State Of New York et al v. New Israel Fund
MEMORANDUM OPINION & ORDER re: 36 MOTION to Dismiss Amended Complaint filed by New Israel Fund. For the reasons stated above, NIF's motion to dismiss is DENIED. The Clerk of Court is directed to terminate the motion pending at Dkt. No. 37. (Signed by Judge Gregory H. Woods on 2/15/2021) (mro)
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
STATE OF NEW YORK ex rel. TZAC, INC.
NEW ISRAEL FUND,
DOC #: _________________
DATE FILED: 2/15/2021
MEMORANDUM OPINION &
GREGORY H. WOODS, United States District Judge:
Defendant New Israel Fund (“NIF”) is a nonprofit charity organization dedicated to the
advancement of democracy in Israel. NIF receives millions of dollars in charitable donations each
year, which it distributes through grants to Israeli nonprofit organizations. NIF is registered as a
501(c)(3) organization, meaning that it is exempt from federal taxes and qualifies for exemptions
from state and local taxes. As a condition of its 501(c)(3) status, NIF is prohibited from engaging in
certain political activities. Specifically, 501(c)(3) entities are forbidden from engaging in direct or
indirect political campaign activities on behalf of or in opposition to candidates for public office,
and are required to attest to that fact on their yearly federal tax returns.
Plaintiff-Relator, the Zionist Advocacy Center (“TZAC”), brings this action on behalf of the
State of New York (the “State”), alleging that NIF fraudulently obtained and maintains its status as a
501(c)(3) organization because it has engaged in prohibited activities and financially supports
organizations that “electioneer” by engaging in advocacy efforts for or against candidates for public
office. TZAC claims that NIF’s fraudulent certifications on its federal tax returns violated the New
York False Claims Act, N.Y. State Fin. Law §§ 187–194 (the “NYFCA”), because NIF submitted
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those forms to state authorities and obtained its state and local tax exemptions based on its 501(c)(3)
NIF has moved to dismiss TZAC’s amended complaint, advancing three arguments. First,
NIF argues that TZAC’s amended complaint is barred because it is based on information that is
available in the public domain through the Internal Revenue Service (the “IRS”)’s database and the
“news media,” and TZAC does not fall under the “original source” exception to the NYFCA’s
public disclosure bar. See Mem. Law Supp. NIF’s Mot. to Dismiss TZAC’s Am. Compl. (“Mem.”)
6–11, Dkt. No. 37. Second, NIF argues that its state tax-exempt status does not turn on its federal
tax-exempt status, but rather on whether it “operate[s] on a not-for-profit basis and [whether] no
part of its net earnings inure to the benefit of any officer, director[,] or member of the corporation.”
Id. at 13 (citation omitted). NIF asserts that because it satisfies those conditions, its allegedly false
certifications or non-compliance with § 501(c)(3)’s requirements are immaterial to its New York tax
obligations and do not give rise to a claim under the NYFCA. Id. at 14. Lastly, NIF argues that
even if its allegedly false certifications were material, TZAC has failed to plead scienter with
particularity because it did not provide a factual basis for attributing the conduct of NIF’s grantees
to NIF or for TZAC’s assertion that NIF knew it engaged in partisan political activity when it
certified its tax returns. Id. For the reasons set forth below, NIF’s motion is denied.
Overview of 26 U.S.C. § 501(c)(3) and Its Connection to New York Tax
Because NIF’s status as a 501(c)(3) entity is relevant to this case, a brief overview of that
provision of the U.S. Internal Revenue Code and its relationship to the New York tax code is
warranted. Entities organized under § 501(c)(3) are exempt from federal taxes and may be eligible
for exemption from state and local taxes. See 26 U.S.C. § 501(c)(3); N.Y. Comp. Codes R. & Reg.
tit. 20, § 1-3.4(b)(6)(i)–(ii). To qualify as a 501(c)(3) organization, the entity must exist for an
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“exempt purpose,” which means that the organization must be “organized and operated exclusively
for religious, charitable, scientific, testing for public safety, literary, or educational purposes” and
that “no part of the net earnings of [the organization] inures to the benefit of any private
shareholder or individual.” 26 U.S.C. § 501(c)(3).
As a condition of their status as tax-exempt entities, 501(c)(3) organizations are prohibited
from participating in certain activities. See id. As relevant here, entities may not “participate in, or
intervene in (including the publishing or distributing of statements), any political campaign on behalf
of (or in opposition to) any candidate for public office” and violation of this prohibition may result
in denial or revocation of their tax-exempt status. Id.; see also The Restriction of Political Campaign
Intervention by Section 501(c)(3) Tax-Exempt Organizations, IRS (Sept. 23, 2020),
https://www.irs.gov/charities-non-profits/charitable-organizations/the-restriction-of-politicalcampaign-intervention-by-section-501c3-tax-exempt-organizations (last visited January 25, 2021).
“Contributions to political campaign funds or public statements of position (verbal or written) made
on behalf of the organization in favor of or in opposition to any candidate for public office clearly
violate the prohibition against political campaign activity.” The Restriction of Political Campaign
Intervention by Section 501(c)(3) Tax-Exempt Organizations, IRS (Sept. 23, 2020),
https://www.irs.gov/charities-non-profits/charitable-organizations/the-restriction-of-politicalcampaign-intervention-by-section-501c3-tax-exempt-organizations (last visited January 25, 2021).
This applies to information posted on a 501(c)(3) organization’s website. Frequently Asked Questions
About the Ban on Political Campaign Intervention by 501(c)(3) Organizations: Website Postings and Links, IRS
(Dec. 8, 2020), https://www.irs.gov/charities-non-profits/charitable-organizations/frequentlyasked-questions-about-the-ban-on-political-campaign-intervention-by-501c3-organizations-websitepostings-and-links (last visited January 25, 2021) (“A website is a form of communication. If an
organization posts something on its website that favors or opposes a candidate for public office, it is
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prohibited political campaign activity. Posting information on its website is the same as if the
organization distributed printed material or made oral statements or broadcasts that favored or opposed
Determining whether a 501(c)(3) organization has engaged in impermissible political activity is a
fact-specific inquiry. The Restriction of Political Campaign Intervention by Section 501(c)(3) Tax-Exempt
Organizations, IRS (Sept. 23, 2020), https://www.irs.gov/charities-non-profits/charitableorganizations/the-restriction-of-political-campaign-intervention-by-section-501c3-tax-exemptorganizations (last visited January 25, 2021). “[T]he prohibition against partisan activity in section
501(c)(3) bars more than the partisan promotion of certain candidates over other candidates, and . . . an
organization’s selective promotion of certain parties over others would be inconsistent with its section
501(c)(3) tax-exempt status.” Fulani v. League of Women Voters Educ. Fund, 882 F.2d 621, 629 (2d Cir.
1989) (citing Ass’n of the Bar of the City of New York v. Comm’r., 858 F.2d 876, 879–80 (2d Cir. 1988)).
Activities conducted in a non-partisan manner, or which do not favor a particular political candidate, are
permitted. For example, 501(c)(3) entities are permitted to engage in
certain voter education activities (including presenting public forums and publishing voter
education guides) conducted in a non-partisan manner . . . . In addition, other activities
intended to encourage people to participate in the electoral process, such as voter
registration and get-out-the-vote drives, would not be prohibited political campaign
activity if conducted in a non-partisan manner.
The Restriction of Political Campaign Intervention by Section 501(c)(3) Tax-Exempt Organizations, IRS (Sept. 23,
2020), https://www.irs.gov/charities-non-profits/charitable-organizations/the-restriction-of-politicalcampaign-intervention-by-section-501c3-tax-exempt-organizations (last visited January 25, 2021). To be
clear, “[a]n organization may take positions on public policy issues, including issues that divide
candidates in an election for public office as long as the message does not in any way favor or oppose a
candidate.” Frequently Asked Questions About the Ban on Political Campaign Intervention by 501(c)(3)
Organizations: Organization Position on Issues, IRS (May 21, 2020), https://www.irs.gov/charities-non-
profits/charitable-organizations/frequently-asked-questions-about-the-ban-on-political-campaignintervention-by-501c3-organizations-organization-position-on-issues (last visited January 25, 2021).
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Under the New York Tax Code, nonprofit organizations, including those exempt from
federal taxation under § 501(c)(3), may be exempt from New York taxation. See tit. 20, § 13.4(b)(6)(i)–(ii). Section 1-3.4(b)(6), the New York provision upon which TZAC relies in bringing
this action, provides that
corporations organized other than for profit which do not have stock or shares or
certificates for stock or for shares and which are operated on a nonprofit basis no part
of the net earnings of which inures to the benefit of any officer, director, or member,
including Not-for-Profit Corporations and Religious Corporations[, are exempt from
Id. Section 1-3.4(b)(i)–(ii) describes the relationship between § 501(c)(3) and the state tax provision.
(i) A corporation organized other than for profit, as described in this paragraph, which
is exempt from Federal income taxation pursuant to subsection (a) of section 501 of
the Internal Revenue Code, will be presumed to be exempt from tax under article 9-A. If a
corporation organized other than for profit is denied exemption from taxation under
the Internal Revenue Code, such corporation will be presumed subject to tax under
(ii) The determination of the Internal Revenue Service, denying or revoking exemption
from Federal taxation under the Internal Revenue Code, will ordinarily be followed[.]
Id. (emphasis added).1
Factual and Procedural Background
NIF is a 501(c)(3) nonprofit organization that works to advance democracy in Israel. Am. Compl. ¶¶ 2–
3. NIF receives millions of dollars in charitable donations each year, which it grants to Israeli nonprofit
organizations to advance NIF’s mission. Id. ¶ 3. Because NIF is registered as a 501(c)(3) entity, its
annual revenue of approximately $25 to $30 million, including its donations and investments, is exempt
from federal, state, and local taxation. Id. ¶ 4.
TZAC is a “New York corporation which advocates on behalf of the Jewish State.” Id. ¶ 5.
TZAC, acting on behalf of the State of New York, filed this qui tam action in New York Supreme Court
on August 15, 2019, alleging that NIF violated the NYFCA by preparing false tax returns to obtain and
Section 501(a) provides that “[a] n organization described in subsection (c) or (d) or section 401(a) shall be exempt
from taxation under this subtitle unless such exemption is denied under section 502 or 503.” 26 U.S.C. § 501(a).
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maintain its status as a tax-exempt entity, and by submitting those false returns to the State. See
Notice of Removal Ex. B 3–4, 8, Dkt. No. 1-2. On November 22, 2019, the State declined to
intervene in the state court action. See Notice of Removal Ex. D ¶ 1, Dkt. No. 1-4. On April 10,
2020, NIF removed this case to federal court claiming that the action raised issues under the United
States Internal Revenue Code, specifically § 501(c)(3). Notice of Removal 1–2, Dkt. No. 1.
TZAC alleges that NIF impermissibly engaged in both direct and indirect electioneering
activities, contrary to the certifications on its tax forms that it did not do so. Am Compl. ¶ 21.
TZAC alleges that NIF directly engaged in electioneering activities in 2019, when NIF gathered
names for a petition to disqualify a candidate running for the Knesset, Otzma Yehudit, and sent it
out to individuals soliciting their signatures. Id. ¶ 24. After candidate Michael Ben-Ari was banned
by the Israeli Supreme Court from running in his election, NIF called it a “victory for democracy.”
TZAC alleges that NIF engaged in indirect electioneering by knowingly distributing grants to
organizations that opposed and supported candidates for public office in Israel. Id. ¶¶ 21, 33. The
political activities in which NIF’s grantees allegedly engaged include the following:
TZAC claims that Israel Religious Action Center (“IRAC”), an organization that received
grants from NIF from 2014 to 2018, electioneered in the 2015 and 2019 elections in Israel.
Id. ¶ 25. In 2015, an IRAC attorney argued before the Israeli Supreme Court against an
appeal of political candidate Baruch Marzel’s disqualification by the Israeli Central Election
Committee from running for the Knesset, the legislative branch of the Israeli government.
Id. ¶ 27. In 2019, IRAC published a video about the danger of the Otzma Yehudit Party,
which targeted political candidates Bentzi Gopstein, Itamar Ben Gvir, Michael Ben-Ari, and
Baruch Marzel. Id. ¶ 25.
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TZAC also alleges that Adalah, an organization that received grants from NIF from 2012 to
2018, called on the Israeli Central Election Committee to reject disqualification motions
against Israeli politician MK Haneen Zoabi. Id. ¶ 28.
TZAC alleges that in 2018, Mossawa, an organization that received grants from NIF from
2007 to 2018, attacked a sign from the Jewish Home Campaign as racist, and attacked the
Likud Campaign, claiming that the Liked Campaign “want[ed] the Israeli [people] to decide
between a fascist society and a pluralistic society that respects human dignity and diversity.”
Id. ¶ 29.
TZAC alleges that in 2018, Adam Teva, an organization that received grants from NIF in
2014, 2016, and 2017, posted a list of candidates who pledged to follow a protocol to
preserve trees and said it would keep the list on its website until the next election date. Id.
TZAC also points to NIF’s statements describing its New Initiative for Democracy
(“NIFD”) campaign as proof that NIF knew it was “involving itself in campaigning.” Id. ¶ 32. On
NIF’s website, the stated purpose of the campaign is to “equip Israel’s pro-democracy and
progressive forces with the tools to fight Israel’s regressive right-and win.” Id. As part of its strategy
for the NIFD campaign, NIF explains that it can transform military solutions into political solutions
by “reclaiming national security to include progressive ideals” through its partnership with the
Council for Peace and Security (the “CPS”). Id. ¶ 33. TZAC alleges that the CPS, a grantee of NIF
since at least as early as 2014, advanced this mission by mounting a large campaign against Benjamin
Netanyahu before the 2015 elections. Id. ¶ 34. In that campaign, the CPS argued that by voting for
Benjamin Netanyahu, the “situation with the Palestinians [would] not change; however, the voters
[had] a chance to make a change by voting in the election.” Id. TZAC also alleges that the CPS
campaigned in the streets of Israel and on its YouTube and Facebook pages. Id.
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TZAC asserts that NIF knowingly or recklessly permitted its grantees to engage in these
activities, despite the fact that NIF states on its website that grantees should not electioneer, because
the grantees post their activities on their websites and NIF claims to monitor its grantees to ensure
their compliance with its rule. Id. ¶ 31–32. TZAC also asserts that NIF knew of its grantees’
activities because the grantees share newspaper and free media coverage with NIF. Id. ¶ 32.
TZAC filed the operative complaint (the “Amended Complaint”) on July 17, 2020, alleging
that NIF violated the NYFCA, which prohibits an actor from “knowingly make[ing], us[ing], or
caus[ing] to be made or used, a false record or statement material to an obligation to pay or transmit
money or property to the state or a local government.” Id. ¶¶ 35–37 (citing N.Y. State Fin. Law §
189(1)(g)). The allegedly false statements that serve as the basis for TZAC’s claim are NIF’s
certifications on its yearly IRS Form 990 for the years 2008 through 2017, which were submitted to
both federal and state authorities. 2 Id. ¶¶ 9–20. Specifically, NIF certified that it did not “engage in
direct or indirect political campaign activities on behalf of or in opposition to candidates for public
office,” which TZAC asserts was false because NIF and its grantees did engage in such activities. Id.
¶¶ 8, 9. TZAC contends that had NIF disclosed its activities on its Form 990s, NIF would not have
been qualified to receive a tax exemption under § 501(c)(3), and therefore, it would not have
received a tax exemption under Section 1-3.4 in the State and City of New York. Id. ¶¶ 20–22.
Therefore, TZAC reasons, by submitting these false statements to the federal and state authorities,
and continuing to receive state and local tax exemptions based on that information, NIF has
violated the NYFCA.
For the purpose of this motion, the Court accepts as true the allegation in the Amended Complaint that NIF’s Form
990s were provided to the State in the same form as those submitted to the federal authorities.
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NIF moved to dismiss the operative complaint on August 25, 2020. NIF’s Notice Mot. to
Dismiss Am. Compl., Dkt. No. 36. In support of its motion, NIF has submitted 55 exhibits that it
has divided into seven categories:
the “A Exhibits”: the financial section of NIF’s website and NIF’s yearly financial reports,
which were published by NIF itself and republished on NGO Monitor’s website;
the “B Exhibits”: IRS’s repository of tax returns, its search page, and the search results for
the “C Exhibits”: an online profile of NIF maintained by Charity Navigator;
the “D Exhibits”: an online profile of NIF and NIF’s yearly Form 990s, published by
the “E Exhibits”: an online profile of NIF and reports analyzing NIF’s yearly financial
reports, published by NGO Monitor;
the “F Exhibits”: social media posts and articles published by NIF and its grantees; and
the “G Exhibits”: articles about NIF and its grantees, published by the newspapers Haaretz
and The Jerusalem Post, and the magazine, +972.
Decl. J. Emmett Murphy (“Murphy Decl.”), Dkt. No. 38. TZAC opposed the motion on
September 14, 2020. Mem. Law Opp’n to Mot. to Dismiss TZAC’s Am. Compl. (“Opp’n”), Dkt.
No. 39. NIF replied on September 21, 2020. Reply Supp. NIF’s Mot. to Dismiss TZAC’s Am.
Compl. (“Reply”), Dkt. No. 40. On January 11, 2021, at the Court’s request, the State submitted a
brief as an interested party on the limited issue of how the scope of the NYFCA’s “news media”
provision should be interpreted. State of New York’s Statement of Interest (“State’s Brief”), Dkt.
No. 45; see Req. Briefing State of New York, Dkt. No. 43. On January 19, 2021, NIF replied to that
brief. Resp. to State of New York’s Statement of Interest (“NIF’s Resp.”), Dkt. No. 46-1.
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To survive a motion to dismiss pursuant to Rule 12(b)(6), a complaint “must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
(citing Twombly, 550 U.S. at 556). “To survive dismissal, the plaintiff must provide the grounds upon
which his claim rests through factual allegations sufficient ‘to raise a right to relief above the
speculative level.’” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (quoting
Twombly, 550 U.S. at 544).
A court must accept all facts alleged in the complaint as true and draw all reasonable
inferences in the plaintiff’s favor. Burch v. Pioneer Credit Recovery, Inc., 551 F.3d 122, 124 (2d Cir. 2008)
(per curiam). But the Court is “not required to credit conclusory allegations or legal conclusions
couched as factual allegations.” Rothstein v. UBS AG, 708 F.3d 82, 94 (2d Cir. 2013). And a
complaint that offers “labels and conclusions” or “naked assertion[s]” without “further factual
enhancement” will not survive a motion to dismiss. Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S.
at 555, 557). “Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice.” DeJesus v. HF Mgmt. Servs., LLC, 726 F.3d 85, 87–88 (2d Cir.
2013) (quoting Iqbal, 556 U.S. at 678–79).
“A complaint can be dismissed for failure to state a claim pursuant to a Rule 12(b)(6) motion
raising an affirmative defense ‘if the defense appears on the face of the complaint.’” Official Comm. of
the Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d 147, 158 (2d Cir. 2003)
(quoting Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 74 (2d Cir. 1998)); see also Staehr v. Hartford
Fin. Servs. Grp., Inc., 547 F.3d 406, 425 (2d Cir. 2008) (“[A] defendant may raise an affirmative
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defense in a pre-answer Rule 12(b)(6) motion if the defense appears on the face of the complaint.”).
“In considering a motion to dismiss under Rule 12(b)(6), the court may look[ ] only to the
complaint; documents that are attached as exhibits to, incorporated by reference, or integral to the
complaint; and matters of which judicial notice may be taken.” Lopez v. Nike, Inc., No.
20CV905PGGJLC, 2021 WL 128574, at *3 (S.D.N.Y. Jan. 14, 2021) (citation omitted).
The NYFCA is an anti-fraud statute, so claims brought under the statute must also satisfy
the heightened pleading requirements of Fed. R. Civ. P. 9(b). Courts in this circuit routinely apply
Rule 9(b) to NYFCA claims removed to federal court. See, e.g., Power Auth. ex rel. Solar Liberty Energy
Sys., Inc. v. Advanced Energy Indus., Inc., No. 19-CV-1542-LJV, 2020 WL 5995186, at *8 (W.D.N.Y.
Oct. 9, 2020); New York ex rel. Khurana v. Spherion Corp., No. 15 CIV. 6605 (JFK), 2016 WL 6652735,
at *8 (S.D.N.Y. Nov. 10, 2016) (citing Gold v. Morrison-Knudsen Co., 68 F.3d 1475, 1476–77 (2d Cir.
1995)); see also Kane ex rel. United States v. Healthfirst, Inc., 120 F. Supp. 3d 370, 382 (S.D.N.Y. 2015)
(explaining that claims under the “NYFCA ‘fall within the express scope of Rule 9(b)’” (quoting
Wood ex rel. United States v. Applied Rsch. Assocs., Inc., 328 F. App’x 744, 747 (2d Cir. 2009))).
Under Rule 9(b), claims alleging fraud “must state with particularity the circumstances
constituting fraud.” Fed. R. Civ. P. 9(b). This “ordinarily requires a complaint alleging fraud to ‘(1)
specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state
where and when the statements were made, and (4) explain why the statements were fraudulent.’”
United States ex rel. Chorches v. Am. Med. Response, Inc., 865 F.3d 71, 81 (2d Cir. 2017) (quoting United
States ex rel. Ladas v. Exelis, Inc., 824 F.3d 16, 25 (2d Cir. 2016)). “Rule 9(b) is “designed to provide a
defendant with fair notice of a plaintiff’s claim, to safeguard a defendant’s reputation from
improvident charges of wrongdoing, and to protect a defendant against the institution of a strike
suit.” Id. at 86 (quoting Ladas, 824 F.3d at 25).
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NIF advances three arguments in support of its motion. First, NIF argues that TZAC’s
claim is prohibited by the NYFCA’s public disclosure bar and that the original source exception
does not apply to TZAC. Second, NIF argues that TZAC has failed to plead that NIF’s allegedly
false certifications or non-compliance with § 501(c)(3) are material to its tax obligations under New
York law. Lastly, NIF argues that even if its allegedly false certifications were material to its tax
obligations, TZAC has failed to plead with particularity that NIF knew that those certifications were
false, as required by Federal Rule of Civil Procedure 9(b) for an NYFCA claim. Id.
The Federal and New York False Claims Acts
Before turning to the substance of the motion, the Court will provide a brief background of
the Federal and New York False Claims Acts. The Federal False Claims Act (the “Federal FCA”),
31 U.S.C. §§ 3729–3733, was “originally adopted following a series of sensational congressional
investigations into the sale of provisions and munitions to the War Department” during the Civil
War “to stop . . . plundering of the public treasury.” United States v. McNinch, 356 U.S. 595, 599
(1958). “Testimony before the Congress [at that time] painted a sordid picture of how the United
States had been billed for nonexistent or worthless goods, charged exorbitant prices for goods
delivered, and generally robbed in purchasing the necessities of war.” Id. In 2007, the New York
State legislature enacted its own version of the False Claims Act. At the time the NYFCA was
enacted, it was modeled on the Federal FCA. Spherion Corp., 2016 WL 6652735, at *8. A defendant
is liable under the NYFCA if “knowingly makes, uses, or causes to be made or used, a false record
or statement material to an obligation to pay or transmit money or property to the state or a local
government.” N.Y. State Fin. Law § 189(1)(g).
The Federal FCA and the NYFCA permit relators to bring suit, on behalf of the federal or
state government, respectively, against parties who knowingly defraud that government. See 31
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U.S.C. § 3730(b)(1) (“A person may bring a civil action for a violation of section 3729 for the person
and for the United States Government. The action shall be brought in the name of the
Government.”); N.Y. State Fin. Law § 190(2)(a) (permitting qui tam civil actions to be brought “on
behalf of the person and the people of the state of New York or a local government.”). Like the
Federal FCA, the government may elect to intervene in a qui tam action brought under the NYFCA
within a set period of time. N.Y. State Fin. Law § 190(2)(b). When the State “decline[s] to
supersede or intervene in the action, the NYS FCA allows the qui tam plaintiff to continue its claims
on behalf of the government and entitles the plaintiff to receive between 25 percent and 30 percent
of the amount recovered if the action is successful.” Spherion Corp., 2016 WL 6652735, at *9 (citing
N.Y. State Fin. Law § 190(6)(b)). Thus, by offering relators an opportunity to share in the award,
private persons are incentivized to identify and act against fraudulent schemes against the
Where the NYFCA is “modeled on the federal FCA[,] courts regularly look to federal law
when interpreting [that law].” See id. at *8; see also Dhaliwal v. Salix Pharms., Ltd., 752 F. App’x 99, 100
(2d Cir. 2019) (“[B]ecause ‘[t]he NYFCA follows the federal False Claims Act,’ New York courts
‘look toward federal law when interpreting the New York act.’” (quoting State ex rel. Seiden v. Utica
First Ins., 943 N.Y.S.2d 36, 39 (App. Div. 2012) (second alteration in original))). However, as
discussed below, certain provisions of the NYFCA were amended in 2010 to include language that
does not appear in the Federal FCA; therefore, cases discussing the federal statute do not provide
guidance on the NYFCA where the State has intentionally deviated from the text of the federal
statute. “[T]he New York Court of Appeals has held that the Act and its amendments apply
retroactively.” Spherion Corp., 2016 WL 6652735, at *8 (citing People ex rel. Schneiderman v. Sprint Nextel
Corp., 26 N.Y.3d 98, 113 (2015), cert. denied sub nom. Sprint Nextel Corp. v. New York, 136 S. Ct. 2387
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TZAC’s Claim is Not Barred by the NYFCA’s Public Disclosure Bar
The Amended Complaint contains information that was not publicly disclosed as provided
for under the “government disclosure” and “news media” provisions of the NYFCA’s public
disclosure bar. Therefore, TZAC’s claim is not barred by the public disclosure bar and the Court
will not dismiss the Amended Complaint on this basis.
Both the Federal FCA and the NYFCA bar actions where the same allegations made by the
plaintiff have been publicly disclosed by certain sources. The bars serve to protect against “‘parasitic
lawsuits’ based upon publicly disclosed information in which would-be relators ‘seek remuneration
although they contributed nothing to the exposure of the fraud.’” United States ex rel. Kreindler &
Kreindler v. United Techs. Corp., 985 F.2d 1148, 1157 (2d Cir. 1993) (quoting United States ex rel. John Doe
v. John Doe Corp., 960 F.2d 318, 319 (2d Cir. 1992)). In line with the purpose of the statutes, the bars
are “intended to confine the right to bring qui tam actions to those who bring frauds against the
public treasury to the attention of the government and the courts; no public purpose is served by
allowing opportunistic outsiders to file suit based on allegations of fraud that have already been
publicized . . . by others.” Chorches, 865 F.3d at 80 n.5; see State ex rel. Jam. Hosp. Med. Ctr., Inc. v.
UnitedHealth Grp., Inc., 922 N.Y.S.2d 342, 343 (App. Div. 2011) (dismissing NYFCA action under the
public disclosure bar).
The federal public disclosure bar provides that
[t]he court shall dismiss an action or claim under [the Federal FCA], unless opposed
by the Government, if substantially the same allegations or transactions as alleged in
the action or claim were publicly disclosed--(i) in a Federal criminal, civil, or
administrative hearing in which the Government or its agent is a party; (ii) in a
congressional, Government Accountability Office, or other Federal report, hearing,
audit, or investigation; or (iii) from the news media, unless the action is brought by the
Attorney General or the person bringing the action is an original source of the
31 U.S.C. § 3730(e)(4)(A). To proceed with a claim under the NYFCA, the relator must overcome
its version of the public disclosure bar, which provides that
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 15 of 38
[t]he court shall dismiss a qui tam action under [the NYFCA], unless opposed by the
state or an applicable local government, or unless the qui tam plaintiff is an original
source of the information, if substantially the same allegations or transactions as
alleged in the action were publicly disclosed . . . (ii) in a federal, New York state or
New York local government report, hearing, audit, or investigation that is made on
the public record or disseminated broadly to the general public; provided that such
information shall not be deemed “publicly disclosed” in a report or investigation
because it was disclosed or provided pursuant to article six of the public officers law,
or under any other federal, state or local law, rule or program enabling the public to
request, receive or view documents or information in the possession of public officials
or public agencies; [or] (iii) in the news media, provided that such allegations or
transactions are not “publicly disclosed” in the “news media” merely because
information of allegations or transactions have been posted on the internet or
on a computer network.
N.Y. State Fin. Law § 190(9)(b).
The public disclosure bar is an affirmative defense that can be decided on a Rule 12(b)(6)
motion but only if the defense appears on the face of the complaint. 3 See Coopers & Lybrand, LLP,
322 F.3d at 158. And, while the court generally may not consider documents outside the pleadings
in deciding a 12(b)(6) motion, it “may take judicial notice of the fact that press coverage and
judicially noticeable public records contained certain information, without regard to the truth of
their contents.” Spherion Corp., 2017 WL 1437204, at *3 (citing Chen, 966 F. Supp. 2d at 294 (citing
in turn, Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 425 (2d Cir. 2008)). “The Court may also
consider documents incorporated by reference in the complaint and documents that are ‘integral’ to
the complaint because the plaintiff ‘relies heavily upon [their] terms and effect.’” Id. (alteration in
original) (citing DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010)). For a document
to be incorporated by reference, the complaint must make a “clear, definite, and substantial
Courts faced with motions to dismiss claims under the current version of the Federal FCA have predominantly found
that the public disclosure bar is properly analyzed under Rule 12(b)(6), not Rule 12(b)(1), as was the case under a prior
version of the statute. See Spherion Corp., 2016 WL 6652735, at *11 (collecting cases). Indeed, the Second Circuit has
definitively ruled on this question, joining “the majority of our sister circuits that have addressed the issue in holding that
the public disclosure bar is no longer jurisdictional.” Chorches, 865 F.3d at 80. And this Court agrees with the Spherion
court that, as with the Federal FCA, because the public disclosure provision of the NYFCA no longer references
jurisdiction, it provides a basis for dismissal appropriate for adjudication in a Rule 12(b)(6) motion, not for lack of
jurisdiction under Rule 12(b)(1).
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 16 of 38
reference” to it. N.Y. Dist. Council of Carpenters Pension Fund v. Forde, 939 F. Supp. 2d 268, 276
(S.D.N.Y. 2013). “In order for the contents of a document to be deemed integral to the complaint,
they must be deemed necessary to the plaintiff’s statement of a claim under Rule 8.” Vaher v. Town of
Orangetown, N.Y., 916 F. Supp. 2d 404, 423 n.16 (S.D.N.Y. 2013). As stated above, NIF has
submitted 55 exhibits for the Court’s consideration. 4
The public disclosure bar applies where “material elements” of the fraud were previously
publicly disclosed. United States ex rel. Foreman v. AECOM, 454 F. Supp. 3d 254, 262 (S.D.N.Y. 2020)
(quoting United States ex rel. Patriarca v. Siemens Healthcare Diagnostics, Inc., 295 F. Supp. 3d 186, 197
(E.D.N.Y. 2018)). The alleged fraud itself does not have to have been exposed. Id. “Earlier
disclosures will bar a relator’s claim if they were sufficient to set the government squarely upon the
trail of the alleged fraud.” Id. “[I]f X + Y = Z, Z represents the allegation of fraud and X and Y
represent its essential elements. In order to disclose the fraudulent transaction publicly, the
combination of X and Y must be revealed, from which readers or listeners may infer Z, i.e., the
conclusion that fraud has been committed.” United States ex rel. Kester v. Novartis Pharms. Corp., 43 F.
Supp. 3d 332, 347 (S.D.N.Y. 2014) (alteration in original) (quoting United States ex. rel. Springfield
Terminal Ry. v. Quinn, 14 F.3d 645, 654 (D.C. Cir. 1994)).
“A court must first determine if ‘substantially the same’ allegations or transactions in the
action were publicly disclosed. If that is the case, the action must be dismissed unless the plaintiff
In a mere footnote in its opening brief, NIF has asked that the Court consider its exhibits as documents incorporated
by reference into the Amended Complaint or documents integral to the Amended Complaint, or documents appropriate
for judicial notice. Mem. at 6 n.2. Here, the Amended Complaint specifically references NIF’s Form 990s for the years
of 2008–2017, and the allegedly fraudulent certifications on those forms serve as the basis of TZAC’s claim. Am.
Compl. ¶¶ 9–20. Therefore, the Court may properly consider the Form 990s in deciding this motion. The Court
interprets NIF’s blanket request for judicial notice as including documents that fall within the following two categories:
(1) government documents available from reliable sources, and (2) other documents available on the Internet for which
the Court may only to take judicial notice of the fact that they are publicly available. TZAC has not opposed NIF’s
request. In light of this non-opposition and the fact that the Court ultimately did not rely upon many of NIF’s
submissions in ruling on this motion, the Court does not analyze here whether each individual exhibit is appropriate for
judicial notice. Rather, to the extent the Court relies on one of NIF’s exhibits, it finds that judicial notice is proper and
grants judicial notice as to that exhibit.
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 17 of 38
qualifies as an ‘original source’” under the NYFCA. Spherion Corp., 2017 WL 1437204, at *4. An
“original source” is defined in the NYFCA as
a person who (a) prior to a public disclosure under [Section 190(b)] has voluntarily
disclosed to the state or a local government the information on which allegations or
transactions in a cause of action are based, or (b) who has knowledge that is
independent of and materially adds to the publicly disclosed allegations or transactions,
and who has voluntarily provided the information to the state or a local government
before or simultaneous with filing an action under [the NYFCA].
N.Y. State Fin. Law § 188(8).
i. The Government Disclosure Provision of the NYFCA’s Public
The initial question is whether NIF’s IRS Form 990s, which contain the allegedly fraudulent
certifications, fall within the scope of the NYFCA’s public disclosure bar as being disclosed “in a
federal, New York state or New York local government report, hearing, audit, or investigation[.]”
The NYFCA provides that a qui tam action shall be dismissed if the allegations were publicly
a federal, New York state or New York local government report, hearing, audit, or
investigation that is made on the public record or disseminated broadly to the general
public; provided that such information shall not be deemed ‘publicly disclosed’ in a
report or investigation because it was disclosed or provided pursuant to [New York’s
Freedom of Information Law], or under any other federal, state or local law, rule or
program enabling the public to request, receive or view documents or information in
the possession of public officials or public agencies[.]
N.Y. State Fin. Law § 190(9)(b)(ii). 5
This provision varies from the Federal FCA, which does not contain a carveout for information provided under
Freedom of Information laws, or other laws, rules, or programs that permit the public to access government
information. The difference between the two statutes is illustrated by the Supreme Court’s decision in Schindler Elevator
Corp. v. U.S. ex rel. Kirk, which held that “[a]written agency response to a FOIA request” and “[a]ny records the agency
produces along with its written FOIA response” are considered reports within the meaning of the Federal FCA’s public
disclosure bar. 563 U.S. 401, 411 (2011). However, even under the Federal FCA, the Supreme Court left open the
question of whether records released under FOIA, but not attached to a written response, fell within the scope of the
public disclosure bar. Id. at 414.
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 18 of 38
As support for its argument that the Form 990s were published in “government reports,”
NIF has provided the Court with three websites maintained by the IRS. 6 See Mem. at 5–7; Murphy
Decl. ¶¶ 15 –17. The IRS permits the public to download “the most recent 990 Series filings on
record,” which at this time means NIF’s Form 990 filings from 2017-2020. Murphy Decl. Ex. B1
ECF p. 2, Dkt. No. 38-13. The IRS also maintains a database which permits the public to run
searches for filings from tax-exempt organizations. Murphy Decl. Ex. B2, Dkt. No. 38-14. NIF’s
Form 990 returns are available through this database for the years 2015-2018. Murphy Decl. Ex. B3,
Dkt. No. 38-15. 7
The parties have provided limited briefing on whether the Form 990s made accessible by the
IRS fall within the NYFCA’s “government report” provision. The sole case that NIF provided for
its argument—United States ex rel. Rosner v. WB/Stellar IP Owner, L.L.C., 739 F. Supp. 2d 396,
407 (S.D.N.Y. 2010) (holding that a public database on a city agency’s website was a report subject
to the public disclosure bar because it “synthesized tax benefit histories for many different
properties over many years, organized by block and lot number”)—is not instructive because it was
decided before the NYFCA was amended in 2010 to include the carveout for information provided
pursuant to laws requiring public access. See Mem. at 6–7. Thus, even accepting NIF’s argument
that the IRS’s provision of the Form 990s can be considered disclosure of the information in
“government reports,” NIF faces another hurdle. The NYFCA has narrowed the public disclosure
bar by providing that information is not considered “publicly disclosed” if it was disclosed or
provided under a federal “law, rule or program enabling the public to request, receive or view
documents or information in the possession of public officials or public agencies[.]” N.Y. State Fin.
As discussed below, in addition to NIF’s argument that its Form 990s are publicly available through the IRS’s websites
as “government reports,” it also submits that these forms were disseminated by the “news media” through ProPublica.
7 As an initial note, even assuming that the Form 990s procured from the IRS’s websites should be considered publicly
disclosed within the meaning of the NYFCA, only the returns for the years 2015–2020 are available through the
methods identified by NIF, where TZAC has alleged that NIF also made false certifications on its returns for 2008-2014.
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 19 of 38
Law § 190(9)(b)(ii). In other words, the question becomes whether IRS made the Form 990s
accessible because it was required to do so because of “law[s], rule[s], or program[s]” that provided
for public access to that information. If so, based on the plain meaning of the NYFCA, the forms
were not “publicly disclosed” as to trigger the public disclosure bar, and NIF’s argument fails.
There exists federal law that answers precisely this question. As a condition of their taxexempt status, 501(c)(3) organizations must make certain documents, including their yearly Form
990s, available for public inspection. See 26 U.S.C. § 6104(b); see also 26 C.F.R. § 601.702(d)(3). The
(b) Inspection of annual returns.--The information required to be furnished by
sections 6033 [which provides that “every organization exempt from taxation under
section 501(a) shall file an annual return”], 6034, and 6058, together with the names
and addresses of such organizations and trusts, shall be made available to the public
at such times and in such places as the Secretary may prescribe.
26 U.S.C. § 6104; see also 26 U.S.C. § 6033(a); Exempt Organization Public Disclosure and Availability
Requirements, IRS (Aug. 28, 2020), https://www.irs.gov/charities-non-profits/exempt-organizationpublic-disclosure-and-availability-requirements (last accessed February 1, 2021) (“Tax-exempt
organizations must make annual returns and exemption applications filed with the IRS available for
public inspection and copying upon request. In addition, the IRS makes these documents
available.”). The text of Section 6104 requires public access to the Form 990s, which the IRS
accomplishes by maintaining various databases on its website. 8 Therefore, the IRS’s disclosure of
the Form 990s appears to fall outside the scope of the NYFCA’s public disclosure bar because the
forms are provided pursuant to “federal, state or local law, rule or program enabling the public to
“To assist the general public, the IRS maintains and updates two different publicly available compilations of
information on organizations eligible to receive tax-deductible contributions under § 170 [including 501(c)(3)
organizations].” Rev. Proc. 2018-32, 2018-23 I.R.B. 739 (2018). The IRS previously issued a paper version of the
publication compiling information on these organizations, but in 2011, made the information available electronically
through databases on the IRS website. Rev. Proc. 2011-33, 2011-25 I.R.B. 887 (2011). In May of 2018, the IRS
expanded the capabilities of its databases, including the development of the “Tax Exempt Organization Search”—the
database identified by NIF that allows the public to search for a tax-exempt organization and access its Form 990s. Rev.
Proc. 2018-32, 2018-23 I.R.B. 739 (2018); see also Murphy Decl. Exs. B1 and B3.
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 20 of 38
request, receive or view documents or information in the possession of public officials or public
agencies[.]” When viewing the plain language of the NYFCA in conjunction with the federal
provisions requiring disclosure of the Form 990s, this conclusion is inescapable. Thus, the public
disclosure bar does not apply to the Form 990s accessed through the IRS’s website, and NIF’s
argument fails. At summary judgment, NIF may be able to provide additional evidence as to why
the Forms 990s accessible through the IRS’s website should be considered publicly disclosed within
the meaning of the NYFCA. However, the Court does not reach that conclusion now with the
information before it.
ii. The “News Media” Provision of the NYFCA’s Public
The primary dispute between the parties as to the NYFCA’s public disclosure bar is whether
the information in the Amended Complaint was previously disclosed by the “news media.” The
Court has determined that it was not, except for four articles that do not reveal NIF’s alleged fraud.
Although the NYFCA largely tracks the language of the Federal FCA, there is a notable
difference between the two statutes that is relevant to this dispute. 9 After the NYFCA was passed in
2007, some New York State legislators were concerned that “many of the terms of the False Claims
Act [were] misinterpreted by federal courts—including the Supreme Court—to create loopholes that
make it harder for law enforcement and whistleblowers to fight fraud.” Eric T. Schneiderman,
Senator Eric. T. Schneiderman Shepherds Historic Anti-Fraud Taxpayer Protection Measure Through Legislature,
Another significant difference between the Federal FCA and NYFCA—though not pertinent to this motion—is that
the Federal FCA contains a provision known as the “tax bar.” The tax bar provides that the Federal FCA “does not
apply to claims, records, or statements made under the Internal Revenue Code of 1986.” 31 U.S.C. § 3729(d); see also
U.S. ex rel. Lissack v. Sakura Glob. Capital Markets, Inc., 377 F.3d 145, 152–53 (2d Cir. 2004) (holding that the tax bar also
prohibits cases “where the falsity of the underlying claim depends on a violation of the Tax Code”). Instead, the
discretion to prosecute federal tax violations is reserved for the IRS, which has its own whistleblower program. See 26
U.S.C. § 7623; see also Lissack, 377 F.3d at 156 (2d Cir. 2004) (“the evident purpose of the Tax Bar . . . is to prevent
private litigants from interfering with the IRS’s efforts to enforce the tax laws.”). The NYFCA, however, applies to
“claims, records, or statements made under the tax law” provided that the suit satisfies certain conditions, including a
threshold amount for damages pleaded. See N.Y. State Fin. Law § 189(4)(a)–(b). The existence of the Federal FCA’s tax
bar may explain why TZAC has chosen to pursue an NYFCA claim here.
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 21 of 38
N.Y. State Senate (July 1, 2010), https://www.nysenate.gov/newsroom/press-releases/eric-tschneiderman/senator-eric-t-schneiderman-shepherds-historic-anti (last visited January 26, 2021).
President Barack Obama signed the Fraud Enforcement and Recovery Act (“FERA”) in 2009 and
the Patient Protection and Affordable Care Act (“PPACA”) in 2010, amending the Federal FCA and
expanding liability under the statute by encouraging more whistleblower and qui tam actions against
parties who improperly obtained government funds. Also in 2010, former New York State Senator
Eric Schneiderman introduced amendments to the NYFCA. The bill was signed into law on August
13, 2010. Former Senator Schneiderman described the revised statute as a “false claims act on
steroids” that “went even further than [the federal] amendments in cracking down on corrupt
contractors and protecting whistleblowers in significant ways.” Id. Like the federal amendments,
the amendments to the NYFCA also sought to “expand liability for conspiracies to defraud
taxpayers[.]” Id. Here, the relevant amendment to the NYFCA is the change to its public disclosure
bar, clarifying that information is not considered publicly disclosed in the “news media” merely by
virtue of being “posted on the internet or on a computer network[;]” the federal statute is silent on
the subject. Compare N.Y. State Fin. Law § 190(9)(b)(iii), with 31 U.S.C. § 3730(e)(4)(A)(iii).
In its opening brief, NIF argued that the amendment’s clarifying language on the scope of
“news media” “only codifies the view of the federal courts, which have applied the federal public
disclosure bar to a broad range of websites ‘intended to disseminate information’ to an interested
public audience . . . [and that] courts have rejected public disclosure arguments based on obscure
and secluded web postings . . . and—just like the New York statute—have rejected the notion ‘that
anything posted online would automatically constitute a public disclosure[.]” Mem. at 7–8 (citations
omitted). According to NIF, federal courts “have applied the bar to internet publications that share
the function and purpose of traditional news outlets: informing the public on recent events and
previously unknown facts.” Id. at 8. In contrast, TZAC argued that information disseminated on
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 22 of 38
“[a] company’s own website clearly does not constitute [disclosure in the] news media, except when
that company is itself a news organization.” Opp’n at 5.
At the Court’s request, the State briefed its perspective as to the significance of this textual
difference between the state and federal acts. The State informed the Court that it disagreed with
both NIF and TZAC’s positions. The State argued that NIF’s interpretation of the scope of “news
media” was far too broad and requested that the Court not disregard the change in the NYFCA’s
text. See State’s Brief at 4–5 (“This amendment forecloses any argument . . . that would result in all
publicly available online information being deemed to have been publicly disclosed ‘in the news
media.’ And because many federal courts since 2010 have followed the path blazed by Cintas and
Walt Disney World, this amendment makes clear that the federal precedents that have adopted those
arguments are not persuasive authority regarding the meaning of the NYFCA.” (footnote omitted)).
However, the State also disagreed with TZAC’s position, finding that its interpretation was too
narrow, and placed “unwarranted emphasis on an online source’s subjective self-description.” Id. at
Because the statute itself does not define what “news media” is, and only provides guidance
on what it is not, the Court will analyze the language under the plain meaning of the term. “[The]
starting point in statutory interpretation is the statute’s plain meaning, if it has one.” United States v.
Jones, 965 F.3d 190, 194 (2d Cir. 2020) (quoting United States v. Dauray, 215 F.3d 257, 260 (2d Cir.
2000)). “If the meaning is plain, the inquiry ends there.” United States v. Rowland, 826 F.3d 100, 108
(2d Cir. 2016). “If, however, the terms are ambiguous or unclear, [the Court] may consider legislative
history and other tools of statutory interpretation.” Nwozuzu v. Holder, 726 F.3d 323, 327 (2d Cir.
2013). Indeed, the State has suggested that the Court “focus on whether the source of the
disclosure is ‘news media’ within the plain meaning of that term, and should look for
guidance to the federal cases that most faithfully attempt to determine and apply the plain
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 23 of 38
meaning of ‘news media.’” State’s Brief at 1.
In response to the State’s Brief, NIF argues that its interpretation of “news media” is
consistent with the plain meaning of the term, and that both the State’s and its own interpretations
reject the conclusion that anything posted on the internet should be considered “news media.”
NIF’s Resp. at 1, 3. But, according to NIF, the Internet has advanced the “proliferation of
nontraditional news outlets,” such as “social media platforms like Twitter and Facebook.” Id. at 4.
NIF argues that, therefore, NIF’s and the grantees’ websites and social media accounts should
similarly be considered “news media” because they were published by organizations “engaged in
advocacy on political and social issues discussing their own and each other’s involvement with those
issues.” Id. at 6. And, according to NIF, the newspapers, magazine, and the watchdog organizations
it cited would easily meet the definition of “news media” because they have the typical
characteristics of the traditional press. Id.
Merriam-Webster defines news as “a report of recent events,” “previously unknown
information,” “something having a specified influence or effect,” “material reported in a newspaper
or news periodical or on a newscast,” “matter that is newsworthy,” or a newscast. See News,
Merriam-Webster Online Dictionary, https://www.merriam-webster.com/dictionary/news (last
visited January 26, 2021). As relevant here, Merriam-Webster defines media as “mass media” or “a
medium of cultivation, conveyance, or expression” and defines mass media as “[media] of
communication (such as newspapers, radio, or television) that is designed to reach the mass of the
people[.]” See Media, Merriam-Webster Online Dictionary, https://www.merriamwebster.com/dictionary/media (last visited January 26, 2021); Mass Medium, Merriam-Webster
Online Dictionary, https://www.merriam-webster.com/dictionary/mass%20media (last visited
January 26, 2021).
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 24 of 38
The Court has searched for applicable Second Circuit or state law precedent on the meaning
of the term “news media” in the context of the NYFCA and found none. 10 Given the intentional
divergence between the statutory texts of the Federal FCA and the NYFCA after its 2010
amendment, it would not be appropriate to look to cases interpreting the Federal FCA’s broader
“news media” provision. However, the State has also asked the Court to consider the analysis in
United States ex rel. Integra Med Analytics LLC v. Providence Health & Services (“Integra”), a Central
District of California case, for guidance in interpreting the plain meaning of this term. See No. CV
17-1694 PSG, 2019 WL 3282619 (C.D. Cal. July 16, 2019), motion to certify appeal granted, 2019 WL
6973547 (C.D. Cal. Oct. 8, 2019) (citations and quotations omitted).
The Integra court identified five factors that serve as “useful guideposts in determining
whether information from an online source has been disclosed ‘from the news media.’” Id. at
*14–15. Those five factors are: (1) “the extent to which the information typically conveyed by a
source would be considered newsworthy”; (2) the extent to which there is “editorial independence,
or at least some separation, between the original source of information and the medium that
conveys it”; (3) the extent to which the source intends “to disseminate information widely, as
opposed to only to a few individuals”; (4) the extent to which the source “functions like [a]
traditional news outlet[ ]” (i.e., a newspaper, radio, or television station); and (5) the extent to which
However, as the State points out, New York law defines “news media” in other contexts: under New York Judiciary
Law § 218, “news media” is defined as
any news reporting or news gathering agency and any employee or agent associated with such agency,
including television, radio, radio and television networks, news services, newspapers, magazines, trade
papers, in-house publications, professional journals or any other news reporting or news gathering
agency, the function of which is to inform the public, or some segment thereof.
N.Y. Jud. Law § 218(2)(c). And the New York Civil Rights Law has “[s]pecial provisions relating to persons employed
by, or connected with, news media” and under Section 79-h, specifically defines newspapers, magazines, news agencies,
press associations, wires services, professional journalists, and newscasters. N.Y. Civ. Rights Law § 79-h.
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 25 of 38
the source “could reasonably be described as ‘news media’ as at least some people would that term
in everyday speech” which is “the most important consideration.” Id.
Some of these factors involve a deeper dive into the facts than others. For example, for the
second factor—the extent to which there is “editorial independence, or at least some separation,
between the original source of information and the medium that conveys it”—the Integra court
looked to “the sense in which a news media entity is ordinarily viewed as one that collects
information from outside sources, exercises some editorial judgment in deciding what to publish,
and then transmits the published information to an audience—put more simply, it curates
information—in contrast to an entity that simply publishes information about itself.” Id. at *14.
The Integra court described the fourth factor as examining “the extent to which the conveyance of
newsworthy information is the primary purpose of [the] entity publishing the online source or
whether the dissemination of such information is merely ancillary to some other purpose.” Id. at
*15. “None [of] these factors on their own are necessarily dispositive of whether an online source
should be considered news media, and other factors may be relevant in a given case.” Id.
This approach is consistent with Merriam-Webster’s definitions of the words “news” and
“media” and in the absence of governing law, the Court agrees that the careful analysis and fivefactor test provided by the Integra court is a reasonable place to start its inquiry, and that “[a]
framework like that set forth in Integra provides sufficient flexibility to capture the wide variety of
‘news media’ sources available online, while still remaining tethered to the text of the NYFCA.”
State’s Brief at 7.
1. Application to NIF’s Exhibits
For clarity, the Court will analyze whether NIF’s exhibits come from “news media” by
source type. First, the Court will turn to the information published by the “watchdog
organizations,” NGO Monitor, Charity Navigator, and ProPublica. The “A Exhibits” include NIF’s
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 26 of 38
financial reports, published on NIF’s own website and republished on the website of NGO
Monitor. See Murphy Decl. ¶¶ 3–14. As its “E Exhibits”, NIF has also submitted NGO Monitor’s
summaries of NIF’s Form 990s. See id. ¶¶ 30–41. In the websites submitted by NIF in the “C
Exhibits” and “D Exhibits”, Charity Navigator and ProPublica maintain profiles of NIF and make
available to the public NIF’s Form 990s. See id. ¶¶ 18–29.
In its response to the State’s Brief, NIF argues that watchdog organizations “dedicated to
gathering, analyzing, and broadly distributing news about nonprofits” should be considered “news
media.” 11 NIF’s Resp. at 6. Neither the Amended Complaint nor the websites submitted by NIF
provide enough information for the Court to assess the Integra factors, or NIF’s new argument as to
the purpose of these watchdog organizations. NIF’s statements have raised questions of fact, which
are generally inappropriate for a motion to dismiss. Based on the limited information before it,
namely the Amended Complaint and the exhibits submitted by NIF in support of its motion, it
appears to the Court that the goal of these watchdog organizations is to provide a targeted search
engine for publicly available government filings, by republishing, linking, or summarizing those
filings, which in the Court’s eyes, may be a purpose entirely different from that of a “news media”
source. In any event, the Court cannot make that determination with the evidence before it.
Next, the Court will turn to the information disseminated by NIF and its grantees. The “A
Exhibits”, discussed in part above, also include NIF’s “Financials” page and were published by NIF
This is a narrower approach than the one taken in NIF’s opening brief: that the term “news media” includes public
websites (such as watchdog NGO Monitor) that “inform the public on recent events and previously unknown facts
[and] intend[ ] to give the public an accurate account.” Mem. at 8. That argument advances an overly broad
interpretation of the meaning of “news media” under the NYFCA. The New York legislature’s 2010 amendment to the
NYFCA provides that a source is not “news media” “merely because . . . [it was] posted on the internet or on a
computer network.” N.Y. State Fin. Law § 190(9)(b)(iii). NIF argues that these sites should be viewed as “news media”
because they “inform the public.” NIF proposes a subjective test in which whether a site constitutes “news media”
depends on the intent of its poster—if a poster “intended” to inform the public, the information would then constitute
“news media.” Such a broad construction would render the statutory carveout a nullity—any post on the internet would
constitute “news media” if the poster thought that she was informing the public—and isn’t that arguably nearly all
information posted on the web that is purported to be factual?
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 27 of 38
on its website. The “F Exhibits” are press releases and social media posts by NIF and its grantees. 12
At this juncture, the Court also cannot conclude that the sources of these exhibits are “news media.”
NIF appears to concede that these websites would not be considered “traditional press.” See Mem.
at 9. NIF’s initial argument—“if an organization like NIF or one of its grantees is publishing news
on its website or public social media account, then it is a ‘news organization’ in the eyes of the public
disclosure bar”—is overly broad. Mem. at 9 (emphasis in original) (citation omitted). While this
explanation may be in line with the dictionary definition of “news,” it renders the word “media”
inoperative in the phrase “news media.” Furthermore, there is zero separation between those
sources and their subjects: the exhibits are all reports, articles, and social media posts by NIF itself
and its grantees, publicizing their own views, initiatives, and activities. See Murphy Decl. ¶¶ 41–53.
However, NIF’s new argument that these websites qualify as “news media” based on “their
content, audience, and function” fares no better. NIF’s Resp. at 6. NIF claims the websites and
social media accounts
(1) frequently report on events considered “newsworthy” by the traditional press; (2)
curate information to fit the interests of their audience; (3) disseminate that
information to thousands of interested followers and donors; (4) highlight these events
as part of their primary, civic-focused missions; and (5) could be referred to as part of
the “news media” in everyday speech for all of the reasons just stated.
Id. But as with the watchdog organizations, this argument is not supported by the facts in the
Amended Complaint, nor by the information available on the face of NIF’s exhibits. NIF relies on
its proffers alone to support its conclusion that the Court should consider these sources as falling
within the scope of “news media.” The Court is not willing to accept NIF’s statements at face value
and determines that a full assessment under the Integra factors should be conducted when the
relevant evidence is before the Court.
Two of NIF’s “F” exhibits are not in English. See Murphy Decl. ¶¶ 45, 50; Murphy Decl. Exs. F4 and F9, Dkt. Nos.
38-43, 38-48. NIF has not provided the Court with certified translations of these websites. Therefore, the Court
declines to consider them at this time.
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 28 of 38
The information contained in the “G Exhibits”, the only documents clearly from traditional
news sources, can be considered publicly disclosed by “news media,” and TZAC does not appear to
dispute this point. The “G Exhibits” are articles published in the newspapers Haaretz and The
Jerusalem Post, and the magazine, +972. However, the Court must assess whether “substantially the
same allegations or transactions as alleged in the action” were disclosed by these sources. N.Y. State
Fin. Law § 190(9)(b). With only the information contained in the “G Exhibits”, the Court does not
expect that the government could have been set “squarely upon the trail of an alleged fraud” by
combining the publicly available information. AECOM, 454 F. Supp. 3d at 262.
Exhibit G1 is an article in the Israeli newspaper Haaretz, dated March 7, 2019. In the article,
New Israel Fund CEO Daniel Sokatch is quoted as saying
Israel’s Supreme Court banned Kahanists from the Knesset in the 1980s and they are
still designated as terrorist groups in the United States and other countries . . . There
is no question that Kahanists do not belong in the Knesset . . . The fact that [Otzma
Yehudit is] being courted, embraced, and empowered by right-wing parties and leaders
is a travesty for Israeli democracy. It certainly illuminates the fact that these leaders,
especially the Prime Minister [Benjamin Netanyahu] who orchestrated the Kahanists’
comeback, do not share core values with most Israelis, and certainly not with the
American Jewish community.
Murphy Decl. Ex. G1 ECF pp. 2–3, Dkt. No. 38-52 (alteration in original). Viewed in the light most
favorable to TZAC, these statements could be viewed as electioneering. However, these statements
were made in 2019, and NIF made its allegedly false certifications in 2008–2017. Mr. Sokatch’s 2019
statements could not have been the basis for the allegedly fraudulent statements made in prior years.
Exhibit G2 is an article in The Jerusalem Post, published on February 18, 2015, that discussed
NIF grantee Adalah’s advocacy efforts in a legal proceeding regarding the Central Elections
Committee’s disqualification of Haneen Zoabi, a candidate for political office. Murphy Decl. Ex.
G2 ECF p. 3, Dkt. No. 38-53. This exhibit did not publicly disclose the alleged fraud, as Adalah’s
connection to NIF is not mentioned anywhere in the article.
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 29 of 38
The Court has viewed the articles submitted as Exhibits G3 and G4 together, as Exhibit G3
references the CPS, the grantee that is the subject of Exhibit G4. Exhibit G3 is an article published
by Haaretz, on September 18, 2014, about NIF’s New Initiatives for Democracy Campaign. See
Murphy Decl. Ex. G3, Dkt. No. 38-54. In the article, Mr. Sokatch describes the goals of the
initiative, including “assembl[ing] ‘a progressive infrastructure to put forward a new vision and push
back’ against anti-democratic efforts in Israel[.]” Id. at ECF p. 2. From Mr. Sokatch’s description of
campaign in this article, NIF’s efforts appear to be permissible issue advocacy. See id. (“These are
new constituency-building efforts in communities that we know share significant values and have
common interests, but don’t see themselves as part of that movement. An Israel that is open, that is
egalitarian, that is pluralistic – we think there’s a big base for that in Israel[.]”).
The article also describes NIF’s support of its grantees, who engage in pro-democracy work.
Id. at ECF p. 3. “While NIF’s focus on civil society and human rights has not changed, its funding
strategy is, as it moves away from project support to making larger donations for organizational
support. ‘It is a different strategy, because we are looking for partners that can have a national
impact and both empower existing progressives and build bridges to organizations that are not
progressive, but share some of our values,’ [said NIF’s spokeswoman].” Id. One of the grantees
mentioned by name in that article is the CPS. Id. (“NIF has allocated . . . $200,000 to the Council
for Peace and Security.”). Exhibit G4 is a March 9, 2015 article published by +972 magazine,
describing the “Peace and Security Association’s” efforts to campaign against Benjamin Netanyahu.
NIF claims that the Council for Peace and Security is also known as Peace and Security Association.
Murphy Decl. ¶ 57. As TZAC points out, it is not clear from the articles that these organizations are
one and the same. Opp’n at 7.
The information contained in these Exhibits G3 and G4 are not “substantially the same” as
the allegations in the Amended Complaint. In the Amended Complaint, TZAC asserts that NIF
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 30 of 38
offered its grantees “general grants” and that NIF claimed to monitor the actions of its grantees to
make sure they were not violating any rules, including NIF’s requirement that grantees should not
electioneer. Am. Compl. ¶¶ 31-32. Although Exhibit G3 states that NIF’s funding strategy was
moving away from “project support,” viewed in the light most favorable to TZAC, these articles do
not inform the reader that the CPS’s efforts against Benjamin Netanyahu were funded with NIF
money, as alleged by TZAC, and therefore attributable to NIF. And, this connection is key because,
as explained below, an organization does not necessarily violate its 501(c)(3) obligations by
disbursing funds to non-exempt organizations.
Nor are the “G Exhibits” enough to put the government on the trail of the specific fraud
described by TZAC. The linchpin of TZAC’s claim is the impact of NIF’s Form 990 certifications
on its state and local tax obligations under New York law. These articles do not mention that NIF is
registered as a 501(c)(3) organization. They do not inform the reader that based on this designation,
NIF is exempt from state and local taxes, nor describe what activities NIF is prohibited from
participating in as a 501(c)(3) entity. Thus, the publicly disclosed information does not reveal that
NIF “knowingly ma[de], use[d], or cause[d] to be made or used, a false record or statement material
to an obligation to pay or transmit money or property to the state or a local government.” N.Y.
State Fin. Law § 189(1)(g) (emphasis added).
Based on the facts alleged in the Amended Complaint and the exhibits properly considered
by the Court, it is not apparent that the public disclosure bar prohibits TZAC from pursuing its
claim. Integra, 2019 WL 3282619, at *15 (“The public disclosure bar is an affirmative defense, and an
affirmative defense can only be adjudicated on a motion to dismiss when the allegations in the
complaint or information that the court can take judicial notice of are sufficient to establish the
defense.”); see also Kelly-Brown v. Winfrey, 717 F.3d 295, 308 (2d Cir. 2013) (an affirmative defense may
be “may be adjudicated” on a motion to dismiss “where the facts necessary to establish the defense
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 31 of 38
are evident on the face of the complaint.” (citing McKenna v. Wright, 386 F.3d 432, 436 (2d Cir.
2004)). As with its “government reports” argument, NIF may be able to better support this defense
at summary judgment, but the Court declines to dismiss the Amended Complaint on this basis at
this stage of the case. 13
TZAC Has Pleaded a Plausible Tax Fraud Theory
TZAC has plausibly alleged a tax fraud theory that, accepted as true, gives rise to liability
under the NYFCA because NIF’s 501(c)(3) status is material to the benefit it received from the state.
Specifically, TZAC asserts that NIF defrauded the government because in falsely certifying that it
had not “engage[d] in direct or indirect political campaign activities on behalf of or in opposition to
candidates for public office” on its federal tax forms, it received and maintained its federal taxexempt status under § 501(c)(3), which in turn resulted in NIF receiving an exemption from state
and local taxes. Am. Compl. ¶¶ 4, 9.
“‘Courts confronting the issue of materiality must ask whether the conduct at issue has ‘a
natural tendency to influence, or [is] capable of influencing, the payment or receipt of money or
property.’” New York v. Medimmune, Inc., 342 F. Supp. 544, 556 (S.D.N.Y. 2018) (quoting Universal
Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2002 (2016) (citing in turn, 31 U.S.C.
§ 3729(b)(4)); see N.Y. State Fin. Law § 188(5) (“‘[M]aterial’ means having a natural tendency to
influence, or be[ing] capable of influencing[,] the payment or receipt of money or property.”); see
also id. § 189(1)(g) (imposing liability on a person who “knowingly makes . . . a false record or
statement material to an obligation to pay or transmit money or property to the state or a local
government”). Thus, TZAC must show that NIF’s allegedly false statements on its federal tax
forms have a “natural tendency to influence” its New York tax obligations.
Because the Court has determined that TZAC’s allegations were not publicly disclosed within the meaning of the
NYFCA, the Court need not reach whether TZAC falls within the original source exception to the public disclosure bar.
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 32 of 38
“To substantiate tax exempt status, one must typically point to a specific provision of law
conferring exempt status.” Advisory Op. Petition No. C10031A, No. TSB-A-10(7)C, 2010 WL
2721216, at *2 (N.Y. Comm’r of Tax’n & Fin., June 23, 2010). The relevant New York tax
regulation provides an exemption for:
(6) corporations organized other than for profit which do not have stock or shares or
certificates for stock or for shares and which are operated on a nonprofit basis no part
of the net earnings of which inures to the benefit of any officer, director, or member,
including Not-for-Profit Corporations and Religious Corporations.
tit. 20, § 1-3.4(b)(6). Under Section 1-3.4(b)(6)(i), “a corporation organized other than for profit, as
described in this paragraph, which is exempt from Federal income taxation pursuant to subsection
(a) of section 501 of the Internal Revenue Code, will be presumed to be exempt from tax under
article 9-A.” Id.
NIF argues that it satisfies the requirements to qualify for a tax exemption under Section 13.4(b) notwithstanding its allegedly undeserved 501(c)(3) designation, because it is a nonprofit
organization as defined under Section 1-3.4 (b)(6). Mem. at 11. Therefore, it claims, that any
certification on its federal tax forms, fraudulent or not, would not have affected its state tax-exempt
status. As the basis for this argument, NIF relies on a June 23, 2010 advisory opinion by the New
York Commissioner of Taxation and Finance, which clarified that, while an entity’s 501(c)(3) status
can lead to a presumption of tax-exempt status under state law, it is not a prerequisite. See Mem. at
13 (citing Advisory Op., 2010 WL 2721216, at *2).
In that opinion, the Commissioner of Taxation
and Finance determined that the petitioner, who did not fall under any of the federal tax exemption
provisions of § 501 and had never filed a Form 990, nonetheless “qualif[ied] as exempt from the
[state] corporate franchise tax.” Id. The Commissioner explained that “Regulation 20 NYCRR § 13.4 (b)(6), provides that failure to have a Federal exemption creates only a presumption of
taxability.” Id. “However, this presumption may be rebutted.” Id.
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 33 of 38
If the IRS revoked NIF’s 501(c)(3) status, the plain language of Section 1-3.4 provides that
New York would “ordinarily” follow suit. See tit. 20, § 1-3.4(b)(6)(ii) (“The determination of the
Internal Revenue Service, denying or revoking exemption from Federal taxation under the Internal
Revenue Code, will ordinarily be followed.”). Therefore, even if NIF was otherwise eligible for a
state tax exemption, the revocation of its 501(c)(3) status would still have an impact on its state tax
status because NIF would then have to rebut the presumption that the State should follow the IRS’s
decision. The materiality standard does not require TZAC to plead that NIF’s certification was the
dispositive factor in obtaining its state tax exemption, only that the certifications had the “natural
tendency” to, or were “capable of influencing,” NIF’s state tax obligations. The statutory text
clearly states that it does. If NIF had provided a different response on its Form 990s, that answer
would have had an effect on its ability to obtain and maintain its state tax-exempt status. TZAC has
asserted that NIF would not have obtained its current state tax-exempt status but for its status as a
501(c)(3) entity at the time the State made its determination. Am. Compl. ¶ 22. Whether the State
would have granted NIF an exemption based on some other criteria if the federal tax presumption
was not applicable, is a hypothetical question that the Court will not engage with at this time. At
best, this is an issue of fact, not a question to be resolved on a motion to dismiss. Based on the text
of the New York statute, NIF’s certifications on its Form 990s are indeed material to its New York
tax-exempt status under Section 1-3.4(b)(6). Thus, the Amended Complaint survives this challenge.
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 34 of 38
TZAC Has Adequately Pleaded That NIF Knowingly Submitted False
Certifications Stating That It Did Not Engage in Prohibited Political
TZAC has adequately pleaded that NIF “knowingly ma[d]e, us[ed], or caus[ed] to be made
or used, a false record or statement material to an obligation to pay or transmit money or property
to the state or a local government,” in violation of the NYFCA. See N.Y. State Fin. Law §
189(1)(g)). On NIF’s Form 990s, which are alleged to have been submitted to the State to obtain its
state and local tax exemptions, NIF certified that “it had not ‘engage[d] in direct or indirect political
campaign activities on behalf of or in opposition to candidates for public office’” in prior years.
Am. Compl. ¶¶ 9–20 (alteration in original). This certification tracks the language in § 501(c)(3),
which states that exempt organizations are specifically forbidden from “participat[ing] in, or
interven[ing] in (including the publishing or distributing of statements), any political campaign on
behalf of (or in opposition to) any candidate for public office.” 26 U.S.C. § 501(c)(3). As the basis
for dismissal, NIF argues that TZAC has failed to allege “NIF knew it had engaged in partisan
political activity in violation of § 501(c)(3).” Mem. at 14. NIF additionally asserts that TZAC has
failed to plead an underlying violation of § 501(c)(3)’s restrictions because the Amended Complaint
lacks “any particularized factual basis for attributing the conduct of NIF’s grantees to NIF itself.”
Id. The Court will address each of these arguments below.
To survive dismissal, TZAC is required to plead that NIF knowingly made, used, or caused
to be made or used, false records or statements that were material to its state and local tax
obligations. See N.Y. State Fin. Law § 189(1)(g). The NYFCA defines “knowing and knowingly” to
mean that the person “(i) has actual knowledge of the information; (ii) acts in deliberate ignorance of
Both parties frame the issue as whether TZAC has adequately pleaded a violation of Section 501(c)(3). Because the
parties appear to be in agreement and have submitted briefing under this assumption, the Court accepts their framing.
The Court merely notes that a more accurate description of the issue is whether NIF has knowingly submitted false
statements to the State.
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 35 of 38
the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the
information.” Id. § 188(3)(a). The terms “knowing and “knowingly” “require no proof of specific
intent to defraud, provided, however that acts occurring by mistake or as a result of mere negligence
are not covered by this article.” Id.
First, TZAC alleges that
[d]uring the 2019 Israeli election season NIF helped to gather names for a petition to
disqualify Otzma Yehudit candidate from running for Knesset. NIF sent out the
petition and asked for people to sign. After the candidate—Michael Ben-Ari[—]was
banned by the Supreme Court NIF called it a victory for democracy. This is clearly
electioneering by opposing candidates for public office.
Am. Compl. ¶ 24. 15
The problem with TZAC’s reliance on NIF’s 2019 alleged electioneering activities to support
its claim is a timing issue, one that is apparent on the face of the Amended Complaint. The only
fraudulent statements TZAC has identified are NIF’s certifications on its tax returns for the years
2008–2017. See id. ¶¶ 9–20. NIF’s 2019 activities cannot serve as the basis for TZAC’s assertion
that NIF falsely certified that “it had not ‘engage[d] in direct or indirect political campaign activities
on behalf of or in opposition to candidates for public office’” on its tax forms in prior years. Id. ¶ 9
(alteration in original); see id. ¶¶ 10–20. In alleging that NIF made false certifications on its forms,
TZAC is required to satisfy Rule 9(b)’s requirement that claims alleging fraud “must state with
particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). However, TZAC has failed
to explain why these 2019 actions render NIF’s 2008–2017 certifications fraudulent. See Chorches,
865 F.3d at 81. It is unclear how NIF could have known its certifications on its tax returns were
false based on future conduct.
The fact that the candidate was later disqualified by the Supreme Court because “his anti-Arab ideology and
incitement” violated Israel’s Basic Law on the Knesset is irrelevant to this analysis. Based on the information before the
Court, NIF’s advocacy efforts are alleged to be more than permissible issue advocacy or an opposition of violations of
Israel’s Basic Law. See Mem. at 20. Instead, as alleged, the petition distributed by NIF targeted a specific candidate and
sought to have him disqualified from the race, which is inconsistent with the statement made on NIF’s tax forms.
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 36 of 38
Next, TZAC has alleged that NIF knew its grantees engaged in impermissible electioneering
activities. Liability on this basis heavily relies on the premise that those activities can be attributed to
NIF, rendering NIF’s certifications that it did not “engage[ ] in direct or indirect political campaign
activities on behalf of or in opposition to candidates for public office” false. Am. Compl. ¶¶ 9–20.
“Determining whether an organization engaged in prohibited political activity by ‘participating or
intervening, directly or indirectly, in any political campaign on behalf of or in opposition to any
candidate for public office depends upon all of the facts and circumstances of each case.’” People v.
Trump, 88 N.Y.S.3d 830, 845–46 (Sup. Ct. 2018) (quoting Rev. Rul. 2007-41, 2007-1 C.B. 1421
(2007)). “[A]n organization will not jeopardize its exemption under section 501(c)(3) of the Code,
even though it distributes funds to nonexempt organizations, provided it retains control and
discretion over use of the funds for section 501(c)(3) purposes.” I.R.S. Priv. Ltr. Rul. 201323035
(June 7, 2013) (citing Rev. Rul. 68-489, 1968-2 C.B. 210 (1968)). Exempt organizations are required
to maintain adequate documentation or adequate controls over finances to demonstrate that no
funds are used for non-exempt purposes. See id.; see also Church in Bos. v. Comm’r, 71 T.C. 102, 108
(1978); Rev. Rul. 56-304, 1956-2 C.B. 306 (1956) (providing that records and case histories should
be maintained to show the name and address of each recipient of aid, the amount distributed to
each, the purpose for which the aid was given, the manner in which the recipient was selected, and
the relationship, if any, between the recipient and organization insiders).
Here, while TZAC has not alleged that NIF’s funds were specifically used by its grantees to
engage in the electioneering activities, it has alleged that NIF gives “general grants” to its grantees.
See Am. Compl. ¶¶ 31–32. Accepting this statement as true and viewing it in the light most
favorable to the non-moving party, the Court views this allegation as meaning that NIF’s grantees
were given funds that were not earmarked for a specific non-electioneering purpose, and that the
grantees, not NIF, were given discretion as to how to spend the funds. At the pleading stage, this is
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 37 of 38
sufficient to establish that NIF was reckless in preventing its funds from being spent on the political
activities described on its Form 990s, which were submitted to the State. Furthermore, TZAC has
asserted that NIF imposed its own rule that “grantees shouldn’t electioneer.” Id. ¶ 31. Therefore,
“because these grantees proudly post on their websites what they have been doing and NIF says that
it monitors actions of its grantees to make sure they aren’t violating any rules,” NIF is adequately
pleaded to have known that its funds were being impermissibly spent on political activities, in
violation of its own requirement. Id. ¶¶ 31–32. At the very least, TZAC has adequately alleged that
NIF was reckless in its supervision of its grantees and permitted them to ignore NIF’s own
conditions for funding. Id.
TZAC also points to NIF’s statements describing the NIFD campaign and partnership with
the CPS as further proof that NIF knew it was electioneering. Section 501(c)(3)’s ban on political
campaign intervention includes statements made on the organization’s website. Frequently Asked
Questions About the Ban on Political Campaign Intervention by 501(c)(3) Organizations: Website Postings and
Links, IRS (Dec. 8, 2020), https://www.irs.gov/charities-non-profits/charitableorganizations/frequently-asked-questions-about-the-ban-on-political-campaign-intervention-by501c3-organizations-website-postings-and-links (last visited January 25, 2021). TZAC alleges that
on its website, NIF described the purpose of the campaign as “equip[ping] Israel’s pro-democracy
and progressive forces with the tools to fight Israel’s regressive right-and win” and that
[t]hrough our partnership with the Council for Peace and Security (CPS) . . ., we intend
to redefine the security discourse. By amplifying CPS’ resources and outreach, we can
expand the current narrative, which exploits security issues for the purposes of
defending the occupation. With our assistance increasing organizational resources,
CPS will focus on articulating new and compelling ideas on the immediate and longterm security challenges facing the country and on redefining the security paradigm in
ways consistent with progressive values . . . .
Id. ¶ 33. TZAC further alleges that the CPS received grants from NIF and launched a campaign to
vote Benjamin Netanyahu out of office. Id. ¶¶ 33–34. Based on these facts and read in the light
Case 1:20-cv-02955-GHW Document 48 Filed 02/16/21 Page 38 of 38
most favorable to TZAC, NIF’s highlighting of its relationship with the CPS and their shared goal
of fighting against “Israel’s regressive right” supports TZAC’s allegations that NIF engaged in
impermissible political campaigning against a particular candidate, rendering the certifications it
submitted to the State false; NIF’s actions need not be construed as permissible non-partisan issue
advocacy, because when read in the light most favorable to the non-moving party, it can be viewed
as an endorsement of the CPS’s campaign against a particular candidate and party. 16 Therefore,
TZAC has adequately pleaded a claim under the NYFCA.
For the reasons stated above, NIF’s motion to dismiss is DENIED.
The Clerk of Court is directed to terminate the motion pending at Dkt. No. 37.
Dated: February 15, 2021
GREGORY H. WOODS
United States District Judge
To be clear, the Court is only reaching the limited conclusion that, when reading the facts alleged in the Amended
Complaint in the light most favorable to the plaintiff, TZAC has adequately alleged that NIF engaged in political
activities which contradicted its certifications on its tax forms submitted to the State, and that those certifications
materially impacted its state and local tax obligations because the State relied on them. The Court is not drawing any
conclusions regarding the qualification or continuing qualification of NIF as a 501(c)(3) organization. See 26 U.S.C. §
7428(e) (describing the appropriate fora for challenging classifications by the IRS); see also 26 U.S.C. § 7623(b) (describing
the IRS’s whistleblower program); 26 C.F.R. § 301.7623-1(c).
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