Supreme Court Strikes Down Controversial California Donor Disclosure Law

Supreme Court Strikes Down Controversial California Donor
Disclosure Law 1

ACLU and NAACP joined conservative groups to oppose the rule

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Kevin Daley • July 1, 2021 11:35 am

The Supreme Court on Thursday said California violated the First Amendment by requiring charities that raise money in the state to disclose their top donors to the attorney general.

A bipartisan coalition of advocacy groups that included the NAACP, the American Civil Liberties Union, and the conservative St. Thomas More Law Center said the rule scared off prospective donors and threatened their freedom of association. Chief Justice John Roberts delivered the majority opinion of six justices striking California’s disclosure regulation in full, over the dissent of Justice Sonia Sotomayor for the liberal trio.

Though charities representing the full range of political views came together to challenge California’s law, some Democrats fear Thursday’s case is the first step of a long-term attack on federal donor disclosure practices. In an exchange with Derek Shaffer, a lawyer representing Americans for Prosperity Foundation, Justice Stephen Breyer worried that “this case is really a stalking horse for campaign finance disclosure laws.”

A federal trial judge barred the California attorney general from collecting donor information on charities, which appears on a form called the schedule B. But the U.S. Court of Appeals for the Ninth Circuit sided with the state, prompting an appeal to the Supreme Court.

Appearing before the justices in April, Shaffer emphasized that California’s rule could fall without endangering the IRS disclosure regime. He said the agency has a mandate from Congress to collect donor information, while the California attorney general decided to collect this information without direction from the legislature. What’s more, the IRS needs to have that information on hand for individual filers claiming exemptions for charitable giving, and its internal data is closely held.

He also highlighted that confidential donor information leaked from the attorney general’s office to the public sphere in hundreds of cases. Americans for Prosperity Foundation identified 2,000 instances in which tax documents from the attorney general’s unit wound up online. A federal trial judge who enjoined California’s law wrote that the amount of “careless mistakes made by the attorney general’s registry is shocking.”

“There’s nothing California can do at this point that would convince reasonable donors and charities that have seen the dismal record of confidentiality lapses that now those have truly been fixed,” Shaffer told the justices during arguments in April.

California argued the regulation is necessary for heading off misconduct by charities, such as self-dealing.

“Regulators have concluded that knowing the identities of the very small number of individuals who may be in a position to influence the financial decisions of a charity are relevant and important for regulatory oversight purposes,” said lawyer Aimee Feinberg, who defended California’s regulation in the Supreme Court.

Writing for the Court, Roberts agreed that the states have a strong interest in preventing wrongdoing by charities. But he said the facts show California hardly ever uses the donor information as a basis for investigation or fraud detection.

“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,” Roberts wrote.

The case is No. 19-251 Americans for Prosperity Foundation v. Bonta.

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