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Ninth Circuit Rules Shareholder Has Standing in Lawsuit Challenging California Law Establishing Quotas for Women on Corporate Boards

June 24, 2021

Businesswoman Stands To Address Meeting Around Board Table

Meland v. Weber
9th Cir. Case No. 20-15762
June 21, 2021

This week, the Ninth Circuit greenlighted a shareholder’s lawsuit challenging SB 826, a relatively new California law establishing quotas for women on corporate boards. SB 826 requires, by the end of 2021, covered corporations with six or more directors to have at least three women; boards with five directors must have at least two women; and boards with four directors must have at least one woman. A covered corporation is one that is listed on a major U.S. stock exchange and has a principal executive office located in California, no matter where it is incorporated. The law authorizes the Secretary of State to impose up to a $300,000 fine per violation. 

A shareholder of one such publicly traded company sued to declare the law unconstitutional under the Equal Protection Clause of the 14th Amendment. He contends that the law is unconstitutional because it discriminates on the basis of sex and also compels shareholders to do so. The district court dismissed his suit, ruling that the shareholder lacks standing because he was not discriminated against.

The Ninth Circuit reversed. Relying on precedent, the Ninth Circuit held that the shareholder has standing to challenge the law. A person required or encouraged by law to discriminate on the basis of a protected class “has suffered a direct personal injury sufficient to confer standing.” The Ninth Circuit also rejected the State’s arguments that the law imposes requirements on corporations, not shareholders, and that the case was unripe and moot.

The Ninth Circuit’s ruling does not mean that the shareholder’s challenge to SB 826 will prevail—just that the claim can go forward. It is unlikely that the Supreme Court will review the case at this early stage. The district court on remand will consider whether the shareholder has alleged a cognizable constitutional claim.

California corporations will want to keep a close eye on this case as it goes forward.

Dykema counsels corporate clients in California. For more information about this case and SB 826, please contact James Azadian at 213-457-1779 or jazadian@dykema.com, Cory Webster at 213-457-1745 or cwebster@dykema.com, or your Dykema relationship attorney.

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