07.07.2021

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Updates

On Thursday, July 1, the U.S. Supreme Court issued its long-awaited ruling on California’s charity donor disclosure requirement, finding the requirement to be facially invalid because it burdened donors’ First Amendment rights and was not narrowly tailored to an important governmental interest.

In this case, Americans for Prosperity Foundation v. Bonta,[1] the Court considered whether it was constitutional for the California attorney general’s office to require charities that operate or fundraise in California to submit a copy of their federal tax return (Form 990), which includes a schedule of the names and addresses of the charity’s major donors nationwide (Schedule B). This requirement obligated each charity to submit its return to the California attorney general’s office along with other charitable solicitation filings; the tax return was not otherwise meant to be public.

The petitioners, Thomas More Law Center and Americans for Prosperity Foundation, two right-leaning tax-exempt charities subject to the requirement, alleged that the disclosure requirement violated their First Amendment right to free association by discouraging donors from donating to their organizations. They also challenged the disclosure requirement facially, pointing to instances where the California attorney general’s office had inadvertently disclosed “nearly 2,000 confidential Schedule Bs” by accidentally posting them to the attorney general’s website. Notably, the petitioners failed to show that such disclosure would deter donors from financially supporting the organizations.

The California attorney general’s office argued that the disclosure requirement was closely related to California’s interest in regulating charities, allowing them to use the disclosed information as part of their oversight of charities.

Writing for the majority, Chief Justice Roberts found the California disclosure requirement to be facially unconstitutional. He first outlined his view of the standard of review (joined by Justices Kavanaugh and Barrett), finding “exacting scrutiny” to be the “settled” standard used in First Amendment challenges to compelled disclosure obligations. Notably, this view did not garner a majority; as described below, the concurring opinions disagree that the standard of review is settled. Under the exacting scrutiny standard, there must be a substantial relationship between the disclosure obligation and a sufficiently important governmental interest. Using this standard, the chief justice (joined by a majority of the Court) found the California disclosure requirement to be facially unconstitutional, noting that while he had no “doubt that California has an important interest in preventing wrongdoing by charitable organizations,” he found a “dramatic mismatch . . . between the interest that the Attorney General seeks to promote and the disclosure regime that he has implemented in service of that end.” In invalidating the requirement, Chief Justice Roberts stated, "California's interest is less in investigating fraud and more in ease of administration. This interest, however, cannot justify the disclosure requirement."

While agreeing with the majority’s outcome, Justices Thomas and Alito wrote concurring opinions debating the standard of review. First, Justice Thomas asserted that the strict scrutiny standard should apply in compelled disclosure cases since “that privacy of association is protected under the First Amendment.” Separately, Justice Alito explained, in an opinion joined by Justice Gorsuch, that he was “not prepared at this time to hold that a single standard applies to all disclosure requirements,” arguing that he does “not read [the] cases to have broadly resolved the question in favor of exacting scrutiny.” Given this disagreement among the justices, the standard for reviewing disclosure obligations like California’s appears unresolved.

Lastly, Justice Sotomayor wrote a scornful dissent, joined by Justices Breyer and Kagan, that argued that the majority abandoned “decades-long” precedent by failing to require the petitioners to show that the disclosure requirement deterred donors. By not requiring this showing, Justice Sotomayor contended that the majority marked “reporting and disclosure requirements with a bull’s-eye.” “Regulated entities who wish to avoid their obligations can do so by vaguely waving toward First Amendment ‘privacy concerns,’” indicating that future challenges to reporting and disclosure regimes will be forthcoming. 

In light of this ruling, charities that operate and fundraise in California will no longer be required to file a copy of Schedule B with the California attorney general.

It is not yet clear the effect this ruling will have on the few other states that have similar donor disclosure requirements, including New York and New Jersey, in part because those states have not faced similar controversies over the public release of filings.

[1] This case was consolidated with Thomas More Law Center v. Bonta, which was also on certiorari to the Supreme Court.

© 2021 Perkins Coie LLP