High court answers call to re-examine charitable solicitations

Tuesday, November 5, 2002

The Supreme Court agreed yesterday to revisit the question of how much First Amendment protection should be given to the business of charitable solicitation, including telemarketers.

The Court granted review in Ryan v. Telemarketing Associates, which means the case will be heard next year and decided by late June. It comes at a time of renewed interest at the Federal Trade Commission and elsewhere in the relationship between business regulation and the First Amendment.

In a series of rulings in the 1980s, the Supreme Court ruled that solicitation deserves a high level of First Amendment protection against regulation by states. “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 said in Village of Schaumburg v. Citizens For a Better Environment, a 1980 case. “Without solicitation the flow of such information and advocacy would likely cease.”

In the 1988 case Riley v. National Federation of the Blind of North Carolina, the Court went further and said that because of the First Amendment, states could not set a level of “overhead” fees that would automatically be deemed as excessive or fraudulent.

Since then, the industry has grown to the point where solicitation companies take in $200 billion annually for charities and themselves. Yesterday's action suggests the Court may be ready to draw a new line that will be less protective of solicitation.

In the case now before the justices, the Illinois Supreme Court went a step further than the U.S. Supreme Court did in the 1980s. The Illinois court ruled that because the level of a professional solicitor's fee could not be set by the state, it could also not form the basis of a fraud claim by the state.

The state of Illinois was trying to charge the professional soliciting firm Telemarketing Associates with fraud because it kept 85% of the donations it solicited for VietNow, a veterans' group. The veterans' group had agreed to the fee. The state claims the telemarketer acted fraudulently by not disclosing the high fee to donors.

But the Illinois high court ruled against the state, citing the Supreme Court's rulings and asserting that the state's action would chill First Amendment-protected activities.

“If a complaint such as the one at issue in this case was allowed to proceed,” the Illinois court said last November, “all fund-raisers in this state would have the burden of defending the reasonableness of their fees, on a case-by-case basis, whenever in the Attorney General's judgment the public was being deceived about the charitable nature of a fund-raising campaign because the fund-raiser's fee was too high. Fund-raisers, therefore, would be at a constant risk of incurring litigation costs, as well as civil and criminal penalties, which could produce a substantial chilling effect on protected speech, based on nothing more than a loose inference that the fee might be too high… . The complaint incorrectly presumes that there is a nexus between high solicitation costs and fraud and attempts to regulate defendant's constitutionally protected solicitations on that basis.”

Illinois Attorney General James Ryan, in his plea to the U.S. Supreme Court, said the Illinois high court ruling “transformed the First Amendment into a license for unscrupulous fund-raisers to defraud the public in the name of raising money for charity.”

Eighteen other states also asked the Supreme Court to review the case, citing increasing complaints from consumers about unscrupulous telemarketers.

Tags: , ,