Federal Court Deems California Board’s Diversity Statute Regarding “Underrepresented Communities” Unconstitutional | Cooley LLP

There have been a number of challenges to California’s board diversity legislation, SB 826, the board’s gender diversity statute, and AB 979, the board’s diversity statute regarding “underrepresented communities.” In two cases, Crest against Padilla I and Ifiled in state court, the plaintiffs were victories and the court issued injunctions against the implementation and enforcement of these two statutes. Both cases are currently on appeal, and the precautionary measures remain in effect. But there were also cases filed in federal court, and in one of those cases, Alliance for Fair Board Recruitment v. Weber, the US District Court for the Eastern District of California has just granted Plaintiff’s motion for summary judgment and concluded that AB 979 is prima facie unconstitutional. The federal court decision could have repercussions in other states and potentially influence ongoing state court appeals (as did a previous SB 826 decision by the court that goes the other way. See third bar side below).

The initial complaint. The present case was originally filed in July 2021 in California federal district court against California Secretary of State Dr. Shirley Weber seeking declaratory relief from the California board diversity statutes ( SB 826 and AB 979) violated the Equal Protection Clause of the Fourteenth Amendment and internal affairs doctrine, and a court order to prevent Weber from enforcing those statutes. The Plaintiff, the Alliance for Fair Board Recruitment, was described as “a Texas nonprofit membership association,” with members including “persons seeking employment as corporate directors, as well as shareholders of publicly traded companies headquartered in Texas.” California and therefore subject to SB 826 and AB 979.”

In his complaint, the Plaintiff held that “states cannot require discrimination on the basis of race without convincingly showing at the outset that the discrimination is strictly designed to further a compelling state interest. And they cannot impose discrimination on the basis of sex without showing that the discrimination is substantially related to the achievement of an important governmental interest.” AB 979, the lawsuit claimed, required all California-based publicly traded corporations to discriminate on the basis of race when selecting their board members. The complaint alleged that the law is “unconstitutional and condescending social engineering,” which relies on and perpetuates “envious racial categories.” The Plaintiff argued that the law was not “intended to remedy any particular past discrimination.” Rather, the Plaintiff said, California viewed the mandate as “justified on the grounds that the discrimination will be profitable to California corporations and shareholders, and therefore to the state. That is unconstitutional. If the Fourteenth Amendment and our fundamental civil rights laws stand for anything, it’s that earning private money is not a justification for racial or sexual discrimination.” The Fourteenth Amendment’s prohibition against discrimination based on race or ethnic origin, Plaintiff contended, is prohibited “in all but the most limited circumstances. Laws that discriminate on the basis of race are subject to strict scrutiny, which means they must be strictly tailored to serve a compelling government interest.” But, according to the complaint, the law failed on both counts of the strict scrutiny test: there was no compelling state interest, the law did not remedy past discrimination or encourage the educational benefits of diversity in a university setting, nor was it strictly designed .

Plaintiff also contended that the statute violated the prohibition in 42 USC § 1981 against discrimination on the basis of race in the making and performance of contracts by preventing those who do not identify as members of the favored class from obtaining contracts for board positions in corporations. based in California. (See this PubCo post.)

Motion for summary judgment. In June 2022, the plaintiff requested summary judgment with respect to AB 979 on the grounds that there was no genuine issue as to any material facts and that the plaintiff was entitled to judgment as a matter of law because AB 979 “imposed race-based classifications. in a manner that cannot satisfy the requirements of strict scrutiny, in violation of the Fourteenth Amendment to the US Constitution (Charge II) and 42 USC § 1981 (Charge III).”

In his motion for summary judgment, Plaintiff asserted that AB 979 was a “paradigm violation of the equal protection clause of the Fourteenth Amendment,” which worked by “requiring reservations,” making it “a statute based on race, and is in all respects, at least in the opinion of the Supreme Court, a quota”. This type of “‘race-based action’ can be passed only if ‘it is necessary to advance a compelling interest’ and ‘satisfies the ‘close fit’ test… AB 979 falls far short on both fronts.” The Secretary opposed the motion, arguing that the law was not a quota because it established only a “soft floor” for diversity and that it met strict scrutiny. Alternatively, the Secretary requested that, if any provision were declared unconstitutional, it be separated from the rest of the statute.

The decision of the Court. The Court granted Plaintiff’s motion and concluded that “Plaintiff’s facial objection to AB 979 should be affirmed.” Although the Secretary conceded “that AB 979 constitutes racial classification,” argued that it was permissible because it was designed to remedy past discrimination, it did not create “preferred racial and ethnic classes because no individual is insulated from competition with others and each the candidate it must still go through an individualized consideration process,” and expressly allowed boards to expand to accommodate more candidates so that no director position was necessarily jeopardized.

In its order, the Court rejected the Secretary’s “semantic argument” that [AB 979] it just sets a ‘soft floor’ for diversity.” Instead, the Court concluded that the statute’s racial classifications were in fact a “race-based quota,” as defined by SCOTUS, as it required that “a certain fixed number of board seats be reserved exclusively for certain minority groups.” “. Furthermore, the Court noted that SCOTUS “has rejected racial and ethnic quotas and declared them ‘invalid on face’”. sentences the plaintiff as a matter of law. The Court did not even get to the issue of strict scrutiny “because the facial objection to AB 979 is dispositive.” Because SCOTUS had held that a violation of the Equal Protection Clause of the Fourteenth Amendment also constitutes a violation of §1981, the Court also granted summary judgment in Plaintiff’s favor on that count as well.

The Court also denied the Secretary’s request to remove the unconstitutional provisions. In applying California law, the court found that “removing racial and ethnic classifications from AB 979 would adversely affect the consistency of the remaining provision with respect to those who identify as gay, lesbian, bisexual, or transgender because the language of the law is expressed almost exclusively in racial and ethnic terms”. terms and figures. In addition, the Court analyzed the statute’s language, the Secretary’s brief arguing that the statute’s primary purpose was to remedy racial and ethnic discrimination, and the absence of a severability clause as indications that “the legislature would not have adopted the rest of AB 979 would have provided for its partial invalidation”.

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