DENNY'S CASE

by Stephen Labaton

Washington

It seemed like a bad time warp, a throwback to the era when black Americans were relegated to the rear of the bus and were turned away from lunch counters.

Announcing last week that it had broken widespread discrimination at the Denny's restaurant chin, the Justice Department described incidents of bias occurring well into the 1990's, involving thousands of black customers who told of being refused service or being forced to wait longer or pay more than White customers.

Agreeing to pay $54 million, Denny's settled two Federal class-action suits and a Virginia complaint. The cases encompassed more than 4,300 complaints involving restaurants from California to Maryland and Florida to Connecticut. Not all the complaints were filed by blacks. A significant number came from white customers who found the treatment of blacks offensive.

The settlements left unanswered how a Fortune 500 company could have tolerated widespread and offensive conduct for so long and whether senior executives at Denny's actually promoted discriminatory policies.

Jerome J. Richardson, chairman and chief executive of Flagstar Companies, Denny's parent, insisted that the incidents were isolated and that complaints about poor service were inevitable in a chair that employs 40,000 workers and serves 1 million customers a day.

But lawyers for the black customers said that before the settlement talks cut off a brief period of fact-finding, they had begun to uncover significant evidence that executives encouraged the policies or turned a blind eye.

The lawyers said the corporation's headquarters in Spartanburg, S. C., ignored frequent customer complaints. They also point out the disparity between Mr. Richardson's explanation that he could not control every employee of the company and his portrayal of himself in business profiles as an active, hands-on executive who runs every detail of the 1,500-restaurant chain down to the temperature of the oil for the french fries.

"This is a very tightly controlled, hierarchical company," said John P. Relman, a lawyer for plaintiffs in one of the suits. "In all aspects of the company, procedures were followed to the letter."

Buried in court papers were sworn statements describing scores of instances in which managers taught restaurant operators how to discourage black customers. Ex-employees described management training sessions in California where rising Denny's employees were given strategies to avoid what they called "blackouts." Blacks, especially large groups, were to be kept waiting while whites were served, or told there were no seats. Some were falsely told the restaurants were closing.

At Denny's in Delaware and Rennsylvania, managers kept logs that described when too many blacks came in. Other ex-employees said they were told to seat blacks where they would not easily be seen by other customers and away from the exits because, the managers said , blacks had a tendency to walk out without paying. And some former managers were told about a company policy requiring certain customers to pay cover charges and pay for meals before being served. While the written policy did not explicitly refer to balcks, that was the meaning the managers took.

Glenda Cappuccilli, a fomrer assistant manager inSan Jose, Calif., said her clear impression was tht the district manager "was being pressured by the management above his level to control and limit black clientele."

Mr. Richardson said there ws no corporate policy to discriminate against blacks. Pressed on how wide-spread the problme appeared to be, he grew testy at a news conference last week, saying he ws a victim of unfair allegations. "I'm porepared to apologize as many times as you want me to," he said impatiently.

Mr. Richardson, a native of South Carolina and once a wide receiver for the Baltimore Colts, founded the company with a friend more thn 30 years ago. The two opened a Hardee's frnchise in Sapartenburg using the $4,500 Mr. Richardson earned from the 1959 National Football League championship game.

Tax-Deductible Fines

Last October Mr. Richardson won a new football franchise in Charlotte, N.C., the Carolina Panthers. Two months earlier, he moved to head off the bias charges against Denny's. he forged an alliance with the National Association for the Advancement of Colored People, agreeing to spend $1 billion in jobs and contracts for minorities over seven years. He has denied reaching the agreement to smooth the way for the N. F. L. to award him a franchise.

Denny's now has no franchises owned by a black, although an executive said this week that 28 applications are "in the final stages of the review process."

Flagstar runs two-thirds of the Denny's restaurants and leaves the others to franchises. Its major owner is Kohlberg, Kravis, Roberts, the New York investment firms, which owns 47 percent of the stock. About a third of Flagstar's $3.97 billion in revenue last year came from its concessions at ballparks from Yankee Stadium to the Los Angeles Coliseum and such national parks as Yellowstone. Wall Street analysts feared those could be t risk from local political fallout over the Denny's cases.

But for now the settlement is unlikely to have a major effect on Flagstar's bottom line, not only because it is such a profitable company, but also because the payments to blacks re tax deductibles. After taxes, the $54 million settlement will cost it $35 million.

The Manager

From the sworn declaration of Robert Norton filed in the class-action lawsuit against Denny's in San Jose, Calif., one of the two cases settled last week:

I am a while male formerly employed as a manager with Denny's restaurants in San Jose, California...After approximately eight months as assistant manager at the Capitol Expressway Denny's, I was promoted to general manager of the Tully Road Denny's in San Jose. I remained in that capacity for approximately one year until I was placed on disability in May 1991.

While employed with Denny's I was instructed by my district manager to implement policies designed to limit or discourage black patronage.

Instructions on policies applied to balk customers were given at district meetings and, to a greater degree, individually at the restaurants by district managers. District meetings occurred weekly usually at the Denny's on First and Alma in San Jose. The meetings were attended by all the general managers in the district, the district manager and sometimes the regional manger. During these meetings the term "blackout" was used on many occasions in the presence of district and regional managers.

I first heard the term "blackout" when I was assistant manager at Blossom Hill. The Blossom Hill general manger commented to me that were better off than the Tully Road Denny's because they have a lot of blackouts. At the time, I didn't know what the term meant. In time I heard the term with enough frequency to learn that "blackout" was used by Denny's management to refer to a situation where too many black customers were in the restaurant.

At district meetings, managers would comment that they had a blackout the previous weekend and the district manager would acknowledge the problem and just ask how it was dealt with. We were taught to avoid blackouts by requiring black customers to pay for their meals in advance or simply close the restaurant for a few hours when we started getting too many black customers. Both prepayment and closing policies were discussed at district meetings. At district meetings, the upper-level managers were careful not to say too much about the discriminatory policies, but they would pull you aside later at your restaurant and tell you face to face. I took comments regarding prepayment lightly when I heard them at district meetings until my district manager spoke to me personally about the policy when I was general manager at Tully Road.

The Waitress

From the sworn declaration of Sandy Patterson filed in the class-action lawsuit against Denny's in San Jose:

I am a white female formerly employed as a waitress with Denny's restaurants. During the period beginning in approximately 1974 through 1989 I worked at several Denny's restaurants in California...

During my employment with Denny's I witnessed a general mistreatment of black customers...When I began my employment with Denny's at its La Mirada Restaurant, I was instructed to collect payment from certain customers a the time of service rather than after consumption of the meal. These customers were always back or people of color...

No one occasion, in or about 1987, while I was working at Unit 1111 in Long Beach, my son and several of his friends, all between the ages of 15-18, came into Denny's for a meal. My ex-husband is black and we have eight children. I purposely kept this information from others a Denny's because I feared that if management knew I was married to a black man it might affect my job. My son, who looks black, and his friends, all but one of whom were also of color, were seated in my sections and I took their order. After serving them, I was pulled aside and reprimanded by the manager for not requiring my son an his friends to pay for their meals at the time of service. The manager...did not know that my son was among the group and that I was paying for their meals. I was afraid to let him know that may son was black so I merely said that I knew these kids and they were not going to walk out on their bill. The manager did not care that I knew and trusted the kids....

I also observed firsthand a number of practices employed by Denny's managers and staff to discourage black patronage. For example, while working for Denny's in Long Beach during the 1980's, I was instructed to give black customers only one complimentary refill on coffee...One evening a black church group stopped into the Long beach Denny's for dinner. I took the group's order and was told by the manager to take payment at the time of service. When I put the order up for the cook, the manager took it down and applied a 15 percent gratuity to the bill. I disobeyed that manager's instructions and did not require payment at time of service and scratched the 15 percent gratuity off the bill because I felt embarrassed by the policies...When the group paid for their food, they gave me a $20. bill as a tip on which was written, "Thank you and God bless you." The next day the manager reprimanded me for deleting the 15 percent gratuity.

The Customers

From a statement issued by the Justice Department last week describing civil rights violations alleged by customers of Denny's:

The Thompson family. Sue Thompson is Samoan. her husband, Danny, is African-American. On Dec. 11, 1991, they and their three children Rachel, Jason and Danny Jr, went out to dinner to celebrate Rachel's 13th birthday. Because it was Rachel's birthday, she got to pick the restaurant. She chose a Denny's restaurant in Vallejo. At the time, Denny's offered a free meal to a customer on his or her birthday.

When the waitress took Rachel's order, Mrs. Thonmpson informed the waitress that it was Rachel's birthday and gave her Rachel's baptismal certificate which contained her birth date. The waitress did not look at the certificate, but immediately said she would have to get her manager to approve it. When the manager arrived at the Thompson's table, Mrs. Thompson gave her the baptismal certificate which had Rachel's date of birth on it. The manager, however, refused to take it and instead asked for a school identification card. When Rachel gave the manager her school card, the manager said it was insufficient. Rather than continue to be humiliated, the Thompsons left the restaurant without ordering.

The Roddys. On the morning of July 25, 1993, the Roddy family, four adults, three tens and a newborn child, were traveling from their home near Fresno on a family vacation. They stopped at a Denny's restaurant in Mojave for breakfast. Although there were many vacant booths and tables throughout the restaurant, the Roddys were told they would have to wait to be seated.

While waiting nearly and hour, the Roddys witnessed five groups of white customers totaling 15 persons enter the Denny's restaurant. These customers were all seated and served while the Roddy's continued to wait. Realizing they were not going to be seated, the Roddys exited the restaurant. One of the later-arriving white customers, Michael Daugherty, his wife, Pam, and their teen-age son were also on vacation, traveling to Yosemite National Park. Michael Daugherty told the Roddys he witnessed their mistreatment and was appalled. Mr. Roddy re-entered Denny's at the insistence of Mr. Daugherty and requested the name of the manager. Pamela Daugherty has since provided a declaration attesting to the discrimination she witnessed.

May 1994

Another story of Denny's settling its claims was posted on the Web on Dec. 11, 1996. There has recently been another charge of discrimination against Denny's by a group of African Americans on a school trip to Florida in May of 1998.

What do you think about continuing discrimination and good business practices?

If you observed a group receiving poor treatment in a restaurant or retail business, how would you respond? Why? Would you just ignore it as it is not your business?

Click here for a recent case of alleged discrimination about Denny's.
 
 

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