Volume VII, No. 4 November-December 1999

Oral Argument Before 10th Circuit in ATA v. Giani

FREE SPEECH readers will remember American Target Advertising, Inc.'s ("ATA") suit against the state of Utah: ATA v. Giani is a Constitutional challenge to the Utah Charitable Solicitations Act, originally filed in U.S. District Court (District of Utah).

This suit arose after a Washington, D.C. nonprofit retained ATA, a Virginia corporation, to assist it in preparing nationwide mailings. When the nonprofit attempted to register with Utah, Francine A. Giani, who directs the office enforcing the Utah Charitable Solicitations Act, demanded that ATA also register before the nonprofit could mail into Utah. ATA had no contact whatsoever with Utah and refused to register and pay the required fees. As a result, the nonprofit was prohibited from mailing any solicitations prepared under its contract with ATA into Utah. In response, ATA filed suit to have the Utah law declared unconstitutional. The district court upheld the Utah law, and ATA appealed to the U.S. Court of Appeals for the 10th Circuit.

On November 10, 1998, the Free Speech Defense & Education Fund, Inc. ("FSDEF") and 30 other nonprofits and companies filed an amicus curiae brief with the 10th Circuit. This brief argued that the Utah Act is unconstitutional: it violates ATA’s Due Process rights because there is no nexus between ATA and Utah justifying the state's licensing jurisdiction; it violates ATA's rights under the Commerce Clause because it imposes an excessive burden upon ATA's interstate operations without resulting in any legitimate benefit to the state; and it violates ATA's First Amendment rights because it imposes a discriminatory prior restraint upon nonprofit appeals for funds and other protected speech and violates the rights of the residents of Utah, and grants unconstitutional discretion to Utah government authorities.

On September 21, 1999, oral argument was held in the case ATA v. Giani. According to ATA’s attorney, Mark Fitzgibbons, the case will affect not only fundraising agencies, but all nonprofit organizations and citizens throughout the United States. "This case is really all about where the courts are going with the First Amendment. Will the courts apply the right standards to review laws that place prior restraints on the ability of organizations and citizens to communicate? Will the courts reverse much of our First Amendment history that has previously allowed speech without licenses? Will the courts sweep under the rug rights for which people have literally fought and died? Can the government place itself between nonprofit organizations and the citizens who want to associate with the groups of their choice?"

This case will decide whether courts will sacrifice the basic principles of the First Amendment for the sake of questionable motives at best, and reasons that Utah did not – could not – prove in the district court.

Deceptive Mail Bill Becomes Law

On December 12, 1999, President Clinton signed S. 335, the "Deceptive Mail Prevention and Enforcement Act," Public Law 106-168.

FSC filed testimony against this bill. This testimony is available on the FSC web site, www.freespeechcoalition.org. FSC’s concerns regarding S. 335 were never addressed: the grant of additional, excessive discretion to the U.S. Postal Service to deny access to the mails to fundraising pieces – not limited to sweepstakes mailings; the grant of extraordinary subpoena power to the Postal Service; and the power to levy "civil" fines of up to $2 million per incident (civil fines mean that the due process protections accorded criminal cases need not be complied with).

There are some improvements in the final version, however. The subpoena authority granted to the Postal Service would be limited to "any investigation conducted under section 3005(a)," where S. 335 previously provided subpoena authority for "any investigation conducted under this chapter." Also, S. 335 was amended so that the Postal Service will not receive a portion of the penalties collected – all such penalties collected will now go to the U.S. Treasury.

Another amendment to the enacted version of S. 335 grants a private right of action to citizens who have asked to have their names placed on a do not mail list. This provision, modeled after a similar provision in the Telephone Consumer Protection Act, allows lawsuits in state court (if the mailer lacks a reasonable system for maintaining do not mail lists).

At one time, provision had been made for some limited federal pre-emption of state disclosure and notification requirements where the state requirements would be inconsistent with federal requirements. However, this provision was eliminated under pressure from state attorneys general.

The House committee report for this act states that the prohibition of mailings that appear to be connected to the government do not apply to "[a]dvocacy mailings, including those that solicit funds, which discuss the general status of federal benefits or programs." This was an effort to clarify ambiguous language in the Senate report.

Issue Advocacy Censorship Passes House, Not Senate

By a vote of 252 to 177, the U.S. House of Representatives passed H.R. 417, the so-called campaign finance reform act known by the names of its sponsors, Reps. Christopher Shays (R-CT) and Martin Meehan (D-MA). Like the 1998 version of this bill, H.R. 417 would prohibit incorporated nonprofits from broadcasting issue advocacy which neutrally reports the stance of a clearly-identified federal candidate on any or every issue within 60 days of an election, and would prohibit incorporated nonprofits from broadcasting issue advocacy which reports and comments upon the stance of a clearly-identified federal candidate on an issue at any time.

Speech censors in the House were also successful in defeating an amendment to H.R. 417 that would have exempted Internet reporting on congressional bills and votes from the definition of "contribution" to a federal election. Thus, under H.R. 417, if it were to become law, the Free Speech Coalition could not post on its website this report on congressional efforts to censor nonprofits without violating federal election law.

However, the Senate version of H.R. 417 – S. 1593 – was defeated by a vote on cloture (i.e., cutting off a filibuster) on October 19. Sixty votes are needed for cloture, but the Senate proponents of nonprofit censorship were only able to obtain 52 votes (in the first vote) and 53 votes (in the second vote). However, this bill is expected to be revived in 2000.

Philanthropy Monthly Explains Effect of Abusive State Regulation

The April 1999 issue of Philanthropy Monthly tackles two subjects the establishment media refuse to examine. An article written by editor Henry Suhrke examines how unnecessary and unreasonable regulation of charitable fundraising hampers efforts to increase charitable giving. Suhrke observes that "the key ingredient to giving – and to increased giving as well – is asking."

One problem identified by Suhrke is the intentionally vague and amorphous standard of state charitable solicitation laws. State attorneys general have acknowledged that these statutes do not require either intent to deceive the public or any actual deception or harm to a state’s residents for successful prosecutions of charities. The standard is whether the appeal could mislead, confuse, or deceive the public. As Surhke points out, in the real world, it is hard to conceive of any communication which cannot be confused or misunderstood. Thus, under current law, charities cannot with confidence inform the public without knowing whether a prosecution will result.

Charitable solicitation laws have also developed a epidemiological structure of registration. No longer content just to require the registration of every charity which raises funds in their jurisdictions, certain states’ new laws now require certain vendors which have come into contact with the charity to register as well. (This is the subject of the ATA v. Giani lawsuit discussed above.)

Suhrke tells the story of a fundraising consultant located in Maryland which was required to register in Pinellas County, Florida. Under the terms of this registration, the consultant was required to list charitable clients which might send solicitations into the county. Pinellas County then used this list to contact these charities, and require them to register, in part by listing all of their consultants/fundraising vendors. These charities were further informed that they would not be allowed to mail into the county until all of their vendors had also registered with the county. One client of the Maryland fundraising consultant chose to purge their list of Pinellas County residents rather than register. Due to this charity’s refusal to register, the registration of the Maryland fundraising consultant was revoked by Pinellas County, whereupon the county revoked the registration of all of the consultant’s charitable clients which had registered with the county. Like a quarantine, once a single client of a for-profit was diagnosed with the disease of nonregistration, all of that charity’s listed vendors became diseased, at which point all charities which had contact with that for-profit also became diseased – i.e., ineligible for registration. (You can be certain that the registration fees were never returned, however.)

Suhrke also reviewed the anti-democratic process utilized to compose (and impose) the AICPA’s Statement of Position ("SOP") 98-2, an accounting requirement designed to exaggerate the proportion of charitable activities identified as fundraising. The Free Speech Coalition has led the effort to have this requirement withdrawn. Suhrke points out that this development of SOP 98-2, which was changed at the behest of regulators, occurred in almost complete secrecy – meetings of the committee which composed SOP 98-2 were closed to the public and to the press, as are minutes of the meetings; the drafts under consideration are marked "not for public distribution," and there is no public hearing process before the standards are imposed. Yet SOP 98-2 is now in GAAP ("generally accepted accounting principles"), the standard which CPAs must follow when performing audits of nonprofits.

In the same issue of Philanthropy Monthly, Suhrke discusses how these government regulators which are crushing privately-funded nonprofits are at the same time far from diligent at monitoring corruption and other abuses within government-funded nonprofits. Annual subscriptions to Philanthropy Monthly cost $84 a year ($65 a year to §501(c)(3)s), and are available by writing to 2 Bennitt Street, P.O. Box 989, New Milford, CT 06776. Editor Henry Suhrke can be reached by e-mail at HSUHRKE@AOL.com.

AARP Fights $3 Million Postal Fine

The American Association of Retired Persons ("AARP") has appealed a $3 million deficiency notice issued by the U.S. Postal Service’s revenue assurance department The deficiency notice arose from the use of the word "catalog" in the November/December 1998 issue of Modern Maturity, a magazine published by AARP. In the center of this issue, a two-page spread entitled "Techie Catalog" reviewed hand-held computer products. The Postal Service determined these two pages constitute an advertising insert, and advertising inserts are not permitted to constitute catalogs. A representative of AARP noted that the Postal Service has not defined catalog, and simply prohibits use of the term. Other nonprofit organizations have also received hefty fines for inadvertent use of the term catalog in their publications.

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. However, contributions to the Free Speech Defense & Education Fund, Inc., a 501(c)(3) public charity, are tax-deductible.