‘Women on boards’ law headed to trial

In August 2019, plaintiffs Robin Crest, Earl De Vries and Judy De Vries filed a lawsuit against then-current California Secretary of State Alex Padilla in his official capacity in reaction to Senate Bill 826, the "women on boards" law. Crest et al. v. Padilla, 19STCV27561 (L.A. Super. Ct., filed Aug. 6, 2019). The complaint seeks a permanent injunction prohibiting the secretary of state from expending or causing the expenditure of taxpayer funds and taxpayer-financed resources to enforce or carry out the provisions of SB 826, arguing that the law violates the equal protection requirements of the California constitution.

Now, over two years after the plaintiffs initiated the action and after the court denied the secretary of state's motion to dismiss and both sides' motions for summary judgment, the case is proceeding to a bench trial before Judge Maureen Duffy-Lewis, with trial set to begin Dec. 1.

The plaintiffs seek relief under California Code of Civil Procedure Section 526a, which allows for an injunction against an officer of a political subdivision of the state to prevent "any illegal expenditure of" taxpayer funds. The plaintiffs contend that they have a minimal burden of proof requiring that they prove only: (1) that they have paid taxes to the state within the one-year period before the filing of the action; (2) that the defendant is an officer of the state; (3) that she is expending taxpayer funds; and (4) that the expenditures are illegal.

In pretrial filings, the plaintiffs stated that they anticipate "introducing minimal evidence demonstrating each of the first three elements" and "are optimistic that the parties will stipulate to the facts and evidence supporting each." Thus, the trial will likely focus on the final element -- whether expenditures to enforce SB 826 are illegal because SB 826 is unconstitutional.

The plaintiffs argue that SB 826 is presumptively invalid because it employs a suspect classification (gender) to differentiate between similarly situated persons, i.e., current and prospective members of corporate boards. They argue that "SB 826 treats current and prospective board members not as individuals, but as members of two groups based on their gender." They also argue that "[n]o matter how strong a male candidate's qualifications might be, he is never afforded the opportunity to compete with female candidates for every board position available." Therefore, they contend, SB 826 is subject to strict scrutiny and the defendant must prove a compelling state interest, necessity and narrow tailoring.

The defendant argues in response that "[p]laintiffs cannot meet the threshold requirement of an equal protection claim because, for the purposes of SB 826, women and men are not similarly situated given the longstanding discrimination that has led to a significant gender disparity on corporate boards and has prevented women from attaining director seats because of their gender." The defendant cites to evidence of "the stark lack of women on corporate boards -- where 26% of California public corporations had no women on their boards and only 15.5% of director seats on California corporations were held by women before SB 826 passed." Further, the defendant argues that "[i]t is undisputed that men do not suffer discrimination in the board selection process; indeed, they have benefited from a secretive, discriminatory process and 'old boys' culture for decades."

The plaintiffs for their part have filed a motion in limine seeking the exclusion of "any and all evidence of irrelevant societal discrimination and implicit bias against women that the defendant intends to offer at trial." Such evidence would include, the plaintiffs say, testimony that "implicit biases hold back women" because "women in leadership positions are essentially in 'gender-stereotype-incongruent' positions." They argue that "[s]uch testimony is plainly irrelevant because the question before the Court is not whether qualified female candidates for seats on California corporate boards are historically more likely to experience discrimination" but "whether qualified female and male candidates are sufficiently similar for purposes of the quota in SB 826 such that the gender classification is subject to scrutiny." The trial court has yet to rule on this motion.

Beyond this debate over the threshold issue of whether women and men are similarly situated, the trial will presumably entail evidence over whether SB 826 passes strict scrutiny. To that end, the defendant argues that SB 826 serves a compelling state interest in (1) remedying longstanding discrimination against women in attaining corporate director positions, (2) benefitting corporations by securing increased gender diversity, as demonstrated by studies showing that public corporations perform better when women serve on their boards, and (3) protecting state taxpayers and retirees with public pension programs that invest in public companies covered by SB 826, by enhancing company performance.

The defendant also argues that SB 826 is necessary to achieve the stated government interests. The defendant points to previous, unsuccessful legislative attempts to increase board diversity, including Senate Concurrent Resolution 62, which sought to encourage (as opposed to require) a minimum number of women on boards by 2016; a 2013 requirement that the secretary of state maintain a public list of qualified women candidates for corporate boards; and laws aimed at removing obstacles to women advancing in the workforce generally. The defendant also points to legislative findings that without any direct, proactive measures to increase the numbers of women, it would take decades to achieve equal gender diversity on boards.

Further, the defendant argues that the law is narrowly tailored as it only introduces a floor for public companies, "and any corporate board, including [a] small one[], is free to add positions in order to comply with the law."

In March, current Secretary of State Dr. Shirley N. Weber issued a report on corporations' compliance with SB 826, reporting that of the 647 companies subject to the law, 311 were in compliance. Thus, it appears that SB 826 has already encouraged many companies to remedy what the California Legislature saw as a problem that would persist for decades without intervention. If the plaintiffs succeed in obtaining an injunction against the enforcement of SB 826, many will no doubt carefully watch to see if the corporations that have added women to their boards will reverse course, or whether the increased representation of women on boards is durable even without SB 826.

Moreover, although the court deemed the two matters unrelated, how the court resolves the constitutionality of SB 826 could be instructive as to how the court will rule in a similar challenge, brought by the same the plaintiffs, to AB 979, a law that requires California-headquartered public companies to have a least one director who is from an underrepresented community on their boards. That matter is also pending in Los Angeles County Superior Court and currently scheduled for a bench trial before Judge Terry Green on March 28, 2022. 

The views expressed herein are those of the authors and not the firm or its clients.