Charities Should Urge Court to Protect Donors

This week the U.S. Supreme Court is scheduled to hear arguments in a charitable-solicitations case that could have significant consequences for nonprofit organizations. If the justices side with the nation’s charities when they rule on the

case in the next few months, it will be a dramatic blow to the public interest, and a big loss for donors, who are the lifeblood of so many nonprofit organizations.

The case at issue, Ryan v. Telemarketing Associates, involves the State of Illinois’s effort to enforce consumer-fraud laws against a telemarketing company that the state says kept the lion’s share of funds it collected in a charity’s name. The state alleges that Telemarketing Associates employees called donors and told them their money would go to VietNow, a group that says it serves Vietnam War veterans who are disabled, paralyzed, injured, homeless, or otherwise in need — even though Telemarketing Associates pocketed 85 to 90 percent of the donations for itself. The state says Telemarketing Associates representatives never revealed that they were for-profit fund raisers; they told donors that contributions would go to food and services for needy veterans. What’s more, the state contends that Telemarketing Associates anticipated that donors would believe that much more of their contributions were going to VietNow than was actually the case, a false impression on which Telemarketing Associates relied to induce donors to contribute. In sworn court statements, some 40 donors contacted by the State of Illinois said that they would not have contributed had they known that such a high percentage of the money they donated would go to the for-profit company.

Even so, Illinois state courts threw out the case. The courts said the state couldn’t sue the company for fraud because it failed to disclose what percentage of the donations would go to charity. Doing so would infringe on the First Amendment free-speech rights of Telemarketing Associates, the courts ruled.

The State of Illinois strongly disagreed, and appealed to the U.S. Supreme Court to order that the Telemarketing Associates case go to trial. It is not surprising that the nation’s powerhouse telemarketing-industry associations have lined up to submit friend-of-the-court briefs urging the Supreme Court to back the Illinois courts. What should unsettle those who value the integrity of nonprofit fund raising, however, is that some of the country’s best-known charitable organizations have weighed in on the side of the telemarketers.

The argument charities would be better served in making to the Supreme Court is that the lower courts should be allowed to try the case and determine whether Telemarketing Associates knowingly misled donors, and profited from doing so. Furthermore, they should be pressing the court to make clear that the First Amendment does not protect fund raisers who are accused of deceiving potential donors.

Telemarketing Associates and the organizations that have urged the court to support its position, however, are arguing that the company can’t be tried for fraud. They say that under no circumstances can solicitors be held liable for misleading potential donors about how much the companies pass on to charities. They point to a series of Supreme Court decisions that, rightly, establish strong First Amendment protections for charitable solicitations. Those include a trio of decisions in the 1980s — Village of Schaumburg v. Citizens for a Better Environment (1980), Secretary of State of Maryland v. Joseph H. Munson Company (1984), and Riley v. National Federation of the Blind of North Carolina (1988) — which held that states may not dictate the percentage of donations that a charity can spend on fund-raising expenses, may not use such percentages as the only basis for declaring charitable solicitations fraudulent, and may not require fund raisers to bear the burden of showing that their fees are reasonable.

However, in those cases the court affirmed that states may “vigorously enforce antifraud laws,” which is what the State of Illinois wants to do. Telemarketing Associates and its allies, however, want the court to extend the 1980s rulings so that the percentage of donations solicitors pass on to charities would be legally irrelevant in determining whether a fund raiser has committed fraud.

If the court takes that view, fund raisers could avoid lawsuits even when they intentionally mislead donors. The Supreme Court has never taken that position. To do so now would allow the tiny minority of unprincipled fund raisers to wield the First Amendment not as a shield against government infringement of protected speech, but as a weapon against legitimate law enforcement.

Unsuspecting donors deserve better. While government should not micromanage how charities reach out to the public, neither should it be barred from prohibiting sales pitches that intentionally deceive. Such practices violate the legal principle, widely adopted by state and federal courts, that intentionally misleading words can amount to fraud. The government’s interest in preventing fraudulent charitable solicitation in cases such as this should override any protections offered by the First Amendment.

Without enforcement of consumer-protection laws, sharp practitioners would be free to pollute the atmosphere of trust on which philanthropy depends. When a small number of people abuse the system for personal profit, the fallout is harmful to donors, nonprofit groups, and the intended beneficiaries of charitable donations. The value of nonprofit institutions to the common good requires that our system of government should stand against, not for, those who would undermine public trust.

The groups that support Telemarketing Associates are understandably concerned that if limits on First Amendment freedom to solicit charitable contributions were carelessly defined, government could have an inappropriately expansive role in the conduct of philanthropy. But the courts have centuries of experience in distinguishing legitimate speech from fraud. The American justice system needs to clarify how this distinction applies to charitable solicitations, and the Illinois case is the proper situation in which to do so.

As John Milton said in a different context in “Areopagitica” — probably the greatest argument for free speech ever made — “that which purifies us is trial.” Allowing the Telemarketing Associates case to go to trial is essential to the public interest.

Sheldon Elliot Steinbach is vice president and general counsel of the American Council on Education, in Washington. The views expressed in this article are his and do not reflect the position of the council.