Telephone solicitation: will High Court play the percentages?

Attempts by various attorneys general and governments at fighting high-cost fundraising campaigns have fallen under the triangulated attack of court precedent. Trio of U.S. Supreme Court decisions that lawyers for non-profits cite as the credo of First Amendment cases supporting solicitations may be vulnerable.

The U.S. Supreme Court's decision to hear a more than decade-old Illinois case this coming session has spurred nonprofits to rally against the Attorney General of Illinois's attempts to characterize as fraud a specific telemarketing campaign. The complaint claims the telemarketers didn't disclose the percentage that would go to charity and that potential donors didn't know to ask.

VietNow, a Rockford, Ill., nonprofit that assists veterans in need, hired Telemarketing Associates (TA) to handle its solicitation and create an organizational magazine. For its efforts, TA retained 85 percent of money raised. Court documents indicate VietNow did not have a problem with the arrangement, and even continued the arrangement after Illinois first filed suit in 1991.

In 2001, the Illinois Supreme Court upheld a lower court ruling that First Amendment speech protections for solicitation applied to fundraisers that do not disclose percentages. Like most cases of this nature, the fundraisers' argument was supported by the three U.S. Supreme Court cases from the 1980s.

The cases, Sec. of State of Maryland v. J.H. Munson, Co.; Village of Schaumburg v. Citizens for a Better Environment; and Riley ... v. National Federation of the Blind of North Carolina, set the standards of what was allowable in fundraising solicitations in terms of free speech and pre-solicitation disclosures. Charitable solicitations were called protected speech.

The Illinois case involves several issues, from charities' use of professional fundraisers, to determining whether such fundraisers can be pursued under fraud and other claims when they do not disclose the percentage of funds that go to the charity.

In the previous decision, the Illinois Supreme Court denied the attorney general's argument, writing in its decision that the complaint was essentially "an attempt to regulate the defendant's ability to engage in a protected activity based upon a-percentage-rate limitation. This is the same regulatory principle that was rejected in Schaumburg, Munson and Riley."

It also wrote, "Fraud cannot be defined in such a way that it places on solicitors the affirmative duty to disclose to potential donors, at the point of solicitation, the net proceeds to be returned to the charity."

The court added, "Although the attorney general purports to be charging defendants with specific instances of misrepresentation, his complaint is, at its core, a constitutionally impermissible percentage-based limitation on defendants' ability to engage in a protected activity."

Floyd Perkins, chief of the Charitable Trust bureau in the Illinois AG's office in Chicago, said the state believes this type of case was exactly what the U.S. Supreme Court meant when it told states to use a "less intrusive" method. Perkins said "mainstream" organizations have little to fear from this case, which he characterized as "straight common law fraud."

He emphasized that the AG's argument isn't for a formula. "You wouldn't be able to apply this in every fundraising circumstance," Perkins said. "In this case, these are material percentages," he said. "We think this case is exactly what the Supreme Court told us to do in Riley.

When asked about organizations that can't get their message out as easily as well-known organizations, Perkins said, "This case didn't have a message to get out. It's just straight-out solicitation. ... What's the message? That there are needy people?"

Errol Copilevitz, the Kansas City-based attorney who argued Riley, will argue this case. He said he was surprised the U.S. Supreme Court decided to hear the case, which had swept through the lower courts in the telemarketer's favor. Copilevitz noted Riley had similar success and he'd been surprised the court heard it in 1988. So, he doesn't think the latest hearing is a harbinger of ill fate.

Copilevitz said he does think, however, that the state's case presents a threat to both in-house and vendor-assisted fundraising campaigns. "I don't think it's a telemarketing case. It's a fundraising case," he said, adding that all fundraisers know "it can cost a dollar to raise a dollar."

He said he thinks the Illinois Supreme Court decision was well written and he was "guardedly optimistic" the U.S. Supreme court would agree with it. He plans to go into court with more than optimism. For Riley, he had amicus briefs signed by 60 charities. He hopes to have twice as many this time and is actively seeking such support. "If I walk into that hearing with the U.S. Supreme Court with (the stated support of) some of the largest names (in the nonprofit world), I think it does have an impact," he said.

Since the announcement of the court's decision to grant a hearing, sector groups have burned the telephone and email lines to rally support. "I have real difficulty believing the Supreme Court's going to back down on the trilogy," said Geoffrey Peters, a Virginia attorney and direct response expert who helped defeat a registration requirement in the Pinellas County, Fla., charitable solicitations ordinance. He said he suspected the court would rule that "fraud is fraud, not pricing."

Predicting what the U.S. Supreme Court will decide, however, is always risky business. "They obviously granted cert (writ of certiorari) for a reason," Peters said. "I suspect it has to do with the plethora of states that asked the court to hear the case."

So far, 18 attorneys general filed an amicus curiae (friend of the court) brief in support of the Illinois AG's case. American Charities for Reasonable Fundraising Regulations, which won the case in Pinellas County, is considering putting together an amicus brief in support of the fundraisers, according to Peters.