Court Declares New York's Donor Disclosure Laws Unconstitutional

• DOI: http://doi.org/10.1002/npc.30663
• Date: 01 December 2019
• Published date: 01 December 2019

Bruce R. Hopkins’ NONPROFIT COUNSEL

4 December 2019 THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc

COURT DECLARES NEW

YORK’S DONOR DISCLOSURE

LAWS UNCONSTITUTIONAL

The US District Court for the Southern District of

New York, on September 30, held that two provisions

of a New York state law relating to elections and cam-

paigning that require certain categories of tax-exempt

organizations to publicly disclose their donors unconsti-

tutionally burden their First Amendment rights of free

speech and freedom of association and thus are facially

invalid (Citizens Union of the City of New York v. Attor-

ney General of the State of New York).

Facts

New York Governor Andrew Cuomo announced pro-

posed ethics-reform legislation in 2016. A press release

distributed by his office described the proposal as “first-

in-the-nation action to curb the power of independent

expenditure campaigns unleashed” by the decision by

the US Supreme Court in Citizens United v. Federal Elec-

tion Commission. In the language of the press release,

Citizens United “ignited the equivalent of a campaign

nuclear arms race and created a shadow industry in New

York — maligning the integrity of the electoral process

and drowning out the voice of the people.” The release

said the coming reforms would include “[r]equir[ing]

additional disclosures for individuals and entities making

independent expenditures.”

A public charity is required to disclose all donors

who contributed over $2,500 if it makes a grant to

a social welfare organization that engages in lobby-

ing in New York, either on its own behalf or through

a retained lobbyist (§ 172-e of the New York law).

A social welfare organization is required to disclose

donors who contributed at least $1,000 where the

entity expends more than $10,000 in a year on commu-

nications made to at least 500 members of the public

concerning the position of any elected official relating

to any potential or pending legislation, with an excep-

tion for contributions made to a segregated account

not used to support these types of communications (§

172-f). (Governor Cuomo, in a memorandum submit-

ted to the state legislature, stated that “[d]isclosure

of political relationships and funding behaviors widely

recognized to be influential, but which operate in the

shadows, is essential to restoring the public’s faith and

trust in our political process.”)

These disclosures must be on New York state gov-

ernment websites. The New York attorney general may

determine, however, that disclosure need not be made if

it may cause “harm, threats, harassment, or reprisals to

the source of the donation or to individuals or property

affiliated with the source of the donation.”

Law

In the Citizens United case (2010), the Supreme

Court held that a federal statute prohibiting corpora-

tions, including nonprofit corporations, from using their

general treasury funds to make independent electoral

expenditures, advocating for or against candidates, vio-

lated the First Amendment (opinion summarized in the

March 2010 issue).

As the court in the present case wrote, “There is

no question that public disclosure of donor identities

burdens the First Amendment rights to free speech and

free association.” The US Supreme Court identified three

governmental interests that may justify donor disclosure

in the context of election campaigns, despite their bur-

dens on First Amendment rights (Buckley v. Valeo (1976)

(discussed in, e.g., the June 2019 issue)).

The court provided an exhaustive summary of the

cases striking down disclosure requirements as facially

overbroad, cases upholding disclosure requirements, and

cases finding disclosure requirements unconstitutional as

applied to particular plaintiffs.

More Law and Analysis

The court first decided that the standard under which

the constitutionality of these two state law provisions,

being content-neutral, is to be evaluated is the exacting

scrutiny standard. It cited a US Supreme Court opinion

that this form of scrutiny requires a “substantial relation

between the disclosure requirement and a sufficiently

important governmental interest” (John Doe No. 1 v.

Reed (2010)).

The court found that § 172-e “places a significant

burden on the First Amendment interest in freedom of

association.” It wrote of donors who desire anonymity,

motivated by fear of economic or official retaliation, by

concern about social ostracism, or by a desire to preserve

some privacy. As a result of these fears, compelled disclo-

sure can, the court held, place a “substantial restraint”

on the exercise of the right to freedom of association.

The court stated that “[t]here is no substantial rela-

tion between the requirement that the identity of donors

to 501(c)(3)s be publicly disclosed and any important

government interest.” It noted that disclosure laws that

have been upheld based on a showing that the disclo-

sures furthered the interests identified in Buckley “have

been drawn far more narrowly than § 172-e.” The opin-

ion added that “[n]one have approached the tangential

and indirect support of political advocacy at issue here.”

The court noted that the provision requires “disclosure

of the identities of donors to a 501(c)(3), an entity whose

primary purpose must be something other than lobbying

and that by definition cannot make lobbying a ‘substan-

tial’ part of its activities.”

The exemption was held to not remedy the provision’s

constitutional law deficiencies. First, “it does nothing to

remedy the poor fit between the statute and the identi-