Court tosses portion of Texas charitable-solicitations rules

Thursday, July 28, 2011

Relying on a trio of U.S. Supreme Court precedents issued in the 1980s, the 5th U.S. Circuit Court of Appeals has on First Amendment grounds struck down part of a Texas law that requires for-profit entities engaged in charitable solicitations to disclose how they distribute certain donations.

Issued on July 15, the court’s decision in National Federation for the Blind of Texas v. Abbott addresses a series of 2009 Texas statutes designed to regulate for-profit companies that collect or solicit donated goods for charities. Those statutes in part require these companies to disclose their financial arrangements with charitable organizations when collecting clothing or household goods through public donation receptacles and when soliciting door-to-door or by telephone or direct mail.

If, for example, the arrangement between the company and the charity is that the company collects in the charity’s name but does not distribute any of the donations to the charity, the statute requires the company to disclose that fact in its solicitations. Similarly, if the arrangement is that the company will donate a certain percentage of the donated amount to the charity, the statute requires that fact to be disclosed. Finally, if the arrangement is that the company will donate a flat fee to the charity, the company must disclose that fact.

The National Federation for the Blind in Texas and the Institute for Disability Access challenged the constitutionality of the statutes in federal court in Texas. Both organizations retain professional resellers to collect clothing and household goods in public receptacles and to solicit donations. Those resellers pay a flat fee to the charities based on the volume of donations collected.

The trial court made several rulings. First, the court held that, given the charities’ arrangement with their resellers, they could not challenge the statute that addressed companies that do not distribute any collected funds to charitable organizations. Second, the court held that the statutes’ requirements that the companies properly identify themselves and their charities were constitutional.

Third, the court ruled that the requirements that the companies disclose their fee arrangements violated the First Amendment. Fourth, the court said that the requirements that the companies disclose that donated items are sold for profit were constitutional under the First Amendment but unconstitutional under the equal-protection clause of the 14th Amendment.

The charities did not appeal. Texas appealed the court’s rulings that the charities could challenge the statutes governing resellers that worked on a percentage basis. Texas also appealed the rulings that the fee-arrangement disclosure violated the First Amendment and that the sold-for-profit disclosure violated the 14th Amendment, but only as those rulings applied to collection bins. Texas accordingly did not challenge the trial court’s holding that those disclosures could not constitutionally be applied to telephonic, mail and door-to-door solicitations.

A three-judge panel of the 5th Cirucuit agreed that the charities should not have been allowed to challenge the percentage-based provisions, as the charities did not have that type of relationship with their resellers. The court also agreed with Texas that the sold-for-profit disclosures did not violate the 14th Amendment, holding that those disclosure requirements do not unconstitutionally discriminate against charities that hire for-profit resellers.

The appellate court, however, held that the fee-arrangement disclosure as applied to collection bins violated the First Amendment. Relying on the U.S. Supreme Court decisions in Riley v. National Federation of the Blind of North Carolina (1988), Secretary of State of Maryland v. Joseph H. Munson Co. (1984) and Village of Schaumburg v. Citizens for a Better Environment (1980), the court first held that the solicitations involved more than commercial speech and that the statutes thus were subject to the most exacting form of constitutional scrutiny.

“A generous Texan who chooses to donate his goods is … faced with a marketplace of charitable options,” the court wrote. “[T]he public receptacles are not mere collection points for unwanted items, but rather are silent solicitors and advocates for particular charitable causes.

“[T]he donation bins’ ‘solicitation is characteristically intertwined with informative and perhaps persuasive speech seeking support for particular causes or for particular views on economic, political, or social issues,’” the court added, quoting from the opinion in Schaumburg.

Under this form of scrutiny, the court held, the disclosure requirement could be upheld only if it were narrowly tailored to address the government interest at issue. The court said the requirement failed this test because Texas could address the issue of potentially fraudulent solicitations more directly.

“[T]here is nothing stopping Texas from requiring for-profit resellers to file financial disclosure forms, which Texas could publish without burdening the charities with unwanted speech on the receptacle notices,” the court wrote. “Texas could also ramp up its anti-fraud enforcement efforts. Both of these alternative means are available to Texas and both would be less of a burden on the Charities’ speech rights than the Act’s fee arrangement disclosure requirement.”

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