Challenges To California Director Quota Law Keep Coming – Corporate/Commercial Law

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.