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Ninth Circuit:
Shareholder Has Standing to Challenge ‘Woman Quota’ Law
Ikuta Says Plaintiff Alleged Injury to Himself by Infringing on Free Choice in Voting for Corporate Directors
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday ordered reinstatement of an action by a shareholder of a corporation contesting the constitutionality of SB 826, enacted by the California Legislature in 2018, requiring that every publicly held corporation headquartered in the state have at least one female on its board of directors at present, and a minimum of one—and up to a minimum of three for larger boards—by Dec. 31.
The opinion by Circuit Judge Sandra S. Ikuta reverses the dismissal with prejudice of an action brought by Creighton Meland Jr., a shareholder of OSI Systems, Inc., a corporation that is subject to SB 826. District Court Judge John A. Mendez of Eastern District of California held that Meland lacks standing because he has not asserted an injury to himself caused by the legislation.
“We hold that because Meland has plausibly alleged that SB 826 requires or encourages him to discriminate on the basis of sex, he has adequately alleged that he has standing to challenge SB 826’s constitutionality,” Ikuta wrote.
SB 826, authored by then-Sen. Hannah-Beth Jackson, D-Santa Barbara, required all covered corporations to have at least one female member by the end of 2019. By the end of the current calendar year, publicly traded corporations with four or fewer directors must have at least one woman on the board; five-member boards must have no less than two female directors; and boards of six or more must have a minimum of three women.
Each spot that must be filled by a woman and isn’t constitutes a violation, subject to a fine of $100,000 for a first offense and $300,000 for subsequent offenses.
Allegations of Pleading
Meland’s Nov. 13, 2019 complaint, filed by lawyers for the Pacific Legal Foundation, contends:
“The law is not only deeply patronizing to women, it is also plainly unconstitutional.”
It goes on to say (with paragraph numbering omitted:
“Mr. Meland intends to vote on board member nominees at the upcoming annual meeting in December of 2019, as well as at subsequent meetings.
“The Woman Quota injures Plaintiffs right to vote for the candidate of his choice, free from the threat that the corporation will be fined if he votes without regard to sex.
“The Woman Quota contains a sex-based classification that harms individual shareholder voting rights directly, separate from any injury to the corporation.”
The complaint adds:
“The Woman Quota discriminates on the basis of sex in violation of the Equal Protection Clause.
“The Woman Quota facially discriminates on the basis of sex.
“The Woman Quota serves no important government interest.
“Sex-based balancing is not an important government interest that can sustain a sex-based classification under the Equal Protection Clause.”
District Court Ruling
Mendez, in his order dismissing the complaint, recited the provisions of SB 826 and said:
“None of these provisions of SB 826 constitutes an invasion of Plaintiff’s Fourteenth Amendment rights sufficient to establish Article III standing. Plaintiff’s emphasis on the principle that a person required by the government to discriminate has standing to challenge the requirement misses the mark.”
The judge added that while the complaint recites that OSI does not have women on the board, it now does have a woman director, so the corporation does not risk being fined. He reasoned:
“Thus, Plaintiffs alleged injury is purely hypothetical and cannot be recognized by this Court. Indeed, Federal courts cannot issue advisory opinions in hypothetical cases.”
Ikuta’s Opinion
Ikuta said in yesterday’s opinion:
“There is no ripeness or mootness issue here, because Meland’s injury is not ‘conjectural or hypothetical’…, and a ruling in Meland’s favor can give him meaningful relief. Meland’s alleged injury…is being subjected to a law that requires or encourages him to discriminate based on sex. That injury is ongoing, because OSI’s shareholders are responsible for electing directors at each annual meeting…, and SB 826 continues to require or encourage them to vote in a discriminatory manner in order to meet the escalating female-director quota….Because Meland will continue to suffer the alleged violation of his individual rights, we reject the state’s argument that this case is moot because OSI is currently in compliance with SB 826.”
She also wrote:
“The state claims that Meland lacks prudential standing because he is alleging a harm to OSI based on fines that may be imposed on OSI if OSI fails to comply with SB 826 in the future. But Meland’s complaint does not allege that SB 826 violates the constitutional rights of OSI. Nor does Meland allege that OSI has been injured by SB 826. Rather, Meland alleges that SB 826 seeks to force him, as a shareholder, ‘to perpetuate sex-based discrimination.’ Thus, because Meland rests his right to relief on an injury to himself rather than OSI, his claim is direct rather than derivative, and there are no prudential standing concerns under federal or state law.”
The jurist said in a footnote that the panel is leaving it to the District Court to determine, in the first instance, whether SB 826 is constitutional.
Lawyer Comments
Anastasia Boden, a senior attorney at Pacific Legal Foundation, commented that SB 826 “perpetuates the myth that women cannot make it to the boardroom without government help and are only making it there due to government’s help,” adding:
“We look forward to pressing our claim that the Equal Protection Clause guarantees that the government will treat individuals as individuals, not simply as members of the group they are born into.”
Boden’s client is an attorney with the Chicago office of Baker McKenzie LLP.
The case is Meland v. Weber, 20-15762. Secretary of State Shirley Weber has been substituted for her predecessor, Alex Padilla, now a U.S. senator.
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