July 9, 2021Client Alert

U.S. Supreme Court Rules California’s Donor Disclosure Requirement Violates First Amendment

Last week, in a 6-3 decision, the U.S. Supreme Court held that California’s law requiring disclosure of charitable organizations’ donor information violates the First Amendment right to freedom of association. In applying a heightened “exacting scrutiny” standard, the Court concluded that California’s blanket disclosure requirement was facially invalid because it burdens donors’ First Amendment association rights without being narrowly tailored to California’s government interest of regulating charities and investigating charitable misconduct.

The case, Americans for Prosperity Foundation v. Bonta, represents a significant victory for charitable organizations and their donors who wish to maintain confidentiality about donor identities and charitable giving amounts. Although the case does not prohibit government disclosure requirements for charitable organizations, the Court’s lengthy constitutional analysis and conclusions will make it more difficult for such regulations to pass constitutional scrutiny in the future.

First Amendment Right to Freedom of Association and California’s Disclosure Requirement

At issue in the case was whether California’s disclosure requirement violated the First Amendment right to free association. To solicit contributions in California, charitable organizations must generally register with the state Attorney General’s office (the “AG”) before soliciting contributions and must renew their registrations annually. In connection with this registration and renewal, the AG requires charities to file copies of their IRS Form 990 (containing information on the organizations’ mission, leadership, and finances), with schedules. Schedule B—the document giving rise to Americans for Prosperity—requires organizations to disclose the names and addresses of donors who have contributed more than $5,000 in a particular tax year or more than 2% of the organization’s total contributions, as well as donation amounts.

The petitioners, Americans for Prosperity Foundation (a public charity) and Thomas More Law Center (a public interest law firm) (“Petitioners”), sued the AG in federal district court in 2015 seeking injunctive relief after the California Department of Justice began enforcement actions under the disclosure requirement. The Petitioners argued that California’s disclosure requirement violated their First Amendment association rights and the association rights of their donors, contending that disclosure would make their donors less likely to contribute and would subject them to risk of reprisals. California presented two main justifications for the disclosure requirement: (1) that it has an important interest in preventing wrongdoing by charitable organizations; and (2) it increases administrative efficiency by collecting the disclosed data upfront.

The district court twice sided with the Petitioners—first granting a temporary injunction against the Attorney General from collecting their Schedule B information, and later granting a permanent injunction following a bench trial. The Ninth Circuit reversed and vacated both of the district court’s rulings, remanding the case to enter a permanent injunction in the AG’s favor. In upholding California’s law, the Ninth Circuit found that there was a substantial relation between the AG’s demand for Schedule Bs and a sufficiently strong governmental interest in California’s disclosure regime.

In Americans for Prosperity, the Supreme Court reversed and remanded to the Ninth Circuit, elucidating the correct standard of review to apply to First Amendment challenges to compelled disclosure requirements.

The Petitioners argued that a heightened form of scrutiny similar to “strict scrutiny,” the most onerous constitutional standard of review under which the government must adopt the least restrictive means of achieving a compelling state interest, should apply to California’s disclosure requirement, rather than the Ninth Circuit’s “substantial relationship” test. Instead, the Supreme Court applied a middle ground in applying the heightened “exacting scrutiny” standard, which requires that a government-mandated disclosure regime be narrowly tailored to the government’s asserted interest, even if it is not the least restrictive means of achieving that end.

Although the Supreme Court acknowledged that California had a legitimate interest in regulating charities that solicit in the state, the Court could not identify any sufficiently important government interest justifying the disclosure requirement. Under exacting scrutiny, California’s disclosure regime did not meet the narrow tailoring requirement because, based on the facts presented at trial, the sensitive information collected through Schedule B does not form an integral part of California’s fraud detection efforts insofar as California has not historically relied on Schedule Bs to initiate investigations. In addition, where Schedule B information was used, the State has alternative means of obtaining it, such as a subpoena or audit letter. The Court also flatly rejected California’s administrative ease argument, explaining “the prime objective of the First Amendment is not efficiency.”

In her dissent, Justice Sotomayor (joined by Justices Breyer and Kagan) criticized the majority ruling as unsupported by precedent or “common sense” insofar as it allows regulated entities who wish to avoid their obligations to do so simply by claiming “privacy concerns” without any showing of actual burden to First Amendment rights. In response, the majority, led by Chief Justice Roberts, stated that plaintiffs may be required to bear a heavier evidentiary burden where the challenged compelled disclosure regime is narrowly tailored to an important government interest.

Takeaways from Americans for Prosperity

Whether similar federal and state disclosure regimes – such as campaign finance laws and comparable donor disclosure laws in other states like New York and New Jersey – are constitutional under the First Amendment remains an open question following Americans for Prosperity. What is clear from the Court’s decision is that it will be more difficult for governments to prevail when facing similar First Amendment challenges to compelled disclosure laws. The Court’s refined articulation of the heightened “exacting scrutiny” standard, in conjunction with its holding that to prevail in a facial challenge to a compelled disclosure law, a plaintiff need not demonstrate that the law actually imposes a significant burden on First Amendment rights, will also make it easier for facial challenges to disclosure laws to be brought.

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