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Americans for Prosperity Foundation v. Becerra

United States Court of Appeals, Ninth Circuit

September 11, 2018

Americans for Prosperity Foundation, Plaintiff-Appellee,
v.
Xavier Becerra, in his Official Capacity as Attorney General of California, Defendant-Appellant. Americans for Prosperity Foundation, Plaintiff-Appellant,
v.
Xavier Becerra, in his Official Capacity as Attorney General of California, Defendant-Appellee. Thomas More Law Center, Plaintiff-Appellee,
v.
Xavier Becerra, in his Official Capacity as Attorney General of the State of California, Defendant-Appellant. Thomas More Law Center, Plaintiff-Appellant,
v.
Xavier Becerra, in his Official Capacity as Attorney General of the State of California, Defendant-Appellee.

          Argued and Submitted June 25, 2018 Pasadena, California

          Appeal from the United States District Court D.C. Nos. 2:14-cv-09448-R-FFM, 2:14-cv-09448-R-FFM, 2:15-cv-03048-R-FFM, 2:15-cv-03048-R-FFM for the Central District of California Manuel L. Real, District Judge, Presiding

          Derek Shaffer (argued), William A. Burck, Eric C. Lyttle, Keith H. Forst, and Jonathan G. Cooper, Quinn Emanuel Urquhart & Sullivan LLP, Washington, D.C.; Harold Barza, Quinn Emanuel Urquhart & Sullivan, LLP, Los Angeles, California; for Plaintiff-Appellee/Cross-Appellant.

          Tara Malloy, J. Gerald Hebert, and Megan P. McAllen, Campaign Legal Center, Washington, D.C., for Amicus Curiae Campaign Legal Center.

          Jeremy Talcott and Joshua P. Thompson, Pacific Legal Foundation, Sacramento, California, for Amicus Curiae Pacific Legal Foundation.

          Marc Rotenberg, Alan Butler, James T. Graves, and John Davisson, Electronic Privacy Information Center, Washington, D.C., for Amicus Curiae Electronic Privacy Information Center.

          David Weiner and Robert Leider, Arnold & Porter Kaye Scholer LLP, Washington, D.C., for Amicus Curiae The Philanthropy Roundtable.

          Keith Joseph Miller, Assistant Attorney General; Dominic E. Draye, Solicitor General; Mark Brnovich, Attorney General; Office of the Attorney General, Phoenix, Arizona, for Amici Curiae States of Arizona, Alabama, Louisiana, Michigan, Nevada, Texas, and Wisconsin.

          Mark Joseph Fitzgibbons, American Target Advertising, Manassas, Virginia, for Amicus Curiae American Target Advertising, Inc.

          Allyson Newton Ho and John C. Sullivan, Gibson Dunn & Crutcher LLP, Dallas, Texas; C. Dean McGrath Jr., McGrath & Associates, Washington, D.C.; for Amici Curiae Pacific Research Institute, Cato Institute, and Competitive Enterprise Institute.

          Christopher H. McGrath and Samuel S. Sadeghi Paul Hastings LLP, Costa Mesa, California; George W. Abele, Paul Hastings LLP, Los Angeles, California; Brett Harvey, Alliance Defending Freedom, Scottsdale, Arizona; Nathaniel Bruno, Alliance Defending Freedom, Washington, D.C.; for Amicus Curiae Alliance Defending Freedom.

          Brian Timothy Burgess, Goodwin Procter LLP, Washington, D.C.; David J. Zimmer, Goodwin Procter LLP, Boston, Massachusetts; for Amici Curiae NAACP Legal Defense and Educational Fund, Inc.

          Andrew P. Pugno, Law Offices of Andrew P. Pugno, Fair Oaks, California, for Amicus Curiae Proposition 8 Legal Defense Fund.

          Herbert W. Titus, Jeremiah L. Morgan, William J. Olson, and Robert J. Olson, William J. Olson P.C., Vienna, Virginia; Joseph W. Miller, Ramona, California; Michael Boos, Washington, D.C.; for Amici Curiae Free Speech Defense and Education Fund, Free Speech Coalition, Citizens United, Citizens United Foundation, National Right to Work Committee, U.S. Constitutional Rights Legal Defense Fund, U.S. Justice Foundation, Family Research Council, Western Center for Journalism, Conservative Legal Defense and Education Fund, The Leadership Institute, Public Advocate of the United States, Downsize DC Foundation, Downsize. Org, Gun Owners Foundation, Gun Owners of America, 60 Plus, 60 Plus Association, America's Foundation for Law and Liberty, America's Liberty Committee, Citizen Outreach Foundation, Citizen Outreach, LLC, Law Enforcement Alliance of America, Liberty Guard, Coalition for a Strong America, The Jesse Helms Center, Americans for Constitutional Liberty, Catholicvote.org, Eberle Communications Group, Inc., Clearword Communications Group, Davidson & Co., and JFT Consulting.

          Before: Raymond C. Fisher, Richard A. Paez and Jacqueline H. Nguyen, Circuit Judges.

         SUMMARY[*]

         Civil Rights

         The panel vacated the district court's permanent injunctions, reversed the bench trial judgments, and remanded for entry of judgment in favor of the California Attorney General in two cases challenging California's charitable registration requirement as applied to two nonprofit organizations that solicit tax-deductible contributions in the state.

         Plaintiffs qualify as tax-exempt charitable organizations under § 501(c)(3) of the Internal Revenue Code, 26 U.S.C. § 501(c)(3). They challenge the Attorney General of California's collection of Internal Revenue Service Form 990 Schedule B, which contains the names and addresses of their relatively few largest contributors. Plaintiffs argue the state's disclosure requirement impermissibly burdens their First Amendment right to free association.

         The panel held that the California Attorney General's Schedule B requirement, which obligates charities to submit the very information they already file each year with the IRS, survived exacting scrutiny as applied to the plaintiffs because it was substantially related to an important state interest in policing charitable fraud. The panel held that plaintiffs had not shown a significant First Amendment burden on the theory that complying with the Attorney General's Schedule B nonpublic disclosure requirement would chill contributions. The panel further concluded that even assuming arguendo that the plaintiffs' contributors would face substantial harassment if Schedule B information became public, the strength of the state's interest in collecting Schedule B information reflected the actual burden on First Amendment rights because the information was collected solely for nonpublic use, and the risk of inadvertent public disclosure was slight.

         Alexandra Robert Gordon (argued), Jose A. Zelidon-Zepeda, Kevin A. Calia, and Emmanuelle S. Soichet, Deputy Attorneys General; Tamar Pachter, Supervising Deputy Attorney General; Douglas J. Woods, Senior Assistant Attorney General; Xavier Becerra, Attorney General; Office of the Attorney General, San Francisco, California; for Defendant-Appellant/Cross-Appellee.

          OPINION

          FISHER, CIRCUIT JUDGE.

         We address the constitutionality of a California charitable registration requirement as applied to two nonprofit organizations that solicit tax-deductible contributions in the state. Americans for Prosperity Foundation (the Foundation) and Thomas More Law Center (the Law Center) qualify as tax-exempt charitable organizations under § 501(c)(3) of the Internal Revenue Code, 26 U.S.C. § 501(c)(3). They challenge the Attorney General of California's collection of Internal Revenue Service (IRS) Form 990 Schedule B, which contains the names and addresses of their relatively few largest contributors. The Attorney General uses the information solely to prevent charitable fraud, and the information is not to be made public except in very limited circumstances. The plaintiffs argue the state's disclosure requirement impermissibly burdens their First Amendment right to free association by deterring individuals from making contributions.

         The district court held that the Schedule B requirement violates the First Amendment as applied to the Foundation and Law Center and permanently enjoined the Attorney General from demanding the plaintiffs' Schedule B forms. We have jurisdiction under 28 U.S.C. § 1291, and we vacate the injunctions, reverse the judgments and remand for entry of judgment in the Attorney General's favor.

         We hold that the California Attorney General's Schedule B requirement, which obligates charities to submit the very information they already file each year with the IRS, survives exacting scrutiny as applied to the plaintiffs because it is substantially related to an important state interest in policing charitable fraud. Even assuming arguendo that the plaintiffs' contributors would face substantial harassment if Schedule B information became public, the strength of the state's interest in collecting Schedule B information reflects the actual burden on First Amendment rights because the information is collected solely for nonpublic use, and the risk of inadvertent public disclosure is slight.

         I.

         A.

         California's Supervision of Trustees and Charitable Trusts Act requires the Attorney General to maintain a registry of charitable corporations (the Registry) and authorizes him to obtain "whatever information, copies of instruments, reports, and records are needed for the establishment and maintenance of the [Registry]." Cal. Gov't Code § 12584. To solicit tax-deductible contributions from California residents, an organization must maintain membership in the Registry. See id. § 12585. Registry information is open to public inspection, subject to reasonable rules and regulations adopted by the Attorney General. See id. § 12590.

         As one condition of Registry membership, the Attorney General requires charities to submit a complete copy of the IRS Form 990 they file with the IRS, including attached schedules. See Cal. Code Regs. tit. 11, § 301.[1] One of these attachments, Schedule B, requires 501(c)(3) organizations to report the names and addresses of their largest contributors. Generally, they must report "the names and addresses of all persons who contributed . . . $5, 000 or more (in money or other property) during the taxable year." 26 C.F.R. § 1.6033-2(a)(2)(ii)(f). Special rules, however, apply to organizations, such as the Foundation and Law Center, meeting certain support requirements. These organizations need only "provide the name and address of a person who contributed . . . in excess of 2 percent of the total contributions . . . received by the organization during the year." Id. § 1.6033-2(a)(2)(iii)(a). An organization with $10 million in receipts, for example, is required to disclose only contributors providing at least $200, 000 in financial support. Here, for any year between 2010 and 2015, the Law Center was obligated to report no more than seven contributors on its Schedule B, and the Foundation was required to report no more than 10 contributors - those contributing over $250, 000 to the Foundation.

         The IRS and the California Attorney General both make certain filings of tax-exempt organizations publicly available but exclude Schedule B information from public inspection. See 26 U.S.C. § 6104; Cal Gov't Code § 12590; Cal. Code Regs. tit. 11, § 310. At the outset of this litigation, the Attorney General maintained an informal policy treating Schedule B as a confidential document not available for public inspection on the Registry. See Americans for Prosperity Found. v. Harris, 809 F.3d 536, 542 (9th Cir. 2015) (AFPF I). In 2016, the Attorney General codified that policy, adopting a regulation that makes Schedule B information confidential and exempts it from public inspection except in a judicial or administrative proceeding or in response to a search warrant. See Cal. Code Regs. tit. 11, § 310 (July 8, 2016). Under the new regulation:

Donor information exempt from public inspection pursuant to Internal Revenue Code section 6104(d)(3)(A) shall be maintained as confidential by the Attorney General and shall not be disclosed except as follows:
(1) In a court or administrative proceeding brought pursuant to the Attorney General's charitable trust enforcement responsibilities; or
(2) In response to a search warrant.

Id. § 310(b). In accordance with this regulation, the Attorney General keeps Schedule Bs in a separate file from other submissions to the Registry and excludes them from public inspection on the Registry website.

         B.

         Thomas More Law Center is a legal organization founded to "restore and defend America's Judeo-Christian heritage" by "represent[ing] people who promote Roman Catholic values," "marriage and family matters, freedom from government interference in [religion]" and "opposition to the imposition of Sharia law within the United States." Americans for Prosperity Foundation was founded in 1987 as "Citizens for a Sound Economy Educational Foundation," with the mission of "further[ing] free enterprise, free society-type issues." The Foundation hosts conferences, issues policy papers and develops educational programs worldwide to promote the benefits of a free market. It operates alongside Americans for Prosperity, a 501(c)(4) organization focused on direct issue advocacy.

         Charities like the Foundation and the Law Center are overseen by the Charitable Trusts Section of the California Department of Justice, which houses the Registry and a separate investigative and legal enforcement unit (the Investigative Unit). The Registry Unit processes annual registration renewals and maintains both the public-facing website of registered charities and the confidential database used for enforcement. The Investigative Unit analyzes complaints of unlawful charity activity and conducts audits and investigations based on those complaints.

         Beginning in 2010, the Registry Unit ramped up its efforts to enforce charities' Schedule B obligations, sending thousands of deficiency letters to charities that had not complied with the Schedule B requirement. Since 2001, both the Law Center and the Foundation had either filed redacted versions of the Schedule B or not filed it with the Attorney General at all. Each plaintiff had, however, annually filed a complete Schedule B with the IRS. In 2012, the Registry Unit informed the Law Center it was deficient in submitting Schedule B information. In 2013, it informed the Foundation of the same deficiency.

         C.

         In response to the Attorney General's demands, the Law Center and the Foundation separately filed suit, alleging that the Schedule B requirement unconstitutionally burdens their First Amendment right to free association by deterring individuals from financially supporting them. The district court granted both plaintiffs' motions for a preliminary injunction, concluding they had raised serious questions going to the merits of their cases and demonstrated that the balance of hardships tipped in their favor. See ...


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