California donor disclosure law unconstitutional on its face, high court says

Legal experts said they are uncertain of the long-term impact of Thursday's U.S. Supreme Court ruling that a California law requiring nonprofits to disclose the names of their largest donors to the state attorney general is unconstitutional.

Chief Justice John G. Roberts Jr. ruled not only that Americans for Prosperity Foundation and the Thomas More Law Center, two conservative nonprofits, didn't have to disclose their donors but that the law was unconstitutional on its face.

Roberts cited a range of organizations spanning the ideological spectrum that filed amicus briefs supporting the petitioners, including the American Civil Liberties Union, the Council on American-Islamic Relations and the Zionist Organization of America.

"The deterrent effect feared by these organizations is real and pervasive, even if their concerns are not shared by every single charity operating or raising funds in California," he wrote. Americans for Prosperity Foundation v. Bonta, 2021 DJDAR 6702 (S. Ct, July 1, 2021).

Roberts' opinion was joined by the five other justices appointed by Republican presidents and opposed by the three justices appointed by Democratic presidents.

The ruling reversed a decision by the 9th U.S. Circuit Court of Appeals, which upheld the state requirement.

Justice Sonia M. Sotomayor, who wrote the dissent, expressed a concern that had been voiced by Justice Stephen G. Breyer during April's oral arguments, that the case could lead to challenges to campaign finance disclosure laws.

"Today's analysis marks reporting and disclosure requirements with a bull's-eye," Sotomayor wrote. "Regulated entities who wish to avoid their obligations can do so by vaguely waving toward First Amendment 'privacy concerns.'"

Breyer called the case a potential "stalking horse" for challenges to campaign finance disclosure laws during oral arguments.

Sterling Marchand, a partner with Baker Botts LLP who is an expert on political and election law, said there is unlikely to be immediate reverberations from the ruling but it could affect future regulations.

"I don't think the world of campaign finance disclosure will come crashing down as a result of this decision," he said. "But it sets a higher bar for future regulations of so-called dark money."

"This court is skeptical of disclosure requirements," added Marchand, who is not involved in the case. Future regulations "will need to pass exacting scrutiny and a very specific test."

Under the California law, the state attorney general's office has required disclosure of tax-exempt organizations' Schedule B IRS Section 990 forms, which include the names and addresses of anyone who donated more than $5,000 or 2% of a group's total contributions.

The state said the goal of the requirement was to prevent fraud.

The attorney general's office has argued that the requirement imposes no greater burden on the nonprofits because the same information must be submitted to the IRS.

But Roberts was unpersuaded by that argument, citing other cases that have concluded that disclosure requirements can chill association even if the information is not revealed to the general public.

"We have no trouble concluding here that the attorney general's disclosure requirement is overbroad," Roberts wrote. "The lack of tailoring to the state's investigative goals is categorical -- present in every case -- as is the weakness of the state's interest in administrative convenience."

"Every demand that might chill association therefore fails exacting scrutiny," added Roberts, who ruled for a stricter standard for states to justify their regulations affecting First Amendment rights.

He wrote that the attorney general's disclosure requirement was designed more for "administrative convenience," adding that there was nothing preventing the attorney general from obtaining the information with a subpoena or audit letter if suspicions arose.

The attorney general's office responded to the decision with disappointment but promised to continue working to make sure nonprofits are following state law.

"Stripping our office of confidential access to donor information -- the same information about major donors that charities already provide to the federal government -- will make it harder for the state to fight fraud and prevent the misuse of charitable contributions," said a statement.