Thomas More Law Center v. Kamala Harris

Filing 139

ORDER FOR JUDGMENT IN FAVOR OF PLAINITFF by Judge Manuel L. Real: IT IS HEREBY ORDERED that the Attorney General is permanently enjoined from requiring the Thomas More Law Center to file with the registry a periodic written report containing a copy o f its Schedule B to IRS Form 990. TMLC 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. See document for further details. (MD JS-6, Case Terminated). (gk)

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JS-6

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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THOMAS MORE LAW CENTER,
Plaintiff,

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v.
KAMALA HARRIS, in her Official Capacity
as Attorney General of California,
Defendant.

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) CASE NO. CV 15-3048-R
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) ORDER FOR JUDGMENT IN FAVOR OF
) PLAINITFF
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For the reasons that follow, this Court grants Thomas More Law Center’s (“TMLC”)

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motion for a permanent injunction to enjoin the Attorney General of California from demanding

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its Schedule B form and enters judgment in favor of TMLC. After conducting a full bench trial,

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this Court finds the Attorney General’s Schedule B disclosure requirement unconstitutional as

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applied to TMLC.

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Plaintiff TMLC is a nonprofit 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 California. California state law requires charitable organizations, such as

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TMLC, to file a copy of its IRS Form 990, including its Schedule B, with the State Registry of

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Charitable Trusts (“the Registry”). Cal. Code Regs. tit. 11, § 301. An organization’s

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Schedule B includes the names and addresses of every individual nationwide who donated more

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than $5,000 to a charity during a given tax year. While a nonprofit’s IRS Form 990 must be made

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available to the public, an organization’s Schedule B is not publicly available. 26 U.S.C. §

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6104(b), (d)(3)(A).

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Since 2001, TMLC 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 2009, the Attorney

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General accepted TMLC’s registration renewal and listed TMLC as an active charity in

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compliance with the law. In a letter dated March 6, 2012, the Attorney General indicated that

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TMLC’s 2010 filing was insufficient due to its failure to include a Schedule B. In April 2015,

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TMLC brought the present action seeking an order preliminarily enjoining the Attorney General

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from demanding its Schedule B. Among other claims, TMLC argued that the California law

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requiring disclosure of its Schedule B to the Attorney General was facially unconstitutional.

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TMLC also brought an as-applied challenge against the disclosure requirement.

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This Court granted Plaintiff a preliminary injunction, which the Ninth Circuit vacated.

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Americans for Prosperity Found. v. Harris, 809 F.3d 536 (9th Cir. 2015). In its remand, the Ninth

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Circuit held that this Court is bound by its previous decision in Center for Competitive Politics v.

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Harris, 784 F.3d 1307, 1317 (9th Cir. 2015)—that the Attorney General’s nonpublic Schedule B

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disclosure regime was not facially unconstitutional. Americans for Prosperity Found., 809 F.3d at

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538. The Ninth Circuit did, however, instruct this Court to have a trial on the as-applied

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challenge. Id. at 543. Accordingly, the Court now focuses on TMLC’s as-applied challenge.

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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, 196 (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.” Center for

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Competitive Politics, 784 F.3d at 1312 (citations omitted). This encompasses a balancing test. In

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order for a government action to survive exacting scrutiny, “the strength of the governmental

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interest must reflect the seriousness of the actual burden on First Amendment rights.” John Doe

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No. 1, 561 U.S. at 196.
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I.

Substantial Relation to a Sufficiently Important Governmental Interest

Defendant argues that the state law requiring that all charities file a complete copy of IRS

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Form 990 Schedule B is substantially related to the Attorney General’s compelling interest in

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protecting the public and ensuring that charitable organizations are not abusing their legal

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privileges. The Attorney General argues that the disclosure of Schedule B allows the Registry to

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determine how much revenue a charity receives and who is donating to the charitable organization

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and in what form. According to the Attorney General, the Schedule B information assists her

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office in determining whether an organization has violated the law, including laws against self-

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dealing, improper loans, interested persons, or illegal or unfair business practices. The Court finds

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that as applied, the disclosure of the Schedule B form is not substantially related to the Attorney

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General’s interest in monitoring and investigating charitable organizations. First, the Attorney

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General’s arguments that Schedule B is necessary is undercut by the fact that she has only recently

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determined a need for the information and has access to the same information from other sources.

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Second, even assuming arguendo that this information does genuinely assist in the Attorney

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General’s investigations, its disclosure demand of Schedule B is more burdensome than necessary.

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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, for the second time, held a bench trial and was left unconvinced that the Attorney General’s

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collection of Schedule B forms substantially assists the investigation of charitable organizations.

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TMLC, like Americans for Prosperity, was registered with the Registry for years and was never

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required to disclose its Schedule B. It was not until 2012 that the Attorney General first notified

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TMLC that it was required to file its Schedule B. This fact alone indicates that it is indeed

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possible for the Attorney General to monitor charitable organizations without Schedule B. The

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Attorney General undoubtedly had the same interest in protecting the public and monitoring

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charitable organizations prior to 2012. Yet, she was able to further this interest without the

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collection of TMLC’s Schedule B.

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Portions of the Americans for Prosperity testimony and evidence were admitted in the
TMLC trial. Particularly relevant here is the testimony of a supervising investigative auditor for
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the Attorney General, Steve Bauman. Mr. Bauman’s trial testimony confirmed that auditors and

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attorneys seldom use Schedule B when auditing or investigating charities. Bauman testified that

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out of the approximately 540 investigations conducted over the past ten years in the Charitable

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Trusts Section, only five instances involved the use of a Schedule B. (Exhibit 913, AFPF v.

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Harris, Bauman Test., 3/4/16, p. 19:15-19). Even in the few instances in which a Schedule B was

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relied on, the relevant information it contained could have been obtained from other sources.

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(Exhibit 913, AFPF v. Harris, Bauman Test. 3/4/16, p. 31:8–32:10).

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At trial in the present case, the Attorney General presented the testimony of Tania Ibanez,

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the head of the Attorney General’s Charitable Trusts Section. Ms. Ibanez testified that her office

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uses Schedule B regularly to assist in the evaluation of the merits of complaints and assess the

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legality of a charitable organization’s finances. Additionally, Joseph Zimring, a Deputy Attorney

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General in the Charity and Trusts section, testified that he has used a Schedule B in an

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investigation he was involved in. However, Zimring also testified that it was “very likely” that he

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could have completed a successful investigation without a Schedule B and that other sources, such

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as Schedule L, contain the same information as Schedule B. (Zimring Test., 9/14/16, p. 80:11-18,

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81:18-19). Ms. Ibanez’s testimony establishes nothing more than a convenience and general usage

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of Schedule B. This Court does not doubt that the Attorney General does in fact use the Schedule

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Bs it collects. However, Mr. Zimring’s testimony also indicates that the Attorney General is more

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than capable of protecting the public and enforcing the laws by other means. The numerous other

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means by which the Attorney General could obtain the information she needs to investigate

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charitable organizations show that the collection of the Schedule B is not substantially related to

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her important interest.

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It is apparent to this Court that the Attorney General’s requirement of Schedule B is not

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substantially related to its interest in regulating charitable organizations. Furthermore, the

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Attorney General’s interest could be more narrowly achieved.

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In the context of associational rights, “even though the governmental purpose [may] be

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legitimate and substantial, that purpose cannot be pursued by means that broadly stifle

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fundamental personal liberties when the end can be more narrowly achieved.” Louisiana v.
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NAACP, 366 U.S. 293, 296 (1961). This differs from the electoral context. The Ninth Circuit has

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held that disclosure of electoral donations and financing information is not subject to a least-

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restrictive-means analysis. Chula Vista Citizens for Jobs & Fair Competition v. Norris, 782 F.3d

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520, 541 (9th Cir. 2015). This Court does not hold the Attorney General to a least-restrictive-

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means standard. However, the Attorney General is limited to pursuing its interest in protecting the

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public from illegal charitable organizations by means which do not “broadly stifle fundamental

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personal liberties when the end can be more narrowly achieved.”

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Here, like in NAACP, the Attorney General’s interests can be more narrowly achieved as
evidenced by the testimony of Zimring and Bauman. As was the case in the Americans for

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Prosperity Foundation (“AFPF”) trial, there is substantial evidence that the Attorney General

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could accomplish her goals without the Schedule B. During the AFPF trial, the Attorney

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General’s investigators testified that they have successfully completed their investigations without

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using Schedule Bs, even in instances where they knew Schedule Bs were missing. For example,

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Mr. Bauman testified that he 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). In the TMLC trial, Mr. Zimring testified

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that he had simply asked individuals who filed complaints against charitable organizations for

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information which would otherwise appear on a Schedule B. Additionally, Mr. Zimring testified

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that in an investigation into fraudulent loans to a charitable organization, much of the information

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he pursued could have been obtained through a different attachment to the organization’s Form

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990, Schedule L. (Zimring Test., 9/14/16, p.81:15-22). Taken together, the testimony of multiple

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lawyers within the Attorney General’s office clearly indicate that the Attorney General could have

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achieved its end by more narrowly tailored means. While this Court cannot find such a disclosure

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requirement facially invalid, it is prepared to find it unconstitutional as applied to TMLC,

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especially in light of the requirement’s burdens on TMLC’s First Amendment rights.

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II.

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 TMLC’s Schedule B and a compelling governmental interest, TMLC 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)). The Supreme Court has noted a particular need for protection of “minor political

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part[ies] which historically ha[ve] been the object of harassment by government officials and

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private parties.” Brown v. Socialist Workers ’74 Campaign Comm., 459 U.S. 87, 88 (1982). “A

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strict requirement that chill and harassment be directly attributable to the specific disclosure from

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which the exemption is sought would make the task even more difficult.” Id. at 74. Examples of

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the type of evidence sufficient to succeed on an as-applied challenge include past or present

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harassment of members due to their associational ties, or of harassment directed against the

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organization itself, or a pattern of threats or specific manifestations of public hostility. Id. TMLC

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produced evidence of such harassment and hostility at trial.

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TMLC is an advocate for issues which arouse intense passions by its supporters and its

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opponents. The Law Center represents clients who are in the midst of intense public scrutiny and

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often times on the receiving end of extremely negative criticism and insults. These positions taken

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by TMLC have led to threats, harassing calls, intimidating and obscene emails, and even

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pornographic letters sent to TMLC. (See, e.g., Exhibit 38, 39). In one particularly angry letter to

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TMLC in response to a request for donations an opponent wrote, “YOU FU**ING FEAR

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MONGERING PIECE OF S**T F**K YOU!!!” (Exhibit 38). Opponents also mailed

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pornographic images to TMLC. (Exhibit 39). The level of harassment and “vehement criticism”

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directed towards TMLC has necessitated the Law Center’s President, Richard Thompson, to train
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his employees how to effectively handle and respond to the negativity. Members and donors of

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TMLC obviously share the same views as TMLC. Thus, the evidence of threats and harassment

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directed toward TMLC because of their views indicates a high likelihood of similar treatment

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towards donors. It also satisfies the requirement of Center for Competitive Politics that an

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organization show “a reasonable probability” that the disclosure of TMLC’s donors would subject

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them to threats or harassment.

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Additionally, TMLC produced evidence of one donor who suffered negative consequences

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as a result of his support of TMLC issues and another donor who supported TMLC but wished to

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remain anonymous for fear of harassment as a result of his affiliation. Tom Monaghan was the

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founder of TMLC and also a donor. Mr. Monaghan was listed at the top of a list of “most antigay

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persons in the country.” (Exhibit 908, Monaghan Dep., at p. 33:21, 34:5-23). Due to his

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opposition to abortion, an issue which TMLC consistently advances, Mr. Monaghan’s business

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was boycotted by the National Organization for Women. (Id. at p. 43:23-44:9). Furthermore,

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TMLC produced a donation accompanied by a letter which stated that the donor did not want to

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provide his personal information because the donor feared there would be consequences of being

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personally tied to TMLC. (Thompson Test., 9/13/16, Vol. 1, p. 62:9-24).

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The Attorney General argues that little can be drawn from the testimony of Mr. Monaghan

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and the letter from the anonymous donor. First, the Attorney General argues that Mr. Monaghan

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and TMLC do not “connect Mr. Monaghan’s inclusion on [the antigay list] to his donations to the

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Law Center, as opposed to his public status as a member of the Law Center’s board.”

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(Defendant’s Proposed Order, p. 6). However, this misunderstands the level of proof required to

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prevail on an as-applied challenge to a disclosure requirement. The Supreme Court in Brown

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explicitly held that a plaintiff need not show that he was harassed directly as a result of a disclosed

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donation. Rather, evidence of harassment of a member of an organization due to that membership

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is sufficient. Here, Mr. Monaghan was certainly harassed at minimum because he shared the same

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views as TMLC. He testified that his inclusion on the antigay list was possibly a product of his

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association with TMLC. (Exhibit 908, Monaghan Dep., at p. 33:11-17, 34:5-23). Secondly, the

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Attorney General disputes the relevance of the anonymous donor’s request to remain anonymous.
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The Attorney General argues that the donor wished to remain anonymous from TMLC (not the

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Government) and that the donor would not have appeared on the Schedule B. Neither argument is

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persuasive. The anonymous donor evidence is informative because it is illustrative. The

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anonymous donor likely did not know the intricacies of tax filings and whether or not the donor

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would be included on a Schedule B. What is illustrative about the anonymous donor is that the

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donor was afraid of the repercussions of being affiliated with TMLC as a donor. It is highly likely

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that other donors felt the same fear as this anonymous donor and equally likely that at least some

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of those donors withheld contributions because of that fear. Compelling the disclosure of donors’

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identities would only compound such fears and difficulties for TMLC.

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The evidence of harassment, opposition, and threats directed at TMLC, its donors, and

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those supporting the very same issues as the Law Center is sufficient to establish a “reasonable

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probability” that the compelled disclosure of the identity of TMLC donors would burden the

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donor’s First Amendment Rights. This Court finds that the TMLC has shown harm sufficient to

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outweigh the Attorney General’s interest in protecting the public from illegal charitable

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organizations and her overly burdensome means of achieving that interest.

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The Court spent significant time in the Americans for Prosperity Foundation case

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examining the factual underpinnings of the inadvertent public disclosures of Schedule B by the

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Attorney General. AFPF, __ F. Supp. 3d __, 2016 WL 1610591 at *5 (C.D. Cal., 2016). This

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Court stands by its finding that the Attorney General’s history of inadvertent disclosures raises

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significant concerns for donors who desire to have their affiliations remain confidential. However,

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the Attorney General has since modified the approach by the Registry to protect the confidentiality

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of Schedule Bs and prevent inadvertent disclosures. As such, this Court will examine the new

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evidence presented at the TMLC trial.

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Since the conclusion of the AFPF litigation, the Registry’s confidentiality policy was

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codified in a formal regulation. California Code of Regulations, title 11, section 310(b) now

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requires donor information be maintained as confidential and not be disclosed except in limited

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scenarios. The Registry also implemented a system of automated and personal reviews to identify

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documents that were incorrectly classified as not confidential. Ultimately, given the history of the
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Registry completely violating the “longstanding confidentiality policy,” the Attorney General’s

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assurances that a regulatory codification of the same exact policy will prevent future inadvertent

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disclosures rings hollow. The Attorney General’s steps to attempt to rectify the disclosures and

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prevent future disclosures is commendable. Yet, trial testimony supported what should be an

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obvious fact, the Registry cannot assure that documents will not be inadvertently disclosed no

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matter what steps it takes. The Registry is not required to have a perfectly secure, fool-proof

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system to prevent disclosures. However, taken in the context of a proven and substantial history

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of inadvertent disclosures, this inability to assure confidentiality increases the “reasonable

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probability” that compelled disclosure of Schedule B would chill Plaintiff’s First Amendment

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rights. Donors and potential donors would be reasonably justified in a fear of disclosure given

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such a context.

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III.

Plaintiff’s Remaining Claims

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Finally, TMLC has advanced, albeit briefly, several additional arguments against the

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collection of its Schedule B. First, TMLC claims that the required disclosure of Schedule B

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constitutes an unreasonable search and seizure in violation of the Fourth Amendment. TMLC

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cites no case law in support of its novel theory. The Fourth Amendment provides that “the right of

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the people to be secure in their persons, houses, papers, and effects, against unreasonable searches

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and seizures, shall not be violated.” As is apparent from the plain text, a search violates the Fourth

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Amendment only when it is “unreasonable.” This Court discussed above the legitimacy of the

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Attorney General’s interest in protecting the public from illegal activities of charitable

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organizations. In her attempt to further that interest, the Attorney General requests information

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from all charitable organizations registered in the state. These requests are not unreasonable. This

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Court has found that the disclosure requirement is overly burdensome in the freedom of

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association context, but it is not prepared to find it unreasonable in the context of the Fourth

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Amendment. Given the lack of unreasonableness shown by TMLC, this Court need not determine

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whether a search occurred within the meaning of the Fourth Amendment.

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Next, TMLC argues that the Schedule B disclosure requirement violates the Supremacy
Clause and the Free Exercise Clause. TMLC failed to produce evidence sufficient to satisfy either
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claim. The mere fact that the IRS also collects Schedule Bs does not mean that federal law

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preempts the Attorney General’s collection of Schedule B. Similarly, the mere fact that TMLC is

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an organization promoting religious beliefs does not mean that the Attorney General cannot

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regulate such an organization by means of a neutral, generally applicable law.

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Plaintiff’s claims under the Fourth Amendment, Supremacy Clause, and Free Exercise
Clause all fail.
IV.

Injunctive Relief

Because AFP has prevailed on its First Amendment as-applied challenge, it is entitled to
declaratory and injunctive relief. A “plaintiff seeking a permanent injunction must satisfy a four-

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factor test before a court may grant such relief.” eBay Inc. v. MercExchange, L.L.C., 547 U.S.

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388, 391 (2006). Specifically, the plaintiff “must demonstrate: (1) that it has suffered an

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irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to

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compensate for that injury; (3) that considering the balance of hardships between the plaintiff and

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defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved

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by a permanent injunction.” Id. Each of these factors weighs in favor of an injunction here.

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TMLC has suffered an irreparable injury as a result of its required disclosure of Schedule

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B. As discussed above, given donors’ desire to remain anonymous, the Attorney General’s

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required disclosure of Schedule B chills First Amendment speech and the Freedom of Association.

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TMLC presented evidence that significant harassment can and has occurred to both individuals

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associated with the Law Center as well as those who donate to it. If TMLC refused to comply

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with the Attorney General’s required disclosure, it would be prevented from operating as a

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charitable organization in the state of California. Forcing the Law Center to choose between

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operating in the state and revealing its donors in violation of their desires to remain anonymous is

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an irreparable injury. Any “loss of First Amendment freedoms . . . unquestionably constitutes

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irreparable injury.” Elrod v. Burns, 427 U.S. 347, 373 (1976) (plurality opinion); accord, e.g.,

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Doe v. Harris, 772 F.3d 563, 583 (9th Cir. 2014); Valle Del Sol Inc. v. Whiting, 709 F.3d 808, 828

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(9th Cir. 2013); Sanders Cnty. Republican Cent. Comm. v. Bullock, 698 F.3d 741, 748 (9th Cir.

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2012); Farris v. Seabrook, 677 F.3d 858, 868 (9th Cir. 2012); Thalheimer v. City of San Diego,
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645 F.3d 1109, 1128 (9th Cir. 2011). In particular, the government causes “irreparable injury”

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when, as here, it places individuals “in fear of exercising their constitutionally protected rights of

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free expression, assembly, and association.” Allee v. Medrano, 416 U.S. 802, 814–15 (1974).

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TMLC’s irreparable First Amendment injuries cannot adequately be compensated by

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damages or any other remedy available at law. Unlike a monetary injury, violations of the First

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Amendment “cannot be adequately remedied through damages.” Stormans, Inc. v. Selecky, 586

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F.3d 1109, 1138 (9th Cir. 2009).

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The balance of hardships also favors granting an injunction. As discussed above, the
primary advantage of the Schedule B is one of convenience and efficiency. This Court finds that

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losing such an advantage, though undoubtedly difficult for the Attorney General, is far outweighed

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by the hardship placed on TMLC by forcing it to disclose its donors. The Attorney General

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operated without Schedule Bs for decades and still managed to further its interest of protecting the

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public. By contrast, the Thomas More Law Center would be hard-pressed to regain the trust of its

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donors and continue the exercise of its First Amendment rights should it be required to violate the

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trust and desires of its donors. Thus, it is clear that the balance of hardships supports enjoining the

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Attorney General from collecting TMLC’s Schedule B.

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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)). In sum, the four-factor test establishes that injunctive relief is appropriate to bar

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the Attorney General from demanding Schedule Bs from TMLC as part of their annual registration

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renewal. Brown, 492 U.S. at 101–02; Louisiana v. NAACP, 366 U.S. at 297.

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In sum, this Court finds, for the second time, after a full bench trial, that the Attorney

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General has failed to prove a substantial relation between her collection of Schedule B and the

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investigation of charitable organizations. Investigators and attorneys testified that they completed

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investigations without Schedule B, accessed information contained in Schedule B from different

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sources, and conducted investigations for years before Schedule B was ever collected.

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Collectively, this Court is convinced that the Attorney General has a myriad of less-burdensome
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means available to further her interest of protecting the public from fraudulent and illegal

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charitable organizations.

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IT IS HEREBY ORDERED that the Attorney General is permanently enjoined from

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requiring the Thomas More Law Center to file with the registry a periodic written report

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containing a copy of its Schedule B to IRS Form 990. TMLC shall no longer be considered

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deficient or delinquent in its reporting requirement because it does not file its confidential

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Schedule B with the Attorney General. Each party shall bear its own costs.

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Dated: November 16, 2016.

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___________________________________
MANUEL L. REAL
UNITED STATES DISTRICT JUDGE

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