Court OKs Public Disclosure Of Donors

June 2, 2015       Mark Hrywna      

Schedule B or not Schedule B? That is the question…that an appeals court tried to answer in an ongoing battle over donor disclosure between the Center for Competitive Politics (CCP) and California Attorney General Kamala Harris.

The U.S. Court of Appeals for the 9th District denied a preliminary injunction to CCP that challenged California’s requirement to file an unredacted Schedule B, disclosing significant donors. The 29-page ruling was handed down last month, affirming an earlier decision by the U.S. District Court for the Eastern District of California.

The Alexandria, Va.-based CCP on May 13 filed an emergency application for an injunction with the United States Su­preme Court. Associate Justice Anthony Kennedy denied the request on May 18 “without prejudice.” CCP will be able to file again.

To solicit charitable contributions in California, nonprofits must be registered with the state’s Registry of Charitable Trusts, within the Attorney General’s Office, and file an annual report. The report includes Schedule B of the Form 990, which identifies names and contributions of “significant donors” — those who have contributed more than $5,000 in a single year. Federal law treats the information as confidential.

Having information on significant donors immediately available allows the attorney general to identify suspicious behavior, increase investigative efficiency, and avoid the need for expensive and burdensome audits, the Attorney General’s Office argued, and also cited Hawaii, Mississippi and Kentucky as having the same requirement.

Kentucky’s law allows for either redacted or unredacted Schedule B to be filed, according a spokeswoman for the Attorney General’s Office, which oversees charities. Hawaii does require Schedule B to be filed but it does not appear in the public registration database, according to Hugh R. Jones, supervising deputy attorney general for the Tax & Charities Division of the Hawaii Department of the Attorney General.

“We intend to appeal this case to the Supreme Court. We will continue to monitor developments while the full Court considers our petition,” said David Keating, CCP’s president. “If Attorney General Harris attempts to take any action against the Center, we will renew our efforts to obtain an injunction,” he said.

“The ruling asks us to make an impossible choice: either retroactively disclose donors to the attorney general or cease asking Californians to support our work to defend free speech,” Keating said via a statement after the 9th Circuit Court’s decision. “Ultimately, the Supreme Court may need to reaffirm its longstanding view that people can join groups without reporting their activity to the government, especially for educational purposes, unless the state can provide a specific and powerful reason for insisting otherwise,” he said.

CCP originally filed for an injunction in April 2014. The organization had filed its annual registration renewal fee report with the attorney general in January 2014. A month later, CCP received a letter demanding an unredacted list of contributors within 30 days, according to court filings. The AG’s office argued that unredacted Schedule B information would allow officials to determine “whether an organization violated the law, including laws against self-dealing, improper loans, interested persons, or illegal and unfair business practices.” Harris is running next year for the U.S. Senate seat being vacated by the retiring Barbara Boxer.

CCP argued that disclosure of its major donors’ names violates the right of free association guaranteed by the First Amendment but the court ruled that it had not shown any “actual burden” on its freedom of association.

The appeals court ruling described as “speculative” the argument by CCP that the office’s systems for preserving confidentiality are not secure and that significant donors’ names might be accessed. That does not “constitute evidence to support their claim that disclosing donors to the attorney general for confidential use would chill donors’ participation.” The panel also rejected the center’s contention that the disclosure requirement was “in and of itself injurious to the center and its supporters’ exercise of First Amendment rights to freedom of association.”

“CCP is correct that the chilling risk inherent in compelled disclosure triggers exacting scrutiny,” according to the ruling by the Circuit Court judges. “However, CCP is incorrect when it argues that the compelled disclosure itself constitutes such an injury, and when it suggests that we must weigh that injury when applying exacting scrutiny.” The Supreme Court, the ruling continued, has “made it clear we must balance the seriousness of the actual burden on a plaintiff’s First Amendment rights.”

CCP argues that the question at the heart of its case is whether the attorney general has the power to ban a nonprofit from asking for donations unless it hands over a list of past supporters for inspection, even if the group has no involvement in elections. Federal tax law and U.S. Supreme Court precedent concerning First Amendment protections say no, CCP believes.

The Attorney General’s demand is pre-empted by federal statute, CCP argues, since the Internal Revenue Code makes clear that state officials can’t seek or obtain names and addresses of contributors to 501(c)(3) organizations. The appeals court shifted the burden of “exacting scrutiny,” cited in a key Supreme Court case, NAACP v. Alabama, from the government to the organization, according to CCP.

“Schedule B lists information about an organization’s major donors and remains confidential. This law has long been on the books and helps protect the public against fraud,” said Kristin Ford, a spokeswoman for the California Attorney General’s Office.

“If they’re claiming a legitimate law enforcement issue, then it’s a shotgun approach, saying everybody has to file this information for law enforcement reasons, even though they presented no evidence in court that there’s law breaking taking place,” said Mark Fitzgibbons, president of corporate affairs at American Target Advertising (ATA). “If people are fudging numbers, it’s very simple: the AG can go to a judge, get a warrant with probable cause to investigate and not violate confidentiality and privacy rights of everyone who registers,” said Fitzgibbons, a frequent critic of state charity regulators.

He calls the AG’s requirement a violation of the First and Fourth amendments, requiring information without probable cause.

Disclosure isn’t just disclosure to the general public, Fitzgibbons argues, because the court added “public” before disclosure. “The confidential taxpayer information statute provides the times and conditions when government officials may obtain confidential information for specific law enforcement purposes, so Congress clearly meant confidentiality applies even to prohibiting state officials from obtaining confidential taxpayer information,” he said.

“It’s a situation where you have to prove to a court that your donors received death threats to keep confidential tax information confidential,” said Fitzgibbons, referring to another lawsuit, by the Americans For Prosperity Foundation, that sought an injunction against California’s requirement. “It certainly could spread to some of the states, that’s usually the pattern. Some of them will show the proper respect and won’t try this unless this precedent is overturned,” he said.

“There is an ongoing fight in the courts over the nature of disclosure,” said Barnaby Zall, an attorney at Weinberg, Jacobs & Tolani in Bethesda, Md. Both California and New York are interested in disclosing donor names, not for reasons of charitable solicitation but mostly political reasons, he said. “The argument in this case is disclosure in and of itself is a good thing. The government doesn’t really have to show anything to say you must disclose. What’s the government’s interest here? It’s not really a fraud issue.”

To require disclosure of Schedule B for state charity officials to determine if in-kind contributions were overstated and avoid having to do audits is “ridiculous,” said Zall. Schedule B has a separate section for in-kind contributions. “You really don’t need the donor name and address to go through that,” he said. About 15 years ago, there were discussions about what charities should reveal and what they should not, according to Zall. At the time, he said even the IRS instructed nonprofits to redact anything from Schedule B that could be used to identify a particular donor.

The 9th Circuit essentially decided that if nonprofits can show that donors will be harassed if they have to provide their names, then they don’t have to, said Zall. “That raises a host of questions. Does it mean you don’t submit an un-redacted (Schedule B) but submit a note; if so, what do you say? It’s a trap for the unwary,” he said. Organizations that are “lawyered up” will be prepared to do that, use the right buzzwords and not submit un-redacted forms, according to Zall.

“The fact that 35 other states and D.C. do not request Schedule B and some affirmatively instruct charities not to file Schedule B because it will become public record, indicates that they have found less restrictive means of exercising their charity oversight responsibilities,” according to an amicus brief filed last summer on behalf of CCP by Charles “Chip” Watkins of Webster, Chamberlain & Bean. Only California, Florida and New York have requested un-redacted copies of Schedule B, he wrote, while the Kansas Charitable Solicitation Act specifically states not to include any list of contributor names.

“Either always requiring un-redacted Schedule B is false or no one in the registry was reviewing 990s to ensure un-redacted Schedule B was filed. In either case, it’s not nearly as important as the AG suggests,” Watkins wrote, noting an email exchange in 2010 with a California state charity official who said Schedule B was always required but only recently did the office become aware that it was receiving the public version.

A nonprofit also is pushing back against New York Attorney General Eric Schneiderman’s requirement that organizations file unredacted Schedule B forms to be allowed to solicit charitable contributions. Citizens United, the conservative 501(c)(4) advocacy group, and its 501(c)(3) Citizens United Foundation filed suit a year ago, claiming the regulation violated the First and Fourth Amendments.

“New York Attorney General Eric Schneiderman’s constitutional overreach needs to be addressed in a court of law. The First Amendment is under attack by the New York Attorney General and, as we did with the Federal Election Commission, Citizens United will fight for our rights set forth by the U.S. Constitution,” Citizens United President David Bossie said at the time.

New York’s Charities Bureau reviewed operations in 2012 and determined that some organizations filed full copies of Schedule B with their annual registration statements but others did not, according to court documents, leading to an “across-the-board initiative to identify and notify registered organizations of their filing deficiencies.”

Citizens United Foundation has been registered in New York since 1995 and consistently filed annual registration forms without full copies of their Schedule B. After receiving the organization’s Fiscal Year 2011 filing in April 2013, the Charities Bureau notified Citizens United of “filing deficiencies” and requested Schedule B. Citizens United subsequently filed suit in May 2014. NPT