Opinion ID: 159097
Heading Depth: 3
Heading Rank: 3

Heading: Bond or Letter of Credit

Text: 17 To obtain a permit under the Act, American Target must also provide proof that it is bonded or provide a letter of credit in the amount of at least $25,000. Utah Code Ann. 13-22-9(4)(a). The statute requires that the bond or letter of credit be payable to the state for the benefit of parties who may be damaged by any violation of this chapter. Id. 13-22-9(4)(b). 18 The district court relied upon Dayton Area Visually Impaired Persons v. Fischer, 70 F.3d 1474 (6th Cir. 1995), to uphold the bonding provision. In Dayton Area, the Sixth Circuit affirmed a district court's holding that a $25,000 surety bond requirement under the Ohio Charitable Solicitations Act was narrowly tailored to serve a legitimate state interest. Id. at 1486. Significantly, the Dayton Area court reviewed a district court's partial grant and partial denial of a preliminary injunction. This procedural posture limited the nature of the First Amendment analysis and limited the court to an abuse of discretion review. In our de novo review, we must decide as a matter of law whether the $25,000 bond is narrowly tailored to the identified state interest. Dayton Area is therefore inapposite. 19 The bond requirement, on its face, supports a different state interest than the other challenged provisions of the Act. The disclosure and fee requirements enable prophylactic oversight of professional fundraisers. The bond requirement provides a victim relief fund for those injured through violations of the Act. When a professional fundraiser violates the Act, the state naturally expects the violator to satisfy a tort judgment. But this interest in redress applies across the law in other tort contexts. More importantly, this interest is adequately served by the preventive measures within the Act. Extensive disclosure and vigorous oversight diminish the likely need for a victim compensation fund. An ounce of prevention here is preferable to a pound of cure. 20 The actual impact of the bond requirement supports our conclusions. The president of American Target, in a sworn affidavit, stated that the company must provide 100 percent collateral for the amount of any outstanding bond. The company does not have enough unpledged collateral on hand to secure the Utah bond and must borrow the full amount. Id. The requirement therefore imposes a sizeable price tag upon the enjoyment of a guaranteed freedom. Bonding may peripherally promote Utah's interest in regulatory oversight, but this goal is sufficiently served by measures less destructive of First Amendment interests. Village of Schaumburg, 444 U.S. at 636. Through the registration, disclosure and fee requirements, the statute provides less intrusive means of fraud prevention. The chilling financial reality of the bond unnecessarily interfer[es] with First Amendment freedoms, id. at 637, and is therefore unconstitutional as applied. 21 Having found the bond provision unconstitutional as applied to American Target, we now must decide whether any attempt to enforce this provision would create an unacceptable risk of the suppression of ideas. Taxpayers for Vincent, 466 U.S. at 797. We find that it would. There is evidence in the record that qualifying for a letter of credit is much like qualifying for a loan. While some consultants may qualify for the required letter without 100 percent collateral, this possibility does not save the provision. We are not prepared to allow the constitutionality of this requirement turn on the applicant's credit rating. Furthermore, any posted collateral would go to support victim recovery. We have already found that the guarantee of victim relief only peripherally supports the recognized state interest in regulatory oversight. The chilling impact of the bond upon protected speech outweighs any fraud protection it might provide. We therefore find that the bond/letter of credit provision of the Utah Act is unconstitutional on its face.