ORGINAL STORY Published: May 25, 1994

http://www.nytimes.com/1994/05/25/us/denny-s-restaurants-to-pay-54-million-in-race-bias-suits.html?pagewanted=all

WASHINGTON, May 24— Denny’s, a national restaurant chain, agreed today to pay more than $54 million to settle lawsuits filed by thousands of black customers who had been refused service or had been forced to wait longer or pay more than white customers.

The new head of the civil rights division of the Justice Department, Deval L. Patrick, said it was the largest and broadest settlement under the Federal public-accommodation laws. Those laws were adopted more than 30 years ago to end segregation in restaurants and other places that serve the public.

The agreement, worked out among Government lawyers and lawyers representing Denny’s and its customers, ended Federal class-action lawsuits in Baltimore and in San Jose, Calif., and a complaint in Virginia. Those actions were filed on behalf of thousands of black customers who had asserted that Denny’s violated their civil rights by treating them rudely and by routinely giving preferential treatment to whites.

In one instance, a black Federal judge from Houston and his wife who had been traveling for 18 hours said they were forced to wait at a Denny’s in Yreka, Calif., for almost an hour as white teen-agers taunted them and referred to them as “niggers.”

In another case, six black Secret Service agents assigned to President Clinton’s detail were refused a table at a Denny’s in Annapolis. Md., while their white Secret Service colleagues were seated and served.

For more than three years Denny’s, a subsidiary of Flagstar Companies of Spartanburg, S.C., has been the target of growing complaints that its restaurants segregated blacks or required them to pre-pay or make various payments not required of white patrons.

The company denied that it had a policy of discrimination, but it nonetheless promised to take immediate steps to prevent shabby treatment of its black customers.

Some executives said they feared the publicity had begun to discourage blacks, who represent 10 percent of the chain’s customers, from eating at the 1,500 Denny’s restaurants. In all, more than 4,300 claims were filed as part of the class-action suits asserting that the company had treated black customers worse than whites.

Under today’s settlement, how much each customer receives from Denny’s will depend on how many people come forward within the next few months.

In addition to the cash payment and the promise to improve its treatment of blacks, the company agreed to hire Sharon Lybeck Hartmann, a Los Angeles lawyer with a background in civil rights, to enforce the consent decree and to monitor any civil rights problems that may arise. It also promised to begin a program in which blacks posing as customers would investigate whether Denny’s restaurants were discriminating.

“With today’s action, the message is clear: there will be a high price to pay for unlawful indignities, and the Justice Department will exact that price wherever the law is violated,” Mr. Patrick said. “Unfair standards employed by restaurants must no longer be standard fare.”

The settlements also suggested that after more than a year without a leader, the civil rights division at the Justice Department may be beginning a more active period. The division suffered a bruising political setback when President Clinton withdrew the nomination of Lani Guinier last year to head the division. Mr. Clinton left the position vacant for the first 15 months of his Administration.

Through much of the last year, the division also faced criticism from New York Democrats and Republicans for its handling of its investigation into the 1991 disturbances in the Crown Heights section of Brooklyn.

Moreover, today’s settlements reflected a revived partnership between civil rights and Government lawyers that had disappeared during the Reagan and Bush Administrations.

The two Federal suits settled today had been filed under Title II of the Civil Rights Act of 1964, which is known as the Public Accommodations Act. The law was often used in the 1960’s and 70’s to eliminate lingering segregation problems, but in the last decade it has not been widely cited.

Last year another restaurant chain, Shoney’s, agreed to pay $105 million to thousands of black employees and job applicants to settle a discrimination case, but that case did not involve customers or the public-accommodations law.

Lawyers for some of the black customers said today that they had begun to uncover evidence that the thousands of cases were not random but reflected a pervasive attitude of discrimination that permeated Denny’s management.

“We believe that there was, at the company, an attitude that went into the management level, but we don’t know exactly how high,” said John Relman, a lawyer for the Washington Lawyers’ Committee for Civil Rights. “This attitude at the company, at the management level and working its way down, had the effect of causing discriminatory attitudes going down to the lowest levels of the company.” Training to Deal WIth Blacks

Another lawyer, Mari Mayeda, said that during pretrial fact-finding a former manager had testified about training sessions in which managers were told how to deal with what was considered too many blacks in a restaurant at one time. Ms. Mayeda said the company’s code word for such occasions was a “blackout.”

But Jerome J. Richardson, the chairman and chief executive of Flagstar, denied that there was any policy to discriminate against blacks.

“These settlements are not an admission that Denny’s has had a policy or practice of discrimination against African Americans,” he said. At a news conference in Washington, he sought to portray the incidents as random and not part of a corporate strategy.

“We serve one million customers a day at Denny’s and we have 40,000 employees,” Mr. Richardson said. “It would be naive on my part to say that customers are always satisfied.”

Within the last year, Mr. Richardson said, the company has taken significant steps to prevent discrimination at its restaurants, including training and random checking. It has also hired Norman J. Hill, a black executive, to head its human resources department.

But the portrait of the chain presented by some customers today suggested that it had been plagued by racial problems.

Kristina Ridgeway was 17 years old when she walked into a Denny’s in San Jose in 1991 with 17 other teen-agers after attending a college forum sponsored by the San Jose chapter of the National Association for the Advancement of Colored People. The restaurant demanded a cover charge in addition to a prepayment for the meal, even though several white classmates did not have to make such payments.

“I was very upset,” Ms. Ridgeway said. “Both my parents are from the South and they had to grow up with this kind of thing, and they would always tell me that I wouldn’t have to deal with stuff like this.”

In another case in California, Rachel Thompson recalled how Denny’s offered a free meal for anyone on a birthday and how she had brought proof of her 13th birthday to a family gathering in Vallejo. The restaurant refused to accept a baptismal certificate with Rachel’s date of birth on it.

“They just said that wasn’t enough and made a big scene,” she said. “I felt embarrassed. It was humiliating because other families in there were looking at us, and I guess they thought we were some kind of bad criminals.”

And some incidents occurred as recently as last year, even as the company was trying to resolve accusations of discrimination.

In April 1993, Denny’s agreed as part of a consent decree to settle a Federal suit in California to take steps to end discrimination. But the same day it entered that consent decree, the Denny’s in Annapolis refused to serve the six black Secret Service agents. They later sued in Federal court in Baltimore, and the case in California was reopened.

Federal judges in Baltimore and San Jose must approve the settlement before it takes effect, a process that lawyers said should be completed this summer.

Once approved, the customers will receive $46 million and their lawyers will share another $8.7 million. Any money left over will be donated to the United Negro College Fund and to other nonprofit organizations dedicated to furthering civil rights.

The case should not have a big effect on Flagstar’s bottom line. Denny’s had revenues of $1.53 billion in 1993, and the parent company, Flagstar, owns more than 500 Hardee’s franchises, as well as as the El Pollo Loco and Quincy’s Family Steakhouse chains.

In over-the-counter trading, the stock of Flagstar closed today at $9.50, down 37.5 cents in light trading.

Last July, Denny’s reached an agreement with the N.A.A.C.P. to spend $1 billion in jobs and contracts for minorities over seven years. The company now has no franchises owned by a black, although an executive said 28 applications are “in the final stages of the review process.”

Photo: The parent of Denny’s restaurants, Flagstar Companies, has agreed to pay $54 million to settle racial-discrimination suits filed by blacks. Tom Pfister, front left, a Flagstar lawyer, spoke at a news conference yesterday in Washington, where he was joined by Eric Montgomery, front center, another Flagstar lawyer, and Jerome J. Richardson, right, the company’s chairman and chief executive. (Paul Hosefros/The New York Times) (pg. A18)