Federal Court Rules Against Citizens United

July 28, 2015       Mark Hrywna      

A federal judge denied a request for a preliminary injunction against the New York Attorney General Office’s policy that requires nonprofits to provide charity regulators with information on major donors.

U.S. District Court Judge Sidney Stein of the Southern District of New York said in a 27-page ruling handed down yesterday that Citizens United failed to show a specific future threat to the organization or that the AG would prohibit it from soliciting in New York as a result of its refusal to disclose major donor information. “Plaintiffs’ attempt to articulate specific present objective harm falls decidedly short,” Stein wrote.

“The enforcement of charitable solicitation laws and the oversight of charitable organizations for the protection of donors are, without a doubt, sufficiently important government interests,” Stein wrote, citing landmark nonprofit decisions, including Riley v. National Federation of the Blind and Village of Schaumburg v. Citizens for a Better Environment.

Citizens United (CU) and its foundation sought a preliminary injunction barring the attorney general from enforcing a policy to require charities to disclose names, addresses, and total contributions of major donors in order to solicit in New York state.

Citizens United argued that the policy violates its First Amendment rights of freedom of speech and association and the state’s regulations are pre-empted by federal law. The Internal Revenue Service (IRS) collects Schedule B as part of Form 990 but does not disclose it to the public. The Alexandria, Va.-based organization also argued that the AG did not provide notice of the policy reversal or public comment, thus the “abrupt change” violates due process.

CU contended that the policy is an invasion of donors’ privacy, could cause donors to fear backlash and financial harm for their support of controversial causes should they become public, and hurt donations.

“The government’s interests in enforcing Schedule B policy clearly outweigh any burden that it may impose on charities that engage in solicitation, advocacy, and information campaigns,” Stein ruled, adding that the AG also had not applied the policy in a selective or discriminatory manner.

Schedule B directs organizations to report the name, address and total contribution of any donor who contributed more than $5,000 in cash or property to the organization during the past year. The IRS does not make Schedule B of the Form 990 available to the public. Likewise, the AG’s office argued that Schedule B is exempt from New York’s Freedom Of Information Law (FOIL) but now requires it as part of its annual report for charities that register to solicit in the Empire State.

With more than 65,000 registered charities to regulate with limited resources, requiring the AG to submit separate written requests to the IRS for “such an enormous quantity of Schedules B would be unduly cumbersome and inefficient – both for the AG and the IRS,” Stein wrote.

Multi-year filings of an organization’s Schedule B might disclose that a single donor has consistently served as its primary source of funding, causing the Attorney General to question whether the charity is in reality a tool to evade taxes or launder money, the judge wrote. “The justifications that the AG has offered here are remarkably similar to those that the Ninth Circuit found dispositive when it upheld California’s comparable Schedule B requirement.”

A similar court fight is playing out in California, where the 9th Circuit Court of Appeals affirmed a lower court decision in May, siding with Attorney General Kamala Harris. The U.S. Supreme Court denied an initial request by Center For Competitive Politics to hear its appeal.

In 2006, the New York AG’s office interpreted the state regulation directing charities to attach a complete copy of Form 990 to annual reports – including Schedule B. Citizens United never filed copies of Schedule B since first registering as a charity in 1995. In 2012, the Charities Bureau determined that certain organizations were not filing Schedule B with their annual reports. The office then “implemented an across-the-board initiative to identify and notify registered organizations of their filing deficiencies with respect to Schedule B.”

Mark Fitzgibbons, president of corporate affairs at Manassas, Va.-based American Target Advertising, who frequently challenges state charity officials on regulations said even just disclosure to the Attorney General’s office – not to the general public – is a disclosure. He cited the example of the National Security Agency (NSA) collecting metadata, while not disclosing it to the public but to the government. “That’s the fear,” he said.

“Today’s victory over Citizens United reaffirms some of our most basic responsibilities in overseeing the nonprofit sector in New York State,” Attorney General Eric Schneiderman said in a statement on the decision. “Charitable donors, beneficiaries, and the general public deserve to know that we have the tools to ensure that charitable funds are properly used and can take action against dishonest fundraisers and solicitors,” he said.

“While we would have preferred the court to issue a preliminary injunction, we are pleased that the court recognized that donor information is confidential and cannot be released to the public,” Citizens United President David Bossie said. “New York’s attorney general should not take any adverse actions against Citizens United while this matter continues through the court system,” he added.