Can controversial groups expect government protection from mandatory disclosures of their participants? Not as the Americans for Prosperity Foundation has painfully learned in California. APF suffered yet another court setback in the federal appellate Ninth Circuit Court of Appeals’ recent denial of an en banc (full court) rehearing. APF has fought the California Attorney General’s mandatory donor disclosures in annual filings, citing First Amendment freedom of speech, association rights, and related concerns for donors’ privacy and protection from harassment. Encouragingly (and unusually, for such judicial denials), five appellate judges issued a lengthy dissent from this denial, urging that the full court correct the prior three-judge panel’s erroneous ruling and instead uphold such critical First Amendment rights. Their arguments set the stage for a likely certiorari petition to the U.S. Supreme Court.
What’s at Stake – APF, the IRS, and the AG
The issue here is the power of the States’ Attorneys General, in regulating Section 501(c)(3) charitable organizations, to obtain otherwise confidential major donor information as disclosed on IRS Form 990 Schedule B – in the case of APF, the California AG. The IRS requires such confidential donor information to check on donors’ tax compliance regarding deductible contributions and improper donor control, on pain of federal civil and criminal sanctions for improper disclosure. In contrast, States’ Attorneys General typically focus on consumer protection as a watch-dog function: to protect donors from contributing to various entities in error, as a result of misdirection, fraud, or other malfeasance. Thus, before charitable solicitation may occur, State AGs usually require an annual state filing, plus excerpts from the Form 990 filing ostensibly only for purposes of showing the extent of a charity’s financial activity – i.e., how much it is collecting from donors’ contributions.
APF is a conservative Section 501(c)(3) nonprofit dedicated to “educating and training citizens to be advocates for freedom.” APF develops educational programs to “share knowledge and tools that encourage participants to apply the principles of a free and open society in their daily lives.”[1] APF registered with California Attorney General’s office and made charitable solicitation filings from 2001 onward. As part of these filings, AFP submitted relevant IRS Form 990s but without the Schedule B confidential major donor information, which had not previously been required.
In 2013, however, the California AG notified AFP that its registration would be deemed incomplete until it filed its Schedule B, due to a policy shift within the agency. The litigation followed, first in district court (APF won on a challenge that the policy was unconstitutional on its face), then before the Ninth Circuit (with the AG rejecting such constitutional challenge), then back to the district court (APF again saw victory on the same constitutional grounds), then back to the Ninth Circuit’s three-judge panel (which rejected APF’s constitutional protection in favor of ostensible state interests in donor information). For further litigation background information, see our firm's article here. It was at this point that APF sought the en banc rehearing before the full Ninth Circuit Court. The dissenting judges’ objections to the Court’s denial provide compelling arguments for giving fuller consideration to this case’s merits and the First Amendment interests at stake.
Compelling Arguments for Rehearing – and Correcting the Decision
As the dissenting Ninth Circuit judges began, “controversial groups often face threats, public hostility, and economic reprisals if the government compels the organizations to disclose its members and contributor lists.” The U.S. Supreme Court recognized such danger in cases like NAACP v. Alabama ex rel. Patterson (1958), in which it held that such compelled disclosures can violate the First Amendment right of association. For this reason, three key elements must be addressed and honored for persons and organizations facing such potential harassment and threats from government action: (1) the government must demonstrate a “compelling interest” in the information sought; (2) a “substantial relationship” must exist between the information sought and the compelling state interest; and (3) the state regulation must “be narrowly drawn to present the supposed evil.”
As an initial matter, and as the dissenters found, “[t]his robust protection of First Amendment free association rights was desperately needed here.” As the district court determined in its evidentiary findings, people publicly affiliated with APF often faced harassment, hostility, and violence. Threats included messages and packages sent to the donors and the organization itself, the home addresses of workers and their children’s schools posted online as intimidation measures, and death threats. Threats of assassination and physical assault were posted online. In addition, a rally in Michigan turned violent when several hundred protestors surrounded APF’s tent with box cutters and knives, caused the tent to collapse, and trapped APF supporters underneath. Protestors have also called for economic boycotts of APF donors’ businesses. Such disturbing facts make the California AG’s compelled disclosure of Schedule B donor information of heightened concern, even if the information is meant to remain confidential within the government agency.
Nevertheless, the appellate court found that such concerns were of no import in the face of the California AG’s stated need for confidential donor information. The dissenters termed the court's conclusion “egregious,” citing the applicable appellate standard that factual findings not be overridden unless they are “clearly erroneous” – that is, illogical, implausible, or without support in inferences from the evidentiary record.
The dissenters then moved on to the three-part constitutional test, finding no compelling government interest, no substantial relationship between the information sought and any such interest, and no sufficiently narrow scope. Indeed, and as the district court found, the donor disclosure requirement “demonstrably played no role in advancing the Attorney General’s law enforcement goals for the past ten years.” There was no single instance of the California AG’s office needing such information for any investigation, and indeed the agency could have subpoenaed such information separately. But the Ninth Circuit panel instead accepted the California AG’s “mere assertion” that its regulatory goals justified such intrusion on donors and their charitable causes.
In addition, and contrary to the California AG’s assurances of donor information confidentiality, the dissenters pointed out the ample evidence that the California AG’s computerized registry of donor information was deeply flawed and vulnerable to improper disclosures. For example:
State employees were shown to have an established history of disclosing confidential information inadvertently, usually by incorrectly uploading confidential documents to the state website such that they were publicly posted. Such mistake resulted in the public posting of around 1,800 confidential Schedule Bs, left clickable for anyone who stumbled upon them. And the public did find them.
The evidence also showed that the California AG’s computerized registry of charitable organizations amounted to “an open door for hackers”:
In preparation for trial, the plaintiff asked its expert to test the security of the registry. He was readily able to access every confidential document in the registry – more than 350,000 confidential documents – merely by changing a single digit at the end of the website’s URL. When the plaintiff alerted California to this vulnerability, its experts tried to fix this hole in its system. Yet when the expert used the exact same method one week before trial to test the registry, he was able to find 40 more Schedule Bs that should have been confidential.
The dissenters termed the Ninth Circuit’s rejection of this compelling evidence as not only in violation of the applicable appellate standard of review but also of common sense.
Against the backdrops of these numerous flaws regarding the evidence and applicable legal standard, the dissenters warned that the three-judge panel’s questionable and troubling ruling “eviscerates the First Amendment protections long established by the Supreme Court.” By lowering the bar for governmental requirements concerning donor disclosures, relying on the California AG’s self-serving assertions about the need for such information, and ignoring extensive evidence about dangers posted to donors, the panel “impose[d] a next-to-impossible evidentiary burden on plaintiffs seeking protection of their associational rights.”
Onward and Upward?
Although the dissent has no precedential value, it does squarely frame the issues and relevant legal considerations for possible future litigation in this case, or else other similar cases. Will APF seek relief from the U.S. Supreme Court, and will the Court accept the case? Time will tell.
This latest ruling in Americans for Prosperity Foundation vs. Becerra raises huge concerns regarding improper use of coercive state power, with the possibility of significant negative effects and physical harm to individual donors. It also serves as a powerful reminder of how protections against governmental abuses can be threatened when aggressive state actors diminish the priority of First Amendment freedoms. Although state regulation of charitable organizations may be important, so is our citizens’ ability to flourish through associational expression and protected free speech.
