Does California’s Schedule B charitable donor disclosure requirement violate the First Amendment?
This case asks the Supreme Court to determine whether a state charitable donor disclosure regulation unconstitutionally infringes on donors’ and charitable organizations’ free speech and association rights. California recently started enforcing its Schedule B regulation, which requires charitable organizations to provide the confidential names of their financial donors. Petitioners Americans for Prosperity Foundation and Thomas More Law Center argue that this compelled disclosure is facially unconstitutional because it fails “exacting” scrutiny and unconstitutional as applied to them because of the extreme risks to their political minority donors. Respondent Matthew Rodriquez, the Attorney General of California, argues that the regulation is necessary to enforce charitable fraud laws and that California can meet its regulatory objectives while simultaneously protecting donors’ confidential data. The Supreme Court’s decision will determine whether charities in California must disclose the names of their donors to state regulators and will also determine the bounds of organizational free association rights.
Questions as Framed for the Court by the Parties
Whether the exacting scrutiny the Supreme Court has long required of laws that abridge the freedoms of speech and association outside the election context – as called for by NAACP v. Alabama ex rel. Patterson and its progeny – can be satisfied absent any showing that a blanket governmental demand for the individual identities and addresses of major donors to private nonprofit organizations is narrowly tailored to an asserted law-enforcement interest.
California has a law that requires charitable organizations to submit various tax forms to the state, including Schedule B to IRS Form 990 (“Schedule B”), which contains certain donor information. Ams. for Prosperity Found. v. Becerra at 1183. That information is normally considered confidential. Id. Petitioner Americans for Prosperity Foundation (“AFP”), which was registered as a charity in California, refused to submit its Schedule B to California from 2001 to 2010 because of what AFP saw as confidentiality concerns. Id. Namely, AFP supporters were harassed and assaulted because they supported AFP, so AFP wished to keep its donor information private. Id. During that time, California did not request that AFP submit Schedule B to the state or take any retaliatory action against AFP for that failure. Id. at 1184.
In 2010, California “increased its efforts” to collect Schedule Bs from the various charities who failed to submit the forms, including AFP. Id. In 2013, when AFP still did not submit its Schedule B, California told AFP that AFP would lose its status as a properly registered charity in California. Id. AFP sued California and Xavier Becerra (“Becerra”), then California’s Attorney General, to preserve the confidentiality of the donor information contained in Schedule B, attempting to prevent Becerra from collecting AFP’s Schedule B. Id. AFP argued that the First Amendment protected AFP from the state’s attempt to compel the disclosure of what AFP believes is confidential information, citing concerns that AFP’s donors would be harassed because of their conservative political leanings. Id. The district court agreed and found that although California has protections in place to prevent unauthorized disclosure of the information, those protections are not necessarily effective. Id. For example, state employees occasionally released some of the information by accident, which then became publicly available. Id. at 1185. The district court also found that California “did not have a strong interest in obtaining the Schedule B submissions” to further California’s law enforcement efforts. Id.
The United States Court of Appeals for the Ninth Circuit reversed the district court. Id. The Ninth Circuit held that California had a “sufficiently important” interest in obtaining the information contained in Schedule Bs and that a “substantial relation” existed between California’s interest and the requirement for charities to submit Schedule Bs. Id. The Ninth Circuit applied the exacting scrutiny standard of Buckley v. Valeo and said that the requirement to submit Schedule Bs need not be narrowly tailored. Id. Under Buckley, the government’s interest must be “sufficiently important to outweigh” infringement of First Amendment rights, and there must be a “substantial relation” between that interest and the information that the government is requiring to be disclosed. Id. at 1180. Additionally, disclosure requirements were deemed to be the “least restrictive” way of preventing corruption in election campaigns. Id. California’s requirement to submit Schedule Bs met that standard. Id.
The Court of Appeals dismissed the lawsuit, and AFP petitioned the United States Supreme Court (“Supreme Court”) for a writ of certiorari. The Supreme Court granted AFP’s petition on January 8, 2021, and consolidated the case with one by Petitioner Thomas More Law Center (“Center”) against Respondent Matthew Rodriquez (“Rodriquez”) as California’s Acting Attorney General.
EXACTING SCRUTINY VERSUS STRICT SCRUTINY
Petitioners AFP and Thomas More Law Center (the “Center”) argue that the Supreme Court should apply strict scrutiny when reviewing California’s compulsory disclosure rule because charitable donors maintain a legitimate expectation of privacy. Brief for Petitioner, Thomas More Law Center at 23. They contend that a line of cases dealing with compulsory disclosure of private associational membership lists—beginning with NAACP v. Alabama—serves as clear precedent for why compelled disclosure rules that potentially impinge on free association should be subjected to the most stringent form of judicial review. Id. at 24, 26; see also Brief for Petitioner, Americans for Prosperity Foundation at 22. Along those lines, the Center maintains that California’s asserted interest—government efficiency—is not a “compelling” state interest and that no matter how tailored California’s regulation happens to be, it cannot be constitutional. Brief for Center at 30, 36. As to the second prong of strict scrutiny review, both Petitioners posit that California did not narrowly tailor Schedule B to the purpose of identifying and prosecuting cases of charitable fraud. Brief for Center at 37; Brief for AFP at 34. AFP notes that better and more effective tools are available to California’s executive agencies to combat fraud, and thus the regulation’s tailoring is a bad “fit.” Brief for AFP at 35–36. Finally, Petitioners argue that the Ninth Circuit incorrectly fashioned a “sliding scale” approach to scrutiny, which allowed the Ninth Circuit panel to ignore the narrow tailoring requirement altogether. Brief for Center at 51; Brief for AFP at 27.
The Center argues that the limited exception to strict scrutiny for free association disclosure cases—the campaign disclosure exception outlined in Buckley—is inapposite on the facts to this case, making strict scrutiny the only appropriate test to apply. Brief for Center at 31. Petitioners allege that even were the Court to use the less demanding intermediate scrutiny standard, the disclosure requirement would fail that test as well because Schedule B is not substantially related to any bona fide interest California might have in policing charities. Brief for AFP at 31. Furthermore, the Center maintains that the nexus between the regulation and California’s policing purpose is so fragile as to render the overly broad mandate unconstitutional. Brief for Center at 43. Petitioners maintain that a broad, prophylactic measure affecting all charities in the state cannot be constitutional when California has less restrictive means to ferret out charitable fraud. Id. Petitioners also distinguish between the federal tax disclosure regulations mandated by the IRS and those at issue in this case; they argue the compulsory disclosure have a more direct relationship to speech and association than the tax regulations enforced by the IRS. Brief for Center at 54–56; Brief for AFP at 27–28.
Respondent Rodriquez argues that exacting scrutiny, rather than strict scrutiny, applies in this case. Brief for Respondent, Matthew Rodriquez at 19. Rodriquez contends that under Supreme Court precedent, if an organization has to report information about its donors to government regulatory authorities, exacting scrutiny applies. Id. Rodriquez points to NAACP v. Alabama ex rel. Patterson and Buckley in particular in support of that contention. Id. at 19–21. Rodriquez argues that NAACP’s rule does not fall into the clear delineations of rational basis review, intermediate scrutiny, and strict scrutiny that apply in other cases and that the government’s interest therefore only needs to meet the standard of “sufficient to justify,” not be “compelling” as in strict scrutiny. Id. at 21. Additionally, Rodriquez contends that the tailoring requirement of exacting scrutiny is the correct standard, relying on other cases where the Supreme Court declined to enact a stricter tailoring requirement. Id. at 24.
Furthermore, Rodriquez states that it is illogical for the Supreme Court to apply strict scrutiny to these reporting requirements. Id. at 22. Rodriquez argues that California’s reporting requirements do not compare to other situations where the Supreme Court applied strict scrutiny—such as cases involving restrictions on free speech based on content, or other cases that “directly impinged” on free speech rights—because “[n]onpublic reporting requirements are fundamentally different from the restrictions . . . subjected to strict scrutiny.” Id. Rodriquez points out that California’s reporting requirement does not “compel or prohibit any speech.” Id. at 23. Additionally, Rodriquez contends that the exacting scrutiny standard sufficiently protects the interests involved—thereby limiting California to enacting only requirements “that directly serve their regulatory objectives.” Id. at 22. Rodriquez argues that this standard also allows organizations to sue for an exemption in cases that could lead to certain kinds of harm. Id.
IS THIS LAW UNCONSTITUTIONAL ON ITS FACE OR AS APPLIED?
Petitioners object to the notion that the disclosure regulation is needed to prevent and combat charitable fraud; despite all states having that same interest, California is one of only two states that compel charities to make these sorts of disclosures. Brief for Center at 35; Brief for AFP at 35. Broad, prophylactic rules, petitioners argue, do not qualify as narrowly tailored means to prevent fraud. Brief for Center at 36; Brief for AFP at 31, 38. Furthermore, as evidence that the stated interest is not supported by the regulation, petitioners point out that California rarely used the disclosed information required by Schedule B to initiate or supplement enforcement actions over the past decade. Id.; see also Brief for AFP at 32–33.
Petitioners argue that the application of this regulation to their charitable activities impermissibly burdens their First Amendment right to association, as many of their anonymous charitable backers are political minorities. Brief for Center at 20; Brief for AFP at 40. AFP maintains that confidentiality is especially important in the digital age and that the threat of hacking makes the mass collection of charitable donor data even more dangerous than ever before. Id. at 40, 42. As many of those associating with Petitioners’ charities might face retaliation, Petitioners maintain that a core privacy right intermeshes with the association right. Brief for Center at 23; Brief for AFP at 47. Therefore, Petitioners argue that even if the regulation is held to be facially valid, an as-applied exemption is warranted because there is a reasonable probability of threats and reprisals. Brief for Center at 24; Brief for AFP at 40. If the disclosure regulation is enforced against them, Petitioners contend, their donors will be subject to the same kinds of harassment as their clients: death threats, boycotts, defamation, and assassination attempts, which meets the “reasonable probability” standard outlined in Buckley. Brief for Center at 46–48; Brief for AFP at 49–53.
Rodriquez argues that California’s disclosure requirement does not meet the standard for an as-applied exemption. Brief for Respondent at 47. Rodriguez argues that neither AFP nor the Center can establish that the donors face a reasonable probability of reprisal due to the disclosure by a few of the major donors. Id. at 47–49. Similarly, Rodriquez also points to the lack of evidence at trial that disclosure will actually result in charitable organizations receiving fewer donations. Id. at 49–51.
Additionally, Rodriquez contends that AFP and The Center failed to show that the requirement to submit a Schedule B places a burden on charities. Id. at 36. Rodriquez argues that charities already submit the information contained on Schedule Bs to the federal government, as well as on California tax returns, so an additional reporting requirement will not prevent people from donating. Id. at 37. Rodriquez also says that since California keeps Schedule Bs confidential and that many charities do not engage in controversial activities, there is no reason to worry that submitting Schedule Bs will have a chilling effect on donors or negatively affect the charities in other ways. Id. at 36–37. Rodriquez further posits that despite the data breaches, the errors were promptly fixed. Id. at 47. As such, Rodriquez concludes that there is no significant risk that AFP’s donor information will be released publicly in the future. Id. at 48. Thus, Rodriquez posits that AFP and The Center failed to make the requisite showing for an as-applied exemption to invalidate the disclosure requirements because AFP and the Center failed to “demonstrate a reasonable probability that California’s Schedule B reporting requirement would subject their donors to threats, harassment, or reprisals” and accordingly does not meet the threshold for an as-applied exemption. Id. at 53.
PUBLIC TRUST VERSUS PRIVATE ASSOCIATION
The American Civil Liberties Union, Inc. et al. (“ACLU”), in support of AFP and the Center, argue that compelled disclosure of association information would have an inevitable chilling effect on the rights protected by the First Amendment and would diminish civil society overall. Brief of Amici Curiae American Civil Liberties Union, in Support of Petitioners at 14, 25. The ACLU contends that public trust is less important here than it is in the campaign context. Id. at 22, 26–27. On the other side of the scale, the ACLU states that the California has a poor history of maintaining confidentially disclosed information and that Petitioners’ justified fears of reprisal might, in consequence, lead to less charitable activity in California overall. Id. at 24. Similarly, the Center for Equal Opportunity, (“CEO”), in support of AFP and the Center, argue that compelled disclosure also allows an overweening government and corrupt bureaucrats access to associational info that could harm donors’ rights to financially support whom they wish. Brief of Amicus Curiae Center for Equal Opportunity, in Support of Petitioners at 7–8.
The California Association of Nonprofits (the “Association”), in support of Rodriquez, argues that states’ Attorneys General fulfills the important role of making sure that people continue to trust nonprofit organizations. Brief of Amicus Curiae The California Association of Nonprofits, in Support of Respondent at 6. The Association points out that the Attorney General may be the sole actor with the ability to prevent charities from misusing donor funds. Id. at 8. Similarly, the Association argues that since society as a whole relies on nonprofits and that nonprofits rely on society to enable them to further their missions, it is vital that the state—through its Attorney General—maintains that trust. Id. at 11. The Association finds support in specific examples where charitable donations decreased after incidents of breach of trust. Id. at 14–15.
ENCOURAGING SAFETY OR DISCOURAGING CHARITABLE?
The Cato Institute et al. (“Cato Institute”), in support of AFP and the Center, argues that the test advocated by California both cuts against the American tradition of anonymous speech and entrusts too much power to the courts. Brief of Amici Curiae Cato Institute, in Support of Petitioner at 8, 16. The Cato Institute contends that the Ninth Circuits decision, if left to stand, chills charitable giving nationwide because charitable organizations would be forced to choose between forgoing nearly 40 million potential donors or disclose the Schedule B forms. Id. at 24–25. The Cato Institute explains that the impact reaches further than California residents, as non-California residents nonetheless appear on the Schedule B forms. Id. at 24.
The Association, in support of Rodriquez, contends that the reporting requirement is related to preventing nonprofits from fraudulently using donor funds. Brief of The California Association of Nonprofits at 7. The Association points out that Rodriquez can use Schedule Bs to ensure that charities use donors’ funds appropriately, prevent donors from using charities for potentially illegal purposes and confirm that charities do not misrepresent their finances. Id. at 17. The Association contends that these legitimate actions permit the Attorney General to recoup money contributed to fraudulent schemes. Id. at 17–23. The Association looks at Hurricane Katrina as an example, where a charity accepted $8 million, spent only $1.5 million, and was later investigated by an Attorney General. Id. at 17–18. Finally, the Association contends that while it is possible for the Attorney General to obtain the Schedule B after an investigation has begun, this provides nonprofits with an opportunity to falsify its disclosures or hide money that could be prevented by disclosing the Schedule B upfront. Id. at 24–25. By limiting disclosure, the Association argues, the two states with the most “robust” nonprofit-sector enforcement—New York and California—will lack the ability to “correct abuses involving fraudulent charitable solicitation and charitable trusts.” Id. at 26.
- Aysha Bagchi, Supreme Court to Hear California Donor-Disclosure Case in April, Bloomberg Law (Mar. 12, 2021).
- Elizabeth McGuigan, The Supreme Court’s Chance to Rule for Donor Privacy, Philanthropy Roundtable (Mar. 3, 2021).
- Daniel Tay, US Gets High Court Argument Time In Calif. Donor Info Row, Law360 (Apr. 5, 2021).