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Docket No. 89738-Agenda 37-May 2001.

THE PEOPLE OF THE STATE OF ILLINOIS ex rel. JAMES E. 
RYAN, Attorney General of Illinois, Appellant, v. 
TELEMARKETING ASSOCIATES, INC., et al., Appellees.

Opinion filed November 21, 2001.

JUSTICE McMORROW delivered the opinion of the court:

In an amended complaint, the Attorney General, representingthe people of this state, alleged that Telemarketing Associates,Inc., and Armet, Inc., corporations which operate as professionalfund-raising services, and their director-owner, Richard Troia(collectively, the defendants), committed fraud and breached theirfiduciary duty. The charged offenses were premised on the factthat defendants retained 85% of charitable funds collected onbehalf of a charity, VietNow National Headquarters (VietNow),and, when soliciting, failed to inform donors that only 15% of theircontribution would be distributed to the charity. The circuit courtdismissed the complaint, finding that no cause of action had beenstated under the facts alleged. The appellate court affirmed. 313Ill. App. 3d 559. We granted the Attorney General's petition forleave to appeal (see 177 Ill. 2d R. 315) and now affirm thejudgment of the appellate court.

BACKGROUND

The circuit court dismissed the Attorney General's amendedcomplaint after defendants brought a motion to dismiss pursuantto section 2-615 of the Code of Civil Procedure (735 ILCS5/2-615 (West 1998)). A motion to dismiss brought under section2-615 admits all well-pled facts in the plaintiff's complaint.Connick v. Suzuki Motor Co., 174 Ill. 2d 482, 490 (1996).Consequently, the following facts, taken from the AttorneyGeneral's complaint, are accepted as true.

Telemarketing Associates, Inc. (Telemarketing), and Armet,Inc. (Armet), are professional, for-profit fund-raising corporationswhich are wholly owned and controlled by Richard Troia. Inaccord with contracts negotiated with VietNow, an Illinois-based,not-for-profit corporation registered as an Illinois charitable trust,Telemarketing and Armet solicited funds on behalf of VietNowbeginning in July 1987 and continuing into 1996. Pursuant to itscontracts with VietNow, Telemarketing retained 85% of the grosscollections in the State of Illinois "as its total compensation for allefforts and costs associated with the Marketing Program." Armet,through Troia, brokered fund-raising contracts between VietNowand various out-of-state, third-party solicitors. Pursuant to thesecontracts, VietNow received 10% of the gross receipts for out-of-state solicitations, while Armet, as the broker, received between10% and 20% of these gross receipts.

Annual financial reports submitted to the Attorney General,as required by law (see 225 ILCS 460/4 (West 1998)), show that,from July 1987 until the end of 1995, defendants' fund-raisingefforts on behalf of VietNow resulted in collection of $7,127,851.Of that amount, $6,073,887 was retained by defendants, nettingVietNow $1,053,964, an amount just under 15% of the grossreceipts.

VietNow does not complain that it did not receive theamounts for which it contracted, and there is no suggestion thatdefendants have not fully complied with the terms of theircontracts. Further, VietNow has never expressed dissatisfactionwith the fund-raising services provided by defendants and there isno allegation that defendants made affirmative misstatements topotential donors.

In an initial complaint filed on May 30, 1991, the AttorneyGeneral charged defendants with common law fraud and breach oftheir duty as fiduciaries of charitable assets. The complaint allegedthat defendants, when making telephone solicitations on behalf ofVietNow, represented that funds donated would go to furtherVietNow's charitable purpose. However, according to theAttorney General, because the fees charged by defendants forconducting solicitation were "excessive in amount and anunreasonable use and waste of charitable assets," and becausedefendants did not advise donors that only 15% of the funds raisedwould be turned over to VietNow, defendants' solicitations were"knowingly deceptive and materially false" and constituted fraudand a breach of their fiduciary duty. The Attorney General askedthe circuit court to surcharge the defendants for assets found tohave been misspent or misused and to enjoin defendants fromfurther solicitation.

The Attorney General amended his complaint on June 25,1996, by adding paragraphs which alleged that defendants hadrenewed their contracts with VietNow and, under the same termsas before, had continued to solicit funds on behalf of VietNow into1996. It was further alleged that defendants' solicitations were inviolation of section 15(b)(5) of the Solicitation for Charity Act(225 ILCS 460/15(b)(5) (West 1996)), which requires professionalfund-raisers to identify "fully and accurately" the purpose forwhich funds are solicited. The Attorney General contended thatdefendants violated this provision because they materiallymisrepresented the purpose for which funds were being solicitedby telling contributors, either explicitly or implicitly, that fundscollected would be used to help veterans, and that these statementswere inherently false and misleading in light of the highpercentage of funds retained by the defendants.

The complaint further alleged that defendants, by failing toreveal to donors the percentage of the contribution which wouldactually go to the charity, obtained money from donors under falsepretenses. The same conduct was also alleged to constitute fraudunder the Illinois Consumer Fraud and Deceptive BusinessPractices Act (815 ILCS 505/1 et seq. (West 1996)) and undersection 2 of the Uniform Deceptive Trade Practices Act (815 ILCS510/2 (West 1996)). The complaint requested all availableremedies and penalties authorized by section 9 of the Solicitationfor Charity Act (225 ILCS 460/9 (West 1998)), including aninjunction prohibiting defendants from conducting any futurefund-raising services and forfeiture of their collected fees.

On September 6, 1996, defendants filed a section 2-615motion to dismiss, arguing that charitable solicitations wereprotected speech under the first amendment. Defendantscontended that, pursuant to Riley v. National Federation of theBlind of North Carolina, Inc., 487 U.S. 781, 101 L. Ed. 2d 669,108 S. Ct. 2667 (1988), a claim of fraud could not be maintainedwhen the basis for the complaint was the percentage of proceedsretained by the fund-raisers and the failure to volunteerinformation concerning the amount of the proceeds that would goto the charity.

The trial court granted the motion to dismiss, but allowed theAttorney General to amend his complaint. On December 4, 1996,the Attorney General filed an amended complaint. In addition tothe previous allegations, the Attorney General now alleged thatdefendants' retention of 85% of the gross proceeds, althoughcontracted for and agreed to by VietNow, constituted fraudbecause defendants retained donor lists from year to year and,accordingly, should have incurred decreased administrative costs.Thus, it was alleged, defendants' retention of donor lists wasevidence that defendants' fee was not justified by highadministrative costs.

Defendants again filed a section 2-615 motion to dismiss,which was granted. The dismissal was affirmed on appeal. 313 Ill.App. 3d 559. This court granted the Attorney General's petitionfor leave to appeal. 177 Ill. 2d R. 315.

ANALYSIS

As noted above, the circuit court dismissed the AttorneyGeneral's complaint after defendants brought a section 2-615motion to dismiss. A section 2-615 motion to dismiss challengesthe legal sufficiency of the complaint. Urbaitis v. CommonwealthEdison, 143 Ill. 2d 458, 475 (1991). When reviewing a section2-615 dismissal, the reviewing court must determine whether theallegations, when construed in the light most favorable to theplaintiff, are sufficient to establish a cause of action upon whichrelief may be granted. Connick v. Suzuki Motor Co., 174 Ill. 2d482, 490 (1996). Dismissal will be held proper only if it clearlyappears that no set of facts can be proved under the pleadingswhich will entitle the plaintiff to recover. Bryson v. News AmericaPublications, Inc., 174 Ill. 2d 77, 86-87 (1996). We review denovo a section 2-615 motion to dismiss. Neade v. Portes, 193 Ill.2d 433, 439 (2000); Abbasi v. Paraskevoulakos, 187 Ill. 2d 386,391 (1999).

The Attorney General argues that the circuit court erred indismissing his amended complaint. He contends that the complaintis legally sufficient because it sets forth all of the elementsnecessary to state a valid cause of action for common law fraud.According to the Attorney General, it is a materialmisrepresentation for defendants to tell prospective donors thatfunds solicited on behalf of VietNow are to be used for acharitable purpose when, in fact, defendants retain 85% of thefunds solicited and fail to reveal that fact to potential donors at thepoint of solicitation.

The Attorney General further contends that the allegedmisrepresentations also constitute constructive fraud and breachof fiduciary duty because the defendants' retention of 85% of thesolicited proceeds, even if there was no intent to deceive, is"prejudicial to the public welfare" and a breach of the public'strust and confidence in charitable solicitation. The AttorneyGeneral admits that, ordinarily, donors anticipate that a certainamount of their contributions will be applied to "overhead."However, he claims that retention of 85% of donated funds goeswell beyond any reasonable expectation of the public. As supportfor this position, the Attorney General has attached to hiscomplaint the affidavits of 44 VietNow donors who assert thatthey would not have given money to the charity had they knownhow little of their donation was to be directed to the intendedcause.

The Attorney General acknowledges the first amendmentprecedent relied upon by the circuit and appellate courts.Nevertheless, he claims the representations made by thedefendants are actionable, notwithstanding the protectionsafforded charitable solicitations by the first amendment. Wedisagree.

We begin by examining the scope of first amendmentguarantees afforded charitable solicitations. We use as guidancethree decisions of the United States Supreme Court, Village ofSchaumburg v. Citizens For a Better Environment, 444 U.S. 620,63 L. Ed. 2d 73, 100 S. Ct. 826 (1980), Secretary of State v.Joseph H. Munson Co., 467 U.S. 947, 81 L. Ed. 2d 786, 104 S. Ct.2839 (1984), and Riley v. National Federation of the Blind ofNorth Carolina, Inc., 487 U.S. 781, 101 L. Ed. 2d 669, 108 S. Ct.2667 (1988).

In Schaumburg, a not-for-profit corporation properlyregistered as a charitable trust under Illinois law was denied apermit to solicit door-to-door by the Village of Schaumburgpursuant to a Village ordinance which required permit applicantsto provide "[s]atisfactory proof that at least seventy-five percentof the proceeds of such solicitations will be used directly for thecharitable purpose of the organization." The charitable corporationsued the Village in federal district court, arguing that the ordinanceviolated the first and fourteenth amendments. The charity wasgranted summary judgment and the court of appeals affirmed.

On review, the United States Supreme Court, after examiningprior authority, concluded that charitable appeals for funds fallwithin the protection of the first amendment because "solicitationis characteristically intertwined with informative and perhapspersuasive speech seeking support for particular causes or forparticular views on economic, political, or social issues, and ***that without solicitation the flow of such information andadvocacy would likely cease." Schaumburg, 444 U.S. at 632, 63L. Ed. 2d at 84, 100 S. Ct. at 834. Accordingly, the Court foundthat the 75% limitation in the Village's ordinance was "a directand substantial limitation on protected activity that cannot besustained unless it serves a sufficiently strong, subordinatinginterest that the Village is entitled to protect." Schaumburg, 444U.S at 636, 63 L. Ed. 2d at 87, 100 S. Ct. at 836. The Court thenrejected the Village's contention that its ordinance was justifiedbecause it was substantially related to the important governmentalinterests in preventing fraud, crime, and undue annoyance.Although the Court acknowledged that preventing fraud wasindeed an important interest, the Court held that the ordinance wasnot narrowly drawn so as not to interfere with first amendmentfreedoms. Schaumburg, 444 U.S. at 636-37, 63 L. Ed. 2d at 87-88,100 S. Ct. at 836. The ordinance only "peripherally promoted" theasserted governmental interest of protecting against fraud because,as the Court observed, costs incurred by charitable organizationsconducting fund-raising campaigns can vary dramaticallydepending on a wide range of variables, some of which are beyondthe control of the organization. Schaumburg, 444 U.S. at 637 n.10,63 L. Ed. 2d at 87 n.10, 100 S. Ct. at 836 n.10. Thus, the Courtfound there was no rational reason to conclude that a charity whichuses more than 25% of the funds it collects on fund-raising,salaries, and overhead should automatically be labeled fraudulent.Schaumburg, 444 U.S. at 636-37, 63 L. Ed. 2d at 87, 100 S. Ct. at836.

Four years after rendering its decision in Schaumburg, theSupreme Court was asked to consider the constitutionality of aMaryland statute which prohibited charitable organizations frompaying or agreeing to pay " 'as expenses in connection with anyfund-raising activity a total amount in excess of 25 percent of thetotal gross income raised or received by reason of the fund-raisingactivity.' " Secretary of State v. Joseph H. Munson Co., 467 U.S.947, 950 n.2, 81 L. Ed. 2d 786, 792 n.2, 104 S. Ct. 2839, 2843 n.2(1984), quoting Md. Code Ann., Bus. Reg.