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September 7, 1999


The opinion of the court was delivered by: Moran, Senior District Judge.


Nady F. Riad (Riad) was a naturalized American of Egyptian origin.*fn1 He filed this action on April 10, 1997, alleging that his former employer violated the Civil Rights Act of 1866, 42 U.S.C. § 1981, which prohibits racial discrimination in the making, performance, and termination of contracts. Riad claims he was denied employment benefits and was fired from his job because of his race and ethnicity. Defendants filed an answer, affirmative defenses and a counterclaim alleging breach of fiduciary duty and intentional interference with business expectations. Plaintiff moves to dismiss the counterclaim and to strike two of defendants' affirmative defenses. Defendants move for summary judgment on the § 1981 claims. For the reasons stated herein, we find for plaintiff in each instance: the motion to dismiss is granted, the motions to strike are granted, and the motion for summary judgment is denied.


On a motion for summary judgment we view all the evidence and the reasonable inferences to be drawn therefrom in the light most favorable to the nonmoving party. Bartman v. Allis-Chalmers Corp., 799 F.2d 311, 312 (7th Cir. 1986), cert. denied, 479 U.S. 1092, 107 S.Ct. 1304, 94 L.Ed.2d 160 (1987). Considered in this light, the facts are as follows.

On October 18, 1994, Hostmark Investor Limited Partnership ("Hostmark"), a hotel management company, signed an agreement to manage and operate the Congress Hotel in Chicago. The contract, commencing September 22, 1994, provided that Hostmark was

(Riad dep. ex. 15).

The Congress Hotel is owned by defendant 520 S. Michigan Avenue Associates Limited ("520 Ltd."), an Illinois limited partnership, and is operated by defendant 520 S. Michigan Corporation ("520 Corp."), an Illinois corporation doing business as The Congress Hotel. During the events in question part of the hotel was also operating as a franchisee of Ramada Franchise Systems. Defendant Albert Nasser, a citizen of Spain and a resident of New York and Geneva, Switzerland, owns a majority interest in 520 Ltd. and is chairman of the board of 520 Corp. He is Jewish and was educated in Israel. Defendant Shlomo Nahmias was employed by 520 Corp. as "owners' representative." (12(m) ¶ 18). Nahmias resided in Illinois on-site at the Congress Hotel and served as the liaison between Nasser and the hotel management. He is also Jewish and was born in Israel.

When it appeared to Hostmark officers that the Congress contract would come through, the company recruited Nady Riad to come to Chicago to serve as the new general manager (GM) of the Hotel. Riad had been working as the GM for the Sheraton Atlanta Northwest, another hotel property managed by Hostmark, and reportedly had a very good reputation in the hotel industry. (Cataldo dep. at 101). As general manager at the Congress, Riad would be responsible for the day-to-day operation of the hotel, human resources management (including hiring and firing of staff), strategic planning, and financial performance. (12(m) ¶ 12). An "appointment" letter to Riad from Richard Betty (Betty), vice-president of operations at Hostmark, dated October 11, 1994, specifies that Riad's annual salary would be $85,000 and that he would "also be eligible, as [Riad had] been in the past, to partake in Hostmark's incentive bonus should the hotel qualify and with owners' approval." (Riad dep. at 20; id., ex. 2.) Hostmark's incentive policy provided that if the hotel met budgeted gross operating profits, the GM would be entitled to ten percent of his or her base salary and five percent of the excess gross operating profit over budget. (Riad dep. at 84). Hostmark president, Robert Cataldo, recalls that the bonus policy "was presented to Mr. Nasser" and that budgets produced for the Congress Hotel included incentive bonuses for the general manager as well as the sales departments. (Cataldo dep. at 82; 12(n) ¶ 38). There is no evidence that the Congress' owners specifically approved or disapproved the use of the Hostmark general manager's bonus formula as a component of Riad's compensation package. Nonetheless, Riad accepted the job as general manager and began work at the Congress on October 18, 1994, as an at-will employee of 520 Corp. Although he was technically employed by the Congress Hotel, Riad also reported to Richard Betty at Hostmark. (12(n) ¶ 18).

Nasser admits that when Riad took over as general manager the Congress was "not very profitable." (Nasser dep. at 105-6; 12(n) ¶ 48). Riad claims that he increased the hotel's net profits by more than 446% during the two years he was employed as general manager. (12(m)resp. ¶ 17; 12(n) ¶ 47). Defendants now say that Riad was not responsible for the financial recovery (def.12(n) resp. ¶¶ 48-49), but they have acknowledged in the past that Riad improved the hotel's finances (12(n) ¶¶ 48, 55). Pursuant to his understanding of the Hostmark bonus system, Riad first believed he was entitled to a bonus after the first six months of operations in 1995. Riad communicated this belief to the owners and requested a payment of $2,125, but was told the hotel was in bankruptcy and he should inquire again later. When the payment never materialized, Hostmark's Cataldo and Betty recommended to Nahmias and Nasser that Riad receive additional compensation from the Congress due to his strong performance. (12(n) ¶ 42; Cataldo dep. at 84; Nahmias dep. ex. 11). Notwithstanding these lobbying attempts and consistently strong performance reviews, Riad never received an increase or bonus during his employment at the Congress. (12(n) ¶¶ 67, 103; def.12(n)resp. ¶ 67). Nahmias testified that Riad did not receive incentive bonuses because the occupancy rate was not high enough to meet the owners' expectations. (Nahmias dep. at 128). Nasser testified that Riad did not receive a raise because he was the highest paid employee of the hotel. (12(m) ¶ 68).

In the spring of 1997, the relationship between Hostmark and defendants started to decay.*fn2 Riad suggests this was due in part to defendants' problems with his Egyptian heritage. During March 1997, Steven Belmonte, president and CEO of Ramada Franchise Systems, Inc., met with Nahmias to discuss several failed quality inspections. (12(n) ¶ 22). During the meeting, Nahmias expressed displeasure with Hostmark, complaining that "ownership was Israeli Jews and they put in an Arab manager," and asking "how stupid can you be[?]" (Belmonte dep. at 22). According to Belmonte, Nahmias "indicated that ownership was Israeli Jews and that hiring an Arab general manager was kind of a slap in the face and it just wasn't the right thing, the smart thing to do[]." Id. at 23. Nahmias also seemed to apologize to Belmonte for his criticism of Hostmark, "because I know you are good friends with them, you are all . . . Italian." Belmonte thought this assumption — that he was close to the Hostmark executives — "was strange." He testified at his deposition that "I didn't know why he thought we were all good friends." Id. at 24.

Nahmias' preoccupation with Riad's heritage was allegedly observed by several individuals. In the presence of other hotel employees, Nahmias referred to Riad as a "camel jockey" and as a "drunken Egyptian fool." (12(n) ¶¶ 24, 26). He joked that Riad had an "Egyptian mentality." Id. at ¶ 27. Sam Selim, who is also Egyptian, testified that he considered the executive offices a "battle zone," in part because Nahmias often commented that "we have an Israeli on one side and an Egyptian [Riad] on the other." (Selim dep. at 17-18, 28). Defendants deny that Nahmias made any of these comments. (def.12(n)resp. at ¶¶ 23-27). Selim testified that he complained to the human resources director, Cheryl Kutun, about the comments made about Egyptians. Id. at 44. Selim did not receive any raises during the two years he was with the Congress prior to December 1996, when Riad was allegedly terminated, but received a Christmas bonus and salary increase shortly thereafter. (12(m) ¶ 73; 12(n) ¶ 79).

Riad also maintains that he was treated unjustly on many other occasions as compared to Jewish employees and their families. He cites, inter alia, the following events: Nahmias was given a $6,000 salary increase after he was at the Congress for only three months (12(n) ¶ 69); Nasser approved payment of $13,000 for Nahmias' son's private school tuition (12(n) ¶ 71); Nahmias' wife, Sara Nahmias, was paid $30,000 for consulting services "even though she did not have any experience in the food business or the hotel industry" (12(n) ¶ 72); Nahmias was given the right to buy food from the hotel at discount prices (12(n) ¶ 73); Nasser allowed Dean Rubin, another Congress employee, to be charged "at cost" for all expenses associated with his wedding reception and canceled one bill for $1,309.96 (12(n) ¶ 74); Nahmias and Rubin were allowed to rent rooms for $35, but Riad was denied the right to use a single room attached to his apartment when his family visited (12(n) ¶ 77). It is also alleged that Nasser frequently spoke to Nahmias in Hebrew even while Riad, who spoke no Hebrew, was present. (12(n) ¶ 12).

Plaintiff also introduced evidence indicating that Nasser and Nahmias were very conscious of the racial makeup of the staff. Betty testified that he heard Nasser complain that there were too many blacks at the front desk. (12(n) ¶ 28). Nahmias reportedly told Rafael Tovar, Gratto-Tovar, and Selim, on separate occasions, that the Congress needed to "lighten up" the front desk. (12(n) ¶¶ 29, 30). Cheryl Kutun, the human resources director, was "pretty sure," however, that it was Riad who directed Selim to hire "pretty young girls [who were] not black." (Kutun dep. at 95-97). Riad testified that Nasser told him to "change the staff." (Riad dep. at 430). Plaintiff consequently instructed Selim "not to have all whites or all blacks, but to balance the staff so we are not going to have any certain color dominating the front desk; just have it equal and balanced." Id. at 432. According to Riad's deposition testimony, "We did not fire people because they were of color; we didn't, but whenever they had committed mistakes that needed or called for termination, that's when the change took place. But we didn't go out there or my staff didn't go down there and intentionally terminate people because their color is black or white." Id. at 432-433.

Despite the hotel's stronger financial performance during plaintiff's tenure, Nahmias communicated to several individuals in 1996 that he wanted Riad to be fired. (Nasser dep. at 110; Kutun dep. at 58-59; Gratto-Tovar dep. at 27-28). The parties dispute whether Nahmias had the authority to fire Riad (compare 12(n) ¶ 52 with 12(m) ¶ 26), but Nahmias testified that Nasser had informed Riad "that Shlomo [Nahmias] could fire him" (Nahmias dep. at 184-185). In early December 1996, Nahmias told Lucille Gratto-Tovar that he had been "up all night talking to Nasser" and that "[f]inally, I got through to him." (12(n) ¶ 57); Gratto-Tovar dep. at 28). Plaintiff testified that on December 5, 1996, Nahmias "walked in my office, and he said to me, `Nady, we have to part ways. You will be paid until the end of December, and you are welcome to stay or to leave or to use the office or the apartment, but the employment is terminated.'" (Riad dep. at 71; 12(n) ¶ 51). That same day, Nahmias signed a memo, directed to Riad and initialed by the human resources director, which stated:

  As per my conversation with you this morning, this is
  to confirm the termination of your employment with
  the Ramada Congress Hotel. You will be paid until the
  end of December [sic] however.
  To state that your performance, experience and
  knowledge were impressive would be a gross
  understatement. We were most impressed with your
  leadership and your ability to increase the hotel
  revenues and control the expenses to produce the
  profit levels that you did over the past two years.
  It goes without saying that we wish you a great deal
  of success in your future endeavors.

(Nahmias dep. ex. 14). Riad testified that he drafted the letter at Nahmias' request. (Riad dep. at 76).

Defendants argue that Riad was not fired, but freely resigned in order to take a job in Indiana. (12(m) ¶ 26). They also contend that, had he not resigned, Riad would have been fired for his alleged solicitation of Congress employees for other Hostmark properties. (def.12(n) resp. ¶ 65). This allegation is at the heart of defendants' counterclaim. Nahmias confirmed in deposition testimony that he drafted a letter to Riad which read, in part:

Dear Nady:

  . . . . A few weeks before you left, I was informed
  by some employees of this hotel, that you solicited
  them to work in some other hotels which were under
  Hostmark management. An act that does not prove too
  much loyalty or decency for a General Manager of a
  Hotel. . . .
  "I have verified it at the time and even had written
  letters from employees that you have solicited. I did
  not want to act at the time because of the

  friendship I had with you. Therefore, you can imagine
  how happy I was when you advised me that you are
  leaving the hotel for another job of your preference.
  I was overjoyed for the opportunity that you have
  given ...

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