Legal Document

538 U.S. 600 ILLINOIS EX REL. MADIGAN, ATTORNEY GENERAL OF ILLINOISv.TELEMARKETING ASSOCIATES, INC., ET AL. No. 01-1806. Supreme Court of United States. Argued March 3, 2003. Decided May 5, Respondents, Illinois for-profit fundraising corporations and their owner (collectively Telemarketers), were retained by VietNow National Headquarters, a charitable nonprofit corporation, to solicit donations aid Vietnam veterans. The contracts between those parties provided, among other things, that Telemarketers would retain 85 percent the gross receipts from donors, leaving 15 for VietNow. Attorney General filed complaint in state court, alleging, inter alia, represented donors significant amount each dollar donated be paid over specifically identified endeavors, such representations knowingly deceptive materially false, constituted fraud, made Telemarketers' private pecuniary benefit. trial court granted motion dismiss fraud claims on First Amendment grounds. In affirming, Appellate Courts placed heavy weight Schaumburg v. Citizens Better Environment, 444 U. S. 620, Secretary State Md. Joseph H. Munson Co., 467 947, Riley Federation Blind N. C., Inc., 487 781. Those decisions held certain regulations solicitation barring fees excess prescribed level effectively imposed prior restraints fundraising, therefore incompatible with Amendment. high acknowledged this case involved no prophylactic proscription high-fee solicitation. Instead, noted, sought enforce State's generally applicable antifraud laws against specific instances deliberate deception. However, said, statements alleged false only because contracted failed disclose information donors. concluded General's was, essence, an attempt regulate ability engage protected activity based upon percentage-rate limitation — same regulatory principle rejected Schaumburg, Munson, Riley. Held: Consistent Court's precedent Amendment, States may maintain actions when fundraisers make or misleading designed deceive about how will used. allegations claim relief can survive dismiss. Pp. 611-624. (a) protects right solicitation, see, e. g., S., at 632, but does not shield Donaldson Read Magazine, 333 178, 190. Like forms public deception, fraudulent is unprotected speech. See, Schneider (Town Irvington), 308 147, 164. This has previously addressed Amendment's application individual kind issue here. It has, however, three times unconstitutional combat imposing exceeded specified reasonable level. 611-617. (b) cases, Riley, took care leave corridor open guard solicitations. 637. As recognized, there are differences critical concerns trained cases statutes categorically ban solicitations costs run high. Simply labeling action one "fraud," course, carry day. Had charged solely percentage retain, failure alert fee arrangements start call, support swift dismissal. Portions genre. But annexed affidavits, large part, simply what convey. They also described misleadingly represented. Taking into account reading light most favorable General, pleading misrepresentations place under cover. First, asserted affirmatively used purposes while fact knew cents less available purposes. Second, essentially was façade: Although funds go VietNow's purposes, charity merely incidental effort, which Fraud so tailored, targeting affirmative used, unlike measures invalidated Riley: So long as emphasis convey, limitations solicitors' per se, need impermissibly chill 617-619. (c) prohibitions turned whether percentages spent fundraising. Their did depend fundraiser potential contrast inspected properly tailored employs "`[b]road rul[e],'" 637 (citation omitted), lacking any "nexus ... [to] likelihood fraudulent," 793. Such thus falls constitutional side line "between regulation aimed something else hope it sweep during process." 969-970. solid core home mislead regarding use contributions. Of prime importance, prove defendant liable law, must show clear convincing evidence representation material fact, intent listener, succeeded doing so. restraint imposes uphill burden conduct lawful, bears full proof individualized action. Exacting requirements order, contexts, have been provide sufficient breathing room New York Times Co. Sullivan, 376 254, 279-280. additional safeguard responsive concerns, appellate could independently review court's findings. Cf. Bose Corp. Consumers Union States, 466 485, 498-511. What law emphatically do require, blanket exemption liability who intentionally misleads calls donations. While proceeds accurate measure "for" purpose, 967, n. 16, gravamen fees, particular mislead. suggested desist using legitimate dissemination, advocacy, like. Rather, attracted believing substantial portion contributions fund programs services, knowing well case. remain misleading, however agree end around Riley's holding required, every telephone retain. thing compel its conversation, quite another take assessing designedly public. 619-623. (d) Given repeated approval government efforts enable informed choices contributions, 638, almost all many localities require charities professional register file regular reports activities, particularly costs. These often Internet. object grounds these disclosure requirements. Just seek inform prevent through requirements, vigorously prohibit obtaining money pretenses making statements. 800. High costs, without more, establish see id., 793, mere volunteer fundraiser's contacting donee, insufficient 795-801. disarm assuring residents positioned giving. 623-624. 198 Ill. 2d 345, 763 E. 289, reversed remanded. GINSBURG, J., delivered opinion unanimous Court. SCALIA, concurring opinion, THOMAS, joined, post, p. 624. 1 CERTIORARI TO THE SUPREME COURT ILLINOIS. 2 Richard Huszagh, Assistant Illinois, argued cause petitioner. With him briefs Lisa Madigan, James Ryan, former Joel D. Bertocchi, Solicitor Barry B. Gross, Chief Deputy Jerald Post, Floyd Perkins, Matthew Shapiro, Attorneys General. 3 Clement et al. amici curiae urging reversal. brief Olson, McCallum, Roberts, Jacob M. Lewis, Catherine Hancock. 4 Errol Copilevitz respondents. William Raney, Mackenzie Canter III, Mark Diskin.* 5 JUSTICE GINSBURG 6 amenability suit controversy arises fundraisers' corporation organized advance welfare veterans; contracts, endeavors. alleges defrauded members falsely representing "a [the veterans organization] [charitable] [fundraisers] available" App. 9, ¶ 34. Complementing allegation, states "the further purposes," 8, 29, raising effort," conducted primarily "for benefit of" fundraisers, 35. 7 question presented accord courts, they not. That "mindful opportunity misunderstanding donor confusion fund-raising sort th[is] case," Ryan Telemarketing Associates, 363, 299 (2001); nevertheless threshold dismissal compelled 620 (1980), 947 (1984), 781 (1988). subscriptions, level, 8 We reverse judgment Our rule out, supportive reliance themselves. bare directly suffice nondisclosure accompanied leaves claim. 9 * Defendants below, respondents here, Armet, wholly owned controlled defendant-respondent Troia. 2d, 347-348, 291. Associates Armet Id., 348, we refer respondents, collectively, "Telemarketers." 10 charity, VietNow, Telemarketers, provided within Ibid. Under agreements, lists developed "sole exclusive" control. 24, 93-94, 102, 65. brokered behalf out-of-state fundraisers; 70 80 funds, received 20 finder's fee, percent. Between July 1987 1995, collected approximately $7.1 million, keeping slightly more than $6 million themselves, $1.1 charity. Ibid.1 11 1991, court. 348-350, 291-292.2 common-law statutory breach fiduciary duty. alleged, "excessive" "not justified expenses [they] paid." 103, 72. Dominantly, concerned misrepresentation. 12 course solicitations, states, "funds Viet[N]ow's purposes." 29. Affidavits attached aver told prospective endeavors; typical examples endeavors include "food baskets given vets [and] families Thanksgiving," 124, paying "bills rent help physically mentally disabled families," 131, "jo[b] training," 145, "rehabilitation services vets," 169 (some capitalization omitted quotes). One affiant asked her contribution expenses; she "was 90% goes vets." (capitalization omitted). Another stated donation "labor expenses" "all volunteers." 111 omitted).3 Written materials sent "be assist 30.4 13 solicited actually charged, effort"; consequently, asserted, "representations [that Viet[N]ow purposes] fraud[,] [Telemarketers]." 34, 14 moved claims, barred motion,5 order affirmed, turn, courts Court: (1980); (1984); Each local restrained if raised cover administrative 620; 947; 781; 359, 297. case, involves provision proscribing limit. "specific deception." 358, 296 (quoting 803 (SCALIA, concurring)). "However," [Telemarketers] `false' 85% donors." complaint, view, "in [Telemarketers'] limitation" Schaumburg[,] Riley." 16 "[H]igh costs," stressed, "can attributable number factors." "wide range" addition For example, agreed publish newsletter toll-free hotline. 359-360, 297-298. Moreover, added, "nonmonetary benefits having [its] message disbursed process," directed manner `promote goodwill' VietNow." 361, 298. factors account, "incorrect presume [any] nexus fraud." 360, 17 determined that, "fraud cannot defined way places solicitors duty point net returned charity." 298.6 Finally, expressed fear allowed proceed, saddled defending reasonableness case-by-case basis, whenever being deceived nature campaign fund-raiser's too high." 362, 299. threatened exposure litigation penalties, "could produce chilling effect speech." certiorari. 537 999 (2002). II 18 See 632 ("charitable appeals involve variety speech interests—communication information, dissemination propagation views ideas, advocacy causes protection Amendment"); 788-789. fraud. 190 (1948) (the government's power "to protect people fraud" "always recognized country firmly established"); Gertz Robert Welch, 418 323, 340 (1974) "intentional lie" "no essential part exposition ideas" (internal quotation marks omitted)). 164 (1939) ("Frauds," including "fraudulent name religion," "denounced offenses punished law."); Donaldson, 192 ("A contention seriously considered assumes freedom press includes raise promote circulation deception public."). 19 time, unconstitutional. decided 1980, village ordinance prohibited organizations soliciting unless least 75 "directly purpose organization." 624 "charitable purposes" exclude salaries commissions solicitors, salaries. Schaumburg's "principal justification" prevention: "[A]ny organization 25 fund-raising, salaries, overhead," submitted, "is charitable, commercial, enterprise"; permit [such represent itself charity," urged, fraudulent." 636. 21 prevention ranks governmental interes[t]," ibid., 75-percent requirement" promoted interest "only peripherally." Spending "more [an organization's] explained, reliably indicate enterprise "commercial" rather "charitable." spending might altogether appropriate, "primarily engaged research, education uses its] own staff out functions financial support." 636-637. "The Village's preventing fraud," stated, better served intrusive direct prohibition solicitation," 637: "Fraudulent penal punish directly," ibid. 22 Four years later, Maryland pay raised. Unlike inflexible authorized waiver "where [it] contributions." 950-951, 2. save statute. 962. "[No] reaso[n] necessity warrant[ed] waiver," observed. 963. statute shelter incurred chose disseminate Nor whose stemmed unpopularity cause. 967. 23 "[N]o doubt [there] due activity," recognized; concluded, Maryland's incapable "distinguish[ing] activities." 966. statute's fatal flaw, "operate[d] [the] fundamentally mistaken premise checked "measures solicitation": finances member decision contribute." 961, 9. 24 Third trilogy relied our 1988 regulated charities; North Carolina controls fundraisers. Carolina's retaining "unreasonable" fee. 784 Fees up deemed reasonable; 35 unreasonable showed information. 784-785. exceeding presumed unreasonable, rebut presumption showing either absent higher charity's "ability communicate significantly diminished." 785-786. Relying endeavor rein fees. held, once again, inferred absorbed 789 ("solicitation speech"; "using decide legality narrowly fraud"). 26 unreasonableness attending bring scheme zone, explained. "even where prima facie ha[d] rebutted, factfinder [still had to] ultimate determination, [did] alone total reasonable." 786. 27 Training aspect regulation, stated: "Even some form percentage-based test requires speaker `reasonableness' best loose inference "[E]very incurring 35% [would] subject fee," observed; risk, "chill contravention dictates." 794. Especially likely burdened, combined communication small unpopular charities. cautioned, "sit idly allow citizens defrauded." 795. anticipated enforcement officers "ready able" law. 28 issue. required before asking money, year's defended requirement proper means dispel misperception gave went greater-than-actual proportion 798. 29 condemned "unduly burdensome" rule, exaction unnecessary achieve goal misled. emphasized, conclusively derive[d] it." necessarily so," act itself, request conveyed cause-oriented advocacy. 30 noted (like here) status. 799; Comp. Stat., ch. 225, § 460/17(a) supra, 609, 4, 611, 6. disclosure, notified contributors underwrite A ask much obliged 799 (citing C. Gen. Stat. 131C-16 (1986)). upfront believed, begin conversation: contributor thought hang up. 799-800. "[M]ore benign options" available; suggested, detailed file," "[it] statements." III 31 opinions 637; 9; 795, 800.7 explain Part III-B, infra. dismissal.8 surely gain ground declared off limits legislators. 32 72 (asserting charge excessive" paid"); 86, 67H-67I (alleging violations fee). earlier 608-609, convey; 33 similar Federal Rules Civil Procedure, "[w]hen legal sufficiency challenged dismiss, well-pleaded facts taken true court] determine ..., interpreted plaintiff, granted." Connick Suzuki Motor Ltd., 174 482, 490, 675 584, 588 (1997) (emphasis added). Dismissal clearly appears set proved pleadings entitle plaintiff recover." 351, 293. 34 Viet[N]ow" rehabilitation job training, food baskets, assistance bills, 34; 163, 169, 187, 189 reality "15 dollar" "available essentially, "amount agents," Cf., Voices Freedom, CCH Trade Reg. 23,080 (1993) [1987-1993 Transfer Binder] (complaint who, "substantial portions sale commemorative bracelets] center troops stationed Persian Gulf," "did bracelet-sales center"). plainly distinguishable, next discuss, B 36 engaging Truthfulness even defense. 612-616. themselves "[b]road rul[e]," citation draw light, 608-609. 37 proof. False statement liability. restated complainant false; further, demonstrate re Witt, 145 380, 391, 583 526, 531 (1991). Heightening complainant's burden, showings evidence. Hofmann Hofmann, 94 205, 222, 446 499, 506 (1983).9 38 279-280 (1964) (action defamation official); 502, (1984) (noting "kinship" standard "motivation deceit").10 Corp., 498-511 (de novo findings actual malice). 39 instant correctly observed [fundraising] `for' purpose." 298 16). If, advertising awareness advanced conjunction activity, going Similarly, get spend activities risking charge. 636-637; 963; 798-799.11 40 here promotion awareness, production material, development enlargement base,12 618-619. 41 Brief Respondents 14-19. C 42 repeatedly legitimacy "disclosure organizations," thereby "by informing ways employed." 638. reiterated organization" "so 961-962, And said "detailed forms" 800; 799, (State unambiguously [their] status"). 43 precedent, acknowledge, "[a]lmost localities," "register activities[,] costs." 37; Independent Sector Amici Curiae 6-8. public; indeed, "[m]any receive Internet." 39; 9-10. Tr. Oral Arg. 43. 44 "vigorously 45 46 reasons reversed, remanded proceedings inconsistent opinion. 47 ordered. Notes: Briefs ofamici reversal Florida Doran, Florida, Thomas Warner, Louis F. Hubener J. Conigliaro, Solicitors Jonathan A. Glogau, Arabella W. Teal, Corporation Counsel District Columbia, R. Keller, Acting Hawaii, Anabelle Rodríguez, Puerto Rico, respective follows: Pryor, Jr., Alabama, Gregg Renkes Alaska, Lunsford Pryor Arkansas, Bill Lockyer California, Ken Salazar Colorado, Blumenthal Connecticut, Jane Brady Delaware, Thurbert Baker Georgia, Alan G. Lance Idaho, Steve Carter Indiana, Miller Iowa, Carla Stovall Kansas, Albert Chandler Kentucky, P. Ieyoub Louisiana, Steven Rowe Maine, Curran, Maryland, Reilly Massachusetts, Jennifer Granholm Michigan, Mike Hatch Minnesota, Moore Mississippi, Jeremiah (Jay) Nixon Missouri, McGrath Montana, Don Stenberg Nebraska, Frankie Sue Del Papa Nevada, Phillip McLaughlin Hampshire, David Samson Jersey, Patricia Madrid Mexico, Eliot Spitzer York, Wayne Stenehjem Dakota, Betty Montgomery Ohio, Hardy Myers Oregon, Fisher Pennsylvania, Sheldon Whitehouse Rhode Island, Charles Condon South Carolina, Barnett Paul Summers Tennessee, Greg Abbott Texas, L. Shurtleff Utah, Sorrell Vermont, Jerry Kilgore Virginia, Christine O. Gregoire Washington, Darrell V. McGraw, West Hoke MacMillan Wyoming; Council Business Bureaus, Cole Woods. affirmance American Teleservices Association Corn-Revere; Fundraising Professionals Geoffrey Peters Walter Sczudlo; Disabled Veterans Christopher Clay John Moore, Jr.; Free Speech Defense Education Fund, Miles, Herbert Titus, Weinberg, Fitzgibbons; Boisture, Lauber, Lloyd Mayer; Public Citizen, Bonnie I. Robin-Vergeer Morrison. AARP Deborah Zuckerman, Stacy Canan, Michael Schuster; Hudson Bay Goodman Anthony Gleekel; Thirty-two Commercial Fundraisers Nave. petition certiorari Pet. Cert. 2, 1; IRS Form 990, 2000, http://167.10.5.131/Ct0601_0700/0652/1M11INDV.PDF (as visited Apr. 10, 2003) (available Clerk file) References amendments exhibits referred become 735, 5/2-606 (1992);Pure Oil Miller-McFarland Drilling 486, 497-498, 854, 859 (1941); Michael, Practice 23.9, pp. 332-333, nn. 7-9 accompanying text (1989) (collecting cases). counsel oral argument "found matter affidavits complaint." 40. locate finding Asked supply after argument, 41, us "there allegation misstatements 291 (2001)); Letter Raney K. Suter, (Mar. 2003). stating, overlooked, obviously, two attesting "90% expenses." 111, event, sentence fragment short showing, face established "found" dehors complaint. Counsel's clouded explicit notation his 352, provides "[i]n raiser solicitor[,] [t]he shall promptly verbal communications unambiguous written raiser. raiser, solicitor, raiser's additionally, communications, solicitor's provided." (2001) subsequently stipulated remaining claims. 30-31 Contracts campaigns §§ 460/2(a)(10) 460/7 (2001), "stated raised" fundraiser, 460/7(b); 460/7(d). filings inspection. 460/2(f). contribution, requested person solicited." 460/17(b). challenge unpersuaded plea lacked fair notice vulnerability actions. 46, 49-50 retention limit inRiley, yet accepted dispositive. 615 781, 793 (1988)). InRiley, concern inhibit 793-794. arose fundraiser. cautioned avoid speech, bear proving seeks unprotected. Freedman 380 51, 58 (1965); Speiser Randall, 357 513, 525-526 (1958). shoulders present issue, urges resembling "actual malice" attend "every misrepresent donations." Reply 16-17, confine consideration "acted knowledge falsity representations." Amicus Mothers Against Drunk Driving (MADD), mission `Don't Drink Drive.'" 13. Telephone MADD "reach millions year, call educates tragedy drunk driving, statistics asks customer always designate sober driver." Solicitations MADD's devotes resources calls, fulfill advocacy/information mission. consistently hindered devote subscription building. SeeSecretary 967 48 whom THOMAS joins, concurring. 49 reads "Whether prohibits pursuing represents keeps vast majority (in percent) donated." i. I join think forth ("that purposes"), comply (that "keeps donated"), answer yes. 50 teaching (1988), 966 since wide disparity borne charities, possible maximum reasonable. follows general expectation fraction expenses. When proposition unquestionable promised, specification, reasonably understand deduction expenses, conclusion promise broken (and hence committed) very Today's judgment, rests "solid core" misrepresentations, ante, beyond commitment purpose.

Classification Label: 2