                            In the
 United States Court of Appeals
              For the Seventh Circuit
                         ____________

No. 04-4190
WALID ELKHATIB,
                                             Plaintiff-Appellant,
                                v.

DUNKIN DONUTS, INC.,
a Delaware Corp., and
ALLIED DOMECQ,
                                          Defendants-Appellees.
                         ____________
           Appeal from the United States District Court
      for the Northern District of Illinois, Eastern Division.
         No. 02 C 8131—Charles R. Norgle, Sr., Judge.
                         ____________
   ARGUED OCTOBER 30, 2006—DECIDED JULY 10, 2007
                   ____________


 Before KANNE, ROVNER, and WILLIAMS, Circuit Judges.
  ROVNER, Circuit Judge. Plaintiff-Appellant Walid
Elkhatib is a Palestinian Arab of the Muslim faith who
is a U.S. citizen. In 1979, he purchased his first Dunkin
Donuts franchise, and has continuously operated various
Dunkin Donuts franchises since that time. Elkhatib at-
tested that he chose to pursue the franchise opportunity
with Dunkin Donuts in part because it would not re-
quire him to handle pork products, which he asserts is
forbidden to members of the Arab race by tradition and
custom. Although no pork products were served at Dunkin
Donuts when Elkhatib purchased his first franchise in
2                                             No. 04-4190

1979, that situation changed in 1984 when Dunkin Donuts
introduced its breakfast sandwiches, which are croissants
with egg and a choice of cheese, bacon, ham or sausage.
Elkhatib refused to sell the sandwiches at his store, and
District Manager Jeff Zevoral did not object to that
decision. In 1995, Elkhatib opened a second franchise in
Berkeley, Illinois, and again his refusal to carry pork
products was met with no objection from Dunkin Donuts
personnel. A year later, Elkhatib began selling breakfast
sandwiches without bacon, sausage or ham, at his two
locations. Zevoral facilitated those sales, supplying
Elkhatib with a sign that stated “Meat Products Not
Available.” Zevoral also provided another plastic sign to
Elkhatib advertising the breakfast sandwiches, which
stated “At participating U.S. shops only [sic] Bacon,
sausage or ham may not be available at all shops.” In
1998, Elkhatib opened a Dunkin Donuts store in
Westchester, Illinois.
  Elkhatib was approached in 2002 by Gene Liguoritis,
Development Manager for Dunkin Donuts, about the
possibility of moving his location within Westchester to a
more advantageous location at the intersection of two
busy roads. Elkhatib pursued that opportunity, and
entered into a Letter of Intent to Ground Lease for the
new location contingent upon the approval by Dunkin
Donuts. That approval was not forthcoming, and in fact,
in May 2002, Elkhatib was informed that Dunkin Donuts
would not agree to the relocation. Elkhatib met with
Dunkin Donuts supervisors Greg Novak and Chuck
Cowgill to ascertain the reason for that decision. Near the
conclusion of that meeting, the issue of the breakfast
sandwiches arose, and Elkhatib informed them that he
would continue to sell breakfast sandwiches, but would
not sell pork products because he was forbidden to
handle pork. No one mentioned at that time that his
objection to selling pork was fatal to his future as a
franchise owner.
No. 04-4190                                               3

  However, on August 12, 2002, Elkhatib received that
news via a letter from Dunkin Donuts legal counsel,
declaring that although his current franchise agree-
ments would be honored, he could not relocate nor could
he renew any of his franchise agreements because of his
failure to carry Dunkin Donuts’ full breakfast sandwich
product line. In November, 2002, Elkhatib filed a com-
plaint against Dunkin Donuts and its parent company
Allied Domecq (hereinafter “Dunkin Donuts”), alleging
that the refusal to allow him to relocate or to renew his
franchises based on his refusal to sell pork products
constituted racial discrimination in violation of 42 U.S.C.
§§ 1981 and 1982.
  Dunkin Donuts sought summary judgment in the dis-
trict court, arguing that Elkhatib was denied the right
to relocate and renew his franchises because of his refusal
to carry a full line of Dunkin Donuts products, including
pork products, and not due to his race. In granting that
motion, the court on its own construed Elkhatib’s claim to
be one of religious discrimination rather than racial
discrimination, based on the court’s determination that
the restrictions on handling pork are associated with
religion rather than race. Neither party argues for affirm-
ing on that basis. Instead, Dunkin Donuts argues that
the district court properly held in the alternative that
Elkhatib had failed to meet his burden in demonstrating
racial discrimination. We review de novo the district
court’s grant of summary judgment, construing all facts
and all reasonable inferences in the light most favorable to
Elkhatib. Cerutti v. BASF Corp., 349 F.3d 1055, 1060 (7th
Cir. 2003). We will affirm only if the evidence shows that
there is no genuine issue as to any material fact and that
Dunkin Donuts is entitled to judgment as a matter of
law. Id.
 The complaint was filed under 42 U.S.C. §§ 1981 & 1982,
which provide that “all persons . . . shall have the same
4                                                No. 04-4190

right . . . to make and enforce contracts, as is enjoyed by
white citizens,” that those rights are “protected against
impairment by nongovernmental discrimination,” and that
all citizens “shall have the same right . . . as is enjoyed by
white citizens thereof to inherit, purchase, lease, sell, hold,
and convey real and personal property.” Those provisions
are inapplicable to religious discrimination, but protect
against racial discrimination.
  We note initially that the Supreme Court has recognized
that the § 1981 protection against racial discrimination
applies to discrimination based on a person’s status as
an Arab. Saint Francis College v. Al-Khazraji, 481 U.S.
604, 613 (1987). Elkhatib may prove discrimination under
§ 1981 either through direct evidence, or through the
indirect burden-shifting method discussed in McDonnell
Douglas Corp. v. Green, 411 U.S. 792, 802-03 (1973).
Humphries v. CBOCS West, Inc., 474 F.3d 387, 403-04 (7th
Cir. 2007); Cerutti, 349 F.3d at 1060-61.
  Elkhatib has presented little in the way of direct evi-
dence relating to his race. Direct evidence is evidence
that, if believed, shows discriminatory conduct by the
employer without reliance on inference or presumption,
such as where there is an admission by an employer that
the decision was based on the prohibited animus. Cerutti,
349 F.3d at 1061. That may include circumstantial evi-
dence, but such evidence “ ‘must point directly to a discrim-
inatory reason for the employer’s action.’ ” Id. at 1061,
quoting Adams v. Wal-Mart Stores, Inc., 324 F.3d 935,
939 (7th Cir. 2003). Elkhatib provides only a statement
from his store manager that in November-December 2001,
she overheard Greg Novak make what she regarded as
an anti-Arab statement at a meeting of franchisees and
their managers. With Elkhatib’s permission, she reported
the comment through the complaint mechanism supplied
by Dunkin Donuts, and was told that Novak’s boss,
No. 04-4190                                                  5

Cowgill, would stop by the store to apologize. Cowgill did
visit the store that week, but did not apologize, and the
store manager reported that as well. That incident is
potentially relevant in determining the motive for the
decision not to renew the franchise agreements, although
it arguably indicates retaliatory discrimination rather
than racial discrimination. See Humphries, 474 F.3d at
398 (recognizing that the protections of § 1981 also apply
to claims of retaliation). It is so lacking in detail, however,
including any indication as to what the statement was,
that any thoughts as to its potential relevance are purely
speculative. For purposes of this motion, it is enough to
note that it does not provide direct evidence that the
decision regarding the renewal and relocation of the
franchises was based on Elkhatib’s race.
  In the absence of such direct evidence, he may survive
summary judgment through the indirect burden-shifting
method of McDonnell Douglas. Under that method, he
must first establish a prima facie case of discrimination
by producing evidence which would allow a jury to find
that: (1) he belongs to a protected class; (2) he met Dunkin
Donuts’ legitimate expectations with regard to the fran-
chise agreement; (3) he suffered an adverse action; and (4)
similarly-situated non-protected individuals were treated
more favorably. Once Elkhatib meets that burden, Dunkin
Donuts must provide a legitimate, non-discriminatory
reason for its actions. The burden would then shift back
to Elkhatib to demonstrate that Dunkin Donuts’ actions
were merely pretextual.
  There is no dispute that Elkhatib belongs to a protected
class, nor is there any question that he suffered an ad-
verse action. Dunkin Donuts argues, however, that
Elkhatib has failed to establish that he can perform his
obligations under the contract because he is unwilling to
serve the full line of products, and that there are no
6                                               No. 04-4190

similarly-situated non-protected individuals treated more
favorably.
  For its first argument, Dunkin Donuts points to the
franchise agreement itself, which requires all franchisees
to carry Dunkin Donuts’ full food product line. Elkhatib’s
refusal to carry pork products violates that provision, and
according to Dunkin Donuts, establishes that he cannot
or will not perform his obligations under the contract.
Elkhatib responds that Dunkin Donuts has never re-
quired its franchisees to carry the full product line despite
that language, and in fact that it affirmatively assisted
franchisees in carrying less than the full product line
by providing signs for stores declaring: “No Meat Products
Available.”
  Dunkin Donuts’ decision in the past not to require
compliance with that provision would not prevent it from
enforcing it in future franchise agreements, as would be
the case if Elkhatib relocated or renewed his franchise
agreements. Nevertheless, if Dunkin Donuts continued to
allow franchisees to carry less than its full product line
without consequence or any other indication that the
provision was a material part of the contract, then it could
hardly point to that neglected provision to defeat a claim
of racial discrimination if it chose to enforce it against
only certain racial minorities.
  In that manner, this is similar to a line of cases in the
employment context in which violations of legitimate
employer expectations were met with disparate treatment
based on race. For instance, in Curry v. Menard, Inc., 270
F.3d 473 (7th Cir. 2001), an African-American cashier
acknowledged that she had violated the store’s progressive
disciplinary policy which provided for termination for the
three cash discrepancies in her cashier drawer. She
maintained, however, that two non-African-American
cashiers with similar violations were not terminated. The
No. 04-4190                                               7

issue, then was whether the employer applied its legiti-
mate employment expectations in a discriminatory man-
ner. We held that “it makes little sense in this context to
determine whether she was meeting Menard’s legitimate
expectations. Rather, Menard’s argument is more appro-
priately considered in our analysis of pretext.” Id. at 478.
We have reiterated that conclusion in subsequent cases,
recognizing that “ ‘[w]hen a plaintiff produces evidence
sufficient to raise an inference that an employer applied
its legitimate expectations in a disparate manner (i.e.,
applied expectations to similarly situated . . . younger
employees in a more favorable manner), the second and
fourth prongs merge—allowing plaintiffs to stave off
summary judgment for the time being, and proceed to the
pretext inquiry.” Peele v. Country Mut. Ins. Co., 288 F.3d
319, 329 (7th Cir. 2002); Cerutti, 349 F.3d at 1064 n. 8
(quoting Peele).
  That same scenario is present here. Elkhatib does not
deny that his failure to carry the full line of breakfast
products is inconsistent with the requirement in the
franchise agreement. He argues, however, that Dunkin
Donuts applied that franchise provision in a discrimina-
tory manner. In that context the second and fourth prongs
merge in the inquiry. That leads to the issue of whether
there were similarly-situated individuals not in the
protected class who were treated differently. Of the three
franchises in the Chicago area who refused to carry the
full line of breakfast sandwiches, none were owned by
an Arab. Dunkin Donuts nevertheless argues that they
are not similarly-situated because their reasons for
refusing to carry the sandwiches were different from
Elkhatib’s. One of those franchises did not carry breakfast
sandwiches at all because its lease prohibited it from
serving sandwiches. Another did not carry any breakfast
sandwiches because it ostensibly lacked space for the
toaster oven or microwave needed to do so. Finally, the
8                                                No. 04-4190

third franchise did not carry any pork products because
it sought to meet the demand in the area for a kosher
establishment.
  The level of similarity that Dunkin Donuts would re-
quire in order for the prima facie case to be met is un-
workable and inconsistent with McDonnell Douglas. The
similarly-situated requirement should not be applied
mechanically or inflexibly, but rather is a common-sense
flexible inquiry that seeks to determine whether there
are enough common features between the individuals to
allow a meaningful comparison. Humphries v. CBOCS
West, Inc., 474 F.3d 387, 404-05 (7th Cir. 2007). Substan-
tial similarity, not complete identity, is required. Id. at
405. In fact, we cautioned in Humphries against overly
technical or rigid interpretations of this requirement:
    It is important not to lose sight of the common-sense
    aspect of this inquiry. It is not an unyielding, inflexible
    requirement that requires near one-to-one mapping
    between employees—distinctions can always be
    found in particular job duties or performance histories
    or the nature of the alleged transactions . . . but the
    fundamental issue remains whether such distinctions
    are so significant that they render the comparison
    effectively useless. In other words, the inquiry simply
    asks whether there are sufficient commonalities on
    the key variables between the plaintiff and the would-
    be comparator to allow the type of comparison that,
    taken together with the other prima facie evidence,
    would allow a jury to reach an inference of discrimina-
    tion or retaliation—recall that the plaintiff need not
    prove anything at this stage.
[citations omitted; italics in original] Id.
  The franchises identified as comparators were identical
in all relevant respects in that they all failed to carry part
or all of the breakfast line of products despite the require-
No. 04-4190                                              9

ment in their franchise agreement that they do so. That
franchise provision is absolute in its terms, and does not
indicate that exceptions would be made for certain reasons
and not others. Therefore Dunkin Donuts’ argument
that their reasons for failing to carry the full product
line were different than Elkhatib’s is unavailing.
  In fact, for at least two of the franchises, the problem
arguably could have been resolved if it truly was a con-
cern of Dunkin Donuts. The franchise with the lease
prohibition could have relocated to a location without that
restriction. Dunkin Donuts did not require that action as
a condition of renewing the franchise, and in fact allowed
the owner to renew the lease at that location without
threat of losing the franchise after the time that it in-
formed Elkhatib that his failure to carry the sandwiches
would result in the nonrenewal of his franchise. The
original lease issued in 1983 contained the restriction on
the sale of sandwiches. In 2003, after the letter was
sent to Elkhatib informing him that his franchise would
not be renewed for failure to carry meat sandwiches,
Dunkin Donuts entered into an agreement extending the
lease on that store for an additional 10 years, with no
modification of the provision banning the sale of sand-
wiches.
  Similarly, Elkhatib and a co-worker visited the store
with the space limitations and attested that the store
had ample room for the equipment needed to serve break-
fast sandwiches, but chose to use that space to display
multiple shelves of coffee instead. The conversion of that
space was not required of it by Dunkin Donuts, and it
was not threatened with nonrenewal. Moreover, even if
Elkhatib were wrong in that assessment, we would not
assume that on summary judgment, and it remains that
Dunkin Donuts did not require that franchise to either
modify its store or relocate in order to maintain the
franchise. Finally, although Dunkin Donuts asserts that
10                                             No. 04-4190

the third franchise did not carry pork in acquiescence to
customer preferences, it provided no evidence to that
effect. In any case, there is no meaningful distinction for
purposes of the similarly-situated inquiry between the
franchises that refused to carry breakfast sandwiches
because of lease and space issues, and Elkhatib.
  Because Elkhatib has demonstrated a prima facie case,
Dunkin Donuts must respond with a legitimate non-
discriminatory reason for its actions. Dunkin Donuts
points to the franchise provision requiring the full line of
products as its non-discriminatory reason. There is enough
evidence in the record, however, demonstrating that the
reason is pretextual, for Elkhatib to survive summary
judgment.
  As set forth above, there is significant evidence that
the carrying of breakfast sandwiches was not an issue of
importance to Dunkin Donuts. It allowed other franchises
in the area to refuse to carry any breakfast sandwiches at
all, when merely relocating the stores, or in one case
merely rearranging the displays, would have allowed them
to carry the full line. In contrast, Elkhatib carried the
breakfast sandwiches with the exception of the meat
products. That was apparently so common that Dunkin
Donuts supplied signs for such franchises declaring
“Meat Products Not Available.” Moreover, despite the
failure of Elkhatib to carry pork products for nearly 20
years, his stores received positive reviews and the failure
to carry such products was never an issue.
  That it was not of importance is strengthened by evi-
dence that breakfast sandwiches accounted for only
approximately 4% of sales at all Dunkin Donuts stores. As
was mentioned, unlike the other franchises identified
by Dunkin Donuts, Elkhatib carried breakfast sandwiches
but did not carry the pork products, so part of that 4%
would presumably still be realized in his store. In any
No. 04-4190                                              11

case, there is significant evidence that the carrying of
breakfast sandwiches generally, and the carrying of
meat products specifically, was not a factor that was
important to Dunkin Donuts in the franchise decisions,
and there is no evidence that there was any change in
corporate policy, or even regional policy, on the matter. In
fact, the franchise that failed to carry them because of
lease restrictions was allowed to renew that lease, and
maintain its franchise, after the decision was made to deny
renewal of Elkhatib’s franchise. The evidence was suffi-
cient to allow a jury to find pretext, and therefore the
district court improperly granted summary judgment. The
decision of the district court is REVERSED and the case
REMANDED for further proceedings consistent with this
opinion.

A true Copy:
      Teste:

                       ________________________________
                       Clerk of the United States Court of
                         Appeals for the Seventh Circuit




                   USCA-02-C-0072—7-10-07
