Though the U.S. Supreme Court allowed an Illinois lawsuit against charity telemarketers to continue in a landmark legal case yesterday, an attorney for the telemarketers said justices affirmed core legal protections for nonprofit fundraisers.
The court ruled that fundraisers are still protected from having to disclose in their solicitations how much of the money they collect goes to charity, said Bill Raney, an attorney whose Kansas City law firm Copilevitz & Canter defended the case. High fundraising costs do not by themselves establish fraud, the court said in its opinion.
However, justices overturned a lower court ruling and allowed the state attorney general to proceed with its case in a decision that surprised observers of a March 3 Supreme Court hearing on the matter.
“The court definitely came down in the middle here,” said Raney, who is a DM News contributor.
In a statement to the Associated Press, Illinois attorney general Lisa Madigan's spokeswoman Melissa Merz said the ruling was a clear victory for consumers.
“This opinion will affect telemarketers who are making misrepresentations about how money is being used,” Merz said.
In the case, the state attorney general accused nonprofit fundraising agency Telemarketing Associates of committing fraud in a campaign for VietNow, a veterans charity. Telemarketing Associates retained 85 percent of donations raised, but in telemarketing scripts gave consumers the impression that a substantial portion of the campaign proceeds would go to veterans, the state alleged in the case.
Previous case law, in particular Riley v. National Federation of the Blind of North Carolina, held that states could not require professional fundraisers to limit fundraising costs to a certain percentage of money raised, or to disclose what percentage of donations they will keep. Attorneys for Telemarketing Associates argued that the attorney general was trying to use general anti-fraud laws to make an end run around these cases.
In its decision, the Supreme Court said it disagreed with that assessment. It upheld the Riley precedent but said the state should be allowed to try to prove its case and present evidence of deception.
“While bare failure to disclose that information directly to potential donors does not suffice to establish fraud, when nondisclosure is accompanied by intentionally misleading statements designed to deceive the listener, the First Amendment leaves room for a fraud claim,” Justice Ruth Bader Ginsburg wrote for the court.
In its ruling, the court simply upheld previous case law establishing that fraud is not protected by the First Amendment, Raney said. Illinois must now present “clear and conclusive” evidence that fraud occurred, he said.
The court apparently wished to make clear that when fundraisers make specific false claims to consumers of how money will be used, they are subject to fraud charges, Raney said.
The ruling may lead charity fundraisers to be more general in the claims they make during solicitation pitches but most of them probably will not begin disclosing how much fundraising money they keep for themselves, he said.
Raney acknowledged the court's opinion came as a surprise. In the March 3 hearing, a majority of the justices seemed openly skeptical of the Illinois case.
Among the most skeptical had been conservative Justice Antonin Scalia. In a concurring opinion written with fellow conservative Justice Clarence Thomas, Scalia said he sided with the majority only because the opinion makes clear that high fundraising costs alone do not qualify as fraud.