B. Safeguards

It seems clear that, whether or not section 501(c)(3) organizations are permitted in the field, the courts will develop safeguards against frivolous or improperly motivated litigation of environmental issues. The courts have ample authority to deal with this problem through limitations upon the standing of parties to sue. Most major environmental litigation has been conducted by plaintiffs suing as representatives of the public interest. See, for example, Scenic Hudson Preservation Conference v. FPC, 354 F.2d 608 (C.A. 2d 1965); Citizens Committe v. Volpe, 425 F. 2d 97 (C.A. 2d. 1970). Paragraph (a) (4) of rule 23 of the Federal Rules of Civil Procedure requires that, to be permitted standing to sue in a representative capacity, a party must "fairly and adequately protect the interests of the class"-here, the public. The authority, which has developed under this rule, allows broad inquiry into the motivation of the plaintiff in bringing suit, his responsibility, and similar matters. See Moore's Federal Practice, vol. 4, pp. 1183, 1186-88. The second circuit recently applied such an approach in an environmental suit. Citizens Committee v. Volpe, supra. In addition, where improper suits are brought, costs may often be assessed against the plaintiff. With these tools, the courts have considerable scope to develop protective rules to cope with harrassment, groundless suits, and other improper litigation in the environmental

area.

Beyond these safeguards, to insure that an applicant for tax-exempt status under section 501(c)(3) attains the appropriate degree of public benefit in each of its court actions, the Internal Revenue Service could condition charitable status on acceptance of additional limitations on the applicant's activity. Safeguards in the following areas would seem both appropriate and adequate with respect to environmental litigation, qualifying under section 501(c)(3) of the code:

1. An independent board of lawyers, familiar with the group's goals, should be established to review each action brought by the group. Such a requirement would help insure that the environmental group follows its charitable purpose in bringing actions, that the actions are not brought for purposes of harassment or for political gain, and that action is brought only in publicly significant cases.

2. Litigation should not be brought which results in a monetary benefit to the group's contributors or, except in the limited cir cumstances described in paragraph 4 below, to the group itself.

3. Litigation should be brought primarily in cases where a government decision is involved, such as, either directly with respect to a governmental operation or indirectly through processing of a permit or other similar application.

4. Any suits involving rights asserted against private parties should not involve damage claims or other monetary demands, except in unusual circumstances. The group must be a nonprofit organization and should not seek to sustain itself through litigation or subsidize its activities by a monetary recovery from a given defendant except in those cases where attorney's fees may be awarded by the court or a fine is to be shared with the Government under the applicable statute.

PUBLIC INTEREST LITIGATION AS A CHARITABLE

ACTIVITY

BACKGROUND

The Internal Revenue Service has for some time been engaged in a study of whether nonprofit organizations with charitable purposes should be disqualified for tax exemption under section 501(c)(3) of the Internal Revenue Code if they engage in litigation in support of their purposes. Since at least February 1970, the Service has declined to take action on tax exemption applications involving this question. On October 9 the Service announced that, for most classes of organizations participating in litigation, it is suspending the customary assurance of deductibility of contributions. Affected are such groups as the Audubon Society, the Wilderness Society, the Environmental Defenese Fund, and the Lawyers' Committee for Civil Rights Under Law. The October 9 announcement stated that the Service study would be completed and a position taken on this issue within 60 days.

ANALYSIS

In relevant part, section 501(c)(3) qualifies for tax exemption "(o)rganizations organized and operated for *** charitable *** purposes." The Service does not question the accepted interpretation that, for example, defense of civil liberties and protection of natural resources are charitable purposes. The only question is whether litigation in support of these ends is charitable within the meaning of section 501(c)(3).

Treasury Regulation § 1.501 (c) (3)−1(d) (2) defines charitable to include (1) defense of human and civil rights secured by law, (2) promotion of social welfare, and (3) lessening of the burdens of gov ernment. Litigation qualifies as a charitable activity independently under each of these three tests. The first would seem squarely and directly to establish the propriety of defending human and civil rights secured by law through legal actions in State and Federal courts. Under the second test, where private or governmental action will have detrimental effect on the environment, on civil liberties, or a similar matter, it would appear plainly to promote social welfare to present to the courts the question of whether that action violates existing law. Finally, by supplementing local, State, and Federal enforcement of legal rights, such action in the courts lessens the burdens of government.i

Moreover, the concluding sentence of the regulation states that:

The fact that an organization, in carrying out its primary purpose, advocates social or civic changes or presents opinion on controversial issues with the intention of molding public opinion *** does not preclude an organization from qualifying under section 501 (c) (3). * * *2

1 For example: "Private litigation before courts and administrative agencies has been and will continue to be an important environmental protection technique supplementing and reinforcing government environmental protection programs." Legal Advisory Committee, Council on Environmental Quality, Washington, D.C. 2 Emphasis added.

Hence, advocacy is explicitly contemplated by the regulation. A traditional and often the only effective forum for advocacy is the courts. Indeed, officials of the present administration repeatedly admonish that the courts rather than the streets are the proper place for the expression and redress of grievances.

CONCLUSION

If an organization's basic objective is charitable as it is where it consists of protection and improvement of the environment or defense of civil liberties then the organization should not be disqualified as a charitable entity because it presents to the courts the question of whether existing or proposed conduct contrary to that objective violates the law.

SPECIFIC OBJECTIONS RAISED BY IRS AND RESPONSES

1. Litigation is a "coercive" activity, like boycotts, picketing, demonstrations, and disruptive protests, and therefore is not "charitable" Without taking a position with respect to the other activities included here, litigation seems clearly separable from them. In litigating, parties merely seek the enforcement of legal obligations or rights. There is coercion only in the sense of requiring a losing private defendant to obey the law. The requirement of complying with the law upon a determination by a court after a due process deliberation and a finding that the defendant has violated a law established by a democratically elected legislature is not coercion of the kind effected by boycotts, picketing, or other nonjudicial activity.

2. Litigation can cause a private detriment to losing defendants and therefore is not charitable.

There is no authority for the principle that activity which has an adverse impact on a private party cannot be "charitable." In extensive research, the staff of the Natural Resources Defense Council has found no State or Federal case holding activity not charitable on that ground. In a number of cases the application of such a principle would have been discussed if the principle existed in the law of charity. It is mentioned in none. Further, a considerable variety of activities whose charitable character is unquestioned have adverse effect upon some private parties. For example, the current antismoking television campaign by the American Cancer Society has directly adverse impact upon the tobacco industry.

3. Litigators may bring suits only to harass those whom they oppose. For many reasons, harassing suits would not be in the self-interest of tax-exempt groups. There are relatively few sources of financial support for those who would litigate in the public interest. As a result, the competition among public interest groups for such sources of support is great. In the environmental field, for example, there are many more serious problems to be researched and issues to be presented than there are persons to do this work. It seems unlikely that environmentalists will employ their scarce resources in cases which they will ultimately lose. Such suits would hurt the image of the environmental movement generally. And because suits without real merit could not be effective in

the long run, they would threaten the litigator's sources of support in a field where the competition for support is intense.

In any event, courts have many effective means to deal with harassing plaintiffs. Frivolous suits can be dismissed in the first pretrial stages for lack of merit. Courts can require that plaintiffs put up bonds to reimburse defendants if the suit has overtones of harassment. Courts can, with or without bond, impose the costs of the suit on plaintiffs who abuse their legal rights. In extreme cases, courts can find harassing plaintiffs in contempt. In class action suits-which a considerable proportion of public interest cases will be-courts can dismiss the suits on the ground that the plaintiff does not adequately represent the public. Finally, harassing plaintiffs are likely to be reported by defendants to the bar and the IRS for appropriate sanctions.

3

4. Private defendants are placed at a competitive disadvantage in suits brought by charitable organizations because their private resources are pitted against the public's tax exempt resources.

This argument has no application to suits against governmental entities, which will comprise the bulk of the suits brought by tax-exempt groups. In suits against other private parties, the argument is spurious. The defendant business can deduct the costs it incurs in opposing the suit as ordinary and necessary business expenses. Hence, the costs of maintaining both sides of the suit are tax deductible if the organization bringing the suit is accorded charitable status. If it is not, the parties seeking to assert the public interest against the defendant business will be at a tax disadvantage. Moreover, there is no authority-either in the statutes or in the case law-for using the principle of competitive advantage in determining whether an organization's purpose or activities are "charitable.”

5. The tax-exempt organization might be used to secure private benefits.

The problem of private inurement is not unique to litigation. It runs through the entire range of tax-exempt activities, and a considerable body of law has developed to deal with it. Hence, the Service has both standards and means to cope with the problem.

6. It is impossible to determine who is acting in the public interest since persons and groups differ on where the public interest lies.

The Service need not and should not determine what the public interest on any specific question is. A diversity of views is desirable. Democracy thrives on the marketplace of ideas. In the case of litigation, agencies and courts are assisted in reaching sound, balanced decisions by the presentation to them of different perspectives. CAPLIN & DRYSDALE.