Assembly Bill 979, California Board Diversity Charter, Ruled Unconstitutional | Akin Gump Strauss Hauer & Feld LLP

On May 15, 2023, the Eastern District of California ruled that California Assembly Bill No. 979 (“AB 979”) violates the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution. and 42 USC § 1981. As enacted, the California Board of Diversity Charter required state-based public companies to include a minimum number of directors from “underrepresented communities” or be subject to penalties for violate the statute. AB 979 defines a “director of an underrepresented community” as “a person who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaskan Native, or who self-identifies as gay, lesbian, bisexual, or transgender.

The plaintiff in the case, the Alliance for Fair Board Recruitment (the “Alliance”), argued that because AB 979 imposes racial classifications and establishes a “minimum number of directors from a select racial and ethnic group,” the statute “constitutes a quota-based race” and is an apparent violation of the Equal Protection Clause and 42 USC 1981, a US federal statute governing equal rights under the law. The State of California responded, arguing that while AB 979 “constitutes racial classification,” such classification only establishes a “flexible floor for diversity” and is permissible because it attempts to remedy inherited racial and ethnic discrimination. California also asked the court to strike down the inadmissible portions of the statute to the extent it agrees with the Alliance’s position.

In his ruling granting the Alliance’s motion for summary judgment, Chief Justice John A. Mendez agreed with the Alliance and found that the racial and ethnic quotas are “apparently invalid” under applicable US Supreme Court precedent. USA In particular, Chief Justice Mendez found that, despite California’s attempt to “semantically formulate this requirement as flexible”, AB 979 “is a racial quota, as it requires a fixed number of seats to be reserved in board exclusively for certain minority groups.” The court also found that the plaintiffs were entitled to summary judgment on their legal challenge to AB 979. The court concluded that it did not need to rule on the question of whether strict scrutiny was the appropriate analytical framework for evaluating AB 979, given the court’s ruling. judge. in the face challenge. Ultimately, Chief Justice Mendez denied California’s request to remove the illegal provisions from the statute on the grounds that doing so would render the statute inconsistent.

The court ruling finding AB 979 unconstitutional follows last year’s state court rulings, which found the statute’s gender diversity requirements unconstitutional. Then, Robin Crest, et al. against Alex Padilla, the court ruled that AB 979 violated the California constitution, finding that the statute treated people differently based on race, sexual orientation, and gender identity and could not justify such disparate treatment for any purpose convincing. In a complementary case, padilla II, a Los Angeles Superior Court struck down Section 301.4 of the California Corporations Code on the grounds that it violated the equal protection clause of the California constitution. we wrote about padilla me and padilla II here.

Relatedly, the Alliance is also challenging the boardroom diversity rules adopted by the Nasdaq and approved by the US Securities and Exchange Commission. That challenge remains. under trial before the United States Court of Appeals for the Fifth Circuit. Interested parties, including Akin on behalf of an ad hoc group of Nasdaq-listed companies, filed amicus briefs in support of the Nasdaq rule.