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Citizens United v. Schneiderman

United States District Court, S.D. New York

July 27, 2015

CITIZENS UNITED and CITIZENS UNITED FOUNDATION, Plaintiffs,
v.
ERIC SCHNEIDERMAN, in his official capacity as New York Attorney General, Defendant

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[Copyrighted Material Omitted]

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For Citizens United, Citizens United Foundation, Plaintiffs: Donald F McGahn, II, LEAD ATTORNEY, PRO HAC VICE, Jones Day, Washington, DC; Ian Samuel, Jones Day (NYC), New York , NY; Michael Boos, Citizens United, Washington, DC; Todd R. Geremia, Jones Day (NYC), New York , NY.

For Eric Schneiderman, in his official capacity as New York Attorney General, Defendant: Katherine Brady Dirks, LEAD ATTORNEY, Attorney General of the State of New York, New York, NY; Linda Fang, LEAD ATTORNEY, State of New York, Office of the Attorney General, New York, NY.

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OPINION & ORDER

Sidney H. Stein, United States District Judge.

Plaintiffs Citizens United and Citizens United Foundation seek to preliminarily enjoin the New York Attorney General from enforcing his policy of requiring registered charities to disclose the names, addresses, and total contributions of their major donors in order to solicit funds in the state. Plaintiffs contend principally that the policy impermissibly trenches upon their First Amendment rights of freedom of speech and association. They also allege that the policy was adopted in violation of the State Administrative Procedure Act; that it is preempted by federal law; and that the Attorney General's enforcement of the policy violates their due process rights. Because the Court finds that plaintiffs are not likely to succeed on the merits of any of their claims, their motion for a preliminary injunction is denied.

I. Background

Citizens United and Citizens United Foundation (collectively, " Citizens United" or " plaintiffs" ) are nonstock, nonprofit corporations that state they advocate for " limited

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government, free enterprise, strong families, and national sovereignty and security." (Compl. ¶ ¶ 9-10.) Citizens United is organized under 26 U.S.C. § 501(c)(4), while Citizens United Foundation is a section 501(c)(3) organization. (Compl. ¶ ¶ 9-10.) Plaintiffs promote their agenda through television commercials, web advertisements, and documentary films, and raise money for these and other projects primarily by soliciting donations from like-minded individuals. ( Id. ¶ ¶ 17-19.)

The New York Attorney General, through his Charities Bureau, is responsible for supervising more than 65,000 charitable organizations that are registered in New York state. (Decl. of Karin Kunstler Goldman dated July 23, 2014 (" Goldman Decl." ) ¶ ¶ 3-4.) The Charities Bureau oversees the registration of charitable organizations, investigates donor and consumer complaints, ensures that funds and property held for charitable purposes are properly used, and prosecutes violations of New York's charitable registration and solicitation laws. ( Id. ¶ 3.)

To maintain their tax-exempt and charitable organization statuses, plaintiffs must comply with a number of registration and reporting requirements. Pursuant to federal rules, plaintiffs annually file Form 990 and its accompanying schedules with the Internal Revenue Service (" IRS" ). (Compl. ¶ 25.) Schedule B to IRS Form 990, which is at the heart of this litigation, directs organizations to report the name, address, and total contribution of any donor who contributed $5,000 or more in cash or property to the organization during the past year. ( See Ex. B. to Goldman Decl. at 1.) Pursuant to federal law, the IRS does not make Schedule B to IRS Form 990 available to the public. See generally 26 U.S.C. § 6103; (Compl. ¶ 25).

In order to solicit donations in New York, all charitable organizations that are not otherwise exempt--including plaintiffs--must first file a registration form with the Attorney General's Charities Bureau, as required by Article 7-A of the Executive Law. N.Y. Exec. Law § 172(1); 13 NYCRR § 91.4. Each year thereafter, charities must file an annual report form known as CHAR500. N.Y. Exec. Law § 172-b(1); 13 NYCRR § 91.5; (Compl. § 26). In 2006, the Attorney General promulgated a regulation, 13 NYCRR § 91.5, which directs charities to attach " a copy of the complete IRS Form 990, 990-EZ or 990-PF with schedules" to their annual reports. 13 NYCRR § 91.5(c)(3)(i)(a); (Goldman Decl. ¶ 8). The Attorney General interprets section 91.5 to mean that charities that file a copy of IRS Form 990 must also submit that form's Schedule B. (Compl. ¶ 1; see Goldman Decl. ¶ ¶ 8-12.) In other words, section 91.5 serves as the Attorney General's source of legal authority for requiring registered charities to disclose the names, addresses, and total contributions of their major donors, which the Court will refer to as the Attorney General's " Schedule B policy."

Plaintiffs, which first registered as charities in New York in 1995, have never filed copies of their Schedules B with the Attorney General. (Compl. ¶ ¶ 29, 31.) In 2012, the Charities Bureau conducted a review of its operations and determined that certain organizations were not filing Schedule B along with their annual reports. (Goldman Decl. ¶ 17.) The Attorney General states that he then " implemented an across-the-board initiative to identify and notify registered organizations of their filing deficiencies with respect to Schedule B." ( Id. ¶ 18.) In April 2013, the Attorney General notified plaintiffs that their annual reports for tax year 2011 were incomplete due to the absence of Schedule B. ( Id. ¶ 21.)

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Plaintiffs now move for a preliminary injunction prohibiting the Attorney General from enforcing the Schedule B policy against them. They allege that the policy is illegal for four reasons. First, plaintiffs contend that the policy violates their First Amendment rights of freedom of speech and association. They identify two distinct grounds for their First Amendment challenge: (1) that the Attorney General's interests in enforcing the Schedule B policy do not justify the burdens it places on charities' rights of speech and association (the " unconstitutional burden" argument), and (2) that Article 7-A of the Executive Law is an unlawful prior restraint on speech because it confers unbridled discretion on the Attorney General to impose unlimited conditions on charities' ability to speak (the " prior restraint" argument).

Second, plaintiffs argue that the Attorney General's enforcement of the Schedule B policy violates due process. Plaintiffs allege that the Attorney General initially read section 91.5 as not requiring registered charities to submit Schedule B, but then reversed his interpretation without providing notice of his reversal or an opportunity for public comment. Plaintiffs claim that this " abrupt change" violates due process because they lacked fair notice that they were required to file Schedule B in order to solicit donations in New York. (Pls.' Mem. of Law in Supp. of Mot. for Prelim. Inj. (" Pls.' Mem." ) at 13; see also Pls.' Reply Mem. of Law (" Pls.' Reply" ) at 8.)

Third, plaintiffs contend that the Attorney General adopted the Schedule B policy in contravention of the New York State Administrative Procedure Act (" SAPA" ). Because on plaintiffs' reading the plain text of section 91.5 does not require charities to submit Schedule B with their annual reports, they argue that the Attorney General was obligated to comply with SAPA's formal rulemaking procedures before reaching the opposite conclusion.

Fourth, plaintiffs argue that the Schedule B policy is preempted by federal law, which sets out a mechanism for states to request Schedules B from the IRS and also ensures the confidentiality of donor information. Plaintiffs assert that the Attorney General's policy of obtaining Schedules B directly from charities, rather than requesting them from the IRS, conflicts with these federal statutory provisions.

II. Discussion

A. Preliminary Injunction Standard

A preliminary injunction is " an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief." Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 22, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). To succeed on its motion for a preliminary injunction, Citizens United must " establish that [it] is likely to succeed on the merits, that [it] is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in [its] favor, and that an injunction is in the public interest." N.Y. Progress & Prot. PAC v. Walsh, 733 F.3d 483, 486 (2d Cir. 2013) (quoting Winter, 555 U.S. at 20).[1]

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B. Likelihood of Success on the Merits

1. First Amendment

Citizens United has not made the requisite " clear showing," Winter, 555 U.S. at 22, that it is likely to succeed on the merits of either of its First Amendment claims on the record adduced to date in this litigation.

a. Unconstitutional Burden

i. Legal Standard

Charitable solicitation most certainly qualifies for First Amendment protection. See, e.g., Vill. of Schaumburg v. Citizens for a Better Envt., 444 U.S. 620, 632-33, 100 S.Ct. 826, 63 L.Ed.2d 73 (1980). Because the Schedule B policy is a disclosure requirement, it must satisfy exacting scrutiny. See Ctr. for Competitive Politics v. Harris, 784 F.3d 1307, 1312 (9th Cir. 2015) (holding that exacting scrutiny governed a First Amendment challenge to California's requirement that registered charities file Schedule B with the state). Exacting scrutiny requires the government to demonstrate " a substantial relation between the disclosure requirement and a sufficiently important governmental interest." Citizens United v. Fed. Election Comm'n, 558 U.S. 310, 366-67, 130 S.Ct. 876, 175 L.Ed.2d 753 (2010) (internal quotation marks and citation omitted); see also John Doe No. 1 v. Reed, 561 U.S. 186, 196, 130 S.Ct. 2811, 177 L.Ed.2d 493 (2010); Ctr. for Competitive Politics, 784 F.3d at 1312. " Exacting scrutiny encompasses a balancing test." C ...


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