Denny’s Restaurants Settle Bias Suits for $54 Million : Civil rights: Blacks complained of discrimination at the chain. Case marks new push for Justice Department.


U.S. government officials and civil rights advocates, hailing a “new partnership” dedicated to weeding out racism in commercial establishments, announced a record $54.4-million discrimination settlement with the Denny’s restaurant chain Tuesday.

The settlement, which earmarks $28 million for victims of discrimination at California Denny’s restaurants, closes the book on two class-action lawsuits that became a modern version of the lunch-counter protests of the civil rights movement’s early days.

“With the help and cooperation of private counsel, the Justice Department and Denny’s have entered into the largest, most-sweeping nationwide settlement of a public accommodations case in history,” said Deval L. Patrick, assistant attorney general for civil rights.


The deal, which must be approved in U.S. district courts in San Jose and Baltimore, ends a painful chapter for Flagstar Cos. of Spartanburg, S.C., which owns the chain. The firm was accused in the lawsuits of fostering a discriminatory corporate culture and refusing to serve blacks at some of its 1,400 Denny’s restaurants across the country.

Some black customers, for example, said that they were asked to prepay for meals or to pay cover charges before they were seated. One former restaurant manager said he was told by superiors to close his restaurant if “too many” black customers approached.

Under terms of the arrangement, Flagstar did not admit wrongdoing. Nevertheless, Justice Department officials said, the settlement represents a landmark in civil rights enforcement: the largest agreement ever negotiated in a case involving discrimination at restaurants, hotels or other public accommodations.

The agreement resolves separate lawsuits filed last year in California and Maryland. The California plaintiffs include Rachel Thompson of Vallejo, a 15-year-old black who went to Denny’s in late 1992 to celebrate her 13th birthday but was refused the restaurant’s customary free birthday meal.

The Maryland lawsuit was filed by six U.S. Secret Service officers who stopped at a Denny’s in Annapolis in May, 1993, amid preparations for a speech by President Clinton at the U.S. Naval Academy. The black agents said that they sat for nearly an hour without being served, even as they watched white colleagues served several times. Their lawsuit was expanded to include claimants in 48 other states.

Under the settlement, Flagstar will pay $28 million in damages to California customers, plus $6.8 million in attorney fees. The chain will pay $17.7 million to customers in Maryland and other states, along with $1.9 million in legal fees.


Customers who feel they were treated unfairly at Denny’s can request claim forms and apply for a portion of the damages by calling the company toll-free at (800) 836-0055.

The claims will be screened by an independent claims administrator and the Washington Lawyer’s Committee for Civil Rights and Urban Affairs, which filed the Maryland lawsuit. Damages will be prorated among victims whose claims are approved.

Besides paying damages, Flagstar will be required to retain an independent civil rights monitor to ensure the company’s compliance with the settlement. In addition, it agreed to feature blacks as customers and employees in advertisements, train its employees in racial sensitivity and allow representatives of a civil rights group to make random spot checks for bias at Denny’s outlets.

Flagstar officials said that the company already has begun satisfying many of the agreement’s requirements.

Attorneys for plaintiffs in the class-action suits said that the settlement could become a precedent for future discrimination cases.

Patrick, noting that the Justice Department is pursuing 20 other cases involving alleged discrimination at public accommodations, issued a pointed warning to any companies that still practice racial discrimination: “We are watching.”


The settlement “symbolizes what I think is a return of the finest moments of the civil rights struggles, in which the Department of Justice locked arms with civil rights lawyers and the private bar to win relief for victims of discrimination,” said John P. Relman, an attorney for the Washington Lawyer’s Committee. “We hope and believe that this is the beginning of a new partnership. . . . We want the Justice Department by our side.”

Flagstar still faces a handful of individual discrimination lawsuits. A spokesman said that the company hopes to settle those cases separately.

Appearing at a separate press conference Tuesday, Flagstar Chief Executive Officer Jerome J. Richardson insisted that the chain, which has $3.8 billion in annual sales, never had a policy of discriminating against blacks. But, he conceded, “clearly, these plaintiffs did not feel that way, and I regret that.”

Richardson, who owns the National Football League’s new Carolina Panthers franchise, said he was concerned last summer that the allegations of racial bias would hamper his bid for a team. But he said he was even more worried about damage to his personal reputation and that of the company, which suffered another blow Monday when two gunmen burst into an Indianapolis Denny’s, seized hostages and killed one.

Last year, Flagstar entered a “fair share” agreement with the National Assn. for the Advancement of Colored People and agreed to expand minority ownership of its franchises.

Although the company has no black-owned franchises, a Flagstar spokesman said that 28 potential owners are under consideration.


In 1993, Denny’s hired a civil rights monitor who works out of the company’s regional office in Irvine, Calif.

Joseph P. Russell, most recently a consultant in San Diego, was hired as part of a consent decree signed with the U.S. Justice Department in which the chain agreed to monitor business practices to ensure that discrimination does not occur.

Times staff writer Greg Johnson in Orange County contributed to this story.