Americans for Prosperity Foundation v. Harris

182 F. Supp. 3d 1049, 117 A.F.T.R.2d (RIA) 1384, 2016 U.S. Dist. LEXIS 53679, 2016 WL 1610591
CourtDistrict Court, C.D. California
DecidedApril 21, 2016
DocketCASE NO. CV 14-9448-R
StatusPublished
Cited by5 cases

This text of 182 F. Supp. 3d 1049 (Americans for Prosperity Foundation v. Harris) is published on Counsel Stack Legal Research, covering District Court, C.D. California primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Americans for Prosperity Foundation v. Harris, 182 F. Supp. 3d 1049, 117 A.F.T.R.2d (RIA) 1384, 2016 U.S. Dist. LEXIS 53679, 2016 WL 1610591 (C.D. Cal. 2016).

Opinion

ORDER FOR JUDGMENT IN FAVOR OF PLAINITFF

HON. MANUEL L. REAL, UNITED STATES DISTRICT JUDGE

For the reasons that follow, this Court grants Americans For Prosperity Foundation’s (“AFP”) motion for a permanent injunction to enjoin the Attorney General of California from demanding its Schedule B form. After conducting a full bench trial, this Court finds the Attorney General’s Schedule B disclosure requirement unconstitutional as-applied to AFP.

Plaintiff AFP is a non-profit corporation organized under Internal Revenue, Code section 501(c)(3) that funds its activities by raising charitable contributions from donors throughout the country, including in California. California state law requires charitable organizations, such as AFP, to file a copy of its IRS Form 990, including its Schedule B, with the State Registry. See e.g., Cal. Code Regs. tit. 11, § 301. An organization’s Schedule B includes all the names and addresses of every individual nationwide who donated more than $5,000 to the charity during a given tax year. While a nonprofit’s federal tax return, IRS Form 990, must be made available to the public, an organization’s Schedule B does not. 26 U.S.C. § 6104(b), (d)(3)(A).

Since 2001, AFP has filed its Form 990 as part of its periodic reporting with the Attorney General, without including its Schedule B. For each year from 2001 through 2010, the Attorney General accepted AFP’s registration renewal and listed AFP as an active charity in compliance with the law. In a letter dated March 7, 2013, the Attorney General declared AFP’s 2011 filing incomplete because it did not include the organization’s unredacted Schedule B. In December 2014, AFP brought the present action seeking an order preliminarily enjoining the Attorney General from demanding its Schedule B. Among other claims, AFP argued that the California law requiring disclosure of its Schedule B to the Attorney General was facially unconstitutional. AFP also argued that the disclosure requirement was unconstitutional as-applied to it.

On February 23, 2015, this Court granted AFP’s motion for preliminary injunction, finding that the Plaintiff had raised serious questions going to the merits of its case and demonstrated that the balance of hardships sharply favored Plaintiff. That decision was appealed by the Attorney General and remanded by the Ninth Circuit. Americans for Prosperity Found. v. Harris, 809 F.3d 536 (9th Cir.2015). In its remand, the Ninth Circuit held that this Court is bound by its previous decision in Center for Competitive Politics v. Harris, 784 F.3d 1307, 1317 (9th Cir.2015)—that the Attorney General’s nonpublic Schedule B disclosure regime was not facially unconstitutional. Americans for Prosperity Found., 809 F.3d at 538. The Ninth Circuit did, however, instruct this Court to have a trial on the as-applied challenge. Id. at 543.

Although AFP argues that this Court is not bound by the Ninth Circuit’s prior rulings on its facial challenge since the record before the Court is much denser now than it was then, the “strong medicine” of facial invalidation need not and generally should not be administered [1053]*1053when the statute under attack is unconstitutional as-applied to the challenger before the court. See U.S. v. Stevens, 559 U.S. 460, 482-88, 130 S.Ct. 1577, 176 L.Ed.2d 435 (2010) (Alito, J., dissenting). Accordingly, the Court focuses solely on AFP’s as-applied challenge.

I.

Courts review First Amendment challenges to disclosure requirements under an “exacting scrutiny” standard. John Doe No. 1 v. Reed, 561 U.S. 186, 187, 130 S.Ct. 2811, 177 L.Ed.2d 493 (2010); Citizens United v. FEC, 558 U.S. 310, 366, 130 S.Ct. 876, 175 L.Ed.2d 753 (2010). Exacting scrutiny “requires a ‘substantial relation’ between the disclosure requirement and a ‘sufficiently important’ governmental interest.” This encompasses a balancing test. In order for a government action to survive exacting scrutiny, “the strength of the governmental interest must reflect the seriousness of the actual burden on First Amendment rights.” John Doe No. 1, 561 U.S. at 196, 130 S.Ct. 2811.

A. Strength of Governmental Interest

Defendant argues that the state law requiring that all charities file a complete copy of IRS Form 990 Schedule B places no actual burden on First Amendment rights and is substantially related to the Attorney General’s compelling interest in enforcing the law and protecting the public. Before the Ninth Circuit, as well as this Court, the Attorney General has claimed that her use for Schedule B information is compelling since that information reveals not just how much revenue a charity receives, but also who is donating it and how it is being donated. Additionally, the Attorney General claims that such information allows her to determine whether an organization has violated the law, including laws against self-dealing, improper loans, interested persons, or illegal or unfair business practices. The Court finds two issues with this stated purpose. First, over the course of trial, the Attorney General was hard pressed to find a single witness who could corroborate the necessity of Schedule B forms in conjunction with their office’s investigations. And second, even assuming arguendo that this information does genuinely assist in the Attorney General’s investigations, its disclosure demand of Schedule B is more burdensome than necessary.

i. Sufficiently Important Governmental Interest

Although Center for Competitive Politics found that the Attorney General’s “disclosure requirement bears a ‘substantial relation’ to a ‘sufficiently important’ government interest,” this Court, unlike the Ninth Circuit, had the benefit of holding a bench trial in the matter and was left unconvinced that the Attorney General actually needs Schedule B forms to effectively conduct its investigations. 784 F.3d at 1317 (quoting Citizens United, 558 U.S. at 366, 130 S.Ct. 876). As a threshold matter, the record is undisputed that AFP has been registered with the Attorney General since 2001 and has never included a Schedule B with its annual filings. For each year from 2001 through 2010, the Attorney General accepted AFP’s annual registration and listed the foundation as an active charity in compliance with the law. It was not until 2013 that the Attorney General first notified AFP that its 2011 filing was incomplete because of the lack of Schedule B. The only logical explanation for why AFP’s ‘lack of compliance’ went unnoticed for over a decade is that the Attorney General does not use the Schedule B in its day-to-day business. In fact, such an admission was made by David Eller, the Registrar for the Registry of Charitable Trusts in the Department of Justice. (Eller Test. 3/3/16 Vol. II, p. 75:16-20). As for the investigative unit of the Charitable Trusts [1054]*1054Section, trial testimony confirmed that auditors and attorneys seldom use Schedule B when auditing or investigating charities. Steven Bauman, a supervising investigative auditor for the Attorney General, testified that out of the approximately 540 investigations conducted over the past ten years in the Charitable Trusts Section, only five instances involved the use of a Schedule B. (Bauman Test. 3/4/16, p. 22:4-23:25).

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919 F.3d 1177 (Ninth Circuit, 2019)
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Ctr. for Competitive Politics v. Harris
296 F. Supp. 3d 1219 (E.D. California, 2017)

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182 F. Supp. 3d 1049, 117 A.F.T.R.2d (RIA) 1384, 2016 U.S. Dist. LEXIS 53679, 2016 WL 1610591, Counsel Stack Legal Research, https://law.counselstack.com/opinion/americans-for-prosperity-foundation-v-harris-cacd-2016.