SAN FRANCISCO — A federal appeals court on Monday revived a lawsuit challenging the constitutionality of a California law that requires women be placed on the boards of publicly owned companies.
A three-judge panel of the 9th U.S. Circuit Court of Appeals unanimously decided that a shareholder had the legal right to sue California to invalidate the 2018 law, which requires all publicly held corporations with principal executive offices in California to have women on their boards of directors.
At the time he signed the bill into law, then Gov. Jerry Brown expressed concerns that it might not survive a legal challenge.
The law already has raised the number of women on corporate boards in California. Companies have filled vacant seats with women or expanded their boards. Other states have followed California’s lead, introducing similar measures.
In September, Gov. Gavin Newsom signed another bill into law that requires publicly owned companies based in the state to add ethnic and racial minorities and members of other underrepresented groups to boards. Underrepresented groups include Black, Latino, Asian and Native American people and members of the LGBT community.
The California law on gender diversity required that at least one woman serve on a board of directors by the close of 2019. By Dec. 31, 2021, two women must serve if the corporation has five directors and three women must serve if the corporation has six or more directors.
Although companies risk fines for noncompliance, the state has not yet fined any company or developed regulations, the 9th Circuit said. The state does report compliance, however.
The Pacific Legal Foundation, a conservative public interest law firm, challenged the law on behalf of Creighton Meland Jr., a shareholder of OSI Systems. He contended the law required him to discriminate on the basis of gender, in violation of the 14th Amendment.
A district court dismissed the suit, ruling that Meland lacked standing — the legal right to bring a challenge — because he had not suffered an injury. OSI Systems has complied with the law.
The 9th Circuit said Meland had standing because shareholders generally elect corporate directors, and the California law intended they comply with the state mandate. The panel described the law as “coercive legislation.”
“Because Meland has plausibly alleged that [the law] requires or encourages him to discriminate based on sex, Meland has adequately alleged an injury in fact,” wrote Judge Sandra S. Ikuta, appointed by former President George W. Bush and joined by Judges M. Margaret McKeown, a Clinton appointee, and Daniel A. Bress, a Trump appointee.
Judicial Watch, a Washington-based conservative group, is also challenging the gender diversity law in state court and has sued to block the newer California law requiring more directors from minority groups.
