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Jeffrey S. Gray, Bar No. 5852
Rebecca D. Waldron, Bar No. 6148
Assistant Attorneys General
JAN GRAHAM, Bar No. 1231
Utah Attorney General
Attorneys for Defendant
160 East 300 South, 5th Floor, Box 140872
Salt Lake City, Utah 84114-0872
Telephone: (801) 366-0310
IN THE UNITED STATES DISTRICT COURT
AMERICAN TARGET ADVERTISING, INC., a Virginia corporation,
Civil No. 2: 97CV 0610B
DEFENDANT’S SUPPLEMENTAL MEMORANDUM
The defendant, Francine Giani (the “Director”), by and through her counsel, Jan Graham, Utah Attorney General, and Jeffrey S. Gray and Rebecca D. Waldron, Assistant Attorneys General, and pursuant to the Court’s request dated April 20, 1998, submits the following supplemental memorandum in Support of Defendant’s Motion for Summary Judgment and in opposition to Plaintiff’s Motion for Summary Judgment.
In its request dated April 20, 1998, the Court asked the parties for additional briefing on the following two issues:
1. The First Amendment (freedom of speech) test applicable to American Target’s activities in Utah. This should include a discussion of the concept of core political speech and how it applies, if at all, to American Target.
2. Any evidence in the record relevant to a substantial state interest and whether the statute is narrowly tailored to protect that interest?
Accordingly, this supplemental memorandum will address each of the foregoing issues in the order presented above.
I. APPLICABLE FIRST AMENDMENT TEST.
As observed by Justice John Paul Stevens in R.A.V. v. City of St. Paul, the Supreme Court has “created a rough hierarchy in the constitutional protection of speech. Core political speech occupies the highest, most protected position; commercial speech and nonobscene, sexually explicit speech are regarded as a sort of second-class expression; obscenity and fighting words receive the least protection of all.” R.A.V., 505 U.S. 377, 422, 112 S.Ct. 2538, 2564 (1992) (Stevens, J., concurring). Moreover, types or classes of speech within the hierarchy itself may be subject to differing levels of scrutiny. For example, and as will be discussed below, content-based restrictions on political speech are subject to greater scrutiny than other regulations of political speech. The first question posed by the Court necessitates a focus on what level of protection should be afforded to American Target’s activities. In making this assessment, two questions must be addressed: (1) whether charitable solicitations are considered political speech or commercial speech; and (2) whether the challenged regulations constitute a restriction on speech at all.
A. Relevant Supreme Court Decisions.
The seminal Supreme Court cases in the charitable solicitation arena were all decided in the 1980s: Schaumberg v. Citizens for a Better Environment, 444 U.S. 620, 100 S.Ct. 826 (1980); Secretary of State of Maryland v. Joseph H. Munson Co., 467 U.S. 947, 104 S.Ct. 2839 (1984); and Riley v. National Federation of the Blind of North Carolina, Inc., 487 U.S. 781, 108 S.Ct. 2667 (1988). An understanding of the issues addressed in these cases and the Supreme Court’s analysis in rendering its decisions is helpful in addressing this Court’s query. Accordingly, a brief discussion of each of these cases follows.
1. Schaumberg v. Citizens for a Better Environment.
The challenged ordinance in Schaumberg required an applicant for a charitable solicitations permit to provide “[s]atisfactory proof that at least seventy-five percent of the proceeds of such solicitations will be used directly for the charitable purpose of the organization.” Schaumberg, 444 U.S. at 624, 100 S.Ct. at 829. After examining prior cases which addressed the regulation of solicitation of funds, the Court concluded:
Prior authorities, therefore, clearly establish 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. Canvassers in such contexts are necessarily more than solicitors for money. Furthermore, 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 our cases as a variety of purely commercial speech.
Id. 632, 100 S.Ct. at 833-34. After concluding that charitable solicitations were not analogous to commercial speech, the Court adopted a test similar to that used in “time, place, or manner” restrictions, holding that “[t]he Village may serve its legitimate interests, but [that] it must do so by narrowly drawn regulations designed to serve those interests without unnecessarily interfering with First Amendment freedoms.” Id. at 637, 100 S.Ct. at 836.
The Village asserted as its primary justification for the ordinance the prevention of fraud and the Court recognized that interest as substantial. Id. Referring to the Village’s asserted interests in “protecting the public from fraud, crime and undue annoyance,” the Court held that “[t]hese interests are indeed substantial . . . .” Id. at 636, 100 S.Ct. at 836. However, the Court determined that the ordinance failed to meet the second prong of the test. The Village argued that “any organization using more than 25% of its receipts on fundraising, salaries, and overhead was not charitable, but was a commercial, for-profit enterprise. Any such enterprise that represented itself as a charity thus was fraudulent.” Id. However, the Court concluded that “[t]he Village's legitimate interest in preventing fraud can be better served by measures less intrusive than a direct prohibition on solicitation.” Id. at 637, 100 S.Ct. at 836. The Court reasoned that there was no correlation between the proportion of contributions used for the charitable purpose and the legitimacy of the charity. As a result, such a prophylactic rule was not narrowly drawn. Id.
2. Secretary of State of Maryland v. Joseph H. Munson Co.
The challenged statute in Munson also prohibited charitable organizations from paying or agreeing to pay as expenses more than 25% of the funds raised. Munson, 467 U.S. at 950, 104 S.Ct. at 2843. However, unlike the Schaumberg ordinance, the Maryland statute permitted an administrative waiver of the percentage limitation upon a showing of financial necessity. Id. at 962, 104 S.Ct. at 2849-50.
In its analysis, the Court reviewed its decision in Schaumberg, noting that “[t]he flaw in the Village's assumption, as the Court recognized, was that there is no necessary connection between fraud and high solicitation and administrative costs.” Id. at 961, 104 S.Ct. at 2849. The court observed that “[a] number of other factors may result in high costs; the most important of these is that charities often are combining solicitation with dissemination of information, discussion, and advocacy of public issues . . . .” Id. Finally, the Court observed that “[i]n light of the fact that the interest in protecting against fraud can be accommodated by measures less intrusive than a direct prohibition on solicitation, the Court [in Schaumberg] concluded that the limitation was insufficiently related to the governmental interests asserted to justify its interference with protected speech.
After reviewing its decision in Schaumberg, the Court concluded that the administrative waiver provision did not cure the deficiencies in the percentage limitation of the Maryland statute. The Court found the same flaw in the Maryland statute that it found in the Schaumberg ordinance: “The flaw in the statute is not simply that it includes within its sweep some impermissible applications, but that in all its applications it operates on a fundamentally mistaken premise that high solicitation costs are an accurate measure of fraud.” Id. at 966, 104 S.Ct. at 2852.
3. Riley v. National Federation of the Blind of North Carolina, Inc.
In Riley, the Court examined provisions in North Carolina’s Charitable Solicitations Act that: (1) established a prima facie reasonable fee that a professional fundraiser could charge (based on the percentage of funds solicited); (2) required professional fundraisers to disclose to potential donors the percentage of donations retained by the fundraiser in the last year; and (3) required professional fundraisers to obtain a license before soliciting funds. Riley, 487 U.S. at 784, 108 S.Ct. at 2671.
In addressing the reasonable fee provision, the Court applied the “narrowly tailored” test adopted in Schaumberg and Munson. As it did in Schaumberg and Munson, the Court again recognized the substantial interest of the state in preventing fraud. The Court held that “[t]he interest in protecting charities (and the public) from fraud is, of course, a sufficiently substantial interest to justify a narrowly tailored regulation.” Id. at 792, 108 S.Ct. 2675. However, as it did in Schaumberg and Munson, the Court struck down the challenged provision because it was not narrowly tailored. The Court noted that the decisions in Schaumberg and Munson “teach that the solicitation of charitable contributions is protected speech, and that using percentages to decide the legality of the fundraiser’s fee is not narrowly tailored to the State’s interest in preventing fraud.” Id. at 789, 108 S.Ct. at 2673 (footnotes omitted). The Court determined that Maryland’s reasonable fee provision could not be distinguished from the laws in Schaumberg and Munson. Id. at 790-91, 108 S.Ct. at 2673-74. In so concluding, the Court observed:
Despite our clear holding in Munson that there is no nexus between the percentage of funds retained by the fundraiser and the likelihood that the solicitation is fraudulent, the State defines, prima facie, an "unreasonable" and "excessive" fee according to the percentage of total revenues collected. Indeed, the State's test is even more attenuated than the one held invalid in Munson, which at least excluded costs and expenses of solicitation from the fee definition. Permitting rebuttal cannot supply the missing nexus between the percentages and the State's interest.
Id. at 793, 108 S.Ct. at 2675 (citations omitted). Again, therefore, the Court struck down a law that was based on the false premise that the amount of money expended by a charity for expenses is directly related to the legitimacy of the charity. See id. at 791-92, 108 S.Ct. 2675 (“the State's generalized interest in unilaterally imposing its notions of fairness on the fundraising contract is both constitutionally invalid and insufficiently related to a percentage-based test.”).
The Court next considered the North Carolina provision requiring professional fundraisers to disclose to consumers at the point of solicitation the percentage of donations retained by the fundraiser in the last year (“disclosure requirement”). The Court first noted that “[m]andating speech that a speaker would not otherwise make necessarily alters the content of the speech,” and, as a result, the Court treated the provision “as a content-based regulation of speech” which is “subject to exacting First Amendment scrutiny.” Id. at 795, 798, 108 S.Ct. at 2677, 2678 (citations omitted). The Court remarked that under this level of scrutiny, the First Amendment does not permit the government to “dictate the content of speech absent compelling necessity, and then, only by means precisely tailored.” Id. at 800, 108 S.Ct. at 2679-80.
The test applied to such content-based regulation has since been referred to as the “least restrictive means” test. Under this test, “[t]he Government may . . . regulate the content of constitutionally protected speech in order to promote a compelling interest if it chooses the least restrictive means to further the articulated interest.” Cable Communications of California, Inc. V. Federal Communications Commission, 492 U.S. 115, 126, 109 S.Ct. 2829, 2836 (1989) (emphasis added). As recently observed by the Supreme Court in City of Boerne v. P.F. Flores, “[r]equiring a State to demonstrate a compelling interest and show that it has adopted the least restrictive means of achieving that interest is the most demanding test known to constitutional law.” 117 S.Ct. 2157, 2171 (1997) (examining a zoning ordinance under the “Free Exercise” clause).
Under the Court’s analysis, North Carolina’s disclosure requirement failed both prongs of this test. North Carolina “assert[ed] as its interest the importance of informing donors how the money they contribute is spent in order to dispel the alleged misperception that the money they give to professional fundraisers goes in greater-than-actual proportion to benefit charity.” Riley, 487 U.S. at 798, 108 S.Ct. at 2678. The Court concluded, however, that the interest in dispelling possible donor misperception was not compelling. Id. (“this interest is not as weighty as the State asserts”). Moreover, the Court also concluded that the disclosure requirement was not narrowly tailored. In striking down the provision, the Court pointed to other, more narrowly tailored alternatives than the “prophylactic, imprecise, and unduly burdensome” rule adopted by North Carolina:
For example, as a general rule, the State may itself publish the detailed financial disclosure forms it requires professional fundraisers to file. This procedure would communicate the desired information to the public without burdening a speaker with unwanted speech during the course of a solicitation. Alternatively, the State may vigorously enforce its antifraud laws to prohibit professional fundraisers from obtaining money on false pretenses or by making false statements. These more narrowly tailored rules are in keeping with the First Amendment directive that government not dictate the content of speech absent compelling necessity, and then, only by means precisely tailored. “Broad prophylactic rules in the area of free expression are suspect. Precision of regulation must be the touchstone in an area so closely touching our most precious freedoms.”
. Id. at 800-01, 108 S.Ct. at 2679-80 (citations omitted).
Finally, the Court addressed North Carolina’s licensing provision that required professional fundraisers to await the state’s determination on whether or not to approve its solicitation application before the fundraiser engaged in solicitation. The Court noted that although speakers generally need not obtain a license to speak, “that rule is not absolute. For example, States may impose valid time, place, or manner restrictions.” Id. at 802, 108 S.Ct. at 2680 (citations omitted). The Court assumed, without specifically deciding, that the State’s interest was sufficient. However, the Court struck down the licensing provision under Freedman v. Maryland, 380 U.S. 51, 85 S.Ct. 734 (1965), because it did not require North Carolina to make a determination on the application within a specified, brief period of time. Riley, 487 U.S. at 802, 108 S.Ct. at 2680. As noted in the Director’s previous memorandum, the flaw found in Riley does not exist here since Utah’s law requires a decision within 10 days. Utah Admin. R152-22-3(4) (1997).
B. Utah’s Registration and Bonding Requirements Constitute a Reasonable Regulation of a Profession.
The decisions in the foregoing cases stand for the proposition that charitable solicitations are not regarded as merely commercial speech. As noted by the Court in Schaumberg, charitable solicitations “involve a variety of speech interests–communication of information, the dissemination and propagation of views and ideas, and the advocacy of causes.” Schaumberg, 444 U.S. at 632, 100 S.Ct. at 833. The Court reasoned that because charitable solicitation is primarily concerned “with informative and perhaps persuasive speech seeking support for particular causes or for particular views on economic, political, or social issues” (rather than the sale of goods or services), “ it has not been dealt with in our cases as a variety of purely commercial speech.” Id. at 632, 100 S.Ct. at 833- 34.
Although these decisions have stopped short of holding that charitable solicitations themselves constitute core political speech (stating only that they are “inextricably intertwined with otherwise fully protected speech”, Riley, 487 U.S. at 797, 108 S.Ct. at 2677), the Court nevertheless has applied the tests used in political speech cases to regulations of charitable solicitations that directly restrict protected speech. The next issue, therefore, is whether Utah’s registration and bonding requirements directly restrict protected speech. If so, they must be examined by this Court under the applicable political speech test. However, as explained below, an analysis of the regulations would appear to indicate that they do not directly restrict protected speech.
The issues before the Court in Schaumberg and Munson and the reasonable fee provision considered in Riley all implicated the same concern: imposition of the government’s judgment as to how charitable funds should be spent. As explained above, in each case the government set a limit on the amount a charity could spend on expenses, reasoning that the more a charity spent on expenses (and the less it used for the charitable purpose), the more likely it was that the charity was fraudulent. These decisions teach us that provisions limiting or dictating how a charity may use its funds “restrict the ways in which charities might engage in solicitation activity.” Munson, 467 U.S. at 960-61, 104 S.Ct. at 2849. The Court did not view such limitations as mere “economic regulations,” but rather as “‘a direct restriction on the amount of money a charity can spend on fundraising activity,’ and therefore, ‘a direct restriction on protected First Amendment activity.’” Riley, 487 U.S. at 788-89, 108 S.Ct. at 2673 (quoting Munson, 467 U.S. at 967 and n. 16, 104 S.Ct. at 2852-33 and n. 16). As such, the Court examined the provisions under the “narrowly tailored” test for content-neutral regulation of political speech.
The Court also treated North Carolina’s disclosure provision as a direct restriction or “burden” on speech since “[m]andating speech that a speaker would not otherwise make necessarily alters the content of the speech.” Id. at 795, 798, 108 S.Ct. at 2677, 2678. However, unlike the reasonable fee provision, the Court specifically found that the disclosure provision was a content- based regulation, which, as discussed above, is subject to the “least restrictive means” analysis.
A review of Utah’s registration and bonding provisions reveals that the concerns discussed above in Schaumberg, Munson, and Riley are not present here. In requiring professional fundraisers and consultants to register and post a bond, the State is not imposing its judgment as to how charitable contributions should be spent. Nor do the registration and bonding requirements affect the content of the speech. As such, the registration and bonding requirements do not appear to have a direct effect on either how charitable funds will be spent or what will be said in a solicitation. Accordingly, it would appear that they should not be subject to tests applicable to political speech. Instead, as in any profession, the State should be able to impose reasonable regulations upon fundraising consultants as it does in any profession. As expressed by the dissent Fane v. Edenfield, 945 F.2d 1514, 1522 (11th Cir. 1991) (Edmondson, J., dissenting), aff’d 507 U.S. 761, 113 S.Ct. 1792 (1993), “the degree of protection from state interference is still lower when the states are carrying out their traditional and important job of policing the professions.” The dissent further observed that the Supreme Court in Ohralik v. Ohio State Bar Association, 436 U.S. 447, 98 S.Ct. 1912 (1978), “specifically recognized that ‘while entitled to some constitutional protection,” a professional’s conduct is subject to regulation in furtherance of important state interests.’” Fane, 945 F.2d at 1523 (quoting Ohralik, 436 U.S. at 459, 98 S.Ct. at 1920).
The dangers and risks present in professional fundraising are apparent. As noted in the Director’s first memorandum, approximately one billion dollars in charitable contributions were reported by Utah residents in 1995 tax returns alone. Memorandum of Points and Authorities in Opposition to Plaintiff’s Motion for Summary Judgment and in Support of Defendant’s Motion for Summary Judgment (“Director’s Summary Judgment Memo”), pp. 7-8. This is a substantial amount of money and often it is raised through professional fundraisers or consultants who cut into donations the amounts that would otherwise be expended for the charitable purpose. As stated by the Director in her affidavit, the number of professional fundraisers and consultants has more than tripled since 1994. Affidavit of Francine A. Giani, ¶ 6 (“[A]pproximately twenty-nine professional fundraisers registered with the State during the 1994 fiscal year. In the 1997 fiscal year, ninety (90) professional fundraisers and consultants registered with the State.”). Without regulation, these professional fundraisers and consultants would otherwise remain unknown without any reasonable safeguards to protect the public. This interest is even greater in light of the State’s legitimate and substantial interest in protecting Utah residents from fraud. See Schaumberg, 444 U.S. at 636, 100 S.Ct. at 836; Riley, 487 U.S. at 792, 108 S.Ct. at 2675; see also Munson, 467 U.S. at 961, 104 S.Ct. at 2849 (noting that the Court in Schaumberg recognized that the Village had a legitimate interest in protecting the public from fraud). As such, the law is a reasonable regulation of professional fundraisers and consultants.
C. Utah’s Registration and Bonding Requirements Meet the Narrowly Tailored Test Applicable to Protected Speech.
Notwithstanding the fact that Utah’s registration and bonding requirements do not directly affect either how charitable funds will be spent or what will be said in a solicitation, there is indication that the courts may nevertheless treat such regulation as a direct restriction of speech. The Supreme Court in Riley observed that “the State’s asserted power to license professional fundraisers carries with it (unless properly constrained) the power directly and substantially to affect the speech they utter. Consequently, the statute is subject to First Amendment scrutiny.” Riley, 487 U.S. at 801, 108 S.Ct. at 2680. In support of this pronouncement, the Supreme Court cited to Lakewood v. Plain Dealer Publishing Co., 486 U.S. 750, 755-56, 108 S.Ct. 2138, ---- (1988), noting parenthetically that court’s holding that “when a State enacts a statute requiring periodic licensing of speakers, at least when the law is directly aimed at speech, it is subject to First Amendment scrutiny to ensure that the licensor’s discretion is suitably confined.” Riley, 487 U.S. at 801, 108 S.Ct. 2680. As discussed above, however, unlike the North Carolina law, the Utah law is not directly aimed at speech, and therefore, it should be subject to the rationality test for professions. Even this difference, however, may be of questionable import given the Court’s general pronouncements in Riley which imply that any licensing of professional fundraisers should be analyzed under the tests for protected speech.
Assuming that the registration and bonding requirements should be examined under the tests applicable to protected speech, it must be determined under what test the provisions should be examined: the “narrowly tailored” test or “least restrictive means” test. As recently observed by the Tenth Circuit Court of Appeals, “[c]ontent-based restrictions on speech, those which ‘suppress, disadvantage, or impose differential burdens upon speech because of its content,’ are subject to ‘the most exacting scrutiny.’” Z.J. Gifts D-2, L.L.C. v. City of Aurora, 136 F.3d 683, 686 (10th Cir. 1998) (citations omitted). On the other hand, “content-neutral regulations ‘pose a less substantial risk of excising certain ideas or viewpoints from the public dialogue’ because they are unrelated to the content of speech. Content-neutral regulations are accordingly subject to intermediate scrutiny.” Id (citations omitted).
The registration and bonding requirements for fundraisers and consultants apply across the board and do not distinguish based on the content of the solicitation nor do they mandate any disclosures at the point of solicitation. Therefore, they should be examined under the “narrowly tailored” test for content-neutral regulations. Indeed, similar regulations have been examined universally under the “narrowly tailored” test for content-neutral restrictions. See Heritage Publishing Company v. Fishman, 634 F.Supp. 1489 (D.Minn. 1986); Dayton Area Visually Impaired Persons, Inc. v. Fisher, 70 F.3d 1474 (6th Cir. 1995); 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).
In Board of Trustees of the State University of New York v. Fox, 492 U.S. 469, 109 S.Ct. 3028 (1989), the Supreme Court examined the level of scrutiny that should be applied in commercial speech cases under Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447 U.S. 557, 100 S.Ct. 2343 (1980). In doing so, the Supreme Court reviewed the scrutiny applied to restrictions on political speech that are not content-based. The Court observed:
We have refrained from imposing a least-restrictive-means requirement–even where core political speech is at issue–in assessing the validity of so-called time, place, and manner restrictions. We uphold such restrictions so long as they are “narrowly tailored” to serve a significant governmental interest, a standard that we have not interpreted to require elimination of all less restrictive alternatives. Similarly with respect to government regulation of expressive conduct, including conduct expressive of political views. In requiring that to be “narrowly tailored” to serve an important or substantial state interest, we have not insisted that there be no conceivable alternative, but only that the regulation not “burden substantially more speech than is necessary to further the government's legitimate interests.” And we have been loath to second-guess the Government's judgment to that effect.
Fox, 492 U.S. at 477-78, 109 S.Ct. at 3033 (citations omitted) (emphasis added). Utah’s law falls in the category of “government regulation of expressive conduct” referenced in Fox that is subject to the “narrowly tailored” test. As explained above, the “narrowly tailored” test for content-neutral regulations of protected speech is subject to less exacting scrutiny. In fact, as observed by the Supreme Court in Fox, “application of the Central Hudson test [used in commercial speech cases] [is] ‘substantially similar’ to the application of the test for validity of time, place, and manner restrictions upon protected speech–which we have specifically held does not require least restrictive means.” Fox, 492 U.S. at 477, 109 S.Ct. at 3033 (citation omitted).
Having concluded that the “narrowly tailored” test should be applied in this matter as opposed to the “least restrictive means” test, it is necessary to examine the standard used by the Supreme Court in assessing whether or not a statute is narrowly tailored. In Ward v. Rock Against Racism, 491 U.S. 781, 109 S.Ct. 2746 (1989), the Supreme Court reaffirmed its position that in the application of the “narrowly tailored” test, the regulation “need not be the least restrictive or least intrusive means of doing so.” Id. at 788, 109 S.Ct. at 2757-58. Instead, the Court held that “the requirement of narrow tailoring is satisfied ‘so long as the . . . regulation promotes a substantial government interest that would be achieved less effectively absent the regulation.’” Id. at 799, 109 S.Ct. at 2758 (emphasis added). The Court further explained as follows:
So long as the means chosen are not substantially broader than necessary to achieve the government's interest, however, the regulation will not be invalid simply because a court concludes that the government's interest could be adequately served by some less-speech-restrictive alternative. "The validity of [time, place, or manner] regulations does not turn on a judge's agreement with the responsible decisionmaker concerning the most appropriate method for promoting significant government interests" or the degree to which those interests should be promoted.
Id. at 800, 109 S.Ct. at 2758 (citations omitted). In Ward, the Supreme Court upheld the ordinance requiring the city’s sound technician to control the sound, mixing board during performances at a city park. Id., 109 S.Ct. at 2759. The Court recognized that the city had a substantial interest in limiting sound volume and concluded that “absent this requirement, the city’s interest would have been served less well.” Id.
In summary, therefore, Utah’s registration and bonding requirements pass First Amendment scrutiny if: (1) they serve a substantial state interest, and (2) they are narrowly tailored to that interest, or, in other words, the interest would be achieved less effectively absent the regulation. As discussed below, an analysis of the registration and bonding requirements reveals that the regulations do, in fact, meet this two-prong test.
II. EVIDENCE RELEVANT TO SUBSTANTIAL STATE INTEREST AND NARROWLY TAILORED REQUIREMENT.
A. The State’s Interest to Protect the Public (and Charities) from Fraud is Substantial.
In applying this test to the regulations challenged by American Target, the Court has inquired as to “evidence in the record relevant to a substantial state interest.” Substantiality of the State’s interest in protecting the public from fraud was raised for the first time by the Court at oral argument. American Target did not deny or otherwise question that protecting the public from fraud is not a substantial interest of the state. American Target has disputed the State’s allegation that the purpose of the Act, was in fact, to protect the public from fraud. See Memorandum in Support of Plaintiff’s Reply to Defendant’s Opposition, and Plaintiff’s Opposition to Defendant’s Motion for Summary Judgment, pp. 4 (Statement of Disputed Facts, ¶ 1), 17-18 (“Defendant fails to allege credible evidence of the precise State interests that the Act is intended to protect. The Act does not even mention the word “fraud.”). However, American Target has failed to submit any evidence indicating an interest to the contrary. Indeed, this attorney’s recollection is that counsel for American Target conceded at oral argument that it had no evidence of another interest.
On the other hand, the Director testified in her affidavit that “[a]mong the interests sought to be advanced by the State under the Act is the protection of Utah residents, as well as charities who solicit in the State, from fraud and other harmful or injurious acts by those who participate in the charitable solicitation process, including charitable organizations, professional fundraisers, professional solicitors, and professional fund raising counsel or consultants (“consultants”).” Giani Affidavit, ¶ 3. See Ward, 491 U.S. at 795-96, 109 S.Ct. at 2756 (“Administrative interpretation and implementation of a regulation are, of course, highly relevant to our analysis, for ‘[i]n evaluating a facial challenge to a state law, a federal court must . . . consider any limiting construction that a state court or enforcement agency has proffered.’”) (citations omitted). As noted in previous memoranda, this interpretation is supported by the preamble to Title 13 and the repeated references to fraudulent conduct and misrepresentations in the registration provisions of the Act. See Director’s Summary Judgment Memo, p. 7; Utah Code Ann. § 13-1-1 (1996) (certainly fraud would be deemed as a “harmful or injurious” act); Utah Code Ann. § 13-22-9 (1996) (note repeated references to misrepresentations and/or fraud in this provision).
Because the Director has produced evidence that the State’s interest is to protect the public (and charities) from fraud, and because American Target has failed to “set forth specific facts showing there is a genuine issue for trial,” this issue should be deemed as uncontested. See F.R.C.P. 56(e). However, the fact that the interest to be served by the Act is to protect the public from fraud does not address the court’s question as to whether or not this interest is substantial. Nevertheless, the Supreme Court has provided sufficient guidance to answer this query in the affirmative.
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. However, the Supreme Court has already judicially recognized that protecting the public from fraud is a substantial state interest. In Schaumberg, Munson, and Riley, the Supreme Court acknowledged the government’s legitimate and substantial interest in protecting the public (and charities) from fraud. Schaumberg, 444 U.S. at 636, 100 S.Ct. at 836 (“These interests [(protecting the public from fraud, crime and undue annoyance)] are indeed substantial.”); Riley, 487 U.S. at 792, 108 S.Ct. at 2675 (“The interest in protecting charities (and the public) from fraud is, of course, a sufficiently substantial interest to justify a narrowly tailored regulation.”); see also Munson, 467 U.S. at 961, 104 S.Ct. at 2849 (noting that the Court in Schaumberg recognized that the Village had a legitimate interest in protecting the public from fraud). Although the Court struck down each of the challenged provisions in these cases, it did not do so because the government had not asserted a substantial interest. In each case, the Court struck down the challenged provisions because they were not narrowly tailored.
Although the government has estimated that consumers lose as much as $40 billion dollars each year to telemarketing fraud,1 the Director can find no estimates or other data pertaining to charitable solicitations fraud–either in Utah or nationwide. What is known, however, and as pointed out by the Director in its previous memorandum, is that approximately one billion dollars in charitable contributions were reported by Utah residents in 1995 tax returns. Director’s Summary Judgment Memo, pp. 7-8. This is a substantial amount of money, and while it is hoped that most of those contributions are made to legitimate organizations, the State need not await the gathering of data to determine the extent of the problem before it acts to protect the residents of the State. Even American Target has conceded that “[t]he potential for fraudulent speech exists in charitable solicitations as well as in other forms of speech.” Memorandum in Support of Plaintiff’s Reply to Defendant’s Opposition, and Plaintiff’s Opposition to Defendant’s Motion for Summary Judgment, p. 18.
In Z.J. Gifts D-2, L.L.C. v. City of Aurora, 136 F.3d 683 (10th Cir. 1998), the Tenth Circuit Court of Appeals examined a challenge to Aurora’s zoning ordinance requiring a business that sold sexually-oriented materials to move to an industrial zone. The city produced several studies examining the effects of sexually-oriented businesses generally (three of which were pertained only to surrounding communities). Id. at 687. Although the district court found that the city had “demonstrated ‘the legitimacy of its concern’ regarding adult uses which provide on-site adult entertainment,” it concluded that the city had not so demonstrated with respect to “those which provide adult materials for off-site consumption.” Id. at 688. The Tenth Circuit concluded that the “distinction is constitutionally irrelevant in determining whether Aurora's interests are important or substantial, particularly in light of the Court's strong statements regarding the government's interest in regulating such businesses in Young and Renton.” Id. (emphasis added). The Tenth Circuit further explained as follows:
To the extent Z.J. Gifts argues that the city has not "demonstrate[d] that the recited harms are real, not merely conjectural," Turner, 512 U.S. at 664, 114 S.Ct. at 2470, we disagree. Aurora need not wait for sexually oriented businesses to locate within its boundaries, depress property values, increase crime, and spread sexually transmitted diseases before it regulates those businesses. It may rely on the experience of other cities to determine whether the harms presented by sexually oriented businesses are real and should be regulated. See Renton, 475 U.S. at 51-52, 106 S.Ct. at 930-31. In other words, the city may control a perceived risk through regulation. The Court has long held, and we agree, that Aurora's stated governmental interests in circumscribing the adverse secondary effects of sexually oriented businesses "must be accorded high respect." Renton, 475 U.S. at 50, 106 S.Ct. at 930 (quoting Young, 427 U.S. at 71, 96 S.Ct. at 2453); ILQ Investments, 25 F.3d at 1416.
Likewise, in this matter, the State of Utah need not wait for fraudulent charities, fundraisers, or consultants to solicit contributions from Utah residents, make misrepresentations or omit material facts, and otherwise defraud consumers of their charitable dollars before it regulates the charitable fundraising industry. It may rely on the experience of other states and the trends nationwide to determine whether the harms presented by charitable solicitations from organizations throughout the country are real and should be regulated. “In other words, the [State] may control a perceived risk through regulation.” Id. As observed in the Memorandum of Amici Curiae Hubert H. Humphrey III (“Minnesota Memo”), reliance on professional fundraisers and consultants in charitable solicitations is significant, noting that “[a]pproximately $65 billion was raised through direct marketing for non-profit organizations; much of it by professional fund-raisers, solicitors and fund- raising counsel.” Minnesota Memo, p. 3.
Given the amount of money contributed to non-profit organizations yearly, the experience of other states, the increasing role of fundraisers in charitable solicitations, the sometimes hidden or unknown presence of fundraisers and consultants in charitable solicitations, and the judicial pronouncements of the Supreme Court regarding the substantiality of the states’ interest in protecting the public from fraud, the interest of the State in protecting the public from fraud in connection with charitable solicitations is a substantial interest that justifies a narrowly tailored regulation.
B. The Registration and Bonding Requirements Are Narrowly Tailored.
As discussed above, the “narrowly tailored” prong does not require the least restrictive means. As held by the Supreme Court in Ward, the applicable inquiry is whether or not the interest would be achieved less effectively absent the regulation. Certainly, protecting Utahns from fraud will be achieved less effectively absent the registration and bonding requirements of the Act. In the telemarketing context, and as noted above, Americans lose billions to telemarketers each year. This, despite laws that prohibit and punish fraud (including telemarketing fraud, charitable solicitation fraud, etc.). As explained in previous memoranda, the registration requirements provide consumers with a means to verify that their charitable dollars will be used as represented. The Supreme Court has time and again acknowledged that such registration provisions, requiring disclosure to the State of financial information, are narrowly drawn regulations. As observed by the Court in Riley, “as a general rule, the State may itself publish the detailed financial disclosure forms it requires professional fundraisers to file. This procedure would communicate the desired information to the public without burdening a speaker with unwanted speech during the course of a solicitation.” 487 U.S. at 800, 108 S.Ct. at 2679. Schaumberg, 444 U.S. at 637-38, 100 S.Ct. at 836-37 (“Efforts to promote disclosure of the finances of charitable organizations also may assist in preventing fraud by informing the public of the ways in which their contributions will be employed.”). Certainly, such requirements are narrowly tailored, without unduly burdening speech.
So too is the bonding provision narrowly tailored. Without the regulation, the State’s interest in not only preventing fraud, but protecting Utahns who fall victim to fraud, will be achieved less effectively. As noted in oral argument and in previous memoranda, a bond or letter of credit is required as opposed to a cash deposit in escrow. The choice of a bond or letter of credit further enables the consultant to find the least expensive and burdensome means of providing security to those from whom it solicits. While the bond or letter of credit certainly adds an expense to doing business, it provides the least expensive means available to provide consumers with some security. Moreover, in light of the tremendous amounts of money raised by non-profits in Utah alone ($1 billion in 1995), a $25,000 bond or letter of credit only provides minimal protection to consumers. Nevertheless, the validity of such regulations does not depend on a court’s “agreement with the responsible decisionmaker concerning the most appropriate method for promoting significant government interests’ or the degree to which those interests should be promoted.” Ward, 491 U.S. at 800, 109 S.Ct. at 2758. Nor can the regulation be invalidated “simply because a court concludes that the government’s interest could be adequately served by some less-speech-restrictive alternative.” Id. The issue, instead, is whether the “burden[s] substantially more speech than is necessary to further the government’s legitimate interests.” Id. at 799, 109 S.Ct. at 2758 (emphasis added). Given the foregoing, it is clear that it does not.
As explained in the Director’s previous memoranda, other courts have examined laws similar to that which is considered here and upheld both the registration provisions and the bonding requirements. For example, in Heritage Publishing, the U.S. District Court in Minnesota upheld the registration provisions and $20,000 bonding requirement of the Minnesota law, holding that they served a substantial state interest and were narrowly tailored to that interest. Heritage Publishing, 634 F.Supp. at 1498-1502. Moreover, the Sixth Circuit Court of Appeals upheld the application fee and $25,000 bond requirement for professional solicitors in Dayton Area. In that case, the circuit court held that “because the bonding requirement imposed upon professional solicitors also attempts to deter fraud and to provide a fund from which to compensate charities for moneys lost or misappropriated by the professional solicitors, the district court [correctly] concluded that the requirement was narrowly tailored to serve a legitimate state interest.” 70 F.3d at 1486 (sufficient showing at preliminary injunction stage). See also National Awareness Foundation, 50 F.3d 1159; Center for Auto Safety, 37 F.3d 139 (upholding registration fees).
In light of the foregoing, together with the arguments and evidence set forth in the Director’s previous memoranda, the State has established that the registration and bonding requirements serve a substantial state interest and are narrowly tailored to that interest. Therefore, the Director respectfully requests that the Court deny the plaintiff’s Motion for Summary Judgment and grant the Director’s Motion for Summary Judgment.
Nevertheless, to the extent the Court believes that the evidence is insufficient, and in light of the fact that the plaintiff has not heretofore challenged the substantiality of the State’s interest in protecting the public from fraud, this matter should then be set for a trial on those issues where there still exists genuine issues of material fact. F.R.C.P. 56(c).
Dated this 18th day of May, 1998.
Utah Attorney General
Jeffrey S. Gray
Counsel for Defendant
CERTIFICATE OF SERVICE
I hereby certify that I caused to be served a true and correct copy of the attached Defendant’s Supplemental Memorandum upon the plaintiff, American Target Advertising, Inc., by depositing the same in the United States Mail, first class postage prepaid, on the 18th day of May, 1998, addressed to the following:
Mark J. Fitzgibbons
American Target Advertising, Inc.
9625 Surveyor Court, Suite 400
Manassas, Virginia 20110
Brent O. Hatch
Paul G. Cassell
Johnson & Hatch, P.C.
10 West Broadway, Suite 400
Salt Lake City, Utah 84101