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UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
AMERICAN TARGET ADVERTISING,
|vs.||Case No. 98-4158|
FRANCINE A. GIANI in her official capacity as Division Director of the Utah Division of Consumer Protection, Department of Commerce for the State of Utah,
On Appeal from the United States District Court
for the District of Utah
The Honorable Dee Benson
Civil No. 2:97CV 0610B
APPELLANT'S OPENING BRIEF
MARK J. FITZGIBBONS
American Target Advertising, Inc.
9625 Surveyor Court, Suite 400
Manassas, Virginia 20110
GIFFORD W. PRICE
Mackey, Price & Williams
170 South Main Street, Suite 900
Salt Lake City, Utah 84101-1655
STATEMENT OF JURISDICTION
This matter comes before the Court under U.S. Const. art. I, section 8, art. III, section 2; amend. I; and amend. XIV. The Appellant, American Target Advertising, Inc. ("American Target"), Plaintiff below, is a Virginia corporation which sought a declaratory judgment pursuant to 28 U.S.C. section 2201 for the purpose of determining a question of actual controversy about the denial of its constitutional rights by the Appellee, Francine A. Giani (the "Director"), Defendant below. American Target sought to have the Utah Charitable Solicitations Act declared unconstitutional on the basis that it impairs the constitutional rights of American Target and others. Jurisdiction in the District Court was also based on 28 U.S.C. section 1331. On cross-motions for summary judgment under F.R.C.P. 56, the District Court entered judgment in favor of the Director on August 24, 108, and dismissed the lawsuit. That judgment is a final order. The notice of appeal was filed timely on September 21, 1998. This Court has jurisdiction over this matter pursuant to 28 U.S.C. section 1291.
STATEMENT OF THE ISSUES
I. Did the District Court err as a matter of law by not holding that the Utah Charitable Solicitations Act (the "Act") is an unconstitutional prior restraint on free speech. The Act prohibits an out-of-state nonprofit organization from mailing certain letters into the State if (1) the nonprofit does not pay a fee, file an application, the Director approves the application and issues license, and (2) the out-of-state for-profit agency which advises, counsels and prepares materials for the nonprofit does not pay a fee, file a complex application form, post $25,000 in cash, bond or letter of credit with the State, and obtains a license.
II. Was the District Court's ruling clearly erroneous as to the Act, and did it err as a matter a law by failing to apply exacting scrutiny to the Act and by not holding that the Act violates the First Amendment because the State failed to show that the Act serves a substantial state interest, is narrowly tailored to serve a substantial state interest, and does not unnecessarily interfere with First Amendment fights. The letters mailed by nonprofits often are core political speech, and their First Amendment protections must be at their highest level.
III. Did the District Court err by failing to find that the Act unduly burdens interstate commerce in violation of the Commerce Clause. The Act requires a fee and creates the need for a license to mail letters into the State. Direct mail is one of the purest forms of interstate commerce, and any law that burdens interstate commerce must be viewed in light of the cumulative effect of multiple states and jurisdictions using similar laws to burden interstate commerce under the dormant Commerce Clause.
IV. Did the District Court err by failing to hold that a State may not extend its regulatory (as opposed to adjudicative) jurisdiction to an out-of-state company by requiring a license of that out-of-state company simply because the company entered into a services contract with a nonprofit organization which intends to mail into all 50 States.
STATEMENT OF THE CASE AND FACTS
Statement of the case: This is an appeal from a decision in the United States District Court for the District of Utah, the Honorable Dee Benson presiding. The decision granted summary judgment in favor of the Appellee (Defendant below), Francine A. Giani, acting in her official capacity as Division Director of the Utah Division of Consumer Protection, Department of Commerce for the State of Utah (hereinafter, the "Director"). The decision also dismissed the case filed in the District Court. On July 27, 1997, the Appellant, American Target Advertising, Inc. (hereinafter, "American Target") filed a Complaint for Declaratory, Injunctive and Other Relief against the Director. American Target sought to have the Utah Charitable Solicitations Act, codified at Utah Code Ann. section 13-22-1 et seq. (Attachment A) declared unconstitutional. American Target also sought damages and reasonable attorneys fees for the Director's violating American Target's constitutional rights pursuant to 42 U.S.C. section 1983 (Attachment B). At the time the lawsuit was filed, Utah Admin. Code R152-22-3(4), which is a regulation issued pursuant to the Act and cited in the District Court's Opinion, was not in effect and was not proposed publicly until October 15, 1997 by the Director.
The Complaint alleged that the Utah Charitable Solicitations Act (hereinafter, the "Act") violated the Commerce Cause, the First Amendment and the due process clause of the Fourteenth Amendment of the United States Constitution. On September 19, 1997, American Target moved for summary judgment to have the Act declared unconstitutional. On October 22, 1997, the Director moved for summary judgment as a matter of law and to have American Target's Complaint dismissed.
The parties filed one set of stipulated facts on October 22, 1997. The Director took one deposition, that of James E.B. Carney, Vice President of American Target. American Target conducted two depositions. The first was of Francine A. Giani, the Director, and an affiant. The second was of Gary A. Christensen, a Nice president at Zions First National Bank, and an affiant for the Director. On January 5, 1998, American Target filed a Motion to Strike portions of the affidavits submitted by the Director, Mr. Christensen, and a third affiant for the Director, Joseph A. Beykirch.
There were three amicus curiae briefs filed in the District Court; two were filed in support of American Target, one was filed in support of the Director.
A hearing on the cross-motions for summary judgment was held on April 15, 1998. On April 20, 1998, the District Court requested additional briefing by both parties about two issues: (1) the First Amendment (freedom of speech) test applicable to American Target's activities in Utah, which should include a discussion of the concept of core political speech and how it applies, if at all, to American Target; and (2) any evidence in the record relevant to a substantial state interest and whether the Act is narrowly tailored to protect that interest. Both parties filed their additional briefs on or about May 18, 1998.
On August 18, 1998, the District Court issued its Memorandum Opinion and Order that summary judgment should be granted in favor of the Director. The decision did not include a ruling on American Target's Motion to Strike portions of the affidavits of Giani, Christensen and Beykirch. On August 24, 1998, the District Court entered its Judgment in A Civil Case in favor of the Director and dismissing American Target's cause of action (see Attachments C and D). This appeal was timely noticed on September 21, 1998.
Facts: American Target is a Virginia corporation. Stipulated Facts, Appendix, at 226. American Target does not have offices, employees, directors, agents, bank accounts or real property in the State of Utah. Stipulated Facts, Appendix, at 227. American Target performs no services and conducts no business in the State of Utah. Affidavit of Richard A. Viguerie in Support of Motion for Preliminary Injunction, Appendix, at 33-34. American Target is not registered as a foreign corporation with authority to do business in Utah under Utah Code Ann. section 16-10a-1501 (see Attachment E). Stipulated Facts, Appendix, at 228. That statute does not compel American Target to register to do business in Utah.
In 1996, American Target entered into a contract with Judicial Watch, Inc., a nonprofit organization located in Washington, D.C. Complaint Exhibit 1, Appendix, at 16. Under the Contract, American Target provides services to Judicial Watch in the preparation of Judicial Watch's letters that are mailed nationally. See, Contract, Section 1. These letters provide information about lawsuits filed by Judicial Watch against the current White House Administration. Stipulated Facts Exhibits 1 and 2, Appendix, at 229-254. The letters describe potential corrupt and illegal activities of various public officials. The letters describe the public policy reasons for the lawsuits. The letters contain criticisms of the actions of some government officials. Some of the letters contain surveys intended for the recipients to answer and return to Judicial Watch. Stipulated Fans Exhibits 1 and 2, Appendix, at 241-242, and 247-248. Some of the letters contain petitions for the recipients to sign and send to public officials. Stipulated Facts Exhibit 2, Appendix, at 248. The letters also contain requests for voluntary donations to help support Judicial Watch conduct its activities.
The Contract specifically states that American Target shall not solicit on behalf of Judicial Watch. Contract, Section 1, Appendix, at 17.
By virtue of the services American Target provides in connection with Judicial Watch's letters that are mailed, American Target is defined as a professional fundraising counsel under section 13-22-2(11) of the Act. Section 13-22-5(4) states that it is unlawful for any professional fundraising counsel to "knowingly plan, manage, advise, counsel, consult, or prepare material for, or with respect to, the solicitation in the State of Utah of a contribution for a charitable organization" unless the professional fundraising counsel is registered with the Division of Consumer Affairs. American Target is not registered tinder the Act, and does not have a license to act as professional fundraising counsel under the Act Stipulated Facts, Appendix, at 227. Fundraising counsel that are not paid need not register under the Act.
To obtain a license from the Director, American Target would need to pay a $250 annual registration fee, post $25,000 in cash, bond or letter of credit with the Director, and submit a detailed registration application that complies with all of the relevant conditions set forth in section 13-22-9 of the Act.
The Act prohibits nonprofit organizations from mailing one or more letters that request voluntary contributions until (1) after the nonprofit obtains a license from the Director and (2) its professional fundraising counsel obtains a license. To obtain such a permit, the nonprofit must pay a registration fee and submit a lengthy application which contains all of the conditions found in Act section 13-22-6.
American Target must post 100 percent collateral with a surety in order to obtain bonds for the various states in which it is registered as professional fundraising counsel. Affidavit of Richard A. Viguerie, Appendix, at 333. American Target does not have its own collateral to post, therefore it has to borrow assets to post as collateral, on which it pays annual interest. Viguerie Affidavit, Appendix, at 333. To obtain a letter of credit from a bank in lieu of a bond, a company may need to post 100 percent collateral. Christensen Deposition, Appendix, at 325.
Judicial Watch attempted to register with the Director. Judicial Watch was initially denied a license because it had entered into the Contract with American Target, which was not registered. Memorandum Exhibit 1, Appendix, at 79. The Director subsequently issued a license to Judicial Watch, but that license was conditioned on Judicial Watch's not using the services of any unregistered professional fundraising counsel, which would include American Target. Memorandum Exhibit 4, Appendix, at 88. Therefore, Judicial Watch is prohibited from mailing into Utah. If Judicial Watch were to mail into Utah, it and American Target would be subject to civil and criminal sanctions. Act sections 13-22-3 and 13-22-4.
Other jurisdictions, including some counties and cities, have charitable solicitation laws that require fundraising counsel to register, pay a fee and post a bond in order to obtain a license before their nonprofit clients can mail into those jurisdictions. Reply Exhibits 5, 6 and 7, Appendix, at 339-364.
SUMMARY OF THE ARGUMENTS
The Act is a prior restraint on free speech because it requires a license of (1) an out-of-state nonprofit organization, and (2) an out-of-state professional fundraising counsel before the nonprofit may mail certain letters into Utah. To obtain a license, one must pay registration fees, submit cumbersome applications, and in the case of professional fundraising counsel, post $25,000 with the state in either cash, a bond or a letter of credit. The Supreme Court has made absolutely clear that distribution of literature may not be subject to prior restraint through licensing schemes. The Act's prior restraint does not target the time, place or manner of any activity or conduct that is merely related to First Amendment freedoms. Rather, the subject of the prior restraint under the Act is the distribution of literature protected by the First Amendment, which has never been acceptable under the First Amendment regardless of the reasons advanced by the State.
The letters of nonprofits often contain core political speech. The Act not only restrains the rights of nonprofits and fundraising counsel to issue literature, the Act also impairs the rights of citizens to petition the government and associate with the nonprofit groups of their choice. The First Amendment protections of core political speech from government regulation must be "at its zenith." Laws which impair speech, particularly core political speech, are subject to "exacting scrutiny" by the courts. Under the exacting scrutiny standard, the State has the burden of showing that a law serves a substantial state interest and is narrowly tailored to serve a substantial state interest without unduly interfering with free speech. The State's burden is "well nigh insurmountable" when core political speech is involved. The State must use the least restrictive means in accomplishing any legitimate state interest it may have. The Act is not the least intrusive means of accomplishing a legitimate state interest.
The State failed to satisfy its heavy burden under the exacting scrutiny standard. It failed to show that the Act serves a substantial state interest. It failed to show that the Act is narrowly tailored to serve a substantial state interest. And the State failed to show that the Act does not unnecessarily interfere with First Amendment freedoms.
The Act is an undue burden on interstate commerce in violation of the Commerce Clause. The licensing requirement, the fee provision, and the requirement that fundraising counsel post $25,000 in cash or bonds severely restrict interstate commerce. Direct mail, which is the manner in which American Target's client communicates with citizens, is one of the purest forms of interstate commerce. When reviewing laws of this nature, the courts must consider not only the impact of one state's law, but the impact of 50 such state laws, and similar laws in the nearly 6,000-plus jurisdictions in the United States. The Act has the effect of crippling interstate commerce when considering the cumulative effect of the laws of the various jurisdictions.
Finally, due process prohibits a state from excluding the interstate commerce of an out-of-state company simply because that company did not obtain a license to do business in the state. The Court may not use adjudicative jurisdiction standards to justify complex and burdensome licensing schemes over out-of-state companies.
The District Court erred as a matter of law, and its ruling was clearly erroneous as to the facts by (1) granting summary judgment in favor of the Director, and (2) by, failing to grant summary judgment for American Target.
I. THE ACT IS A PRIOR RESTRAINT ON FREE SPEECH IN VIOLATION OF THE FIRST AMENDMENT.
A. Standard of Review.
As a starting point, this case involves the claim of denial of rights under the U. S. Constitution. Therefore, appellate review is not bound by the conclusions of the District Court, and must re-examine the evidentiary bases on which the District Court's conclusions are founded. Niemotko v. Maryland, 340 U.S. 268, 271 (1951). And when First Amendment issues are raised, the Court has an obligation to make an independent examination of the whole record. Bose Corporation v. Consumers Union of U.S., Inc., 466 U.S. 485,499 (1984).
Judgment under F.R.C.P. 56 shall be rendered if the pleadings, depositions, other discovery and affidavits show there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law. Anderson v. Liberty Lobby, 477 U.S. 242, 247 (1986). It is the substantive law's identification of which facts are critical and which facts are irrelevant that governs. Id., at 248. When a matter requires resolution of a substantial question of federal or constitutional law, the matter may be heard, and declaratory relief may be granted. See, Franchise Tax Board of California v. Construction Laborers Vacation Trust for So. California, 03 U.S. 1, 13 (1983).
This case involves a profoundly basic and simple concept that goes to the heart of the First Amendment. American Target seeks a declaratory judgment that the Act is a prior restraint on free speech. American Target does not come before the Court to say that a State cannot regulate certain conduct associated with free speech. The Act, purely and simply, is a licensing scheme on the exercise of First Amendment rights. The Act should not be confused with traditional police powers of the State which may regulate the time, place or manner of conduct. The subject of American Target's challenge is a speech licensing act. Such a law is forbidden by the First Amendment.
1. A License to Distribute Literature Is A Prior Restraint on Free Speech.
Under the Act, American Target's nonprofit client is prohibited from mailing certain letters into the State of Utah unless (1) the nonprofit organization has a license, and (2) American Target has a license to, among other things, counsel and advise its nonprofit client. The prohibition on issuing written communications or distributing literature without a license has long been held to constitute a prior restraint on free speech in violation of the First Amendment. See, Lovell v. Griffin, 303 U.S. 444, 451-452 (1938). This prohibition of licenses applies to distribution of literature "by hand or otherwise." Id., at 447. The chief purpose of the First Amendment guarantees of freedom of speech and the press is to prevent prior restraints upon publication. Near v. Minnesota, 283 U.S. 697, 713-714 (193 1). Freedom of speech under the First Amendment embraces at the very least the liberty to discuss publicly and truthfully all matters of public concern without previous restraint or fear of subsequent punishment. Thornhill v. Alabama, 3 10 U.S. 88, 101- 102 (1940).
The Lovell decision makes clear that the government cannot require a license to distribute literature regardless of the reasons the government might advance for the need for the license. Lovell, 303 U.S. at 451. The First Amendment protects circulating literature equally with publishing it. Id., at 452. A license constitutes an unconstitutional previous restraint, and the First Amendment was designed primarily against such licenses. Id., at 451-452.
First and foremost, the Act violates the First Amendment because it requires a license of an out-of-state nonprofit organization for simply mailing letters into the State of Utah. That, in and of itself, constitutes a prior restraint. But the Act further violates the First Amendment by also prohibiting a nonprofit organization from mailing letters into the State if its out-of-state fundraising consultant does not have a license under the Act This, in essence, creates a double prior restraint. These prior restraints cannot be justified merely because one of the license requirements applies to those who are involved in the preparation and distribution of the literature. See, Talley v. California, 362 U.S. 60 (1960).
Under the protections of the First Amendment, it matters not that the letters request voluntary donations. The fact that the literature is sold would not transform the literature into a commercial project. Murdock v. Pennsylvania, 319 U.S. 105, 111 (1943). The fact that the letters request voluntary contributions do not transform the letters into items deserving fewer or even lesser First Amendment protections. Id.
The three principal United States Supreme Court cases that have dealt with the First Amendment protections of charitable solicitations have been limited to door-to-door or street solicitations. See, for example, Village of Schaumburg v. Citizens for a Better Environment, " US. 620 (1980) Secretary of State of Maryland v. Munson, 467 U.S. 947 (1984); and Riley v. National Federation of the Blind, 487 U.S. 781 (1988). These cases do not address the factual setting of a nonprofit organization simply mailing is communications to citizens. As applied to door-to-door solicitations (as opposed to letters mailed to citizens), the Supreme Court has recognized that
charitable appeals for funds, on the street or door to door, involve a variety of speech interests--communication of information, the dissemination and propagation of views and ideas, and the advocacy of causes--that are within the protection of the First Amendment. Soliciting financial support is undoubtedly subject to reasonable regulation but the latter must be undertaken with due regard for the reality that solicitation is characteristically intertwined with informative and perhaps persuasive speech seeking support for particular causes or for particular views on economic, political or social issues, and for the reality that without solicitation the flow of such information and advocacy would likely cease.
Village of Schaumburg, 444 U.S. at 632.
2. The Act Is An Impermissible Prior Restraint on Free Speech; It Restrains Speech, Not Conduct.
The issue of whether any law is a prior restraint is a profoundly important First Amendment issue. The Opinion relegates this significant issue to a mere footnote. Opinion, at page 8, footnote 1, citing Riley. The Opinion concludes that the license requirement is acceptable because an administrative regulation, Utah Admin. Code R152-22-4(3) (sic) (the correct cite of the referenced regulation is R152-22-3(4)), imposes a time limitation of 10 days for the Director to process a registration application for a license (the regulation does not require that a license be issued within 10 days). See, Appendix, at 219. The Opinion's reliance on the Riley decision for its conclusion is misplaced. See, Opinion, at 8, footnote 1.
The Riley decision states that generally, speakers do not need a license at all to speak. Riley, 487 U.S. at 801 The Riley decision acknowledges that a state may impose valid time, place or manner restrictions as provided in Cox v. New Hampshire, 312 U.S. 569 (1941). However, there would need to be some heightened reason for such a licensing scheme. Riley, 487 U.S. at 802. The Court reasoned that even if the statute in Riley fell into the area of exception to the general rule that a state may not require a license (a point on which the Court did not rule in Riley such a licensing statute would nevertheless need to provide for a time limit under which the licensor must either issue a license or go to court, citing Freedman v. Maryland, 380 U.S. 51, 59 (1965). The burden would be on the government to go to court to restrain the activity at issue in Freedman.
Any exception to the general rule against licensing conduct associated with First Amendment activities needs to be treated with deference to the First Amendment. The First Amendment (as applied to the states through the Fourteenth Amendment) reads, "Congress shall make no law ... abridging the freedom of speech; ... or the right of the people peaceably to assemble, and to petition the Government for redress of grievances." "Abridge", according to Webster's New Collegiate Dictionary, means to "deprive" or to "reduce in scope". From the concrete rule that the state may not require a license as condition of free speech, the very limited number of exceptions have evolved. The Opinion's conclusion is inconsistent with the logic and juridical underpinnings of those exceptions.
Cox v. New Hampshire, supra, (cited in Riley is perhaps the seminal case about exceptions to the general rule, and is generally cited as such for defining the "time, place and manner" exception. The statute at issue in Cox was unlike the Utah Act in that it did not create the need for a license to distribute literature. It merely required a license before anyone could engage in certain conduct on public streets. Cox, 312 U.S. at 571. The appellants were convicted of parading on the public streets without a license. The appellants distributed leaflets while parading, but they were not prosecuted for distributing the leaflets. Id., at 573.
The prior restraint in Cox was aimed at controlling travel on public streets (Id., at 574). The statute had the effect of incidentally affecting First Amendment rights. In noting that the statute in Cox was consistent with the traditional exercise of controls by local governments of the use of streets for parades (Id., at 574), the Court distinguished the license in Cox from those "aimed at any restraint of freedom of speech" and laws banning distribution of literature and soliciting contributions without a license. Id., at 578. Therein lies the limitation on which licenses are acceptable under the First Amendment and which are not. And therein lies the reason why the Utah Act must fall. The Utah Act directly prohibits mailing letters, which is the distribution of literature protected by the First Amendment, without a license. The unlicensed conduct prohibited by the Utah Act is not extraneous or incidental to the act of distributing literature; the unlicensed conduct prohibited by the Act is the distribution of literature. The Utah Act places a prior restraint directly and purposefully on the distribution of protected literature. It has nothing to do with the time, place or manner of any conduct This is not a traditional police power, and cannot survive even the lowest level of judicial scrutiny regardless of the reasons claimed by the State.
3. The Act Is Still A Prior Restraint Even If The License Application Is Processed within 10 Days.
The Opinion's approach to the prior restraint issue errs for another reason. The Opinion holds that an administrative regulation mandating the Director to process license applications within 10 days saves the constitutionality of the licensing requirement. Opinion, at 8, footnote 1. This reasoning is inconsistent with Supreme Court case law.
If the Director were to deny a license, the only remedy for an applicant who is denied a license (after exhaustion of administrative remedies through administrative hearings) is a judicial remedy initiated by the applicant, not the State. That process could take months or even years. The notion that this is acceptable has already been disapproved by the Supreme Court.
[T]he availability of a judicial remedy for abuses in the system of licensing still leaves that system one of previous restraint which, in the field of free speech and press, we have held inadmissible. A statute authorizing previous restraint upon the exercise of the guaranteed freedom by judicial decision after trial is as obnoxious to the Constitution as one providing for like restraint by administrative action.
Cantwell v. Connecticut, 3 10 U.S. 296, 306 (1940).
a. The Riley Decision Does Not Support 10-Day Prior Restraints.
The Opinion attempts to distinguish the Act's prior restraining license from the license in the Riley decision, supra. The license for fundraisers in Riley was declared an unconstitutional prior restraint. The Riley decision acknowledges explicitly that the issue of whether the State could ever require a license of charitable solicitors was not before the Court in that particular case. Riley, 487 U.S. at 801, footnote 13. The licensing provision in Riley was stricken because it failed to satisfy even a de minimus test of having a time limit on, and other statutory protections against, prior restraints that were used for determining whether movies were obscene. See, Freedman v. Maryland, supra, at 51, also discussed below. The Riley decision states that the statute at issue fails a de minimus test applicable to obscenity: "[e]ven assuming that the State's interest does justify requiring fundraisers to obtain a license before soliciting, such a regulation must provide that the licensor 'will, within a specified brief period, either issue a license or go to court.'" Riley 487 U.S. at 802, citing Freedman, 380 U.S. at 53.
The Riley decision does not stand for the proposition that a license for charitable solicitors, even if it were to pass a standard of review applicable to obscenity, would nevertheless be constitutional simply by passing that lowered standard found in Freedman. The Opinion, therefore, is inconsistent with the long line of case law holding that licenses for the distribution of literature constitute an unconstitutional prior restraint.
Even the Riley decision dealt with a slightly different type of First Amendment activity than what is at issue in the present case. The Riley decision involved a law requiring a license to solicit charitable contributions by professional solicitors. The Utah Act differs because it restricts not only the local activity of door-to-door soliciting, but out-of-state fundraising consultants' "advising" and "counseling" nonprofit organizations with respect to distribution of literature through the United States mail. See, Act, section 13-22-2(11)(a)(i). In American Target's case, there is not any local conduct performed in Utah. Thus, the license cannot be justified under the exception in Cox v. New Hampshire, supra. But even door-to-door soliciting is fully protected by the First Amendment, even in the face of the substantial state interest of crime prevention. See, Martin v. Struthers, 319 U.S. 141, 144-147 (1943). Surely, the act of distributing literature through the United States mail, which involves no local conduct, is deserving of greater protection from state interference than door-to-door soliciting.
Unlike those cases that involve statutes restricting parades or door-to-door canvassing which are local activities that have been traditionally the subject of local police powers, the present case involves no such concerns on the part of the State. This case does not involve the need to keep streets organized and safe. This case does not involve homeowners mistaking violent thugs for late-night canvassers. The case does not involve loudspeakers playing music at unacceptably high volumes of noise. The licensing scheme at issue in this case is purely and simply a prior restraint on the distribution of literature, which is unconstitutional on its face.
The Utah Act differs substantially from the statute at issue in Freedman, supra. Both the nature of the object of the statute in Freedman (movies) and the form of speech being regulated (movies that are obscene, or tending to corrupt morals or incite crimes) are different from the matters in the present case. The statute at issue in Freedman required movies to be submitted to a board before being shown to the public. The board was directed to review whether the movies were obscene, tended to corrupt morals or incite crimes. Freedman, 380 U.S. at 52, footnote 2.
Freedman held that the statute was unconstitutional not only because it did not have a time limit, but that it did not have a time limit within which the licensor must affirmatively go to court to restrain the film from being exhibited. Id., at 51. The reviewing government official knew in advance when the movies were to be exhibited, and the review could take place before exhibition, thereby avoiding previous restraint. The Court held that the actions (or inaction) of the government official could not restrain the movie. This is distinctly different from the Utah Act which enables the Director to deny a license, and thereafter the duty is upon the applicant to get judicial relief. The rationale in Freedman does not mean that the Supreme Court approved a prior restraint of 10 days as a saving grace of licensing schemes.
The statute in Freedman was nothing like the licensing scheme either in Riley or under the Utah Am Neither Riley nor Freedman support an administrative regulation allowing or requiring review of a licensing application within 10 days. Indeed, under the Utah Act, the Director is given the administrative duty of reviewing a license application and the judicial prerogative of creating a prior restraint. This does not comport with Riley or Freedman.
b. A Prior Restraint of 10 Days Is Unconstitutional.
When applied to protected forms of speech--even non-protected speech that has the potential to be harmful--a prior restraint of 10 days is unacceptable. In Carroll v. Princess Anne, 393 U.S. 175 (1968), the Supreme Court considered the issue of a prior restraint of 10 days. White supremacists had held a public rally at which they engaged in speeches that were aggressively and militantly racist. The speakers used "deliberately derogatory, insulting, and threatening language [and] listeners might well have construed their words as both a provocation to the Negroes in the crowd and an incitement to the whites." Id., at 176. The organizers intended to conduct a similar rally the following evening, except that county officials filed for, and obtained, an ex parte order restraining the organizers for 10 days from holding rallies or meetings which would have tended to disturb or endanger citizens. Id., at 177. The narrow issue resolved by the Supreme Court is that courts may not enjoin ex parte the exercise of First Amendment freedoms where there was no showing that it was impossible to notify the opposing parties. The opinion, however, does cite the important standard that "[a] system of prior restraints of expression comes to this Court bearing a heavy presumption against its constitutional validity." Id., at 181. And when addressing abuses of the freedom of speech, "[o]rdinarily, the State's constitutionally permissible interests are adequately served by criminal penalties imposed after freedom to speak has been so grossly abused that its immunity is breached." Id., at 180-181.
The administrative regulation requirement that the Director must process registration applications within 10 business days (R152-22-3(4)) cannot salvage the Utah Act from condemnation as a prior restraint. The conditions for a professional fundraising counsel's obtaining a license are found at section 13-22-9 of the Act. There are 26 conditions. Section 13-22-9(b)(xiv) includes the condition that professional fundraising counsel must submit "any information that the division [of Consumer Protection] may require". The Act contains a provision that the Director may add other conditions at her discretion, which she has in fact done, as explained herein below. If a professional fundraising counsel cannot comply with any one of the Surplus conditions--for whatever reason--its nonprofit client cannot mail into Utah. The only remedy thereafter would be a judicial one, which is not acceptable under our Constitution.
The Supreme Court has held that the loss of First Amendment freedoms, even for minimal periods of time, constitutes irreparable injury for purposes of issuing injunctions. Elrod v. Bums, 427 U.S. 347, 373 (1976). That rationale has been applied in considering prior restraints on free speech. See, Carroll v. Princess Anne, supra. A prior restraint of fully protected speech, whether it be for 10 days or even 10 hours, is not consistent with our First Amendment. When it comes to fully protected speech, as Gertrude Stein might say, prior restraint is a prior restraint is a prior restraint is a prior restraint.
c. A Regulation Cannot Save A Statute from A Challenge on Its Face.
American Target challenged the Act on its face. An administrative regulation cannot save the Act from such a challenge to the face of the statute. Such an administrative regulation my be changed without approval by the Legislature. In fact, the particular provision requiring processing of an application within 10 days was not a part of the regulations when the case was filed in the District Court in July 1997. That particular provision was not part of the final administrative regulations until November 25, 1997, more than one month after the Director filed her Motion for Summary Judgment, and the date on which American Target filed its response to the Director's Motion for Summary Judgment. The proposed rule was not even published in the Utah State Bulletin by the Director until October 15, 1997. See Attachment F.
The Opinion relies on this 10-day rule in the regulation to hold that the Act is not an unconstitutional prior restrain American Target questions the constitutional wisdom of allowing the government official who administers the Act to control whether the statute is constitutional or not through regulations she creates. Courts may not leave the constitutionality of statutes to the whims and discretion of administrators who enforce such statutes, especially when First Amendment rights are affected, as discussed below. Indeed, the 10-day rule can be changed to a 100-day rule or eliminated altogether as quickly as it was added to the regulations. What the Director may giveth, the Director may taketh away.
4. The Act Gives Improper Discretion to The Director in The Licensing Process.
The Act fails even the test applicable to whether a government official is given too much discretion under license-issuing statutes which target conduct, not speech. The Opinion is clearly erroneous as to the facts, and errs as a matter of law, in concluding that the Act does not give improper discretion to the Director in issuing licenses. See, Opinion, at 11-13. A finding is "clearly erroneous" when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been made. Bose Corporation, supra, at 499. The Supreme Court has held that if a law gives a government official discretion to issue or deny licenses for conduct closely associated with First Amendment activities, the Act is unconstitutional See, Staub v. City of Baxley, 355 U.S. 313, 321-322 (1958); Cantwell v. Connecticut, 310 U.S. at 306; and Thornhill v. Alabama, 310 U.S. 97.
Section 13-22-12 of the Act states the grounds for denial, suspension or revocation of a license. As a condition precedent for denial of a license, the Director would need to make a determination that such denial "is in the public interest". Act, section 13-22-12(1). This requirement does indeed give the Director discretion, and therefore is fatal under the standards of the First Amendment. Although there may be general consensus that certain matters are within the public interest, the ultimate determination of what is in the public interest surely varies from person to person, especially when fringe, ideological, offensive or even annoying First Amendment activities are concerned. Such a decision is subjective.
In Staub v. City of Baxley, supra, an ordinance prohibiting solicitation of citizens to become members of any organization, union or society without a license was held unconstitutional. Among the criteria for determining whether a license would be issued, the ordinance authorized the city mayor to reject an application if he or she did not approve of a soliciting applicant's "effects upon the general welfare of citizens of the City of Baxley." City of Baxley, 355 U.S. at 322. This criterion is virtually identical in purpose and effect to the Act's criterion that the Director may deny a license because it "is in the public interest" to do so. The Court in City of Baxley held that this was one of the "criteria without a semblance of definitive standards or other controlling guides governing the action of the Mayor and Council in granting or withholding a permit." Id. Especially in light of the heightened standards of review in First Amendment cases, simply this provision of the Utah Act gives undue discretion to the Director.
Another example of how the Act gives improper discretion to the Director is (1) the fact that the Director may deny a license if the application is incomplete or misleading, and (2) Section 13-22-9 of the Act, which states what conditions a fundraising counsel must comply with, provides that the Director may require any additional information that she wants in the license application. Act, section 13-22-9(1)(b)(xiv). This gives the Director discretion to add virtually any condition she wants to the application, and then deny a license based on failure to comply with a condition that she herself has established. Thus, the legislature has abdicated its responsibility of controlling the criteria of the license, and has given that discretion to the licensing government administrator herself.
The Director herself admits that she has used her discretion to add conditions to the application process. In her deposition, the Director was asked why the application requests the social security number of the owner of any applicant. Giani Deposition, page 72; Appendix, at 313. She replied that the Act allows her to receive information not otherwise required by the Act, and that such rules and decisions are discretionary on her part. Id., at 313-314.
The record has other examples of the Director and others in the Division wielding unconstitutional discretion, whether such discretion is authorized by the Act or not. See, Giani Deposition, page 7, line 2 - page 10, line 4, Appendix, at 291-294; Giani Deposition page 15, line 15-page 16, line 3, Appendix, at 299-300; Giani Deposition pages 52-53, Appendix, at 311-311 The Opinion fails to acknowledge these incidents of discretion, which should form a basis for finding that the Act is unconstitutional.
II. THE OPINION IS CLEARLY ERRONEOUS AS TO THE FACTS, AND ERRS AS A MATTER OF LAW, IN HOLDING THAT THE ACT SERVES A SUBSTANTIAL STATE INTEREST, IS NARROWLY DRAWN TO SERVE THAT SUBSTANTIAL STATE INTEREST, AND DOES NOT UNNECESSARILY INTERFERE WITH FIRST AMENDMENT FREEDOMS.
A. Standard of Review.
Any law that significantly impairs First Amendment rights must survive exacting scrutiny. Elrod v. Burns, supra, at 362. Under exacting scrutiny, encroachment on First Amendment fights cannot be justified upon a mere showing of a legitimate state interest. Id. The interest advanced by the state must be paramount one of vital importance, and the burden is on the government to show the existence of such an interest. Id. It is not enough that the means chosen in furtherance of the interest be rationally related to that end. Id. If the state has open to it a less drastic way of satisfying its legitimate interests, it may not choose a legislative scheme that broadly stifles the exercise of fundamental personal liberties. Id., at 363. The government must use the least restrictive means to further any legitimate state interest. Id.
Besides being an unconstitutional prior restraint on free speech, the Act must be declared a violation of the First Amendment for other reasons as well. The Act fails the tests applicable to any regulation of First Amendment activity besides being a per se violation as a prior restraint. In addressing the form of regulation to which charitable solicitation may be subject, it is important for the Court to consider what is being regulated. While "the authority of the State to enact laws to promote the health, safety, morals and general welfare of its people is necessarily admitted ... [t]he limits of this sovereign power must always be determined with appropriate regard to the particular subject of its exercise." Near v. Minnesota, supra, at 707.
1. The Letters Intended to Be Mailed Constitute Core Political Speech and Their First Amendment Protections Must Be at Their Zenith.
Stipulated Facts Exhibits 1 and 2 (Appendix, at 229-254) are examples of letters mailed by American Target's client, Judicial Watch. The letters not only describe the lawsuits initiated by Judicial Watch against the current Presidential Administration, but the letters also discuss the public policy reasons why Judicial Watch believes that the Presidential Administration should be held legally accountable for alleged crimes, corruption and other wrongdoings. The letters address key matters of public policy. The letters are designed not only to be informative of important national events affecting our democratic system of government, but they also are intended to promote those public policy positions. The letters contain surveys for the recipients to answer and return to Judicial Watch. Stipulated Facts Exhibit 2 contains a petition for the recipients to sign and send to President Clinton.
These letters are what the Supreme Court has called "core political speech". "Whatever differences may exist about interpretations of the First Amendment, there is practically universal agreement that a major purpose of that Amendment was to protect the free discussion of governmental affairs." Landmark Communications v. Virginia, 05 U.S. 829,48 (1977) "The circulation of a petition involves the type of interactive communication concerning political change that is appropriately described as 'core political speech.'" Meyer v. Grant, 486 U.S. 414,421-422 (1987)
When laws impact core political speech, First Amendment protection of that speech is at its "zenith". Id., at 425. And,
[t]he First Amendment affords the broadest protection to such political expression in order "to assure [the] unfettered interchange of ideas for the bringing about of political and social changes desired by the people."
Federal Election Commission v. National Conservative Political Action Committee, 470 U.S. 480, 493 (1985) citing Buckley v. Valeo 424 U.S. 1, 14 (1976) (emphasis added).
When a case involves a law that places a limitation on political expression, the Court must view that law with "exacting scrutiny". Meyer v. Grant, supra, at 420; see also, American Constitutional Law Foundation v. Meyer, 120 F.3d 1092, 1097 (10th Cir. 1997). And when a law trenches upon core political speech by making that speech criminal (as the Act does at section 13-22-4 of the Act), the burden that the State must overcome to justify that law is "well-nigh insurmountable". Meyer v. Grant, supra, at 425.
The Opinion states that the test applicable to the present matter is that a law that regulates charitable solicitations must "(1) serve a substantial state governmental interest, and (2) be narrowly drawn ... to serve th[at] interest without unnecessarily interfering with First Amendment freedoms." Opinion, at 5, citing Village of Schaumburg, Maryland v. Munson, and Village of Schaumburg, supra. This particular test is not a substitution of the prohibition on prior restraints on the distribution of literature. There is a clear distinction between laws that prohibit speech and laws that regulate conduct that may be associated with speech. "Regulation and suppression are not the same, either in purpose or results." Poulos v. New Hampshire, 345 U.S. 395,408 (1953).
Not only does the Opinion err as a matter of law in failing to prohibit the Act's prior restraint on the distribution of literature, but an analysis of the Opinion shows why it is incorrect in its application of the test found in Village of Schaumburg, Munson, and Riley.
2. The Opinion Fails to Acknowledge That The Speech at Issue Is Core Political Speech, Which Merits The Highest Level of First Amendment Protection.
The Opinion fails to acknowledge that the letters that were intended to be mailed into Utah are core political speech. See, also, Additional Brief in Support of Plaintiffs Motion for Summary Judgment, pages 3-10, Appendix, at 501-508. By failing to acknowledge the core political speech being restrained, the Opinion fails, as a starting point, to acknowledge the heightened scrutiny that it should have applied to its review of the Act.
Core political speech involves not only the act of issuing communications, but other important First Amendment rights as well. The letters of Judicial Watch (and many other nonprofit organizations) include petitions to government officials, a right explicitly protected by the First Amendment. Fundraising counsel who are not paid do not need to register and obtain a license under the Act even though they would be assisting with the distribution of the very same petitions and letters. The protection of the First Amendment is in no way lost or diminished simply because American Target is paid for its services in the process of petition distribution. See, Meyer v. Grant, supra, at 424. The Act is in direct contravention of the holding in Meyer v. Grant.
Another First Amendment right that is lost or at least diminished as a result of the Act is the right of association. Contributing financial support is part of the right of association. See, NAACP v. Alabama, 357 U.S. 449,452 (1958), and Nat. Conservative Pol. Action Com. supra. Indeed, the First Amendment freedom of association is squarely implicated in cases that deal with the solicitation of funds by organizations. Nat. Conservative Pol. Action Com., supra, at 494.
To say that [citizens'] collective action in pooling their resources to amplify their voices is not entitled to full First Amendment protection would subordinate the voices of those of modest means as opposed to those sufficiently wealthy to be able to buy expensive media ads with their own resources.
Id., at 495. The Supreme Court has rejected the notion that organizations' "method of soliciting [financial support] diminishes their entitlement to First Amendment protection." Nat. Conservative Pol. Action Com. 470 U.S. at 494.
The Court must recognize the importance of protecting the right of citizens to receive communications seeking voluntary contributions for ideological or social causes. Nonprofits must solicit financial support to issue their communications "because virtually every means of communicating ideas in today's mass society requires the expenditure of money. The distribution of the humblest handbill or leaflet entails printing, paper, and circulation costs." Id., at 494. Logic dictates that the right of citizens to associate through contributing to the nonprofit organizations that best amplify their public policy positions is lost if those nonprofits cannot solicit citizens' support.
In addressing how a state may regulate nonprofit fundraising communications, the Court should consider these critically important First Amendment issues. It is fundamental to start with this assessment of the nature of the matter being regulated. Exacting scrutiny requires that the Court give these communications the highest level of protection from state interference.
3. The Opinion Misapplies The Supreme Court's Test Which Has Been Used to Examine Regulation of Nonprofit Fundraising.
Notwithstanding the heightened scrutiny that the Court must accord laws that affect core political speech, the Utah Act cannot withstand the scrutiny that must be given speech that even is not core political speech. As the Opinion notes, the Supreme Court has recognized that soliciting financial support is subject to reasonable regulation. Opinion, at 5. As discussed above, prior restraints on the dissemination of literature do not constitute reasonable regulation. But the Act is such an egregious violation of the First Amendment that the Court could declare it unconstitutional by applying the test the Supreme Court has used in reviewing fundraising regulation that is not a per se violation of the First Amendment as is prior restraint.
The Opinion states that the test has two parts: (1) that the regulation must serve a substantial state interest and (2) that the regulation must be narrowly drawn to serve that interest without unnecessarily interfering with First Amendment freedoms. Opinion, at 5. American Target argued that this test is actually three pans because a law can be narrowly tailored to serve a substantial state interest yet still unnecessarily interfere with First Amendment freedoms. See Additional Brief in Sup. of Mot. for Sum J., page 9-12, Appendix, at 507-510 Because the law significantly impairs First Amendment rights including core political speech, the Court must apply the Village of Schaumburg test with exacting scrutiny. See, Elrod v. Burns, supra, at 362.
a. The Supreme Court Has Already Found Various Provisions of Fundraising Regulation to Be Unconstitutional.
Prior Supreme Court cases have held various provisions of fundraising regulation to be unconstitutional. In these cases, the challenge was made against provisions of the licensing statutes. The present case is more comprehensive in its scope because it challenges the licensing requirement itself rather than just parts of fundraising regulation. Also, this case is distinguishable on the basis that the challenge (1) is made by an out-of-state fundraising counsel which (2) does not solicit or have custody of the funds, and (3) the fundraising conducted by the nonprofit organization is done via interstate mail rather than door-to-door solicitations. These facts clearly distinguish the present case from prior cases including any time, place or manner case.
In Village of Schaumburg, the Supreme Court was dealing with a Village ordinance that prohibited local door-to-door or on-street solicitation of contributions by charitable organizations that did not use at least 75 percent of their receipts for "charitable purposes" (as opposed to the costs of solicitation itself, salaries, overhead and other administrative expenses). The Village ordinance at issue required that charities first obtain a permit to solicit. Issuance of the permit was conditioned on the charity submitting satisfactory proof that the charity would use at least 75 percent of the contributions for charitable purposes. A charity that did not submit such proof was denied a permit to solicit. The issue of whether the solicitations contain core political speech was apparently not raised. The case also does not address nonprofit solicitations by mail, but is simply dealing with door-to-door and on-street solicitations.
The Village asserted that the ordinance was designed to protect the public from fraud, crime and undue annoyance. Village of Schaumburg, 444 U.S. at 636. The Supreme Court found that the 75 percent requirement was insufficiently related to those three government interests asserted by the Village. In so holding, the Court cited the standard for regulating free speech found in Schneider v. State, 308 U.S. 147 (1939):
Frauds may be denounced as offenses and punished by law. Trespasses may similarly be forbidden. If it is said that these means are less efficient and convenient than ... [deciding in advance] what information may be disseminated from house to house, and who may impart that information, the answer is that considerations of this sort do not empower a municipality to abridge freedom of speech and press.
Village of Schaumburg, 444 U.S. at 639, citing Schneider, 308 U.S. at 164.
Munson, which was the second of the three fundraising cases, raised an issue similar to that in Village of Schaumburg. The state statute challenged in the Munson case required a charity to obtain a permit before it solicited funds in the State. The State would not issue such a license to solicit if the charity paid a professional fundraiser more than 25 percent of voluntary contributions raised; however, the government could issue a waiver to charities that demonstrated a financial need to pay more than 25 percent. The state's rationale for the percentage limitation of its licensing law was that A was trying to prevent fraud. The State of Maryland asserted that the decision in Village of Schaumburg left open the question of whether an administrative waiver for a charity that could demonstrate financial necessity of paying more than 25 percent remedied the statute so as to save it from being overly broad as a matter of law (i.e., on its face). Besides a standing issue that was resolved favorably for the fundraiser (holding that the fundraisers had standing to raise the First Amendment rights of their nonprofit clients), the sole issue was whether the waiver provision saved the statute from being overly broad.
In finding that the statute was unconstitutional on its face, the Munson decision sets forth the very reasons why the licensing scheme under the Utah Act should likewise receive the same treatment:
[w]here, as here, a statute imposes a direct restriction on protected First Amendment activity, and where the defect in the statute is that the means chosen to accomplish the State's objectives are too imprecise, so that in all its applications the statute creates an unnecessary risk of chilling speech, the statute is properly subject to facial attack.
Munson, 467 U.S. at 967-968. The Court went on further to dismiss the argument by the State that the registration requirement was not a prior restraint. The Court found that the law at issue "suggests the possibility of a 'before-the-fact' prohibition on solicitation" by requiring the contract between fundraisers and charities be filed with the State, and that the charity could not solicit until its registration and the registration of its fundraiser were approved after finding that the applications conformed to requirements in the statute. Id., at 968-969. The Utah Act has similar conditions for the issuance of its license. See, Act section 13-22-9(1)(b)(x) and (xiii). The Utah Act should be declared unconstitutional because its provisions are a prior restraint, and its threat of civil and criminal sanctions tend to chill free speech.
Whether the charity is prevented from engaging in First Amendment activity by the lack of a solicitation permit or by the knowledge that its fundraising activity is illegal if it cannot satisfy the percentage limitation, the chill on protected activity is the same.
Id. at 969.
In Riley, the statute at issue required fundraisers to disclose to potential donors the percentage of revenues retained in prior solicitations. The statute also required fundraisers to obtain a license before soliciting. Riley 487 U.S. at 784. Both the mandatory disclosure provision and the licensing provision were declared unconstitutional.
b. The Record Fails to Show That The Act Serves A Substantial State Interest.
The Opinion concludes that the Utah Act is constitutional under the test found in Village of Schaumburg, Munson, and Riley. As for the first pan of the test, whether the state has a substantial interest in creating the Act, the Opinion cites Utah Code Ann. section 13-1-1. See Attachment G. Section 13-1-1 prefaces the statute creating the Utah Department of Commerce. That statute, according to the Legislature, is intended "to protect [Utah] citizens from harmful and injurious acts." Utah Code Ann. section 13-1-1. The Opinion cites Village of Schaumburg and Riley for the proposition that protecting citizens from fraud is a substantial state interest. Opinion, at 6. The Opinion also states that "[i]t is undisputed that these interests are substantial, and based in part on past experience with persons who have used charitable fund-raising activities as vehicles for fraud." Id.
The test, however, requires more than merely having a substantial state interest. The test requires that the Act serves a substantial state interest, While recognizing that protection of fraud is a substantial state interest, there is no proof in the record that the Act does indeed serve a substantial state interest. The Director made no factual showing in the record supporting a conclusion that the Act is designed to prevent fraud. The Director made no showing in the record supporting a conclusion that there is any amount of fraud committed in nonprofit fundraising so as to justify such a cumbersome licensing law. The Director made no showing in the record supporting a conclusion that professional fundraising counsel are responsible for any fraud that may have been committed in any nonprofit fundraising. The Director admitted that it has no statistical proof of any of these matters. See, Defendant's Supplemental Memorandum, at 18-19; Appendix, at 541-542.
There are no affidavits, depositions or other vehicles of Act used in summary judgment proceedings that present what the Opinion cites as the "past experience with persons" of any fraud in nonprofit fundraising. Opinion, at 6. This is simply an inference that the Opinion has drawn, and such inferences may not take the place of evidence. See, Galloway v. United States, 319 U.S. 372,386-387 (1943).
When First Amendment rights are jeopardized by acts of a legislature, the government has a heightened obligation to show that such legislation serves a substantial state interest. The state interest must be "paramount", and cannot be justified upon even a mere showing of a legitimate state interest. Elrod v Burns, supra, at 362. The record simply does not support a finding of a "paramount" state interest so grand as to justify a prior restraint on Nee speech. When First Amendment rights are at issue, "any attempt to restrict those liberties must be justified by clear public interest, threatened not doubtfully or remotely, but by a clear and present danger." Thomas v. Collins, 323 U.S. at 530.
The government may not merely assert a compelling state interest. The government has the burden of demonstrating that the law is necessary to serve the asserted interest. American Constitutional Law Foundation, supra at 110-110. Otherwise, if the government wanted any legislation to survive a First Amendment challenge, it would merely need to claim that the law is intended to protect citizens from harmful and injurious acts. But the First Amendment requires much more. There are no facts in the record supporting the conclusion that the Act serves a substantial state interest.
For this reason alone, the Director was not entitled to summary judgment. There is no significant probative evidence tending to affirmatively support the Director's Motion for Summary Judgment. See, Anderson v. Liberty Lobby, Inc., supra, at 249. And the record contains facts tending to show that there is indeed no express purpose for the Act. The Director, upon examination, was unable to articulate any factual basis for the purported purpose of the Act. See, Giani Deposition, pages 11-16, Appendix, 420-425. See, also, Additional Brief in Support of Plaintiffs Motion for Summary Judgment, at 18-22, Appendix, at 516-521 The Director's case relies merely upon her own opinion about the purpose of the Act, which is not an acceptable basis for facts needed to support summary judgment under F.R.C.P. 56.
c. The Act Is Not Narrowly Drawn to Serve A Substantial State Interest.
The Act requires nonprofits and professional fundraising counsel to pay an annual fee, submit a detailed annual application and obtain a license before a nonprofit mails a single letter into the State. Fundraising counsel must also post a $25,000 bond or letter of credit. These requirements apply to all organizations, not just those which have committed fraud or otherwise harmed Utah residents. This flies in the Ace of the "narrowly tailored" requirement because the law impacts benign speech as well as harmful speech. The subject of the licensing requirement is not fraudulent speakers but all speakers. The prior restraint, therefore, is not limited to its purported target.
If a law is intended to prevent fraud, but plainly applies to speech "even where there is no hint of falsity", the law cannot withstand constitutional scrutiny. See, McIntyre v. Ohio Elections Commission, 514 U.S. 334, 344 (1995). In the present case, there has been no allegation that American Target or its nonprofit client have committed fraud. Nevertheless, the Act prohibits American Target's client from mailing into Utah. And if American Target's client were to mail, both American Target and its client would be subject to civil and criminal sanctions despite the absence of any fraud or harmful conduct. This is a penalty on the innocent.
Under the exacting scrutiny standard, the state must choose a less drastic scheme than one that stifles First Amendment freedoms. It must be the least restrictive means. Elrod v. Bums, supra, at 363. The Opinion states that the Act need not constitute the "least restrictive means" of obtaining the legislative objective. Opinion, at 6, citing Munson, 467 U.S. at 961 However, the Munson decision cites the Village of Schaumburg decision for precisely the opposite conclusion by finding that "protecting against fraud can be accommodated by measures less intrusive" than the provisions of the statute at issue. Munson, 467 U.S. at 961. Therefore, the Opinion errs in its conclusion.
The Opinion states that the registration and disclosure requirements in the Act are narrowly tailored. In support of this conclusion, the Opinion cites dicta from the Riley decision stating that a state "may constitutionally require fund-raisers to disclose certain financial information to the State". Opinion, at 7, citing Riley, 487 U.S. at 795. There are two principal problems with this conclusion. First, the disclosure requirement in Riley was not challenged, and therefore the Opinion errs by stating that it was "upheld". In fact, the licensing requirement in Riley was declared unconstitutional. Id., at 802. It must be noted that the fundraisers needed to "register" to obtain such license. Therefore, by implication, this registration requirement was in fact declared unconstitutional.
The second problem with the Opinion's conclusion is that it is based on dicta. The Opinion cites page 795 of the Riley decision for the proposition that states may require fundraisers to disclose information to the state. This is essentially the same statement found in footnote 11 in Riley. Id., at 799. The 10th Circuit has already noted that footnote 11 in Riley is dicta. American Constitutional Law Foundation, supra, at 1101. Indeed, the logic of this dicta is contradicted by the principles in two prominent Supreme Court decisions relating to disclosures under the First Amendment.
The most recently decided case contradicting the principles of the Riley dicta is McIntyre v. Ohio Election Commission, supra. In that case, a statute forbade distribution of campaign literature that does not contain the name and address of the person distributing it. In finding that the law was unconstitutional, the opinion recites the importance, history and logic of why states cannot compel disclosure of those who distribute literature that contains core political speech. While the state claimed that its interest was to prevent fraud (Id., at 343-344), the law was not the least restrictive means in combating fraud. The state had other laws prohibiting the making or dissemination of false statements. Id., at 349. The Court applied the exacting scrutiny standard. McIntyre notes that the unconstitutional prohibition on anonymous literature "encompasses documents that are not even arguably misleading." Id., at 351. The right to anonymous publication clearly covers core political speech. Id., at 342.
The McIntyre case is similar to Talley v. California, supra. The statute at issue in Talley forbade the distribution of anonymous handbills. In declaring the statute unconstitutional, the Supreme Court stated that "[t] can be no doubt that such an identification requirement would tend to restrict freedom to distribute information and thereby freedom of expression." Id., at 64. Both McIntyre and AM were cited by this Circuit in American Constitutional Law Foundation, supra. As applied to paid circulators of petitions, "compelling the disclosure of the identities of every paid circulator chills paid circulation .... [and such a law] fails exacting scrutiny because the interests asserted by the state already are or can be protected by less intrusive measures." American Constitutional Law Foundation, 120 F.3d at 1105. The Utah Act requires only paid fundraising counsel to register, while unpaid fundraising counsel need not register Such mandated disclosures chill speech by forcing paid circulators to give up their anonymity enjoyed by their unpaid counterparts. Id. Thus, mandatory disclosure has been rejected by this Circuit and the Supreme Court, and the Opinion's reliance on dicta in Riley should be flatly rejected.
The Opinion also relies on non-existent facts in support of its conclusion that the registration and disclosure requirements are narrowly tailored. The Opinion states that these requirements "enable citizens to protect themselves from fraudulent activity." Opinion, at 7.
However, there is no factual support in the record for this statement. The Opinion also states that "[t]he information required is relatively simple and readily available to the consultant. As American Target concedes, much of the information required is already available in its own tax forms and fundraising materials in Virginia." Opinion, at 7-8. This statement is absolutely erroneous. American Target specifically and explicitly disavowed the bogus claim that such information is available in its own tax forms and fundraising materials in Virginia. See, Memorandum in Support of Plaintiff's Reply to Defendant's Opposition, and Plaintiff's Opposition to Defendant's Motion for Summary Judgment, at 14-15, Appendix, at 270-271. There is no basis for the Acts asserted in the Opinion - Indeed, the Director herself later disavowed this bogus claim which she initially advanced in her pleadings. Giani Deposition, page 80, line 1 to page 81, line 5, Appendix, at 318-319.
The bottom line is that the registration requirement is a broad, prophylactic prior restraint on Nee speech. There is no Actual basis in the record supporting a claim that the registration requirement is narrowly tailored to prevent fraud. Additionally, citizens may obtain information about nonprofits from many other sources, including the nonprofits themselves. The Act deters speech rather than imposing penalties to deter unlawful conduct. See, Speiser v. Randall, 357 U.S. 513, 528 (1958). The Act chills the exercise of free speech. The State of Utah has other, less intrusive means of combating fraud. And even "if th[ese are] not the most efficient means of preventing fraud the First Amendment does not permit the State to sacrifice speech for efficiency." Riley, supra at 795.
The Opinion cites the case Ward v. Rock Against Racism, 491 U.S. 781, 799 (1989), for the proposition that the Utah Act is narrowly tailored because it "promotes a substantial state interest that would be achieved less effectively absent regulation." But Rock Against Racism and this principle are totally inapposite for the present case. Rock Against Racism dealt with a regulation aimed at limiting the volume of amplified music in a park in New York City. The regulation forbade musicians from using their own sound amplification equipment in a public park while performing so that the volume of noise could be controlled. The regulation did not place a prior restraint on the distribution of literature nor even on the performance of music. The subject of the prior restraint at issue was the volume of music in a public park in a city.
The Rock Against Racism decision is explicitly limited in scope to a "time, place, and manner" regulation. The Utah Act is not a "time, place or manner" regulation. The Act has no regard to the time, place or manner of any conduct. The prohibition under the Act is not placed on noise or conduct 4 is a direct prohibition on mailing letters, even those that are of the most benign nature. Thus, the Act prohibits speech, which must be distinguished from the object and purpose of the regulation in Rock Against Racism. As footnote 7 in Rock Against Racism clearly points out, the statute at issue in that case focuses on the source of the evils the city seeks to eliminate--excessive and inadequate sound amplification--and eliminates them without at the same time banning or significantly restricting a substantial quantity of speech that does not create the same evils. This is the essence of narrow tailoring. A ban on handbilling, of course, would suppress a great quantity of speech that does not cause the evils that it seeks to eliminate, whether they be fraud, crime, litter, traffic congestion, or noise.
Id., at 799, footnote 7. The Supreme Court makes clear that the test that applies to time, place or manner regulations is not exacting scrutiny, but a lesser standard. The standard that must be used in examining a law that places a prior restraint on core political speech absent the time, place or manner considerations is the exacting scrutiny test. This requires that the state use the least restrictive means in attempting to serve a substantial state interest. Thus, the Opinion erred by applying the standard found in Rock Against Racism.
The State of Utah obviously has many substantial state interest to protect. However, the State may not deprive citizens or entities of their constitutional rights by requiring mass registration of those who have committed no harm. The registration and licensing provisions under the Act are Big Brother at its worst.
d. A Fee May Not Be Imposed on The Right of Free Speech.
The Opinion states that the Act's $250 speech fee passes the narrowly tailored requirement. But fees on speech were actually long ago rejected by the Supreme Court. A state may not impose a license fee on the right of free speech. Murdock v. Pennsylvania, supra. "Freedom of speech ... [is] available to all, not merely to those who can pay their own way." Id., at 111. Nonprofits and fundraising counsel must pay the registration fee under the Act merely for the right of the nonprofit to mail letters into the State. But "[a] state may not impose a charge for the enjoyment of a right granted by the Federal Constitution." Id., at 113. Such a fee itself is a prior restraint on Nee speech. Id., at 114. The fact that such a fee is nondiscriminatory is immaterial. Id., at 115. Thus, as a matter of law, the licensing fee is unconstitutional on its face.
Factually, the Opinion relies on paragraph 7 of the Affidavit of Francine A. Giani to support its conclusion that the Director complies with a statute requiring that the fee is "reasonable, fair and reflect[s] the costs of services provided." Opinion, at 10. That Affidavit, however, was subject to a Motion to Strike filed by American Target. The District Court never ruled on that Motion to Strike. The Memorandum of Points and Authorities in Support of Plaintiffs Motion to Strike, at pages 4-5, and the supporting portions of the Giani Deposition which are attached to that Memorandum, show that the Director did not have personal knowledge of the facts asserted in the Giani Affidavit. See, Appendix, at 407-408. The Giani Affidavit does not comply with the requirements for submission of F.R.C.P. 56 affidavits, and should not have been relied upon by the District Court. The Opinion cites no statistics showing that the fee is reasonably calculated to defray administrative costs, even if the basis of expending those administrative costs was constitutional in the first place, which it is not. Again, the Director failed to meets its extensive burden of justifying these fees under the exacting scrutiny standard.
The licensing fee meets none of the criteria for Res found in Cox v. New Hampshire, supra. The very same registration fee--$250--is charged whether a professional fundraising counsel has a nonprofit client that will mail one letter or 10 million letters into the state. Additionally, the fee requirement is not narrowly tailored because payment of a fee does not prevent fraud, which is the purported goal of the Utah Act. And again, the fee is imposed on those who have not committed fraud. Also, there is something fundamentally unsound about imposing a fee to pay the State to administer a speech-licensing law that deprives citizens of their constitutional fights.
Lastly, the Opinion fails to recognize that licensing laws and registration fees of one state cannot be viewed in a vacuum. American Target submitted certified copies of one city's charitable solicitation law and one county's charitable solicitation law. See, Appendix, at 348 364. Not only would the registration fee be allowable in Utah if it were constitutional, it would be allowable in the 49 other states and the nearly 6,000 other jurisdictions in America. This creates a cumulative effect and acts as a new device for suppression of First Amendment activities. See, Murdock, 319 U.S. at 115.
Let there be no mistake: the fee is extracted solely on the basis that First Amendment activities are being conducted. If American Target's client were not to mail into Utah, American Target would not be obligated to pay the fee.
e. The Bond or Letter of Credit Requirement Is Not Narrowly Tailored.
The bonding or letter of credit requirement (the "bonding" requirement) fails the narrowly-tailored requirement for many of the reasons why the other portions of the Act fail this requirement. The Act requires all fundraising counsel, not merely those who have committed or are likely to commit fraud, to post a bond. Therefore, it cannot be narrowly tailored. Additionally, there is no factual support in the record supporting the Opinion's conclusion that the bond has any deterrent effect on fraudulent conduct.
f. The Act Unnecessarily Interferes with First Amendment Freedoms.
As discussed above, the Act is not narrowly tailored toward the conduct that the State claims it wants to limit. Additionally, the Act unnecessarily interferes with First Amendment freedoms. There is no support in the record that a license and $25,000 bond is "necessary" for the State to do anything but prohibit speech. When First Amendment freedoms are affected, exacting scrutiny demands that the government bears the burden of showing that the law is necessary to prevent a clear and present danger of ham. The Director failed to satisfy her heavy burden of showing that the Act is necessary to accomplish any purported purpose of the Act.
Besides being an unconstitutional prior restraint, the Act burdens free speech in such a way that it makes the costs of engaging in such rights too expensive. The Affidavit of Richard A. Viguerie (Appendix, at 332-333) shows that American Target must post 100 percent collateral to obtain a bond. So to post a bond in Utah, American Target would need to encumber $25,000 of assets if it had $25,000 in unencumbered assets. American Target has had to borrow collateral in the amount of $132,500 to post bonds nationally. Viguerie Affidavit, paragraphs 6 and 7. The Defendant's own affidavit witness, Gary Christensen, affirmed that many companies would need to post 100 percent collateral to obtain a letter of credit. Christensen Deposition, page 6-9, Appendix, at 325-37 These assets may not be utilized by the company that has pledged the assets as collateral. Christensen Deposition, at 7, Appendix, at 326.
If all 50 states were to have the same bonding requirement as Utah, American Target would need to post bonds in the amount of $1.25 million if any of its clients wished to mail into all 50 states. This does not even take into account the counties and cities that could impose such bonding requirements. American Target must borrow the collateral just to stay in business. The Act is clear: no bond, no license. That is clearly a prior restraint.
If a fundraising counsel cannot deposit $25,000 with the state or post a bond or letter of credit in the same amount, no license will be issued. This leaves the job of fundraising counsel available only to those companies wealthy enough to post collateral before their nonprofit clients have raised a single dime. This is completely at odds with the conclusion in Murdock that freedom of speech is available to all, not merely those who can pay their own way. Murdock, 319 U.S. at 111.
The Opinion is clearly erroneous in concluding that the bonding or letter of credit requirement is less burdensome than depositing $25,000 with the state. The Opinion also cites no facts in the record on which to conclude that the purposes of the Act could not be accomplished without such bonds. See, Opinion, at 11. The Director presented no facts to support burdening American Target by tying up $25,000 of assets. Given the obligation that the Director had in justifying this mind-boggling burden on free speech, the Opinion is wrong as a matter of law by failing to find that the bonding requirement alone unnecessarily interferes with First Amendment freedoms.
The Director failed to satisfy even the most minimal burdens of showing the she is entitled to summary judgment on the First Amendment issues. Indeed, American Target showed that the Act burdens the exercise of First Amendment rights and is not narrowly drawn to serve a substantial state interest. American Target is not even obligated to prove such matters. American Target should have been granted summary judgment on the grounds that the Act violates the First Amendment as a matter of law.
III. THE ACT IS AN UNDUE BURDEN ON INTERSTATE COMMERCE, AND IMPROPERLY REQUIRES A LICENSE TO ENGAGE IN PURELY INTERSTATE COMMERCE IN VIOLATION OF THE COMMERCE CLAUSE.
A. Standard of Review
Direct mail is one of the purest forms of interstate commerce. A state may not impose a license on purely interstate commerce. Any law that unduly burdens interstate commerce of this nature is a violation of the dormant Commerce Clause.
As a beginning point in considering the standards by which the Court should evaluate the Act under the Commerce Clause, A is important to acknowledge the subject matter or objects that am being regulated. The Act does not regulate the packaging of %it or the shipping of toxic waste. The matter that is being regulated by the Utah Act is the fundamental liberty to distribute literature. Regardless of whether laws are aimed at some state interest, the sovereign power of the State stops short of interference with the indispensable requirements of liberties guaranteed under the Constitution. See, Near v. Minnesota, 283 U.S. 707-708. A review of the basic components of the Act shows why it is inconsistent with the Commerce Clause, and potentially dangerous for interstate commerce in general.
Firstly, the Act initially prohibits an entity from mailing certain letters into a state. Secondly, the Act requires an entity to pay a Re and fill out forms in order to qualify for a license to mail into the state. Thirdly, if the entity obtains a license, it still may not mail into the state if it enters into a contract with a second entity which provides, among other things, "advice" or "counseling" to the first entity. For the first entity to finally be able to mail into the state, the second entity must (1) pay a $250 fee, (2) fill out an 11-plus page application, (3) submit an acknowledgment that the first entity will not mail into the state until the second entity receives a license, (4) submit copies of contracts, (5) submit copies of the letters to be mailed by the first entity, (6) submit copies of vending decals, (7) submit photocopies of other state-related documents, (8) submit a list of directors/officers (including their name, address, title, telephone number social security number or driver's license), (9) submit any other information that the Director requires by regulations she creates, and (10) post $25,000 either in cash, a bond or letter of credit with the state. See, Fundraising Counsel Permit Application, Appendix, at 190-203. All of this must happen before the first entity may mail even a single letter into the jurisdiction.
If the Utah Act is constitutional under the Commerce Clause, similar laws would obviously be constitutional in every other state and perhaps every other governmental jurisdiction in the country. If the subject matter being regulated by the Act was the shipping of toxic chemicals, one might not be offended by the consequences of this burdensome law. However, if the subject matter of the Act was the mailing of catalogues selling clothes, one is left with the sense that there is something fundamentally wrong with the statute. Indeed, direct mail sales would virtually cease or be so limited in the scope of jurisdictions into which catalogues are mailed that our rightful enjoyment of shopping through catalogues would be significantly impaired. Add to this consideration the fact that the subject matter of the Act is the exercise of free speech, then we see the tragedy of this abhorrent statute. Already, American Target's clients cannot mail into Utah, so there is red deprivation of fundamental rights. The cumulative effect of such a law being coped in many states and impacting diverse industries could be devastating. Interstate commerce through the mail would become so expensive and burdensome that it could cripple entire industries.
Fortunately, the Constitution and Supreme Court have given us standards by which to declare such laws unconstitutional so as to avoid the absurd results of what could happen if the Act is upheld. The Opinion, however, applies the wrong standard and even misapplies the standard that it does use.
1. The Act Places An Unconstitutional Burden on Interstate Commerce.
In the District Court, American Target argued that the decision in Quill Corporation v. North Dakota, 504 U.S. 298 (1992) provides the standard by which the Act should be declared unconstitutional. Quill Corporation was an out-of-state company that solicited sales in North Dakota through catalogs, flyers, advertisements through national periodicals and telephone calls. Id., at 302. The State of North Dakota attempted to compel Quill to file sales tax returns and pay sales tax on the merchandise that North Dakota residents purchased from Quill through the mail. In declaring the tax and filing requirements unconstitutional under the Commerce Clause, the Supreme Court cited the "bright-line rule" under the so-called "dormant" Commerce Clause. Id., at 314. Under this bright-line rule, the dormant Commerce Clause, which applies to both regulations and taxes (Id., at 315) prohibits regulation of interstate commerce where the vendor's only connection with the residents of a state is by common carrier or United States Mail. Id. Such a regulation unduly burdens interstate commerce in violation of the Commerce Clause.
The Opinion correctly cites the dormant Commerce Clause as applicable to this case because there is no Federal legislation which specifically overrides or excludes a state's regulating nonprofit fundraising communications. The standard is thus whether the Act unduly burdens interstate commerce.
As in Quill, American Target has no offices or property in Utah. The only nexus between a fundraising counsel and Utah would be the mail sent by fundraising counsel's client into the State. Under the bright-line test in Quill therefore, the State may not limit the interstate commerce rights of not only nonprofits which want to mail there, but of any fundraising counsel with which the nonprofits enter into contracts. The Act fails the bright-line test because it regulates American Target and its clients through the licensing and registration requirements based solely upon interstate commerce conducted via mail.
The Quill decision is consistent with a prior case, National Bellas Hess v. Illinois, 386 US. 75 (1967) in As adjudication of the Commerce Muse. Bellas Hess also involved interstate commerce through direct mail. The Supreme Court stated that "it is difficult to conceive of commercial transactions more exclusively interstate in character than mail order transactions." Id., at 759 Indeed,
if the power of [a State] to impose use tax burdens upon [an out-of-state entity] were upheld, the resulting impediments upon interstate business would be neither imaginary nor remote. For if [one State] can impose such burdens, so can every other State, and so, indeed, can every other municipality, every school district, and every other political subdivision throughout the Nation . The very purpose of the Commerce Clause was to ensure a national economy free from such unjustifiable entanglements.
Id., at 759-760. As discussed above, the burdens imposed on American Target through the Act's registration process create impediments to interstate commerce. American Target would need to post at least $1.25 million in cash or other assets for the simple right of its client to mail letters throughout the country under the juridical logic of the Act.
As with any bright-line test, the Court need not engage in any more analysis. The Court need not engage in the complex and imprecise process of balancing state interests or determining whether the Act discriminates against out-of-state entities. The Opinion's reliance on such a balancing test, as found in Pike v. Bruce Church, 397 U.S. 137 (1970) (Opinion, at 16), is therefore misplaced. The bright-line test avoids this unnecessary exercise, and avoids the absurd and harsh results of what would happen if all 50 states or the "Nation's 6,000-plus" jurisdictions (Quill, supra, at 313, footnote 6) enacted laws similar to the Act.
The Act also violates the fundamental Commerce Clause rule that states may not require a license to engage in purely interstate commerce. "[A] state law is unconstitutional and void which requires a party to take out a license for carrying on interstate commerce, no matter how specious the pretext may be for imposing it." Adams Express Co. v New York, 232 U.S. 14, 31 (1914).
While results-driven decisions often make for bad law, it is nonetheless important for the Court to consider the consequences for interstate commerce if the Opinion is not overturned. State legislatures could effectively drown out certain types of interstate commerce merely, by claiming that the statute effectuates a local public interest and regulates such commerce even-handedly. See, Opinion, at 16. As with prior restraints under the First Amendment, it is important for the Court to keep in mind the subject matter being regulated. The Constitution contains some very basic rights and liberties. And while courts have identified a number of exceptions as to how state legislatures can regulate certain subject matter which have incidental effects on those rights and liberties, the Court must guard against "excepting" those liberties to death.
Thus, the confluence of the First Amendment and Commerce Clause issues involved in the present case requires that the review of the challenged legislation be done with even more marked care and consideration for the long-term effects on constitutional rights. The Act violates the Commerce Clause by licensing speech protected by the First Amendment. A state may not deny some other protected right based on a person's exercising his or her First Amendment rights. See, Perry v. Sinderman, 408 U.S. 593, 597 (1972). The subject matter which the Act prohibits under its attempt to regulate interstate commerce is the right of free speech. This is doubly offensive to the constitution. And the Court must give due deference to these valuable constitutional rights, regardless of the "specious'' reasons set forth by the State for regulating these rights. See, Adams Express Co., supra, at 31.
2. The Act Even Fails The Pike v. Bruce Church Test, Even Though That Standard Should Not Have Been Used.
Even under an analysis of the Act under Pike v. Bruce Church, supra, the Opinion erroneously granted summary judgment for the Director rather than American Target. The Opinion cites Pike v. Bruce Church for the proposition that the challenged law will survive a dormant Commerce Clause challenge unless the burden on interstate commerce is "clearly excessive in relation to the putative local benefits."' Opinion, at 16. The Opinion also cites Dorrance v. McCarthy, 957 F.2d 761, 763 (10th Cir. 1992) for the proposition that American Target "bears the burden of showing the incidental burden on interstate commerce is excessive compared to the local interest." Opinion, at 17.
As discussed in the First Amendment analysis above, this case requires that the Court apply exacting scrutiny to the Act. Therefore, the burden was on the Director to prove (1) a substantial state (local) interest, and (2) that the Act serves a substantial state interest. The Director failed in this regard. American Target did not have the burden of showing a substantial local interest or lack thereof. Indeed, given the heightened burden that the Director had, and given the fact that the Director would be the most likely source of facts showing a substantial state interest by virtue of her position as the state administrator of the Act, where else should American Target have gone to obtain any evidence of a local interest?
Even if American Target had the burden of showing a lack of local interest, the Director herself would have been the source of that information. And as described in the First Amendment analysis above, the Director was questioned in her deposition about that state interest and had no facts to support it. See pages 30-31, sum. And in her briefs, the Director explicitly acknowledged that she could not find any such information. See, Defendant's Supplemental Memorandum, at 18, Appendix at 541 ("In preparing the Director's Summary Judgment Memo, the Director was unable to find statistics or other data demonstrating how much Utahns lose to fraudulent solicitations. Nor was the Director able to find such data on a nationwide basis."). Given that the Director is (1) the keeper of registration materials, (2) the state official who would receive complaints about fraud, and (3) the single best source of this information if it were to exist, this is a shockingly insightful admission of a lack of proof of a local interest. Thus, even if the burden were on American Target, that burden is satisfied.
Additionally, the local putative benefits of allowing a nonprofit to mail into Utah should be considered. These benefits include the valuable First Amendment rights of free speech, petitioning the government, and association. These rights cannot be quantified, and proving their loss is simply a matter of showing a prior restraint. These local benefits are actually harmed, not helped, by the Act.
As for the burdens on interstate commerce, the Opinion is clearly erroneous as to the facts in stating that "American Target has failed to produce any evidence showing that the incidental burdens that the Act may impose on interstate commerce are clearly excessive in relation to the benefits that the Act produces." Opinion, at 17. To start with, the Ant is a per se burden on interstate commerce by virtue of the fact tat American Target's client cannot mail into the State. This exclusion of rights is the ultimate burden. And as discussed above, American Target submitted an affidavit and deposition testimony showing that it posts 100 percent collateral to obtain bonds. Additionally, the Act itself and the permit application form show (1) a registration fee of $250, and (2) the inordinate amount of paperwork that is required to register. If American Target's client were to mail a single letter into Utah, American Target would need to comply with all of the conditions under the Act. This is clearly excessive in relation to the imaginary local benefit which the Director claims but could not show. Therefore, the Opinion is wrong as a matter of fact and law that the Act passes the test in Pike v. Bruce, even if American Target were to have the burden of showing that a law that restricts First Amendment rights is unconstitutional under the Commerce Clause.
IV. THE ACT VIOLATES THE NOTIONS OF FAIR PLAY AND SUBSTANTIAL JUSTICE REQUIRED UNDER DUE PROCESS.
A. Standard of Review.
The standard for licensing jurisdiction over an out-of-state entity requires a greater quantum of business activity within the licensing state than adjudicative jurisdiction does. Due process prevents a State from exercising powers that it otherwise does not possess.
Unless the Opinion and Judgment are reversed, it will certainly open the floodgates for licensing authorities throughout the United States to violate the due process rights of out-of-state companies and citizens. Some examples of what could happen if states are allowed to use similar licensing schemes is helpful in seeing the potentially harmful results of letting the Act stand.
Example 1: A Utah solo-practitioner attorney, prepares a contract between his Utah client and a Florida-based company, that operates in 50 states. The Utah attorney negotiates the contract with the attorney representing the Florida company. The Utah attorney counsels and advises his Utah client about the business dealings under that contract, but does not advise about Florida law or go to Florida courts. Under the logic of the Charitable Solicitations Act, that Utah attorney would be susceptible to being required to hold a Florida license to practice law. But, see, Trierweiler v. Croxton and Trench Holding Co., 90 F.3d 1523 (10th Cir. 1996), which applies to adjudicative jurisdiction only.
Example 2: A marketing firm in New York city is hired by The New York Times to plan and manage the marketing and distribution of the newspaper throughout the country, but operates exclusively out of its New York office. The marketing company also prepares advertisements to be placed in national publications and sent to households and businesses through direct mail. Again, if Utah's theory of licensing out-of-state corporations were upheld, the New York marketing firm could be required to obtain a license and post a $25,000 bond under these circumstances. And if the firm failed to do so, could Utah exclude The New York Times from being distributed in the State?
In both of these examples, it is easy to see that the out-of-state actor "purposely directed" activities towards the licensing State in some manner or fashion. Indeed, had the out-of-state actors done something to harm residents of the licensing state, it would seem that the courts of the forum state would have adjudicative jurisdiction over the out-of-state actors. Courts have adjudicative jurisdiction over foreign corporations with minimum contacts who cause harm to residents regardless of whether a foreign corporation is licensed in the forum state.
The Opinion errs as a matter of law in failing to recognize the limits of licensing jurisdiction (as opposed to adjudicative jurisdiction) over an out-of-state corporation. The Opinion relies on Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985) for the proposition that a state may require a license of an out-of state corporation if that corporation purposefully directed Is activities toward the residents of the licensing state. Opinion, at 18. Burger King Corp. dealt solely with adjudicative jurisdiction, not licensing jurisdiction. The Act, however, is more akin to laws about transacting business within the state.
In determining personal jurisdiction for adjudicative matters, federal courts will look to the jurisdictional law of the state itself Segil v. Gloria Marshall Management Co., Inc., 568 F.Supp. 915 (D. Utah 1983). When reviewing whether a foreign corporation is doing business in a state under a due process analysis, "a somewhat greater quantum of business activity is required in order to compel a foreign corporation to qualify to do business within that state ... than that which merely renders it subject to the service of process." Dunham-Bush, Inc. . Bill Hartmann Plumbing & Heating, Inc, 515 P.2d 92, 93-94 (Utah 1973). There needs to be a distinction between the due process standards for adjudicative jurisdiction and those for legislative (or prescriptive) jurisdiction. See, Quill, 504 U.S. 319-320 (Justice Scalia concurring). Licensing is indeed a prescriptive requirement created by the legislature.
There is a threshold of activity that a foreign corporation must engage in before it is deemed to be doing business in a state. "It is well settled that a foreign corporation may transact some kinds of business within a state without procuring a certificate [from] or submitting to control" of the licensing state. Fletcher Cyclopedia of the Law of Private Corporations, Section 8464. And "[registration and licensing] statutes are not applicable to foreign corporations engaged in interstate or foreign commerce ... for if construed as applicable to such corporations, the statutes would be unconstitutional." Id., at section 8448.
The Contract between American Target and its nonprofit client contemplates American Target providing services in connection with the client's mail that is to be sent nationally. These services are performed entirely outside of Utah. The Act, by prohibiting mail from being sent to Utah because American Target performs those out-of-state services, "abrogates the rights of parties beyond its borders having no relation to anything done or to be done within them." Home Insurance Co. v. Dick, 281 U.S. 397,410 (1930).
The Act is an extra-jurisdictional regulation of services occurring outside of the State of Utah. This means that the Act "embraces subjects wholly beyond its legitimate authority" which is inconsistent with the Constitution, because "the Constitution and its limitations are the safeguards preventing any and all [states] under the guise of license or otherwise mom exercising powers not possessed." See, New York Life Insurance Company v. Head, 234 U.S. 149, 164 (1914). Therefore, the Act is repugnant to the constitutional guarantees of due process for licensing jurisdiction.
The Director failed to satisfy her burdens under the First Amendment standards. American Target has shown that the Act is unconstitutional because it significantly burdens rights guaranteed by the Constitution. American Target asks the Court to reverse the Judgment and Opinion, find that the Act is unconstitutional, and remand the case to the District Court for a determination of whether the Director violated 42 U.S.C. section 1983 by violating American Target's rights under color of State law.
STATEMENT REGARDING ORAL ARGUMENT
Counsel requests oral argument because of the important constitutional issues in this case affecting perhaps hundreds of fundraising counsel, thousands of nonprofit organizations and millions of citizens. The issues raised could significantly impact on constitutional claims extending beyond the mere facts and legislation of this case. The case impacts fundamental liberties, and the fullest attention given by this Court is critical to those liberties.
|Mark J. Fitzgibbons
American Target Advertising, Inc.
9625 Surveyor Court
Manassas, Virginia 20110
|Gifford W. Price
Mackey Price & Williams
170 South Main Street
Salt Lake City, Utah 84101
CERTIFICATE OF SERVICE
I hereby certify that a copy of the foregoing APPELLANT'S OPENING BRIEF was furnished by United States Mail or delivered to the following on this the 6th day of November, 1998 to:
Jeffrey S. Gray, Esquire
Assistant Attorney General
Consumer Rights Division
160 East 300 South
Salt Lake City, Utah 84114-0872