Thursday, July 1, 2021
It’s rare we get a Supreme Court decision that falls squarely within the realm of “nonprofit law,” but today’s the day! The Court decided Americans for Prosperity Foundation versus Bonta. 501(c)(3)-exempt organizations challenged, on First Amendment grounds, a California law that required disclosure to the state of major donors to the organizations. Largely as expected, the Court vacated the 9th Circuit and struck down California’s donor disclosure requirements. Here’s my quick take, although I suspect other bloggers will be writing about this case as well.
No Threshold Chilling Showing is Required. One of the biggest divides between the majority and the dissent is whether the plaintiffs must first make a threshold showing that the disclosure requirement is meaningfully chilling its speech or its associational interests. As long as there is a “risk” of such a chill, the majority immediately places the burden on the government to show that the disclosure is justified. The dissent, in contrast, would first require "plaintiffs [to] plead and prove that disclosure will likely expose them to objective harms, such as threats, harassment, or reprisals."
Standard of review. The biggest thing we needed from the Court was clarification about what the standard of review was. And we didn’t get that. Instead, we have this breakdown:
Chief Justice (plurality in part II-1-B): "Regardless of the type of association, compelled disclosure requirements are reviewed under exacting scrutiny."
Thomas: Apply strict scrutiny: "Laws directly burdening the right to associate anonymously, including compelled disclosure laws, should be subject to the same scrutiny as lawsdirectly burdening other First Amendment rights."
Alito + Gorsuch: don't need to decide between strict and exacting scrutiny because California's law fails both (and "[t]he question is not even close.")
We fortunately did get some clarification on what exacting scrutiny means, at least in this context: “Where exacting scrutiny applies, the challenged requirement must be narrowly tailored to the interest it promotes, even if it is not the least restrictive means of achieving that end.” So the government must show more than a “substantial relation” between its goals and its ends, but need not show that it is the least restrictive. We’ll see how that turns out in practice.
Applying the standard.
The majority agrees "that California has an important interest in preventing wrongdoing by charitable organizations." However, the Court perceives a mismatch between amount of info disclosed (tens of thousands of charities) and the number of cases where that information is used/investigated (tiny). The Court describes the State's interest in broad proactive disclosure as "less in investigating fraud and more in ease of administration." Via Twitter, Phillip Hackney (@EOTaxProf) argues that this downplays the State's interests: first as a deterrent to those who might misuse the laws, and second to know who might be misusing a charity for fraudulent purposes. Without that information regulators are in the dark and unable to see fraudulent patterns." But the Court does not discuss this.
It's also significant that the district court made factual findings following a bench trial that rejected many of the state's asserted interests. The majority's ability to cite deference to the district court's findings allowed it to avoid a fact-intensive application of the standard.
Tax-Exemption. The Court left open the possibility that such disclosure requirements could be validly imposed through "revenue collection efforts and conferral of tax-exempt status." Recall that the California rules were implicated not by a charity's tax exempt status but merely operating in the state/soliciting donations. As the Court's citation to Regan v. Taxation with Representation confirms, the government has more latitude to impose restrictions as a condition of tax-exempt status (which is considered a government benefit) than it does when limiting/restricting/impeding on a constitutional right. Therefore, there's nothing about the opinion's logic that would call into doubt the constitutionality of the disclosure requirements in federal tax law.
Optics. One final note from me is that I worry about the way that this decision has been described in public discourse. This is ultimately a case about disclosure requirements for nonprofits that are not engaged in electioneering. The plaintiffs had support from a range of nonprofit ideologies -- such as the ACLU and the NAACP. This was not simply a case about campaign finance, or about conservative dark money. The news clips and commentary that reduce the case along political lines may be more dramatic and may fit in with some broader narrative, but they elide the actual dynamics of what is going on in the case.
That's my quick take. Look forward to reading others' views!