The Ninth Circuit Court of Appeal is allowing a shareholder’s lawsuit against California Senate Bill 826 to proceed. SB 826 requires all public corporations headquartered in California to have a minimum number of women on their boards of directors.
One shareholder of OSI, Creighton Meland, brought an action challenging the constitutionality of SB 826 on the ground that it requires shareholders to discriminate on the basis of sex when exercising their voting rights, in violation of the Fourteenth Amendment, according to Judge Sandra Segal Ikuta June 21 decision.
“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 the standing to challenge SB 826’s constitutionality," she wrote.
OSI Systems, Inc. (OSI) is a publicly traded company that is incorporated in Delaware and headquartered in California
Plaintiff Meland sued the Secretary of State Shirley Weber in the Eastern District of California alleging that SB 826 requires shareholders to discriminate on the basis of sex when exercising their corporate voting rights in violation of the Fourteenth Amendment.
“Sex-based balancing is not an important government interest that can sustain a sex-based classification under the Equal Protection Clause,” wrote Meland’s attorney Anastasia P. Boden in the November 2019 complaint.
But Judge John Mendez, nominated to the bench by former President George W. Bush, dismissed the complaint on April 20, 2020, stating that Meland lacked standing to bring the lawsuit.
“Plaintiff is not injured by SB 826’s requirements,” Judge Mendez wrote in his opinion. “SB 826 only places requirements on corporations, and only corporations face possible regulations and fines. Consequently, Plaintiff has not and cannot be injured directly and independently from OSI.”
However, during oral arguments last week, Boden told the panel of three federal appellate judges that the law disfavors the shareholder’s vote.
The three circuit judges included Judge Ikuta, nominated to the bench by President George W. Bush, Judge M. Margaret McKeown, nominated by former President Bill Clinton, and Judge Daniel A. Bress, nominated by former President Donald Trump.
“It puts the shareholder’s vote on an unequal playing ground because it is nudging people to vote a certain way,” Boden told the Southern California Record. “People assume that women were not making it there and now any woman who's hired under the quota has only been hired because of the quota, which belies the truth. Women do not need a government mandate and laws like this have a patronizing and detrimental effect on female achievement.”
Similarly, corporate boards headquartered in California that do not include a director of color could face fines based on the passage of Assembly Bill (AB) 979.last year.
As previously reported, companies are required to report to the Secretary of State how they are meeting the mandate, which includes having at least one director from an underrepresented community, two directors from underrepresented communities for corporations with more than four board members, and a minimum of three directors for corporations with more than nine board members by 2022.
“Our lawsuit was brought before the quota was expanded to include an underrepresented minority component so at present our lawsuit only challenges the woman quota but now that the ninth circuit said that we have standing, we can always amend to include that as well,” said Boden who is a senior attorney at the Pacific Legal Foundation. “We're still strategizing and we need to talk to our clients.”