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    A Different Sort Of Standing Is At Issue In Federal Court Challenge To California Female Director Quota

    Last November, a shareholder of OSI Systems, Inc. filed a complaint in the U.S. District Court for the Eastern District of California challenging California's law imposing female director quotas on publicly traded corporations headquartered in California. Meland v. Padilla, U.S. Dist. Ct. Case No. 2:19-cv--02288-JAM-AC.  The complaint names California's Secretary of State Alex Padilla as a defendant in his official capacity.  Secretary Padilla has moved to dismiss the complaint for lack of standing.  Earlier this week, the plaintiff, represented by the Pacific Legal Foundation filed its opposition.  

    To survive Secretary Padilla's motion to dismiss, the plaintiff must be able to establish standing under Article III of the United States Constitution.  Although Secretary Padilla is also challenging the plaintiff's standing in a separate suit filed in state court, the two standing arguments are completely different.  To establish federal standing, the U.S. Supreme Court has held that a plaintiff show:

    • it has suffered an "injury in fact" that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical;
    • the injury is fairly traceable to the challenged action of the defendant; and 
    • it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.
    Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-561, 119 L. Ed. 2d 351, 112 S. Ct. 2130 (1992).  California, in contrast, allows plaintiffs to establish standing as taxpayers pursuant to Section 526a of the California Code of Civil Procedure. 
    So what is the plaintiff's "injury in fact" in Meland?  The gist of the plaintiff's argument is that he is being forced to vote for directors in a gender conscious way.  Because the law imposes gender mandates on corporations and threatens fines for non-compliance it might be argued that if there is any injury it falls on the corporation, not the shareholders.  I agree with the plaintiff, however, that this is tantamount to asseverating that "a law requiring 'cars to be smog tested' imposes a mandate on the car rather than its owner".  
    The plaintiff also responds to an issue that I raised last November - is the claim direct or derivative?  See California Board Gender Quota Law Challenged In Federal Court. 
    Citing Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1036 (Del. 2004), the case mentioned in my post, the plaintiff asserts that any act that limits or encroaches on shareholder voting rights causes a direct injury to shareholders (OSI is alleged to be a Delaware corporation).  
    In private litigation, it is expected that defendants will try to dispose of a lawsuit as soon as possible through a motion to dismiss or demurrer.  This case, however, involves a law whose constitutionality was openly doubted by both the legislature and the governor who signed it.  It would be unfortunate indeed if its constitutionality is not addressed by the courts.