Federal Appellate Court Upholds NY Donor Disclosure Regulations

Last week the U.S. Court of Appeals for the Second Circuit issued an opinion rejecting federal constitutional and other challenges to New York regulations requiring "charitable organizations" to disclose the identities of their significant donors to the state's Attorney General by submitting copies of  Schedule B from the annual information returns (Form 990) they file with the IRS. In Citizens United and Citizens United Foundation v. Schneiderman, the section 501(c)(3) Citizens United Foundation and the section 501(c)(4) Citizens United organizations challenged the regulations on First Amendment, Due Process, federal preemption, and state constitutional grounds.

With respect to the First Amendment challenge, the court rejected the organizations' arguments that the required disclosure would intimidate potential donors from contributing and operated as a presumptively unconstitutional prior constraint. Disagreeing with the organizations' argument that strict scrutiny applied, the court instead applied exacting scrutiny and concluded that the state's interests in preventing fraud and self-dealing in charities were sufficient to support the limited chilling effect of the required disclosure to the Attorney General, especially given that the disclosure did not go beyond that office. The court also found that regulations did not constitute the sort of prior restraint that is presumed to be unconstitutional. 

With respect to the other claims, the court found that the Due Process claim was ripe for consideration (contrary to what the District Court had concluded), but rejected the claim on its merits. The court also rejected the federal preemption argument and the state constitutional claim that the Attorney General lacked the authority to include organizations classified as social welfare organizations under section 501(c)(4) of the Internal Revenue Code within the ambit of "charitable organizations" for purposes of the AG's authority under state law.

Presumably the organizations will seek certiorari, so the final chapter has yet to be written in this developing case.

Lloyd Mayer