Legal Brief - Week 12 : Meland v Weber

 Meland v Weber

Case Facts

On November 13, 2019, Creighton Meland (Meland) a corporate shareholder of OSI Systems, Inc. (OSI), filed an action against Shirley N. Weber (Weber), California's Secretary of State, in his official capacity, Defendant, to challenge the constitutionality of the Senate Bill 826 (SB 826), which requires all public corporations based in California to have a minimum number of females on their boards of directors. Like any other shareholder, Meland has the right to vote on the members of the board of directors even though the candidate must receive a majority of votes to be successful. 

When Plaintiff filed his complaint, OSI had a board of directors consisting of seven members, all-male. To comply with SB 826, OSI had to elect at least one woman on their board of directors by the end of 2019 and have the number increase to three by the end of 2021. Based on this new California regulation, Kelli Bernard was elected as their first female OSI shareholder to the board of directors on December 12, 2019.

The plaintiff supported his action with the fact that he has Article III standing to challenge the constitutionality of SB 826 and alleged that the California groundbreaking law has impaired his right to vote for OSI's board of directors in violation of the Equal Protection Clause and seeks declaratory and injunctive relief from suffering an injury in fact.

Defendant dismissed the allegations under Federal Rules of Civil Procedure 12(b) (1) and 12(b) (6), arguing Plaintiff lacks standing and the case is unripe and moot.

 

The issue

The main issue is to conclude whether or not SB 826 impaired the plaintiff's right to vote for OSI’s board of directors and that he has suffered an injury in fact.

 

Rule

In 2018, the California Legislature approved SB 826 to address the shortage of females on the board of directors. This bill mandated that public corporations with principal executive offices located in California appoint a certain number of females to serve on corporate boards. SB 826 defines a “female” as “an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth.” To comply with the law, a corporation based in California must have “a minimum of one female director on its board” by the end of 2019, and by the end of 2021, any covered corporation with six or more directors must have at least three female directors, any covered corporation with five directors must have at least two female directors, and any covered corporation with four or fewer directors must have at least one female director. Infringing this law may be subject to monetary penalties ranging from $100,000 to $300,000 per violation – each director seat required to be held by a female, which is not held by a female, counts as a violation.

A Rule 12(b) (1) motion to dismiss tests whether a complaint alleges grounds for federal subject-matter jurisdiction. If the plaintiff lacks standing under Article III of the United States Constitution, then the court lacks subject-matter jurisdiction, and the case must be dismissed

Standing is a “threshold question” in “determining the power of the court to entertain the suit.” To establish standing, a “plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.”

The Fourteenth Amendment provides “equal protection under the laws”. The amendment authorized the government to punish states that abridged citizens’ right to vote by proportionally reducing their representation in Congress.

 Often injunctive relief is sought alongside a declaratory judgment. Wikipedia explains that “a declaratory judgment is typically requested when a party is threatened with a lawsuit but the lawsuit has not yet been filed; or when a party or parties believe that their rights under law and/or contract might conflict; or as part of a counterclaim to prevent further lawsuits from the same plaintiff”. And the Legal Information Institute defines injunctive relief as a remedy that restrains a party from doing certain acts or requires a party to act in a certain way. It is generally only available when there is no other remedy at law and irreparable harm will result if the relief is not granted

An injury in fact is “an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical.” For an injury to be actual or imminent, the “threatened injury must be certainly impending.” And “allegations of possible future injury are not sufficient.”

 

            Applications

Based in Hawthorne, California, OSI is a public corporation incorporated in Delaware in 1987. The corporation provides engineering and manufacturing services and has more than 30 years of experience as a leading diversified global developer, manufacturer, and supplier of specialized electronic systems and components for critical applications in homeland security, healthcare, defense, and aerospace.

Because OSI is a publicly-traded company with headquarters in California, it is subject to SB 826, a law signed by Governor Kate Brown on September 30, 2018. The public corporation agreement allows all shareholders including Meland to recommend or submit names of candidates for election to OSI’s board of directors. However, candidates must receive a majority vote of shareholders in order to be appointed.

In November 2019, Meland sued California State, alleging that SB 826 discriminates on the basis of sex in violation of the Equal Protection Clause of the Fourteenth Amendment and “seeks to force shareholders to perpetuate sex-based discrimination.” SB 826 requires publicly held domestic or foreign corporations, based in California, to have a minimum of one female director on its board by the end of 2019.  By the end of 2021, SB 826 requires those corporations to increase the number of women on their boards in proportion to the size of their boards. Meanwhile, SB 826 requires two principal actions from the Secretary of State: publication of a report detailing the California corporations with at least one female director; and then later, publication of a report with other related details. SB 826 does not require a shareholder to discriminate; it permits, but does not require, the Secretary of State to "impose fines for violations of this section." California’s mandate (including penalties for noncompliance) is aimed at companies, not shareholders.   

The complaint also alleged that Meland intended to vote on director nominations at the December 2019 annual meeting and at subsequent meetings. Meland sought declaratory relief, injunctive relief, and attorney's fees and costs. The OSI records that at the December 2019 annual shareholder meeting, the corporation shareholders elected a female to fill a vacant board-member seat.

The district court concluded that it has jurisdiction under 28 U.S.C. § 1331 in its motion to dismiss Meland’s complaint under Rule 12(b) (1). The state accepted the truth of the plaintiff’s allegations but asserted that they are insufficient on their face to invoke federal jurisdiction.

Furthermore, the requirement that corporations subject to SB 826 have at least one woman on their board of directors is not imposed on Plaintiff. Nor is the possible penalty. Thus, notwithstanding SB 826, Plaintiff, as a shareholder, can vote in shareholder elections as he pleases. If at future shareholder meetings, Plaintiff prefers a male board member nominee, there is nothing in SB 826 preventing him from casting a vote in favor of that nominee. The provision of SB 826 that requires women to be included on these boards applies only to corporations. Thus, Plaintiff is not affected by SB 826 in a personal and individual way. Any invasion of his Fourteenth Amendment rights is too abstract to amount to an "injury in fact." 

Again, SB 826 does not impair voting rights. Plaintiff is not alleged harm and therefore cannot receive the benefit of the recovery or another remedy is available. As in California, "the stockholder's claimed direct injury must be independent of any alleged injury to the corporation." Plaintiff has not suffered an injury separate and apart from an injury to OSI. Accordingly, Plaintiff also lacks shareholder standing to bring a claim under the Fourteenth Amendment. 

 

Ruling

Before 2021, OSI was in compliance with SB 826 by appointing Kelli Bernard to the board of directors. Meland couldn’t show that his right to vote in board elections is harmed by the rule. The state then moved to dismiss Meland’s complaint about the lack of Article III standing reasoning that Meland had not suffered an injury in fact, because SB 826 imposed requirements and potential penalties on corporations, not shareholders. Moreover, the district court held that SB 826 did not prevent Meland from voting for a male director. For the reasons set forth above, Plaintiff lacks standing to pursue his claim and the suit must be dismissed without prejudice.

  

References

Michael H (2021). “Corporate Management.” Business Law (pp. 166-170).

Brigham Young University - Idaho, Chapter 26

 

California Legislative Information (2018). “Senate Bill no. 826”.

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB826. (Accessed 4 December 2021)  

 

Legal Information Institute (2020). “Rule 12. Defenses and Objections: When and How

Presented; Motion for Judgment on the Pleadings; Consolidating Motions; Waiving Defenses; Pretrial Hearing”. https://www.law.cornell.edu/rules/frcp/rule_12. (Accessed 4 December 2021)

 

United States Senate (1964). “Landmark Legislation: The Fourteenth Amendment”.

https://www.law.cornell.edu/wex/injunctive_relief. (Accessed 4 December 2021)

 

Legal Information Institute (2020). “Injunctive relief”.

https://www.senate.gov/artandhistory/history/common/generic/14thAmendment.htm. (Accessed 4 December 2021)  

 

Wikipedia (2013). “Declarative judgment”.

https://en.wikipedia.org/wiki/Declaratory_judgment. (Accessed 4 December 2021)