NOTE: This text was derived from a photocopy of the document that was submitted to the court. The photocopy was scanned, subject to optical character recognition, and finally converted to HTML/Web format. Although subsequent proofreading was performed, the document may contain minor errors, and must not be considered a legal copy of the official document. The OCR process handled numbers especially poorly, so legal references should not be quoted from this text! Also, the nature of HTML format makes the exact layout of the text on the page somewhat unpredictable. As a result, this text will not exactly duplicate the appearance of the official printed document, and the page numbering when printed will be significantly different from the original.


INC., a Virginia Corporation,


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
District Judge

Civil No. 2:97CV 0610B


Respectfully submitted,

American Target Advertising, Inc.
9625 Surveyor Court, Suite 400
Manassas, Virginia 20110
(703) 392-7676

Mackey, Price & Williams
170 South Main Street, Suite 900
Salt Lake City, Utah 84101-1655
(801) 575-5000



A. The Director Confuses the First Amendment Principles Applicable to this Case.

The arguments advanced by the Director confuse the proper analysis that the Court must give any First Amendment challenge to a law. The Director would have the Court apply the wrong standard of review of the First Amendment issues in this case. The Court must apply the standard of "exacting scrutiny" to the Utah Charitable Solicitations Act (the "Act"). Certain immutable principles apply to the First Amendment that allow courts to more easily discern challenges to unconstitutional laws (and presumably provide guidance for legislatures and citizens). As American Target presented in its Opening Brief, a limited number of exceptions have evolved from the First Amendment which otherwise prohibits the government from abridging the right of free speech, the right to petition, and the right to freely associate. The First Amendment principles are clear and they guard First Amendment rights more zealously than the Director suggests in her Brief.

The scrutiny that courts must give laws that affect First Amendment rights varies depending on the nature of the First Amendment activity at issue. Some types of speech require more heightened scrutiny by the courts when those types of speech are impacted by government regulation. There are established distinctions between the types of speech, the nature of the laws that impact on First Amendment rights, and the scrutiny that courts must use in reviewing such laws that impact on First Amendment rights.

The Act, plainly and simply, is a restriction on speech, and it does not concern itself with "time, place, or manner" issues. As American Target argued in the District Court and argued in its Opening Brief, the Act must be declared unconstitutional because it restricts speech itself, not the "time, place or manner" of the speech or an activity associated with the speech.

The Court's approach to the First Amendment issues in this case can be made relatively simple by breaking down the elements of what is involved. First of all, the Act requires a license to distribute certain literature. A license to distribute literature of any type creates a prior restraint. The literature at issue in this case is protected by the First Amendment, and does not fall into the categories of speech which by their very nature are harmful, such as fighting words, obscenity, defamation or fraud. Those categories of speech which are inherently harmful are not fully protected by the First Amendment. The distribution of literature that is not inherently harmful (benign speech) is free speech, and is fully protected by the First Amendment. Some forms of speech, such as core political speech, have an even more heightened level of First Amendment protection from government interference than other forms of benign speech.

Because the Act does not regulate the "time, place, or manner" of an activity involving benign speech, the prior restraint created by the Act violates the First Amendment. The Act does not regulate when an organization may ask for contributions such as, for example, before 10 p.m. The Act does not regulate where solicitations may occur, such as in malls or subway stations. And the Act does not regulate how fundraising agencies may advise nonprofit organizations.

Merely because some forms of benign speech have the potential, in some instances, to be harmful does not justify prior restraints absent a "time, place, or manner" consideration. Therefore, the Act must be declared an unconstitutional prior restraint.

Additionally, there is another reason to hold that the Act violates the First Amendment. The speech in this case that is being affected by the Act is core political speech. The Act requires those that engage in core political speech to obtain a license before they engage in such speech. As in the case of American Target's client, Judicial Watch, some organizations are prohibited by the Act from engaging in core political speech. Laws that restrict or impinge upon core political speech are subject to exacting scrutiny (or "strict scrutiny" as it is otherwise called). Exacting scrutiny requires that a law that encroaches on First Amendment rights cannot be justified by a mere showing of a legitimate State interest. The interest advanced by the State must be paramount, and the burden is on the State to show the existence of such an interest. It is not enough that the means chosen in furtherance of such an interest be rationally related to advancing the State's interest. Under exacting scrutiny, the State must prove that the means it has chosen do in fact advance the purported paramount interest which the State asserts. Also, the State must use the least restrictive means of satisfying that state interest. Exacting scrutiny means that the evidentiary burdens are on the State, and those are very high burdens. Indeed, the burdens are well-nigh insurmountable when the State imposes criminal sanctions.

In the District Court, the Director did not set forth evidence showing that the Act serves a substantial state interest. The Director did not show in the District Court that the Act is narrowly drawn to serve that state interest. And the Director did not show in the District Court that the Act does not unnecessarily interfere with First Amendment freedoms. The Act is not the least restrictive means of preventing fraud. As is the case with Judicial Watch, the Act restricts benign speech--even speech that deserves the highest level of protection from any State interference-and therefore the Act is not limited to preventing purported harmful speech.

Thus, the Act violates the First Amendment because (1) the Act creates an unconstitutional prior restraint, and (2) it does not withstand exacting scrutiny. The Director's Brief confuses the steps that the Court must follow to reach this conclusion. In her Brief, the Director cites cases that are not pertinent to the examination of the issues in the present case. The First Amendment standards for the zoning of porn shops are not the same as those for the licensing of core political speech (contrary to what is argued in the Director's Brief, passim). And the First Amendment certainly does protect organizations of lesser financial means as much as it protects wealthy organizations (See, Aplee's Brief at 26, where the Director astonishingly claims that "the First Amendment does not require the state to enact laws that will accommodate every organization.").1

B. The Court Must Apply Exacting Scrutiny in Its Review of the Act.

There are two reasons why the Court must apply exacting scrutiny to the Act. The first reason is that the speech involved is core political speech. The second reason is that the Act does not purport to regulate the "time, place, or manner" of the speech. It is irrelevant in this case whether the Act is content neutral. The issue of whether a restriction is content neutral only matters when the restriction is made on the "time, place, or manner" of an activity associated with speech.

1. Because the Speech Involved Is Core Political Speech, the Court Must Apply Exacting Scrutiny.

As American Target stated in its Opening Brief, the Court is directed by precedent to begin its review of a constitutional challenge by examining the particular subject that is being restricted by the Act. Aplnt's Opening Brief at 21 - 22. Therefore, the Court must recognize the type of speech that is subject to the offending legislation. The type of speech at issue determines the level of scrutiny that the Court must apply in reviewing such laws. Certain forms of speech do not merit full First Amendment protection because of their inherent harmful nature (e.g., fighting words or obscenity. See, United States v. Eichman, 314 U.S. 310, 315 (1990) (cites omitted)). Certain other types of speech, while not harmful, are protected by the First Amendment, but have not been given the highest level of First Amendment protection. Commercial speech is one such type. See, generally, Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inn, 425 U.S. 748 (1976). Courts have typically given laws that restrict these forms of speech what is known as "intermediate scrutiny". Yet even other forms of speech, such as core political speech, require the highest level of First Amendment protection. See, Meyer v. Grant, 486 U.S. 414, 425 (1988). Courts must use exacting scrutiny in reviewing laws that restrict core political speech. Id.

Nonprofit communications that request voluntary contributions are neither inherently harmful nor do they fall into the category of more moderately protected speech. Nonprofit solicitations are not commercial speech. Recognizing that nonprofit fundraising communications are 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 .... [and] because charitable solicitation does more than inform private economic decisions and is not primarily concerned with providing information about the characteristics and costs of goods and services, it has not been dealt with in [Supreme Court] cases as a variety of purely commercial speech.

Village of Schaumburg v. Citizens for a Better Environment, 444 U.S. 620, 632 (1980). Thus, the Director's cites to, and reliance on, commercial speech cases (Aplee's Brief at 9 - 10) are not relevant to the analysis of this case.

The letters intended to be mailed by American Target's nonprofit client, Judicial Watch, do indeed constitute core political speech. See, Aplnt's Opening Brief at 22 - 23. Judicial Watch, like so many other nonprofit organizations, engages in core political speech through the letters it mails to its potential citizen supporters. These communications are necessary to guard against abuses of power by politicians, government officials, and others. These letters often contain petitions to the government and other interactive methods of providing information to citizens and getting responses. Like initiative-petition circulators and handbill distributors, these letters "promote public support for a particular issue or position." Buckley v. American Constitutional Law Foundation, Inc, (U.S. January 12, 1999, No. 97-930, affirming the 10th Circuit judgment in American Constitutional Law Foundation v. Meyer, 120 F.3d 1092 (1997).

Indeed, many nonprofit organizations fill an important void when the government creates or turns its back on abuses within its own ranks. Nonprofit organizations are found all along the ideological, social, religious and moral spectrum. The Director argues that such organizations are free to mail letters addressing social or political topics at will, as long as those letters do not seek voluntary contributions and other gifts of support. Aplee's Brief at 7. But that position is contrary to the basic premise stated in the Shaumburg decision, as noted above. In essence, what the Director says, to paraphrase the Supreme Court, is like telling someone they can drive wherever and however far they want as long as they do not fill their gas tank. See, Buckley v. Valeo, 424 U.S. 1, 19, footnote 18 (1975).

2. Whether a Law is Content Neutral or Not Only Affects "Time, Place, or Manner
Restrictions; Therefore, That Issue Is Irrelevant to This Case

The Director argues that the Act is content neutral, and that the Court should therefore apply "intermediate scrutiny" rather than "exacting scrutiny" to the Act (Aplee's Brief at 11 - 14).2 However, the Director is mixing apples with oranges. It is clear from case law that whether or not a law is content neutral does not affect the level of scrutiny that the Court must apply to a law that does not regulate the "time, place, or manner" of the activity associated with speech. The Court must apply exacting scrutiny whenever a law regulates speech absent considerations of the "time, place, or manner" of conduct.

Additionally, because core political speech is involved, the Court must apply exacting scrutiny even if the Act were found to be content neutral. The fact that the statutes at issue in Meyer v. Grant, supra, and McIntyre v. Ohio Elections Commission 514 U.S. 334 (1995), were content neutral did not mean that the courts applied intermediate scrutiny in those cases. The courts applied exacting scrutiny because the laws at issue in those cases impacted core political speech.

The Director relies in part on the decision in Turner Broadcasting Systems, Inc. v. FCC 512 U.S. 622 (1994) for the proposition that any content-neutral regulation must only be subject to intermediate scrutiny. The Director's reliance on TBS is misplaced. TBS dealt with whether a federal statute could mandate that cable television systems devote a portion of their channels to the transmission of local broadcast television stations. Id., at 626. The notion that a content-neutral statute is subject to intermediate scrutiny found in TBS, as with all of the other cases cited by the Director for the proposition that a content-neutral law is only subject to intermediate scrutiny, applies only to "time, place or manner" laws. TBS explicitly acknowledges that the law at issue applied to the "manner" in which the speakers transmit their messages. Id., at 645.

The decisions of the Supreme Court and other courts that have held that content-neutral laws are subject to intermediate scrutiny have only applied to laws that restrict the "time, place or manner" of the activities involving speech. Accord, Id., at 645 - 646; Ward v. Rock Against Racism, 491 U.S. 781 (1989); and Clark V. Community for Creative Non-Violence, 468 U.S. 288 (1984). Jews for Jesus, Inc. v. Massachusetts Bay Transportation Authority, also cited by the Director, explicitly acknowledges that "[a] content neutral restriction may limit speech if it reasonably regulates the time, place or manner of expression and is tailored narrowly to serve a substantial state interest." 984 F.3d 1319, 1323 (1st Cir. 1993), citing Perry Education Association v. Perry Local Educators Association, 460 U.S. 37, 45 - 46 (1983). Jews for Jesus decided whether a State could constitutionally restrict the First Amendment activities in certain areas of subway stations. Indeed, the Supreme Court has even held that certain content-neutral laws that do not concern the "time, place, or manner" of the activity are subject to exacting scrutiny. See, U.S. v Eichman, supra. Therefore, the cases cited by the Director for her argument do not apply to the present case because the Act does not concern itself with the "time, place, or manner" of any conduct. The Director is merely creating a straw man by raising the issue of content neutrality.

The Act is not a "time, place, or manner" regulation, as American Target emphasized in its Opening Brief and before the District Court. The Act restricts nonprofit fundraising communications at any time, at any place, and in any manner. Thus, whether the Act is content neutral is irrelevant for purposes of reviewing the Act. The Court must review the challenge to the constitutionality of the Act using exacting scrutiny. In so doing, the Court must hold that the Director did not meet her heavy burdens, and that the Act is not the least restrictive means available to accomplish the State's purported interest.

3. Under Exacting Scrutiny, the Act Must Be Declared Unconstitutional.

American Target set forth in its Opening Brief that the Act cannot survive exacting scrutiny under the proper analysis and using the appropriate First Amendment tests. See, Aplnt's Opening Brief at 21 - 39. The Director misapplies the cases she cites to support her argument that (1) the Court should apply intermediate scrutiny and (2) the Act is narrowly tailored to a substantial state interest. Aplee's Brief at 18 - 36. The Director reIies on "time, place, or manner" cases. Laws that restrict the "time, place, or manner" of an activity do not necessarily require courts to apply exacting scrutiny. Thus, the "time, place, or manner" cases cited by the Director are misapplied for purposes of the present case. Other cases cited by the Director, such as National Awareness Foundation v. Abrams, 50 F.3d 1159 (2nd Cir. 1995), Center for Auto Safety, Inc. v. Athey, 37 F.3d 139 (4th Cir. 1994), Dayton Area Visually Impaired Persons, Inc. v. Fisher, 70 F.3d 1474 (6th Cir. 1995), and Heritage Publishing Company v. Fishman, 634 F.Supp. 1489 (D. Minn. 1986) all suffer from the same constitutional flaw of failing to acknowledge that the laws at issue in those cases lack any "time, place, or manner" element. The Tenth Circuit should not find those cases either controlling or even persuasive.

It was the Director who had the obligation to show that the Act is narrowly tailored, is the least restrictive means, and every other element of the exacting scrutiny test. The Director has failed to show that the Act is narrowly tailored or that the Act is the least restrictive means to accomplish any goal, as required under exacting scrutiny. Likewise, the Opinion should have concluded that the Act is not the least restrictive means to accomplish the State's purported interest. Despite the Director's failure to meet its burden, American Target nevertheless showed that there are other existing regulations and laws which can accomplish the goal the Director purportedly wants (e.g., Utah's existing fraud statute (Utah Code Ann. section 76-10-1801) (Exhibit 1), Utah's long-arm statute (Utah Code Ann. section 78-27-24) (Exhibit 2), United States Postal Service fraud statute (39 U.S.C. section 3005) (Exhibit 3), Internal Revenue Code disclosure statute for nonprofit organizations (26 U.S.C. section 6104(e)) (Exhibit 4), Internal Revenue Service Form 990 (tax return for nonprofit organizations)). See, American Target's Memorandum in Sup. of Mot. for PreIim. Injctn at 16 - 17, Appendix at 54 - 55. Indeed, one seemingly constitutional way for states to obtain information about nonprofits and their fundraising counsel would be for the states in which the entities are located to share information over the internet based on the business licensing laws of those states. That would satisfy a state's purported needs, and would not create the Commerce Clause and due process objections described by American Target. As the Supreme Court has stated, even "if [these are] not the most efficient means of preventing fraud ... the First Amendment does not permit the State to sacrifice speech for efficiency." Riley v. National Federation of the Blind, 487 U.S. 781, 795 (1988).


The nature of the speech at issue and the lack of any "time, place, or manner" element in the Act are fatal to the Director's argument that the Act is not an unconstitutional prior restraint. The Director's reliance on FW/PBS, Inc. v. City of Dallas 493 U.S. 215 (1990) (Aplee's Brief at 29) is also misplaced. FW/PBS, a plurality opinion, dealt with a city ordinance for the licensing and zoning of sexually-oriented businesses within the city's limits. That case not only deals with a type of speech that does not merit the same heightened level of scrutiny applicable to the speech in the present case, but it is also a decision about a "time, place, or manner" ordinance.

In the District Court, American Target distinguished the type of licenses that fall under a city's or state's long-recognized police powers. See, American Target's Additional Brief in Sup. of P's Mot. for Sum. J. at 14 - 17, Appendix at 512 - 515. The Utah Act does not deal with the zoning of any businesses, but the ordinance at issue in FW/PBS did. Also, the ordinance at issue in FW/PBS was more like a law regarding occupancy permits (Id., at 225). The issuance of occupancy permits is clearly within the purview of local police powers. Such laws regulate the place or manner of business activities. FW/PBS appears "to apply prior restraint analysis to fact situations that are the functional equivalent of those situations that the Court has analyzed traditionally under the time, place, and manner analysis." Graff v. City of Chicago, 9 F.3d 1309, 1334 (7th Cir. 1993). No such "time, place, or manner" concerns are found in the Utah Act.

The other cases cited by the Director for her proposition are likewise "time, place, or manner" cases (East Brooks Books, Inc. v. City of Memphis, 48 F.3d 220 (6th Cir. 1995); TK's Video, Inc. v. Denton County, 24 F.3d 705 (5th Cir. 1993); and Jews Or Jesus, supra). See, Aplee's Brief at 30. The Director finds no support for prior restraints in any case law that does not deal with a "time, place or manner" statute. The Act fails the test found in Cox v. New Hampshire, 312 US. 569 (101) and As progeny. See, Aplnt's Opening Brief at 12 - 13.

The Director asserts that American Target waived its right to challenge the portion of the District Court's Opinion which deals 0th the issue of prior restraint, citing Vitkus v. Beatrice Co., 127 F.3d 936, 946 - 947 (10th Cir. 1997). See, Aplee's Brief at 31 -32. However, the Opinion relies on a regulation, Utah Admin. Code R152-22-4(2)(g), as part of its holding that the Act, on its face, does not constitute a prior restraint. In its Opening Brief, American Target argued that the regulation, which provides that the Director will review all license applications within 10 days of her having received them, does not mean that the Act is not an unconstitutional prior restraint contrary to the District Court's express holding.

The Director's argument that American Target waived its right to challenge that portion of the Opinion must fail for two principal reasons. First of all, the issue was "passed upon" by the District Court in its Opinion by virtue of the Opinion's express reliance on the regulation to hold that it saves the Act from condemnation as a prior restraint. Opinion, at 8, footnote 1. Secondly, the Director herself raised the issue before the District Court. See, D's Supplemental Memorandum at 9, Appendix at 532. As explained in Singleton v. Wulff, 428 U.S. 106 (1975) (cited by Beatrice), as a general rule, appellate courts will not consider an issue not passed upon below. One of the masons Or this rule is to avoid surprise on "issues upon which [a party on appeal has] had no opportunity to introduce evidence." Singleton, 428 U.S. at 120. There can be no surprise to the Director since she raised the issue herself, and it was paced upon by the District Court. The Tenth Circuit has held that an issue not passed upon by the District Court should not be addressed on appeal. See, Pell v. Azar Nut Co., Inc., 711 F.2d 949, 950 (10th Cir. 1983). But that rule applies only to "issues left unresolved by the district court." Id.

Where the District Court has ruled on an issue, the Court of Appeals may address the same issue, even where the District Court was not required to rule on the issue below. See, Jarvis v. Nobel/Sysco Food Services Co., 985 F.2d 1419, 1425 (10th Cir. 1993); Baker v. Penn Mutual Life Insurance Co., 788 F.2d 650, 656 (10th Cir. 1986). American Target did not raise the matter as a "new" issue for the Court of Appeals to address. Rather, American Target's Opening Brief addresses that regulation in response to a portion of the District Court's Opinion which American Target argues is incorrect. It is unreasonable to suggest that an appellant may not directly challenge any express portion of a trial court's opinion from which the appellant is appealing. Because the District Court's Opinion passed upon that issue, American Target rightfully--and properly--raised that issue on appeal.3


There are two principal areas in which American Target's interstate commerce differs from the interstate commerce in the cases cited by the Director. The first principal distinction is that the interstate commerce involving American Target exists solely between two jurisdictions: Virginia and the District of Columbia. There is no direct nexus between Utah and American Target with regard to commerce. The second principal distinction is that the commerce involved is free speech itself. Therefore, the Court must take into consideration these facts in its analysis of whether the Act is constitutional.

A. American Target Sells Its Services to a Washington, D.C. Nonprofit Organization, Not to Be Citizens of Utah. Therefore, me Act Regulates Commerce That Takes Mace Wholly Outside a Utah.

The Commerce Clause cases on which the Director's case and the District Court's Opinion rely all involve interstate or intrastate commerce flowing into or out of a regulating state. See, Aplee's Brief at 39 - 42, citing, in order by pages in the Brief, Dorrance v. McCarthy 957 F.2d 761 (10th Cir. 1992), Aplee's Brief at 39; Ferndale Laboratories, Inc. v. Cavendish, 79 F.3d 488 (6th Cir. 1996) Aplee's Brief at 39 - 40; Pike v. Bruce Church, 397 U.S. 137 (1970), Aplee's Brief at 40, Blue Circle Cement, Inc. v. Board of County Commissioners, 27 F.3d 1499 (10th Cir. 1994), Aplee's Brief at 40; Exxon Corp. v. Governor of Maryland, 437 U.S. 117 (1978) Aplee's Brief at 41 - 42. In each of those cases, the nature of the interstate commerce was either the shipping, transporting, selling, packaging or other activity involving the products or services of the entity being regulated. Not one of those cases involved a regulation or licensing scheme affecting an out-of-state supplier of goods or services to the entity that was engaged in commerce in the regulating state. Thus, the present matter is easily distinguishable from the cases cited by the Director in support of her argument.

The Utah Act goes one step further than the regulations in the cases cited by the Director. American Target "sells" its services to nonprofit organizations, none of which are located in Utah. American Target has no direct or substantial nexus with any person or entity in Utah. American Target prepares letters for its client, Judicial Watch. American Target acts as the disclosed agent for finding print vendors and databases of names from other nonprofit organizations so that Judicial Watch's letters can be printed and addressed to databases consisting of those who may have a political, moral, philosophical or ideological inclinations to support Judicial Watch. Such support to Judicial Watch may be by way of voluntary contributions, or it may be made by signing petitions or returning one of the many surveys included in Judicial Watch' s letters without the citizen's making a voluntary contributions. See, American Target's Memorandum in Sup. of Mot. for Prelim. Injctn. at 2 - 4, Appendix at 40 - 42. As noted in the Opening Brief, the Contact between American Target and Judicial Watch states expressly that American Target shall not solicit on behalf of Judicial Watch. Contract, section 1.A., page 2, Appendix at 17.

As American Target noted for the District Court, American Target is even one step further removed from direct mail vendors who sell their products through the mail. Id., at 36, Appendix at 74, citing Quill Corporation v. North Dakota, 504 U.S. 298 (1992). In Quill, the Supreme Court said that "[a] vendor whose only contacts with the taxing State are by mail or common carrier lacks the 'substantial nexus' required by the Commerce Clause." Quill, 504 U.S. at 305. The licensing and bonding requirements applicable to American Target under the Act are extended to an out-of-state company that provides out-of-state services to another out-of-state entity. American Target is not free to engage in this out-of-state commerce with its client until American Target registers with, and obtains a license from, Utah.4 This constitutes regulating commerce occurring wholly outside of the State's borders because American Target is providing its services to an out-of-state entity, not a Utah entity.

As American Target argued before the District Court, the better analysis of the Commerce Clause dilemma is found under Brown-Forman Distillers v. New York Liquor Authority, 476 U.S. 573 (1986). That case held that the regulation of out-of-state transactions violates the Commerce Clause. "Forcing a [business entity] to seek regulatory approval in one state before undertaking a transaction in another directly regulates interstate commerce." Id., at 582. States may not "project" their legislation into other states and directly regulate commerce therein, for to do so is a violation of the Commerce Clause. Id., at 583.

Additionally, the "Commerce Clause ... precludes the application of a state statute to commerce that takes place wholly outside of the State's borders, whether or not the commerce has effects within the state." Healy v The Beer Institute, Inc., 491 U.S. 324, 336 (1989) (emphasis added). The letters produced under the Contract between American Target and Judicial Watch would certainly have effects within the State of Utah, but the "commerce", that is, the services sold by American Target to Judicial Watch, occurs wholly outside of the State of Utah. See, American Target's Memorandum in Sup. of Mot. for Prelim. Injctn. at 34, Appendix at 72. The Act requires a license and bond of any out-of-state organization that merely "consults" with, "counsels", "advises", or "prepares materials" for an out-of-state nonprofit organization. Clearly, this is commerce that takes place wholly outside of Utah. The Act attempts to license and regulate this external business relationship simply because the product of that external relationship would be mailed into Utah. This violates the holdings in Brown-Forman and Healy, supra.

American Target is required to obtain a license to assist Judicial Watch in the production of its letters, and not for engaging in any commerce, interstate or intrastate, within Utah itself. This is an over-reaching licensing authority contrary to any precedent within this Circuit.

B. The Act's Burden on Interstate Commerce, in and of Itself, Is Enough for the Court to Hold That the Act Violates the Commerce Clause.

In the Exxon Corp. case cited by the Director (Aplee's Brief at 41 - 42), the Supreme Court recognized the three areas in which states are without power to regulate: when there is already a relevant congressional declaration of policy, when there is "specific discrimination against, or burdening of, interstate commerce". Exxon Corp., 437 U.S. at 128 - 129. In the cases of Quill, supra, and National Bellas Hess v. Illinois, 386 U.S. 753 (1967), the Supreme Court recognized the excessive burdens if the nearly 6,000-plus jurisdictions in the United States were to tax and regulate interstate commerce conducted by direct mail.

While this Court has distinguished license fees from taxes for purposes of licenses for companies, including out-of-state ones (See, V- I Oil Co. v. Utah State Department of Public Safety, 131 F.3d 1415 (10th Cir. 1997)), the issue of a license fee and $25,000 bond applied to an out-of-state company that does not conduct even interstate business within the licensing state has apparently not been addressed by this Court. In V- 1 Oil Co., the Utah license fee at issue applied to liquefied petroleum gas ("LPG") facilities in neighboring states that sold LPG directly to consumers in the State of Utah. The license fee at issue in that case was applied not "to the production, manufacture or refining of LPG." Id., at 1426. Nor did the law at issue "attempt to regulate or prohibit the introduction of LPG into Utah." Id. Similarly, the license fee at issue was "not assessed 'for the privilege of making commercial entrances into the State."' Id. V-1 Oil Co. is thus easily distinguishable from the present case.

The Act regulates and licenses the "production" of the letters mailed by Judicial Watch. The incidents of licensing are set off by Judicial Watch's mailing those letters in interstate commerce via United States mail. Unlike the licensing law in V-1 Oil, the Act "regulates" and "prohibits" the mailing of such letters into the State because American Target does not have a license with regard to its out-of-state services provided in conjunction with the preparation of those letters mailed by Judicial Watch. The license fee is assessed "for the privilege of [Judicial Watch's letters] making . . . entrances into" Utah. Thus, the license fee under the Act does not comply with the standards that the Tenth Circuit has previously found acceptable.

Additionally, the Director's reliance on American Charities for Reasonable Fundraising Regulation, Inc. v. Pinellas County, No. 97-2058-CIV-T-17B, 1998 WL 839860 (M.D. Fla. Nov. 12, 1998) (See, Appellee's Brief at 42) in its Commerce Clause argument only underscores American Target's argument that such licensing laws violate the Commerce Clause because of such laws' cumulative burdens. See, Aplnt's Brief at 41 - 43. The Pinellas County case is similar to the present matter in that it adjudicated a challenge to the constitutionality of a charitable licensing law for out-of-state professional fundraising consultants. However, the Pinellas County case involved a challenge to a county law rather than a state law. The Pinellas County decision highlights the potentially disastrous consequences of buying into the arguments made by the Director, and confirms American Target's warnings that the juridical logic of the Utah Opinion could have catastrophic implications for the Commerce Clause.

As American Target stated in its Opening Brief, if the Utah Act is constitutional, then similar laws in the nearly 6,000-plus jurisdictions in America would certainly be constitutional. The Pinellas County decision is nearly identical in many respects to the District Court's Opinion from which American Target is appealing. Fundraising counsel must now be prepared to pay $1,500,000 in registration fees annually (6,000 x $250, and post $150,000,000 (6,000 x $25,000) in cash, bonds or letters of credit for the right to advise and counsel nonprofit clients. That would be the death of organizations that wish to mail nationally using the services of paid professionals. Organizations would cease to be able to communicate nationally--or even cease to exist--for it is a reasonable conclusion that even the largest organizations could not possibly comply with such burdens, not to mention the impact on small and start-up organizations. With the Pinellas County decision, "the resulting impediments upon the free conduct of ... interstate business [are] neither imaginary nor remote." National Bellas Hess, supra, at 759.

C. The Court Must Take into Account the Nature of the Matter Being Subjected to the Licensing Requirements.

The assumption made by the Director that Judicial Watch will engage another fundraising consultant solely so that Judicial Watch can mail into Utah (or any single one of the 6,000-plus other jurisdictions) ignores the realities of nonprofit communications. See, Aplee's Brief at 42, citing Pinellas County. The Director's unsubstantiated argument is a cavalier approach to the fact that a nonprofit organization could not mail into certain states or counties, and the citizens of those states and counties cannot receive the mail of that nonprofit. Indeed, under the Director's argument, nonprofits will need to engage multiple agencies--regardless of whether the nonprofits only otherwise need or want one fundraising counsel to advise them about their national mailings.

Free speech is not like gasoline. It is not replaceable or fungible. The fact that one organization cannot speak does not mean that another organization will take its place in the marketplace of ideas. Each speaker is unique. And "[t]he First Amendment protects [a speaker's] right not only to advocate their cause but also to select what they believe to be the most effective means for doing so)' Meyer v. Grant supra, at 424

As American Target argued before the District Court, "[t]he State places burdens on the mailing of free speech into Utah as it would place on the shipping of toxic waste or other harmful materials into the State." American Target's Memorandum in Sup. of Mot. for Sum. J. at 9, Appendix at 121. Furthermore, the State may not bar the exercise of constitutionally protected rights solely on the ground that one is exercising one's First Amendment rights. Id., at 10, Appendix at 122, citing Perry v. Sindermann, 408 U.S. 593, 597 (1972). And as shown in American Target's Opening Brief, the limits on the police powers of the State "must always be determined with appropriate regard to the particular subject of its exercise." Near v. Minnesota, 283 U.S. 697, 707 (1931).

American Target readily admits that this case presents some unique issues for adjudication under the Commerce Clause because of the nature of what is being regulated. Indeed, this case apparently presents some matters of but impression. The confluence of fully-protected First Amendment activity with interstate commerce issues makes this case different from other Commerce Clause cases previously decided. Indeed, if this were a case about whether a nonprofit organization needed a license and a bond to sell pharmaceuticals in the State, the Commerce Clause issues would be easier to decide. But, as American Target pointed out to the District Court, the interstate commerce in this case is free speech. Mem. in Sup. of P's Reply to D's Op, etc. at 17, Appendix at 273.

American Target argued in the District Court that the Act should be reviewed using exacting scrutiny. "[Speech] does not lose its First Amendment protection because money is spent to project it . . . ." Virginia State Board of Pharmacy, supra, at 761. States may not minimize First Amendment guards against intrusions on free speech and other First Amendment rights merely by labeling their laws as "consumer protection". The Director failed to meets its burdens under exacting scrutiny, thus the Act should be declared a violation of the Commerce Clause as well.


The Director also confuses the standard that the Court must apply to the issue of whether a licensing law violates due process. The reach of the Act's licensing authority goes far beyond the traditional police powers of a State. The Director does not cite any law for the proposition that it may regulate an out-of-state company that provides out-of-state services for another out-of-state entity. American Target is simply not doing business in the State of Utah under any traditional notion of doing business.

By the State having licensing authority, the State may impose certain conditions on a company that wishes to obtain such a license. It is not a stretch of logic to determine that the different states could impose conflicting conditions on the business relationships between out-of state entities if states may extend their licensing authority to conduct outside of the respective states' borders. This would create obvious problems.

American Target does not deny that it is subject to the traditional licensing and other police powers of the Commonwealth of Virginia, Prince William County (Virginia), and the City of Manassas, Virginia where it conducts its business. Additionally, American Target does not seek to diminish the well-settled authority of states to use their long-arm statutes to acquire personal jurisdiction for adjudication purposes over out-of-state persons or companies who have maintained the requisite minimum contacts with a state and have caused injury (or met the other appropriate criteria of long-arm statutes) to someone residing in the forum state. But this case is not about hailing an out-of-state company into the courts of the forum state. Indeed, if a fundraising counsel's activities are purposefully directed at the citizens of Utah, as the Director argues, and the fundraising counsel somehow harms a citizen, then the long-arm statute is more than adequate to bring that miscreant to justice under Utah's fraud and long-arm statutes.

Neither the District Court's Opinion nor the Director's Brief cite any support for extending the principles found in Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985) to the due process issue of whether states may regulate and license out-of-state companies. While admittedly there is a paucity of case law about the due process considerations about regulating out-of-state entities (except for that which is cited in American Target's Opening Brief), there clearly is no support for such an extension of Burger King Corp. that would justify the granting of summary judgment for the Director on this issue. Burger King Corp. is limited to adjudicative jurisdiction. Therefore, the Director was not entitled to summary judgment as a matter of law. Additionally, the Director did not establish the uncontroverted facts necessary under the summary judgment standards to support summary judgment in her favor. See, Anderson v, Liberty Lobby, Inc., 477 US. 242 251 (1988).

Even under the standards of Burger King Corp., there was no showing of "alleged injuries that 'arise out of or relate to' [the] activities" of American Target that would provide Utah with adjudicative jurisdiction. Burger King Corp., 471 U.S. at 472. The Act extends licensing jurisdiction to entities who have not been alleged to have injured any Utah residents. Thus, the Opinion must be overturned for that reason as well.

Furthermore, the Director's analysis of what activities are "purposefully directed" towards the citizens of Utah also would limit any due process requirements for out-of-state companies, even for adjudicative jurisdiction, never mind licensing jurisdiction. The Director attempts to make much of the manner in which American Target is paid by Judicial Watch and by the fact that citizens' letters in response to Judicial Watch letters are sent to an independent third-party escrow agent. Aplee's Brief at 44 - 46. The Opinion's holding is not based on such reasons, and they should be disregarded by the Court.

Under the Contract between American Target and Judicial Watch, the formula for payment of American Target's services is based on the number of pieces mailed by its client. However, no matter what arrangement is made for the payment of American Target's services, it would still be subject to the licensing provisions of the Act, Rather than being paid on a formula based on the number of letters mailed, American Target could be paid for its services in any fashion, such as a monthly retainer, and still be subject to the licensing requirements of the Act. Therefore, the Director's argument is unpersuasive, and the Act nonetheless violates due process.

Additionally, the fact that response letters and voluntary contributions are sent to a third-party escrow agent, as is the case under the Contract, is also irrelevant. Such responses from citizens could be sent directly to Judicial Watch and the Act would still compel American Target to obtain a license. The Director's argument would make any out-of-state company subject to Utah licensing jurisdiction merely because that company receives payments from any other entity that somehow derives any of its income from United States citizens residing in Utah.

Additionally, the Director's Brief gives American Target too much credit in many ways. The Director claims that "[American Target] ... identifies those to whom mailings will be made .... Aplee's Brief at 45. American Target could only wish that it could be so precise because that ability would surely make American Target unique among agencies. American Target merely identifies databases from other organizations where respondents have a similar interest as those of its clients. The Director's argument incorrectly implies that American Target identifies the actual supporters for its clients. This is not the case.

The Director also misstates that American Target has "as much control over funds raised as does its client charity." Aplee's Brief at 45. While the Contract does state that American Target will be repaid for out-of-pocket expenses it has advanced before its client is paid the net proceeds, the Director's conclusion is an incorrect leap of logic not supported by the facts.


It should be noted that Judicial Watch is currently prohibited from mailing its letters into Utah even though it is registered under the Act there. As this case proceeds, not only is Judicial Watch being deprived of its constitutional rights, but citizens residing in Utah are being deprived of their constitutional rights as well, unbeknownst to them.

At a minimum, the District Court erred by granting summary judgment for the Director. American Target set forth the correct constitutional approach to the First Amendment, Commerce Clause and due process issues. American Target respectfully asks this court to overrule the District Court, and hold that the Utah Act is unconstitutional.

Respectfully submitted,

Mark J. Fitzgibbons

American Target Advertising, Inc.
9625 Surveyor
Suite 400
Manassas, Virginia 20110
(703) 392-7676
Gifford W. Price

Mackey Price & Williams
170 South Main Street
Suite 900
Salt Lake City, Utah 84101
(801) 575-5000

1 "Freedom of speech ... [must be] available to all, not merely those who can pay their own way." Murdock v. Pennsylvania, 319 U.S. 105, 111 (1943).

2 The amicus curiae brief filed by the Free Speech Defense and Education Fund et al. makes a compelling argument that the Act is not content neutral because it imposes requirements on charitable solicitations but not on commercial solicitations. FSDEF brief at 14 - 17.

3 The Director's Brief, on the other hand, infuses purported facts not found in the record (quoting from a 1997 Federal Trade Commission Report (Aplee's Brief at 21)). The record contains no such facts, and the Director did not apply to supplement the record. Those purported facts should be disregarded by the Court because they are not part of the record.

4 Section 13-22-5(4) states that "[i]t is unlawful for any professional fund raising counsel or consultant to knowingly plan, manage, advise, counsel, consult, or prepare materials for, or with respect to, the solicitation in this state of a contribution for a charitable organization ... unless the professional fund raising counsel or consultant is registered with the division [of consumer protection]. "


I hereby certify that a copy of the foregoing APPELLANT'S REPLY BRIEF was furnished by United States Mail or delivered to the following on this the 22nd day of January, 1999 to:

Jeffrey S. Gray, Esquire
Assistant Attorney General
Consumer Rights Division
160 East 300 South
Fifth Floor
Salt Lake City, Utah 84114-0872

Posted online at the:
Online Compendium of Federal and State Regulations for U.S. Nonprofit Organizations
Scanned and converted to HTML by Eric Mercer
Page last modified 18Feb98