Citizens United v. Schneiderman

• Decision Date: 15 February 2018
• Docket Number: Docket No. 16-3310,August Term, 2017
• Citation: 882 F.3d 374
• Parties: CITIZENS UNITED and Citizens United Foundation, Plaintiffs–Appellants, v. Eric T. SCHNEIDERMAN, in his official capacity as New York Attorney General, Defendant–Appellee.
• Court: U.S. Court of Appeals — Second Circuit

882 F.3d 374

CITIZENS UNITED and Citizens United Foundation, Plaintiffs–Appellants,

v.Eric T. SCHNEIDERMAN, in his official capacity as New York Attorney General, Defendant–Appellee.

Docket No. 16-3310

August Term, 2017

United States Court of Appeals, Second Circuit.

Argued: August 21, 2017

Decided: February 15, 2018

MICHAEL BOOS, Citizens United & Citizens United Foundation, Fairfax, VA, for Plaintiffs–Appellants Citizens United & Citizens United Foundation.

Donald F. McGahn, James Burnham, Andrew Bentz, Jones Day, Washington, DC (on the brief ), for Plaintiffs–Appellants Citizens United & Citizens United Foundation.

BARBARA D. UNDERWOOD, Solicitor General of New York (Steven C. Wu, Deputy Solicitor General, Matthew W. Grieco, Assistant Solicitor General, on the brief ), New York, N.Y., for Defendant–Appellee Eric T. Schneiderman, Attorney General of the State of New York

Derek L. Shaffer, William A. Burck, Quinn Emanuel Urquhart & Sullivan, LLP, Washington, D.C., for amicus curiae in support of Plaintiffs–Appellants Citizens United & Citizens United Foundation.

William J. Olson, Herbert W. Titus, John S. Miles, Jeremiah L. Morgan, Robert J. Olson, William J. Olson, P.C., Vienna, VA, Joseph W. Miller, U.S. Justice Foundation, Ramona, CA, and Mark J. Fitzgibbons, Manassas, VA, for amici curiae in support of Plaintiffs–Appellants Citizens United & Citizens United Foundation.

Paul M. Smith, The Campaign Legal Center, Washington, D.C., amicus curiae in support of Defendant–Appellee Eric T. Schneiderman, Attorney General of the State of New York

Before: NEWMAN, LEVAL, and POOLER, Circuit Judges.

POOLER, Circuit Judge:

Plaintiffs–Appellants Citizens United and Citizens United Foundation ("Appellants") sue Attorney General Eric Schneiderman for the regulations promulgated by his office that require non-profit organizations to disclose their donors on a yearly basis. Appellants primary claim is that these regulations violate the First Amendment. They argue that the regulations do so in two ways: by creating a climate of fear among donors that limits their ability to raise the funds to promote controversial causes and by operating as a prior restraint on their ability to ask for money. Appellants also argue that these regulations are preempted by the Internal Revenue Code's disclosure rules and that the Attorney General went beyond his authority by including 501(c)(4) organizations in the regulations' definition of "charitable organization." In recent years, the Attorney General has begun to more zealously enforce the regulations. Appellants urge that having done so without prior notice amounts to a violation of the Due Process Clause of the Fourteenth Amendment. The District Court for the Southern District of New York (Sidney H. Stein, J. ) dismissed all of these claims for failure to state a claim except the last, which it dismissed as unripe. We find that the due process claim was ripe, and that all claims should be dismissed for failure to state a claim. We therefore affirm the dismissal of all claims except the due process claim, reverse the dismissal without prejudice of that claim, order that claim to be dismissed with prejudice, and remand for entry of a revised judgment.

BACKGROUND

Appellants are two non-profit organizations with nearly identical names that promote a common perspective through complementary organizational channels. Citizens United Foundation is exempted from taxation under Section 501(c)(3) of the Internal Revenue Code ("IRC"), while Citizens United simpliciter is exempted under Section 501(c)(4). 26 U.S.C. §§ 501(c)(3), (c)(4). Under the IRC, donors to 501(c)(3)s¹ like Citizens United can deduct their contributions, but their money cannot pay for an organization a "substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation" or which "participate[s] in, or intervene[s] in...any political campaign on behalf of (or in opposition to) any candidate for public office." 26 U.S.C. §§ 170(a), (c)(2), 501(c)(3). Citizens United Foundation and other 501(c)(4)s have more leeway to enter the political arena, but their donors cannot take the charitable donation deduction (though they can deduct donations as business expenses if applicable). 26 U.S.C. § 501(c)(4) ; "Donations to Section 501(c)(4) Organizations," IRS.gov (Aug 27, 2017), https://www.irs.gov/charities-non-profits/other-non-profits/donations-to-section-501c4-organizations.

Citizens United Foundation "produces educational films that document world leaders and events," including documentaries on Ronald Reagan and Pope John Paul II. Appellant's Br. at 5–6. Citizens United also produces films, but its productions include content that would run afoul of Section 501(c)(3)'s proscription on political advocacy. One of these films, "Hillary: the Movie," caused the controversy that led to the highly-publicized recent Supreme Court decision striking down a number of campaign finance laws on First Amendment grounds. Citizens United v. Federal Election Commission , 558 U.S. 310, 130 S.Ct. 876, 175 L.Ed.2d 753 (2010) (" Citizens United v. FEC ").

It is not the regulation of how Appellants spend their money but of how they obtain it that concerns us here. The IRC requires both 501(c)(3)s and 501(c)(4)s—that is, both Citizens United and Citizens United Foundation—to yearly apprise the Internal Revenue Service ("IRS") of their donors. More specifically, non-profits like Appellants must submit Form 990 with each year's taxes, and Form 990 includes Schedule B, which consists of a list of the organization's donors, the donors' addresses, and the amounts of their donations. 26 U.S.C. § 6104(d)(3)(A). Under the IRC, the IRS must keep the information on Schedule B confidential. Id.

Appellants, moreover, are subject to New York's regulations on non-profits. Although domiciled in Virginia, they seek contributions from supporters all over the United States, including New York. The laws of New York require any "charitable organization" to register with the Attorney General before permitting such organizations to ask for money in its confines. N.Y. Exec. Law §§ 172(1), 172-d(10). Under the Attorney General's regulations, Appellants both qualify as "charitable organizations." 13 N.Y.C.R.R. §§ 90.1(a), 90.2 ; see also N.Y. Exec. Law § 177(1) (giving the Attorney General power to "make rules and regulations necessary for the administration" of New York's non-profit laws).

To remain in good standing, a charitable organization seeking the money of like-minded New Yorkers must, after registration, submit a set of yearly disclosures. N.Y. Exec. Law § 172-b. The Attorney General's regulations have long required that a charitable organization's annual disclosures include a copy of the IRS Form 990 and all of its schedules. 13 N.Y.C.R.R. § 91.5(C)(3)(1)(a).² His regulations also require those annual disclosures to be public unless they are "exempt from disclosure pursuant to State or Federal law," 13 N.Y.C.R.R. § 96.2, as Schedules B are. 26 U.S.C. § 6104(d)(3)(A).

Both Appellants registered with the Attorney General in 1995 and have submitted disclosures every year since then. They have always included IRS Forms 990 in their disclosures, but they have only ever submitted the first page of their Schedules B—omitting the parts identifying donors. Prior to 2013, they had heard no complaint from the Attorney General about this practice.

In 2013, Attorney General Schneiderman served deficiency notices on Appellants notifying them that they had failed to comply with the yearly disclosure requirements. Even after being warned of the potential consequences, Appellants have refused to submit more than the first page of their Schedules B. They have received a deficiency notice each year since 2013. Matters have not escalated beyond that point, but the Attorney General could shift at any time from stern reminders to levying fines of $100 a day and eventually revocation of Appellants' New York solicitation privileges. See N.Y. Exec. Law § 177(2).

In 2014, Appellants endeavored to avoid this potential consequence by filing suit in the Southern District of New York challenging the Attorney General's requirements. Their complaint pointed to multiple purported faults. By requiring disclosure before allowing them to ask for money, Appellants argued, New York created an unconstitutional prior restraint on their speech—effectively setting up a proto-censorship office for those who need New Yorkers' money to get their message out. Moreover, Appellants claimed that by collecting lists of names associated with political preferences that he could release at any time, the Attorney General holds the unconstitutional power to intimidate donors from paying for the communication of their views. Appellants also alleged that it was beyond the Attorney General's powers under New York law to classify 501(c)(4)s as "charitable organizations" and that, on preemption grounds, it was beyond his powers to duplicate the federal government's disclosure requirements. Finally, Appellants asserted that the unannounced elevation of enforcement was a due process violation.

After denying a preliminary injunction and giving Appellants leave to amend, the district court granted the Attorney General's motion to dismiss the entire complaint. In doing so, it found that the complaint failed to state any First Amendment, preemption, or New York constitutional violations and that the due process claim was not ripe for review. The Court therefore dismissed the due process claim sua sponte for lack of subject matter jurisdiction. Judgment was entered August 29, 2016. Citizens United v. Schneiderman , 203 F.Supp.3d 397 (S.D.N.Y. 2016).

Appellants timely appealed the district court's judgment, challenging all of these determinations.

DISCUSSION

I. Standard of Review

We review appeals from motions to dismiss under Rule 12(b)(6) (failure to state a claim) de novo. See , e.g. , Harris v. Mills , ...