July 24, 2021

Volume XI, Number 205

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New Challenge Filed To California Board Quota Laws

Earlier this month, a Texas non-profit membership association filed a complaint in the United States District Court for the Western District of California, Alliance For Fair Board Recruitment v. Weber, Case No. 2:21-cv-05644-RGK-RAO (July 12, 2021).  Unlike an earlier court challenges, this lawsuit takes on both SB 826 and AB 979.   These bills impose quotas as to the number of female directors (SB 826) and directors from underrepresented communities (AB 979) on the boards of directors of publicly held corporations having their principal executive offices in California.    The California Secretary of State is a defendant in both of these suits.  A hearing on the Secretary of State's motion for summary judgment in the state court challenge to SB 826 is scheduled for September 21, 2021 in the Los Angeles Superior Court (Crest v. Padilla, Case No. 19STCV27561 (Aug. 6, 2019)).   Trial on the state court challenge to AB 979 is currently scheduled for next spring (Crest v. Padilla, Case No. 20STCV37513 (Sept. 30, 2020).   SB 826 is also being challenged in federal court.   Last month, the Ninth Circuit Court of Appeals reversed U.S. District Court Judge John Mendez' ruling that the plaintiffs lacked standing.  See  9th Circuit: Shareholder Is Injured When California Requires Or Encourages Discrimination,

This new challenge differs from the others because it takes on both requirements and argues that both quota requirements are contrary to the "internal affairs doctrine".   The plaintiff asserts:

California's race and gender quota laws expressly apply "to the exclusion" of the laws of the state of incorporation.  Cal. Corp. Code §§ 2115.5(a), 2115.6(a).  In other words, these board laws assert that they override other states' laws governing corporations incorporated in their own states.  Therefore, California's "diversity" laws violate the internal affairs doctrine.

The plaintiff's complaint also differs in that it claims associational standing since it is brought on behalf of an association.  

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 201
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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