U.S. Supreme Court Rules Against California in Non-Profit Donor Disclosure Case

In a landmark decision, the United States Supreme Court ruled on Thursday that California must stop it’s practice of requiring non-profits and charities to disclose the names and addresses of their largest donors.

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Americans for Prosperity Foundation, a charity funded in part by billionaire Charles Koch, and the Thomas More Law Center, a Christian non-profit law firm, originally sued California in the mid-2010s over the non-profit donor disclosure law. Both non-profits had argued in the case that would eventually become Americans for Prosperity Foundation v. Bonta, that the disclosure violated the Constitution, specifically naming the freedom of speech and freedom of association.

Both non-profits initially won in a U.S. District Court decision in 2016 against then-Attorney General Kamala Harris, with Judge Manuel Real noting that California’s provision “chills the exercise of its donor’s First Amendment freedoms to speak anonymously and to engage in expressive association.” However, upon appeal in 2018 under then-Attorney General Xavier Becerra, the U.S. Court of Appeals for the Ninth Circuit reversed the lower courts decision, ruling that California forcing non-profits to give them their IRS schedule B forms was constitutional, agreeing with their argument that it was needed to help address misconduct by charities and saying that the donor information would only be used non-publicly.

Both charities subsequently challenged the Appellate decision, leading to the Supreme Court’s decision on Thursday.

The Justices voted 6-3 in favor of the non-profits, noting that while California does want to prevent non-profit wrongdoing, they also never used donor names and addresses in investigations, creating a huge personal information risk for top donors. They also noted that California failed to consider alternate means of getting information such as through subpoenas or simply asking charities and donors to volunteer giving needed information.

“We do not doubt that California has an important interest in preventing wrongdoing by charitable organizations,” said Chief Justice John Roberts in the majority opinion on Thursday. “But there is 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.”

“This [IRS Schedule B] 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 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.”

Justice Sotomayor’s dissenting opinion, reaction to the decision

In the dissenting opinion, Justice Sonia Sotomayor noted that organizations may now not have to follow state rules on the matter and could force the state to rely on more difficult methods of getting needed donor information.

“Today’s analysis marks reporting and disclosure requirements with a bull’s-eye,” stated Sotomayor in the dissenting opinion on Thursday. “Regulated entities who wish to avoid their obligations can do so by vaguely waving toward First Amendment ‘privacy concerns.’”

“Neither precedent nor common sense supports such a result.”

Many non-profit organizations praised the decision on Thursday, noting that the decision will help bring back privacy to donors.

“It’s a huge risk to have donor information being exposed like that,” explained an anonymous non-profit organization director to the Globe on Thursday. “It really ups the odds for a breach of information. Who knows where our donor information can go to once the government has it. By linking people with charities, as well as having their addresses and names out there with it, it’s scary what could happen. Thank God that the Supreme Court saw sense today.”

However, the decision also saw a negative backlash on Thursday as well, with many other organization denouncing the decision.

“Having that law in place was an important piece in checking all of these non-profit organizations for fraud and wrong-doing. To make sure that everything was on the up-and-up,” explained Mary Clark, a lawyer for several non-profit groups in California. “And many groups were ok with that. But, well, the Supreme Court saw otherwise today.”

Following the decision, only Hawaii, New Jersey, and New York now require the use of the Schedule B forms in getting donor information, a practice which may now be challenged in all three states thanks to the new Americans for Prosperity Foundation v. Bonta decision.