9th Circuit: Shareholder Is Injured When California Requires Or Encourages Discrimination
In 2018, California enacted SB 826 to impose female director quotas on publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California. At the time, it was widely acknowledged that SB 826 was on shaky constitutional ground. Following enactment, at least two lawsuits were filed challenging the constitutionality of the law. One, Crest v. Padilla, was filed inn the Superior Court in Los Angeles and the other, Meland v. Padilla, was filed in the U.S. District Court for the Eastern District of California. The Secretary of State challenge the standing of both plaintiffs. See Secretary Of State Must Answer Legal Challenge To Female Director Quota Law and Judge Dismisses Suit Challenging California's Female Director Quota Law.
Yesterday, the Ninth Circuit Court of Appeals reversed Judge Mendez' ruling in Meland v. Weber, 2021 U.S. App. LEXIS 18378. Because Meland was filed in federal court, the plaintiff had to establish standing under Article III of the U.S. Constitution. Importantly, the Court of Appeals concluded that he had because SB 826 required or encouraged discrimination based on sex:
Because Meland has plausibly alleged that SB 826 requires or encourages him to discriminate based on sex, Meland has adequately alleged an injury in fact, the only Article III standing element at issue, and thus has Article III standing to challenge SB 826. Meland's alleged injury is also distinct from any injury to OSI, and he can bring his own Fourteenth Amendment challenge. Thus, Meland has prudential standing to challenge SB 826.
The Court also rejected the Secretary's argument that the plaintiff's claim was derivative, and not direct.
Although I agree with the Court of Appeal's conclusion, the opinion begins with an erroneous description of the law, stating that SB 826 "requires all corporations headquartered in California to have a minimum number of females on their boards of directors". The law applies only to "publicly held domestic or foreign corporations", not all corporations.