June 24, 2021 - This Week at the Ninth

This Week at the Ninth: Injured Discriminators and Rails-to-Trails

This week, the Ninth Circuit addresses whether a corporate shareholder has standing to challenge a statute allegedly requiring the corporation to discriminate, and considers the interaction between the 1922 Abandoned Railroad Right of Way Act and the 1988 Rails-to-Trails Act.

MELAND v. WEBER
The Court holds that a corporate shareholder has standing to challenge the constitutionality of a California law requiring all public corporations headquartered in the state to have a minimum number of females on their boards of directors.

Panel: Judges McKeown, Ikuta, and Bress, with Judge Ikuta writing the opinion.

Key highlight: “Because Meland has plausibly alleged that SB 826 requires or encourages him to discriminate based on sex, Meland has adequately alleged an injury in fact.”

Background: California Senate Bill 826 requires public corporations with principal executive offices in California to appoint a certain number of female directors to their boards. A covered corporation is required to have “a minimum of one female director on its board” by the end of 2019, and one to three female directors (depending on the size of the board) by the end of 2021. The law also imposes reporting requirements, including directing the Secretary of State to publish reports showing which corporations are in compliance. Violations—which the law counts as each director seat not held by a female at a non-complying corporation—carry fines of $100,000 to $300,000.

Creighton Meland is a shareholder of OSI Systems, a publicly traded company subject to SB 826. Meland sued California’s Secretary of State in November 2019, alleging that SB 826 discriminates on the basis of sex in violation of the Equal Protection Clause of the Fourteenth Amendment. The complaint alleged that because OSI had seven male board members, SB 826 required OSI to add additional female board members by the end of 2019 and 2021. The complaint also alleged that Meland intended to vote on board-member nominees at OSI annual meetings. A month after the suit was filed, OSI shareholders elected a female board member at the December 2019 annual meeting.

The district court dismissed Meland’s suit for lack of standing. It reasoned that Meland had not suffered an injury in fact because SB 826 imposed requirements on corporations, not shareholders; that SB 826 did not prevent Meland from voting for a male director; that any injury was not actual or imminent because OSI was in compliance with SB 826; and that Meland lacked prudential standing because he had not suffered an injury separate from any injury to OSI.

Result: The Ninth Circuit reversed. First, the Court noted that under its standing precedent, “[a] person required by the government to discriminate by ethnicity or sex against others has standing to challenge the validity of the requirement, even though the government does not discriminate against him.” That remains true, the Court said, “even if the beneficiaries [of the discrimination] are members of groups whose fortunes we would like to advance.” For that reason, “Meland’s allegations that SB 826 ‘requires or encourages’ him to discriminate on the basis of sex,” so long as they are plausible, establish “a concrete personal injury sufficient to confer Article III standing.”

Next, the Court rejected the argument that Meland’s claims were implausible merely because SB826 imposes requirements on corporations, not shareholders. Shareholders were “an object of SB 826,” the Court said, because “shareholders are responsible for electing directors at their annual meetings,” and “the only way a person can be elected to OSI’s board is if a plurality of shareholders vote in favor of the nominee.” It did not matter that SB 826 does not expressly require individual shareholders to vote for a female nominee, the Court reasoned, because “each shareholder would understand that a failure to vote for a female would contribute to the risk of putting the corporation in violation of state law and exposing it to sanctions.” Nor did it matter that shareholders could not be sanctioned directly. “A law may require or encourage action whether or not it imposes a monetary sanction for noncompliance,” the Court said, concluding that “Meland is subject to the coercive effect of SB 826.”

The Court also rejected California’s argument that Meland’s § 1983 claim was properly dismissed for lack of prudential standing. While “a plaintiff generally must assert his own legal rights,” not those of third parties, under Delaware law (where OSI is incorporated), a stockholder’s injury is direct, not derivative, where he “suffered an injury that is not dependent on an injury to the corporation.” Meland’s action was direct, the Court said, because he alleged an injury to himself, not OSI—that SB 826 encourages him to discriminate based on sex. Finally, the Court rejected California’s arguments that the suit was unripe or moot. Rather, Meland’s “injury is ongoing, because OSI’s shareholders are responsible for electing directors at each annual meeting.” The court was thus in a position to grant effective relief.

ESTATE OF FINNIGAN v. UNITED STATES
The Court holds that under the Rails-to-Trails Act, railroad property abandoned but not decreed abandoned before 1988 reverts to the federal government.

The panel: Judges Graber, Clifton, and Ikuta, with Judge Clifton writing the opinion and Judge Ikuta dissenting.

Key highlight: “Starting October 4, 1988, the Rails-to-Trails Act required that ‘any and all right, title, interest, and estate of the United States’ so retained under § 912 ‘remain in the United States.’ 16 U.S.C. § 1248(c). It does not say that such interests will remain with the United States until the adjoining landowner finally takes action to obtain a judicial or congressional decree under § 912, nor does it suggest that there is anything limited or temporary about the rights retained by the United States. The Estate’s preferred interpretation is thus foreclosed by a plain reading of § 1248(c).”

Background: In the 1860s, Congress granted the Northern Pacific Railroad Company a right of way extending from Lake Superior to Puget Sound in order to construct a railroad and telegraph lines. The United States retained a reversionary interest in the land if the railroad abandoned it.

In 1922, Congress passed the Abandoned Railroad Right of Way Act (43 U.S.C. § 912), which provided that, with some exceptions, title to granted land that would otherwise revert to the government upon “abandonment” would instead be transferred to the owner of the land through which the abandoned railroad passed. Under that statute, such a transfer would occur if the railroad company’s “use and occupancy of said lands . . . has ceased or shall hereafter cease . . . by abandonment by said railroad company declared or decreed by a court of competent jurisdiction or by Act of Congress.”

In 1988, Congress changed course, enacting the “Rails-to-Trails” Act. Under that statute, any railroad rights of way subsequently abandoned would again revert to the government. Specifically, the statute provided: “Commencing October 4, 1988, any and all right, title, interest, and estate of the United States in all rights-of-way of the type described in section 912 of Title 43, shall remain in the United States upon the abandonment or forfeiture of such rights-of-way.”

In 1958, Northern Pacific stopped using a 20-mile stretch of railroad in Montana that traversed the plaintiff Estate’s property. Many adjacent homeowners obtained judicial decrees granting them title under the Abandoned Railroad Right of Way Act. In 1996, the Estate’s predecessor in interest finally brought a quiet title action in Montana state court, though it did not name the government as a party. In 2018, the Estate then brought a quiet title action against the government. The district court concluded that “abandonment” required both physical abandonment and a judicial or legislative decree. Because that had not occurred until after the 1988 effective date of the Rails-to-Trails Act, the district court granted summary judgment to the government.

Result: The Ninth Circuit affirmed. As the majority explained, the critical question was whether “a right of way should be deemed ‘abandoned’ when physically abandoned or whether the term ‘abandonment’ requires both physical abandonment and a judicial decree of abandonment when transferring the land to a neighboring landowner.” The Court concluded that both physical abandonment and a decree were required. The Ninth Circuit had previously adopted this two-part test for “abandonment” under the 1922 statute, and the majority rejected the Estate’s attempt to avoid this precedent by arguing that the Rails-to-Trails Act applied only if physical abandonment had not taken place before 1988. The Rails-to-Trails Act, the majority reasoned, said that any “right, title or interest” retained under § 912 would “remain” with the United States, and such interests remained as of 1988 if there had not been a prior judicial decree of abandonment. The majority also rejected the Estate’s argument that it could rely on pre-1988 judicial decrees applicable to adjacent parcels, as all such decrees are “particular to the parcel at issue and the parties in the case.”

In dissent, Judge Ikuta criticized the majority for focusing on the meaning of the word “abandonment” in the 1922 statute, rather than the 1988 statute. As she explained, the Rails-to-Trails Act made no reference to a judicial decree of abandonment, and the ordinary understanding of the term “abandonment” was physical abandonment. Because the railroad line had not been abandoned after the 1988 commencement of the Rails-to-Trails Act, that statute, in Judge Ikuta’s view, did not apply. Rather, § 912 continued to govern, and it required that any reversionary rights be transferred to the Estate.