In 2018, California passed a law that requires public corporations with principal offices in the state to have females on their boards of directors. Now, the Ninth Circuit has reversed a district court ruling that a shareholder lacked standing to sue the state over the law. Appellant’s case, based on the theory that the law “requires or encourages him to discriminate based on sex,” is reinstated and can now move forward.

Plaintiff-appellant Creighton Meland is a shareholder in OSI systems, which is headquartered in Hawthorne, California, and therefore subject to the law. With offices throughout the globe, it is a “vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications in homeland security, healthcare, defense and aerospace,” according to its website.

Meland challenged the constitutionality of the law because it “requires shareholders to discriminate on the basis of sex when exercising their voting rights, in violation of the Fourteenth Amendment.” Ninth Circuit Judge Sandra S. Ikuta wrote the unanimous opinion of the three-judge panel on June 21, which said Meland had “plausibly alleged” that the law “requires or encourages him to discriminate, causing an ongoing injury.”

The bill, originally called SB 826 and commonly known as the “Woman Quota,” was enacted due to legislative findings that women on boards are good for the state economy, boost opportunities for working women, and protect state employees who receive pensions from the state. It sites studies that “predict that it will take 40 or 50 years to achieve gender parity, if something is not done proactively.”

Additional studies cited in the bill showed that having women on corporate boards improved earnings, increased price-to-book value, and improved transparency. Yet, as of the date the bill was passed, one-quarter of all California public corporations had NO women and smaller companies had even fewer. Those earning $13 million per year or less had only 8.4%. Females were defined as individuals “who self-identify (their) gender as a woman, without regard to the individual’s designated sex.”

Companies had until the close of 2019 to comply with the law and the formula that requires between one and three female board members, depending on board size. That number was to increase by the end of 2021. Annual reports were to be filed with the Secretary of State, and failure to file carried a $100,000 fine. That same fine would be assessed for the first violation of the required quota, and each subsequent violation would be $300,000.

Meland’s case began in 2019 when he sued California’s Secretary of State alleging violation of the 14th Amendment’s Equal Protection Clause. He claimed the law “seeks to force shareholders to perpetuate sex-based discrimination.” At its 2019 annual shareholder meeting, OSI elected a female to fill a vacant board seat. Appellant’s case was then dismissed for lack of standing because “he had not suffered an injury,” and in addition, any penalties for noncompliance were to be paid by the corporation, not by him as an individual shareholder. Also, under the law, he would still be able to vote for a male and since the corporation was in compliance, he suffered no injury. He appealed.

Judge Ikuta wrote a lengthy explanation of the requirements for standing, according to Article III of the U.S. Constitution. She explained that Meland had the burden of proving only a single element –that he had “suffered an injury in fact.” The injury had to be the “invasion of a legally protected interest” and “actual or imminent, not conjectural or hypothetical.” It also had to “affect the plaintiff in a personal and individual way.” She described a case that allowed a contractor to sue when a state university failed to give him a job for which he had submitted the low bid. He was not hired because he did not comply with a state statute mandating that all contractors hire women subcontractors.

This ruling, like Meland’s, might seem to go against laws that seek to promote gender equity. Ikuta explains away this concern, stating precedent that requires standing to be given “even if the beneficiaries (of the discrimination) are members of groups whose fortunes we would like to advance.” The judge concluded that Meland’s standing is “plausible,” and that he has standing because the law “requires or encourages him to discriminate on the basis of sex.”

The district court primarily denied appellant standing because SB 826 regulates corporations, not individual shareholders. Ikuta disagreed because shareholders are the ones who actually vote, and to do so in compliance with the law, the corporation must “require (or at least encourage) them to “vote in a manner that would achieve this goal.” She cited precedent that includes a statement that illustrates additional confusion. “It strikes us as odd that the California Legislature enacted coercive legislation to achieve gender equity, but at the same time it is asserting that these rules are not meant to change (any shareholder’s) immediate behavior enough to confer standing,” said the judge in Owner-Operators Independent Drivers Ass’n Inc.

The argument that shareholders themselves would not be subject to monetary penalties also failed, partly because any penalties could affect the shareholder’s interest. Finally, she disagreed with the district court’s finding that the case is moot. Ikuta said it was not moot because Meland will “continue to suffer the alleged violation” of being forced to discriminate every time he votes for a board member, an act that causes him personal injury.

“She summarized. “Meland’s injury is ongoing and neither speculative or [sic] hypothetical, and the district court can grant meaningful relief. This case is therefore ripe and not moot.” Meland’s suit is reinstated and may go forward.