Earlier this month, the United States Supreme Court handed down its decision in Americans for Prosperity Foundation v. Bonta - a case that is likely to have a widespread impact on state nonprofit donor disclosure and transparency frameworks across the country. In Bonta, the Court addressed the constitutionality of California’s donor disclosure obligations for charitable organizations soliciting funds within the state, ultimately finding the requirement to be a facially invalid restriction of First Amendment rights because it burdens the freedom of association of donors without being tailored to an important government interest. In the wake of Bonta, states with disclosure laws similar to California’s may be hard pressed to enforce their existing nonprofit donor reporting requirements and may be forced to consider whether charitable solicitation legal frameworks are the appropriate means by which to promote contributor transparency going forward.

In Bonta, two charitable entities organized under section 501(c)(3) of the Internal Revenue Code - Americans for Prosperity Foundation (AFPF) and the Thomas More Law Center (TMLC) - challenged a California law that required charities and nonprofits soliciting contributions from state residents to disclose their top donors to the state’s Attorney General. In conjunction with this obligation, such tax-exempt organizations were required to submit to the AG’s office a copy of their federal Form 990 Schedule B, which lists the names and addresses of all donors contributing over $5,000 to the entity. Such disclosures, the state asserted, were necessary to police fraud in charities. In challenging the permissibility of this reporting obligation, however, AFPF and TMLC argued that compelled disclosure of donor identities violated both the First Amendment rights of the organizations themselves and those of their individual donors.

In 2016, both AFPF and TMLC were successful in procuring preliminary injunctive relief from the US District Court for the Central District of California temporarily barring the state’s collection of their organizational Schedule Bs. On appeal, however, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit, vacated the injunctions and remanded the cases back to the District Court. Following another favorable determination from the trial court barring enforcement of the donor disclosure provision, a second panel of the Ninth Circuit again reversed the District Court and remanded for entry of a directed judgment in favor of the AG. When the Ninth Circuit denied rehearing of the matter en banc, both AFPF and TMLC sought US Supreme Court review, which was granted.

Following oral argument this April, the Supreme Court sided with AFPF and TMLC in a 6-3 decision ruling California’s donor disclosure obligation unconstitutional. Writing for the majority, Chief Justice John Roberts concluded that California’s donor disclosure requirement was facially invalid because the obligation failed the “exacting scrutiny” standard that should be applied to laws that burden the First Amendment associational rights of individual donors. Under the Court’s interpretation of the standard, exacting scrutiny requires that a donor disclosure law be narrowly tailored to the government’s asserted interest, even if the disclosure law is not the least restrictive means of achieving such ends. The Court found the correlation between California’s disclosure requirement and its interest in preventing charitable fraud to be a “dramatic mismatch” in light of the fact that there was no evidence that California, despite mandating donors disclosure from over 60,000 nonprofits - relied on Schedule Bs for initiating investigations into registered charities.

Justices Kavanaugh and Barrett joined the Chief Justice in the entirety of his opinion, while Justices Alito and Justice Gorsuch joined in the judgement except to assert that they would be open to utilizing the higher standard of “strict scrutiny” review in matters impacting First Amendment speech and association. Justice Thomas also jointed in the judgment, but separately wrote a concurring opinion to clarify his belief that strict scrutiny, not exacting scrutiny, must be used for all direct burdens on First Amendment-protected rights. The dissent, authored by Justice Sonia Sotomayor, argued that California’s nonprofit donor disclosure requirement should be upheld as constitutional given that the reporting obligation placed no demonstrated burden on free speech and generated no reason to undertake exacting scrutiny review.

The Supreme Court’s ruling in Bonta renders California’s existing disclosure obligation unconstitutional and inapplicable to charities in the state, and could lead to increased scrutiny of other state-level donor disclosure requirements for both section 501(c)(3) charitable organizations and covered section 501(c)(4) social welfare organizations registered for nonprofit solicitation purposes. The Bonta ruling will certainly impact a number of currently ongoing lawsuits around the country challenging similar donor disclosure requirements in other states, and will undoubtedly invite new lawsuits seeking to force jurisdictions to abandon or modify their current policies - see, e.g., several new suits filed just this past week in New Jersey and New York. Nonprofit groups that solicit funds and conduct operations nationwide should thus stay apprised of how the Supreme Court’s decision impacts the enforcement and regulation of charitable solicitation activities in various high-regulatory states. The Dentons Political Law team will continue to monitor the legal issues and developments surrounding disclosure rules for nonprofit organizations.