Andrew M. Morse (A4498)
Snow, Christensen & Martineau
10 Exchange Place, 11th Floor
P.O. Box 45000, Salt Lake City, Utah 84145
William J. Olson, John S. Miles, Alan
Mark B. Weinberg
Herbert W. Titus of Counsel
Counsel for Amici Curiae, Free
Speech Defense and Education Fund, Inc., et al.
IN THE UNITED STATES DISTRICT COURT
FRANCINE A. GIANI,
MEMORANDUM AMICUS CURIAE
I. THE UTAH REGISTRATION
A. Plaintiff Has No Connection with the
State of Utah That
B. Utah's Imposition of Licensing and
A. The State of Utah Has No Jurisdiction
B. The State-Imposed
1. The Utah Act Violates the Commerce
Clause Because It Is
2. The Utah Act Also Violates the
Commerce Clause Because It Is
A. The Utah Act Unreasonably Burdens the
Right to Free Speech
1. The Parties Agree that the Utah Act
2. Defendant Has Failed to Show that the
Utah Act Is Narrowly
B.The Utah Act Unreasonably Restricts
Freedom of Association
C. The Utah Act Unreasonably
American Oil Co. v. Neill, 380 U.S. 451
18 U.S.C., sec. 1341
9 Writings of James Madison 103 (G. Hunt
Joining as co-amicus is the Free Speech Coalition, Inc. (McLean, Virginia), a nonpartisan section 501(c)(4) organization dedicated to protection of human and civil rights secured by law, such as the right of free speech at issue in this litigation. Its members include nonprofit organizations engaged in soliciting contributions throughout the country and for-profit firms that serve nonprofit organizations, including organizations which may be directly affected by the result in this case.
Joining as co-amici are the following IRC
section 501(c)(3) charitable/educational organizations that
use direct mail nationally as part of their educational and
Such regulation, both by itself and especially by the cumulative effect it has when combined with similar licensing regulations of other states, is having a substantially deleterious impact upon the constitutionally-protected rights of nonprofits engaged in core First Amendment activities. Since this Nation was founded, Americans have enjoyed the ability to correspond with other Americans, in every state, to inform and be informed regarding public policy issues affecting local, state, or national governance. A state regulation which chills correspondence between residents of Virginia, for example, and residents of Utah, whether by individual letter or mass mailing using modern technology, strikes at a fundamental right of like-minded Americans to correspond, to educate, to enlist support, and to assemble and cooperate with others to more effectively exercise their right to petition government for redress of grievances.
The amici curiae may be both directly and
indirectly affected by the regulations plaintiff has
challenged as unconstitutional, not only in Utah, but
throughout the United States. The case brought by plaintiff
directly challenges Utah's charitable solicitation laws
because they purport to regulate out-of-state nonprofits and
their agents, and these amici agree that such laws are
therefore unconstitutional. It should be emphasized,
moreover, that the Utah statute is unconstitutional not only
because of the burdens it imposes on out-of-state
fundraising counsel such as plaintiff, but also because of
its effect on fundraising organizations themselves. Utah
laws regulating charitable solicitation activity of
nonprofit organizations mailing fundraising solicitations
into Utah are also unconstitutional -- even beyond their
attempt to regulate out-of-state professional fundraising
counsel -- because of the intolerable burdens they impose on
the First Amendments rights of all nonprofit organizations
soliciting contributions in Utah. Thus, in addition to the
constitutional violations created by attempted licensing of
out-of-state professional fundraising counsel, the Utah
statute is unconstitutional on its face and as applied to
nonprofit organizations soliciting contributions in
2. Whether the Utah Act violates the Commerce Clause of the U.S. Constitution because either it is an unfair tax imposed by Utah upon a plaintiff with no nexus with the state, or because it is a regulation of purely interstate activity or unreasonably burdening the flow of interstate commerce?
3. Whether the Utah Act violates the
First Amendment because it unconstitutionally creates a
prior restraint on free speech, burdens the free speech and
assembly rights of nonprofit organizations communicating
with residents of Utah, as well as such rights of Utah
residents, themselves, and discriminates against core
political speech based upon its content?
STATEMENT OF RELEVANT FACTS
The Utah Charitable Solicitations Act ("the Utah Act") establishes a scheme, inter alia, for licensing and regulating out-of-state professional fundraising counsel who advise, counsel, consult, or prepare materials for out-of-state organizations soliciting charitable contributions in Utah. Under the Act, fundraising consultants must (i) apply for a state license, file various documents, and make certain disclosures to the Utah Division of Consumer Protection, (ii) pay a $250 annual registration fee (license tax), and (iii) secure a $25,000 bond or letter of credit, before not they, but their clients, can solicit contributions in Utah. See Utah Code Ann., § 13- 22-1, et seq. (1953, Supp. 1997).
The plaintiff in this case, American Target Advertising, Inc. ("ATA"), a Virginia corporation, inter alia, provides consulting services to nonprofit organizations that use direct mail to communicate with and solicit funds from the general public. (Complaint, p. 2, ¶5.) ATA was retained by Judicial Watch (a nonprofit organization incorporated in the District of Columbia that is exempt from federal income tax under §501(c)(3) of the Internal Revenue Code) to plan, manage, counsel and prepare materials relating to the conduct of Judicial Watch's program to disseminate information and ideas to, and solicit funds from, the American public. (Complaint, p. 4, ¶6.) ATA has no contact with the State of Utah, although it is fully aware that Judicial Watch, as part of a national fundraising campaign, would mail solicitation letters, that were prepared with the advice of ATA, into all states. (Complaint, p. 7, ¶34). ATA is not registered with the Utah Division of Consumer Protection. (Complaint, p. 4, ¶13.) When Judicial Watch applied for its own registration as a nonprofit, the application was initially denied because of its relationship with ATA. (Complaint, p. 5, ¶17.) Later, the Division of Consumer Protection granted Judicial Watch a license contingent on its agreement not to correspond with Utah residents using materials developed with any assistance from ATA. (Complaint, p. 5, ¶18.)
ATA filed this suit, claiming that the Utah Act is unconstitutional on several different grounds. First, ATA asserts that the Utah Act violates its right to Due Process of Law under the Fourteenth Amendment to the U.S. Constitution by regulating a foreign corporation which has no contact with the state. (Complaint, ¶39-46.) Second, ATA avers that the Act violates the Commerce Clause because it constitutes an unreasonably burdensome tax on entities with no substantial nexus to Utah, and because its regulatory effect substantially interferes with the flow of interstate commerce. (Complaint, ¶47-54.) Third, ATA states that the Act violates the First Amendment right to free speech of ATA, Judicial Watch and the residents of Utah. (Complaint, ¶55-60.)
Defendant argues that the Utah Act does not violate the Due Process Clause or the Commerce Clause, either facially or as applied, and that its abridgement of certain First Amendment rights is permissible because it is narrowly tailored to serve a substantial state interest.
After filing the Complaint, ATA filed a motion for preliminary injunction accompanied by a memorandum of law (hereinafter "ATA Mem. No. 1"). The defendant agreed to entry of an order suspending the Utah Act with respect to ATA and Judicial Watch during the pendency of this suit. Thereafter, ATA filed a motion for summary judgment accompanied by a memorandum of law (hereinafter "ATA Mem. No. 2"). Defendant opposed that motion and filed a cross-motion for summary judgment, with a supporting memorandum of law (hereinafter "Def. Mem.") and the affidavits of defendant and an additional witness. The parties have conducted discovery, taking depositions of James E.B. Carney, a Vice President of ATA, and of the defendant, Francine A. Giani, Division Director, Division of Consumer Protection, Utah Department of Commerce, the agency entrusted with implementing and enforcing the Utah Act. The parties have also filed a Stipulation of Facts, setting forth those facts which the parties agree are relevant and material to the pending action, and as to which there is no dispute.
Charitable Solicitation Regulation in the United States
ATA's filings and the record evidence in this case demonstrate the extent of state and local regulation of charitable solicitation in the United States. In addition, the state and local statutes are a matter of public record, of which this Court may take judicial notice.
In this case, the Utah Act has been challenged, not for requiring licensing, registration and payment by out-of-state nonprofits that solicit Utah residents for contributions by mail (which also invite strict scrutiny), but for requiring certain types of nonresident advisors to nonprofit organizations, who have no contact whatsoever with the State of Utah, and who assist nonprofits in planning national fundraising campaigns, to obtain a license, register, pay fees, and post security (a bond or line of credit). Also at issue is the unconstitutional impact of the Utah Act on the First Amendment rights of the soliciting nonprofits themselves.
Utah is not the only jurisdiction to license and regulate out-of-state fundraising consultants. Appendix A to this Memorandum lists the charitable solicitation statutes of the various states, counties, and municipalities in this nation of which these amici are aware. Appendix B reproduces a survey of state laws licensing and regulating charitable solicitations, which has been introduced into the record of this case as Exhibit 1 to the deposition of Defendant Giani. Appendix C catalogues, in composite fashion, various licensing requirements, filings, and payments imposed only on professional fundraising counsel. At least 39 states, plus the District of Columbia and an unknown number of counties and municipalities, require annual licensing and registration of nonprofit organizations soliciting funds from the public. Licensure, registration, or other regulation of professional fundraising counsel is presently required by at least 28 states, where such advisors are obligated to pay registration fees (license taxes) and meet further bonding requirements. The financial consequences of licensure and registration alone (particularly to conduct a national public policy campaign, as Judicial Watch had planned), are daunting for both nonprofits and for professional fundraising counsel.
The financial and administrative burdens imposed by these statutes impede, and sometimes (as in this case) preclude, nonprofits' correspondence with, and dissemination of information and ideas to, the American people; prevent the very establishment of some nonprofits; and strangle other newly-established nonprofits such as Judicial Watch. Judicial Watch, like thousands of other nonprofit organizations in this country, addresses political, public policy issues of national interest. Nationwide dissemination of information, involves fundraising appeals that are national in scope. Unduly burdensome state and local regulation can have a devastating cumulative effect on the educational program of such organizations. Registration fees (license taxes) cost charitable organizations and their professional fundraising counsel several thousand dollars annually. Additionally, various states, including Utah, impose requirements upon professional fundraising counsel, such as to post bonds or lines of credit, aggregating a minimum of $130,000. See Appendices B and C. Furthermore, the administrative costs of complying with these statutes are equally substantial, and often are coupled with the need to hire professionals to assist with the dozens of state registration licensing procedures.
The cumulative effect of these laws on nonprofit/charitable organizations as a whole is difficult to fully appreciate, but it is clearly substantial. New organizations seeking to educate or mobilize Americans on a policy issue would require significant initial capitalization merely to comply with the requirements of state law, before even a single letter is mailed. Nonprofits must either do without services of fundraising consultants, or bypass the residents of states with severe licensure and regulation requirements, isolating and censoring the information available to those states' residents.
Such consequences are real. Furthermore,
there is no reason to expect that the licensing and
regulatory burdens by the states will lessen in coming
years, with the prospect that they could virtually silence
all but the most prosperous charities. There is no denial
that the Utah Act suppresses free speech. The only question
is whether Utah may do so constitutionally. These amici
agree with plaintiff that Utah may not, and that the Utah
Act is unconstitutional.
SUMMARY OF ARGUMENT
Utah's effort to license and regulate ATA's conduct by statute is an unconstitutional exercise of jurisdiction, violating the Due Process rights of ATA, because the basis for jurisdiction arises from wholly out-of-state contracts between ATA, an out-of-state corporation, and other out-of-state corporations, including Judicial Watch. The contracts are both executed and performed outside Utah. ATA itself has no contact with Utah or Utah residents.
Utah's efforts to license and regulate the establishment and performance of contracts between two out-of-state corporations which are both executed and performed outside Utah also constitute a per se violation of the Commerce Clause. Whether the registration payments imposed by the Utah Act constitute a tax or a fee, the Act imposes unreasonable burdens on interstate commerce and is therefore unconstitutional.
Utah's efforts to license and regulate
ATA violate the First Amendment rights of ATA, Judicial
Watch, and Utah residents. The Utah Act is not justified by
a compelling state interest, nor is it narrowly tailored,
and it acts as a sweeping prior restraint on the free speech
of charities. The Utah Act is unconstitutionally
standardless, granting excessive authority to government
employees to censor or suppress free speech. Lastly, the
Utah Act discriminates against political speech in favor of
purely commercial speech, notwithstanding the broader
protection enjoyed by political speech under the First
THE UTAH REGISTRATION REQUIREMENTS
The Due Process issue presented to this Court is straightforward, and is based upon uncomplicated facts. The Utah Act requires each out-of-state professional fundraising counsel (if it advises any nonprofit, including those out-of-state, intending to communicate with and solicit funds from residents of Utah), each year: (i) to file a comprehensive registration statement with the State of Utah; (ii) to pay a registration fee of $250 to the State of Utah; and (iii) to obtain a state-approved $25,000 bond for the benefit of the State of Utah. A professional fundraising counsel that meets these tests to the satisfaction of Director of the Division of Consumer Protection of the Utah Department of Commerce may be licensed.
ATA neither resides in nor does business in the State of Utah. In its dealings with Judicial Watch, ATA has had no contact with Utah. Rather, ATA counsels its nonprofit client wholly outside Utah, with respect to a national campaign to communicate ideas regarding political/policy issues, where the national campaign includes the solicitation of contributions. It is Judicial Watch, not ATA, that corresponds with the residents of every state. ATA does not correspond with Utah residents. In summary, ATA has absolutely no contact with Utah.
Under these facts, Utah lacks the authority to tax or regulate ATA. The Constitution's Due Process guarantee, applicable to Utah through the Fourteenth Amendment, does not permit any state to reach out 2,000 miles beyond its borders to regulate wholly out-of-state activities by out of-state companies. See American Oil Co. v. Neill, 380 U.S. 451 (1965) (states cannot regulate out-of-state businesses of domestic corporations); Connecticut General Life Ins. Co. v. Johnson, 303 U.S. 77 (1938) (granting business license does not entitle state to withdraw Due Process privileges involved in doing business elsewhere); New York Life Ins. Co. v. Head, 234 U.S. 149 (1914) (state may not exert powers outside of its lawful authority beyond its borders).
Defendant denies that ATA's Due Process rights have been violated for two reasons:
(1) ATA's efforts on behalf of Judicial Watch are "purposefully directed" towards residents of Utah; and (2) according to its agreement with Judicial Watch, ATA is the real solicitor of the charitable contributions from residents of Utah, not Judicial Watch. (See Def. Mem., pp. 12-14.) Defendant is seriously mistaken, both as to the Due Process principles that govern this case and the contractual relationship between ATA and Judicial Watch.
As to the contractual relationship, defendant contends that the agreement between ATA and Judicial Watch "reveals that ATA plays a substantial role in the solicitations of contributions from the public, purposefully availing itself of the benefits of an economic market in Utah. The charity, on the other hand, plays a more passive role, relying on the expertise and services of ATA to successfully garner contributions on its behalf." (Def. Mem., p. 14.) In an effort to twist the facts to fit the law, defendant profoundly mischaracterizes the terms of the contract between ATA and Judicial Watch.
The ATA/Judicial Watch contract does not authorize "ATA to successfully garner contributions on ... behalf" of Judicial Watch. The last sentence in Section 1.A. of the agreement reads: "ATA shall not solicit on behalf of Client." This prohibition is reinforced by a number of specific provisions in the contract, including Section 1.B., which provides that Judicial Watch "must approve of all purchase orders" and "all direct mail packages ... prior to being mailed." In addition, Section 3.A. states that Judicial Watch, not ATA, "shall have exclusive rights to control, manage and exercise dominion and control over any funds donated to it and raised from programs conducted under this Agreement." (See ATA/Judicial Watch Agreement, Attachment 2 to Def. Mem.) Section 5.A. of the agreement clearly provides that "[a]ll names, addresses, and related information of contributors and noncontributors ... shall belong exclusively to" Judicial Watch, not ATA. Any rental of that contributor list must receive the approval of Judicial Watch. ATA must make every effort not to rent it to any charitable organization that is a competitor of Judicial Watch. Section 5.A.(i). These provisions are consistent with Section 7, which states that the donor and non-donor lists prepared by ATA under the agreement are "the exclusive property" of Judicial Watch.
There is no question, then, that under the express terms of the agreement, Judicial Watch, not ATA, is the solicitor. As the WHEREAS clauses of the agreement state, ATA has the role of advisor and consultant regarding the design and development of materials as well as the procurement of support services. The initiation and execution of the solicitation remain with Judicial Watch. Therefore, Judicial Watch's solicitation of Utah residents cannot actually or legally be imputed to ATA. Because ATA does not make the decision to solicit, it has not &endash; even under the broadest interpretation reasonably possible &endash; "purposefully directed" its activities to Utah residents. At most, it has only laid the groundwork for Judicial Watch's efforts to conduct a national outreach campaign, which may include mailings to Utah residents as part of its national outreach. ATA's assistance to Judicial Watch, which takes place outside the State of Utah, is not sufficient to meet the minimum contacts requirement of the Due Process Clause necessary to justify Utah's imposition of licensing and registration requirements upon ATA.
Utah's exercise of jurisdiction over ATA is strikingly similar to Idaho's unconstitutional regulation in American Oil Co. v. Neill, 380 U.S. 451 (1965). In that case, Idaho attempted to impose an excise tax upon the sale of gasoline. The contract for the sale of gasoline, F.O.B. Salt Lake City, was entered into outside of Idaho by parties in Utah and Washington State. The purchaser shipped the gasoline by common carrier to its facilities within Idaho. The Court held that the seller's knowledge that the gasoline would be shipped into Idaho for use in that state was not sufficient to establish the necessary "nexus" required to justify the tax. The Court required the state to show that the seller had engaged in some activities within Idaho that were connected in some way with the transaction that was being taxed. Even though the seller was licensed to do business in Idaho and engaged in business in that state, the Court found that it had not engaged in any Idaho activities directly connected with the out-of-state sale at issue; so levying an excise tax on that sale violated the Due Process "minimum connection" requirement. Id., 380 U.S. at 453-59.
If the seller in American Oil was protected by the Due Process Clause from the imposition of an excise tax on a contract entered into and performed out of state, then ATA is protected from both the imposition of the licensing fees (tax) and the burdensome registration requirements on its out-of-state contracts performed out of state. This is especially true here, where ATA has no contact with Utah, whereas the seller in American Oil was both licensed and engaged in business in the taxing state.
Utah has attempted to avoid the impact of American Oil by contending that the only relevant Due Process test is whether ATA "purposely directed" any of its activities to Utah residents. (See Def. Mem., p. 14.) As pointed out above, there is no evidence that ATA has "purposely directed" any activity to Utah residents, whether under its Agreement with Judicial Watch or otherwise. But even if such evidence existed, a finding of "purposeful direction" is not sufficient to satisfy the Due Process Clause requirements here.
Defendant is not helped by the fact that purposeful direction of business solicitations to persons within a particular state can satisfy the Due Process minimum contacts test required to obtain personal jurisdiction over an out-of-state defendant in a lawsuit filed in that state. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 (1985). That holding is inapposite in this case, where the issue involves the state's jurisdiction to regulate. Defendant's argument &emdash; that the Due Process test now applied to obtain in personam jurisdiction over an out-of-state defendant is the same test to be applied to obtain jurisdiction to tax or to regulate &emdash; is clearly erroneous. As Justice Scalia pointed out in his concurring opinion in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), "the due process standards for adjudicative jurisdiction and those for legislative (or prescriptive) jurisdiction" are not the same. Id., at 319-320. For authority, Justice Scalia cited the American Oil decision, discussed above, where clearly the seller would have been subject to in personam jurisdiction in an Idaho court even though the particular out-of-state sale was not subject to an Idaho tax.
Indeed, even Quill, where the Supreme Court found sufficient Due Process contacts to justify state use taxation, did not rely solely upon the ground that the Quill Corporation had "purposefully directed its activities at North Dakota residents." Rather, the Court concluded "that the magnitude of those contacts is more than sufficient for due process purposes, and ... the use tax is related to the benefits Quill receives from access to the State." Id., 504 U.S. at 308.
In this case, defendant has chosen to
ignore this part of the Quill holding, making no effort to
satisfy the "magnitude" and "benefits" parts of the test.
The facts remain uncontested that ATA simply has not engaged
in any activities whatsoever in Utah. Therefore, it is
impossible to show that Utah has jurisdiction to justify
either the fees imposed or the registration required by its
charitable solicitation law. Utah is attempting to license
and regulate a select class of consultants of nonprofit
organizations which mail fundraising solicitations to Utah
residents. ATA is such a consultant, which has no contacts
with Utah. There is no authority in law for such
jurisdictional overreaching, and the Utah Act cannot
THE UTAH ACT VIOLATES
Utah attempts to regulate and restrict agreements between ATA and its nonprofit clients in other states, regarding the dissemination of educational material and fundraising solicitations to citizens throughout the nation. State regulation of the out-of-state contracts of an out-of- state person constitutes a per se violation of the Commerce Clause. Brown-Forman Distillers Corp. v. New York State Liquor Authority, 476 U.S. 573 (1986) (New York affirmation statute directly regulated out-of-state transactions and therefore violated the Commerce Clause).
Defendant acknowledges the holding of Brown-Forman, but argues (Def. Mem., p. 20) that Brown-Forman &emdash; and other decisions cited by ATA in its memoranda supporting its motion for summary judgment &emdash; do not apply because, unlike the statutes in those cases, the Utah statute at issue here does not discriminate in favor of local commerce. The holding in Brown-Forman, however, does not require proof of such discrimination. The New York affirmation statute in Brown-Forman, whereby the state attempted to control the prices liquor dealers could charge outside of New York, was found to violate the Commerce Clause because it had the effect of regulating out-of-state transactions. Thus, application of the Brown-Forman rule in this case invalidates the Utah Act.
Under the "negative" aspect of the Commerce Clause, states may not unreasonably burden interstate commerce even where a national law has not pre-empted the field. Thus, state regulation which impedes the flow of interstate commerce is unreasonable unless the state demonstrates (i) that it is pursuing a legitimate local interest and (ii) that local interest outweighs the national interest in the free flow of commerce. See, e.g., Reading Railroad v. Pennsylvania, 15 Wall. (82 U.S.) 232 (1873); Southern Pacific Co. v. Arizona, 325 U.S. 761 (1945); Pike v. Bruce Church, Inc., 397 U.S. 137 (1970). This long-standing rule is equally applicable to the activities of nonprofit organizations and for-profit businesses. Camps- Newfound/Owatonna v. Harrison, 520 U.S. ___, 137 L.Ed.2d 852 (1997). It also applies both to state taxation and state regulation, although somewhat different balancing tests are employed. Whether the Utah Act is only a regulation, as defendant contends (Def. Mem., pp. 19-20), or a tax, which it appears to be, the Act violates the Commerce Clause.
Nexus With Utah
Although defendant has argued that the registration fee provisions in the Utah Act do not constitute a tax, the opposite appears to be true. While not denominated a tax, the Utah Act imposes a fee &emdash; which is functionally identical to the imposition of a tax &emdash; on the privilege of doing business with nonprofits that mail fundraising solicitations into Utah.
The standard for evaluating a state tax statute challenged under the Commerce Clause is whether the state's tax measure meets the four-pronged test set forth in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977): (1) substantial nexus between the person taxed and the taxing jurisdiction; (2) fair apportionment of the tax; (3) non-discrimination in levying the tax; and (4) fair relationship between the amount charged and the services provided by the state. Id., at 279. The parties appear to agree that Utah's statutory scheme fails the Complete Auto Transit test. (See Def. Mem., p. 24.) There is no nexus whatsoever, not to mention a substantial nexus, between plaintiff and the State of Utah. There certainly is no relationship between the registration/licensing fee demanded by Utah ($250 per year) and the benefits provided by Utah to plaintiff (none). The Utah Act correspondingly fails the other prongs of the test as well, since the absence of a nexus renders a fair apportionment of the fee charged impossible. Clearly, the registration/licensing fee imposed on professional fundraising counsel by the State of Utah is an unconstitutional tax on interstate commerce. See, e.g., Quill Corp. v. North Dakota, 504 U.S. 298, 305 (1992) (vendor whose only contacts with taxing state are by mail or common carrier lacks substantial nexus required by the Commerce Clause); National Bellas Hess v. Department of Revenue, 386 U.S. 753, 759 (1967) (mail order transactions are interstate in character and not subject to state taxation)
Seeking to avoid this adverse result (see Def. Mem., p. 24), defendant contends that the Supreme Court's Complete Auto Transit opinion, as applied in Quill, supra, is inapposite because the charges imposed by the State of Utah against plaintiff do not constitute a tax, and cannot be likened to a tax. The state is mistaken. Just because the Act does not call the fee required of registrants a tax does not make it any the less a tax. In Murdock v. Pennsylvania, 319 U.S. 105 (1943), a city ordinance required the payment of a fee as a condition for doing business in that city. The Supreme Court concluded that the required fee was legally a tax &emdash; an unconditional license tax on the freedom to solicit funds to support a nonprofit religious organization. Id., 319 U.S. at 108, 110, 112. The Court likened the license fee to an unconditional tax "for the privilege of carrying on interstate commerce." Id., 319 U.S. at 113.
Defendant has been unable to demonstrate that the registration fee charged plaintiff is not a tax. Defendant argues, for example, that the registration fee for professional fundraising counsel is based on the amount required to administer the Utah Act, and implies that because recent collections from registrations are relatively small, this fee should not be considered a tax. That argument is not persuasive for two reasons.
As a matter of law, a registration fee cannot be more than nominal in order for it to be considered something other than a tax. The Supreme Court made this distinction clear in Murdock when it ruled:
[W]e have something very different [here] from a registration system under which those going house to house are required to give their names, addresses, and other marks of identification to the authorities. In [this case] the issuance of the permit or license is dependent on the payment of a license tax. And the license tax is fixed in amount and unrelated to the scope of activities of petitioners or to their realized revenues. It is not a nominal fee imposed as a regulatory measure to defray the expenses of policing the activities in question. [Id., 319 U.S. at 113-14.]
The defendant has made no attempt in this case to justify the registration fee as a nominal fee imposed to "defray the expenses of policing the activities" of ATA and like consultants. Indeed, if it did, then clearly Utah would be actively investigating and monitoring the out-of-state activities of ATA and its clients, a patent, unauthorized projection of power outside its borders.
The amount of the tax does not turn on the extent of the charitable organization's solicitation activities in the State of Utah. So it cannot be a registration fee tailored to the costs of regulating those activities. Therefore, it is a flat license tax, pure and simple.
Defendant attempts to avoid this legal conclusion by claiming that the registration/licensing fee is calculated in such a way that it does not raise any revenue for the State of Utah beyond that necessary to meet its administrative costs. The total amount of revenue raised, however, is not the test of whether a fee is really a tax under the Constitution. All that is required is for a tax to produce some revenue, even if the amount is negligible. See United States v. Kahriger, 345 U.S. 22, 28 (1953).
Moreover, the total receipts collected, for example, could simply be a function of the effect such a tax has had on out-of-state solicitors, or could result from widespread non-compliance. There are hundreds of thousands of tax-exempt organizations in the United States. Certainly, a large number of them solicit nationally. The defendant undoubtedly would have to adopt a new argument if 1,000 professional fundraising counsel registered, producing $250,000 in revenues annually for the state from the licensing of out-of-state professional fundraising counsel.
Even if the Utah solicitation licensing law is considered to be a mere regulation, it is still unconstitutional. In over fifty years of cases involving Commerce Clause challenges to state regulations, the Supreme Court has developed and applied a balancing test that compares the competing state and federal interests. See, e.g., Edgar v. Mite Corp., 457 U.S. 624 (1982); Kassel v. Consolidated Freightways Corp., 450 U.S. 662 (1981); Lewis v. BT Investment Managers, 447 U.S. 27 (1980); Raymond Motor Transp. v. Rice, 434 U.S. 429 (1978); Pike v. Bruce Church, 397 U.S. 137 (1970); Southern Pacific Co. v. Arizona, 325 U.S. 761 (1945). Application of the test in this case requires striking down the Utah Act as an unreasonable burden on interstate commerce. The facts demonstrate that any Utah state interest said to be involved is not well served by the Act and is of little weight in the balancing of interests, whereas the Act substantially impedes the flow of interstate commerce and interferes with the national interest in the dissemination of ideas and related commerce. Hence, Utah's imposition of registration requirements for professional fundraising counsel does not pass constitutional muster under the balancing test applied by the Supreme Court.
The relevant test in non-tax cases has
its genesis in the following language of Chief Justice
A more recent, and slightly revised, articulation by the Supreme Court of the Southern Pacific standard is set out in Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970):
Where the statute regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities. [Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).]
Like the Southern Pacific test, the Pike balancing test essentially examines the competing state and federal interests and weighs one against the other. Even if the court determines that the local regulation has merit, where the regulation also interferes with interstate commerce, the court must also determine both the importance of the interest sought to be protected as well as alternatives to that local regulation.
Defendant correctly quotes the Pike standard (Def. Mem., p. 21), but misapplies it (Def. Mem., pp. 21-24). Defendant's initial error is the claim that Pike merely requires the court to "identify" the local interests advanced by the Utah Act together and to "identify" the burdens it imposes on interstate commerce. Actually, Pike requires that these matters be examined and weighed, not simply identified. Defendant invokes Utah's substantial interest in protecting "both charities and the public from fraud and other harmful or injurious acts" (Def. Mem., p. 22), but fails to demonstrate how the Utah Act accomplishes such purposes. This is a fatal defect in the defendant's Commerce Clause argument, particularly in light of the showing by plaintiff that the Utah Act is unnecessary to accomplish such purposes in light of other existing state and federal laws. (See ATA Mem. No.1, pp. 15-18, ATA Mem. No. 2, p. 14.) As plaintiff has pointed out, Utah already has a number of measures prohibiting fraudulent conduct. Mail fraud is also prohibited by federal law. See, e.g., 18 U.S.C. section 1341; 39 U.S.C. section 3005. Furthermore, the laws of Virginia, where plaintiff resides, require plaintiff to register and provide "licensing" information which is available to defendant. States also regulate their own domestic nonprofit organizations (such as Judicial Watch) which ATA advises as professional fundraising counsel. There is no apparent justification for the Utah Act, which appears to exist principally for defendant's convenience. See also pages 7 - 9, supra, discussing the cumulative burdens on plaintiff by virtue of other, similar state and local regulation.
Apparently, the state's only justification for the fees charged to ATA is that such fees are reasonably calculated to cover the costs associated with "the administration and enforcement of the Act." (Def. Mem., p. 23.) But administration of the statute merely entails processing registration forms and collecting fees, procedures that have nothing to do with the stated interests of Utah (i.e., protection of the public against fraud and other injurious acts). Defendant's argument appears to be based on a sort of bootstrapping, where the very fees complained of are charged to process the registration statements that ATA says it cannot be required to file.
Defendant has failed to identify the public benefit served by imposing such regulation on ATA. Although it says the requirements are in place to protect the public from fraud, defendant has offered no explanation as to how such protection is served by the regulations. (See Def. Mem., p. 22.) There is no discussion whatsoever, for example, about whether other state and federal laws enacted to protect such interests are wholly ineffective or whether other, less intrusive and less expensive measures could have been enacted in an effort to satisfy Utah's legislative concerns. In Southern Pacific Co. v. Arizona, supra, the Court struck down Arizona's law barring the operation within Arizona of trains having more than 14 passenger cars. Not only did Arizona's law substantially burden interstate commerce (neighboring states had much higher passenger-train-length maximums, and the Arizona law would effectively disrupt and eventually control interstate rail transportation over a several-state area), but the purported safety rationale underlying Arizona's law was not convincing.
A state regulation that impedes the flow of interstate commerce, as Utah's solicitation registration act does here, may only be permitted under the Commerce Clause if it can be shown that Utah's interests in the prevention of fraud and other "harmful and injurious acts" are so strong that they outweigh any burden that the act imposes on interstate commerce. In addition, it must be demonstrated that Utah has no other reasonable alternative imposing a lesser burden and still accomplish its legitimate interests. The Utah solicitation registration act meets neither constitutional criterion.
Despite extending deference to state judgment concerning safety regulations, the Supreme Court, in balancing the competing considerations (i.e., state safety measures versus interference with interstate commerce), has not hesitated to invalidate measures that, although ostensibly designed for safety purposes, serve such purposes only marginally while interfering substantially with interstate commerce. See, e.g., Kassel v. Consolidated Freightways Corp., supra, 450 U.S. at 670-71 (invalidating state regulation prohibiting 65-foot single-trailer trucks on state highways); Raymond Motor Transport, Inc. v. Rice, supra, 434 U.S. at 441-43 (invalidating Wisconsin's prohibition against double trailers on state highways); Bibb v. Navajo Freight Lines, Inc., 359 U.S. 520 (1959) (Illinois regulation must give way under the Commerce Clause because of conflicting evidence on comparative safety advantages of different types of mudguards, and the significant burden on interstate commerce if truckers had to shift cargoes to differently designed vehicles).
All of these cases held that state regulations based upon the police power, with public safety as their aim, were invalid due to their interference with interstate commerce. In each case, the Supreme Court went behind the stated rationale of the challenged regulation, and determined that the salutary purposes for which they were ostensibly designed were not really served thereby, or else were not sufficient to justify the burden on interstate commerce they created. These decisions are particularly applicable in this case, therefore, where defendant touts the "anti-fraud" purpose behind the Utah Act, but is unable to provide one persuasive reason why existing state and federal anti-fraud (and disclosure) laws are not sufficient in that regard. Furthermore, defendant has not adequately evaluated and weighed the state's interest supposedly served by the regulations against the burden on interstate commerce that they create. According to defendant, the burdens on interstate commerce are "virtually non-existent." (Def. Mem., pp. 23-24.) This analysis shows an almost cavalier disregard for the real impact of the burdens imposed on private parties by the state, and ignores the tremendous, cumulative, adverse impact on interstate commerce that has been created by the Utah law and other state charitable solicitation laws.
As previously explained (see pages 7 - 9, supra and Appendices B and C), the administrative/financial burdens imposed on plaintiff by the Utah Act are severe by any standard. Although some organizations can absorb an annual registration fee of $250, the hundreds (or sometimes thousands) of dollars more required each year to obtain a $25,000 bond, and the significant administrative costs entailed in accomplishing the necessary arrangements and filings, others undoubtedly cannot. When multiplied by all the states, counties, and municipalities imposing such burdens, many cannot afford the many thousands of dollars and hundreds of hours such regulations require to conduct even a single nationwide mailing.
It is likely, moreover, that the State of Utah has not even considered the impact of its regulations on ATA (or any other professional fundraising counsel), a suspicion that is strengthened from a reading of defendant's memorandum of law. The burden of the Utah Act, by itself, on ATA has been severe. It caused ATA not to register in the State of Utah; and, presumably for a time, it caused Judicial Watch not to mail its educational and fundraising messages to the residents of Utah. Undoubtedly it has affected numerous other organizations in the same manner. Such effects are not unique to ATA and Judicial Watch, and they constitute a serious, direct burden on interstate commerce.
When the cumulative effect of such
registration requirements and financial burdens on
interstate commerce is examined, it is found to be enormous.
See pages 7 - 10, supra, and Appendices B and C hereto. To
contend that compliance with dozens of statutes, many with
administrative and financial burdens similar to those of the
Utah Act, can be easily accomplished, or constitutes an
insignificant burden for any nonprofit organization or its
professional fundraising counsel, is not credible. To deny
its obvious impact on interstate commerce would be to ignore
the facts of this case, for Utah's law not only interfered
with out-of-state transactions between ATA and Judicial
Watch, but also prevented Judicial Watch from mailing
educational materials and fundraising solicitations to the
residents of Utah. This Court can take notice of such an
obvious cumulative effect, as did the Supreme Court in
Bellas Hess, supra:
Here, of course, states and political subdivisions throughout the United States have enacted an array of charitable solicitation regulations, similar to sales and use taxes, that are burdensome on interstate commerce. As ATA has pointed out (ATA Mem. No. 2, pp. 8-11), new "start- up" organizations cannot possibly comply with them. Even existing organizations, such as Judicial Watch, now must suppress their mailing to those living in some states. This haphazard patchwork of regulatory oversight may eventually balkanize the states, by forcing nonprofits to mail only into certain states or localities. The Commerce Clause was written precisely to preclude such substantial interference with interstate commerce. As Justice Robert Jackson so eloquently wrote:
[O]ur economic unit is the Nation Our system is that every farmer and every craftsman shall be encouraged to produce with the certainty that he will have free access to every market in the Nation... Likewise, every consumer may look to the free competition from every producing area in the Nation to protect him from exploitation by any. Such was the vision of the Founders
[H.P. Hood & Sons v. Dumond, 336 U.S. 525, 536, 539 (1948).]
Unquestionably, the Utah statute does
precisely what Justice Jackson said that the Commerce Clause
proscribes. This Court should order a halt to such
interference in Utah.
THE UTAH ACT IMPERMISSIBLY BURDENS
A. THE UTAH ACT UNREASONABLY BURDENS
THE RIGHT TO FREE
The Utah Act impermissibly burdens activities of ATA and Judicial Watch which are protected by the First Amendment. The very First Amendment rights encumbered by the Utah Act are discussed in the Supreme Court's well-known "trilogy" of cases setting strict limitations on state charitable solicitation laws: Village of Schaumburg v. Citizens for a Better Environment, 444 U.S. 620 (1980); Secretary of State v. Joseph H. Munson Co., 467 U.S. 947 (1984); and Riley v. National Federation of the Blind of North Carolina, 487 U.S. 781 (1988).
These cases held that the free speech and solicitation activity engaged in by Judicial Watch are afforded the highest protection of the First Amendment. Hence, before even limited state regulation of such activity can be constitutional, the state must meet a heavy burden of proof to justify a regulation that burdens such free speech. The regulation must be justified by a compelling state interest, and must be narrowly tailored to serve that compelling governmental interest, without unnecessarily infringing on First Amendment rights. The parties do not differ on these fundamental points. Rather, defendant has attempted to show that the Utah Act meets this burden of proof defined by Schaumburg, Munson, and Riley.
(i) The Utah Act is Unnecessary. Defendant has argued that the Utah Act was passed to protect Utah citizens against "fraud and other injurious Acts," but has not demonstrated why this statute was necessary to supplement existing law. (Def. Mem., pp. 8-12.) Schaumburg, Munson, and Riley show that a state's mere recitation of the words "prevention of fraud" does not justify infringement of the First Amendment. Defendant must demonstrate that the Utah Act, which clearly infringes on First Amendment activity, is narrowly tailored to protect the citizens of Utah against fraud "and other injurious acts." A showing that the law is not necessary for such purposes is sufficient cause to strike it down as unconstitutional.
Defendant is silent with respect to any alleged compelling need for the Utah Act. ATA has demonstrated that there is a plethora of state and federal laws protecting Utah citizens from fraud. (ATA Mem. No. 1, pp. 16-18) See, e.g., Utah Code Ann., sec. 76-10-1801; Utah Code Ann., sec. 78-27-24; 18 U.S.C., sec. 1341; 39 U.S.C., sec. 3005. Defendant does not demonstrate what the Utah Act adds to other laws protecting the public. The same concern exists for those portions of the Utah Act requiring disclosure. Much of the required information regarding soliciting charities is available to the State of Utah, as well as to the general public, by virtue of section 6104(e) of the Internal Revenue Code. Moreover, much, of the required information, with respect to both ATA and Judicial Watch, is available to the State of Utah as well as to the general public from the Commonwealth of Virginia or the District of Columbia, where the entities are registered. Defendant has not explained what benefits accrue from the Utah Act's disclosure provisions in light of these state laws, as well as federal laws already providing for such disclosure. This failure to explain the necessity for the Utah Act is fatal to the defendant's position, and requires a holding, under Schaumburg, Munson, and Riley, that the Utah Act is unconstitutional.
Defendant has further claimed, quoting from the statute, that one purpose of the Utah Act is not just to prevent fraud but to protect Utah residents from undefined "harmful and injurious acts." (Def. Mem., p. 7.) The use of such a broad statement of criteria per se invalidates a statute that confers licensing authority upon a government official to regulate speech. Such statutes must contain clear and specific guidelines in order to guard against a government official using his power to censor ideas that he does not like. City of Lakewood v. Plain Dealer Publishing Co., 486 U.S. 750 (1988). This principle is applicable in this case not only because of the broad statement of statutory purpose in the Utah Act, but also because of the specific grant of authority to the Director to deny a registration when he deems it not in the "public interest." See, e.g., Staub v. City of Baxley, 355 U.S. 313 (1958).
Although defendant attempts to insert some meaning into the nebulous statutory purpose of protecting Utah residents from "harmful and injurious acts," with the claim that the Utah Act is designed to "ensure a source whereby those who suffer loss as a result of fraud or other acts may obtain redress" (Def. Mem., p. 7), no authority has been cited to support the claim that this purpose is "substantial," as required by Schaumburg, Munson, and Riley. Indeed, defendant's characterization of this criterion is virtually as broad as the statute's undefined terms.
In Riley, the Court rejected North Carolina's asserted interest in protecting charitable organizations from economic overreaching by professional fundraisers. Moreover, the Court found that the state had not proved that such protection was necessary. Riley, supra, 487 U.S. at 790. Likewise, in this case, Utah has not demonstrated that her residents need this statute's special protection either from fraud or other wrongs. Nor has defendant demonstrated that any such injuries have ever been perpetrated upon residents of Utah by professional fundraisers working for charitable organizations soliciting funds in Utah. There is no evidence, for example, that the long-arm statute has not proven sufficient to obtain jurisdiction over fundraisers where some type of injury had occurred in the past. And there is no evidence of any need for a bond or line of credit to insure that Utah residents will recover money if they obtain a judgment against such fundraisers. In addition, Utah has not identified, and it is difficult to conceive of, a single instance where a Utah resident would have access to or benefit from such a bond a or line of credit.
(ii) The Utah Act is Unconstitutionally Standardless. Even if defendant were able to point to some necessity for the Utah Act, it would still be required to demonstrate that the Utah Act is narrowly tailored to serve such necessary purposes. An examination of the precise language of statutes encroaching on protected free speech is critical in a determination of its constitutionality. See Schaumburg, supra, 444 U.S. at 633-38; Munson, supra, 467 U.S. at 959-68; Riley, supra, 487 U.S. at 784-803. In each case, the Court analyzed the statutory language with care to determine if it was narrowly drawn to further the stated purpose of the law.
According to defendant's own memorandum, the Utah Act authorizes the Director of the Division of Consumer Protection of the Utah Department of Commerce to deny a registration if to do so is "in the public interest" after a finding of one or more of eight factors related to the disclosure requirements of the Act. With respect to the eight named factors, four appear to be reasonably objective. The other four, however, grant the Director considerable discretion in denying registration. For example, the Director may reject an application for registration if it is "incomplete or misleading in any material respect"; or if "an injunction or administrative order" has been entered against the applicant "based on a finding of a lack of integrity, dishonesty, or mental incompetence of the applicant"; or if the applicant "has materially misrepresented or caused to be misrepresented the purpose and manner in which contributed funds and property will be used in connection with any solicitation"; or that the applying "consultant has failed reasonably to supervise its agents or employees."
As for the first factor, whether an
application is incomplete or misleading, "a professional
fund raiser" applicant is required to submit:
The application of a "professional fund raising counsel or consultant" must contain a similar statement documenting the "total fees to be earned or received from the charitable organization and what percentage of the contributions collected remain available to the charitable organization ... including a satisfactory statement of the factual basis for the projected percentage and projected anticipated revenues and, if a flat fee is charged, documentation to support the reasonableness of such flat fee " [Id., sec. 13-22-9(1)(b)(viii)(E) (emphasis added).]
These provisions appear to grant the Director discretion to deny an application as "incomplete or misleading" if the Director decides that the documentation is not satisfactory or does not sufficiently demonstrate "reasonableness." Such authority is as broad as that granted to regulators in the North Carolina statute, which was struck down in Riley, supra. In Riley, the Court found that the state of North Carolina could not, even for the purpose of deterring fraud, impose a standard of "reasonableness" upon a professional fund raiser, ruling that "the State's generalized interest in unilaterally imposing its notions of fairness on the fundraising contract is constitutionally invalid." Riley, supra, 487 U.S. at 792.
By granting to the Director discretion to deny registration on the grounds that a statement does not contain enough information to document to the Director's "satisfaction" a "factual basis for the projected percentage" or for the "reasonableness" of a flat fee, the Utah law is not &emdash; as the defendant contends &emdash; a statute that merely requires fundraisers to disclose certain financial or other similar information to the state, as the Supreme Court has suggested might be reasonable. See Riley, supra, 487 U.S. at 795. This point is reinforced by the additional authority conferred upon the Director to determine whether or not a consultant has "reasonably" supervised his agents or employees or has "materially misrepresented or caused to be misrepresented the purpose and manner in which contributed funds and property will be used in connection with any solicitation." Utah Code Ann., sec. 13-22-12(1)(b)(v). Such grants of authority smack of unconstitutional paternalism, rather than a non-burdensome effort to secure information from professional fund-raises to ensure it is available to the public, so that they can make their own decision whether to respond positively to a particular charitable appeal. See Riley, supra, 487 U.S. at 790-91.
In addition, the Utah Act confers authority upon the Director to deny registration if, in the Director's judgment, there is evidence of a "lack of integrity, dishonesty or mental incompetence" in the applicant. While such a finding must be made upon the basis of a court of administrative record, criteria such as "lack of integrity," "dishonesty" and "mental incompetence" are not familiar legal standards; rather, they connote moral judgments or professional evaluations and, hence, are subject to considerable discretion. Such terms are especially susceptible to subjective interpretations where, as here, the Director is also given authority to deny registration "in the public interest" when coupled with any finding based upon one or more of eight factors, four of which are discretionary. Courts have consistently struck down licensing statutes regulating speech where the licensor has been granted broad discretion without clearly and specifically defined legal standards (see Schneider v. State, 308 U.S. 147 (1939); Hynes v. Mayor of Oradell, 425 U.S. 610, 620 (1976)) because such vague standards allow government officials to discriminate against some applicants on the basis of their views, rather than on uniform rules applicable to all applicants equally. See Lovell v. City of Griffin, 303 U.S. 444 (1938).
Lastly, the Utah Act's grant of considerable discretion to deny an application does not meet the constitutional standard laid down in Riley. According to defendant's own memorandum, the regulations require that "the division must process registration applications 'within 10 business days of their receipt by the division.'" But this regulation does not say that the division must make a decision within 10 days, only that it must process the application within the 10-day period. Given that the process is not ministerial, but rather an exercise of discretion, there is no guarantee that within the 10-day period an applicant will either be issued a license or go to court, as required by Riley, supra, 487 U.S. at 801-02.
As a vital corollary to the right to free speech, Americans enjoy a fundamental right to receive information and ideas. "It is now well established that the Constitution protects the right to receive information and ideas This right to receive information and ideas is fundamental to our free society." Stanley v. Georgia, 394 U.S. 557, 564 (1969). Federal regulation of broadcasting, for example, must take account "of the rights of the viewing and listening audience" in light of the Supreme Court's admonition "that 'the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public.'" Metro Broadcasting, Inc. v. FCC, 497 U.S. 547, 567 (1990), quoting Associated Press v. U.S., 326 U.S. 1, 20 (1945). See also Virginia Pharmacy Board v. Virginia Citizens Consumer Council, Inc. 425 U.S. 748 (1976). In the area of free speech, "the protection afforded is to the communication, to its source and to its recipients both." Id. at 756.
Significantly, Stanley accorded First Amendment protection to the possession of obscene matter, 394 U.S. at 559, while the speech at issue in Virginia Pharmacy Board "does 'no more than propose a commercial transaction,'" 425 U.S. at 762. The speech at issue in both of those cases enjoy less Constitutional protection than the speech at issue in the instant case.
Justice Brennan, in his plurality opinion in Board of Education v. Pico, 457 U.S. 853 (1982), explained the significance of this right to receive information.
[W]e have recognized that "the state may not, consistently with the spirit of the First Amendment, contract the spectrum of available knowledge." Griswold v. Connecticut, 381 U.S. 479, 482 (1965). In keeping with this principle, we have held that, in a variety of contexts, "the Constitution protects the right to receive information and ideas." Stanley v. Georgia, 394 U.S. 557, 564 (1969); see Kleindienst v. Mandel, 408 U.S. 753, 762-63 (1972) (citing cases). This right is an inherent corollary of the rights of free speech and press that are explicitly guaranteed by the Constitution, in two senses. First, the right to receive ideas follows ineluctably from the sender's First Amendment right to send them. "The right of freedom of speech and press ... embraces the right to distribute literature, and necessarily protects the right to receive it." Martin v. Struthers, 319 U.S. 141, 143 (1943) (citation omitted). "The dissemination of ideas can accomplish nothing if otherwise willing addressees are not free to receive and consider them. It would be a barren marketplace of ideas that had only sellers and no buyers." Lamont v. Postmaster General, 381 U.S. 301, 308 (1965) (Brennan, J., concurring).
More importantly, the right to receive
ideas is a necessary predicate to the recipient's meaningful
exercise of his own rights of speech, press, and political
freedom. Madison admonished us:
The Utah Act violates the First Amendment rights of Utah residents. It has chilled Judicial Watch's communication with them. But for the Utah Act, Judicial Watch could have included Utah residents in its nationwide mailing on matters of public policy. Furthermore, it is clear that, without judicial intervention, this unconstitutional deprivation of constitutional rights will continue.
The First Amendment does not permit governments to interject themselves as intermediaries between door-to-door solicitors of financial support for the promulgation of ideas and the occupier of a home. Martin v. City of Struthers, supra 319 U.S. 141, at 146-47. In design and effect, that is exactly what the Utah Act does, not for door-to-door solicitors, but for nonprofit organizations communicating and soliciting contributions from another state. According to well-settled First Amendment principles, the state may not exceed the narrow purpose of obtaining information in order to disseminate that information to the general public. It is not for the State of Utah to decide what its citizens receive, for the "householder [must be] the exclusive and final judge of what will cross his threshold " Rowan v. Post Office Dept., 397 U.S. 728 (1970). By preventing First Amendment-protected correspondence from entering Utah households, the Utah Act unconstitutionally interposes itself in the chain of free speech, and deprives not just the senders, but also the receivers, of their First Amendment rights.
Utah law imposes requirements on direct
mail to the public that contains charitable solicitations,
but not on direct mail to the public that contains
commercial solicitations. The Utah Act focuses entirely on
charitable solicitations, and by its terms has no
application to other direct mail. There is no corresponding
law applicable to commercial speech. This is pure
content-based regulation of protected speech. Statutes which
restrict speech based on content are presumed
unconstitutional. Rosenberger v. University of Virginia, 515
U.S. 819, 132 L.Ed 2d 700, 714-15 (1995), citing Turner
Broadcasting System, Inc. v. FCC, 512 U.S. 622 (1994).
Moreover, state statutes which impose financial burdens on
certain speakers based upon the content of their expression
violate the First Amendment. As the Supreme Court explained
in Rosenberger, supra:
In this case, the Utah Act fundamentally and unconstitutionally discriminates against speech based upon its content. First, the State of Utah prohibits Judicial Watch (or any nonprofit) from disseminating ideas into the state if the mailings contain fund-raising solicitations developed with advice and counsel from ATA (or any professional fund-raising counsel) &emdash; unless the professional fund-raising counsel agrees to register, to pay Utah's registration fee, to put up a bond, and to subject itself to Utah's jurisdiction. No such requirements apply to any commercial enterprise that ATA (or any professional fund-raising counsel) may have advised. Thus, to the extent that a commercial enterprise may have sought counsel from ATA on the use of direct mail to advertise a product for sale, such as a magazine subscription or a pre-approved credit card, the Utah Act would not prohibit the commercial enterprise from mailing into Utah if ATA had not applied for a permit, not disclosed corporate and business information, not disclosed the terms of its contracts, not paid a registration fee, and not secured a bond in Utah. There is no Constitutional basis for such content-based discrimination.
In addition, and even more fundamentally, the very requirement in that Utah Act that charities be licensed is discriminatory, content-based, and unconstitutional. The State of Utah prohibits Judicial Watch (or any nonprofit), from disseminating ideas into the state where the mailings contain fund-raising solicitations &emdash; unless Judicial Watch agrees to register and pay fees. No such requirements exist with respect to commercial enterprises. Thus, if Judicial Watch should offer a particular book as a premium for a contribution to support its free speech activities, the Utah Act requires it to be licensed and to pay the registration fee. On the other hand, if a commercial seller should offer to sell the same book, it need not be licensed or pay a registration fee. As was the case with the New York law in Simon & Schuster, supra, the Utah law "singles out income derived from expressive activity for a burden the State places on no other income, and it is directed only at works with a specified content," thereby "establish[ing] a financial disincentive to create or publish works with a particular content." Id., 502 U.S. at 116, 118. The requirements and burdens imposed by the Utah Act are therefore purely content-based, are discriminatory, and are unlawful.
These amici find it difficult to
anticipate any basis on which the defendant could argue that
the Act is constitutional in view of its content-based
discrimination against free speech. Indeed, these amici urge
that the Court reach the First Amendment issues, preferring
that to a determination that the Utah Act is
unconstitutional merely because it deprives plaintiff of Due
Process of Law. If the Court does not reach the critical
First Amendment issues now, it is a virtual certainty that
these issues will arise in other litigation, again and
again, until this intolerable and unnecessary regulatory
scheme is eliminated. These amici would respectfully suggest
that the Court should rule on the content-based
discrimination inherent in the Utah statute, so as to avoid
the need for redundant litigation, during the pendency of
which the First Amendment rights of many will be
Andrew M. Morse (A4498)
William J. Olson, John S. Miles, Alan
Mark B. Weinberg
Herbert W. Titus of Counsel
Counsel for Amici Curiae, Free
Speech Defense and Education Fund, Inc., et al.
The following States have enacted statutory regulation of charitable solicitation:
Alaska, see Alaska Stat.
§45-68.010, et seq. (1994);
A number of counties, cities and political subdivisions in the United States have enacted charitable solicitation regulations. The following are examples:
Columbia City Code, §525.01,
et seq. (1989);
In addition, the Indiana Code expressly
permits its subdivisions to regulate
FUND RAISING COUNSEL
At least twenty-eight states have enacted laws regulating professional fund-raising counsel (sometimes called professional fund raisers). These states vary significantly in the nature and extent of the regulation, as well as the various preconditions, fees, registration requirements, forms, and other burdens they impose.
The following compilation is based on state laws as they exist currently, but include a few provisions which may since have been amended. Although these requirements do not exist in this form in any one state, in the aggregate they impose a burden which can be better understood by a review of this composite of state requirements. This composite incorporates selected features of the 28 state laws regulating professional fund raising counsel, but is not comprehensive and does not include all of the requirements imposed by each state.
If any one state may impose a particular burden on professional fund raising counsels, all states (probably as well as counties and localities) may impose those burdens.
(A) Before acting as a Professional Fund Raising Counsel ("PFRC"), every person or entity must first obtain a permit by complying with all of the following application requirements:
1. Submit a written application
to, and obtain the approval of, the Attorney General, on a
form prescribed by the Attorney General, containing all of
the following information:
A PFRC shall notify the Attorney General within 7 business days if any information contained in this registration changes. (FL)
All registrations for PFRCs shall expire on December 31st of the year for which they are issued. Registration can be renewed only by complying with the requirements for obtaining the original registration or permit.
(At least eight states require PFRCs to reapply de novo upon expiration: IL, ME, MI, NH, NY, NC, OH, UT. Five states do not mention renewal, only that the registration expires: VA, TN, NJ, MD, IA. Only two states, OK and AR, do not require anything but payment of the annual fee and maintenance of the bond. )
2. Pay to the Attorney General a nonrefundable one time application fee of $50.00 (ME), a registration or annual re-registration fee of $800.00 (NY), plus the costs of any criminal background checks conducted. (KY)
3. Execute and submit to the Attorney General a $25,000 bond. (MD, OH, TN, UT)
1. The contract must contain all of the following conditions:
(a) A statement of the charitable purpose
for which the solicitation campaign is being conducted. (FL,
KY, MA, MS, NC, PA)
2. The Attorney General may require the use of standard contract forms, and the contract is not valid until approved by the Attorney General. (OK)
1. Within 90 days of the termination of a solicitation campaign, or annually within 30 days of the anniversary of the beginning of the campaign if the campaign lasts more than one year, the PFRC must file a financial report including gross revenue and itemized expenses. The report must be filed using a form prescribed by the Attorney General, and must be signed by an authorized official of the PFRC and an authorized official of the charity. (AL, CT, MN, NH, NY, ND, OH, SC)
If the solicitation campaign is conducted nationally or regionally, and is not confined solely to the state, the financial information required to be filed shall be inclusive of the national or regional campaign. (MS)
2. The PFRC must maintain accurate fiscal books and records of each campaign for 3 years. (AR, CT, HI, IN, ME, MA, MN, NH, OH, SC) These books and records must be open to the Attorney General for inspection on demand. The PFRC must also retain and make available to the Attorney General:
(a) Records of all contributions in the
PFRC's custody, including the names and addresses of all
persons making contributions and the amounts thereof. (AR,
3. The Attorney General may
require the PFRC to submit a financial statement certified
by an independent public accountant, whenever the Attorney
General has reasonable grounds to believe that the PFRC has
violated the act or any rule promulgated thereunder.