California’s ‘woman quota’ law back in court after 9th Circuit allows shareholder to sue

The 9th Circuit Court of Appeals is allowing a shareholder of a California-based corporation to challenge a state law that requires companies to appoint more women to their boards of directors.

The case centers on a 2019 lawsuit filed by Creighton Meland Jr., a shareholder of Hawthorne-based-OSI Systems, who alleged the gender diversity law was unconstitutional and required shareholders to “discriminate on the basis of sex.” His initial complaint referred to the law as a “woman quota.”

A lower court dismissed his complaint, finding he had not been an injured by the law former Gov. Jerry Brown signed in 2018 and did not have standing to sue.

The appeals court disagreed, finding that shareholders would make different decisions because of the law.

“We hold that because Meland has plausibly alleged that (the law) requires or encourages him to discriminate on the basis of sex, he has adequately alleged that he has standing to challenge (the law’s) constitutionality,” according to an opinion written by Judge Sandra S. Ikuta, who was appointed by former President George W. Bush.

The gender diversity law requires California’s publicly traded corporations to appoint more women to serve on their corporate boards. Under the law, if a board has four or less directors, one of those seats is required to be held by a female director by the end of 2021. If the board has six or more directors, three of the seats are required to be held by women, according to the law’s text.

Companies that don’t comply with the law can face hefty fines of up to $300,000 from the Secretary of State’s office. A spokesman for California Secretary of State Shirley Weber’s office declined to comment on the case.

The law was a model for another measure Gov. Gavin Newsom signed last year that requires racial and LGBTQ representation on California’s public boardrooms. That law is being challenged by the conservative group Judicial Watch.

Former Sen. Hannah-Beth Jackson, D-Santa Barbara, who authored the gender diversity law, called the court’s decision “disappointing.”

“We really tried hard to get companies to voluntarily recognize the value of diversity on their boards, but without this legislation we know that they will and have been consistently continuing to discriminate and that is what we are trying to overcome,” Jackson said.

Despite both laws, a recent analysis by the Latino Corporate Director Association found that many board seats of California’s public corporations were still held by white and male directors.

Another report released last year by the California Partners Project, an organization founded by First Partner Jennifer Siebel Newsom, showed that the number of women serving on California’s public board seats increased since Jackson’s law was passed.

“Our data show that this policy is working. In 2018, nearly 30% of California company boards were all male; now, less than 3% are,” according to the report.

Through a statement, Anastasia Boden, a senior attorney at Pacific Legal Foundation, called the gender diversity law “unconstitutional” and “patronizing” to women.

“Today’s ruling confirms that California’s law is designed to change the behavior of shareholders, and that our client has standing to challenge the law,” Boden said. “It perpetuates the myth that women cannot make it to the boardroom without government help and are only making it there due to government’s help.”

This story was originally published June 22, 2021 at 2:43 PM with the headline "California’s ‘woman quota’ law back in court after 9th Circuit allows shareholder to sue."