Represented Amici Curiae: Association of Fundraising Professionals, Association of Direct Response Fundraising Counsel, Council for Advancement and Support of Education, The Direct Marketing Association and The Direct Marketing Association Nonprofit Federation, Direct Marketing Association of Washington, Direct Marketing Fundraisers Association, National Catholic Development Conference, and National Health Council all in support of Respondents.
This case decided May 5, 2003 upholding the 1st Amendment rights of nonprofits and their fundraisers. High fundraising costs alone are insufficient to make out a case of fraud. Case remanded to the Illinois courts to determine whether there was any actual fraud perpetrated by the fundraiser.
Last November the nonprofit and fundraising community was surprised to learn that the Supreme Court had decided to hear a case in which an appeal was filed by Attorney General Ryan of Illinois. The appeal stated what the case was about – whether a high cost of fundraising could become the basis of a fraud prosecution if the donors weren’t first informed of that fact.
Slowly at first, but with increasing fervor, the nonprofit community mobilized to inform itself about the case and to take action. At first some thought the case to be only about telemarketing. Briefs filed by Illinois showed this not to be the case. In fact they specifically argued that an acquisition (prospecting) mailing could be fraudulent if it had a very high cost of fundraising and the donors were not informed.
Ultimately the entire community responded to this challenge to more than 20 years of Supreme Court precedent and to the very notion that specific charitable activities that involve fundraising could be measured by their “fundraising cost ratio” and found, after the fact, to be fraudulent. The response was to file a number of “friend of the court” briefs in the case. Nearly every major association of nonprofits and fundraisers joined in. The largest number of charities that had ever filed briefs in the Supreme Court of the United States signed on. A large group of commercial fundraising agencies filed briefs.
When I last wrote to you, I reported on the oral arguments. I told you that in a very unusual break with custom, Justice Bryer held up your briefs and asked the State of Illinois how he would respond to all of these legitimate concerns of upstanding charities. Certainly the oral arguments as reported by numerous, independent Supreme Court watchers led on to conclude that things looked favorable to our side.
Now the Supreme Court of the United States has given us their ruling in the case of Madigan v. Telemarketing Associates (formerly Ryan v. Telemarketing Associates). When I first was told that the ruling was 9-0 against us, I thought it must be a mistake and that we had won 9-0. When I learned that indeed the ruling was indeed 9-0 in favor of a reversal of the Supreme Court of Illinois, I was shocked . . . until I read the actual opinion.
It was then that I learned that indeed we had won the case 9-0 but that it simply wouldn’t seem that way to most of the public. The petition for certiorari (appeal) filed by the Illinois Attorney General stated that his position was that high fundraising costs alone could be the basis of a fraud prosecution. Justices Scalia and Thomas have made that fact crystal clear in their concurrence. Regarding that issue, the Supreme Court held that: “High fundraising costs, without more, do not establish fraud. . . . And mere failure to volunteer the fundraiser’s fee when contacting a potential donee, without more, is insufficient to state a claim for fraud.”
As the various briefs coordinated by ACFRFR indicated, fundraising cost information is of marginal, if any, relevance to an assessment of a charity’s legitimacy or efficiency, particularly when the measure is applied case by case to a particular campaign. The brief filed on behalf of many of the organizations that represent the nonprofit community stated: “there is no demonstrably rational, objective basis upon which to calculate the fundraising ratio so that it lives up to its promise of being a unitary measure of fraud or efficiency for most nonprofits under most circumstances.”
Again, the United States Supreme Court agreed: “The Illinois Supreme Court in the instant case correctly observed that ‘the percentage of [fundraising] proceeds turned over to a charity is not an accurate measure of the amount of funds used ‘for’ a charitable purpose.”
Your briefs stated that the nonprofit community was in favor of prosecution of real fraud whenever it occurs, but that high fundraising costs are not, in and of themselves, fraudulent. The Supreme Court agreed again and said that Illinois could prosecute the case against Telemarketing Associates if they could prove that actually misleading and fraudulent statements were made.
When the nonprofit community took up the call to become involved in this case, we stated that if the case had been brought as an actual fraud case based on real evidence of fraud, we would support the actions of the Illinois Attorney General. We opposed them simply and solely because his pleadings sought to extend the law beyond a case of actual fraud to one where high fundraising costs alone could be a premise for a fraud prosecution. Our only regret about this entire matter is that substantial resources of the nonprofit community were necessary to make your views known to the Supreme Court, only to have this case conclude that Illinois can use their fraud statutes to prosecute an actual case of real fraud. Frankly, that conclusion is one which was not previously in doubt and was not what either Illinois or we argued about.
Nevertheless, as I told you when I reported on the oral arguments, your voices were heard!
Now when you read press reports suggesting that fundraisers lost this case 9-0, you can smile and know that we should always be so lucky as to have losses like this. Even the top charity regulator from Illinois in his declaration of victory was quoted as saying that it is now clear that high fundraising costs cannot be the basis of a fraud prosecution. We hope that the state Attorneys General will carefully read this decision. We expect them to recognize that they can best help consumers, donors and the nonprofit community by focusing their energies on using existing fraud laws to prosecute cases of real fraud in the future.
I want to thank you again for your participation in the briefs we submitted on your behalf and I especially want to thank those whose generous contributions made it possible for us to represent the nonprofit community. The adage “speech may be free, but it isn’t cheap” comes to mind.
We will continue to try to find volunteers to make sure that your viewpoint is heard whenever it becomes necessary to litigate on behalf of the nonprofit community and we will do so knowing that we have your support and that we have been successful in our efforts.