S.B. 826 requires that, by December 31, 2021, publicly held corporations in California have at least 1 female director if the number of directors is 4 or fewer, at least 2 female directors if the number of directors is 5, and at least 3 female directors if the number of directors is 6 or more.
Assembly Judiciary Committee analysis describes S.B. 826 as “essentially a quota system for private corporate boards. Should this bill be challenged, the State would confront a difficult challenge in showing a compelling government interest in requiring a gender-based quota system for a private corporation.” And their expectation of having “difficult” challenges seems to be the case.
In the most recent case, plaintiffs allege that S.B. 826 violates Equal Protection under Article I, Section 7 (aka Equal Protection Clause) and violates Equal Protection under Article I, Section 31 (the prohibition on discrimination based on sex in public employment, education or contracting) of the California Constitution.
Los Angeles County-based California Superior Court Judge Maureen Duffy-Lewis just found in her May 13, 2022 ruling, that S.B. 826 is unconstitutional under the Article I, Section 7, and thus the Court “need not make any determination as to plaintiffs’ second count under Article I, Section 31 in the case of Crest v Padilla, 19STCV27561 (May 13, 2022).
The first prerequisite to a meritorious claim under the equal protection clause is a showing that the state has adopted a classification that affects two or more “similarly situated” groups in an unequal manner. When a statute makes express use of a suspect classification, a plaintiff challenging the statute meets their initial and ultimate burden simply by pointing out the classification. The statute is presumed to be unconstitutional, and the government bears the burden of demonstrating otherwise.
The Court found that the Plaintiffs carried their burden to prove that men and women are similarly situated for purposes of S.B. 826’s gender-based quota.” As Plaintiffs have demonstrated that S.B. 826 is presumptively unconstitutional, thus the burden shifted to the defendant to prove that S.B. 826 satisfies strict scrutiny.
To meet the strict scrutiny test, the defendant must show (1) a compelling state interest, (2) that S.B. 826 is necessary and (3) that S.B. 826 is narrowly tailored. The strict scrutiny standard applies even if a law is claimed to be remedial.
Defendant claimed three compelling state interests: (1) S.B. 826 was passed to eliminate and remedy discrimination in the director selection process for publicly held corporate boards in California. (2) S.B. 826 was passed to increase gender diversity on the boards of publicly held corporations to benefit the public and the state economy. (3) S.B. 826 was passed to increase gender diversity on publicly held corporations headquartered in California to benefit and protect California taxpayers, public employees and retirees.
However in her Opinion, Judge Duffy-Lewis said “Generalized assertions of discrimination in a particular region or industry are insufficient to give rise to a compelling governmental interest, as are mere statistical anomalies, and the discrimination must be identified with specificity.”
She went on to say that “S.B. 826’s goal was to achieve gender equity or parity; its goal was not to boost California’s economy, not to improve opportunities for women in the workplace nor not to protect California’s taxpayers, public employees, pensions and retirees.”
The Court considered all evidence but concluded “a Compelling State Interest is lacking.”
Tom Fitton, president of good-government group Judicial Watch, which represented the plaintiffs in court, welcomed the decision by Duffy-Lewis. Fitton noted that this was the second recent California court decision finding that quotas for corporate boards are unconstitutional.
On September 30, 2020, California Governor Gavin Newsom signed AB 979 (Corporations Code§ 301.4) into law on the heels of SB 826. It had similar provisions for the protection of members of “underrepresented” communities rather than women. On the same day that AB 979 was passed in September 2020, three California taxpayers filed a lawsuit against the Secretary of State in Los Angeles County Superior Court. .
In that case, also cited as Crest v. Padilla – 20 STCV 37513 (April 1, 2022), Los Angeles County-based California Superior Court Judge Terry A. Green ruled on April 1 that the law “violates the Equal Protection Clause of the California Constitution on its face.”
Sacramento-based Pacific Legal Foundation (PLF), a public interest law firm, is also pursuing similar litigation in federal court in California. Its lawsuit was filed on Nov. 22, 2021, in the U.S. District Court for the Eastern District of California. That case was dismissed by the trial judge who found that a shareholder has no standing to challenge the law.
But, in a unanimous published opinion, the Ninth Circuit Court of Appeals reversed, and held that a shareholder of a California company has standing to sue in the case of Meland v Weber 2 F.4th 838 (2021)