Supreme Court Says That California Can't Require All Nonprofits to Disclose Their Donors

Erin Scott | Reuters
  • The Supreme Court just struck down a California rule requiring nonprofits to disclose the names and addresses of their largest donors.
  • Two conservative nonprofits had challenged the requirement as unconstitutional.
  • The 6-3 decision reversed a 2018 appeals court ruling.

The Supreme Court on Thursday struck down a California rule requiring nonprofits to disclose the names and addresses of their largest donors, delivering a victory to a pair of conservative groups that had challenged the requirement as unconstitutional.

The 6-3 decision, which divided the nine justices along ideological lines, reversed a 2018 appeals court ruling siding with California's attorney general.

The rule had forced nonprofits to give the state their so-called Schedule B forms, which include the personal information of all donors nationwide who had contributed more than $5,000 in a given tax year. The state had argued that it needed that information to help it police misconduct by charities.

"We do not doubt that California has an important interest in preventing wrongdoing by charitable organizations," wrote Chief Justice John Roberts in the majority opinion.

But "there is a dramatic mismatch" between "the interest that the Attorney General seeks to promote and the disclosure regime that he has implemented in service of that end," Roberts wrote.

The conservative chief justice noted that about 60,000 charities renew their registration each year, and that virtually all of them were required to provide a Schedule B form.

"This information includes donors' names and the total contributions they have made to the charity, as well as their addresses. Given the amount and sensitivity of this information harvested by the State, one would expect Schedule B collection to form an integral part of California's fraud detection efforts. It does not," Roberts wrote.

"To the contrary, the record amply supports the District Court's finding 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,'" he added.

Roberts also wrote that California failed to use other more limited tools that might achieve the state's objectives.

"The Attorney General and the dissent contend that alternative means of obtaining Schedule B information— such as a subpoena or audit letter — are inefficient and ineffective compared to up-front collection," Roberts wrote. "It became clear at trial, however, that the Office had not even considered alternatives to the current disclosure requirement."

In a dissent, Justice Sonia Sotomayor argued that the majority's decision bodes ill for requiring regulated organizations to follow the rules.

"Today's analysis marks reporting and disclosure requirements with a bull's-eye," Sotomayor wrote. "Regulated entities who wish to avoid their obligations can do so by vaguely waving toward First Amendment 'privacy concerns.'"

"Neither precedent nor common sense supports such a result," Sotomayor wrote.

Two nonprofits — the Americans for Prosperity Foundation, an influential advocacy group backed by the billionaire Charles Koch, and the Michigan-based Thomas More Law Center, which has actively engaged in hot-button cultural arenas — had each challenged the disclosure rule in lawsuits against then-Attorney General Kamala Harris.

Those groups argued that California's disclosure requirement violated the Constitution's protections of free speech and free association.

U.S. District Court Judge Manuel Real in 2016 agreed, ruling that the provision "chills the exercise of its donor's First Amendment freedoms to speak anonymously and to engage in expressive association."

But the U.S. Court of Appeals for the 9th Circuit reversed the district court judgments, noting that the donor information was being collected "solely for nonpublic use, and the risk of inadvertent public disclosure was slight."

Xavier Becerra succeeded Harris in the role after she became a U.S. senator. The state's current attorney general is Rob Bonta.

Copyright CNBC
Contact Us