Challenge to women directors law must go to trial, judge rules

Setting up a battle of experts on gender equality, a Los Angeles County judge said Tuesday that a challenge to a state law mandating publicly held companies appoint more women to corporate boards will go to trial next month.

Superior Court Judge Maureen Duffy-Lewis, in a motion for summary judgment hearing last week, expressed concerns the law was misguided, pointing to the growth of women undergraduates and in professional schools, and the corresponding decline in men in institutions of higher education. The pendulum is swinging, she told the parties.

But in her ruling, Duffy-Lewis said she had decided there were triable issues.

"[T]he parties provide substantial amounts of extrinsic evidence; each side relying on different items to support their respective separate statements," Duffy-Lewis wrote.

Both Judicial Watch, the conservative group that is challenging the law, and the state attorney general's office, which is defending the law on behalf of the secretary of state, sought motions for summary judgment in their favor.

Keith Bishop, a corporate partner at Allen Matkins Leck Gamble Mallory & Natsis who is not involved in the case, said he was surprised by Duffy-Lewis' ruling. The issue at the heart of the case is predominantly a legal question of whether the statute is constitutional or not, he said.

"It's not like this is a car accident, DUI trial or a murder trial, where you ask specific facts like, 'Well, did they run a red light? Was the defendant intoxicated as defined by the statute? Did the defendant have a gun?'" Bishop said. "This is a legal question asking if the state can pass a law that requires publicly held corporations to have a minimum number of female directors. To me, the facts seem a lot less important to answer this question."

Judicial Watch sued two years ago on behalf of three taxpayers seeking a court order declaring the law unconstitutional. Enacted as Senate Bill 826 in 2018, the law requires California's publicly traded corporations to have at least one and possibly up to three female directors on their boards by the end of this year. The plaintiffs say it is unlawful for tax money to be used to enforce how corporations choose their directors. Crest et al. v. Padilla, 19STCV27561 (L.A. Super. Ct., filed Aug. 16, 2019).

The parties have not said who they might call as witnesses. For the purposes of the summary judgment requests both sides provided conflicting expert analysis, according to court documents. Judicial Watch's expert, Jonathan Klick, a law and economics professor, contended that appointing more women to boards has no systematic effect on a company's behavior, performance or value, contrary to the state's position.

An expert for the state said the growing number of women in business and professions such as law and medicine has not translated to corporate board appointments, and that the state has a compelling interest to eliminate discrimination against women.

Other issues disputed by both sides include data on the number of women appointed to boards in the last several years, the term "underrepresented" and the amount of time it would take before women's representation on publicly traded company boards would be equivalent to men if current trends continued.

At last week's hearing, Duffy-Lewis suggested greater transparency and education into the corporate board appointment process might help alleviate gender disparity.

According to Forte, a foundation that seeks to promote women in business, women make up 39% of MBA students and hold 27% of board seats in the Fortune 500. Women hold 26% of board seats of California companies, according to a survey by Forbes magazine.

A spokesperson for the attorney general's office referred a request for comment on Duffy-Lewis' decision to the secretary of state's office, which did not respond.

Tom Fitton, president of Judicial Watch, said Tuesday, "There are different issues that might come up at trial, different studies done and whether there is a basis for them. The age-old adage is, the way to stop sex discrimination is to stop discrimination on the basis of sex."

Bishop, the Allen Matkins partner, once served as California Commissioner of Corporations. He testified last fall before state lawmakers in opposition to Assembly Bill 979, a similar law that will require corporations to have at least one director from an underrepresented community by the end of this year.

"These bills are being proposed to regulate diversity in companies, but it'll be interesting to see what evidence is put forth and who testifies," Bishop said. "We'll see what the judge thinks about all of this."