Meland v. Weber

1

2

3 UNITED STATES DISTRICT COURT

4 EASTERN DISTRICT OF CALIFORNIA

5

6 CREIGHTON MELAND, No. 2:19-cv-02288-JAM-AC

7 Plaintiff,

8 v. ORDER GRANTING DEFENDANT’S

MOTION TO DISMISS

9 ALEX PADILLA, Secretary of

State of the State of

10 California, in his official

capacity,

11

Defendant.

12

13 This case arises from a dispute over California Senate Bill

14 No. 826 (“SB 826”), which requires publicly held corporations

15 headquartered in the state to include at least one woman on their

16 board of directors. Creighton Meland (“Plaintiff”) brings this

17 suit against Alex Padilla, California’s Secretary of State

18 (“Defendant”), as a shareholder of OSI Systems, Inc. (“OSI”), a

19 publicly held corporation subject to this law. See Compl., ECF

20 No. 1. Plaintiff alleges SB 826 impairs his right to vote for

21 OSI’s board of directors in violation of the Equal Protection

22 Clause and seeks declaratory and injunctive relief. Id.

23 Defendant moves to dismiss. Mot., ECF No. 7.

24 For the reasons set forth below, the Court GRANTS

25 Defendant’s motion.1

26

27 1 This motion was determined to be suitable for decision without

oral argument. E.D. Cal. L.R. 230(g). The hearing was

28 scheduled for March 24, 2020.

1 I. FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND

2 Governor Brown signed SB 826 into law on September 30, 2018.

3 Compl. ¶ 6. It is codified as §§ 301.3 and 2115.5 of the

4 California Corporations Code. Id. Under SB 826, any “publicly

5 held domestic or foreign corporation whose principal executive

6 offices . . . are located in California shall have a minimum of

7 one female director on its board.” Cal. Corp. Code § 301.3(a).

8 The Secretary of State may adopt regulations to implement SB 826

9 and may also impose fines upon violators. Cal. Corp. Code

10 § 301.3(e)(1). A first violation may result in a $100,000 fine

11 and any subsequent violations may result in $300,000 fines. Cal.

12 Corp. Code § 301.3(e)(1)(A)–(B).

13 OSI is a publicly traded corporation headquartered in

14 Hawthorne, California and incorporated in Delaware. Compl.

15 ¶¶ 17–18. Thus, it must comply with SB 826. Id. ¶ 20. When

16 Plaintiff filed his complaint on November 13, 2019, OSI had a

17 seven-member, all-male board of directors. Id. ¶ 21. To comply

18 with SB 826, OSI had to elect a woman to the board by the end of

19 2019 and two more by the end of 2021. Id. Plaintiff, a

20 shareholder of OSI, votes on the members of the board of

21 directors. Id. ¶ 22. A candidate must receive a plurality of

22 shareholder votes to be elected to the board. Compl. ¶ 25.

23 Plaintiff alleges SB 826’s requirements contain a sex-based

24 classification that harms shareholder voting rights and violates

25 the Fourteenth Amendment. Id. ¶¶ 29, 31. On December 12, 2019,

26 OSI’s shareholders elected a woman, Kelli Bernard (“Bernard”), to

27 the board of directors. Opp’n at 5.

28 Defendant now moves to dismiss the complaint under Federal

1 Rules of Civil Procedure 12(b)(1) and 12(b)(6), arguing Plaintiff

2 lacks standing and the case is unripe and moot. Mot., ECF No. 7.

3 Plaintiff opposes the motion. Opp’n, ECF No. 13.

4

5 II. OPINION

6 A. Judicial Notice

7 Defendant requests that the Court take judicial notice

8 of (1) a printout from OSI’s website showing Bernard was

9 elected to the company’s board of directors in December

10 2019; and (2) a copy of OSI’s Form 8-K, filed with the

11 Security Exchange Commission (“SEC”) on December 12, 2019.

12 Request for Judicial Notice (“RJN”), ECF No. 8. Plaintiff

13 does not acknowledge Defendant’s request for judicial notice

14 in his opposition but does acknowledge Bernard is now a

15 member of the board. Opp’n at 5. Rule 201 of the Federal

16 Rules of Evidence allows a court to take judicial notice of

17 an adjudicative fact that is “not subject to reasonable

18 dispute,” because it (1) “is generally known within the

19 trial court’s territorial jurisdiction”; or (2) “can be

20 accurately and readily determined from sources whose

21 accuracy cannot reasonably be questioned.” Fed. R. Evid.

22 201(a)-(b).

23 “[A]s a general rule, a district court may not consider

24 materials not originally included in the pleadings in deciding a

25 Rule 12 motion . . . [but] it ‘may take judicial notice of

26 matters of public record’ and consider them without converting a

27 Rule 12 motion into one for summary judgment.” United States v.

28 14.02 Acres of Land, 547 F.3d 943, 955 (9th Cir. 2008) (quoting

1 Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001)).

2 However, courts may not take judicial notice of “disputed facts

3 stated in public records.” See Lee, 250 F.3d at 690. A court

4 may also consider materials incorporated into the complaint.

5 Cotto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir.

6 2010). The doctrine of incorporation by reference includes

7 “situations where the complaint necessarily relies upon a

8 document or the contents of the document are alleged in a

9 complaint, the document’s authenticity is not in question and

10 there are no disputed issues as to the document’s relevance.”

11 Id.

12 The complaint does not explicitly refer to the printout

13 from OSI’s website, but it contains allegations that OSI does

14 not currently have a woman on its board of directors and that

15 Defendant may fine OSI if a woman is not elected to the board

16 before the end of 2019. Compl. ¶ 21. Plaintiff does not

17 contend that the printout is not authentic, nor does he contest

18 its relevance. Whether Plaintiff has standing is impacted, in

19 part, by whether OSI will in fact be fined for not having a

20 woman on its board. This suggests that the printout showing a

21 woman is currently on the board, and that OSI will not be fined,

22 is integral to the complaint. Meanwhile, the Form 8-K is a

23 matter of public record, and therefore, a proper subject of

24 judicial notice. See Glenbrook Capital Ltd. Partnership v. Kuo,

25 525 F. Supp. 2d 1130, 1137 (N.D. Cal. 2007) (finding the Form 8-

26 K is a “publicly-available document”).

27 Accordingly, the Court GRANTS Defendant’s request for

28 judicial notice of the printout from OSI’s website and the Form

1 8-K filed with the SEC.

2 B. Applicable Legal Standards

3 1. Motion to Dismiss Under Rule 12(b)(1)

4 A Rule 12(b)(1) motion to dismiss tests whether a complaint

5 alleges grounds for federal subject-matter jurisdiction. See

6 Fed. R. Civ. P. 12(b)(1). If the plaintiff lacks standing under

7 Article III of the United States Constitution, then the court

8 lacks subject-matter jurisdiction, and the case must be

9 dismissed. See Steel Vo. v. Citizens for a Better Env’t, 523

10 U.S. 83, 101–02 (1998). A jurisdictional challenge may be facial

11 or factual. Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039

12 (9th Cir. 2004).

13 The differences between the two are as the names suggest.

14 When the challenge is facial, the court determines whether the

15 allegations contained in the complaint are sufficient on their

16 face to invoke federal jurisdiction, accepting all material

17 allegations in the complaint as true and construing them in favor

18 of the party asserting jurisdiction. See Warth v. Seldin, 422

19 U.S. 490, 501 (1975). By contrast, when the challenge is

20 factual, “the court need not presume the truthfulness of the

21 plaintiff’s allegations,” and can, instead, review extrinsic

22 evidence beyond the complaint without converting a motion to

23 dismiss into one for summary judgment. Safe Air for Everyone,

24 373 F.3d at 1039.

25 Once a party has moved to dismiss for lack of subject-matter

26 jurisdiction under Rule 12(b)(1), the opposing party bears the

27 burden of establishing the court’s jurisdiction. See Kokkonen v.

28 Guardian Life Ins. Co., 511 U.S. 375, 377 (1994).

1 2. Standing

2 Standing consists “of two related components: the

3 constitutional requirements of Article III and nonconstitutional

4 prudential considerations.” Franchise Tax Board of Calif. v.

5 Alcan Aluminum LTD., 493 U.S. 331, 335 (1990). With regard to

6 Article III, “standing is an essential and unchanging part of the

7 case-or-controversy requirement . . . .” Lujan v. Defs. of

8 Wildlife, 504 U.S. 555, 560 (1992). Standing is therefore a

9 “threshold question” in “determining the power of the court to

10 entertain the suit.” Warth, 422 U.S. at 498. To establish

11 standing, a “plaintiff must have (1) suffered an injury in fact,

12 (2) that is fairly traceable to the challenged conduct of the

13 defendant, and (3) that is likely to be redressed by a favorable

14 judicial decision.” Spokeo, Inc. v. Robins, 136 S. Ct. 1540,

15 1547 (2016), as revised (May 24, 2016). At the pleading stage

16 “[i]t is the responsibility of the complainant clearly to allege

17 facts demonstrating that he is a proper party to invoke judicial

18 resolution of the dispute and the exercise of the court’s

19 remedial powers.” Warth, 422 U.S. at 518.

20 For Plaintiff to have standing, he must first establish an

21 injury in fact. To do so, Plaintiff must show that he suffered

22 “an invasion of a legally protected interest” that is “concrete

23 and particularized” and “actual or imminent, not conjectural or

24 hypothetical.” Lujan, 504 U.S., at 560–61. A concrete injury

25 to the plaintiff must actually exist. Spokeo, 136 S. Ct., at

26 1548 (citations omitted). An “[a]bstract injury is not enough.”

27 City of Los Angeles v. Lyons, 461 U.S. 95, 101 (1983). “The

28 plaintiff must show that he has sustained or is immediately in

1 danger of sustaining some direct injury as the result of the

2 challenged official conduct and . . . .” As previously

3 mentioned, “the injury or threat of injury must be both real and

4 immediate, not conjectural or hypothetical.” Id. at 101–02

5 (internal quotation marks and citations omitted). Moreover, to

6 be particularized, the injury “must affect the plaintiff in a

7 personal and individual way.” Id. (internal quotation marks and

8 citations omitted). The injury-in-fact test “requires that the

9 party seeking review be himself among the injured.” Sierra Club

10 v. Morton, 405 U.S. 727, 734–35 (1972).

11 Meanwhile, the prudential requirements of the standing

12 doctrine require that “the plaintiff generally must assert his

13 own legal rights and interests, and cannot rest his claim to

14 relief on the legal rights or interests of third parties.”

15 (internal quotation marks and citation omitted). Alcan

16 Aluminum, 493 U.S. at 336. Related to this principle is the

17 shareholder standing rule. Id. “The rule is a longstanding

18 equitable restriction that generally prohibits shareholders from

19 initiating actions to enforce the rights of the corporation

20 unless the corporation’s management has refused to pursue the

21 same action for reasons other than good-faith business

22 judgment.” Id. However, a shareholder with a direct, personal

23 interest in a cause of action may bring suit even if the

24 corporation’s rights are also implicated. Id.

25 C. Analysis

26 1. Article III

27 Under the Equal Protection Clause of the Fourteenth

28 Amendment, “[n]o State shall . . . deny to any person within its

1 jurisdiction the equal protection of the laws.” U.S. Const.,

2 Amdt. 14, § 1. Plaintiff alleges SB 826 discriminates on the

3 basis of sex in violation of the Equal Protection Clause.

4 Compl. ¶ 36. Specifically, Plaintiff argues his Fourteenth

5 Amendment rights are violated because SB 826 “coerces

6 shareholders into voting for a minimum number of female board

7 members, and ‘[a] person required by the government to

8 discriminate by ethnicity or sex against others has standing to

9 challenge the validity of the requirement.’” Opp’n at 7 (citing

10 Monterey Mechanical Co. v. Wilson, 125 F.3d 702, 707 (9th Cir.

11 1997)). But Plaintiff has ignored and/or distorted the plain

12 language of SB 826.

13 SB 826 requires publicly held domestic or foreign

14 corporations, with principal executive offices in California, to

15 have a minimum of one female director on its board by the end of

16 2019. Cal. Corp. Code § 301.3(a). By the end of 2021, SB 826

17 requires those corporations to increase the number of women on

18 their boards in proportion to the size of their boards. Cal.

19 Corp. Code § 301.3(b)(1)–(3). These are the only requirements

20 SB 826 imposes on publicly held corporations. Meanwhile, SB 826

21 requires two principal actions from the Secretary of State:

22 publication of a report detailing the California corporations

23 with at least one female director; and then later, publication

24 of a report with other related details. See Cal. Corp. Code §

25 301.3(c)–(d)(1)–(3). SB 826 permits, but does not require, the

26 Secretary of State to “adopt regulations to implement this

27 section” and “impose fines for violations of this section.”

28 Cal. Corp. Code § 301.3(e)(1).

1 None of these provisions of SB 826 constitutes an invasion

2 of Plaintiff’s Fourteenth Amendment rights sufficient to

3 establish Article III standing. Plaintiff’s emphasis on the

4 principle that a person required by the government to

5 discriminate has standing to challenge the requirement misses the

6 mark. Opp’n at 7 (citing Monterey Mechanical, 125 F.3d at 707).

7 For instance, Monterey Mechanical involved a challenge by a

8 general contractor to a state statute requiring general

9 contractors to subcontract percentages of work to minority,

10 women, and disabled veteran-owned subcontractors. 125 F.3d at

11 704. The court found that the general contractor had standing to

12 sue, in part, because the law required the general contractor to

13 discriminate against others in order to receive a bid for work.

14 Id. at 707. There, the statute placed a requirement and a

15 penalty on general contractors, and plaintiff was himself a

16 general contractor. Here, SB 826 places a requirement and a

17 possible penalty on publicly held corporations, but Plaintiff is

18 not a publicly held corporation. He is a shareholder. And that

19 is a distinction with a difference.

20 “Standing doctrine requires us to ask . . . ‘Was this person

21 hurt by the claimed wrongs?’” Id. (internal quotation marks and

22 citation omitted). Thus, an injury in fact must affect the

23 plaintiff in a personal and individual way. Spokeo, 136 S. Ct.,

24 at 1548. The requirement that corporations subject to SB 826

25 have at least one woman on their board of directors is not

26 imposed on Plaintiff. Nor is the possible penalty. Thus,

27 notwithstanding SB 826, Plaintiff, as a shareholder, can vote in

28 shareholder elections as he pleases. If, at future shareholder

1 meetings, Plaintiff prefers a male board member nominee, there is

2 nothing in SB 826 preventing him from casting a vote in favor of

3 that nominee. The provision of SB 826 that requires women to be

4 included on these boards applies only to corporations. Thus,

5 Plaintiff is not affected by SB 826 in a personal and individual

6 way. Any invasion of his Fourteenth Amendment rights is too

7 abstract to amount to an “injury in fact.” Lujan, 504 U.S., at

8 560–61.

9 Moreover, assuming arguendo Plaintiff had established a

10 concrete and particularized invasion of a legally protected

11 interest, he cannot establish his injury is “actual or imminent,

12 not conjectural or hypothetical.” Id. Plaintiff alleges that

13 “[b]ecause OSI does not currently have the requisite number of

14 women on its board, the company will be fined . . . .” Compl.

15 ¶ 30. This is simply not true. As acknowledged in Plaintiff’s

16 opposition, OSI now has a woman on its board of directors, see

17 Opp’n at 5, and, thus, will not be fined. To say nothing of the

18 fact that SB 826 does not actually require fines be imposed by

19 the Secretary of the State. See Cal. Corp. Code § 301.3(e)(1).

20 Thus, Plaintiff’s alleged injury is purely hypothetical and

21 cannot be recognized by this Court. Indeed, Federal courts cannot

22 issue advisory opinions in hypothetical cases. Thomas v.

23 Anchorage Equal Rights Comm'n, 220 F.3d 1134, 1138 (9th Cir.

24 2000) (en banc) (The court’s “role is neither to issue advisory

25 opinions nor to declare rights in hypothetical cases, but to

26 adjudicate live cases or controversies consistent with the powers

27 granted the judiciary in Article III of the Constitution.”).

28 In sum, Plaintiff failed to identify a concrete and

1 particularized injury in fact under the Equal Protection Clause,

2 as required for Article III standing. Further, Plaintiff’s

3 alleged injury is neither real nor immediate. Accordingly,

4 Plaintiff lacks Article III standing to bring a claim under the

5 Fourteenth Amendment.

6 2. Prudential Considerations

7 The doctrine of prudential standing requires the court to

8 consider “whether the plaintiff is asserting her own rights or

9 the rights of third parties.” Wolfson v. Brammer, 616 F.3d

10 1045, 1056 (9th Cir. 2010). Thus, for a shareholder to redress

11 an injury to a corporation, the shareholder must have “been

12 injured directly and independently from the corporation.” RK

13 Ventures, Inc. v. City of Seattle, 307 F.3d 1045, 1057 (9th Cir.

14 2002) (internal quotation marks and citation omitted). For the

15 same reasons Plaintiff does not have Article III standing,

16 Plaintiff does not have prudential standing under the

17 shareholder rule.

18 As explained above, Plaintiff is not injured by SB 826’s

19 requirements. SB 826 only places requirements on corporations;

20 and only corporations face possible regulations and fines.

21 Consequently, Plaintiff has not and cannot be injured directly

22 and independently from OSI. To the extent SB 826 influences the

23 way Plaintiff chooses to vote at future shareholder meetings,

24 that influence is “merely incidental to the injury caused to the

25 corporation” by SB 826. U.S. v. Stonehill, 83 F.3d 1156, 1160

26 (9th Cir. 1996). Shareholder standing can exist where voting

27 rights have legitimately been impaired. Shareholder voting

28 rights are legitimately impaired when shareholders are denied

1 the right to vote on certain issues outright. See Lapidus v.

2 Hecht, 232 F.3d 679, 683 (9th Cir. 2000) (finding shareholder

3 standing where a corporation prevented shareholders from voting

4 on issues guaranteed to them in the corporation’s registration

5 statement); see also Northstar Financial Advisors, Inc. v.

6 Schwab Investments, 779 F.3d 1036, 1058 (9th Cir. 2015) (finding

7 shareholder standing where shareholders were prevented from

8 voting on an action requiring such a vote). However, SB 826

9 does not strip Plaintiff of his voting rights. Nor does it

10 force Plaintiff to vote in any particular manner.

11 Defendant correctly points out that the Court need not

12 determine whether California law or Delaware law applies to the

13 question of whether a shareholder has suffered a direct or

14 derivative injury. See Reply at 4 (citing Gosset v. Wenaas, 42

15 Cal. 4th 1100, 1119 (2008) (the court need not reach the issue

16 of which state’s laws apply where dismissal of the case occurs

17 under either California or Delaware law)). Under either,

18 Plaintiff’s claim is derivative of OSI’s. In California, “the

19 action is derivative . . . if the gravamen of the complaint is

20 injury to the corporation, or to the whole body of its stock or

21 property without any severance or distribution among individual

22 holders . . . .” Jones v. H.F. Ahmanson & Co., 1 Cal.3d 93, 106

23 (1969) (internal quotation marks and citations omitted). In

24 Delaware, the courts ask: “Who suffered the alleged harm—the

25 corporation or the suing stockholder individually—and who would

26 receive the benefit of the recovery or other remedy?” Tooley v.

27 Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1035 (Del.

28 2004). As in California, “[t]he stockholder’s claimed direct

□□□ VECOUOTVEAINIT ENS RAUEUETIOCTE IR ee POY AV VI A

1 injury must be independent of any alleged injury to the

2 corporation.” Id. at 1039.

3 Again, SB 826 does not impair Plaintiff’s voting rights.

4 Plaintiff has not suffered an injury separate and apart from an

5 injury to OSI. Accordingly, Plaintiff also lacks shareholder

6 standing to bring a claim under the Fourteenth Amendment. The

7 Court DISMISSES Plaintiff’s complaint WITHOUT PREJUDICE.

8

9 Til. ORDER

10 For the reasons set forth above, Plaintiff lacks standing to

11 pursue his claim and the suit is DISMISSED WITHOUT PREJUDICE.

12 See Fleck & Assocs., Inc. v. City of Phoenix, 471 F.3d 1100,

13 1106-07 (9th Cir. 2006) (holding that dismissal for lack of

14 standing should be without prejudice).

15 Because Plaintiff lacks standing, the Court need not address

16 | whether Plaintiff adequately stated a claim under Rule 12(b) (6).

17 | Id. at 1102 (“Because [the plaintiff] lacked standing . . . the

18 district court lacked subject matter jurisdiction and should have

19 dismissed the complaint on that ground alone.”). Defendant’s

20 | Motion to Dismiss is therefore GRANTED.

21 IT IS SO ORDERED.

22 Dated: April 20, 2020

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