On September 30, 2020, Governor Newsom signed Assembly Bill (AB) 979, which required publicly held corporations headquartered in California to diversify their boards of directors with directors from “underrepresented communities” by December 31, 2021. AB 979 followed similar legislation in Senate Bill (SB) 826, which required gender diversity on boards of directors.
SB 826 and AB 979 have faced significant legal challenges. However, until recently, none of the litigation challenging the two laws has resulted in a court determination.
Robin Crest, et al v. Alex Padilla, often referred to as Crest II, is a lawsuit filed by three California taxpayers in Los Angeles Superior Court against the California Secretary of State. The suit sought to prevent the State of California from spending taxpayer funds or using taxpayer-financed resources, to enforce AB 979 and to declare the statute unlawful.
Both the State of California and the Plaintiffs filed motions for summary judgment, asking the court to issue a judgment in their favor as a matter of law. In their motion, the Plaintiffs argued AB 979 violates California’s Constitution because the law requires subject corporations to have a specific number of directors based upon race, ethnicity, sexual preferences, and transgender status. In its motion, the State of California challenged the Plaintiffs’ legal standing to challenge the law. The State of California also argued AB 979 did not violate the California Constitution.
The Superior Court held a hearing on both motions on March 14, 2022 and issued a ruling on April 1, 2022. The court granted Plaintiffs’ motion and denied the State’s motion. In its ruling, the court explained the statute violated the California Constitution’s Equal Protection Clause. The court found the statute treated similarly situated individuals differently based upon their membership in certain racial, sexual orientation, and gender identity groups, and that the State failed to (1) identify a compelling state interest to justify the different treatment; and (2) establish that the statute reflected the least restrictive means for accomplishing the California Legislature’s goals in enacting the statute.
The ruling means that the State is precluded from enforcing AB 979 at this time. It is unclear whether the State will appeal the Superior Court’s ruling. However, if it does so, the injunction against the State using taxpayer funds may remain in place until a further ruling.
If you have questions regarding compliance with AB 979 or SB 826 or related issues regarding corporate compliance, contact a Jackson Lewis attorney to discuss.