Topic:
TELEPHONE; CHARITABLE ORGANIZATIONS; CONSTITUTIONAL LAW; FREEDOM OF SPEECH;
Location:
CONSUMER PROTECTION - CHARITIES; UTILITIES - TELEPHONE;

OLR Research Report


November 14, 2000

 

2000-R-1029

FIRST AMENDMENT AND CHARITABLE SOLICITATION LAW

 

By: Paul Frisman, Research Analyst

You asked for an analysis of the U.S. Supreme Court decision in Riley v. National Federation of the Blind of North Carolina, 108 S.Ct. 2667 (1988), and its impact on possible Connecticut legislation.

SUMMARY

The U.S. Supreme Court struck down as a violation of the First Amendment's right to Free Speech a North Carolina law that attempted to limit the fees professional solicitors could charge charitable organizations, required the fundraisers to reveal how much money charities actually received, and required that professional solicitors be licensed. Justice Brennan wrote the majority opinion, two justices filed dissenting opinions, and two other justices concurred in part and dissented in part.

Connecticut's equivalent of North Carolina's Charitable Solicitation Act (CSA) is the Solicitation of Charitable Funds Act, located at CGS 21a-175 et seq. This act, in part, (1) requires professional solicitors to register with the Department of Consumer Protection and file copies of their solicitation campaign contracts, (2) prohibits charitable organizations from spending an “unreasonable” amount of money for solicitations, and (3) requires paid solicitors to disclose to prospective donors the percentage of gross revenue that the charitable organization will receive from the solicitation campaign.

Connecticut courts have not been asked to decide the Act's constitutionality, but in a 1991 letter to a former legislator, the attorney general's office advised that the law requiring solicitors to disclose the amount of money they receive from solicitation campaigns is unconstitutional and unenforceable. Additionally, assistant attorney general Richard Kehoe reports that the office has not enforced the law prohibiting charitable organizations from spending an “unreasonable” amount of money for solicitations.

Any proposal to change existing law should be drafted with the U.S. Supreme Court's decision in Riley in mind. This means that the law should be narrowly drafted to meet the state's needs, without unnecessarily infringing on First Amendment rights.

We have attached a copy of the Riley case and the letter from the attorney general's office for your records. We have also attached a copy of the latest annual report on Paid Telephone Fund-Raising in Connecticut. The report, issued in August 2000 by the Office of the Attorney General and the Department of Consumer Protection, includes advice for prospective donors.

RILEY V. NATIONAL FEDERATION OF THE BLIND OF NORTH CAROLINA, 108 S.CT. 2667 (1988)

Facts

In 1985, responding to a study showing that the state's largest professional fundraisers had retained fees and costs well over 50% of the gross revenues collected in charitable solicitation drives, North Carolina amended its CSA to establish a three-stage test for the reasonableness of fees professional solicitors could charge.

Under that act, fees of up to 20% of gross receipts were deemed reasonable. Fees between 20% and 35% were unreasonable unless fundraisers could show that the solicitation increased awareness or interest in the charity. Fees exceeding 35% were presumed unreasonable, absent rebuttal.

Lower Court Proceedings

A group of charities and professional solicitors challenged as unconstitutional portions of the amendment that limited the percentage of charitable donations that paid solicitors could keep, required solicitors to disclose to prospective donors the average percentage of the previous year's donations that were turned over to charity, and required that professional solicitors be licensed.

The U.S. District Court for the Eastern District of North Carolina found the provisions unconstitutional. The 4th U.S. Circuit Court of Appeals affirmed the lower court decision. North Carolina appealed to the U.S. Supreme Court.

Rule of Law

The First Amendment to the federal Constitution provides that Congress “shall make no law…abridging the freedom of speech….” In 1980 and again in 1984 the U.S. Supreme Court held (1) that the solicitation of charitable contributions is protected speech under the First Amendment, and (2) any laws affecting such solicitations must be narrowly tailored to avoid interfering with those rights (see Schaumberg v. Citizens for a Better Environment, 100 S.Ct. 826 (1980), and Secretary of State of Maryland v. Joseph J. Munson Co., 104 S.Ct. 2839 (1984)).

Analysis

North Carolina contended that the CSA was not subject to strict First Amendment scrutiny because it was merely an economic regulation designed to prevent fraud and ensure that charities receive the maximum amount of money from their fund drives. It further argued that the amendment's three-tiered fee retention test was flexible enough to meet First Amendment objections.

The Court disagreed. Applying “exacting First Amendment scrutiny,” rather than a lesser standard that would have applied if no First Amendment values were implicated, the Court found the CSA amendments unconstitutional and that other, less intrusive, measures could adequately protect the charities and North Carolina residents.

Flawed Premises. The Court considered two possible reasons for the North Carolina law: that charities are either unable to negotiate fair or reasonable contracts with professional solicitors without government assistance, or that they are incapable of deciding the most effective way to exercise their constitutional rights.

The Court rejected both explanations, finding no evidence to support the first premise, and saying that it would be “paternalistic” to adopt the second. According to the Court, “the government, even with the purest of motives, may not substitute its judgment as to how best to speak for that of speakers and listeners….The First Amendment mandates that we presume that speakers, not the government, know best both what they want to say and how to say it” (Riley at 2675).

The Court reasoned a charitable organization might have a legitimate rationale for paying a professional solicitor more than North Carolina might consider reasonable. A charity, for instance, could decide that the advocacy and dissemination of information that accompanied a professional solicitation made the higher cost worthwhile. Or a charity could simply feel that the higher return generated by a professional solicitor justified paying the fundraiser more than the state deemed fair.

The Court had other objections to the law as well. Among them:

1. there was no relationship between the percentage of funds retained by a fundraiser and the likelihood of fraud,

2. the law failed to adequately define how reasonableness was determined, and

3. the law discriminated against small or unpopular charities forced to rely on professional fundraisers.

Compelled Speech. The Court also held that North Carolina could not require a fundraiser to reveal the average percentage of contributions actually turned over to charities in the previous 12 months.

Such “compelled speech” is unconstitutional because it alters a speech's content, requiring a speaker to say something he otherwise would not have said, the Court reasoned. (The Court also noted that this mandatory disclosure would “almost certainly” hamper legitimate fundraising efforts.)

Finally, the Court struck down the law's licensing provision because North Carolina did not have a deadline by which it had to approve license applications from professional solicitors. Paid solicitors were unable to engage in fundraising without such approval.

Legitimate State Interests. The Court acknowledged that North Carolina had a legitimate interest in preventing fraud, but found that the state could achieve those ends without trespassing on First Amendment values. For example, the state could enforce existing anti-fraud statutes.

The Court also made clear that while a state cannot mandate what a fundraiser can say, it can use information required of fundraisers to educate the public. The Court explicitly held that a state may require fundraisers to disclose their professional status. Donors would then be free to ask a fundraiser what portion of their contributions would actually go to the charity and consider that information in deciding whether to contribute.

The Court also suggested that North Carolina publicize the detailed financial disclosure forms it already required of professional fundraisers.

“These more narrowly tailored rules are in keeping with the First Amendment directive that government not dictate the content of speech absent compelling necessity, and then, only by means precisely tailored,” the Court said (Riley at 2679).

IMPACT OF RILEY ON FUTURE LEGISLATION

In light of Riley, any attempt to limit the fees a professional solicitor may receive should be narrowly tailored to the state's interest in preventing fraud. The law should not establish arbitrary retention limits that bear no relationship to fraud prevention (Riley), require charitable solicitors to use a specified amount of the solicited funds for charitable purposes (Schaumberg), or forbid solicitors from retaining more than a specified percentage of money collected (Munson). The U.S. Supreme Court has rejected arguments alleging that such laws regulate commercial speech or amount to economic regulation and thus do not infringe on free speech.

Laws requiring solicitors to disclose information should not require them to say something that they normally would not. Although the court recognizes an exception for commercial speech, it has held that speech is not necessarily commercial because it relates to the speaker's financial motivation (e.g., laws that require solicitors to state the amount they retain from charitable contributions are not necessarily valid because they allegedly ascertain the solicitors' financial motivation (see Bigelow v. Virginia, 421 U.S. 809 (1975))). In determining whether speech is commercial and thus not protected by the First Amendment, the Court looks at the entire speech, not individual parts.

With respect to licenses, the general rule is speakers do not need a license to speak. But a law that requires licensure for some justifiable reason should, at the very least, provide a time limit within which the license will issue or the affected parties will have the right to bring legal action.

PF:eh