these protections extends only to 
the formation of a contract, but not to problems 
that may arise later from the conditions of 
continuing employment. The statute prohibits, 
when based on race, the refusal to enter into a 
contract with someone, as well as the offer to 
make a contract only on discriminatory terms.
But the right to make contracts does not extend, 
as a matter of either logic or semantics, to 
conduct by the employer after the contract 
relation has been established, including breach 
of the terms of the contract or imposition of 
discriminatory working conditions. Such 
post-formation conduct does not involve the right 
to make a contract, but rather implicates the 
performance of established contract obligations 
and the conditions of continuing 
employment. . . .

109 S. Ct. at 2373. As to the second right guaranteed under 
Section 1981 —  the right to enforce contracts —  the Court

-12-



held that Section 1981 prohibits public and private efforts to
impede, because of race, the ability to enforce through legal
means, established contract rights:

. . , [Section 1981] prohibits discrimination
that infects the legal process in ways that 
prevent one from enforcing contract rights, by 
reason of his or her race. . . .  It also covers 
wholly private efforts to impede access to the 
courts or obstruct nonjudicial methods of 
adjudicating disputes about the force of binding 
obligations . . . .  The right to enforce 
contracts does not, however, extend beyond 
conduct of an employer which impairs an 
employee's ability to enforce through legal 
process his or her established contract rights.

109 S. Ct. at 2373 (emphasis in original).
Because none of plaintiff's allegations in Patterson

relating to the conditions of her employment implicated an
abridgement of either of these two specific rights, 1.e ., a
refusal to make a contract with her or the impairment of her
ability to enforce one, but rather related only to the
conditions of her continuing employment, the Court in Patterson
concluded that these claims were not actionable under Section
1981 .

The pleadings and pretrial of this action make clear 
that Gonzalez's claims of discrimination are all grounded upon 
a single theory: that The Home treated Gonzalez unfairly during 
the course of the performance of the Agency Agreement, indeed 
breached the terms of the standard Agency Agreement, solely on 
the basis of his race. As the District Court correctly

-13-



concluded, the decision in Patterson is therefore dispositive 
of Gonzalez's claims of discrimination against The Home. In 
particular, none of Gonzalez's allegations in this action 
involve either a refusal by The Home to enter into a contract 
with Gonzalez on racially neutral grounds or the impairment of 
Gonzalez's ability to enforce his established contract rights. 
To the contrary, Gonzalez's allegations all arise out of and 
relate to the alleged frustration of his ability to perform 
under the standard Agency Agreement and The Home's alleged 
breach of the terms of that Agreement.

Specifically, the Complaint alleges 21 categories of 
discriminatory conduct allegedly engaged in by The Home well 
after Gonzalez contracted to act as a property/casualty agent 
and during the course of the agency relationship. These 
include, for example:

B. By rejecting, and refusing to write policies 
of insurance for ATG in types of coverage 
that it was in the business of writing, and did write;

* * *
E. By requiring ATG to obtain its permission 

prior to issuing binders when it did not 
have such a requirement for its white 
agents;

*  *  *

L. By taking more time to give or deny
permission on a policy submitted by ATG than 
it did with its white agents;

★  *  *

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R. By not providing ATG with the same support 
and assistance that it provided to its white 
agents;

S. By not cooperating with ATG in the same 
manner that it gave to its white agents;

T. By imposing requirements for premiums that 
it did not impose on its white agents;

J .A . at A8-10. Each alleged instance of discrimination relates
to the performance of the contract, certainly not to its
"making'1 .

That Appellants' claims of discriminatory treatment
are all grounded on allegations of post-formation conduct is
also apparent from the fact that they repeatedly said so
throughout the course of the proceedings before the District
Court prior to Patterson. For example, Appellants' advised the
District Court that "[dlurinq the course of the Agency
relationship. The Home treated [plaintiffs] differently than
its other primarily [w]hite agents on the basis of plaintiffs'
Hispanic alienage . . . J.A. at A254. (emphasis added).
In further describing the nature of the claims asserted against
The Home, Appellants stated:

Plaintiffs' claims all stem from the defendants' 
refusal to deal fairly with plaintiffs after the 
Home contracted with plaintiffs to sell insurance 
for them.

J.A. at A258. (emphasis added). And yet again. Appellants 
declared:

the essence of plaintiffs' complaint is that 
defendants failed to carry out their contract

-15-



with plaintiffs in a manner consistent with their 
procedures as applied to other agents who are 
overwhelmingly white.

J.A. at A261. (emphasis added).
In short, Appellants' allegations of discriminatory

treatment in their Complaint all arise out of and relate to The
Home's alleged conduct in frustrating Gonzalez's ability to
perform under the standard Agency Agreement and not to any
refusal by The Home to enter into a contract with him on non-
discriminatory terms. As the Supreme Court held in Patterson,
and as the District Court recognized here, such claims clearly
are not actionable under Section 1981.
B Appellants' Claims Of Discrimination By 

The Home In The "Making" Of Contracts 
With Them Are Entirely Without Merit.__

Ignoring the allegations in the Complaint and 
completely avoiding the position repeatedly taken by them 
below, Appellants now attempt to claim that the Complaint 
states a claim of discrimination against The Home in the 
"making" of a contract in the following respects: (l) the 
execution of the Addendum to the standard Agency Agreement to 
add parties to the Agreement during the course of the Agency 
relationship constitutes a refusal to make a contract on 
non-discriminatory grounds; (2) the standard Agency Agreement 
between the parties itself was formed on discriminatory 
grounds; and (3) The Home's refusal to issue insurance policies 
to third parties, in furtherance of its discrimination against

-16-



Gonzalez, impaired Gonzalez's right to make contracts. Each of 
these arguments is addressed in turn.

As a preliminary matter, as Patterson makes clear, 
Section 1981's prohibition against discrimination in the 
"making" of contracts covers only discrimination "at the time 
of the formation of the contract." 109 S. Ct. at 2377 
(emphasis in original). In that regard, the Supreme Court 
stressed that Section 1981 prohibits, when based on race, 
either the refusal to enter into a contract or the offer to 
make a contract on discriminatory terms. 109 S. Ct. at 2376.
A party claiming that he has been refused an offer to contract 
on racially neutral grounds, must plead and prove that the 
contract offered contained explicit discriminatory terms and 
that the disparity of terms is the result of racial animus.3

1. The execution of the Addendum, adding
two parties to the Agency Agreement, does 
not amount to discrimination in the 
making of contracts because the Addendum 
was not discriminatory in nature and did 
not create a new and distinct relation.

Apparently recognizing that the discriminatory conduct 
alleged in the Complaint occurred well after the formation of 
the Agency Agreement, Gonzalez seizes on a technical amendment 
to that Agreement, the sole purpose of which was to formalize

3 As an example of a contract entered into on explicit 
discriminatory terms, the Supreme Court in Patterson 
referred to the situation where a potential employee is 
offered a contract to do a job for less money than others 
doing like work. 109 S. Ct. at 2376.

-17-



the participation of two Home Insurance subsidiaries in the 
Agency Agreement. While these entities were originally listed 
as signatories on the standard Agency Agreement, their actual 
signatures were not obtained until the Addendum was executed. 
Gonzalez argues that because at the time the Addendum was 
signed, The Home had imposed discriminatory conditions upon 
Gonzalez, this Addendum should be regarded as a contract 
offered on discriminatory terms and therefore actionable under
Section 1981. Appellants br. at 11-12.

Gonzalez's newly conceived argument fails for two 
principal reasons -- there was nothing discriminatory about the 
Addendum, and it cannot realistically be considered as the 
"making" of a new contract. First and most importantly,
Gonzalez has not alleged and cannot show that the Addendum was 
offered or formed in a racially discriminatory manner. In that 
regard, notwithstanding Gonzalez's glib contentions in his brief 
on appeal, the Complaint nowhere alleges and Gonzalez cannot as 
a matter of fact demonstrate that at the time of execution, the 
addendum included explicit disparate terms. To the contrary, 
the Addendum (the details of which Gonzalez avoids) on its face 
makes clear that it simply provided for the formal addition of

-18-



two signatories' to the established standard Agency Agreement and 
contained no other "terms" or "provisions."4

There is no allegation, nor could there be, that the 
terms of the Addendum were discriminatory, or that the Addendum 
was offered on different terms (or not offered at all) to white 
agents, or that there was any discriminatory motive or effect 
in connection with this Addendum. Plainly and simply, the 
Addendum was a technical amendment to the standard Agency 
Agreement and has nothing whatsoever to do with rights 
protected under Section 1981 to make or enforce contracts on 
non-discriminatory terms.

Nor is Gonzalez's argument aided by the premise, 
entirely unsupported by fact, that the Addendum incorporated 
the terms of the existing standard Agency Agreement. First, 
the Addendum by its terms incorporates nothing whatsoever; it 
merely adds new signatories to an existing agreement. But 
second, even if existing terms of the standard Agency Agreement 
were incorporated, Gonzalez does not identify —  either in his 
Complaint or anywhere else —  the terms and provisions of the

4 The Addendum, contained in the record (see fn.l, supra), 
provides in toto as follows:

ADDENDUM TO AGENCY AGREEMENT
Effective October 21, 1983, it is agreed between 
the parties that the Agency Agreement between 
The Home Insurance Company and ATG Agency, Inc. 
is amended to include The Home Insurance Company 
of Indiana and City Insurance Company.

-19-



standard Agency Agreement that are allegedly discriminatory.
To the contrary, the Agency Agreement was a standard Agency 
Agreement that included standard terms and provisions that 
governed all agency relationships with The Home. The litany of 
discriminatory claims referred to in Gonzalez's brief on 
appeal, see Appellants br. at 12, were not "terms" offered at 
the initial formation of any contract between Gonzalez and The 
Home, but rather charges of post-formation conditions and 
restrictions allegedly placed on Gonzalez's agency during the 
course of the agency relationship which Gonzalez alleges 
hampered his ability to perform under the standard Agency 
Agreement. These are simply allegations of harassment which 
Gonzalez himself regards as breaches of the terms of the 
standard agency contract.

The Addendum cannot serve as the basis for a distinct 
Section 1981 claim for another reason as well -- it relates to 
the continuation of an existing relationship and does not 
constitute such a change of status as would amount to the 
making of a new contract. As the Supreme Court in Patterso_n 
stated, whether a change in the status of an established 
contract relationship gives rise to a separate claim under 
Section 1981 "depends upon whether the nature of the change in 
position was such that it involved the opportunity to enter 
into a new contract. . . . "  109 S. Ct. at 2377. The Court
cautioned, however, that "[i]n making this determination, a

-20-



lower court should give a fair and natural reading to the 
statutory phrase 'the same right . . .  to make . . .
contracts,' and should not strain in an undue manner the 
language of § 1981. Only where the [change] rises to the 
level of an opportunity for a new and distinct relation . . .
is such a claim actionable under § 1981. Cf■ Hishon v. King & 
Spaulding, 467 U.S. 69 (1984)(refusal of law firm to accept 
associate into partnership). . . ." Id.

Consistent with Patterson, those courts which have 
construed Patterson's "new and distinct" relation language, 
have interpreted it to require a party to show, inter alia, 
that the change altered the status of the established 
relationship. See, e .g ., Becton v. Burlington Northern R.R., 
878 F .2d 1436 (6th Cir. 1989); Malhotra v. Cotter & Co., 885 
F .2d 1305 (7th Cir. 1989); Rick Nolan's Auto Body Shop, Inc, v. 
Allstate Ins■ Co., 718 F. Supp. 721 (N.D. 111. 1989); Gersman 
v. Group Health Ass'n, No. 88-1820 (D.D.C. Nov. 13, 1989)(1989 
U.S. Dist. LEXIS 13449); Dicker v. Allstate Life Ins. Co., No. 
89 C 4982 (N.D. 111. Oct. 19, 1989)(1989 U.S. Dist. LEXIS 
12482); Sofferin v. American Airlines, Inc., 717 F. Supp. 59 
(N.D. 111. 1989); Williams v. Nat'1 R.R. Passenger Corp., 716 
F. Supp. 49 (D.D.C. 1989). Thus, in Sofferin v. American 
Airlines, Inc■, 717 F. Supp. 597 (N.D. 111. 1989), the court 
rejected a claim that the discriminatory failure to "promote" a 
probationary employee to tenured status constituted

-21-



discrimination in the "making" of a contract where if 
plaintiff had 'successfully' completed his probationary period, 
he would have continued performing the very same functions he 
performed as a co-pilot while on probation." 717 F .2d at 599.
See also Rick Nolan's Auto Body Shop,_Inc, v. Allstate Ins^
Co., supra (reinstatement to the identical employment 
relationship, with the same rights, duties and obligations of 
the old agreement, is not a new and distinct relation covered 
by Section 1981); Williams v. Nat' 1 R.R. Passenger Corp.._, suPr§ 
(increase in pay insufficient alteration of contract terms to 
constitute "new and distinct" relationship).

The Addendum to include The Home Insurance Company of 
Indiana and City Insurance Company as nominal parties to the 
existing standard Agency Agreement does not represent a "new 
and distinct" relationship within the meaning of Patterson and 
nothing in the Complaint suggests that the Addendum effected 
any meaningful change in the relationship. The mere fact that 
Gonzalez technically became an agent for two more affiliated 
entities of The Home is, without more, insufficient to 
establish the kind of change of relationship between 
contracting parties which the Supreme Court in Patterson 
indicated would be actionable under Section 1981. See Gersman 
v. Group Health Ass'n, Slip op. at 3 (Patterson "requireCs] 
more than merely a formal change in the relationship between 
the Parties premised on state contract law.")

-22-



2. Gonzalez's claim that post-formation conduct 
may establish pre-formation discrimination 
stems from a misreading of Patterson and 
cannot support the claim here at issue._____

Prior to the decision in Patterson, the Appellants had 
never alleged that The Home had discriminated against them in 
connection with the formation of the standard Agency Agreement. 
In light of the requirements of Patterson, however, Appellants 
now must contrive some basis for alleging pre-formation 
discrimination where none was alleged and none existed. 
Appellants thus resort to an argument that the alleged post­
formation discrimination against Gonzalez, which the Complaint 
states began nine months after the standard Agency Agreement 
was formed, is evidence of pre-formation discrimination. This 
claim is not only illogical, it is also precluded by Patterson.

In Patterson, the Supreme Court directly addressed the 
extent to which a party claiming discrimination in the making 
of contracts could rely upon post-formation conduct. The 
Supreme Court expressly held that, although certain 
post-formation conduct could be used to prove that a disparity 
of terms in a contract was racially motivated, a party could 
not rely upon such conduct, no matter how severe or pervasive, 
to establish that a contract —  which otherwise contained 
non-discriminatory terms —  was entered into on discriminatory 
grounds:

The fact that racial harassment is 'severe or
pervasive' does not by magic transform a

-23-



challenge to the conditions of employment, not 
actionable under § 1981, into a viable challenge 
to the’employer's refusal to make a contract.
We agree that racial harassment may be used as 
evidence that a divergence in the explicit terms 
of particular contracts is explained by racial^ 
animus. ■ ■ • The plaintiff’s ability to plead
that the racial harassment is severe or 
pervasive' should not allow him to bootstrap a 
challenge to the conditions of employment . . •
into a claim under § 1981 that the employer_ 
refused to offer the petitioner the 'same right 
to . . • make' a contract.

109 S. Ct. at 2376-77. (emphasis added). Gonzalez's claim
here is precisely the kind of attempt, condemned by Patterson, 
to bootstrap a claim of discriminatory harassment into a claim 
that he was denied the same right to "make" a contract
guaranteed by Section 1981.

In rejecting similar contentions as Gonzalez raises
here, i.e., that post-formation discrimination is evidence of
The Home's intent to contract on discriminatory terms, the
court in Dangerfield v. Mission Press, 50 Fair Empl. Prac. Cas
(BNA) 1171, 1173 (N.D. 111. July 27, 1989) reasoned:

Plaintiffs' second argument is that defendant, 
by its post-formation conduct, revealed its 
intent to contract with plaintiffs "only on 
discriminatory terms." Id. at 2372. The 
violation, in other words, is not the 
post-formation conduct, but rather the 
pre-formation decision by defendant to contract 
only on discriminatory terms —  such terms to be 
manifested post-formation. This argument is 
also without merit. The problem is that it 
proves too much. If a plaintiff can rely on 
post-formation conduct to show the employer s 
state of mind at the time of contracting, and 
thereby sue under § 1981, then Patterson is

-24-



essentially a nullity. In every suit, a 
plaintiff could allege that the employer 
intended all along to discriminate based on race 
and that the post-formation conduct is proof of 
the unspoken intend. Section 1981 would in that 
case be used to expose the exact same conduct as 
Patterson disallows, except that the guestion 
would be whether the subsequent conduct 
established a discriminatory state of mind at 
the time of contracting. Plaintiff, in other 
words, could accomplish indirectly what 
Patterson directly prohibits. The result in 
Patterson cannot be so easily avoided.5
The Complaint here at issue alleges that The Home

began discriminating against Appellants nine months after the
parties signed an Agency Agreement. To use this as evidence
that The Home discriminated in the "making" of the Agency
Agreement would be intellectually unsupportable and would make
a mockery of Patterson.

5 Gonzalez's reliance upon English v. General Development 
Corporation, 717 F. Supp. 628 (N.D. 111. 1989), is
entirely misplaced. English cannot be read, as Gonzalez 
suggests, to "endorse" the view that post-formation 
conduct may be relied upon to establish discrimination in 
the making of a contract otherwise containing 
non-discriminatory provisions. To the contrary, the 
English Court merely suggested, without deciding, that 
the particular plaintiff in English who had alleged in 
the complaint that her employment contract contained 
discriminatory terms, might be able to rely upon certain 
post-formation conduct to establish that the 
discriminatory terms of her contract were solely because 
of her race. Such is clearly not the case here.

-25-



3. Gonzalez's claim that The Home refused 
to enter into insurance contracts with_ 
third parties is irrelevant under Section 
1981 as it does not relate to Gonzalez s 
right to contract.____________________— ---

If Gonzalez were engaged as an employee or agent of 
The Home to supply it with goods or manufacture products for 
it, there would be no question that the alleged harassment of 
Gonzalez in the course of that work would not be actionable 
under Section 1981. However, since Gonzalez is an agent whose 
job is to arrange contracts, i ^ ,  insurance policies, between 
The Home and others, Gonzalez suggests that Section 1981 
protects him against discriminatory harrassment because he 
allegedly was discriminated against in connection with the 
"making" of these contracts. But, however he characterizes his 
Complaint, Gonzalez is alleging discriminatory harassment which 
Patterson holds is not actionable under Section 1981; Gonzalez 
has no greater rights under Section 1981 than other employees 
or agents simply because of the fortuity that he arranges 
insurance contracts, rather than supplies goods.

Gonzalez's claim that The Home's refusal to write 
insurance for his clients violates Section 1981 takes several 
forms, but each one founders on the same principle —  where a 
plaintiff claims that he was the subject of race-based 
discrimination, plaintiff must plead and prove, inter alia, 
that he was deprived of an interest protected by Section 1981. 
See Albert v. Carovano, 851 F .2d 561 (2d Cir. 1988); see also 
Gersman v. Group Health Ass'n, Inc., No. 88-1820 (D.D.C. Nov.

-26-



13, 1989) (1989 U.S. Dist. LEXIS 13449) (plaintiff failed to 
allege that race-based discrimination directed at another 
resulted in an impairment of any right of his redressable under 
Section 1981 and plaintiff lacked standing to assert the claims 
of discrimination in the making of contracts with injured party 
regardless of the nature or relationship between them.) This 
is so, whether plaintiff claims that the discrimination was 
based upon his race or the race of another. See, e ■q ., The 
Dartmouth Review v. Dartmouth College, No. 89-1466 (1st Cir. 
Nov. 9, 1989)(1989 U.S. App. LEXIS 16928); Phelps v. The 
Wichita Eagle-Beacon, 886 F.2d 1262 (10th Cir.,
1989)(Non-minority plaintiff's claim that he was discriminated 
against because of his association with minorities failed to 
state a claim under Section 1981 where he had not alleged that 
he was deprived of an interest protected by Section 1981.) 
Because Gonzalez has not and cannot allege that his own rights 
under section 1981 were abridged as a result of The Home's 
alleged refusal to enter into third party contracts, and 
because Gonzalez lacks standing to assert such claims, if any, 
on behalf of these third parties, Gonzalez cannot succeed on 
his Section 1981 claim as a matter of law.

As noted, Gonzalez advances several arguments in 
support of his claim that the refusal by The Home to contract 
with third parties impaired his right to make a contract with 
The Home on non-discriminatory grounds. First, Gonzalez claims

-27-



that as the insurance agent, he should be considered a party to 
the insurance contract between The Home and a proposed insured, 
and therefore. The Home's refusal to enter into such contracts 
impaired his right to make contracts. Second, Gonzalez 
suggests that he need not actually be a party to such a 
contract in order to maintain a claim for discrimination, so 
long as he was "involved in a practical manner" in arranging 
the contract or he derived some economic benefits therefrom. 
Third, Gonzalez claims that he can maintain a claim under 
Section 1981 where others were discriminated against in the 
making of contracts because of their association with him.
None of these arguments has merit.

Gonzalez's claim that he would be a contracting party 
to any insurance contract between The Home and third parties 
proposed by him is plainly wrong as a matter of law.6 As the 
District Court correctly concluded, because Gonzalez was acting 
as The Home's representative agent in connection with arranging 
contracts of insurance for his client, Gonzalez would not be 
considered a contracting party as a matter of law. See 
Restatement (Second) of Agency § 320 (1950)("a person making or 
purporting to make a contract with another as agent for a 
disclosed principal does not become a party to the contract ),

Needless to say, an insurance agent is not a “  insurance policy of The Home as a matter of fact either, 
and Gonzalez could not allege otherwise.

-28-



United States v. Van Diviner, 822 F.2d 960, 963 (10th Cir.
1987); Seguros Banvenez, S.A. v. S/S Oliver Drescher, 761 F.2d 
855, 860 (2d Cir. 1985). Nor would Gonzalez enjoy any of the 
rights of a contracting party. See, e .g., Warde v. Kaiser, 887 
F .2d 97, 102 (6th Cir. 1989)(insurance agent could not sue to 
recover lost commissions from contracting insurance company or 
competing agent who allegedly interfered with insurance 
contract sold by plaintiff because plaintiff was not a party to 
the insurance contract and such contract did not operate for 
plaintiff's benefit); Frank B. Hall & Co. v. Rushmore Ins. Co., 
92 F.R.D.743, 745-46 (S.D.N.Y. 1981); Restatement (Second) of 
Agency §§ 363, 372 (1958)(An agent who makes a contract on 
behalf of a principal cannot maintain an action thereon in his 
own name unless he is a party to the contract even if he is 
entitled to a portion of the proceeds as compensation for 
making it). Because Gonzalez has not and cannot demonstrate 
that he would become a contracting party to insurance contracts 
between The Home and his clients, Gonzalez necessarily cannot 
demonstrate that The Home's refusal to enter into such 
contracts impaired his right to make contracts within the 
meaning of Section 1981.

Gonzalez next argues that he need not be in formal 
"privity" of contract in order to have standing to assert 
claims of discrimination in the "making" of such contracts 
because he was "involved in a practical manner" in arranging

-29-



t h e  c o n t r a c t  and b e c a u s e  he would be e n t i t l e d  t o  co m m issions  

from t h e s e  t h i r d  p a r t y  c o n t r a c t s .  A p p e l l a n t s  b r . a t  18-20.
But Gonzalez  o f f e r s  no a u t h o r i t y  t o  s u p p o r t  h i s  c o n t e n t i o n  t h a t  

S e c t i o n  1981 a p p l i e s  t o  p e r m i t  a g e n t s  f o r  a c o n t r a c t i n g  p a r t y  

in  G o n z a l e z ' s  p o s i t i o n  t o  sue  b a se d  upon d i s c r i m i n a t i o n  in  t h e  

making o f  c o n t r a c t s  w i t h  t h i r d  p a r t i e s .  A p p e l l a n t s  b r . a t  18.
In fact, the law is directly to the contrary. See, e^.,
Gersman v. Group Health Ass_n , supra.

Nor do the cases Gonzalez relies upon support his 
position. Those cases simply stand for the proposition that a 
plaintiff who has been injured by a defendant in connection 
with a right protected under Section 1981 need not also be in 
privity of contract with him as a predicate for invoking 
Section 1981. Otherwise, a defendant responsible for 
discriminatory conduct in violation of a specific right 
guaranteed under Section 1981 could easily avoid liability, 
thereby undermining the very purpose of the Civil Rights Laws. 
Thus, in F.raca v. Clements, 506 F .2d 956 (5th Cir.), cert, 
denied, 422 U.S. 1006 (1975), for example, the court held that 
a plaintiff who was refused a job based upon race could sue the 
person who discriminated against him although the latter was 
not the employer. Id. at 959-60. These cases establish the 
liability of a defendant who interferes with a right of a 
plaintiff guaranteed under Section 1981; the cases cannot be 
read, as Gonzalez suggests, to recognize a cause of action in

-30-



favor of a plaintiff who has not himself been deprived of 
rights under Section 1981.

Equally unavailing is Gonzalez's contention that 
because he suffered economic harm as a result of The Home's 
discriminatory refusal to write contracts of insurance with his 
clients, i.e ■, the loss of commissions, that he has standing to 
assert the claims of others under Section 1981. To the 
contrary, in the specific context of claims under Section 1981, 
it is well established that a plaintiff who himself has not 
been deprived of a right guaranteed under Section 1981 cannot 
maintain an action on behalf of a third party. See Mackey v ■ 
Nationwide Ins. Co., 724 F.2d 419 (4th Cir. 1984); Gersman v. 
Group Health Ass'n, supra.

Mackey involved a claim by a black insurance agent for 
Nationwide who claimed, inter alia, that as a result of 
Nationwide's failure to write policies of insurance proposed by 
him or to renew policies insuring houses of black friends and 
business acquaintances, he was prevented from earning 
commissions under his agency agreement. Id- at 420• Mackey 
maintained that such conduct was actionable under Section 1981. 
The Fourth Circuit affirmed the dismissal of this Section 1981 
claim. The Fourth Circuit held that while the loss of 
commissions might be a sufficient personal stake in the outcome 
of the controversy for purposes of Article III of the 
Constitution, such injury was not a deprivation of a right

-31-



redressable under Section 1981 and such economic harm was 
insufficient to confer standing to assert claims on behalf of 
those clients who were denied insurance policies. Id. at 422; 
see also Gersman v. Group Health Ass'n, supra (plaintiff, 
president and principal shareholder of corporation whose 
contract was terminated by defendant on discriminatory grounds 
lacked standing to assert such claims in the corporation s 

behalf.)7
Finally, to the extent Gonzalez now suggests that The 

Home discriminated against him because of his association with 
minority clients, such a "claim" is wholly contrived and 
entirely unsupported by the pleadings. Appellants br. at 21. 
The Complaint nowhere alleges that Gonzalez's clients were 
minorities and Gonzalez's conclusory claim in his brief on 
appeal that "the evidence . . . indicated that defendants
assumed, based on plaintiffs' own Hispanic race, that clients 
whom plaintiffs solicited would be members of racial 
minorities," Appellants br. at 21, is clearly insufficient to

The decision in English v. General Development Corp.., 717 
F Supp. 628 (N.D. 111. 1989), upon which Gonzalez
relies, is not to the contrary. The court in English 
concluded —  against the weight of authority that 
plaintiffs' who claimed that they were wrongfully _ 
discharged on the basis of race had alleged an impairment 
of a right protected under Section 1981. Having determined that plaintiffs could demonstrate that they 
had suffered deprivation of a right protected by Section 
1981, plaintiffs could then sue to recover all damages 
directly flowing therefrom, including loss of commissions

-32-



withstand a motion to dismiss. See Martin v. New York State
Pep't of Mental Hygiene, 588 F.2d 371 (2d Cir. 1978). Indeed, 
not only does the Complaint fail to allege the race of 
Gonzalez's clients or that The Home refused to write policies 
of insurance because of the race of his clients, but the 
evidence establishes that The Home did in fact write policies 
for certain of Gonzalez's minority clients, and refused to 
enter into policies with certain of Gonzalez's white clients. 
Cf. Appellants br. at 21; J.A. at A236-37 and A229-30. Thus, 
Gonzalez's claims that The Home refused to write policies of 
insurance on the basis of the race of his clients does not 
appear in the Complaint and is directly refuted by the factual 
record.8

In short, Gonzalez has'not alleged and cannot show 
that The Home's refusal to enter into contracts with others 
impaired Gonzalez's right to make a contract with The Home and

8 Gonzalez cites a number of cases holding that
non-minority individuals (such as his clients) would have 
rights under Section 1981 if they were deprived of the 
ability to contract based upon their association with 
minorities (such as him). See Appellants' br. at 21. 
Gonzalez then contends that it would be "anomalous" if 
the minorities in such instances did not similarly have a 
Section 1981 claim. But all the cases cited give effect 
to the principle of law noted above —  a plaintiff 
himself must be deprived of a right guaranteed by Section 
1981 to assert a claim thereunder. Gonzalez has not been 
deprived of such a right and cannot make such a claim.

-33-



he lacks standing to assert claims of discrimination in the
making of contracts with others on their behalf.9
C. The District Court Correctly Concluded 

That Appellants' Claim Of Wrongful 
Termination Failed To State A Claim 
Under Section 1 9 8 1 . __________ ______

Gonzalez asserts two grounds in support of his claim 
that the District Court incorrectly dismissed his claim of 
wrongful termination. First, Gonzalez maintains that Patterson 
does not apply to bar claims of discriminatory termination. 
Appellants br. at 26-30. Second, Gonzalez argues —  for the 
first time on appeal —  that The Home's decision to terminate 
his agency in accordance with the provisions of the standard 
Agency Agreement was not a termination at all but a refusal to 
re-contract with Gonzalez. Appellants br. at 24-26. Neither 

argument avails.

Gonzalez further strains to assert a cognizable claim 
under Patterson by construing the standard Agreement between him and The Home to be an offer by The 
Home to make a series of unilateral contracts with 
Gonzalez rather than a single agency contract.
Appellants br. at 22-23. Gonzalez points to nothing m  
the Agreement or pleadings to support this claim and 
Gonzalez's construction of the standard Agency Agreement 
is entirely at odds with the plain language of the 
Aareement. Indeed, Gonzalez's theory is nothing more 
than an attempt to manufacture a Section 1981 claim where 
none “  £ac? Lists and which, if accepted, would swallow 
the rule announced by Patterson. Courts construing 
similar contracts have rejected such efforts:
Carter v. O'Hare Hotel Investors, No. 88 C. 10713 (N.D.
Ill--Nov. 1, 1989) (1989 U.S. Dist. LEXIS 13156)
(rejecting plaintiff's argument that at-will contract was 
a series of ongoing daily unilateral offers to contract 
by defendant).

-34-



Although the Court in Patterson did not directly 
address the matter, the overwhelming majority of courts which 
have considered Section 1981 claims of discriminatory contract 
termination have held that such claims are precluded by the 
rationale and result in Patterson. See Eklof v. Bramalea Ltd., 
No. 89-5312 (E.D. Pa. Oct. 27, 1989)(1989 U.S. Dist. LEXIS 
12836); Matthews v. Northern Telecom, Inc., No. 88 Civ. 0583 
(S.D.N.Y. Nov. 1, 1989)(1989 U.S. Dist. LEXIS 12926); Alexander 
v. New York Medical College, 721 F. Supp. 587 (S.D.N.Y. 1989); 
Greggs v. Hillman Distrib. Co., 719 F. Supp. 552 (S.D. Tex. 
1989); Carter v. Aselton, 50 Fair Empl. Prac. Cas. (BNA) 251 
(M.D. Fla. June 20, 1989); Hall v. County of Cook, 719 F. Supp. 
721 (N.D. 111. 1989); Sofferin v. American Airlines, Inc., 717 
F. Supp. 597 (N.D. 111. 1989); Carter v. O'Hare Investors, No. 
88 C 10713 (N.D. 111. Nov. 1, 1989)(1989 U.S. Dist. LEXIS 
13156); Gersman v. Group Health Ass'n, No. 88-1820 (D.D.C. Nov. 
13, 1989)(1989 U.S. Dist. LEXIS 13499). See also Overby v. 
Chevron USA, Inc., 884 F.2d 470 (9th Cir. 1989)(retaliatory 
discharge not actionable under Section 1981); Williams v ■ Nat'1 
R.R. Passenger Corp., 716 F. Supp. 49 (D.D.C. 1989)(same); 
Mathis v. Boeing Military Airplane Co., 719 F. Supp. 991 (D. 
Kan. 1989)(same); Kolb v.Ohio, No. C87 1314 (N.D. Ohio July 10, 
1989)(1989 U.S. Dist. LEXIS 10489)(same); Prather v. Dayton 
Power & Light Co., No. C-3-85-491 (S.D. Ohio Sept. 7, 1989) 
(1989 U.S. Dist. LEXIS 10756) (discharge claim not actionable

-35-



under Section 1981); Busch v. Pizza Hut, Inc., No. 88 C. 8241 
(N.D. 111. Sept. 28, 1989)(1989 U.S. Dist. LEXIS 11974)
(constructive discharge not actionable).

Relying upon Patterson's language and rationale that 
the right to make contracts "does not extend to . . . conduct
by the employer after the contract relation has been 
established, including breach of the terms of the contract,
109 S. Ct. at 2373, these cases hold that claims of contract 
termination necessarily do not involve the section 1981 right 
"to make contracts". Similarly, these cases hold that contract 
termination does not implicate an abridgement of the Section 
1981 right "to enforce contracts" which the Patterson Court 
interpreted to be limited to efforts to impede access to the 
courts. At most, the courts have reasoned, contract 10

10 The few cases which Gonzalez cites as a basis for
recognizing a claim for racially-based termination under 
Section 1981 are dubious authority. Some of the 
decisions were issued before the Supreme Court s decision 
in Patterson or, although apparently decided after 
Patterson, made no or little mention of it. Vance v_̂  _ 
Southern Bell Tel. and Tel■ Co., 863 F .2d 1503 (11th Cir. 
1989); Flanagan v. Aaron E. Henry Community Health Serv. 
Center, 876 F.2d 1231 (5th Cir. 1989); Birdwhistle v, 
Kansas Power and Light Co., 723 F. Supp. 570 (D. Kan.
July 28, 1989) (1989 U.S. Dist. LEXIS 9227). Others did 
not directly address the issue of post-contract formation 
conduct. Jett v. Dallas Independent School Dist., 109 S. 
Ct. 2702 (1989). The single district court decision 
cited by Gonzalez which held that such a claim survives 
Patterson relied extensively on pre-Patterson decisions 
and has been sharply criticized by numerous subsequent 
decisions as inconsistent with the plain language and 
rationale of Patterson. Padilla v. United Air Lines, 716 
F. Supp. 485 (D. Colo. 1989).

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termination claims implicate state contract rights clearly 
beyond the purview of Section 1981.

Brushing aside the overwhelming weight of authority to 
the contrary, Gonzalez contends that Patterson does not bar his 
claim of racially-motivated contract termination. In that 
connection, Gonzalez attempts to manufacture uncertainty by 
suggesting that because pre-Patterson cases had recognized such 
a claim and because Patterson did not expressly overrule them, 
then the Court in Patterson did not intend to preclude 
termination claims.

Leaving aside the fact that the pre-Patterson cases 
relied upon by Gonzalez are fundamentally at odds with the 
reasoning of Patterson, the Supreme Court did not expressly 
overrule those cases simply because the issue of contract 
termination was not properly presented to the Supreme Court for 
decision in Patterson.11 Indeed, the Supreme Court 
specifically made note of its general practice of not 
addressing issues not raised or resolved below when it declined 
to consider whether plaintiff's promotion claim was actionable 
under Section 1981 because "respondent has not argued at any 
stage that petitioner's promotion claim is not cognizable under 
§ 1981. . . . "  109 S. Ct. at 2363. In light of the fact that
the issue of contract termination was not before the Court in 11

11 As Gonzalez concedes, the plaintiff in Patterson did not 
appeal the dismissal of her wrongful termination claim.

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Patterson, it can hardly be said that by its decision to 
dismiss plaintiff's racial harassment claim, the Supreme Court 
revealed its intent to preserve the pre-existing law as to 
contract termination and it would be plainly unreasonable to 
infer any such intent.12

Gonzalez's second claim —  that The Home s decision to 
terminate the agency relationship was "effectively [a] 
refus[al] to enter into a new contract with plaintiffs" is 
grounded upon the legally unsound premise that an at-will 
agreement constitutes a continuing offer to re-contract. 
Appellants br. at 24. Gonzalez then posits that because he did 
not exercise his right under the standard Agency Agreement to 
terminate the agency relationship after The Home terminated his 
agency, that he impliedly offered to re-contraet with The Home 
as a property/casualty agent. See id. Gonzalez offers 
absolutely no authority in support of this contention. Indeed, 
the rule of law which Gonzalez posits, if correct, would enable

12 Gonzalez also places reliance on the Supreme Court's
grant of certiorari in Lytle v. Household Mfg.,— Inc 109
S. Ct. 3239 (1989) as a basis for urging that the 
Patterson court did not intend to preclude race-based 
contract termination claims. One should not arrive at 
the state of the law by speculating about the possible 
motives or rationale of the Supreme Court in deciding to 
grant a petition for certiorari. Such an exercise is 
particularly inappropriate where, as in Lytle, the issue 
of whether the plaintiff's employment termination claim 
was actionable under Section 1981 was not presented to, 
or the basis for, the lower court decisions; nor was it 
raised as a basis for reversal by the Petitioner before 
the Supreme Court.

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a plaintiff easily to circumvent the holding in Patterson and 
render meaningless the distinction which Patterson draws 
between actionable pre-formation conduct and non-actionable 
post-formation conduct. Such a construction obviously should 
be avoided.

In any event, even indulging Gonzalez in his fanciful 
theory —  that by his silence, Gonzalez impliedly offered to 
re-contract with The Home —  other courts which have been 
presented with similar arguments have declined to find that 
such claims are covered by Section 1981. See Gersman v . Group 
Health Ass'n, No. 88-1820 (D.D.C. Nov. 13, 1989)(1989 U.S.
Dist. LEXIS 13449); Carter v. O'Hare Hotel Investors, No. 88 C 
10713 (N.D. 111. Nov. 1, 1989)(1989 U.S. Dist. LEXIS 13156); 
Rick Nolan’s Auto Body Shop, Inc, v. Allstate Ins. Co., 718 F. 
Supp. 722 (N.D. 111. 1989)(refusal to renew contract not 
covered under Section 1981). As noted earlier, where the 
parties are in an existing relationship, Patterson holds that a 
Section 1981 claim will only arise where a plaintiff is 
discriminatorily denied the opportunity to enter a new and 
distinct relationship; the rehiring of that plaintiff for the 
same position that was terminated could not meet that standard. 
See Morgan v. Kansas City Area Transport. Auth., 720 F. Supp. 
758, 760n.2 (W.D. Mo. 1989)("The court cannot conceive of a 
situation where the decision to discharge an employee would 
involve a 'change in position . . . involv[ing] the opportunity

-39-



to enter into a new contract with the employee, 109 S. Ct. at 
2377, the test announced in Patterson■")13

POINT II
APPELLANTS' REQUEST ON APPEAL THAT THEY 
BE PERMITTED TO PROCEED ON THEIR LEGALLY 
DEFICIENT CLAIMS SHOULD BE DENIED IN ITS 
ENTIRETY____________ ____________________ _

A. Appellants Should Not Be Entitled 
To Amend Their Complaint And To 
Conduct Discovery.________________

In a last-ditch effort to avoid the clear consequences 
of Patterson, Gonzalez now argues that this Court should grant 
him permission to amend the Complaint and to conduct discovery 
"geared to [the] Patterson standards." Appellants br. at 15. 
Gonzalez's request should be denied.

To begin with, Gonzalez elected not to seek permission 
before the District Court to amend his pleadings either at the 
time the Patterson decision was issued or any time prior to the 
District Court's decision dismissing his Complaint. To the 
contrary, after Patterson, Gonzalez continued to maintain that 
the allegations in the Complaint and the theory upon which the

13 Gonzalez's reliance upon Jones v. Pepsi-Cola Gen.
Bottlers, Inc., No. 88-0739-CV-W-l (W.D. Miss. Aug. 29, 
1989)(1989 U.S. Dist. LEXIS 10307) is misplaced. In 
Jones, the court expressly declined to consider whether 
plaintiff's claims of discrimination related to the 
making or enforcing of contracts within the meaning of 
Patterson, having concluded that defendant was entitled 
to summary judgment on the grounds that plaintiff had not 
and could not demonstrate that defendant discriminated 
against him on the basis of race. Slip op. at 3-4.

-40-



Complaint was grounded stated a claim for relief under Section 
1981. Indeed, it was only after the District Court dismissed 
his claims and Gonzalez appealled that decision did he then for 
the first time seek leave to replead in this Court. It is 
well-settled that motions for leave to amend pleadings are not 
properly raised in the first instance at the appellate stage. 
See 3 J. Moore, Moore's Federal Practice ir 15.11, at 15-109 (2d 
ed. 1985); The Dartmouth Review v. Dartmouth College, No. 
89-1466 (1st Cir. Nov. 9, 1989); Warde v. Kaiser, 887 F .2d 97 
(6th Cir. 1989).14

Moreover, Gonzalez's plea to amend at this juncture is 
particularly ill-advised given the fact that he fails to 
identify any "new" allegations or facts which, if supported, 
would sustain a Section 1981 claim. See Warde v. Kaiser, 
supra; Moviecolor Ltd, v. Eastman Kodak Co., 288 F.2d 80 (2d 
Cir.,) cert, denied, 368 U.S. 821 (1961). Rather, the "facts" 
which Gonzalez purports to rely upon and the discovery sought 
all relate to The Home's alleged failure to cooperate with him 
and The Home's alleged motive and intent in discriminating

The cases relied upon by Gonzalez all involved motions to 
amend before the district court. See, e .q ., Prather v. 
Dayton Power & Light Co., 1989 U.S. Dist. LEXIS 10756 
(S.D. Ohio Sept. 7, 1989); Lockhart v. Sullivan, 720 F. 
Supp. 699 (N.D. 111. 1989); Carter v. Aselton, 50 F.E.P. 
Cases 251 (M.D. Fla. Jun. 20, 1989) (1989 U.S. Dist.
LEXIS 12615); Hannah v. Philadephia Coca-Cola Bottling 
Co., (E.D. Pa. Jun. 26, 1989) No. 89-0699 U.S. Dist.
LEXIS 7200).

-41-



against Gonzalez after the formation of the Agency Agreement 
and during the course of the agency relationship. See 
Appellants br. at 16-17. Such matters are clearly insufficient 
to establish that the non-discriminatory terms of the standard 
Agency Agreement were entered into on discriminatory grounds.

Under these circumstances, Gonzalez's request to amend 
at this late date should be denied. See The Dartmouth Review 
v. Dartmouth College, supra; Moviecolor Ltd, v. Eastman Kodak 
Co■, supra.
B. Appellants Have Not Made The

Extraordinary Showing Required To
Deny Retroactive Application of Patterson.

Gonzalez has not demonstrated the extraordinary 
circumstances which would warrant a departure from the 
well-settled rule that new law be applied^ retroactively. C f ■ 

Chevron Oil v. Huson, 404 U.S. 97 (1971). In the specific 
context of claims under Section 1981, the overwhelming weight 
of authority has either assumed or expressly held that 
Patterson should be applied retroactively to such claims. 
Indeed, almost every court that has considered whether an 
exception should be made to the general rule that new law be 
applied retroactively, has declined to adopt such an exception 
to the Supreme Court's decision in Patterson. See James y_̂  
Dropsie College, Civ. A. No. 89-4429 (E.D. Pa. Nov. 22,
1989)(1989 U.S. Dist. LEXIS 14103); Thompson v. Johnson & 
Johnson Management Information Center, No. 86-319 (CSF) (D.N.J

-42-



Nov. 20, 1989)(1989 U.S. Dist. LEXIS 14223); Brackshaw v.
Niles, Inc., 723 F. Supp. 60 (N.D. 111. 1989); Prather v.
Dayton Power & Light Co■, (S.D. Ohio Sept. 7. 1989) (1989 U.S. 
Dist. LEXIS 10756); Morgan v. Kansas City Area Transp. Auth., 
720 F. Supp. 758 (W.D. Mo. 1989); Hall v. County of Cook, 719 
F, Supp. 721 (N.D.111. 1989); Williams v. Nat'1 R.R. Passenger 
Corp., 716 F. Supp 49 (D.D.C. 1989).15

Gonzalez attempts to distinguish all of these cases on 
the ground that the plaintiffs in those cases could seek relief 
under Title VII of the Civil Rights Laws. See Appellants br. 
at 32-33. But this is untrue; several courts have applied 
Patterson retroactively to dismiss Section 1981 claims where 
the plaintiff otherwise had no claim under Title VII. See, 
e .g ., McGinnis v. Ingram Eguipment Co., 888 F .2d 109 (11th Cir. 
1989)(applying Patterson retroactively to claims under Section 
1981 where employer, who employed less than fifteen workers,

15 The two cases noted by Gonzalez in support of his 
position that Patterson should not be applied 
retroactively stand alone in the post-Patterson legal 
landscape, and are in any event, distinguishable from the 
present case. In Gillespie v. First Interstate Bank, 717 
F. Supp. 649 (E.D. Wis. 1989), the case had already been 
tried, and the parties were awaiting decision on 
post-trial motions when the Patterson decision was 
issued. The court in Thomas v. Beech Aircraft Corp., No. 
78-4338 (D. Kan. Sept. 25, 1989)(1989 U.S. Dist. LEXIS 
11284), acknowledged that the weight of authority was to 
the contrary, but noted the "unusual and long history" of 
the case before it, and declined to follow the general 
rule of deciding cases "in accordance with the law 
existing at the time of decision." Slip op. at 3. None 
of these highly unusual circumstances are present here.

-43-



was not subject to Title VII); Hall v. County of Cook, 719 
F.Supp. 721 (N.D. 111. 1989)(Patterson applied retroactively to 
dismiss claim of racially-motivated discharge despite the fact 
that plaintiff had no Title VII claim.)

Finally, Gonzalez claims that it would be unfair to 
apply Patterson retroactively in this case. Gonzalez s claims 
are not compelling. The fact that both parties have engaged in 
pretrial discovery prior to Patterson is plainly insufficient 
to deny retroactive application of Patterson here, and Gonzalez 
offers no authority to the contrary. In addition, while 
Gonzalez maintains that a retroactive application of Patterson 
would unfairly deprive him of a federal remedy, such a result 
is clearly better addressed by legislative action than by
selective application of decisional law.

*  *  *

In sum, all of the allegations of discrimination in 
the Complaint relate to the performance and alleged breach of 
the established standard Agency Agreement. Gonzalez's present 
claims of discrimination in the making of his own contract and 
others, as well as his claim that Patterson does not apply to 
his claim of wrongful termination, are largely contrived, are 
not supported by the pleadings or the law and cannot furnish a 
basis for reversal. The District Court's decision should 
therefore be affirmed in its entirety.

-44-



CONCLUSION
For all of the foregoing reasons, The Home Insurance 

Company, The Home Indemnity Company, The Home Insurance Company 
of Indiana and City Insurance Company respectfully submit that 
the Memorandum and Order of the District Court dismissing the 
Complaint should be affirmed in its entirety. .

Dated: New York, New York
December 14, 1989

Respectfully submitted,

(A Member of the Firm)
WILLKIE FARR & GALLAGHER 
One Citicorp Center 
153 East 53rd Street 
New York, New York 10022
Attorneys for 
Defendants-Appellees

The Home Insurance Company, 
The Home Indemnity Company, 
The Home Insurance Company 

of Indiana and 
City Insurance Company

OF COUNSEL:
Lawrence 0. Kamin 
Mitchel H. Ochs

-45-



<4

STATEMENT OF INTERESTED PARTIES

Pursuant to § 0.15 of the Rules of the United States 
Court of Appeals for the Second Circuit, counsel for The Home 
Insurance Company, The Home Indemnity Company, The Home 
Insurance Company of Indiana and City Insurance Company hereby 
identifies the corporate parents of the following parties:

1. The corporate parent of The Home Insurance 
Company is AmBase Corporation.

2. The corporate parent of The Home Indemnity 
Company is The Home Insurance Company.

3. The corporate parent of The Home Insurance 
Company of Indiana is The Home Insurance Company.

4. The corporate parent of City Insurance Company is 
The Home Insurance Company.

(la)



Pursuant to § 0.15 of the Rules of the United States 
Court of Appeals for the Second Circuit, counsel for The Home 
Insurance Company, The Home Indemnity Company, The Home 
Insurance Company of Indiana and City Insurance Company hereby 
identifies the corporate parents of the following parties:

1 . The corporate parent of The Home Insurance 
Company is AmBase Corporation.

2. The corporate parent of The Home Indemnity 
Company is The Home Insurance Company.

3. The corporate parent of The Home Insurance 
Company of Indiana is The Home Insurance Company.

4. The corporate parent of City Insurance Company is
»

The Home Insurance Company.

STATEMENT OF INTERESTED PARTIES

(la)