Challenges To California Director Quota Law Keep Coming

Allen Matkins
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Allen Matkins

It should be a surprise to no one that California's laws imposing strict gender and diversity requirements on publicly held corporations continue to attract legal challenges.  Tomorrow, a trial is scheduled to begin in California Superior Court on the constitutionality of SB 826, California's female director quota law.  Crest v. Padilla (Cal. Super. Ct. Case No. 19STCV27561).   The basis for the plaintiffs' claim is Art. I, Section 31 of the California Constitution which forbids the state from discriminating against, or granting preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting.  In addition, there is a separate challenge to the law pending in the U.S. District Court for the Eastern District of California.  Meland v. Padilla (Case No. No. 2:19-cv-02288-JAM-AC).  Last June, the Ninth Circuit Court of Appeals unanimously ruled that the plaintiff had standing to pursue his constitutional challenge.  Meland v. Padilla, 2 F. 4th 838 (9th Cir. 2021).  A ruling on the plaintiff's motion for a preliminary injunction is currently pending in that case. 

After enactment of SB 826, the California legislature enacted AB 979 which imposes director quotas on publicly held corporations that are headquartered in the state based on self-identification as a member of an "underrepresented community".   Cal. Corp. Code §§ 301.4 & 2115.6.  A director from an "underrepresented community" is a “an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who selfidentifies as gay, lesbian, bisexual, or transgender.”  Cal. Corp. Code § 301.4(e)(1).

Last week, the National Center for Public Policy Research filed a complaint in U.S. District Court challenging both SB 826 and AB 979.  The complaint has a single claim for relief based on the Fourteenth Amendment of the U.S. Constitution and 42 U.S.C. § 1983.  The plaintiff, represented by the Pacific Legal Foundation, is asking for declaratory and injunctive relief.  In 2020, I was the only person to testify before the California Senate Banking & Financial Institutions Committee in opposition to the enactment of AB 979.  I argued that the quota requirement would violate the Equal Protection clauses of the U.S. and California Constitutions and the Commerce Clause of the U.S. Constitution.  I also pointed out that the requirement of self-identification implicated the First Amendment of the U.S. Constitution by compelling speech.  Finally, I noted that the combined effect of SB 826 and AB 979 was to privilege transgender females over other females.  My testimony was in my individual capacity and not on behalf of my firm, any client or other person.  

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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