Vol. V, No. 2March - April 1997

FSC Member Scores Victory Against North Carolina Regulators
When North Carolina regulators refused to renew the charitable solicitation license of Free Speech Coalition member Citizens United, the nonprofit fought back, arguing that the Department of Human Resources' interpretation of the state's charitable solicitation law violated both the First Amendment and the Commerce Clause.

In the end, the state capitulated, demonstrating that the Commerce Clause can serve as a powerful weapon in the battle against overly burdensome state regulations.

The battle lines in Citizens United v. North Carolina Department of Human Resources were drawn last fall when an official of the Department's Solicitation Licensing Branch informed the Virginia-based Citizens United that the organization's license to solicit charitable contributions in North Carolina was not being renewed because Citizens United did business in Virginia with a fundraising consultant who was not licensed to do business in North Carolina.

In its petition seeking reversal of the agency's actions, Citizens United argued that it is a Virginia-based organization and that its only contacts with the State of North Carolina were through direct mail communications with its members and the public. The group also claimed that its fundraising consultant was a Virginia-based corporation with no direct contacts with the State of North Carolina. Indeed, the contract between Citizens United and its consultant was entered into in Virginia and all services by the consultant were fully performed in Virginia.

While the state generally did not dispute Citizens United factual allegations, it nevertheless defended the Department's actions on the grounds that North Carolina's state's charitable solicitation act prohibited charitable organizations from using the services of unlicenced fundraising consultants in connection with solicitations to persons in North Carolina. Interestingly, however, Citizens United consultant was licensed under Virginia's charitable solicitation laws.

At a December 11, 1996 hearing, North Carolina Assistant Attorney General June S. Ferrell said, "We have told Citizens United that, in order for them to be licensed, they must contract with licensed entities in this State, that are licensed by this State."

The state's position was that, although the fundraising consultant did not perform any services in North Carolina, at least some of the mailings involving the services of the consultant were sent by Citizens United to persons in North Carolina, and, therefore, the consultant's services could be regulated in North Carolina.

Citizens United, on the other hand, questioned whether the state had any authority to regulate solicitations sent by mail. In Quill Corporation v. North Dakota, 504 U.S. 298 (1992), and Bella Hess v. Illinois, 386 U.S. 753 (1967), the U. S. Supreme Court recognized that use of the U.S. mail is an exclusively interstate activity over which the states have no regulatory authority.

Citizens United also cited Healy v. The Beer Institute, 491 U.S. 324 (1989), to argue that even if North Carolina had authority to regulate solicitations sent by mail, it could not regulate business transactions between Citizens United and its fundraising consultant, when those transactions occurred wholly in Virginia. "The 'Commerce Clause precludes the application of a state statute to commerce that takes place wholly outside of the State's borders, whether or not the commerce has effects within the State.'" Healy, 491 U.S. at 336 (quoting Edgar v. MITE Corp., 457 U.S. 624, 642-643 (1982)).

Finally, Citizens United challenged the Department's actions on First Amendment grounds, arguing that the law, as interpreted by the state, imposed unduly burdensome restraints on its ability to communicate with its members and the general public.

In the end, the state decided that it was better to issue Citizens United a renewal license than risk a precedent-setting decision that could have ultimately brought down the state's regulatory regime. In March, state officials executed a settlement agreement, in which the Department of Human Resources agreed to renew Citizens United's license.

While the settlement has no legally binding effect in future cases, the fact that the state capitulated demonstrates that the Commerce Clause provides nonprofit groups and their fundraising consultants with a powerful weapon in the battle against overly burdensome state laws which regulate charitable solicitations and communications with the public.

McCain-Feingold: A Hidden Attack on Nonprofits
While the McCain-Feingold bill (S.25) is most noteworthy for the expansive new powers it would give the federal government to regulate political campaigns, additional dangers for nonprofits exist in the bill. McCain-Feingold attempts to redefine the campaign finance term of art, "express advocacy."

Under current law, express advocacy means the explicit call for the election or defeat of any candidate. McCain-Feingold, however, changes the Federal Election Commission Act to include "express advocacy" to include:
(ii) a communication that is made through a broadcast medium, newspaper, magazine, billboard, direct mail, or similar type of general public communication or political advertising that involves aggregate disbursements of $10,000 or more, that refers to a clearly identified candidate, that a reasonable person would understand as advocating the election or defeat of the candidate, and that is made within 30 days before the date of a primary election...or 60 days before a general election. [Emphasis added.]

Further, for the time periods more than 30 days before a primary and more than 60 days before a general election, McCain-Feingold adds a supposedly narrowing qualification to the above standard: and that is made for the purpose of advocating the election or defeat of the candidate, as shown by one or more factors such as a statement or action by the person making the communication, the targeting or placement of the communication, or the use by the person making the communication of polling, demographic, or other similar data relating to the candidate's campaign or election. [Emphasis added.]

McCain-Feingold would rely on the FEC as the "reasonable person" to interpret which communications that do not explicitly call for the election or defeat of any candidate should be viewed as "express advocacy."

The FEC's responsibility would include investigation into an organization's motive, as evidenced by statements, geographic targeting, and research &emdash; which could mean broad and intrusive subpoenas covering the private records of nonprofit organizations.

McCain-Feingold seeks to revive the FEC's failed efforts to expand the reach of the "express advocacy" standard. The "express advocacy" provision of McCain-Feingold &emdash; using the FEC as referee &emdash; would greatly limit the freedom of groups to communicate with their members and supporters as well as with the public. This interpretation of electioneering subject to regulatory restriction would encompass any public discussion of policy issues and candidates that might be viewed as having any impact upon voters' opinions. Such an approach would necessarily chill First Amendment rights and represents a grave threat to the free speech rights of nonprofit organizations.

McCain-Feingold is radical legislation. It reflects beliefs that the courts who developed the express advocacy standard are wrong, the FEC is right, and the First Amendment can be, in effect, amended by statute.

Doolittle Proposes Disclosure Without Regulation of Political Speech
Congressman John T. Doolittle (CA-4), proposed a very different type of campaign finance regulation with H.R. 965, the Citizen Legislature and Political Freedom Act. Doolittle said his bill would "provide real reform without sacrificing First Amendment rights." H.R. 965 would:
• repeal existing limits on individual, PAC, and political party contributions to federal candidates, and
• require full disclosure of contributions so that voters receive accurate, timely and complete information on the sources of campaign funds.

According to Kevin Ring, Legislative Director for Congressman Doolittle, the bill currently has 51 co-sponsors from both sides of the aisle, exceeding the number for H.R. 493, Shays- Meehan, the House version of the McCain-Feingold campaign regulation bill.

Of additional interest to nonprofits is H.R. 965's passive acknowledgment of the unconstitutionality of attempts to regulate issue advocacy. Unlike other campaign "reform" bills, Doolittle's bill does not seek to regulate or limit the amount or kind of issue advocacy done by nonprofit organizations.

FSC Capitol Hill Legislative Breakfast with Sen. McConnell
The ornate Russell Senate Caucus room was the site for the Free Speech Coalition's Spring Legislative Breakfast, held April 10, 1997. Ninety-five members and friends of the Coalition heard U.S. Senator Mitch McConnell (R-KY) tell attendees that the dangers to free speech from political campaign regulation such as the McCain-Feingold bill are serious and that nonprofits must work together to "drive a stake through the heart of McCain-Feingold."

Following Senator McConnell's speech, a panel of four experts discussed the specific dangers to nonprofits that McCain-Feingold would create for nonprofits. The panel included:
• Robert Dahl, Esquire, an attorney in private practice;
• Curtis Gans, Director of the Committee for the Study of the American Electorate;
• Brent Thompson, Esquire, Executive Director of the Fair Government Foundation; and
• James Bopp, Jr., Esquire, General Counsel for the National Right to Life Committee.

Senator McConnell's speech and the panel discussion can be heard by visiting policy.com on the world wide web.

The Free Speech Coalition, Inc. is a nonpartisan, nonprofit 501(c)(4) organization which educates, lobbies, and litigates to defend the rights of advocacy organizations and their members. FSC needs your support to continue its fight to protect the rights of citizens to associate together and exercise their First Amendment right to petition their government for redress of their grievances. Contributions to the Free Speech Coalition, Inc. are not tax-deductible.