People ex rel. Ryan v. Telemarketing Associates, Inc.
Case Date: 05/19/2000
Court: 1st District Appellate
Docket No: 1-99-0038
People ex rel. Ryan v. Telemarketing Associates, Inc., No. 1-99-00381st District, 19 May 2000SIXTH DIVISION
PRESIDING JUSTICE ZWICK delivered the opinion of the court: The Attorney General filed an Amended Complaint charging the defendants-appellees with common law fraud and breachof fiduciary duty. The amended complaint alleged that the defendants-appellees are professional fund raisers for charitywho, over an eight year period, consistently retained more than 85% of the proceeds of their solicitations on behalf of anIllinois-based charity, VietNow Memorial Headquarters (hereinafter "VietNow"). The complaint alleged that defendant-appellees made solicitations on behalf of VietNow without informing prospective donors that only 15 cents out of everydollar they contributed would be made available for charitable purposes -- while the balance would be kept by the fundraisers. The trial court granted defendants' motion to dismiss the complaint pursuant to section 2-615 of the Code of CivilProcedure. 735 ILCS 5/2-615 (West 1996). The Attorney General raises the following issues for our review: (1) whether the allegations of the complaint plead a causeof action for common-law-fraud-based misrepresentation, breach of fiduciary duty, constructive fraud and/or for impositionof a constructive trust; (2) whether the First Amendment's prohibition against "forcing speech" bars the causes of actionalleged; and (3) whether the First Amendment bars the claims alleged despite the fact that they are "straightforward" andbased upon "content-neutral principles of law." The original complaint in this case alleges that Telemarketing Associates, Inc. (Telemarketing) and Armet Inc. (Armet) arecompanies which provide professional fundraising services for charitable organizations. Defendant-Appellee Richard Troiais the owner and an officer and director of these companies (collectively, the "fundraisers"). Telemarketing has entered intocontracts with a charitable organization, Vietnow, which provide that Telemarketing is to receive approximately 85% of thefunds it collects for its professional efforts for Vietnow in Illinois. In addition, Armet has contracts under which it retainsthird party solicitors to raise money for Vietnow outside of Illinois. Under these contracts, the outside solicitors receive70%-80% of the proceeds raised, while Armet receives 10-20% of the proceeds for its services. There is no dispute that the fundraisers have honored their contracts with Vietnow. The Attorney General makes no claimthat Vietnow is dissatisfied with the fundraisers professional services. Similarly, the Attorney General makes no allegationthat the fundraisers have affirmatively misstated any information to any donor. The Attorney General instead alleges thatthe fundraisers fraudulently concealed material information by not affirmatively volunteering their fee arrangement with thedonors. By so acting, the complaint claims the fundraisers violated the Charitable Solicitation Act, 225 ILCS 460/1 et seq.(West 1998)(the Solicitation Act), the Consumer Fraud and Deceptive Practices Act, 815 ILCS 501/1 (West 1998), and theUniform Deceptive Trade Practices Act, 815 ILCS 510/2 (West 1998), and breached their fiduciary duty by engaging infraudulent concealment. The Attorney General also complained that Armet violated the Solicitation Act by failing toregister as a professional fundraiser with the Attorney General or ensure that the outside professionals it hired hadregistered. The complaint sought broad relief against the fundraisers, including barring them from fundraising in Illinois for five years,forfeiture of their compensation, liability for both compensatory and punitive damages and a requirement that they pay theAttorney General for the costs of investigation and suit. In dismissing the complaint, the trial court found that the United States Supreme Court's opinion in Riley v. NationalFederation of the Blind, 487 U.S. 781, 108 S. Ct. 2667, 101 L. Ed. 2d 669 (1988), established unequivocally that charitablesolicitation by professional fundraisers is protected speech entitled to full First Amendment protection and that a state maynot punish a fundraiser for earning a high fee or treat as fraud the fundraiser's failure to affirmatively explain its feearrangement to prospective donors. The court, however, allowed the count alleging non-registration by Armet to stand. The Attorney General then filed certain amendments to the complaint, adding additional allegations but continuing to assertthe earlier complaint in its entirety. The crux of the Attorney General's amended complaint continued to be that thefundraisers had earned an excessive fee and failed to disclose this to Vietnow's donors. The court again granted dismissal ofthe complaint with the exception of the non-registration claim against Armet. On December 1, 1998, the Attorney General voluntarily dismissed the non-registration claim and the court entered anagreed order in favor of the fundraisers on all claims. The Attorney General then filed this appeal challenging the dismissalof the fraud-based claims directed at the fundraisers' fees. Initially, we observe that a section 2-615 motion to dismiss challenges only the legal sufficiency of a complaint and allegesonly defects on the face of the complaint. Vernon v. Schuster, 179 Ill. 2d 338, 344, 688 N.E.2d 1172 (1997). The criticalinquiry in deciding upon a section 2-615 motion to dismiss is whether the allegations of the complaint, when considered ina light most favorable to the plaintiff, are sufficient to state a cause of action upon which relief can be granted. Vernon, 179Ill. 2d at 344, citing Bryson v. News America Publications, Inc., 174 Ill. 2d 77, 86-87, 672 N.E.2d 1207 (1996), andUrbaitis v. Commonwealth Edison, 143 Ill. 2d 458, 475, 575 N.E.2d 548 (1991). A cause of action will not be dismissed onthe pleadings unless it clearly appears that the plaintiff cannot prove any set of facts that will entitle it to relief. Vernon, 179Ill. 2d at 344, citing Gouge v. Central Illinois Public Service Co., 144 Ill. 2d 535, 542, 582 N.E.2d 108 (1991).Accordingly, in reviewing the circuit court's ruling on defendants' section 2-615 motion to dismiss, we apply a de novostandard of review. Doe v. McKay, 183 Ill. 2d 272, 274, 700 N.E.2d (1998). The circuit court correctly found that the Attorney General's amended complaint infringes upon the fundraisers'constitutional rights. The United States Supreme Court has repeatedly held that solicitation activity on behalf of a charity isa form of free speech protected by the First Amendment to the United States Constitution. In Village of Schaumburg v.Citizens for a Better Environment, 444 U.S. 620, 100 S. Ct. 826, 63 L. Ed. 2d 73 (1980), the Court struck down on First andFourteenth Amendment grounds an ordinance which prohibited on-street and door-to-door solicitations for contributions byany charitable organization not using at least 75% of its receipts for charitable purposes. In reaching its decision the Courtemphasized that: "Prior authorities *** clearly establish that charitable appeals for funds, on the street or door-to-door, involve avariety of speech interests--communication of information, the dissemination and propagation of views and ideas, andthe advocacy of causes--that are within the protection of the First Amendment." Schaumburg, 444 U.S. at 632. The Supreme Court and numerous lower courts have repeatedly affirmed the broad scope of First Amendment protectionsaccorded charitable solicitations. See e.g., United States v. Kokinda, 497 U.S. 720, 725, 110 S. Ct. 3115, 111 L. Ed. 2d 571(1990)("Solicitation is a recognized form of speech protected by the First Amendment"); Meyer v. Grant, 486 U.S. 414,422, n. 5 (1988)("[T]he solicitation of charitable contributions often involves speech protected by the First Amendment and*** any attempt to regulate solicitation would necessarily infringe that speech"); Gaudiva Vaishnava Society v. City of SanFrancisco, 952 F.2d 1059, 1063 (9th Cir. 1991)("The Supreme Court has held that fundraising for charitable organizations isfully protected speech"); Indiana Voluntary Fireman's Ass'n, Inc. v. Pearson, 700 F. Supp. 421, 435 (S.D. Ind.1988)(Charitable solicitation is "entitled to the entire panoply of protections afforded by the first amendment"). The Supreme Court has held that these constitutional rights fully apply even where charitable solicitation is done by paidprofessionals. Schaumburg, 444 U.S. at 632. As the Court noted in Riley v. National Federation of the Blind of NorthCarolina, Inc., 487 U.S. 781, 101 L. Ed. 2d 669, 108 S. Ct. 2667 (1988): "It is well settled that a speaker's rights are not lost merely because compensation is received; a speaker is no less aspeaker because he or she is paid to speak." Riley, U.S. at 801, citing New York Times Co. v. Sullivan, 376 U.S. 254,265-66 (1964). Riley stressed that a "fundraiser has an independent First Amendment interest in the speech, even though payment isreceived." Riley, 487 U.S. at 794, n.8. See also Indiana Voluntary Fireman's Association, 700 F. Supp. at 437 ("Theprotected speech overtones of such solicitations are not altered by the fact that the solicitor is a paid professional"). Government action which would infringe upon such speech is subject to strict scrutiny and may only restrict free speechwhere the restriction is precisely tailored to further a compelling state interest. See Riley, 487 U.S. at 799-800; Secretary ofState of Maryland v. Joseph A. Munson Co., 467 U.S. 947, 967-68, 104 S. Ct. 2839, 81 L. Ed. 2d 786 (1984); Schaumburg,444 U.S. at 636. The Attorney General appears to suggest that the mere fact that the fundraisers fees are high gives it acompelling interest to pursue its case, yet a similar argument was made in Schaumburg where the Village of Schaumburgclaimed that more than 60% of the funds collected by the respondent, Citizens for a Better Government, were spent for thebenefit of employees and not for a charitable purpose. Similarly, in Munson, the Court struck down a Maryland statutewhich forbade contracts between charities and professional fundraisers if they provided that the fundraiser would retainmore than 25% of the money collected. Again, the Court rejected that the state's interest in preventing fraud could justifysuch a restriction, stating: "[T]here is no necessary connection between fraud and high solicitation and administrative costs. A number of otherfactors may result in high costs; the most important of these is that charities often are combining solicitation withdissemination of information, discussion, and advocacy of public issues, an activity clearly protected by the FirstAmendment." Munson, 467 U.S. at 961. The Court called the statute at issue in Munson "fundamentally mistaken" in its premise that high solicitation fees couldever be an accurate measure of fraud. Munson, 467 U.S. at 966. The Court also explained that focusing on the percentage ofa donation received by a fundraiser is not narrowly tailored to the goal of preventing fraud, as the First Amendmentrequires: "That the statute in some of its applications actually prevents the misdirection of funds from the organization'spurported charitable goal is little more than fortuitous. It is equally likely that the statute will restrict FirstAmendment activity that results in high costs but is in itself a part of the charity's goal or that is simply attributable tothe fact that the charity's cause proves to be unpopular. On the other hand, if an organization indulges in fraud, thereis nothing in the percentage limitation that prevents it from misdirecting funds. In either event, the percentagelimitation, through restricting solicitation costs, will have done nothing to prevent fraud." Munson, 467 U.S. at 966-67. The Munson decision specially rejected the argument raised by the Attorney General that a fundraiser's receipt of high feesmeans that a solicitation does not serve a charitable purpose and makes the request for a donation a form of fraud. Thedissent in Munson made the same argument, which the majority rejected: "[T]he dissent *** `simply misses the point' when it urges that there is an element of `fraud' in a professionalfundraiser's soliciting money for a charity if a high proportion of those funds are expended in fundraising. [Citation.]The point of the Schaumburg court's conclusion that the percentage limitation was not an accurate measure of fraudwas that the charity's `purpose' may include public education. It is no more fraudulent for a charity to pay aprofessional fundraiser to engage in legitimate public educational activity than it is for the charity to engage in thatactivity itself. And concerns about unscrupulous fundraisers, like concerns about fraudulent charities, can and areaccommodated directly, through disclosure and registration requirements and penalties for fraudulent conduct. "Munson, 467 U.S. at 967-68, n. 16. The Court in Riley subsequently emphasized its holding that a fundraiser cannot be prosecuted for fraudulent conductmerely on the fact that he or she charges a high fee. There, the Supreme Court examined the constitutionality of a NorthCarolina statute that defined the reasonable fee that a professional fundraiser may charge according to a three-tieredschedule. Under that schedule, a fee of up to 20% of receipts collected was deemed reasonable. A fee of between 20% and30% was deemed unreasonable upon a showing that the solicitation at issue did not involve the dissemination ofinformation or advocacy relating to public issues as directed by the charity. A fee exceeding 35% was deemed unreasonablebut the fundraiser was allowed to rebut that presumption by a showing that the fee was necessary. Riley, 487 U.S. at 784-86.The statute also required professional fundraisers to orally disclose to potential donors before an appeal for funds thepercentage of charitable contributions collected during the previous 12 months that were actually turned over to the charity.487 U.S. at 786. The Court held that the state's interest in preventing fraud could not support the restrictions imposed by the statute: "Our prior cases teach that the solicitation of charitable contributions is protected speech, and that using percentagesto decide the legality of the fundraiser's fee is not narrowly tailored to the State's interest in preventing fraud." Riley,487 U.S. at 789. The court repeated that "there is no nexus between the percentage of funds retained by the Fundraiser and the likelihood thatthe solicitation is fraudulent ***." Riley, 487 U.S. at 793. Although the Attorney General argues vigorously that thesestatements were not meant to apply to common law actions or those statutory claims based upon common law principles,the same concerns which caused the Court to reject the statute at issue in Riley applies with equal force to the cause ofaction alleged by the Attorney General. Nor do we agree with the Attorney General's argument that the Supreme Courtmeant only to prohibit "rigid accross-the-board limitations" on fundraising fees. Indeed, the threat to constitutionallyprotected speech is even greater in cases in which the Attorney General or other officials have free rein to decide whichfundraisers to target. The Maryland statute at issue in Munson gave the Secretary of State of Maryland the discretion to grant a waiver of thestatute "whenever necessary." Munson, 467 U.S. at 964, n. 12. The Secretary of State argued that this made the lawconstitutional because she had granted such waivers in an extremely liberal manner, and special care shown for the rights ofadvocacy groups. Munson, 467 U.S. at 964, n. 12. The Supreme Court explained why giving state officials such discretionwould pose an even greater threat to free speech: "[E]ven if the Secretary of State were correct [and] the waiver provision were broad enough to allow for exemptions`whenever necessary,' we would find the statute only slightly less troubling. Our cases make clear that a statute thatrequires such a `license' for the dissemination of ideas is inherently suspect. By placing discretion in the hands of anofficial to grant or deny a license, such a statute creates a threat of censorship that by its very existence chills freespeech. [Citations.] Under the Secretary's interpretation, charities whose First Amendment rights are abridged by thefundraising limitations would simply have traded a direct prohibition on their activity for a licensing scheme that, if itis available to them at all, is available only at the unguided discretion of the Secretary of State." Munson, 467 U.S. at964, n. 12. See also Riley, U.S. 487 U.S. at 793-94 (rejecting a statutory presumption of unreasonableness which the fundraiser ispermitted to rebut). The Attorney General claims that the fundraisers committed fraud because they represented that monies donated would beused for Vietnow's charitable purposes but did not inform prospective donors that, pursuant to their contract with Vietnow,only 15% of the proceeds raised would be used by Vietnow. This was precisely the type of affirmative duty to speak whichwas struck down in Riley. The Supreme Court held that the provision compelled speech and was therefore a content-basedrestriction subject to exacting First Amendment scrutiny. Riley, 487 U.S. at 789. The Court found that the mandatorydisclosure rule could not withstand such scrutiny because the proffered state interest was "not as weighty as the stateasserts" and that "the means chosen to accomplish it are unduly burdensome and not narrowly tailored." Riley, 487 U.S. at798. Other courts have reached the same conclusion. See e.g., People v. French, 762 P.2d 1369, 1375 (Colo. 1988); State v.Events International, Inc., 528 A.2d 458, 461 (Me. 1987); Indiana Voluntary Fireman's Assoc., 700 F. Supp. 421; TelcoCommunications, Inc. v. Barry, 731 F. Supp. 670 (D.N.J. 1990); Kentucky State Police Professional Ass'n. V. Gorman, 870F. Supp. 166 (E.D. Ky. 1994). The Attorney General argues that the fundraisers are fiduciaries to the public who transfers funds to them and, asfiduciaries, the fundraisers should be held to a duty to fully inform the donors about the nature of their donation. See e.g.,Chicago Park District v. Kenroy, Inc., 78 Ill. 2d 555, 562, 402 N.E.2d 181 (1980); Graham v. Mimms, 111 Ill. App. 3d 751,761, 444 N.E.2d 549 (1982). Yet the fundraisers in the Riley case and the fundraisers in the other solicitation cases whichpreceded it were also fiduciaries with respect to the money they solicited and collected. The cases cited by the AttorneyGeneral are neither First Amendment nor charitable solicitation cases. They are, therefore, plainly distinguishable. In short, we find that the type of allegations made by the Attorney General's complaint violate the First Amendment andhave been thoroughly discredited by the Supreme Court. Accordingly, for the foregoing reasons, the judgment of the circuitcourt dismissing the Attorney General's Amended Complaint is affirmed. AFFIRMED. CAMPBELL, J., and O'BRIEN, J., concur. |
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