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Donor Disclosure Laws and the Courts: Challengers Win in New York and New Jersey

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Encouraging news: Two separate courts recently struck down New Jersey and New York laws requiring mandatory disclosures of donors to nonprofit organizations, affirming First Amendment rights over purported government interests in donor information. These decisions build on both the Trump Administration’s efforts to curtail Section 501(c)(4) donor disclosure requirements[1] and Americans for Prosperity’s ongoing challenge to California’s donor disclosure law applicable to Section 501(c)(3) public charities.[2]

1. New Jersey’s Donor Disclosure Law - Unconstitutional

In Americans for Prosperity v. Grewal, AFP sued the Attorney General of New Jersey for preliminary injunctive relief, claiming that New Jersey’s new law (known as Senate Bill 150) infringed on its First Amendment rights. More specifically, AFP argued that the law chilled free speech by requiring donor disclosure information for expenditures related solely to issue advocacy and provision of factual political information. The law required public disclosure of all contributions of more than $10,000 by “independent expenditure committees” (which includes 501(c)(4) organizations), which spend $3000 or more annually on “influencing or attempting to influence the outcome of any election” or “providing political information on any candidate or public question.”

AFP argued that the law’s requirements went beyond established disclosure and reporting requirements, as set forth in Buckley v. Valeo, 424 U.S. 1 (1976) and McConnell v. FEC, 540 U.S. 93 (2003). The court agreed, rejecting the Attorney General’s attempt to define or interpret the new law’s disclosure requirements as equivalent to those covering “electioneering communications” per McConnell. The court viewed as even more troubling the new law’s expansive definition of “providing political information.” The court focused on AFP’s “NJ Taxpayer Scorecard,” which contains facts related to candidates and public questions, finding that it would trigger S150’s disclosure requirements even if the scorecard did not advocate a particular position and even if it provided neutral descriptions of those positions. That was too much.

The Court further applied “exacting scrutiny” to legislation compelling the disclosure of contributors to independent groups expending money on political causes, in recognition of critically important First Amendment interests at stake. Under that legal test, a law “can be sustained only if it furthers a vital governmental interest . . . achieved by a means which does not unfairly or unnecessarily burden either a minority party’s or individual candidate’s equally important interest in the continued availability of political opportunity.”

Under the “exacting scrutiny” standard, the court determined that the breadth of New Jersey’s disclosure requirements had no substantial relation to its interest in an informed electorate, and that the law’s subjection of those requirements to “purely factual political information” went far beyond disclosures related to “electioneering communications” that courts have upheld. The court then concluded that AFP had a reasonable probability of winning on the merits regarding the law’s facial unconstitutionality, and that it was axiomatic that AFP had met the other factors for granting the injunction (irreparable harm, public interest, and balance of the equities in its favor). Consequently, the court granted the preliminary injunction, precluding New Jersey’s enforcement of the law.

2. New York’s Donor Disclosure Law – Unconstitutional Too

In Citizens Union of the State of New York v. Attorney General, the challengers similarly argued against the constitutionality of New York’s new disclosure law. One notable distinction: New York’s law more broadly applied to Section 501(c)(3) public charities involved with Section 501(c)(4) social welfare organizations, which the challengers argued unconstitutionally burdened First Amendment rights of free speech and association.

More specifically, New York’s law required Section 501(c)(3) public charities making in-kind donations over $2500 to Section 501(c)(4)s organizations engaged in lobbying to file a funding disclosure report including, among other things, any donation in excess of $2500 to the 501(c)(3) along with the donors’ identity. The new law also required 501(c)(4)s expending over $10,000 annually on “covered communications” to file financial disclosure reports including the name and address of any individual donating over $1000. The term “covered communications” was defined as a published statement conveyed to 500 or more people that “refers to and advocates for or against a clearly identified elected official or the position of any elected official or administrative or legislative body relating to the outcome of any vote or substance of any legislation, potential legislation, pending legislation, rule, regulation, hearing, or decision of any legislative, executive or administrative body.”

The New York court applied the same “exacting scrutiny” legal test used by the Grewal court, likewise requiring a “substantial relation between the disclosure requirement and a sufficiently important governmental interest.” As with the New Jersey law, the New York court reviewed the applicable case law regarding disclosure requirements and related constitutionality issues, and then it held that the New York law failed the exacting scrutiny standard.

Regarding the 501(c)(3) disclosure requirements, the court noted that the law did not require donors to 501(c)(3)s to have any intent to support a 501(c)(4) through their donation, or to exercise any control of the 501(c)(3)’s donation to the 501(c)(4). As such, New York did not have a sufficiently important government interest in requiring disclosures of the 501(c)(3) donors. Regarding disclosure of individual donors to 501(c)(4)s, the court determined that the challenged provision “sweeps far more broadly than any disclosure law that has survived judicial scrutiny.” Going far beyond entities engaging in express advocacy for a candidate or electioneering, the law requires disclosures for pure “issue advocacy” as well as communications that take a stance on a position espoused by an elected official relating to “potential legislation.” “Given that any matter of public importance could become the subject of legislation and given the range of positions taken by all elected officials”, the provision reached a far broader range of communications than legally permissible.

In reviewing the history of New York’s law, the court peppered its summary with quotes from New York elected officials, including Governor Andrew Cuomo, criticizing the U.S. Supreme Court’s 2010 Citizens United decision and stating how New York’s law would remedy its defects. This landmark court ruling expanded First Amendment rights for nonprofits related to politically related expenditures, which many believe escalated Section 501(c)(4) social welfare organizations into vehicles for promoting political “dark money” spending - i.e., without accountability through political expenditure reporting. New York’s new donor disclosure law thus could be viewed as an attempt to enact at the state level what has been prohibited at the federal level, and eventually to challenge to Citizens United itself. Indeed, New York Judge Cote seemed to have no doubt that New York’s law failed under Citizens United and related legal precedents.

Moving On

The New Jersey and the New York decisions bring welcome relief to many nonprofit leaders, within those states and beyond, who do not want their donations threatened by the laws’ public disclosure requirements. More broadly, the favorable decisions may serve as a harbinger of how further challenges may fare on appeal and perhaps eventually at the Supreme Court, prioritizing First Amendment interests in free speech and freedom of association over the government’s ostensible law enforcement interests.

Another key case to watch is Americans for Prosperity’s legal challenge to the Ninth Circuit Court of Appeals adverse ruling on donor disclosures, for which AFP is seeking relief from the U.S. Supreme Court as noted above. For now, tax-exempt organizations and their donors may be stuck with California’s mandatory donor disclosure laws as a condition of carrying out fundraising there. But there is hope for relief from such uncomfortable constraints, through the examples of the New York and New Jersey rulings upholding First Amendment freedoms.

[1] See our article on new federal regulation to eliminate Form 990 Schedule B’s donor disclosure requirement for Section 501(c)(4) social welfare organizations.

[2] See our article detailing this litigation journey, with Americans For Prosperity’s certiorari petition now pending before the U.S. Supreme Court.

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