Judge Dismisses Suit Challenging California's Female Director Quota Law
Yesterday, U.S. District Court Judge John A. Mendez dismissed a stockholder's challenge to the constitutionality of California's female director quota law, SB 826. Meland v. Padilla, U.S. Dist. Ct. Case Non. 2:19-cv-02288-JAM-AC (April 20, 2020). The basis for the dismissal was lack of standing - both constitutional and prudential.
As for constitutional (i.e., Article III) standing, Judge Mendez found that SB 826 applies only to corporations, not stockholders, and thus the plaintiff was not affected in a "personal and individual way". He further found that even assuming in arguendo that the plaintiff had pled a concrete invasion of an individual right, he could not establish that his injury is "actual or imminent", not conjectural or hypothetical" because the Secretary of State is not required to impose a fine.
Judge Mendez also cited the prudential standing requirement that a plaintiff must be asserting his or her own rights. Again, Judge Mendez concludes that SB 826 places requirements only on corporations and the plaintiff is not alleging that he has been denied the right to vote or is being required to vote in a particular manner.
However, SB 826 clearly creates an actual and imminent threat of a fine if stockholders do not vote for the statutorily mandated number of female directors. It is this threat of a fine that invades a stockholder's right to vote for whomever he or she chooses. Knowing that a vote could have consequences for the corporation in which you have invested is a real injury to the shareholder, not the corporation.
Judge Mendez dismissed the complaint without prejudice, so there is a possibility that the plaintiff will try again.