In California, the Fair Political Practice Commission (“FPPC”) is facing off against an Arizona nonprofit, Americans for Responsible Leadership (“ARL”), in a dispute that is quickly making its way through the state court system. The case may ultimately have important implications for donors who give to certain nonprofits that in turn fund political activities. Since Citizens United and the influx of independent spending dollars, much focus has been placed on donor disclosure. In particular, 501(c)(4)s like ARL have increasingly been the target of new or proposed laws or lawsuits requiring donor disclosure when the groups directly or indirectly fund political activities.
Here’s the setting: A few weeks ago, ARL—a 501(c)(4) based in Arizona—made an $11 million contribution to a California PAC called the Small Business Action Committee, which is wrestling with Governor Jerry Brown over a few ballot initiatives. The FPPC wants to audit ARL’s financial records, emails, and other documents so that it can determine whether ARL has violated California registration and reporting laws. Under federal law, ARL wouldn’t have to disclose its donors, but California’s campaign finance laws might require it. Thus far, ARL has refused to hand over any documents, prompting the FPPC to go to court.
There appear to be two legal points of dispute at this point. The first is whether the FPPC can conduct an audit before the election has even occurred. The second is whether ARL has a right, either under the Constitution or California law, not to disclose its donors. Earlier this week, a state trial court ruled that ARL must turn over the requested documents—a ruling that ARL has now appealed. The FPPC would like to conduct an audit prior to the election and require disclosure if appropriate, but of course election day is fast approaching.
We’ll continue to follow developments in this case. More generally, we expect to see continued efforts by state election agencies and state attorneys general to peel back the veil and to identify and disclose donors to 501(c)(4) organizations that conduct election related activities in their states. This is an important new trend that we are following closely for clients.