In Lawsuit Over Koch Charity, Calif. Regulators Lose Bid to Demand Donor Names

Americans for Prosperity Foundation, a charity connected to Charles and David Koch, the conservative billionaire brothers, has won an injunction barring California from demanding that they submit a list of their major donors when they register to solicit money.

In a case that raised questions about how far states must go to protect donor anonymity, U.S. District Judge Manuel Real ruled on Thursday that Attorney General Kamala Harris’s office had not shown that it needed the names to investigate charity wrongdoing, had failed to adequately protect contributors’ confidentiality, and had violated the charity’s free-speech rights.

“AFP has suffered irreparable harm,” his ruling says, adding that the state’s behavior “chills the exercise of its donors’ First Amendment freedoms to speak anonymously and to engage in expressive association.”

The case involves California’s policy of requiring charities to submit Schedule Bs, documents that are attached to the Form 990 federal tax filings that nonprofits submit annually. Charities must list the names, addresses, and total contributions of major donors, generally those who have contributed at least $5,000 during the year.

Federal law bars making the names and addresses public, and Ms. Harris’s office argued that it used the information only to monitor charities for fraudulent activity, for example improper expenditures by donors to benefit themselves or family members.

“We are disappointed in Judge Real’s ruling and intend to appeal to the Ninth Circuit Court of Appeals,” Kristin Ford, a spokeswoman for the office, said in an email. “The filing of the Schedule B is a longstanding requirement that has helped Attorneys General for more than a decade to protect taxpayers against fraud.”

Hard to Restore Confidentiality

The Koch brothers are reviled by liberal opponents for pumping money into conservative and libertarian causes and spending to elect Republican candidates, often through groups that don’t have to reveal their donors. Americans for Prosperity Foundation is a 501(c)(3) charity that, unlike its sister organization, Americans for Prosperity, is not allowed to participate in partisan politics.

Judge Real, based in Los Angeles, last year granted the charity’s request for a preliminary injunction, but on appeal the U.S. Ninth Circuit court found that the group had not presented evidence that it had suffered any actual harm, for example a loss of donations, from disclosing donor names on a confidential basis to the state. It reversed the order barring Ms. Harris from collecting Schedule Bs, though agreed she should be ordered to ensure the information was not released publicly.

The case then went back to Judge Real for a trial on the charity’s request for a permanent injunction.

His new ruling noted that Americans for Prosperity Foundation had presented evidence that more than 1,700 Schedule Bs had been mistakenly posted online, including one for Planned Parenthood Affiliates of California.

“Once a confidential Schedule B has been publicly disseminated via the Internet,” he wrote, “there is no way to meaningfully restore confidentiality.”

Judge Real also cited evidence of harassment of Americans for Prosperity employees, donors, and other supporters, including death threats and physical intimidation. In one case, protesters surrounded a tent set up by the charity in Michigan and used knives and box cutters to chop at the ropes, causing it to collapse with supporters inside.

He said the state argued that the abuses were not as violent or pervasive as those leading up to the landmark 1958 U.S. Supreme Court decision that declared unconstitutional Alabama’s effort to force the civil-rights organization NAACP to provide names and addresses of its member in the state. But, he wrote, “this Court is not prepared to wait until an AFP opponent carries out one of the numerous death threats made against its members.”

The attorney general’s office was unable to show that it needed Schedule Bs to monitor charities, he said.

“We hope this important victory will enable Americans, even in the face of governmental overreach, to retain their freedom, privacy, and security as they support charities of their choosing,” said Derek Shaffer, a lawyer for Americans for Prosperity Foundation.

More Challenges

Several other legal cases involving collection of Schedule Bs are pending. Citizens United, a conservative advocacy group, and the Citizens United Foundation, its 501(c)(3) affiliate, are challenging New York Attorney General Eric Schneiderman’s practice of requiring the form. Citizens United was the group whose case led to the controversial 2010 U.S. Supreme Court ruling bearing its name, which lifted restrictions on corporate and nonprofit spending to influence elections.

The Center for Competitive Politics, a charity that fights campaign-finance restrictions on free-speech grounds, has also sued California. Allen Dickerson, the center’s legal director, said its case had been put on hold in U.S. District Court pending the outcome of Judge Real’s decision. His group will review the ruling to decide on next steps, he said.