Supreme Court Rules California Cannot Force Nonprofits to Disclose Donors

Jones Day

The U.S. Supreme Court strikes down California law requiring charitable organizations to disclose their donors to the state.

On July 1, 2021, the U.S. Supreme Court in Americans for Prosperity Foundation (AFP) v. Bonta held that the First Amendment barred California from compelling tax-exempt organizations to disclose the identities of their donors to fundraise in the state.

Since 2010, California's Attorney General has enforced a state law that required nonprofits soliciting donors within California to disclose all donors (inside or outside the state) who donated $5,000 or more annually—purportedly to prevent charitable fraud. Failure to do so risked suspension of a nonprofit's ability to solicit Californians and corporate fines.

Threatened with such penalties, two charities sued in federal court, challenging California's law as a violation of their own and their donors' First Amendment associational rights. The charities were subjected to threats of reprisal and claimed that the disclosure requirement would make donors less likely to donate. The district court twice ruled for the charities—and twice a panel of the U.S. Court of Appeals for the Ninth Circuit overruled it.

The Supreme Court reversed, by a 6-3 vote, and held California's disclosure law facially unconstitutional. The Court reiterated its statement in NAACP v. Alabama that "compelled disclosure of affiliation with groups engaged in advocacy may constitute as effective a restraint on freedom of association as [other] forms of governmental action." The Court reviewed the law under (at a minimum) "exacting scrutiny," which demands a disclosure requirement be "narrowly tailored" to the state's asserted interest in imposing it.

California's requirement failed to meet this standard. The Court found there to be a "dramatic mismatch" between the state's asserted interest in preventing fraud and its "dragnet" requirements that imposed extensive burdens on practically every charity soliciting funds in California. In fact, the state failed to show that pre-investigation collection of donor information was ever relied on by the Attorney General to initiate an investigation, or that less burdensome alternatives to such universal upfront disclosure—such as subpoenas or audit letters—would not further the state's asserted interest.

In the words of concurring Justices, AFP's exacting scrutiny standard has "real teeth." Governments at all levels will be called to task to justify nonprofit donor disclosure regimes and their burdens on regulated organizations and donors.

Jones Day filed an amicus brief on behalf of U.S. Senator Mitch McConnell in support of the charitable organizations that prevailed in this case.

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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