October 19, 2000 | Read Time: 5 minutes
Decision by Supreme Court not to review Utah case could lead to fresh challenges of solicitation rules
As one fund-raising regulation case came to a close in Utah this month, and another in Kentucky appears headed for resolution,
the war over state and local laws that govern charitable solicitations is expected to move to new battlegrounds.
The U.S. Supreme Court decided not to review a case challenging Utah’s charitable-solicitations act, leaving a lower court’s ruling on the law intact. The lower court had upheld Utah’s requirement that charity fund-raising consultants register with the state. But it found other aspects of the Utah law to be unconstitutional, including a requirement that fund-raising consultants post a $25,000 bond before their charity clients are allowed to seek contributions in the state.
In Jefferson County, Ky., officials are expected by early next month to approve changes to a local charitable-solicitation ordinance that is the subject of a lawsuit filed in June by a group of charities and fund-raising consultants. The changes would lift most of the registration requirements that the charities and companies say in the suit are burdensome. One revision would allow charities to register to solicit in the county simply by updating and re-signing the registration application that they already must file each year with the state.
If such changes are approved, the lawsuit would be dropped, say lawyers involved in the case.
The cases in Kentucky and Utah are among the latest in a series of court challenges to fund-raising laws imposed by states, counties, and cities. Another closely watched lawsuit is still pending in Pinellas County, Fla.
In most of the cases, charities or the companies they hire to help them raise money contend that the regulations impose an unfair burden on them and violate their free-speech and due-process rights.
Government regulators say that the reporting and registration rules are designed to prevent fraud, not to inhibit the legitimate work of nonprofit groups.
Decisions in the cases have varied, with courts in some cases keeping stringent rules in place and in other cases requiring that they be loosened.
Strengthened Resolve
But because the outcomes of the cases have been mixed, and because the number of states and localities with solicitation laws keeps growing, when one lawsuit has come to a close, others have followed.
Mark J. Fitzgibbons, general counsel for American Target Advertising, the Virginia consulting company that filed the suit in Utah, says his company and others in the business are looking for fresh ground for the next challenge.
Now that the Utah case is over, Mr. Fitzgibbons says, it “strengthens our resolve to initiate lawsuits in other states.”
Mr. Fitzgibbons says he is particularly interested in challenging not only the constitutionality of some states’ solicitation laws, but how the rules are enforced.
“We intend to go after some of the regulators who are abusing the process,” Mr. Fitzgibbons says, adding that he believes that some officials crack down unfairly on certain kinds of nonprofit groups, including those that may use telemarketing companies to help them raise money. “We’ll set up a diagram of the most-offending states where the regulators have been unfair and get back in court soon.”
He declined to name which states may be on his list.
Bond Rules
Charity legal advisers say that one possible approach for challengers may be to attack state laws that call for fund-raising consultants, who are paid by nonprofit groups to help plan and manage fund raising, to post bonds before their charity clients may seek contributions in the states. Twelve states require such consultants to secure bonds and 37 states require bonds for paid solicitors — telemarketers and other companies that are paid to solicit money for a nonprofit organization.
While Utah’s bond requirement was struck down, another such requirement — in Ohio — was upheld five years ago by a different federal appellate court.
Such differences in approach by the courts may make the bond issue fertile ground for further legal action, some observers say.
Utah has stopped enforcing its bond requirements for both fund-raising consultants and paid solicitors, and state lawmakers are expected to strike the rules at their next legislative session, which begins early next year.
Still, Jeffrey S. Gray, an assistant attorney general in Utah, points out that the decision that struck down the bond requirement in his state doesn’t settle the matter elsewhere. “It’s the law of the land in Utah,” he says, “but the question isn’t answered for the rest of the country.”
Some observers say that while they expect new challenges to solicitations laws, they don’t expect a flood of litigation.
One reason, according to Lee Cassidy, the executive director of the DMA Nonprofit Federation, is that charities are reluctant to appear as if they are unwilling to play by the rules. “We don’t want the public to think we are fighting regulations, even if those regulations are unreasonable,” Mr. Cassidy says.
A flood of new lawsuits also may not follow on the heels of the Utah case because many charities and fund raisers are still awaiting the outcome of the case in Pinellas County, some legal experts say.
A federal appeals court ruled in August that a coalition of national charities and fund-raising consultants has the right to challenge a provision of the county’s charitable-solicitations law. That provision requires consultants to register with the county if their clients send fund-raising letters or make other appeals to residents in the area, which includes the city of St. Petersburg.
But the federal appeals court sent the case back to a lower court to determine more facts.
