## Facts

- An Olympic Pipeline rupture in Washington disrupted gasoline transport, prompting ARCO to truck fuel from its Blaine refinery to its Seattle terminal for an extended period.
- Bains LLC, doing business as “Flying B,” was a closely held company wholly owned and operated by three Sikh brothers of Indian origin who ran gas stations and expanded into fuel hauling.
- Flying B contracted with ARCO to haul gasoline and, after receiving ARCO safety clearances, invested in additional trucks and hired drivers to perform the work.
- At ARCO’s Seattle terminal, ARCO’s lead terminal employee allegedly subjected Flying B owners and drivers to repeated racial slurs and differential treatment, including slower equipment access, longer delays, heightened security measures, and extra tasks not imposed on non-Indian drivers.
- Flying B repeatedly complained to ARCO supervisory and management personnel; ARCO allegedly failed to investigate or discipline employees accused of discriminatory conduct.
- ARCO terminated Flying B’s hauling work after several months, citing purported safety violations; Flying B alleged the termination and contract interference were racially motivated.

## Issues

1. Whether a closely held corporation wholly owned by members of a racial or ethnic minority may sue under 42 U.S.C. § 1981 as the direct target of racial discrimination based on an “imputed” racial identity.
2. Whether a $5,000,000 punitive-damages award on a § 1981 claim, where the jury awarded $1 in nominal damages on that claim (and $50,000 compensatory damages on a related contract claim), violated due process as grossly excessive.

## Decision

- The Ninth Circuit affirmed the jury’s finding of liability under 42 U.S.C. § 1981 and for breach of contract.
- The court held that a corporation may be a direct victim under § 1981 when it has an imputed racial identity derived from its owners’ race or ethnicity and is targeted because of that identity.
- The court concluded the trial evidence supported a finding that discriminatory terminal treatment and the termination were attributable to ARCO.
- The court vacated the $5,000,000 punitive-damages award as unconstitutionally excessive and remanded for entry of a substantially reduced punitive award, indicating an acceptable amount in the hundreds of thousands.

## Legal Principles

- 42 U.S.C. § 1981 protects the right to make and enforce contracts free from race-based interference and discrimination.
- A closely held corporation may assert a § 1981 claim as a direct target of discrimination when it has an “imputed” racial identity linked to its ownership and operations.
- Employer or principal liability for discriminatory conduct may be supported where management is informed of ongoing harassment yet fails to investigate or take corrective action.
- Due process limits punitive damages; courts evaluate excessiveness using the BMW v. Gore and State Farm v. Campbell guideposts, including reprehensibility, the ratio to actual or potential harm, and comparison to civil or criminal penalties.
- Even with intentional discriminatory conduct, punitive awards bearing extreme ratios to nominal or modest compensatory damages are subject to reduction, generally toward single-digit multiples of compensatory harm.

## Conclusion

The Ninth Circuit upheld § 1981 liability for race-based contract interference brought by a minority-owned corporation with an imputed racial identity, but required a major reduction of punitive damages because a $5 million award was disproportionate to the nominal and modest compensatory damages and exceeded constitutional due process limits.


Bains LLC v. Arco Prods. Co., 405 F.3d 764 (9th Cir. 2005)