Fundraisers Suing State Of Utah

Armed with similar arguments that it made in litigation against Pinellas County, Fla., American Charities for Reasonable Fundraising Regulation (ACFRFR) is taking on more states in court, starting with Utah.

The coalition plans to file additional litigation in Kentucky and West Virginia in a fight to keep out-of-state fundraising consultants from having to register in states where they do no direct business.

Joined by Rainbow Direct Marketing (RDM), ACFRFR filed suit Nov. 12 in U.S. District Court in Utah, Central Division, against what it calls burdensome registration requirements. Named as a defendant is Kevin Olsen, director of the Utah Division of Consumer Protection within the state Department of Commerce. ACFRFR is seeking a permanent injunction and attorneys’ fees and costs.

A spokeswoman for the Division of Consumer Protection said it had not yet seen the lawsuit but also does not typically comment on pending litigation.

ACFRFR also plans to file suit next month in Kentucky, West Virginia and a third yet-to-be-announced state, said Geoffrey Peters, pro bono counsel to the coalition and president of Bowie, Md.-based CDR Fundraising Group.

The coalition is waiting to see whether other states change their view before going to court. “Sometimes when they’re on the verge of getting sued, they change their mind,” Peters said. “Because it’s expensive to litigate, no one really wants to do that but when you can’t get them to listen any other way, you don’t really have a choice,” he said. “We want to give them a chance to change their mind.”

The Pinellas case went all the way to the U.S. Circuit Court of Appeals and eventually applied to all courts in the same circuit. ACFRFR plans to file lawsuits in different circuit courts, where a decision then would cover an entire circuit, which sometimes represent several states in a region, Peters said. Financially, the coalition can only sustain three lawsuits at a time, though it depends on how far a case goes and whether it’s appealed. “We don’t know how hard they’ll fight. If they give up right away, obviously it’s not so expensive,” he said.

Peters expects to see more fundraising efforts from nonprofits and fundraisers “to do more of this kind of thing because some of the states aren’t listening.”

Some states have conceded – such as Oregon and North Dakota — and are not going to enforce the registration requirements for fundraisers who do no direct business in the state, Peters said, adding that others have replied with ambiguous letters to this point.

At issue in the Utah case is whether fundraisers have to register, even if they no direct business in the state. Highland, N.Y.-based RDM was required to register in Utah because its client, New York City-based Straight Women in Support of Homos, Inc. (SWiSH), registered to solicit in the state. Rainbow planned to make list recommendations to SWiSH but never actually knew where donors or prospective donors are located, RDM President Amy Tripi testified in an affidavit.

Despite RDM not having any clients or any connection to Utah or soliciting in the state, the Division of Consumer Protection still required the firm to register. If Rainbow failed to register, the division would take “administrative action” against it when SWiSH renews its registration, according to court documents. The firm has been forced to refrain from providing consulting services to SWiSH.

Because RDM will not determine where SWiSH will solicit and because RDM could not be assured that no charitable solicitation material on which it consulted would not eventually be mailed to Utah, the firm had to refrain from providing fundraising services to SWiSH until the situation could be resolved, Tripi testified in the affidavit.

Plaintiffs argue that registering with the Division of Consumer Protection is an unconstitutional restriction on interstate commerce and creates an undue burden on commerce in the form of multiple registration and licensing requirements by several states. The multiple requirements can stifle the flow of free speech, the suit alleges, and the information required by charities already is disclosed elsewhere and places the burden of review on the charity instead of the state.

Similar arguments were made in two cases against Pinellas County, one filed by fundraisers (Pinellas I) and another by charities (Pinellas II), that registration requirements were too burdensome and required filings and fees despite entities not having a presence in Florida.

The mandate that personal fundraising counsel register and pay a fee, even though information already is available to the public because of federal law and regulations, places an undue burden on plaintiffs and their charity-clients’ First Amendment rights.

Utah requires charities to register with its Division of Consumer Protection each year. The eight-page application requires several documents, including by-laws, financial reports and federal tax forms, along with an annual application fee of $100. The annual application fee for fundraisers is $250.

In Fiscal Year 2008, 2,767 charities registered with the state, up almost 9 percent from the 2,549 during the previous year. It was unclear how many of those were new and how many were renewals. The number of professional fundraising counsel, consultants and professional fundraisers registered with Utah last year was 252, up from 200 in FY 2007. The application fees for charities and fundraisers generated almost $322,000 in revenue last year. The Division of Consumer Protection accounted for $1.2 million of the Commerce Department’s $21.8-million budget last year.

There is no evidence that these registration requirements have led to the detection, prevention or prosecution of any fraudulent activity, ACFRFR claims in its lawsuit. The information collected also is publicly available elsewhere, according to the suit, and there is no evidence that it’s useful to the Utah public.