State AG Enforcement Trends: Government Overreach of Nonprofits

Recent developments in Texas highlight the expanding role of state attorneys general in investigating and enforcing laws against nonprofit and civic organizations. Actions taken by Texas Attorney General Ken Paxton, and the court decisions responding to those actions, provide a useful case study for nonprofit counsel and boards assessing enforcement risk in an increasingly politicized regulatory environment.

At the center of these developments is a Texas statute that grants the Attorney General authority to investigate entities suspected of violating state law, including by demanding internal records and, in some cases, seeking to dissolve or restrain organizations through civil proceedings. Recent court rulings have signale

The recent Texas cases underscore a shifting enforcement landscape in which state attorneys general possess, and are willing to exercise, expansive investigatory authority over nonprofit organizations. While courts may still impose limits, those limits are often applied only after an organization has already incurred the costs and disruption of an investigation.

For nonprofit leaders and advisors, the lesson is not to assume immunity from enforcement scrutiny, but to prepare for it. Careful governance, early legal engagement, and an understanding of investigatory powers are increasingly essential components of nonprofit risk management.d a willingness to allow the Attorney General to invoke this authority broadly at the investigative stage, even where allegations have not yet been proven.

Expanded Authority to Demand Records

Courts in Texas have recently affirmed that the Attorney General may issue civil investigative demands to nonprofit organizations based on a stated belief that legal violations may have occurred. At this preliminary stage, the Attorney General is not required to present evidence sufficient to prove wrongdoing. Instead, courts have accepted that investigatory authority may be exercised to determine whether violations exist.

For nonprofits, this lowers the threshold at which an organization may be required to produce documents, communications, and internal records. It also increases the likelihood that politically sensitive or mission-driven activities, such as immigration services or civic engagement, may become the subject of enforcement attention.

Limits Still Exist, but They Are Procedural

While recent decisions have favored broad investigatory authority, courts have also emphasized that limits remain. In particular, procedural safeguards still apply when the Attorney General seeks to compel testimony or impose significant burdens on an organization. In at least one instance, a court rejected an attempt to force a nonprofit executive to submit to a pre-suit deposition, concluding that the Attorney General had not adequately demonstrated that the requested discovery was justified.

These rulings suggest that while nonprofits may not be able to prevent investigations from starting, they may still succeed in narrowing scope, resisting overbroad demands, or enforcing procedural protections once an investigation is underway.

Implications for Nonprofits Nationwide

Although these cases arise under Texas law, the broader trend is not limited to a single state. Attorneys general across the country increasingly rely on consumer protection, charitable oversight, and investigatory statutes to scrutinize nonprofit organizations, particularly those engaged in advocacy or public-facing work.

For nonprofits operating in regulated or politically charged areas, the risk of becoming an investigatory target may be unrelated to traditional notions of fraud or misuse of funds. Instead, enforcement activity may be driven by broader policy disputes or public narratives, making preparedness all the more important.

Practical Steps to Reduce Risk

Nonprofit boards and counsel should consider several proactive measures in light of these developments.

First, organizations should maintain clear, well-documented governance and compliance practices. This includes accurate records, consistent board oversight, and transparent operational decision-making.

Second, nonprofits should have document retention and response protocols in place before an investigation arises. Knowing how to preserve records, assess privilege, and respond strategically to investigatory demands can significantly affect outcomes.

Third, organizations should be prepared to assert legal defenses when appropriate. Constitutional protections, statutory limitations, and procedural requirements remain relevant tools, particularly when investigatory actions impose undue burdens or appear disconnected from legitimate enforcement objectives.

Finally, nonprofits should monitor enforcement trends beyond their home state. Developments in one jurisdiction often signal strategies that may be adopted elsewhere.

Conclusion

The recent Texas cases underscore a shifting enforcement landscape in which state attorneys general possess, and are willing to exercise, expansive investigatory authority over nonprofit organizations. While courts may still impose limits, those limits are often applied only after an organization has already incurred the costs and disruption of an investigation.

For nonprofit leaders and advisors, the lesson is not to assume immunity from enforcement scrutiny, but to prepare for it. Careful governance, early legal engagement, and an understanding of investigatory powers are increasingly essential components of nonprofit risk management.

Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.