U.S. Supreme Court Finds California Disclosure Requirement Unconstitutional as Infringement on First Amendment Associational Rights

By Hanna Reinke,¹ Tracy A. Olson and Brett W. Johnson

On July 1, 2021, the U.S. Supreme Court issued a 6-3 decision, holding that California’s blanket demand for charities to disclose donor information to the state Attorney General (AG) is facially unconstitutional.² In addition to First Amendment general free speech principles, this ruling is primarily significant for nonprofit entities who choose not to disclose their donor information for fear of a chilling effect on current, and potentially future, donors.

In Americans for Prosperity Foundation v. Bonta, two nonprofits challenged a California law that requires charities soliciting donations in the state to submit an unredacted copy of their IRS Form 990 on an annual basis. Notably, Schedule B of Form 990 requires the disclosure of any donor contributing $5,000 or more to the nonprofit organization. While the nonprofits complied with all other requirements under the California law, they alleged that compelled disclosure of their major donors was a violation of their First Amendment rights and the associational rights of donors.³

While the majority agreed that the blanket requirement to disclose sensitive donor information was facially unconstitutional, the six justices voting to strike down the law diverged regarding which scrutiny standard should apply. Three justices (Chief Justice Roberts and Justices Kavanagh and Barrett) agreed that the Court should apply an exacting scrutiny standard—a more flexible standard than strict scrutiny—requiring the law demonstrate “a substantial relation between the disclosure requirement and a sufficiently important governmental interest.⁴ Accordingly, the requirement must be “narrowly tailored to the interest it promotes, even if it is not the least restrictive means of achieving that end.”⁵ Because the Court has implemented exacting scrutiny when determining the constitutionality of other disclosure requirements, the plurality opinion concluded that the same standard should be applied here.⁶

In contrast, Justice Thomas would have applied the higher, strict scrutiny standard and require that any law “directly burdening the right to associate anonymously, including compelled disclosure laws,” be “the least restrictive means of achieving a compelling state interest.”⁷ Justices Alito and Gorsuch determined that it was not necessary for the Court to announce a categorical standard for evaluating disclosure laws at this time because the California law at issue would fail either standard.⁸

Even without announcing a clear standard, the majority concluded that the law was unconstitutional because it (1) was not narrowly tailored to any substantial governmental interest and (2) placed an undue burden on donors.

• Governmental Interest. Despite the State’s argument that California has a substantial governmental interest in investigating and mitigating charitable fraud, the Court found that there was no evidence to support that blanket disclosure of Schedule Bs (and the sensitive information within) serve that interest. While California is responsible for nearly a quarter of U.S. charitable assets, the AG rarely, if ever, utilizes Schedule Bs as a tool in carrying out fraud investigations.⁹ Multiple alternative mechanisms allow the AG to obtain the same information without using a Schedule B. Accordingly, while requiring the blanket disclosure of nonprofits’ Schedule Bs may be more administratively efficient, that reasoning alone does not further a substantial governmental interest.
• Undue Burden. Without a substantial governmental interest, the Court also found that the disclosure requirement places too high a burden on nonprofits. The Court reasoned that requiring the disclosure of sensitive donor information could chill a donor’s charitable association.¹⁰ In this case, petitioners and their supporters reported receiving bomb threats and being subjected to physical violence after their information was released.¹¹ Hundreds of other nonprofits also wrote amici curiae briefs to the Court, explaining the burden that compelled disclosure would create. Even though the State had some safeguards in place to keep the information confidential and it is possible that not all organizations would face such ramifications, the Court found that the risk of harm was enough to cause a significant burden.¹²

The dissenting justices would have upheld California’s blanket disclosure requirement.¹³ The dissent argued that the requirement poses little to no burden on the donors and is sufficiently tailored to the State’s interests citing California’s vast charitable assets, the state’s need to protect against fraud, and the AG’s promise of keeping donor identities confidential. Moreover, the dissent argued that there was insufficient evidence to support that the disclosure requirement would result in an actual, or even a reasonable probability of, burden or chilling effect on donors’ right to associate.

Final Thoughts. While the Court’s decision is considered a win for nonprofits seeking to protect their donors’ privacy, the Court left the door open for future arguments regarding the appropriate standard to apply to disclosure requirements and future more targeted requests for donor information. Specifically, in invalidating the blanket disclosure of donor information, the Court signaled that future, particularized requests for donor information could be warranted if accompanied by a compelling justification.¹⁴

Non-California nonprofit organizations may want to consider the impact of the ruling related to California law on other states mandated disclosure laws.  Furthermore, nonprofits engaged in electioneering at the federal level may want to determine the impact on Federal Election Commission requirements related to the disclosures of donors.  As the election season is quickly already arriving, nonprofits may also consider reviewing and updating policies and fundraising disclaimers related to donor efforts.