Nonprofits Lose Donor Confidentiality Appeal

January 6, 2016       Mark Hrywna      

A California appeals court overturned a lower court ruling that blocked the state attorney general from gaining access to the names of major donors to nonprofits.

The Americans For Prosperity Foundation (APF) and Thomas More Law Center (TMLC) both challenged the collection of Schedule B of the Internal Revenue Service (IRS) Form 990 by the California Attorney General’s Office Registry of Charitable Trusts. Schedule B is required to be collected by the IRS but not made public and identifies donors who contribute $5,000 or more to an organization.

California Attorney General Kamala Harris had appealed the original injunction granted by the U.S. District Court for the Central District of California until a trial is held. A three-judge panel unanimously ruled Dec. 29 in the U.S. Court of Appeals for the 9th Circuit in San Francisco, Calif., striking down the injunction. Harris, a Democrat, is running this year for Barbara Boxer’s U.S. senate seat. APF was established by billionaire conservatives Charles and David Koch.

Thomas More Law Center President and Chief Counsel Richard Thompson said the 9th Circuit combined both cases for the purposes of oral arguments and its decision. They are separate cases but were ruled on together, he said. “We will be making a decision as to what the next step is, and how we’ll appeal,” Thompson said. The center is a public interest law firm based in Ann Arbor, Mich.

The two organizations argue that the nonpublic disclosure requirement is unconstitutional “because it impermissibly burdens First Amendment rights to free speech and association by deterring individuals from financially supporting them.”

The disclosure requirement seeks only nonpublic disclosure of Schedule B and only to assist in “enforcing charitable organization laws and ensuring charities in the registry are not engaged in unfair business practices,” according to the attorney general office’s pleadings. “Compelled disclosure requirements are evaluated under exacting scrutiny, which requires the strength of the governmental interest to reflect the seriousness of the actual burden on a plaintiff’s First Amendment rights.”

The three-judge appeals panel said the plaintiffs “failed to show disclosure requirement placed an actual burden on First Amendment rights.”

Plaintiffs had argued that the requirement would deter donors from associating with and financially supporting them, therefore the attorney general “should be enjoined from collecting Schedule B even for nonpublic use in enforcing the law.” Neither plaintiff has shown anything more than “broad allegations or subjective fears” that confidential disclosure to the AG will chill participation or result in harassment of donors by the state or public, the judges said in their ruling.

No evidence supports the district court’s conclusion that donors have expressed “their unwillingness to continue to participate if such limited disclosure is made,” the appeals court ruled. Allegations that technical failures or cybersecurity breaches are likely to lead to inadvertent public disclosure are “too speculative to support issuance of an injunction.”

The U.S. Supreme Court in November declined to a hear a case brought by the Center for Competitive Politics (CCP) that challenged California’s Schedule B requirement. The 9th Circuit also ruled in favor of Harris in that case. The Citizens United Foundation has filed a similar suit against the New York Attorney General’s office.