U.S. Supreme Court Hears Oral Arguments on California Donor Disclosure Cases

6 min

On April 26, 2021, the Supreme Court heard oral arguments in the consolidated case Americans for Prosperity Foundation v. Bonta,1 which argues that California's donor disclosure law is unconstitutional under the First Amendment because it will discourage donors from contributing due to the fear that their names and addresses will be publicly disclosed. As we previously wrote, California requires nonprofit organizations registered to fundraise in the state to annually disclose to the California Attorney General's Office their Schedule B donor information, which is typically filed on a confidential basis with the IRS as part of the otherwise public Form 990.

This is one of the rare cases where the Supreme Court has reviewed a case about charitable speech or charitable association. In the cases of Buckley v. Valeo and Doe v. Reed, the Supreme Court found that the standard of exacting scrutiny applies when assessing compelled disclosure in the electoral context. The Court's questions to the parties during oral arguments probed whether California's disclosure law would be properly reviewed under exacting scrutiny, how the standard of review should be applied, and whether the law can withstand such scrutiny facially (that is, as applied to everyone) or at least as applied to the two nonprofits that brought the cases. The case is considered by many to be vitally important, not only as it relates to disclosure of charitable donors, but as a potential "back door" into challenging rules requiring disclosure of donors under campaign finance laws.

Standard of Review

The attorneys for Americans for Prosperity Foundation (APF), the United States, and California each agreed that California's donor disclosure reporting requirements should be reviewed under a standard of exacting scrutiny.2 During the oral arguments, Chief Justice Roberts noted that the application of the standard of exacting scrutiny is not well settled. Several justices (Roberts, Gorsuch, Kagan, and Barrett) asked the parties to articulate their understanding of what exacting scrutiny means and how it differs from strict scrutiny. The parties seemed to agree that the standard includes a "means and fit" analysis, yet each had differing interpretations of how to apply exacting scrutiny here. For example, counsel for APF argued that exacting scrutiny requires "narrow tailoring," whereas the California deputy solicitor general argued that the law would need to be "sufficiently tailored."

As a result, in addition to addressing whether California's law can withstand the First Amendment challenge, the Court has the opportunity to clarify the exacting scrutiny standard applicable to reviewing compelled disclosure and reporting policies, and whether its application is similar to or different from the exacting scrutiny applied in the election and campaign finance context. It's possible that the Court could apply an intermediate level of exacting scrutiny or even redefine exacting scrutiny entirely, which could open the door to challenges brought against the public donor disclosure requirements under state campaign finance laws.

Facial vs. As-Applied Challenge

The constitutionality of California's law has been challenged both facially and as the law was applied to the two nonprofits that brought the cases. The justices asked how California's law is distinguishable from state campaign finance disclosure laws and the federal tax law requirement to file Schedule B with the IRS, which suggests that the Court is considering how its decision could impact other statutory regimes. Several justices also acknowledged that California's past leaks of confidential donor information have led to concern about public disclosure in California, and expressed apprehension about requiring nonprofits negatively affected by California's law to separately challenge this law as applied to those nonprofits in the future if the facial challenge does not succeed at present.

Counsel for AFP emphasized that California's law imposes a direct restraint on the freedom to peaceably assemble (and assemble anonymously) by requesting that charitable organizations disclose their donors, particularly when the state has failed to keep that information strictly confidential in the past. AFP argued that this law is distinguishable from the federal tax law context because the IRS acts pursuant to an authorizing statute (as opposed to a regulation), requests donor information for nationwide tax collection purposes, and is bound by a strict confidentiality regime, none of which exists in California. He also asserted that the state's interest in policing charitable fraud differs from its interest in the election context, where donor disclosure has been presumed to be the least restrictive alternative. Instead, AFP's counsel explained that California's law is unconstitutional in all or at least a substantial number of instances and should be invalidated on its face.

On the other hand, representing the United States, the Acting U.S. Solicitor requested that the as-applied challenge be remanded to the U.S. Court of Appeals for the Ninth Circuit. Counsel for the United States did not address whether petitioners would prevail on this claim, but noted that the analysis conducted by the Ninth Circuit was incomplete, and that if there were evidence of the law's chilling effect on the nonprofits' donors, this would create a serious First Amendment concern.

Finally, counsel for the United States and California both agreed that California's law should be upheld on the facial challenge. Both the United States and California concluded that there is no evidence to find that California's requirement chills contributions in general for a substantial number of charities operating within the state or that there is any kind of widespread substantial burden on First Amendment rights in the typical application of California's disclosure law. Therefore, they conclude that California's law should not be invalidated with respect to all registered charitable organizations.

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While seemingly turning on technical grounds, the decision in this case—which is expected by late June—not only has the potential to affect the free speech rights associated with charitable giving, but could also open the door to challenging the transparency requirements of campaign finance disclosure laws, depending on the scope of the Court's decision. Furthermore, if California's law is found unconstitutional, states such as New Jersey and New York, which have passed laws to compel confidential donor information, may face similar challenges.

[1] The cases Americans for Prosperity Foundation v. Becerra (No. 19-251) and Thomas More Law Center v. Becerra (No. 19-255) were consolidated for oral argument. Now that Xavier Becerra is the Secretary of Health and Human Services and no longer the Attorney General of the State of California, the name of the new California Attorney General, Rob Bonta, has been substituted.

[2] Thomas More Law Center (No. 19-255) argued in its brief that the law should be reviewed under a standard of strict scrutiny, although it also explained that the law should be found unconstitutional under either standard of scrutiny.