New Challenge Filed To California Board Quota Laws – Corporate/Commercial Law

Allen Matkins Leak Gamble Mallory & Natsis LLP

United States:

New Challenge for California Board of Directors Quota Laws

July 22, 2021

Allen Matkins Leak Gamble Mallory & Natsis LLP

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Earlier this month, a Texas nonprofit membership association filed a lawsuit in the United States District Court for the Central District (Western Division) of California, seeking Alliance For Fair Board Recruitment v. Weber, Case No. 2: 21-cv-05644 -RGK-RAO (July 12, 2021). In contrast to previous legal challenges, this lawsuit takes up both SB 826 and AB 979. These bills set quotas for the number of female directors (SB 826) and directors from underrepresented communities (AB 979) on the boards of public companies with headquarters in California. The California Secretary of State is a defendant in both proceedings. A hearing on the U.S. Secretary of State’s motion for a summary judgment in the State Court Appeal against SB 826 is scheduled for September 21, 2021 in the Los Angeles Superior Court (Crest v. Padilla, Case No. 19STCV27561 (August 6, 2019) ). The state court appeals trial against AB 979 is currently planned for next spring (Crest v. Padilla, Case No. 20STCV37513 (September 30, 2020). SB 826 is also being appealed in a federal court. Last month at the Ninth District Court of Appeal overturned US District Court Judge John Mendez’s decision that plaintiffs were in void See 9th District: Shareholder Is Injured If California Requests or Encourages Discrimination

This new challenge differs from the others in that it takes up both requirements and argues that both quota requirements contradict the “doctrine of internal affairs”. The plaintiff claims:

California race and gender quotas laws expressly apply “to the exclusion” of the laws of the state of incorporation. Cal.no. Corp. Code §§ 2115.5 (a), 2115.6 (a). In other words, these board laws claim that they override other states’ laws about the companies incorporated in their own states. Hence, California’s “diversity” laws violate internal affairs doctrine.

The plaintiff’s action also differs in that it claims association authority, since it is brought on behalf of an association.

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