Illinois ex rel. Madigan v. Telemarketing Associates, Inc.

PETITIONER: Illinois ex rel. Madigan
RESPONDENT: Telemarketing Associates, Inc.
LOCATION: United States Court of Appeals for the Ninth Circuit

DOCKET NO.: 01-1806
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: Supreme Court of Illinois

CITATION: 538 US 600 (2003)
DECIDED: May 05, 2003
ARGUED: Mar 03, 2003

ADVOCATES:
Errol Copilevitz - argued the cause for respondents
M. Errol Copilevitz - Argued the cause for the respondents
Paul D. Clement - Department of Justice, Washington, argued the cause for the United States, as amicus curiae, supporting the petitioner
Richard S. Huszagh - Chicago, Illinois, argued the cause for the petitioner

Facts of the case

VietNow National Headquarters, a charitable nonprofit corporation, retained for-profit fundraising telemarketing corporations to solicit donations to aid Vietnam veterans. The contracts provided that the telemarketers would retain 85 percent of the gross receipts from Illinois donors. The Illinois Attorney General filed a complaint in state court, alleging that the telemarketers represented to donors that a significant amount of each dollar donated would be paid over to VietNow for charitable endeavors and that such representations were knowingly deceptive and materially false and constituted a fraud. The trial court granted the telemarketers' motion to dismiss on First Amendment grounds. In affirming, the Illinois Supreme Courts relied on U.S. Supreme Court precedent that held that certain regulations of charitable solicitation barring fees in excess of a prescribed level effectively imposed prior restraints on fundraising and were therefore incompatible with the First Amendment.

Question

Does the First Amendment permit a State to maintain fraud actions alleging that fundraisers made false or misleading representations designed to deceive donors about how their donations will be used?

Media for Illinois ex rel. Madigan v. Telemarketing Associates, Inc.

Audio Transcription for Oral Argument - March 03, 2003 in Illinois ex rel. Madigan v. Telemarketing Associates, Inc.

Audio Transcription for Opinion Announcement - May 05, 2003 in Illinois ex rel. Madigan v. Telemarketing Associates, Inc.

William H. Rehnquist:

The opinion of the Court in No. 01-1806, Illinois ex rel. Madigan versus Telemarketing Associates will be announced by Justice Ginsburg.

Ruth Bader Ginsburg:

This case concerns charges by the Attorney General of Illinois that a for-profit fund raising enterprise, engaged in fraudulent solicitation for a charitable organization, underlying the suit of contract between the fund raisers, I will refer to as Telemarketers, and a charity, VietNow whose purpose is to promote the welfare of Vietnam veterans and their families.

The contract provides that 85 cents of each dollar collected would be retained by the fund raisers.

The Illinois Attorney General charged the Telemarketers defrauded the public by falsely representing that money donated would fund specific endeavors, for example, thanksgiving baskets, job training and rehabilitation services, paying bills and rent owed by disabled veterans, when in fact 15 cents or less of each dollar donated would be available for such purposes.

The Illinois Supreme Court ruled that this suit could not be maintained.

That Court relied on three decisions of this court holding incompatible with the free speech secured by the First Amendment State and local laws are prohibited charitable solicitations when fund raising fees exceeded a prescribed reasonable limit.

We reverse the decision of the Illinois Supreme Court.

The First Amendment secures the right to engage in charitable solicitation, but it does not shield fraud.

Our prior decisions held that high fund raising costs, without more, do not establish fraud.

We have also held that the mere failure to volunteer the fund raiser's fee when contacting a potential contributor standing alone is insufficient to state a claim for fraud.

We adhere to those rulings, but we rid the Illinois Attorney General's complaint in a light favorable to the complainant as we generally do when a complaint is attacked as insufficient at the very outset of the case.

So reading the complaints before us, we are satisfied that the charges against Telemarketers have a solid core.

In affirmative statements Telemarketers made intentionally misleading donors regarding the deployment of their contribution.

We cast no doubt on the legitimacy of the charity's public awareness campaigns or advocacy or information dissemination endeavors, but we clarify that the First Amendment does not disarms state from assuring that their residence are positioned to make informed choices about their charitable giving.

Just as states may require charities and fund raisers to file detail of financial disclosure forms that may communicate that information to the public.

So states may stop fund raisers from misleading potential donors into believing a substantial portion of their contribution with fund specific programs or services knowing full well that the line share of contributions would be otherwise employed.

We stress that in fraud actions of the type at issue here, the State bears the full burden of proof.

Furthermore, under Illinois case law false statement alone is insufficient to subject fund raisers to fraud liability, rather the complainant here, the Illinois Attorney General must show by clear and convincing evidence that the misrepresentation was knowingly false was intended to mislead the listener and successfully did so.

Proof requirements of this order in other context notably actions, for defamation of public officials, have been held to provide sufficient breathing room for protected speech.

The Court's opinion is unanimous.

Justice Scalia has in addition filed a concurring opinion in which Justice Thomas joins.