Decision Date: July 1, 2021
Link: Case Summary Document
Citation: [2021] 594 U.S.
Acknowledgement:The Pemsel Case Foundation thanks The Australian Centre for Philanthropy and Nonprofit Studies for its contribution in the drafting of this Case Note.

Summary:

Did a state law requiring disclosure of a charity’s donors constitutionally infringe the first amendment’s free speech guarantee?

1. The majority opinion was written by Chief Justice John Roberts and joined by Justices Clarence Thomas, Samuel Alito, Neil Gorsuch, Brett Kavanaugh, and Amy Coney Barrett. Justice Sonia Sotomayor wrote the dissent which was joined by Justices Stephen Breyer and Elena Kagan.

2. The Americans for Prosperity Foundation is a public charity that is “devoted to education and training about the principles of a free and open society, including free markets, civil liberties, immigration reform, and constitutionally limited government”.

3. The Thomas More Law Center is a public interest law firm whose “mission is to protect religious freedom, free speech, family values, and the sanctity of human life”.

4. Both of these organisations filed legal action against the California Attorney General claiming violation of their First Amendment rights and the rights of their donors. There cases were joined and finally considered by the Supreme Court.

5. The California Attorney General’s Office is responsible for state-wide law enforcement, including the supervision and regulation of charitable fundraising. Under state law, the Attorney General is authorized to establish and maintain a register of charitable organizations and to obtain whatever information, copies of instruments, reports and records are needed for the establishment and maintenance of the register.

6. Charities file a Form 990 tax return with the Internal Revenue Service (IRS) and Schedule B requires organizations to disclose the names and addresses of donors who have contributed more than $5,000 in a particular tax year (or, in some cases, who have given more than 2 percent of an organization’s total contributions). The Attorney General required a copy of this schedule to be included in a charity’s California fundraising renewal return. The material was not available to the public, but used for regulatory purposes by the Attorney General.

7. Both organisations refused to file a copy of their Schedule B and claimed that disclosure of their Schedule Bs would make their donors less likely to contribute, and would subject them to the risk of reprisals. They argued that the requirement was contrary to the First Amendment, which states:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

8. The Majority
The court majority decided that the standard of review that applies to the First Amendment compelled disclosure as “exacting scrutiny”, so that there must be a substantial relation between the disclosure requirement and a sufficiently important governmental interest. If the government does regulate in the area of First Amendment, then it must be narrow and specific to its justified needs.

9. The majority Court found that (at [14-]15]):

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. California does not rely on Schedule Bs to initiate investigations, and in all events, there are multiple alternative mechanisms through which the Attorney General can obtain Schedule B information after initiating an investigation. The need for up-front collection is particularly dubious given that California—one of only three States to impose such a requirement, see id., at 420— did not rigorously enforce the disclosure obligation until 2010. Certainly, this is not a regime “whose scope is in proportion to the interest served.” In reality, then, California’s interest is less in investigating fraud and more in ease of administration.

10. And at [19[-]20]:

We are left to conclude that the Attorney General’s disclosure requirement imposes a widespread burden on donors’ associational rights. And this burden cannot be justified on the ground that the regime is narrowly tailored to investigating charitable wrongdoing, or that the State’s interest in administrative convenience is sufficiently important. We therefore hold that the up-front collection of Schedule Bs is facially unconstitutional, because it fails exacting scrutiny in “a substantial number of its applications . . . judged in relation to [its] plainly legitimate sweep.”

11. Finally, at [19]:

When it comes to the freedom of association, the protections of the First Amendment are triggered not only by actual restrictions on an individual’s ability to join with others to further shared goals. The risk of a chilling effect on association is enough, “[b]ecause First Amendment freedoms need breathing space to survive”.

12. The Minority

The minority Court claimed that (at [2]):

… the Court discards its decades-long requirement that, to establish a cognizable burden on their associational rights, plaintiffs must plead and prove that disclosure will likely expose them to objective harms, such as threats, harassment, or reprisals. It also departs from the traditional, nuanced approach to First Amendment challenges, whereby the degree of means-end tailoring required is commensurate to the actual burdens on associational rights. Finally, it recklessly holds a state regulation facially invalid despite petitioners’ failure to show that a substantial proportion of those affected would prefer anonymity, much less that they are objectively burdened by the loss of it.

13. Summary

The collection of Schedule Bs identifying the donors of an organisation for state fundraising purposes was unconstitutional.

Implications of the Case:

Previous Supreme Court decisions allowed the government more latitude to impose restrictions as a condition of tax exempt status (which is considered a government benefit) than it does when limiting/restricting/impeding a constitutional right. There is little in the decision’s logic that would call into doubt the constitutionality of the disclosure requirements in IRS tax law.

During the course of litigation it was identified that nearly 2,000 confidential Schedule Bs had been inadvertently posted to the Attorney General’s website, including dozens that were found the day before trial. One expert witness also discovered that he was able to access hundreds of thousands of confidential documents on the website simply by changing a digit in the URL. The court found that the amount of careless mistakes made by the Attorney General’s Registry was shocking.

And further, a lower Court found 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 case may be viewed at:
https://www.supremecourt.gov/opinions/20pdf/19-251_p86b.pdf