Developments in Association Law 2021 – 2022

The trial court held that the petitioners failed to “show fraud or wrongdoing in the election they seek to invalidate.” While the petitioners argued that the election violated their organization’s bylaws, the court dismissed this argument because the petitioners failed to submit the bylaws in a “properly authenticated form.” The burden of proving the existence, terms, and validity of a contract solely rests on the party seeking to enforce it, and the petitioners’ purported bylaws document was “unsigned, undated, and unpaginated, contain[ed] typos and other irregularities, and b[ore] no indication of being a formal corporate document or any other indicia of reliability.” Although the petitioners submitted affidavits attesting to the bylaws’ validity, the court held that these affidavits were conclusory. Additionally, the respondents submitted a competing version of the bylaws. The court found this was enough to not accept the conclusory affidavits submitted by the petitioners.

Gould v. Jewish Nat'l Fund (Keren Kayemeth Leisrael), Inc., 197 A.D.3d 1067, 154 N.Y.S.3d 58 (2021)
The petitioner was elected the president-elect of the respondent nonprofit Jewish National Fund. However, due to a scandal surrounding the surfacing of the petitioner’s personal internet postings, the petitioner resigned as President-Elect and failed to attend the annual meeting where the nonprofit declined to seat the petitioner as president of the nonprofit at the end of the term of the then-president, and instead reelected the incumbent president to a second term. The petitioner alleged that he resigned due to fear that personal information about him would become more public if he did not resign and brought an action against the nonprofit, alleging that the organization illegally declined to seat the petitioner as president. The Supreme Court of New York County granted the nonprofit’s motion to dismiss, and the petitioner appealed.

The Supreme Court of New York, Appellate Division, upheld the lower court’s decision and held that the nonprofit’s decision not to seat the petitioner did not violate the nonprofit’s bylaws, the New York Not-for-Profit Corporation Law, petitioner’s due process rights, or principles of equity, and did not amount to negligent or fraudulent misrepresentation or discrimination under state civil rights law.

Fiduciary Duty

Walker v. Women’s Prof’l Rodeo Ass’n, 498 P.3d 648 (Colo. 2021)
Members of the Women’s Professional Rodeo Association brought action against the Association and its CEO for breach of fiduciary duty, breach of contract, declaratory judgment, injunctive relief, and judicial dissolution of the association. The plaintiffs were aggrieved based on the Association’s calculation of prize money for their first and second place finishes in a barrel racing contest conducting at a rodeo, following temporary closure of the rodeo arena due to heavy rains. The Association had adopted rules governing the amount of payout to contestants when races at an event were cancelled. The plaintiffs disagreed with the Association’s interpretation of those rules and filed an appeal with the Association Board, which denied their appeal. The plaintiffs alleged that, because the Board did not allow them to call witnesses, record the proceedings, or bring a court reporter, they were denied a meaningful appeal.

The District Court, El Paso County, granted the association’s motions to dismiss for failure to state a claim and awarded attorney fees. The plaintiffs appealed the court’s decision.

The Colorado Court of Appeals addressed the question of whether, under Colorado law, members of a nonprofit corporation may obtain a legal remedy against the association’s board of directors when the board allegedly violated the association’s rules to the members’ detriment. The appeals court applied the business judgment rule and held that it would not interfere with the board’s decisions, as the members failed to allege “fraud, arbitrariness, or bad faith.” Further, the court held that the members’ claim based on the board’s failure to maintain records of the appeal was not a plausible claim for judicial dissolution of the Association. The court found that “even if the board of directors … owed fiduciary duties to [members], and even if the board’s failure to maintain adequate records could constitute a breach of fiduciary duty, a simple allegation of breach of fiduciary duty is not enough to dissolve a corporation that is not closely held.” The members did not “cite any legal authority in support of their argument that the board of a membership association owes its members the same heightened duties as the majority shareholders of a closely held corporation owe to the minority shareholders.” The judgment of the lower court was therefore affirmed.

Am. Stud. Ass’n v. Bronner, 259 A.3d 728 (D.C. 2021)
After a nonprofit research organization, the American Studies Association (ASA), adopted a resolution endorsing the boycott of Israeli academic institutions, current and former members of the association filed a lawsuit against the association and several of its officers, directors, and other members. The lawsuit asserted claims for breach of fiduciary duty, breach of contract, tortious interference with contract, corporate waste, and violations of the District of Columbia’s Nonprofit Corporation Act. Defendants filed a motion to dismiss for failure to state a claim, as well as a special motion to dismiss under the District’s Anti-Strategic Lawsuits Against Public Participation (Anti-SLAPP) Act. The Superior Court of the District of Columbia granted the motion to dismiss in part and denied the special motion to dismiss. Defendants filed interlocutory appeal.

The District of Columbia Court of Appeals vacated and remanded the Superior Court’s judgment on the following grounds. First, a claim is not “likely to succeed on the merits” within the meaning of the Anti-SLAPP Act if the claim is subject to dismissal for failure to state a claim upon which relief can be granted. Second, the Superior Court is required to determine the likelihood of success on a claim-by-claim basis. Lastly, for a claim to “arise” from an act in furtherance of public advocacy within the meaning of the Anti-SLAPP Act, the claim must have a substantial connection or nexus to a protected act. In sum, the court employs a two-step analysis with respect to a special motion to dismiss under the Anti-SLAPP Act. “At the first step, the movant must make a prima facie showing that each claim at issue “arises from” an act in furtherance of the right of advocacy on an issue of public interest.” To determine whether the movant has made that showing, the court must examine whether each claim is based on such protected activity. If the court concludes the movant has made the necessary showing, it must grant the special motion unless the responding party demonstrates the claim is “likely to succeed on the merits,” in which case the motion must be denied. If the court determines, pursuant to Rule 12(b)(6), that the responding party has failed to state a claim on which relief can be granted, this is sufficient to establish that the claim is not “likely to succeed on the merits.” The court must rule on the special motion to dismiss on a claim-by-claim basis, even if it grants a 12(b)(6) motion to dismiss that claim. Because the Superior Court did not carry out the two-step analysis in the manner required by the Anti- SLAPP Act, the Court of Appeals denied the special motion to dismiss and remanded for further proceedings.

Insurance Coverage

USA Gymnastics v. Liberty Insurance Underwriters, Inc., 27 F.4th 499 (7th Cir. 2022)
USA Gymnastics (USAG), a nonprofit organization, the national governing body of gymnastics in the country. USAG brought a declaratory action against their insurer to seek a ruling that USAG was owed coverage under its directors and officers (D&O) liability insurance policy for lawsuits regarding sexual abuse by team doctor Larry Nassar against USAG brought by hundreds of athletes, among other policy claims.

The defendant, along with other insurers named in the suit, removed the case to federal court. It was disputed whether the Nassar-related sexual abuse claims were made before or after the insurance policy period began, which determined whether coverage was excluded under the D&O policy. The court determined that once the insured was put on notice about the claim, the policy deemed a claim to be made, and found that that the defendant failed to identify evidence that any claims involving Nassar’s sexual abuse were made before the policy period began.

The court next determined the defendant was required to provide coverage for claims relating to certain wrongful conduct by the insured, USAG. After analyzing the plain meaning of the policy, the court held that “the policy’s wrongful conduct exclusion applies to only the ten claims for which Nassar was found guilty, and not to the remaining Nassar-related claims, for which [the defendant] must provide insurance coverage … . The policy’s bodily injury exclusion does not relieve [the defendant] of its duty to defend the athlete lawsuits.” Because ten of the claims against Nassar were adjudicated and resulted in a guilty verdict, the wrongful conduct exclusion applied to those claims, but not to any other claim that was not finally adjudicated. Ultimately, the court ruled in USAG’s favor that the defendant owed USAG coverage under the D&O policy and owed a duty to defend USAG in the athlete lawsuits.

Liability

Weyers v. Cmty. Mem’l Hosp., Inc., 30 Neb. App. 520, 971 N.W.2d 155 (2022), review denied (Apr. 6, 2022)
Community Memorial Hospital, Inc. (CMH, Inc.) is a private nonprofit corporation created to service the debt of a separate legal entity, Community Memorial Hospital District (CMHD). The plaintiff filed complaints naming CMH, Inc. as the sole defendant, alleging that she was entitled to compensation after she suffered an injury from falling out of a hospital bed at CMHD while under sedation. The plaintiff alleged that CMH, Inc. was a proper defendant because they conducted “business as Syracuse Area Health, Community Memorial Hospital, and Community Memorial Hospital District.” CMH, Inc. filed a motion to dismiss, arguing the proper defendant was CMHD and denied the claim that their nonprofit corporation did business as a hospital. In 2020, the District Court of Otoe County, Nebraska, granted summary judgment in favor of CMH, Inc. and dismissed the complaint with prejudice, and the plaintiff appealed.

On appeal, the court affirmed the district court’s dismissal of the plaintiff’s claims. The court held that CMH, Inc. was not a proper defendant for several reasons. The facts show that CMH, Inc. was “not a medical facility and does not employ any medical providers.” While CMH, Inc. is the owner of the property and equipment at the facility where the injury occurred, CMHD “maintained exclusive possession and control over the hospital premises ... [and] was exclusively responsible for employing medical providers and managing the provision of medical care at the hospital.” While the plaintiffs alleged CMH, Inc. was a proper defendant because they operated as a partnership with CMHD, the court found that CMH, Inc. and CMHD did not participate in profit sharing, but rather their relationship was more “akin to that of a creditor and debtor” because any payments made to CMH, Inc. from CMHD were to pay any hospital debts and expenses. The court also found no loss sharing or share of control of the hospital between the two entities which would have indicated a partnership. Finally, the court also rejected the argument that CMH, Inc. and CMHD were a joint venture for many of the same reasons the entities were not a partnership, and CMH, Inc. and CMHD did not “jointly enter the hospital business for the purpose of making a profit to be shared proportionately.” This case illustrates that, when properly structured, affiliated nonprofits can avoid legal responsibility for an affiliated entity’s liabilities.

Wilson v. Boldt, 2022 UT App. 66, 511 P.3d 1247 (Utah Ct. App. 2022)
Property managers brought an action for unpaid rent against the director of a nonprofit organization, Canary Garden Center, who signed a commercial lease agreement in her individual capacity, despite it being understood by both parties that the nonprofit would be occupying the property. All future rent payments were paid from the nonprofit’s bank account. In the property managers’ action for unpaid rent, the director was identified as the sole lessee on the signature line of the lease, and her signature appeared next to her printed name, without any suggestion that she was signing as an agent or representative of any entity. The Court of Appeals of Utah affirmed the district court’s grant of summary judgment, as it found no genuine dispute as to the fact that the director of the nonprofit signed the commercial lease in her individual capacity; the director was therefore held personally liable. This case underscores the importance that individuals seeking to act on behalf of a nonprofit organization must make clear when they are acting in the capacity of an authorized representative of the organization, or they risk personal liability.

R.N. v. Kiwanis Int’l, 19 Wash. App. 2d 389, 415, 496 P.3d 748, 762 (2021), review denied sub nom. R.N. v. McCarthy, 199 Wash. 2d 1002, 504 P.3d 825 (2022).
Former residents of a group care facility for boys in the foster care system brought a negligence action against a dissolved nonprofit corporation that operated the facility, Lewis County Youth Enterprises (LCYE), and LCYE’s individual officers and directors. The former residents alleged that they were sexually abused at this facility. The Superior Court, Thurston County, granted summary judgment for defendants and dismissed the claim. The residents appealed.

The Court of Appeals of Washington held that the Superior Court did not err in dismissing the claims against the dissolved nonprofit because the state child sexual abuse statute did not toll the three-year period in which post dissolution claims against dissolved corporations are permitted. The court, however, determined that the Superior Court erred in dismissing the claims against the officers and directors because it failed to address whether the individuals breached a duty owed directly to residents by sufficiently participating in tortious conduct, as “corporate directors, officers, and agents may be personally liable for torts committed by the corporation when they are sufficiently involved in the commission of the tort.” The court held that because “agents, employees, and corporate officers all must face the legal consequences for their own tortious conduct,” the state statute does not “bar claims brought against individuals who may be liable for their own torts pursuant to duties arising independently of their duties as corporate actors.”

Defamation

BYD Co. Ltd. v. All. for Am. Mfg., 554 F.Supp.3d 1 (D.D.C. 2021)
Plaintiff BYD, a manufacturer based in China, filed a defamation claim against a nonprofit organization, the Alliance for American Manufacturing after the Alliance allegedly defamed the plaintiff in three separate statements in blog posts and press releases. In the statements at issue, the Alliance asserted that BYD used forced labor, performed poorly under a contract to produce N95 masks, and was linked to the Chinese military. The court held that BYD was a public figure, and therefore that BYD had the burden of pleading facts showing that the Alliance published the defamatory falsehood with actual malice: that is, with knowledge that the statements were false or with reckless disregard (i.e., a high degree of awareness of the statements’ probably falsity). Although the amended complaint alleged that the Alliance made these statements with actual malice, the court granted the Alliance’s motion to dismiss on the basis that BYD failed to plead facts that alleged the Alliance “knew what it was reporting was false or questioned the validity” of its statements. In making this determination, the court considered research reports and source code on which the Alliance had relied in its allegedly defamatory statements, because the amended complaint had made reference to those documents. The court reasoned that it was likely that the Alliance “merely had a different interpretation” than BYD of those sources.

Political Law

Rio Grande Found. v. City of Santa Fe, N.M., 7 F.4th 956 (10th Cir. 2021)
The city of Santa Fe, New Mexico, requires that entities making expenditure of $250 or more to communicate with voters about support or opposition to a ballot measure are required to disclose any donors who earmarked their contribution in support of that campaign.

The plaintiff, Rio Grande Foundation (RGF), campaigned to defeat a “soda tax” measure, but refused to file a campaign report disclosing the in-kind contributions and expenditures that it made related to the initiative. A Santa Fe resident filed a complaint alleging that RGF had violated the disclosure ordinance. The Santa Fe Ethics and Campaign Review Board (ECRB) ordered RGF to file a campaign report but did not sanction RGF. RGF submitted the requested information but brought an action against the city and the ECRB alleging that the donor disclosure law was unconstitutional under the First Amendment and New Mexico’s Constitution.

The U.S. District Court for the District of New Mexico rejected RGF’s constitutional challenge and upheld the city’s disclosure law. RGF appealed the decision to the U.S. Court of Appeals for the 10th Circuit, which dismissed the appeal for lack of standing, because to adequately prove an injury-in-fact caused by the contested law, RGF would have had to prove that the city’s election law had a “chilling effect” on speech through “a plausible claim that they presently have no intention” to speak on the Santa Fe ballot measure elections “because of a credible threat that the statute will be enforced.” RGF proclaimed the exact opposite, stating that it “fully intend[ed] to continue speaking about municipal ballot measures in the future” in its complaint. The court therefore found that RGF failed to establish an injury-in-fact by the law and dismissed the appeal for lack of jurisdiction.

Constitutional Law

Jud. Watch, Inc. v. Bowser, 590 F. Supp. 3d 1(D.D.C. 2022)
Judicial Watch, Inc., a nonprofit organization, requested permission from the Washington, D.C., mayor and the D.C. Department of Transportation to paint their motto on the streets that would be “‘identical in size and color to the lettering used to paint ‘Black Lives Matter’ on 16th Street NW.’” After being told the paint may conflict with road markings, the plaintiff filed a lawsuit alleging that defendants violated its First Amendment rights by denying permission to paint its motto on a public street.

The court rejected plaintiff’s argument, holding that “a place of assembly for temporary communications does not convert public streets into a forum for painting permanent messages” because it may hide or interfere with the effectiveness of traffic. Further, the mayor’s support of Black Lives Matter Mural and the interpretation that the mural is government speech does not mean that defendants created a public forum to allow the continuation of street painting. “The government does not create a public forum ‘by inaction or by permitting limited disclosure,’” and the city maintained the ability to deny permission to private parties to paint on public streets.

Open Records Law

Campbell v. Pennsylvania Interscholastic Athletic Ass’n (Off. of Open Recs.), 268 A.3d 502 (Pa. Commw. Ct. 2021), appeal granted sub nom. Pennsylvania Interscholastic Athletic Ass’n, Inc. v. Campbell, No. 677 MAL 2021, 2022 WL 2237771 (Pa. June 22, 2022).
The Office of Open Records (OOR) of the Commonwealth of Pennsylvania denied a requester’s petition for certain Pennsylvania Interscholastic Athletic Association (PIAA) records, despite finding that PIAA was subject to the Right-to-Know Law (RTKL), which requires that public records be open and available to the public. The requester petitioned for judicial review of the final determination of OOR concerning whether PIAA is subject to RTKL, seeking finding of bad faith as to PIAA’s conduct, imposition of a civil penalty, and award of costs and attorney fees. PIAA maintained that it is not subject to the RTKL and petitioned for judicial review of OOR’s final determination and OOR’s denial of PIAA’s petition for reconsideration.

PIAA contended that because it is a nonprofit corporation with no funding from, control over, or affiliation with the Commonwealth, it is not subject to the RTKL. However, the Commonwealth Court held that PIAA was subject to the RTKL because it is primarily funded by public school districts by the payment of membership fees and, therefore, ultimately funded by the Commonwealth’s taxpayers. Additionally, the Commonwealth Court found PIAA’s conduct constitutes state action because it is the de facto statewide regulator of high school athletics. PIAA established and continually enforces rules governing the eligibility of high school athletes to compete in interscholastic athletics, provides training opportunities for public high school educators to officiate contests between public schools, and organizes and operates Inter-District Championship Contests where public high schools compete. The court therefore upheld OOR’s determination.

PIAA also argued that OOR erred by permitting the record access provisions of the RTKL to supersede the Pennsylvania Nonprofit Law. However, the court held that because the statute does not state that nonprofit corporate records are “confidential, private, and/or not subject to public disclosure,” they are not exempt from disclosure under the RTKL. The court again upheld OOR’s determination.

The Supreme Court of Pennsylvania granted the Petition for Allowance of Appeal and will review both of these holdings by the Commonwealth Court.

McVeigh v. Vermont Sch. Boards Ass’n, 2021 VT 86, 266 A.3d 763 (Vt. 2021)
The plaintiff brought action against the Vermont School Board Association (VSBA), a private nonprofit corporation, seeking a declaratory judgment that the nonprofit corporation is the functional equivalent of a public agency for the purposes of the Vermont Public Records Act (PRA) and therefore must comply with the plaintiff’s request for copies of its records, including any emails between VSBA’s executive director and the director of the Vermont Principal’s Association and the Vermont Superintendents Association.

The Supreme Court of Vermont held that VSBA was not an instrumentality of the state, and, therefore, it did not qualify as a “public agency” within the meaning of the PRA. Although the association was involved in aspects of public education and had power to appoint members to certain boards and commissions, it was not a means through which the state or its subdivisions performed a fundamentally governmental obligation or function. Furthermore, the court held that additional factors such as VSBA receiving more than half its funding from public school boards and that its governing board is comprised of elected public school board members are not sufficient to demonstrate that it is an “instrumentality” of the government.

Community Action Agency of Butte County v. Superior Court of Butte County, No. 19CV02159, 2022 WL 1702472 (Cal. Ct. App. 2022)
Community Action Agency of Butte County (CAA), a nonprofit community action group that worked to address poverty in the county, filed a petition for writ of mandate challenging an order of the Superior Court that required CAA to produce its business records in response to a request under the Freedom of Information Act (FOIA) and the California Public Records Act (CPRA).

The Court of Appeal of California, Third Appellate District, held that a private nonprofit entity, as a sub-grantee of federal community block grant funds to alleviate poverty, was not obligated to produce records under Gov. Code, § 6253, because the CPRA’s definition of “other local public agency” in Gov. Code, § 6252, subd. (a), construed broadly to further public access under Cal. Const. art. I, § 3, subd. (b)(2), could include a nonprofit entity but only in exceptional circumstances, which were not shown to exist in this case under a four-factor test that includes whether the entity performs a government function, the extent to which the government funds the entity’s activities, the extent of government involvement in the entity’s activities, and whether the entity was created by the government. The court subsequently held that poverty alleviation is not a core government function, the majority of CAA’s funding was attributable to public sources, there is no evidence to support governmental involvement in CAA’s day-to-day activities, and there is not substantial evidence to indicate CAA was created by the government. Ultimately, the court found that only one factor in favor of CAA being a local public agency is not enough to obligate the organization to produce records under the CPRA.

Furthermore, the entity’s receipt of federal funds did not subject all its records to disclosure because FOIA applies only to federal agencies and applicable California regulations do not afford public access to documents not pertinent to a grant.

Sovereign Immunity/State Action

Panda Power Generation Infrastructure Fund, LLC v. Elec. Reliability Council of Texas, Inc., 641 S.W.3d 893 (Tex. App. 2022)
A power company brought an action against the Electric Reliability Council of Texas (ERCOT) for fraud, negligent misrepresentation, and breach of fiduciary duty, alleging that ERCOT’s electricity capacity, demand, and reserves reports, which initially projected likelihood of severe energy shortfalls but were revised to predict excess of generation capacity, misled the power company into investing $2.2 billion in building new power plants. A trial court granted ERCOT’s motion to dismiss for lack of jurisdiction based on sovereign immunity, despite ERCOT being a private, membership based, nonprofit corporation that was neither created nor chartered by the government. The power company appealed the trial court’s order and argued ERCOT is not entitled to sovereign immunity.

ERCOT argued that it is immune from suit because it is a legislatively authorized entity that has the nature, purposes, and powers of an arm of the state. ERCOT asserted that it exclusively performs public functions, it is an essential part of the state’s comprehensive regulatory system for electrical utilities, it exclusively performs functions assigned by the Legislature and the Public Utility Commission (PUC), and its functions are performed for a public purpose. ERCOT asserted it performs these functions “using quintessential sovereign power: the power to make binding law.”

The court, however, found that ERCOT is a private organization subject to regulations and PUC oversight and is therefore more “akin to [an] economic development corporation.” The court cited to Texas Supreme Court precedent stating that “heavily regulating an entity does not equate to conferring governmental-entity status.” The court further held that although ERCOT is subject to statutory restrictions and requirements that do not typically apply to non-governmental organizations, these restrictions and requirement “do not change ERCOT’s fundamental nature as a private organization,” despite the organization serving a public purpose. Furthermore, ERCOT does not receive any tax revenue which would entitle them to immunity. Although ERCOT is funded in part by an administration fee authorized by statute, the fee is not set or charged by an arm of the state. Therefore, affording ERCOT immunity will not protect the public treasury.

The Court of Appeals of Texas, Fifth District, Dallas therefore reversed and remanded the previous judgment. ERCOT filed a petition for review which was granted by the Supreme Court of Texas.

Certification

Johnson v. Michigan Minority Purchasing Council, No. 357979, 2022 WL 627021 (Mich. Ct. App. 2022)
A Black owner of a company and its subsidiaries filed suit against a nonprofit corporation, the Michigan Minority Supplier Development Council (MMSDC), alleging tortious interference with a business relationship, negligence, and defamation, and sought declaratory and injunctive relief after MMSDC revoked the subsidiaries’ minority business enterprise (MBE) certification. The Circuit Court, Wayne County, granted the owner’s and subsidiaries’ motion for a preliminary injunction. The MMSDC appealed.

The Court of Appeals of Michigan affirmed the Circuit Court’s entry of a preliminary injunction, holding that the trial court did not abuse its discretion in granting the injunctive relief. The Court of Appeals’ reasoning demonstrates the high bar necessary to reverse a preliminary injunction order.

The appeals court held that the plaintiffs were unlikely to succeed on the tortious interference with a business relationship claim because the evidence did not show the defendants “acted with the intent to cause a breach or termination of plaintiffs’ business relationships or expectancies, and nothing indicates that defendants did something illegal, unethical, or fraudulent.” Second, the plaintiffs were unlikely to succeed on their negligence claim because the facts indicated that the MMSDC followed its standard procedure for review. Third, the plaintiffs were unlikely to succeed on their defamation claim because MMSDC justified its findings in a certification letter and followed the proper appellate process during their investigations. Further, even if MMSDC’s findings were inaccurate, the plaintiff would still need to prove these findings were presented in bad faith. On the other hand, the evidence that 75% of total sales resulted from clients who prefer or require MBE certification was found to be enough to conclude the plaintiffs could suffer loss of goodwill in absence of the injunction. The appeals court agreed with the trial court that “there is a risk that plaintiffs would suffer greater harm by the absence of an injunction than the defendants would suffer if injunctive relief were granted.” The appeals court also found no “indication that a preliminary injunction affecting the MMSDC, a private entity, significantly harms the public interest.” Although MMSDC argued on appeal that the preliminary injunction “significantly harmed the public interest because it violated defendants’ constitutional rights to freedom of speech and freedom of association,” the appeals court found that MMSDC had not raised those arguments in the trial court and thus had not preserved them for appeal.

The appeals court noted that it was “not blind to the uniqueness of affirming a preliminary injunction when we have concluded that most of plaintiffs’ claims will not likely succeed on the merits,” but it owed deference to the trial court’s discretion in granting equitable relief where the court had not abused that discretion.

State Regulation of Charities

Changes to New York State Donor Disclosure
In response to the U.S. Supreme Court’s 2021 decision in Americans for Prosperity Foundation v. Bonta holding that California’s donor disclosure law requiring charities to submit an unredacted copy of IRS Form 990 Schedule B was unconstitutional under the First Amendment, New York adopted revised regulations to its donor disclosure rules, which became effective March 16, 2022. Under these new regulations, registered charitable organizations, which are required to file annual financial reports with the New York Attorney General’s Charities Bureau on CHAR 500 forms, will not be required to disclose the names and street addresses of donors to public charities to the Charities Bureau with the CHAR 500.

While private foundations are still required to file a CHAR 500 and provide the Charities Bureau with the foundation’s complete, unredacted Schedule B, public charities and all other CHAR 500 filing entities that file Schedule B with the IRS must file either a redacted Schedule B without the names and street addresses of the donors, per the new regulations, and include the amounts of donations and the states from which those donations were received during the reporting period, or a statement of the gross amount of contributions received during the reporting period from individuals and entities residing or domiciled in New York.

Organizations that are not required to file Schedule B with the IRS will still need to provide the gross amount of contributions received from New York donors during the designated reporting period. This information will be reported by selecting from a series of dollar ranges in the online filing system, although, no new information will be required to be reported until the system is updated to be able to allow filers to provide information imposed by the new regulations.

The newly enacted regulations make two additional changes. First, the threshold amount of gross revenue requiring an organization to submit an audit with the CHAR 500 was increased from more than $750,000 to more than $1,000,000; this change applies to organizations with a fiscal year that began on or after July 1, 2021. Second, the regulations offer all registered organizations an extension of six months to file CHAR 500; there is no application necessary for this extension.

In addition, New York law no longer obligates registered charities to file their CHAR 500 with both the Charities Bureau and the New York Department of State. Organizations only need to file their CHAR 500 with the Charities Bureau.

California Supervision of Trustees and Fundraiser for Charitable Purposes Act, Assembly Bill No. 488
California was the first state to enact legislation targeting online charitable fundraising platforms and charities who use that service. Commercial fundraisers, fundraising counsel, and commercial co-ventures are required in certain circumstances to register with California’s attorney general’s Registry of Charitable Trusts, enter into contracts with charities containing specific terms, and report periodically to the registry on fundraising activities conducted in California. Starting January 1, 2023, two new categories of regulated fundraisers will be enforced: charitable fundraising platforms and platform charities.

Charitable fundraising platforms include persons, corporations, unincorporated associations, or any other legal entity that “uses the internet to provide an internet website, service, or other platform to persons in this state, and performs, permits, or otherwise enables acts of solicitation to occur. ” This does not include charitable organizations who used their own platform to solicit donations only for themselves; vendors who solely provide technical support to charitable platforms or sponsoring organizations of donor-advised funds. In contrast, platform charities are charitable trustees or charitable corporations that facilitate acts of solicitation on charitable fundraising platforms (e.g., a charity that grants funds to other organizations based on purchases or other user activities on a charitable fundraising platform). The amended Act will require charitable fundraising platforms and platform charities to comply with registration and annual reporting requirements, include disclosures at the point of solicitation, verify the good standing for recipient charities, and promptly transfer funds to the recipient charity.

This Act is intended to target online charitable platforms that previously escaped regulation in California or did not easily identify as one type of charitable fundraiser. Prior to this act, commercial co-venturers (CCVs) did not have to register if they had a written contract with the benefitting charity, delivered the promised funds to the charity on a rolling 90-day basis, and included accounting with each payment to confirm accurate calculation of the amount. CCVs will now be required to register as a charitable fundraising platform except that in-store CCVs with less than seven benefiting charities online per calendar year will remain governed by existing CCV laws.

Special thanks to Pillsbury 2022 Summer Associates Anne Reyna (University of Virginia School of Law, 2022) and Tunrayo Lumpkin (Texas Southern University—Thurgood Marshall School of Law, 2022) for their assistance in preparing the text.