California’s state legislature has aggressively sought to impose affirmative action on the state, aiming to enshrine in law the California elite’s sense of what would be a fair distribution of opportunities among members of different races, ethnicities, sexes, and genders.
The highest profile such effort is surely Proposition 16, the legislature’s proposal to excise from the state’s constitution its prohibition against the state and its subdivisions “discriminat[ing] against, or grant[ing] preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin.” Voters rejected this proposal on November 3 by a more than 12 point margin. The initiative would have allowed the state to get back into the business of racially discriminating in contracting and college admissions.
But the furthest advanced effort of the California legislature to allocate opportunities on the basis of group identities has got to be the statutes (two passed in the last three years) to amend the state’s Corporations Code to dictate whom stockholders can elect as their directors.
In 2018, the California state legislature passed a statute, adding to the California Corporations Code a series of requirements for how many directors on the boards of publicly traded corporations chartered by or headquartered in California must be female by and after particular dates in 2019 and 2020 (the Sex Allocation). The Sex Allocation was challenged as a violation of the 14th Amendment’s Equal Protection Clause in litigation now pending before the 9th Circuit. Undeterred by that litigation (and by parallel litigation challenging the Sex Allocation under the state constitution), the California legislature went back to the well in September 2020 to amend the Sex Allocation and to impose a far more comprehensive set of requirements for whom such boards must include by and after the end of 2021 and 2022 (the Preferred Minority Allocation). The Preferred Minority Allocation has now been challenged in state court, with plaintiffs arguing that it violates the state constitution. Additional claims will surely follow.
Under the Sex Allocation, each covered entity “shall have a minimum of one female director on its board” by “[n]o later than the close of the 2019 calendar year.” Covered entities with boards of a certain size must increase that allocation to up to a minimum of 3 female directors by the end of 2021. While the Sex Allocation allows a “corporation [to] increase the number of directors on its board to comply with this section[,]” it affirmatively requires the engagement of directors because of their sex (and, at least potentially, the firing of directors because of their sex). The Sex Allocation does not require sexual diversity in boards: while it imposes fines of up to $300,000 on corporations with boards with too many men, it imposes no fines on corporations whose boards are composed entirely of women.
The California legislature plainly modeled the Preferred Minority Allocation on the Sex Allocation. The Preferred Minority Allocation requires that each covered entity “shall have a minimum of one director from an underrepresented community,” or up to a minimum of 3 such directors, depending on the size of the covered entity’s board, by the end of 2022. The Preferred Minority Allocation imposes penalties parallel to those found in the Sex Allocation. The Preferred Minority Allocation defines “Director from an underrepresented community” as “an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender” who has been elected as a director on a covered corporate board.
The introductory language to the Preferred Minority Allocation justifies its enactment by reference to statistics on the percentages of African Americans, Latinos, Asians (or sometimes Asians/Pacific Islanders), and whites serving as managers, CEOs, and board members at Fortune 500 entities. That introductory language includes legislative findings that (a) Asians are more likely than whites to serve in management (54% > 41%), and (b) “Asian Americans [a]re the least likely [individuals] to be promoted to manager or executive positions in California.” It includes no statistics concerning the representation of LGBT individuals on corporate boards. Nonetheless, on the basis of these findings, the Preferred Minority Allocation allows corporations to meet its goals by electing members of any of the identified groups as directors. The Preferred Minority Allocation does not require corporations to retain any white members or allow them to meet their statutory obligations by electing any such directors, even though non-Hispanic white Californians have constituted a minority of the state’s population throughout this century.
A stockholder in a covered corporation sued in federal court, arguing that the Sex Allocation violates the Equal Protection Clause of the 14th Amendment by requiring shareholders to discriminate on the basis of sex. The District Court for the Eastern District of California dismissed that suit, finding that the investor lacked standing; effectively, the district court found that an individual shareholder wasn’t injured by the state fining his corporation for the shareholders’ joint failure to vote as instructed.
When the plaintiff appealed, he was supported by 5 separate amicus filings. Between them, the appellant and these amici argued that (a) the district court’s conclusion that individual shareholders were not affected by the Sex Allocation was facially wrong and inconsistent with the binding decisions of courts in Delaware (where the corporation in question was chartered); (b) the Sex Allocation is bad policy that will harm its intended beneficiaries; (c) the Sex Allocation is harmful to Californians more generally, the nation, and the future of philanthropy; (d) the Sex Allocation will fail to achieve its purported ends, as shown by the history of parallel enactments in Europe; and (e) the Sex Allocation, with its extra-territorial reach, brings (and threatens to bring more) irreconcilable conflicts between the corporate laws of different states.
California has responded by reiterating its view that a statute threatening fines against companies whose shareholders vote other than as proscribed threatens no direct injury to shareholders. Noting that the company in which the plaintiff invested has complied with the Sex Allocation, the state cites the compliance of fellow investors as proof that no shareholder faced or faces a direct injury from the statutory threat. It is questionable whether a threat that succeeds in coercing action by its targets demonstrates that no threat was made to those targets.
While the briefing has been fully submitted, the 9th Circuit has not yet ruled on the merits.
State Court Litigation
Simultaneously, a set of plaintiffs challenged the Sex Allocation under California’s state constitution. That suit survived a demurer and remains ongoing. As the California legislature extended the Sex Allocation through the Preferred Minority Allocation while that litigation unfolded, the same plaintiffs filed a parallel challenge to the Preferred Minority Allocation under California’s state constitution as well. Both those suits are now pending in Los Angeles Superior Court.
Both suits highlight that the California Senate’s Floor Analysis of each Allocation identified “potential constitutional issues” with these enactments. As quoted in the later petition, the relevant floor analysis stated both that (a) “a statute that draws a distinction based upon race or ethnicity in this fashion—whether remedial or punitive in intent—is suspect and only passes constitutional muster if it can meet the strict scrutiny test: that the statute is narrowly drawn to meet a compelling government interest”; and (b) “the existence of general societal discrimination will not ordinarily satisfy the courts.”
Both suits identify discrete tasks that salaried state personnel will be required to undertake to effectuate the Allocations, ranging from compiling demographic information, to revising required state forms to include disclosures of the sex, race, ethnicity, sexual orientation, and gender identity of directors, to informing covered corporations of their new reporting obligations. The plaintiffs challenge any expenditure of public resources on this project as contrary to the language of Sections 7 and 31 of Article I of the state constitution. Section 7 says, “[a] person may not be deprived of life, liberty, or property without due process of law or denied equal protection of the laws” and “[a] citizen or class of citizens may not be granted privileges or immunities not granted on the same terms to all citizens.” Section 31 contains the language preserved by the defeat of Proposition 16: “The State shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting.”
The plaintiffs seek a declaration that “any and all expenditures of taxpayer funds and taxpayer-financed resources in furtherance of, ensuring compliance with, or otherwise effectuating the racial, ethnicity, sexual preference, and transgender quotas” imposed by the Allocations are “illegal.” They appear to do so entirely based on the allocative effects of the Allocations, rather than homing in on whether they provide protections or privileges to some Californians (the availability of directorships reserved for distinct sub-populations) that they deny to other Californians. Again, the Allocations are expressly set-asides, rather than diversity requirements, as neither Allocation requires diversity of any kind; the Sex Allocation would impose no fine on a corporation whose board was entirely female and the Preferred Minority Allocation would impose no fine on a corporation whose board was entirely composed of transgendered Native Hawaiians.
Anticipated Additional Litigation
The 3 existing suits challenging the Allocations are unlikely to be the only challenges filed. Additional challenges are clearly available under both state and federal law. For example:
- No litigation has yet been filed based on the disconnect between the statutory findings justifying the Preferred Minority Allocation and its actual operative terms. The state legislature found no absence of gay or transgender directors, yet it passed legislation under which their presence on a board is sufficient to avoid a fine. The state legislature found that Asians are the most likely demographic to serve in management, but it passed legislation under which the presence of Asians on a board is sufficient to avoid a fine. It is difficult to see how these legislative non sequiturs could meet even the forgiving analysis of a rational-basis review.
- Nor has any litigation yet challenged either the Sex Allocation or the Preferred Minority Allocation as a violation of the Civil Rights Act that is unenforceable due to operation of the Supremacy Clause. The Supreme Court reminded us just months ago that Title VII of the Civil Rights Act “command[s] that it is ‘unlawful . . . for an employer to fail or refuse to hire or to discharge any individual . . . because of such individual’s … sex[.]” “So long as the plaintiff’s sex [is] one but-for cause of that decision, that is enough to trigger the law.” For the purposes of Title VII, a board member can constitute an employee, whose hiring, firing, or refusal to hire could yield liability. And Title VII should be no more forgiving of race-based hiring decisions, leaving the Preferred Minority Allocation doubly exposed to a challenge that it stands in direct conflict with a federal law entitled to prevail under the Supremacy Clause.
It seems certain that such challenges will be filed and continue to multiply as long as California continues to double down on its requirement that opportunities be carved up on the basis of identitarian labels, rather than to be available to individuals, regardless of their race, sex, and gender.
 Cal. Corp. Code § 301.3.
 Meland v. Padilla, No. 2:19-cv-02288-JAM-AC (E.D. Cal. Apr. 20, 2020).
 A.B. 979, codified at Cal Corp. Code § 301.4.
 Crest v. Padilla, Cal. Super. Ct. Case No. 19STCV27561 (pending in Los Angeles Superior Court).
 These filings were offered by the Philanthropy Roundtable; the Goldwater Institute; the Equal Voting Rights Institute, on behalf of Linda Chavez; the Independent Women’s Law Center; and the Hamilton Lincoln Law Institute.
 Admittedly, the relevance of this provision to a challenge to a state action that is legislative and uninvolved in the state’s “operation of public employment, public education, or public contracting” is questionable.
 Id. (citing University of Tex. Southwestern Medical Center v. Nassar, 570 U.S. 338, 350 (2013)).
 Frederick v. UBCJA Local 926, 558 Fed. Appx. 83, 86 (2d Cir. 2014) (acknowledging that board members could constitute employees for the purposes of Title VII and remanding for further proceedings).
 This seems a necessary corollary of Title VII’s use of the same language to bar discrimination based on race and sex. See 42 U.S.C. § 2000e-2(a) (“It shall be an unlawful employment practice for an employer—(1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, [or] sex”) and 42 U.S.C. § 2000e-2(m) (“Except as otherwise provided in this subchapter, an unlawful employment practice is established when the complaining party demonstrates that race, color, [or] sex … was a motivating factor for any employment practice, even though other factors also motivated the practice.”). But see United Steelworkers of America v. Weber, 443 U.S. 193, 208 (1979) (holding that Title VII “does not condemn all private, voluntary, race-conscious” employment decisions). To the extent Weber remains good law, the same statutory language simply has different meanings when applied to the different groups in the same series against which it bans discrimination. Alternatively, and more consistently with the statute, the more recent developments in case-law law culminating in Bostock could highlight that Weber itself was wrongly decided and requires reversal.