May 25, 2023

Federal Court Invalidates California’s Board Diversity Statute

Earlier this month, in Alliance for Fair Board Recruitment v. Weber, a California federal court struck down the state’s board diversity statute, which required publicly traded companies based in California to have board members from underrepresented communities.  In a 7-page order, Judge John Mendez granted the plaintiff’s motion for summary judgment and held that the statute was unconstitutional on its face and also violated 42 U.S.C. Section 1981. This excerpt from Kevin LaCroix’s blog on the case summarizes Judge Mendez’s ruling:

The Alliance moved for summary judgment. In opposition to the motion, the state argued that the statute satisfied strict scrutiny, or in the alternative, should have its unconstitutional provisions severed from the rest of the bill. The state argued that the bill’s racial classification was permissible because it remedied past discrimination. The state also argued that the bill did not create preferred racial and ethnic classes because individual board candidates must still compete with others.

In a May 15, 2023, decision, Eastern District of California Judge John Mendez granted the Alliance’s motion for summary judgment, holding that while the state argued that the statute’s diversity requirements were flexible, the statute’s requirements represented a facially invalid racial quota.

In reaching his decision, Judge Mendez did not even reach the “strict scrutiny” arguments that the state had raised, instead finding that the statute was unconstitutional on its face. Citing the U.S. Supreme Court’s 2003 decision in Grutter v. Bollinger, Judge Mendez noted that a quota is “a program in which a certain fixed number or proportion of opportunities are reserved exclusively for certain minority groups.”

Judge Mendez found that AB 979 is a “racial quota” under this definition because it “requires a certain fixed number of board positions to be reserved exclusively for certain minority groups,” in violation of the U.S. Constitution’s Equal Protection Clause. Judge Mendez also ruled that the statute violated Section 1981, because, under Supreme Court precedent, “ a violation of the Equal Protection Clause of the Fourteenth Amendment also constitutes a violation of Section 1981.”

Kevin also notes that the plaintiff in this case is also the same entity that’s currently challenging Nasdaq’s board diversity listing standard in the 5th Circuit.

The decision is the latest in a series of rulings invalidating California’s statutory efforts to promote board diversity.  In April 2022, a state court judge invalidated the same statute at issue in the federal court case on the grounds that it violated California’s constitution. California’s board gender diversity statute hasn’t fared any better – another state court judge struck down that law on state constitutional grounds in May of last year.

John Jenkins