Telemarketing still enjoys First Amendment protection

Monday, May 12, 2003

WASHINGTON — Telemarketing may be unpopular and annoying to anyone whose dinner has been interrupted by an unwanted phone request for donations to a charitable cause.

But telemarketing still enjoys First Amendment protection, the Supreme Court ruled in an important decision May 5, Illinois ex rel. Madigan v. Telemarketing Associates.

The ruling was initially reported as a defeat for telemarketers and a victory for consumers because it said fund-raisers could be made liable for fraud if they make intentional misrepresentations to consumers about how their donations will be used.

But Justice Ruth Bader Ginsburg, writing for the unanimous Court, said that liability could coexist with First Amendment protections. The Court embraced and affirmed a line of cases from the 1980s in which the Court said that because of the First Amendment, states could not tell charities when the fees for fund-raisers were excessive. The cases are Schaumburg v. Citizens for a Better Environment,
Secretary of State of Maryland v. Joseph H. Munson Co.,
and Riley v. National Federation of the Blind.

The case before the Court involved a telemarketing firm that kept 85% of what it raised for VietNow, a Vietnam veterans’ group. Illinois’ attorney general, Jim Ryan, sued the company in court, alleging that it falsely told consumers that most of the money went to help veterans. (The case, originally called Ryan v. Telemarketing Associates, took a new name after the election last November of Lisa Madigan as the new Illinois attorney general.)

But the Illinois Supreme Court, citing Schaumburg and the other U.S. Supreme Court rulings, said the percentage of fund-raising fees could not be the basis of a state action against a fund-raising company. To allow the suit to proceed, the court said, would indirectly allow states to dictate fund-raising fees in violation of the First Amendment.

But Ginsburg’s opinion said in effect that the Illinois court had incorrectly interpreted the Schaumburg line of cases. “The First Amendment protects the right to engage in charitable solicitation,” Ginsburg wrote. “But the First Amendment does not shield fraud.” She said that the Schaumburg cases “took care to leave a corridor open for fraud actions to guard the public against false or misleading charitable solicitations.”

The Illinois action against Telemarketing Associates, appeared to be within that corridor, in Ginsburg’s view, because it targeted allegedly intentional deception committed by the firm. “So long as the emphasis is on what the fundraisers misleadingly convey, and not on percentage limitations on solicitors’ fees per se, such actions need not impermissibly chill protected speech,” Ginsburg wrote.

And to further protect the First Amendment interests at stake, Ginsburg said, the burden on the state would be higher than in other kinds of fraud. “False statement alone does not subject a fundraiser to fraud liability,” Ginsburg said, and the mere failure to disclose fee percentages was also not in itself fraudulent. The deception would have to be shown to be intentional and successful in misleading the listener, she said, and appeals courts can make their own independent review of trial court findings — as they are allowed to do in First Amendment cases generally, Ginsburg said.

Nonprofit organizations that had been worried about how the Court would rule in the case applauded the high court’s balancing of the First Amendment and consumer protection interests involved.

“The decision is very positive for charities in that it upholds the previous rulings by the Supreme Court that there is no inevitable relationship between fund-raising costs and fraud,” said Paulette Maehara, president of the Association of Fundraising Professionals.

“We hoped the Court would not step back from its earlier rulings affirming that charitable-solicitation speech is protected under the First Amendment,” said Diana Aviv, president of Independent Sector, which represents the nonprofit sector. “Second, in applying the rulings of the earlier cases, we hoped the Supreme Court would again stress that the omission of fund-raising contract terms alone could not constitute fraud. We are very pleased that the Court in its decision did not step back from these principles.”

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