Nonprofit Must Disclose Donors, Says Court

The U.S. Court of Appeals for the 9th District denied a preliminary injunction to a nonprofit challenging the California Attorney General’s requirement that organizations disclose significant donors.

The 29-page ruling was handed down May 1, after the Alexandria, Va.-based Center for Competitive Politics (CCP) had appealed a decision by the U.S. District Court for the Eastern District of California.

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.

CCP will review the 29-page opinion, issued May 1, and could pursue it to the Supreme Court. “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,” President David Keating said in a statement. “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. It gave no such reason in its briefs,” he said.

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 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 st Amendment rights to freedom of association.”

“CCP is correct that the chilling risk inherent in compelled disclosure triggers exacting scrutiny,” the ruling stated. “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 1st Amendment rights.”

Donor information is necessary, the AG’s office counters in court documents, to determine whether a charity is violating California law by engaging in self-dealing, improper loans, or other unfair business practices. 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 office argued, and also cited Hawaii, Mississippi and Kentucky as having the same requirement.

“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 Attorney General Kamal Harris.

“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,” Mark Fitzgibbons, president of corporate affairs at American Target Advertising (ATA) said. “If people are fudging numbers, it’s very simple: the AG can go to a judge, get 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 Fourthamendments, requiring information without probable cause.

“Not only is it a bad precedent for nonprofits but anyone who has to get a license for a business. Confidential tax information as condition of getting a license, not only for solicitations, where standards should be stronger, but any type of business or other license,” he said. “Not only is it bad from that perspective, the opinion itself is so skewed in favor of government, which isn’t always benevolent,” he said. Fitzgibbons worries that other states will follow California’s lead.