Americans for Prosperity Foundation v. Kamala Harris
Filing
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ORDER FOR JUDGMENT IN FAVOR OF PLAINTIFF by Judge Manuel L. Real: 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. IT IS HEREBY ORDERED that the Attorney General is Permanently Enjoined from Requiring AFP to File with the Registry a Periodic Written Report Containing a Copy of its Schedule B to IRS Form 990. AFP Shall No Longer Be Considered Deficient or Delinquent in its Reporting Requirement because it Does Not File its Confidential Schedule B with the Attorney General. Each Party Shall Bear its Own Costs. (MD JS-6. Case Terminated) (gk)
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UNITED STATES DISTRICT COURT
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CENTRAL DISTRICT OF CALIFORNIA
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AMERICANS FOR PROSPERITY
FOUNDATION,
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Plaintiff,
v.
KAMALA HARRIS, in her Official Capacity
as Attorney General of California,
Defendant.
) CASE NO. CV 14-9448-R
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) ORDER FOR JUDGMENT IN FAVOR OF
) PLAINITFF
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For the reasons that follow, this Court grants Americans For Prosperity Foundation’s
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(“AFP”) motion for a permanent injunction to enjoin the Attorney General of California from
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demanding its Schedule B form. After conducting a full bench trial, this Court finds the Attorney
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General’s Schedule B disclosure requirement unconstitutional as-applied to AFP.
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Plaintiff AFP is a non-profit corporation organized under Internal Revenue Code section
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501(c)(3) that funds its activities by raising charitable contributions from donors throughout the
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country, including in California. California state law requires charitable organizations, such as
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AFP, to file a copy of its IRS Form 990, including its Schedule B, with the State Registry. See
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e.g., Cal. Code Regs. tit. 11, § 301. An organization’s Schedule B includes all the names and
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addresses of every individual nationwide who donated more than $5,000 to the charity during a
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given tax year. While a nonprofit’s federal tax return, IRS Form 990, must be made available to
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the public, an organization’s Schedule B does not. 26 U.S.C. § 6104(b), (d)(3)(A).
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Since 2001, AFP has filed its Form 990 as part of its periodic reporting with the Attorney
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General, without including its Schedule B. For each year from 2001 through 2010, the Attorney
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General accepted AFP’s registration renewal and listed AFP as an active charity in compliance
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with the law. In a letter dated March 7, 2013, the Attorney General declared AFP’s 2011 filing
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incomplete because it did not include the organization’s unredacted Schedule B. In December
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2014, AFP brought the present action seeking an order preliminarily enjoining the Attorney
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General from demanding its Schedule B. Among other claims, AFP argued that the California law
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requiring disclosure of its Schedule B to the Attorney General was facially unconstitutional. AFP
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also argued that the disclosure requirement was unconstitutional as-applied to it.
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On February 23, 2015, this Court granted AFP’s motion for preliminary injunction, finding
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that the Plaintiff had raised serious questions going to the merits of its case and demonstrated that
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the balance of hardships sharply favored Plaintiff. That decision was appealed by the Attorney
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General and remanded by the Ninth Circuit. Americans for Prosperity Found. v. Harris, 809 F.3d
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536 (9th Cir. 2015). In its remand, the Ninth Circuit held that this Court is bound by its previous
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decision in Center for Competitive Politics v. Harris, 784 F.3d 1307, 1317 (9th Cir. 2015)—that
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the Attorney General’s nonpublic Schedule B disclosure regime was not facially unconstitutional.
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Americans for Prosperity Found., 809 F.3d at 538. The Ninth Circuit did, however, instruct this
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Court to have a trial on the as-applied challenge. Id. at 543.
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Although AFP argues that this Court is not bound by the Ninth Circuit’s prior rulings on its
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facial challenge since the record before the Court is much denser now than it was then, the “strong
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medicine” of facial invalidation need not and generally should not be administered when the
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statute under attack is unconstitutional as-applied to the challenger before the court. See U.S. v.
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Stevens, 559 U.S. 460, 482–83 (2010) (Alito, J., dissenting). Accordingly, the Court focuses
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solely on AFP’s as-applied challenge.
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I.
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Courts review First Amendment challenges to disclosure requirements under an “exacting
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scrutiny” standard. John Doe No. 1 v. Reed, 561 U.S. 186, 187 (2010); Citizens United v. FEC,
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558 U.S. 310, 366 (2010). Exacting scrutiny “requires a ‘substantial relation’ between the
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disclosure requirement and a ‘sufficiently important’ governmental interest.” This encompasses a
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balancing test. In order for a government action to survive exacting scrutiny, “the strength of the
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governmental interest must reflect the seriousness of the actual burden on First Amendment
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rights.” John Doe No. 1, 561 U.S. at 196.
A. Strength of Governmental Interest
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Defendant argues that the state law requiring that all charities file a complete copy of IRS
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Form 990 Schedule B places no actual burden on First Amendment rights and is substantially
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related to the Attorney General’s compelling interest in enforcing the law and protecting the
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public. Before the Ninth Circuit, as well as this Court, the Attorney General has claimed that her
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use for Schedule B information is compelling since that information reveals not just how much
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revenue a charity receives, but also who is donating it and how it is being donated. Additionally,
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the Attorney General claims that such information allows her to determine whether an
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organization has violated the law, including laws against self-dealing, improper loans, interested
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persons, or illegal or unfair business practices. The Court finds two issues with this stated
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purpose. First, over the course of trial, the Attorney General was hard pressed to find a single
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witness who could corroborate the necessity of Schedule B forms in conjunction with their
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office’s investigations. And second, even assuming arguendo that this information does genuinely
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assist in the Attorney General’s investigations, its disclosure demand of Schedule B is more
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burdensome than necessary.
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i.
Sufficiently Important Governmental Interest
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Although Center for Competitive Politics found that the Attorney General’s “disclosure
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requirement bears a ‘substantial relation’ to a ‘sufficiently important’ government interest,” this
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Court, unlike the Ninth Circuit, had the benefit of holding a bench trial in the matter and was left
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unconvinced that the Attorney General actually needs Schedule B forms to effectively conduct its
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investigations. 784 F.3d at 1317 (quoting Citizens United, 558 U.S. at 366). As a threshold
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matter, the record is undisputed that AFP has been registered with the Attorney General since
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2001 and has never included a Schedule B with its annual filings. For each year from 2001
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through 2010, the Attorney General accepted AFP’s annual registration and listed the foundation
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as an active charity in compliance with the law. It was not until 2013 that the Attorney General
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first notified AFP that its 2011 filing was incomplete because of the lack of Schedule B. The only
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logical explanation for why AFP’s ‘lack of compliance’ went unnoticed for over a decade is that
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the Attorney General does not use the Schedule B in its day-to-day business. In fact, such an
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admission was made by David Eller, the Registrar for the Registry of Charitable Trusts in the
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Department of Justice. (Eller Test. 3/3/16 Vol. II, p. 75:16–20). As for the investigative unit of
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the Charitable Trusts Section, trial testimony confirmed that auditors and attorneys seldom use
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Schedule B when auditing or investigating charities. Steven Bauman, a supervising investigative
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auditor for the Attorney General, testified that out of the approximately 540 investigations
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conducted over the past ten years in the Charitable Trusts Section, only five instances involved the
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use of a Schedule B. (Bauman Test. 3/4/16, p. 22:4–23:25). In fact, as to those five investigations
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identified, the Attorney General’s investigators could not recall whether they had unredacted
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Schedule Bs on file before initiating the investigation. And even in instances where a Schedule B
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was relied on, the relevant information it contained could have been obtained from other sources.
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(Bauman Test. 3/4/16, p. 31:8–32:10).
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ii.
Narrowly Tailored
The Attorney General argues that exacting scrutiny does not require the least restrictive
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means. This contention is supported by the Ninth Circuit’s previous review in this case.
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Americans for Prosperity Found., 809 F.3d at 541. However, the court only references Chula
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Vista Citizens for Jobs & Fair Competition v. Norris for such a position. 782 F.3d 520, 541 (9th
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Cir. 2015). In Chula Vista, association members alleged that the city's elector and petition-
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proponent disclosure requirements for ballot initiatives violated their First Amendment rights to
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freedom of speech and association. The Ninth Circuit upheld these disclosure requirements after
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weighing the government’s interests in the integrity of the electoral process and the public’s
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informational interest against the relatively small burden imposed on the association members’
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First Amendment rights. Id. at 538.
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In the context of elections and campaign finance disclosure laws, which have been the
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majority of cases in recent years applying exacting scrutiny, unique considerations apply that
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specifically shape and define the application of exacting scrutiny. See Ctr. for Competitive
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Politics, 784 F.3d at 1312 n.2 (“most of the cases in which we and the Supreme Court have
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applied exacting scrutiny arise in the electoral context”); e.g., Citizens United, 558 U.S. 310; John
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Doe No. 1, 561 U.S. 186; Davis v. FEC, 554 U.S. 724 (2008); Buckley v. Valeo, 424 U.S. 1
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(1976); Family PAC v. McKenna, 685 F.3d 800 (9th Cir. 2012); Human Life of Wash., Inc. v.
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Brumsickle, 624 F.3d 990 (9th Cir. 2010). There are such substantial governmental interests in
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“provid[ing] the electorate with information” about the sources of election-related spending, in
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“deter[ring] actual corruption,” in “avoid[ing] the appearance of corruption,” and in “gathering the
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data necessary to detect violations of . . . contribution limits,” that the Supreme Court has held that
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campaign-finance disclosure requirements are per se “the least restrictive means” of achieving the
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government’s interests. Buckley, 424 U.S. at 66–68. Because disclosure requirements are
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inherently the least restrictive means of achieving the state’s aims in the electoral context, the
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Ninth Circuit has held that in cases challenging mandatory disclosures in the electoral context
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“exacting scrutiny is not a least-restrictive-means test.” Chula Vista, 782 F.3d at 541. That
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holding is properly limited to the electoral context. In the context of associational rights, however,
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“even though the governmental purpose [may] be legitimate and substantial, that purpose cannot
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be pursued by means that broadly stifle fundamental personal liberties when the end can be more
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narrowly achieved.” Louisiana v. NAACP, 366 U.S. 293, 296 (1961).
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Here, like in NAACP, even assuming the Attorney General presented a sufficiently
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important governmental interest, its interests can be more narrowly achieved as evidenced by the
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testimony of the Attorney General’s own attorneys. During trial, the Attorney General’s
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investigators testified that they have successfully completed their investigations without using
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Schedule Bs, even in instances where they knew Schedule Bs were missing. For example, Mr.
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Bauman testified that he has reviewed Form 990s in connection with audits that did not include
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Schedule Bs. (Bauman Test. 3/4/16, p. 27:12–14). Specifically, he admitted that he successfully
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audited those charities and found wrongdoing without the use of Schedule Bs. (Id. at 27:18–23).
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In fact, Mr. Bauman admitted that he successfully audited charities for years before the Schedule
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B even existed. (Bauman Dep., TX-731, p. 49:2–15). It is clear that the Attorney General’s
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purported Schedule B submission requirement demonstrably played no role in advancing the
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Attorney General’s law enforcement goals for the past ten years. The record before the Court
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lacks even a single, concrete instance in which pre-investigation collection of a Schedule B did
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anything to advance the Attorney General’s investigative, regulatory or enforcement efforts. If
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heightened scrutiny means anything, it at least requires the Government to convincingly show that
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its demands are substantially related to a compelling interest, including by being narrowly tailored
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to achieve that interest. While this Court cannot find such a disclosure requirement facially
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invalid, it is prepared to find it unconstitutional as-applied to AFP, especially in light of the
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requirement’s burdens on AFP’s First Amendment rights.
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B. Actual Burden on First Amendment Rights
Setting aside the Attorney General’s failure to establish a substantial relationship between
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her demand for AFP’s Schedule B and a compelling governmental interest, AFP would
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independently prevail on its as-applied challenge because it has proven that disclosing its Schedule
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B to the Attorney General would create a burden on its First Amendment rights. While the Ninth
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Circuit in Center for Competitive Politics foreclosed any facial challenge to the Schedule B
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requirement, it specifically left open the possibility that a party could show “‘a reasonable
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probability that the compelled disclosure of [its] contributors’ names will subject them to threats,
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harassment, or reprisal from either Government officials or private parties’ that would warrant
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relief on an as-applied challenge.” 784 F.3d at 1317 (quoting McConnell v. FEC, 540 U.S. 93,
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199 (2003)). As the Supreme Court has held, unfounded speculation, conclusory statements, fear,
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and uncertainty untethered to the requirement at issue are insufficient. Buckley, 424 U.S. at 64,
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69, 71–72. However, “[a] strict requirement that chill and harassment be directly attributable to
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the specific disclosure from which the exemption is sought would make the task even more
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difficult.” Id. at 74. Examples of the type of evidence sufficient to succeed on an as-applied
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challenge include past or present harassment of members due to their associational ties, or of
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harassment directed against the organization itself, or a pattern of threats or specific manifestations
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of public hostility. Id. This Court is more than satisfied that such a showing was made at trial.
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During the course of trial, the Court heard ample evidence establishing that AFP, its
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employees, supporters and donors face public threats, harassment, intimidation, and retaliation
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once their support for and affiliation with the organization becomes publicly known. For example,
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Lucas Hilgemann, Chief Executive Officer of AFP, testified that in 2013, the security staff of AFP
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alerted him that a technology contractor working inside AFP headquarters posted online that he
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was “inside the belly of the beast” and that he could easily walk into Mr. Hilgemann’s office and
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slit his throat. (Hilgemann Test. 2/23/16 Vol. I, p. 57:2–14). That individual was also found in
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AFP’s parking garage, taking pictures of employees’ license places. (Id. at 57:15–23). Another
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witness and major donor, Art Pope, testified about an AFP event in Washington D.C. in 2011. Mr.
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Pope testified that after protestors attempted to enter the building and disrupt the event, they began
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to push and shove AFP guests to keep them inside of the building. (Pope Test. 2/24/16 Vol. II, p.
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47:7–15). Mr. Pope attempted to help a woman in a wheelchair exit the building; however the
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protestors had blocked their path. (Pope Test. 2/25/16 Vol. I, p. 21:20–22:12). Once they finally
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exited the building, they still had to go through a hostile crowd that was shouting, yelling and
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pushing. (Id. at 22:22–23:2). At another event in Wisconsin, after speaking to a crowd of AFP
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supporters, Mr. Hilgemann was threatened by a protestor who used multiple slurs and spit in Mr.
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Hilgemann’s face. (Hilgemann Test. 2/23/16 Vol. I, p. 48:12–49:15). Again, at another event in
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Michigan where an AFP tent was set up, several hundred protestors surrounded the tent and used
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knives and box-cutters to cut at the ropes of tent, eventually causing the large tent to collapse with
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AFP supporters still inside. (Id. at 50:16–51:25).
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The Court also heard from Mark Holden, General Counsel for Koch Industries, who
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testified that Charles and David Koch, two of AFP’s most high-profile associates, have faced
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threats, attacks, and harassment, including death threats. (Holden Test. 2/23/16 Vol. II, p. 30:17–
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35:13). Not only have these threats been made to the Koch brothers because of their ties with
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AFP, but death threats have also been made against their families, including their grandchildren.
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(Id. at 31:3–10). Mr. Pope has faced similar death threats due to his affiliation with AFP and has
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even encountered boycotts of his nationwide stores, Variety Wholesalers. (Pope Test. 2/24/16
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Vol. II, p. 22:8–15, 29:5–17). In December 2013, about 130 protestors picketed in front of his
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stores, in part, because of his affiliation with AFP. (Id. 32:24–33:2). As a result of these boycotts,
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threats, and exposure, Mr. Pope testified that he considered stopping funding or providing support
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to AFP. (Id. at 50:1–3).
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The Court can keep listing all the examples of threats and harassment presented at trial;
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however, in light of these threats, protests, boycotts, reprisals, and harassment directed at those
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individuals publically associated with AFP, the Court finds that AFP supporters have been
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subjected to abuses that warrant relief on an as-applied challenge. And although the Attorney
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General correctly points out that such abuses are not as violent or pervasive as those encountered
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in NAACP v. Alabama or other cases from that era, this Court is not prepared to wait until an AFP
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opponent carries out one of the numerous death threats made against its members.
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II.
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A final argument to consider by the Attorney General is that its office is only seeking
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disclosure of AFP’s Schedule B for nonpublic use and therefore there is no potential for public
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targeting of private donors; however, the Attorney General’s inability to keep confidential
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Schedule Bs private is of serious concern. In its previous order remanding this case, the Ninth
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Circuit found that “plaintiffs [] have raised serious questions as to whether the Attorney General’s
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current policy actually prevents public disclosure.” Americans for Prosperity Found., 809 F.3d at
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542. As made abundantly clear during trial, the Attorney General has systematically failed to
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maintain the confidentiality of Schedule B forms.
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Pursuant to the Attorney General’s purported confidentiality policy, Schedule Bs should
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never be accessible through its Registry’s public website. The Attorney General’s Registry
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receives more than 60,000 renewal filings each year, 90% of which are paper filings. Once the
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Registry receives these filings, it is supposed to scan and then electronically store the documents,
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separately tagging confidential documents such as Schedule Bs. Kevis Foley, former Registrar,
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testified at her deposition that separating out Schedule Bs and other confidential materials from
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public filings is “very tedious, very boring work” and that “there is room for errors to be made.”
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(Foley Dep. TX-734, p. 174:8–21). While human error can sometimes be unavoidable, the
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amount of careless mistakes made by the Attorney General’s Registry is shocking.
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During the course of this litigation, AFP conducted a search of the Attorney General’s
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public website and discovered over 1,400 publically available Schedule Bs. (TX-56). Within 24
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hours, all of those confidential documents were removed from the Registry’s website. (TX-736, p.
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107:12–15). Just one example of the Attorney General’s inadvertent disclosures was the Schedule
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B for Planned Parenthood Affiliates of California. The Attorney General was made aware that the
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Registry had publically posted Planned Parenthood’s confidential Schedule B, which included all
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the names and addresses of hundreds of donors. (TX-131). An investigator for the Attorney
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General admitted that “posting that kind of information publically could be very damaging to
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Planned Parenthood…” (Johns Test. 2/25/16 Vol. II, p. 41:18–21). All told, AFP identified 1,778
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confidential Schedule Bs that the Attorney General had publically posted on the Registry’s
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website, including 38 which were discovered the day before this trial. (McClave Test. 2/24/16
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Vol. I, p. 27:6–32:17). The pervasive, recurring pattern of uncontained Schedule B disclosures—a
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pattern that has persisted even during this trial—is irreconcilable with the Attorney General’s
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assurances and contentions as to the confidentiality of Schedule Bs collected by the Registry.
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The Attorney General has continuously maintained that the Registry is underfunded,
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understaffed, and underequipped when it comes to the policy surrounding Schedule Bs. The
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current Registrar effectively acknowledges that the Registry’s approach to maintaining the
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supposed confidentiality of Schedule Bs have been indefensible. Not only did he admit that
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information has been improperly classified, which would make it available to the public, but he
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also conceded that the Registry has more work to do before it can get a handle on maintaining
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confidentiality. (Eller Test. 3/3/16 Vol. II, p. 95:7–11).
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While the Attorney General will have this Court believe that proper procedures are now in
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place to prevent negligent disclosures of Schedule Bs, the Court is unconvinced. Once a
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confidential Schedule B has been publically disseminated via the internet, there is no way to
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meaningfully restore confidentiality. Given the extensive disclosures of Schedule Bs, even after
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explicit promises to keep them confidential, the Attorney General’s current approach to
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confidentiality obviously and profoundly risks disclosure of any Schedule B the Registry may
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obtain from AFP. Accordingly, the Court finds against the Attorney General on the alternative
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grounds that her current confidentiality policy cannot effectively avoid inadvertent disclosure.
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III.
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Because AFP has prevailed on its First Amendment as-applied challenge, it is entitled to
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declaratory and injunctive relief. Equitable relief has long been recognized as appropriate to
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prevent government officials from acting unconstitutionally. Free Enter. Fund v. Pub. Co.
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Accounting Oversight Bd., 561 U.S. 477, 491 n.2 (2010) (quoting Corr. Servs. Corp. v. Malesko,
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534 U.S. 61, 74 (2001)). Injunctive relief is particularly appropriate to prevent state officials from
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violating the First Amendment by compelling the disclosure of the names of an organization’s
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supporters. See Brown v. Socialist Workers '74 Campaign Comm. (Ohio), 459 U.S. 87, 101–02
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(1982); Louisiana v. NAACP, 366 U.S. at 297.
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A “plaintiff seeking a permanent injunction must satisfy a four-factor test before a court
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may grant such relief.” eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).
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Specifically, the plaintiff “must demonstrate: (1) that it has suffered an irreparable injury; (2) that
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remedies available at law, such as monetary damages, are inadequate to compensate for that
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injury; (3) that considering the balance of hardships between the plaintiff and defendant, a remedy
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in equity is warranted; and (4) that the public interest would not be disserved by a permanent
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injunction.” Id. Each of these factors weighs in favor of an injunction here.
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AFP has suffered irreparable harm. The Attorney General’s requirement that AFP submit
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its Schedule B chills the exercise of its donor’s First Amendment freedoms to speak anonymously
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and to engage in expressive association. Among other things, plaintiffs have demonstrated that
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the Schedule B disclosure requirement places donors in fear of exercising their First Amendment
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right to support AFP’s expressive activity; the effect then is to diminish the amount of expressive
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and associational activity by AFP. Moreover, if AFP refuses to comply with the Attorney
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General’s Schedule B submission requirement, the Attorney General has threatened to cancel its
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charitable registration, which would preclude it from exercising its First Amendment right to
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solicit funds in California. Any “loss of First Amendment freedoms . . . unquestionably
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constitutes irreparable injury.” Elrod v. Burns, 427 U.S. 347, 373 (1976) (plurality opinion);
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accord, e.g., Doe v. Harris, 772 F.3d 563, 583 (9th Cir. 2014); Valle Del Sol Inc. v. Whiting, 709
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F.3d 808, 828 (9th Cir. 2013); Sanders Cnty. Republican Cent. Comm. v. Bullock, 698 F.3d 741,
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748 (9th Cir. 2012); Farris v. Seabrook, 677 F.3d 858, 868 (9th Cir. 2012); Thalheimer v. City of
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San Diego, 645 F.3d 1109, 1128 (9th Cir. 2011). In particular, the government causes “irreparable
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injury” when, as here, it places individuals “in fear of exercising their constitutionally protected
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rights of free expression, assembly, and association.” Allee v. Medrano, 416 U.S. 802, 814–15
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(1974).
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Additionally, AFP’s irreparable First Amendment injuries cannot adequately be
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compensated by damages or any other remedy available at law. Unlike a monetary injury,
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violations of the First Amendment “cannot be adequately remedied through damages.” Stormans,
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Inc. v. Selecky, 586 F.3d 1109, 1138 (9th Cir. 2009).
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The balance of hardships also favors granting an injunction. Once AFP’s donor
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information is disclosed, it cannot be clawed back. Thus, if the Attorney General is allowed to
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compel AFP to disclose its Schedule B, the ensuing intimidation and harassment of AFP’s donors,
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and resulting chilling effect on First Amendment rights, cannot be undone. See Hollingsworth v.
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Perry, 558 U.S. 183, 196 (2010). By contrast, the Attorney General has offered no evidence that
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she will suffer injury if AFP does not produce its Schedule B. The Attorney General does not
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review Schedule Bs upon collection and virtually never uses them to investigate wrongdoing.
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Indeed, the Attorney General has gone without AFP’s Schedule Bs for over a decade, yet she has
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demonstrated no harm from not possessing it. Balancing the disclosure requirement’s burden on
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First Amendment interests against any negligible burden that an injunction might impose, it is
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clear that the balance of hardships supports enjoining the Attorney General.
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Finally, the public interest favors an injunction. As the Ninth Circuit has “consistently
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recognized,” there is a “significant public interest in upholding First Amendment principles.” Doe
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v. Harris, 772 F.3d at 683 (quoting Sammartano v. First Judicial Dist. Court, 303 F.3d 959, 974
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(9th Cir. 2002)); accord, e.g., Thalheimer, 645 F.3d at 1129; Klein, 584 F.3d at 1208. In sum, the
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four-factor test establishes that injunctive relief is appropriate to bar the Attorney General from
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demanding Schedule Bs from AFP as part of their annual registration renewal. Brown, 492 U.S. at
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101–02; Louisiana v. NAACP, 366 U.S. at 297.
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IT IS HEREBY ORDERED that the Attorney General is Permanently Enjoined from
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Requiring AFP to File with the Registry a Periodic Written Report Containing a Copy of its
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Schedule B to IRS Form 990. AFP Shall No Longer Be Considered Deficient or Delinquent in its
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Reporting Requirement because it Does Not File its Confidential Schedule B with the Attorney
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General. Each Party Shall Bear its Own Costs.
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Dated: April 21, 2016.
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___________________________________
HON. MANUEL L. REAL
UNITED STATES DISTRICT JUDGE
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