Circuit revives shareholder suit over corporate boards law

A 9th U.S. Circuit of Appeals panel revived a shareholder's lawsuit challenging a California law mandating a minimum number of women on a public company's board of directors.

The three-judge panel, in an opinion by Judge Sandra S. Ikuta, reversed a district judge's dismissal for lack of standing.

That doesn't mean the plaintiff will win his constitutional challenge of the law, but the decision means Creighton Meland, a shareholder at OSI Systems Inc., "has plausibly alleged that SB 826 requires or encourages him to discriminate based on sex" and allowed his suit to move forward.

Meland's complaint challenges a 2018 state law, SB 826, that required, by the end of 2019, at least one woman on the board of public companies. That number will increase by the end of this year for boards of five or more to at least two and sometimes three, depending on the total number of directors.

Meland sued the state, alleging SB 826 discriminates on the basis of sex in violation of the equal protection clause of the 14th Amendment and "seeks to force shareholders to perpetuate sex-based discrimination."

U.S. District Judge John A. Mendez of the Eastern District of California dismissed the complaint after OSI Systems elected a woman to the board, saying the shareholder had suffered no injury -- or a possible injury, because any penalties in the law are imposed on the corporations, not the directors.

Ikuta, an appointee of President George W. Bush who wrote for the panel, concluded that Meland didn't have to be a victim of discrimination to sue.

"Therefore, if Meland's allegations that SB 826 'requires or encourages' him to discriminate on the basis of sex are plausible, then he has suffered a concrete personal injury sufficient to confer Article III standing," Ikuta wrote.

Ikuta also wrote that shareholders are among the objects of the law and therefore have standing to challenge it.

And while the secretary of state does not require directors to vote for women, the point of the law is to require a certain number of female directors, she added.

The case, Ikuta concluded, is ripe. Meland v. Weber, 2021 DJDAR 6120, (9th Cir., June 21, 2021).

Anastasia P. Boden, an attorney with the Pacific Legal Foundation who represents Meland, could not be reached for comment Monday. The state attorney general's office referred a reporter's phone call to the secretary of state's office.