California Facing Tough Slog|in Kochs’ Donor Info Fight

LOS ANGELES (CN) - As a Koch Bros. charity's First Amendment trial against California began Tuesday, a federal judge slammed the state's "laziness" in using an investigative division to collect donor information and not the IRS.

It was an inauspicious start to California Attorney General Kamala Harris' case against plaintiff Americans for Prosperity Foundation, the charity of billionaires David Koch and Charles Koch of Koch Industries, and signaled that the state faces an uphill battle in persuading U.S. District Judge Manuel Real to rule in its favor.

Americans for Prosperity Foundation wants Real to find that Harris cannot collect and publicly reveal the names and contact information of its donors. Americans for Prosperity is a conservative advocate of free-market economic policies, and the foundation serves as the group's sister organization and charitable arm.

At the beginning of the bench trial on Tuesday, the group's lawyer Derek Shaffer said that the policy of disclosing Schedule B federal tax forms began in 2008 and chills the charity's rights under the First Amendment.

The group submitted documentation to renew its registration in California but never had to file the Schedule B until 2013, when Harris told the foundation that it could not register as a charity in the state without submitting the tax form.

Americans for Prosperity sued Harris in 2014 claiming it should be allowed to keep its wealthy donors' names secret after the Schedule B it filed with the IRS listed 990 donor names and addresses.

"The proof will show the attorney general's demand is unconstitutional as to this charity," Shaffer told the court on Tuesday morning, adding that disclosure of the information exposed donors to harassment and death threats.

He added that Harris, running as the Democratic candidate to replace retiring Sen. Barbara Boxer, targeted the conservative group.

"The attorney general has publicly accused this charity's donors of being part of a dark-money conspiracy," Shaffer said.

But Deputy Attorney General Alexandra Robert Gordon told Real during her opening that the state needs the information so the Charitable Trusts Section can protect the public from sham charities.

"While many charities are engaged in terrific work, some are not," Gordon said.

Charities found to be defrauding victims included charitable cancer organizations, churches that were keeping donors' money for themselves and organizations seeking funds for laboratory research, the attorney said.

"In fact, where it goes is to fund homes and luxury vacations," she added.

Real was unimpressed with the government's argument. At times he was openly hostile, leaning into his microphone and barking questions at Gordon as she presented the government's case.

He asked why California needs to collect donor information if it had the names of every charity operating in the state.

Gordon countered that possession of the names was not enough and the state needs "every tool at its disposal" to investigate charities that it believes are defrauding the public. She noted that the Charitable Trusts Section had 30 to 40 people investigating complaints and bringing legal actions against sham charities.

"It sounds like laziness not the information," Real said of the state's requirement to disclose donors. He told Gordon that the state "would not need all these people if you use the IRS."

Noting that all the people who worked in the section were working hard to detect fraud, Gordon said only the state can shut down a charity for misuse of funds - not the Internal Revenue Service.

"We are the primary regulator of fraud and abuse," Gordon said.

Harris proposed a regulation this past December that would protect the confidentiality of Schedule B tax form donor information.

But Shaffer told Manuel that despite Harris' representations, there have been several instances where donor information was publicly disclosed at the Registry of Charitable Trusts website, either inadvertently or through vulnerabilities in the state's system.

In November 2015, when the present litigation was already well under way, Harris learned that Schedule Bs were publicly available on the registry website, Shaffer said.

But Gordon argued that only a "very small fraction" of donor information was disclosed.

Americans for Prosperity says it needs to protect the confidentiality of its donors to shield them against harassment and threats of violence.

The group's first witness hammered home that point.

Americans for Prosperity CEO Luke Hilgemann told the court how important it is to the foundation's wealthy donors that their information is kept confidential.

He told the court that he had feared for his family's safety after a liberal blogger revealed his home address and his child's school online.

On one occasion, a protester spat on him while he was speaking at a right-to-work event. At another event, union protesters used knives and box-cutters to collapse an Americans for Prosperity tent after the passage of union-weakening legislation in Michigan in 2012.

"They made the comment, 'Let's trample on these mother-f -s,'" Hilgemann said, adding that he had feared for his life.

Quinn Emanuel attorney Keith Forst, representing the group, asked Hilgemann if he had ever considered quitting the foundation.

"Not me personally," Hilgemann said. "I believe in the cause that we fight for and it is something I will do for the rest of my life."

Mark Holden, senior vice president, general counsel and corporate secretary of Koch Industries, took the stand before the lunch break. He said he had noticed that the Koch brothers started to receive a lot of unwanted press attention in 2009 when the Tea Party movement erupted across the country.

While the press had painted the Kochs as the "puppet masters" behind the movement, Holden said he believed the coverage of the Kochs and Americans for Prosperity was "mostly negative" rather than balanced.

The bench trial is estimated to end this week.

"We are glad to have our day in court," Shaffer, also with Quinn Emanuel, said after the morning's proceedings.

David Koch and Charles Koch are among the wealthiest people in the world, with a combined net worth of more than $75 billion.

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