Supreme Court Invalidates California Schedule B Disclosure Law

Patterson Belknap Webb & Tyler LLP

On July 1, the Supreme Court issued a major decision concerning nonprofit donor disclosure laws and the First Amendment.  In Americans for Prosperity Foundation v. Bonta, No. 19-251, the Court held that a California law requiring charitable organizations to file their annual I.R.S. Form 990 Schedule Bs with the State—and thus disclose the names and addresses of major donors—is facially unconstitutional because it violates the First Amendment right to free association.  The Court reasoned that disclosure of donor information has a broad chilling effect on charities and their donors, even when the information is kept confidential and the information is already required to be provided in Federal tax filings.

The case arose from a California regulation that requires all charities operating in the State each year to file with the State Attorney General a copy of the organization’s Form 990, along with any attachments and schedules.  The two plaintiffs, Americans for Prosperity Foundation and the Thomas More Law Center, objected to the disclosure of Schedule B to Form 990, on which organizations list the names and addresses of donors who have contributed more than $5,000 in a particular tax year or, in some cases, who have given more than two percent of the organization’s total contributions during such tax year.  According to the State, collection of Schedule Bs was necessary to investigate and deter charitable misconduct or fraud.  Notably, the California law required the Attorney General to keep all submitted Schedule Bs confidential—although there had been past instances of inadvertent public disclosures on State websites.

For years, both organizations had either declined to file their Schedule Bs or filed redacted versions that omitted the donor information.  Both sued after the State sent them deficiency letters for failing to submit unredacted Schedule Bs.  The organizations challenged the disclosure requirement on its face and as applied to them, arguing that disclosure of their Schedule Bs would make their donors less likely to contribute and would subject them to the risk of reprisals, in violation of the First Amendment associational rights of the organizations and their donors. 

In both cases, the district court held bench trials and ruled in favor of the challengers on the basis of evidence that donors to both organizations had suffered from threats and harassment in the past, were likely to suffer from similar harassment in the future, and California had demonstrated an inability to keep the Schedule B information confidential (even though confidentiality was required by law).  On appeal, the Ninth Circuit reversed, holding that the disclosure requirement supported the State’s investigatory purpose and did not meaningfully burden the organizations’ First Amendment rights, in part because the Attorney General had taken steps to address past confidentiality breaches.

The Supreme Court reversed the Ninth Circuit in a 6-3 decision. Writing for the majority, Chief Justice Roberts explained that the First Amendment’s protection of “the right of the people peaceably to assemble” is burdened by laws requiring “compelled disclosure of affiliation with groups engaged in advocacy.”  As a consequence, compelled disclosure laws are lawful only if they satisfy “exacting scrutiny,” which requires “a substantial relation between the disclosure requirement and a sufficiently important governmental interest” and a showing that the law is “narrowly tailored to the government’s asserted interest.”

In applying exacting scrutiny to the Schedule B disclosure requirement, the Court explained that California “has an important interest in preventing wrongdoing by charitable organizations” and a “substantial interest in protecting the public from fraud.”  However, there was a “dramatic mismatch” between that State interest and the disclosure regime.  At trial, the State had not identified any instance in which collection of a Schedule B actually aided the Attorney General’s enforcement efforts.  Nor had the State considered alternatives to the disclosure requirement.  Thus, the Court reasoned, “California casts a dragnet for sensitive donor information from tens of thousands of charities each year, even though that information will become relevant in only a small number of cases.”  This mismatch failed exacting scrutiny because the State had not shown that requiring disclosure from all California charities was narrowly tailored to the State’s asserted interest in investigating misconduct or fraud. 

Critically, the Court held that the disclosure requirement was facially unconstitutional, violating the First Amendment in all applications and not merely for organizations like the two plaintiffs whose donors were subjected to serious threats or harassments.  The Court so held because “[t]he lack of tailoring to the State’s investigative goals is categorical” and “[e]very demand [for an organization’s Schedule B] might chill association.”  Moreover, the Court held that this chilling effect applied even if the Schedule Bs were not disclosed to the general public and even if donors to a particular organization had not expressed any interest in remaining anonymous.

The Court’s broadly worded decision has a couple potential implications.  New York and Hawaii also have laws requiring disclosure of charities’ Form 990s, including Schedule Bs.  Both laws are now on uncertain legal footing.  Also implicated are laws requiring organizations to disclose donor information in connection with campaign activities, elections, or other political advocacy.  However, those laws are generally premised on different purported state interests—typically the public’s purported interest in transparency into the source of funding for certain political activities—so the application is less direct.  In any event, the question of donor disclosure remains controversial.  While some will view the Court’s decision as a victory for free speech and the privacy rights of philanthropists, others will view it as a restriction on the ability of regulators—and the public—to understand the sources of philanthropic capital.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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