American Target Advertising, Manassas, VA, is preparing to appeal a ruling handed down last month by a federal district court that upheld the Utah Charitable Solicitations Act.
The act states that nonprofit consulting agencies must pay an annual registration fee of $250 and post a bond of $25,000 in Utah. Those bond fees are to be instituted as collateral in the event the public is harmed or injured as a result of fraudulent activity or other unlawful conduct of the charity. The nonprofit organizations themselves only need to pay a $100 registration fee.
The fundraising agency filed a suit against the Utah Division of Consumer Protection and its director, Francine Giani, in July 1997 to have the act dismissed, saying it violated the First Amendment, due process and the commerce clause of the Constitution.
“We view the decision as a victory for Utah residents, especially those who make donations,” said Jeff Gray, Utah's assistant attorney general. “They will now be able to protect themselves from fraud. It also gives them the opportunity to perform background checks on the organizations asking for donations.”
“The ruling was something that we felt very good about,” Giani added. “The judge's ruling validates our statute.”
Mark Fitzgibbons, general counsel for ATA, said the attorneys for Utah never proved there was a higher rate of fraud occurring there compared with other places in the country and the act “essentially is presuming that all nonprofits and direct marketing agencies are going to commit fraud.”
Gray said that's not the case. “There is always the potential for fraud,” he said. “This type of act helps the legitimate charities while taking a step toward eliminating fraudulent ones.”
Fitzgibbons said Utah can impose civil and criminal sanctions against the nonprofit organization and the fundraising agency for mailing into the state if they aren't registered.
“There are about 42 different states and a growing number of counties and cities that are starting to use these registration laws,” he said. “Utah is one of the higher ones. If all 6,000 of those jurisdictions start to require these fees and bonds, it will prevent a number of nonprofits from mailing and registering anywhere on account of that expense. They are becoming more complicated and burdensome each year.”
Fitzgibbons said upholding the act could lead to a trend that goes deeper than just preventing nonprofits from mailing to people in certain states.
“If this is upheld, the only people who will be able to communicate with citizens will be large corporations, politicians and government,” he said. “In a situation like that, the voice of the citizens will be lost. It constitutes a prior restraint of free speech, which has consistently been held to be unconstitutional. This whole case is about the ability of Americans to communicate, not just about nonprofits. It's about millions of Americans who associate with nonprofits through contributions, but also sending response cards and mailgrams to Congress.”
ATA's appeal will be filed with the 10th Circuit Court of Appeals in Denver.