S. Ct. Strikes Down California Requirement that Charitable Organizations Disclose Major Donors to State AG

"The gravity of the privacy concerns in this [case] is further underscored by the [amicus briefs supporting the challenge].... [T]hese organizations span the ideological spectrum ...: from the [ACLU] to the Proposition 8 Legal Defense Fund; from the Council on American-Islamic Relations to the Zionist Organization of America; from Feeding America—Eastern Wisconsin to PBS Reno."

Under federal tax law, charitable organizations that solicit contributions in California must report to the IRS "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 2 percent of an organization's total contributions)." The California Attorney General's Office requires charities that solicit contributions in California to submit copies of that report (Schedule B to Form 990) to the Office, not for tax enforcement purposes but to help with the AG's policing of charities to protect the public from fraud.

In today's Americans for Prosperity v. Bonta, the Supreme Court struck down this requirement, as facially overbroad. The decision is heavily focused on the facts of this particular disclosure scheme, and it doesn't preclude many other disclosure requirements, such as the election-related disclosures that the Court has upheld in the past, or the IRS reporting requirement itself. But it does show that the majority is willing to look skeptically at various disclosure requirements, based on their potential to discourage speech and contributions.

The majority (Chief Justice Roberts, joined by Justices Thomas, Alito, Gorsuch, Kavanaugh, and Barrett) reasoned:

[1.] Any such requirements of disclosure tend to chill the right of expressive association (which is protected by the First Amendment):

This Court has "long understood as implicit in the right to engage in activities protected by the First Amendment a corresponding right to associate with others." Protected association furthers "a wide variety of political, social, economic, educational, religious, and cultural ends," and "is especially important in preserving political and cultural diversity and in shielding dissident expression from suppression by the majority." … [In particular,] "[i]t is hardly a novel perception 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." NAACP v. Alabama ex rel. Patterson (1958)…. Because NAACP members faced a risk of reprisals if their affiliation with the organization became known—and because Alabama had demonstrated no offsetting interest "sufficient to justify the deterrent effect" of disclosure—we concluded that the State's demand violated the First Amendment.

[2.] To be constitutional, any such disclosure requirements had to pass "exacting scrutiny," which means they must "be narrowly tailored" to "a sufficiently important government interest." (Justice Thomas disagreed on this point, arguing that the law had to pass "strict scrutiny," under which the rules had to be the least restrictive means of serving a compelling interest; Justices Alito and Gorsuch wouldn't have resolved this question; so this particular part of the opinion was only endorsed by Chief Justice Roberts and Justices Kavanaugh and Barrett.)

[3.] This broad disclosure requirement isn't narrowly tailored to the "substantial governmental interest[] in protecting the public from fraud," including from "misuse, misappropriation, and diversion of charitable assets," "false and misleading charitable solicitations," and other "improper activities by charities soliciting charitable donations":

There is a dramatic mismatch, however, between the interest that the Attorney General seeks to promote and the disclosure regime that he has implemented in service of that end. Recall that 60,000 charities renew their registrations each year, and nearly all are required to file a Schedule B. Each Schedule B, in turn, contains information about a charity's top donors—a small handful of individuals in some cases, but hundreds in others. This information includes donors' names and the total contributions they have made to the charity, as well as their addresses.

Given the amount and sensitivity of this information harvested by the State, one would expect Schedule B collection to form an integral part of California's fraud detection efforts. It does not. To the contrary, the record amply supports the District Court's finding that there was not "a single, concrete instance in which pre-investigation collection of a Schedule B did anything to advance the Attorney General's investigative, regulatory or enforcement efforts." …

The Attorney General and the dissent contend that alternative means of obtaining Schedule B information—such as a subpoena or audit letter—are inefficient and ineffective compared to up-front collection. It became clear at trial, however, that the Office had not even considered alternatives to the current disclosure requirement.

The Attorney General and the dissent also argue that a targeted request for Schedule B information could tip a charity off, causing it to "hide or tamper with evidence." But again, the States' witnesses failed to substantiate that concern. Nor do the actions of investigators suggest a risk of tipping off charities under suspicion, as the standard practice is to send audit letters asking for a wide range of information early in the investigative process. Furthermore, even if tipoff were a concern in some cases, the State's indiscriminate collection of Schedule Bs in all cases would not be justified.

The upshot is that 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 involving filed complaints. California does not rely on Schedule Bs to initiate investigations, and in all events, there are multiple alternative mechanisms through which the Attorney General can obtain Schedule B information after initiating an investigation. The need for up-front collection is particularly dubious given that California—one of only three States to impose such a requirement—did not rigorously enforce the disclosure obligation until 2010. Certainly, this is not a regime "whose scope is in proportion to the interest served."

In reality, then, California's interest is less in investigating fraud and more in ease of administration. This interest, however, cannot justify the disclosure requirement. The Attorney General may well prefer to have every charity's information close at hand, just in case. But "the prime objective of the First Amendment is not efficiency." Mere administrative convenience does not remotely "reflect the seriousness of the actual burden" that the demand for Schedule Bs imposes on donors' association rights.

[4.] And this is so even though the Schedule Bs are supposed to be available only to the AG's office, rather than (as with election disclosure requirements) being available to the public:

While assurances of confidentiality may reduce the burden of disclosure to the State, they do not eliminate it. {[And h]ere the State's assurances of confidentiality are not worth much. The dissent acknowledges that the Foundation and Law Center "have unquestionably provided evidence that their donors face a reasonable probability of threats, harassment, and reprisals if their affiliations are made public," but it concludes that the petitioners have no cause for concern because the Attorney General "has implemented security measures to ensure that Schedule B information remains confidential." The District Court—whose findings, again, we review only for clear error—disagreed. After two full bench trials, the court found that the Attorney General's promise of confidentiality "rings hollow," and that "[d]onors and potential donors would be reasonably justified in a fear of disclosure."}

{The District Court … found that California was unable to ensure the confidentiality of donors' information. During the course of litigation, the Foundation identified nearly 2,000 confidential Schedule Bs that had been inadvertently posted to the Attorney General's website, including dozens that were found the day before trial. One of the Foundation's expert witnesses also discovered that he was able to access hundreds of thousands of confidential documents on the website simply by changing a digit in the URL. The court found after trial that "the amount of careless mistakes made by the Attorney General's Registry is shocking." And although California subsequently codified a policy prohibiting disclosure, … the court determined that "[d]onors and potential donors would be reasonably justified in a fear of disclosure given such a context" of past breaches.}

It is irrelevant, moreover, that some donors might not mind—or might even prefer—the disclosure of their identities to the State. The disclosure requirement "creates an unnecessary risk of chilling" in violation of the First Amendment, indiscriminately sweeping up the information of every major donor with reason to remain anonymous. The petitioners here, for example, introduced evidence that they and their supporters have been subjected to bomb threats, protests, stalking, and physical violence. Such risks are heightened in the 21st century and seem to grow with each passing year, as "anyone with access to a computer [can] compile a wealth of information about" anyone else, including such sensitive details as a person's home address or the school attended by his children.

The gravity of the privacy concerns in this context is further underscored by the filings of hundreds of organizations as amici curiae in support of the petitioners. Far from representing uniquely sensitive causes, these organizations span the ideological spectrum, and indeed the full range of human endeavors: from the American Civil Liberties Union to the Proposition 8 Legal Defense Fund; from the Council on American-Islamic Relations to the Zionist Organization of America; from Feeding America—Eastern Wisconsin to PBS Reno. The deterrent effect feared by these organizations is real and pervasive, even if their concerns are not shared by every single charity operating or raising funds in California….

[5.] Nor does it matter that this information is already given to the IRS:

For one thing, each governmental demand for disclosure brings with it an additional risk of chill. For another, revenue collection efforts and conferral of tax-exempt status may raise issues not presented by California's disclosure requirement, which can prevent charities from operating in the State altogether.

The dissenters (Justice Sotomayor, joined by Justices Breyer and Kagan) agreed that some such disclosure requirements would be unconstitutional, but would have applied a more government-friendly test. First, they wouldn't have applied "exacting scrutiny" across the board, but only to particular claimants who could show a serious "risk of retaliation":

[Privacy may] be indispensable to the preservation of freedom of association, but it need not be. It depends on whether publicity will lead to reprisal. For example, privacy can be particularly important to "dissident" groups because the risk of retaliation against their supporters may be greater. For groups that promote mainstream goals and ideas, on the other hand, privacy may not be all that important. Not only might their supporters feel agnostic about disclosing their association, they might actively seek to do so….

[I]f a disclosure requirement imposes no burden for the Court to remedy, there is no need for it to be closely scrutinized. By forgoing the requirement that plaintiffs adduce evidence of tangible burdens, such as increased vulnerability to harassment or reprisals, the Court gives itself license to substitute its own policy preferences for those of politically accountable actors.

And they disagreed that there was a serious risk of retaliation, because they thought there was little danger of public leaks:

Although in the Court's view, the actual risk of reprisals is apparently irrelevant, the Court notes that the District Court concluded that California's attorney general could not ensure the confidentiality of Schedule B information. But the Ninth Circuit held this finding to be clearly erroneous because the District Court rested its conclusion "solely on the state's past inability to ensure confidentiality."

{Schedule Bs are kept in a confidential database used only by the Charitable Trusts Section and inaccessible to others in California's attorney general's office. Employees who fail to safeguard confidential information are subject to discipline. In light of previous security breaches disclosed in this litigation, the attorney general's office instituted a series of measures to ensure that Schedule B information remains confidential. The office has adopted a system of text searching forms before they are uploaded onto the Internet to ensure that none contain Schedule B information. The office now also runs automated scans of publicly accessible government databases to identify and remove any documents containing Schedule B information that may be inadvertently uploaded.}

The District Court never explained why the current security measures were insufficient to protect donors' confidentiality. As the Ninth Circuit observed, "the changes the Attorney General has adopted since those breaches occurred" show that the "risk of inadvertent disclosure of any Schedule B information in the future is small, and the risk of inadvertent disclosure of the plaintiffs' Schedule B information in particular is smaller still."

Second, they would have in any event applied a less demanding version of exacting scrutiny, under which the restrictions merely had to have a "substantial relation" to the "sufficiently important government interest," rather than be "narrowly tailored" to it.

Third (and perhaps more importantly than the gossamer distinction between "substantial relation" and "narrow[] tailor[ing]"), they thought the Schedule B filing requirement really was important to the AG's fraud investigations:

California collects Schedule Bs to facilitate supervision of charities that operate in the State. As the Court acknowledges, this is undoubtedly a significant governmental interest. In the United States, responsibility for overseeing charities has historically been vested in States' attorneys general, who are tasked with prosecuting charitable fraud, self-dealing, and misappropriation of charitable funds. Effective policing is critical to maintaining public confidence in, and continued giving to, charitable organizations. California's interest in exercising such oversight is especially compelling given the size of its charitable sector. Nearly a quarter of the country's charitable assets are held by charities registered in California.

The Schedule B reporting requirement is properly tailored to further California's efforts to police charitable fraud. The IRS Schedule B form requires organizations to disclose the names and addresses of their major donors, the total amount of their contributions, and whether the donation was cash or in-kind. If the gift is in-kind, Schedule B requires a description of the property and its fair market value.

Schedule B and other parts of Form 990 help attorneys in the Charitable Trusts Section of the California Department of Justice (Section) uncover whether an officer or director of a charity is engaged in self-dealing, or whether a charity has diverted donors' charitable contributions for improper use. It helps them determine whether a donor is using the charity as a pass-through entity, including as a source of improper loans that the donor repays as a contribution. It helps them identify red flags, such as discrepancies in reporting contributions across different schedules. And it helps them determine whether a charity has inflated the value of a donor's in-kind contribution in order, for instance, to overstate how efficiently the charity expends resources.

As a former head of the Section described it, Schedule B combined with the rest of Form 990 provides "[a] roadmap to the rest of the investigation that follows." Indeed, having Schedule Bs on hand is important to attorneys' decisions regarding whether to advance an investigation at all. One of the first things an auditor or lawyer does upon receiving a complaint is review the entire Form 990, including Schedule B. One Section leader testified that she used Schedule Bs "[a]ll the time" for this purpose.

The Court claims that the collection of Schedule Bs does not form an "integral" part of California's fraud detection efforts and has never done "'anything'" to advance investigative efforts.  The record reveals otherwise. As discussed, Section leaders report that they use Schedule Bs "[a]ll the time" and rely on them to create roadmaps for their investigations. The Court further complains that California does not rely on Schedule Bs to "initiate" investigations. But disclosure assists California in its decisions whether to advance or end an investigation. Perhaps the Court's main concern is that California has not identified enough instances in which Schedule B played a unique role in prosecuting charitable malfeasance. But "[l]ike a jigsaw puzzle," investigations often advance "only by placing in the proper place the many pieces of evidence that, taken singly, would show comparatively little."

{The Court goes so far as to suggest that the State does not rely on Schedule B collection to "prevent and police fraud" and to imply the District Court found the same. Yet the District Court expressly acknowledged that it did "not doubt that the Attorney General does in fact use the Schedule Bs it collects."} …

The Court next insists that California can rely on alternative mechanisms, such as audit letters or subpoenas, to obtain Schedule B information. But the Section receives as many as 100 charity-related complaints a month. It is not feasible for the Section, which has limited staff and resources, to conduct that many audits. The subpoena process is also time consuming: Letters must go through multiple layers of review and waiting for a response causes further delays during which a charity can continue its malfeasance.

Implicitly acknowledging that audits and subpoenas are more cumbersome and time consuming, the Court trivializes the State's interest in what it calls "ease of administration." Yet in various contexts, the Court has recognized that an interest in "efficiency" is critical to the effective operation of public agencies. See, e.g., Bailey v. United States, 568 U.S. 186 (2013) ("[T]he law enforcement interests in conducting a safe and efficient search" justify detaining "occupants on the premises during the execution of a search warrant"); Civil Service Comm'n v. Letter Carriers, 413 U. S. 548 (1973) (seeking a constitutional balance between the interests of a government employee in commenting on matters of public concern and the interest of the government in the efficiency of the services it performs).

In addition to being burdensome, audit letters and subpoenas can also significantly undercut the Section's work by alerting an organization to the existence of an investigation, giving it a chance to hide assets or tamper with evidence. The Court dismisses this concern as unsubstantiated. Yet one Section head reported that this had "happened several times," and another testified to her personal experience with organizations "fabricat[ing]" and "destroy[ing] records" after being tipped off to an investigation. A State surely has a compelling interest in ensuring that the subject of an investigation does not destroy evidence or hide funds before investigators have an opportunity to find them. The Court ignores those interests here….

In any event, these excerpts, long as they are, are just a portion of the long and detailed discussion in both of the main opinions; if you're interested, read the full versions.