In July, a Texas non-profit membership association filed a complaint in the United States District Court for the Central District (Western Division) of California, Alliance For Fair Board Recruitment v. Weber, Case No. 2:21-cv-05644-RGK-RAO (July 12, 2021). The lawsuit 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.
With a trial looming in a state court challenge to California's female director mandate, the California Secretary of State is seeking dismissal of the federal complaint. A hearing on the Secretary of State's motion to dismiss is scheduled for November 1.
The Secretary of State's motion makes the disturbing assertion that AB 979 does not require discrimination based on race or ethnicity because corporations can comply by "adding new directors who identify as gay, lesbian, bisexual, or transgender (LGBT) without adding directors from any racial minority group". The plaintiff's response points out that under this logic, California could enact a law requiring every company's board to consist exclusively of 'white men or people born in El Segundo,' because (says California) the companies could avoid race and just 'appoint only' Segundoans instead".
This motion to dismiss may be of particular interest to corporate lawyers because it focuses on the internal affairs doctrine, an argument previously advanced by Professor Stephen Bainbridge. See California Corporate-Board Quota Law Unlikely to Survive A Constitutional Challenge.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.