Bains LLC v. Arco Products Co.
405 F.3d 764 (2005)
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Rule of Law:
A corporation with an imputed racial identity has standing to sue for racial discrimination under 42 U.S.C. § 1981. A punitive damages award for such discrimination must be proportional to compensatory damages and comply with due process, generally not exceeding a single-digit ratio when compensatory damages are substantial.
Facts:
- Paul, Gary, and Deep Bains, who are American citizens of Indian descent and practicing Sikhs, formed a trucking corporation named Flying B.
- In March 2000, after an ARCO pipeline ruptured, Flying B signed a contract with ARCO to haul fuel from its refinery to a distribution center.
- During the contract, an ARCO employee, Bill Davis, repeatedly subjected Flying B's drivers, many of whom were Sikh, to ethnic harassment, using slurs like "diaper-head" and "raghead."
- Davis intentionally delayed Flying B's drivers by making them wait for paperwork, assigning them to slower pumps, and forcing them to clean up spills left by others, which reduced their earnings under the per-load contract.
- The Bains brothers complained multiple times about Davis's harassment and discriminatory actions to his supervisor, Al Lawrence.
- Lawrence acknowledged the complaints but took no action to stop Davis's behavior.
- On October 30, 2000, ARCO terminated its contract with Flying B without cause and without providing the 30-day notice required by their agreement.
- After the termination, Davis was heard bragging to another driver, "we kicked those ragheads out of here and they’re never coming back."
Procedural Posture:
- Flying B sued ARCO in the U.S. District Court for the Western District of Washington, alleging breach of contract and racial discrimination in violation of 42 U.S.C. § 1981.
- A jury returned a special verdict, finding ARCO liable on both claims.
- The jury awarded Flying B $50,000 in compensatory damages for the breach of contract claim.
- The jury awarded Flying B $1 in nominal compensatory damages and $5 million in punitive damages for the § 1981 racial discrimination claim.
- ARCO filed a post-trial motion for judgment as a matter of law, a new trial, or to set aside or remit the punitive damages award.
- The district court denied all of ARCO's motions.
- ARCO, as appellant, appealed the judgment to the U.S. Court of Appeals for the Ninth Circuit, with Flying B as the appellee.
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Issue:
Does a $5 million punitive damage award for racial discrimination violate the Due Process Clause when the jury awarded only $1 in nominal damages for the discrimination claim but $50,000 for a related breach of contract claim?
Opinions:
Majority - Kleinfeld, Circuit Judge
Yes, the $5 million punitive damage award is constitutionally excessive and violates the Due Process Clause. The court reasoned that while ARCO's conduct was highly reprehensible, punitive damages must adhere to the guideposts established in BMW v. Gore and State Farm v. Campbell. The court first affirmed that Flying B, as a corporation with an "imputed" racial identity, had standing to sue under § 1981 and that ARCO was vicariously liable for its employees' actions because management was notified but failed to remedy the harassment. In assessing the punitive award, the court aggregated the $50,000 contract damages and $1 nominal damages for a total compensatory award of $50,001. The $5 million punitive award created a 100:1 ratio, which far exceeds the single-digit ratio generally considered the constitutional maximum when compensatory damages are substantial. Citing the $300,000 statutory cap for punitive damages in comparable Title VII cases as another benchmark, the court concluded the award was excessive and must be reduced to a figure between $300,000 and $450,000.
Analysis:
This decision reinforces the constitutional limits on punitive damages established by the Supreme Court in State Farm, applying them specifically to corporate racial discrimination claims under § 1981. It clarifies that even for highly reprehensible conduct, the ratio between punitive and compensatory damages remains a critical constraint under the Due Process Clause. The case also solidifies the legal principle that a corporation can suffer racial discrimination by having a racial identity "imputed" to it, thereby granting it standing to sue. By holding ARCO vicariously liable for its manager's failure to address a subordinate's known harassment, the ruling underscores that a corporate anti-discrimination policy is ineffective as a defense if it is not actively enforced.
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