US judge tosses challenge to women on corporate boards requirement

When the California Legislature debated and passed a law requiring women on corporate boards, many critics claimed it would not survive a legal challenge. As of Tuesday, it's survived at least one.

U.S. Judge John A. Mendez of the Eastern District of California dismissed a suit seeking to invalidate the law, finding the plaintiff could not show a specific injury and lacked standing. Meland v. Padilla, 2:19-cv-02288-JAM-AC (E.D. Cal., filed Nov. 12, 2019).

The case was filed by the Pacific Legal Foundation on behalf of Creighton R. Meland Jr., a former partner with Baker McKenzie LLP in Chicago who is an Illinois resident. On the grounds the law required discrimination on the basis of sex, he sued as a shareholder in OSI Systems Inc., a Hawthorne company that makes X-ray and metal detector machines to provide security for buildings.

Mendez began his ruling with an analysis of SB 826 itself and of the necessary components in establishing standing. He wrote the law places requirements on publicly traded companies headquartered in California. It also "permits, but does not require," named defendant Secretary of State Alex Padilla to create regulations to enforce the law.

But neither set of provisions applies directly to the plaintiff, he asserted. Mendez also noted the company elected a woman to its board in December and therefore will not face any fines under the law.

"Plaintiff is not a publicly held corporation," Mendez wrote. "He is a shareholder. And that is a distinction with a difference."

He added: "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 Pacific Legal Foundation's lead attorney on the case, Anastasia P. Boden, said her side would appeal.

"California's woman quota was designed to coerce shareholders into voting for board members on the basis of sex," Boden said in an email. "But the Fourteenth Amendment protects people from being subject to sex-based laws, including those intended to 'help' women. We're hopeful the court of appeals will agree that shareholders are injured by sex-based mandates of all kinds and that the lawsuit should move forward."

SB 826's author, Sen. Hannah-Beth Jackson, D-Santa Barbara, said she was pleased with the ruling.

"More than 200 California companies have added qualified and experienced women to their boards since SB 826 went into effect," Jackson said in an emailed statement. "These firms embraced what numerous studies have shown, that corporations with women on their boards perform better and are more profitable than those without."

Passed in 2018, SB 826 allows for fines of up to $100,000 for the first violation by a company and up to $300,000 for subsequent violations. The number of female members is defined by the size of the board. It also ramps up in 2022, when a company like OSI would need to appoint two more female members in order to comply.

The law faces another challenge in Los Angeles County Superior Court filed by Judicial Watch. Those plaintiffs took a somewhat different approach, challenging the "compelling government interest" for the state to spend an estimated $500,000 a year to enforce the law. Crest v. Padilla, 19STCV27561 (L.A. Super. Ct., filed Aug. 6, 2019) is scheduled for a case management conference on July 1.