Court: Telemarketers can be held to truth

WASHINGTON, May 5 (UPI) -- The Supreme Court ruled unanimously Monday that states can sue for fraud when professional fundraisers claim donations will be used for a specific charity but keep most of the money for themselves.

A lower court decided that the fundraisers were protected by the First Amendment. However, the Supreme Court reversed that ruling n a decision that will have major repercussions across the professional fundraising industry, which raises about $200 billion a year.

The case comes out of Illinois and involves a for-profit company called Telemarketing Associates Inc. A petition from Illinois Attorney General James Ryan told the Supreme Court that the company raises money on behalf of VietNow, a charity with its national headquarters in the state.

"Telemarketing calls individuals to ask for donations," the petition said, "telling them that their contributions will be used for charitable purposes, including providing food, shelter and financial support for hungry, homeless and injured Vietnam War veterans."

In fact, the Illinois petition said, "Telemarketing keeps 85 percent of the donations it generates pursuant to its agreements with VietNow, which in turn spends only about 3 percent of all the money raised by Telemarketing to provide such charitable services to veterans."

Illinois sued the company, owner Richard Troia and an affiliated company in Cook County Court, alleging common law fraud and violations of state fraud statutes.

But the defendants asked a state judge to dismiss the complaints, contending they were barred by the free speech protections of the First Amendment. The judge dismissed the complaints and eventually the Illinois Supreme Court upheld the judge.

The state then asked the Supreme Court of the United States for review.

Illinois told the justices in its petition that the state Supreme Court was right when it said "this case has far-reaching implications for all fundraisers."

Telemarketers are handling an ever-greater volume of fundraising business, the state said, and the Illinois courts ruled that the amount of money withheld from charities can never be used to support a claim of fraud.

The Illinois Supreme Court ruling "transformed the First Amendment into a license for unscrupulous fundraisers to defraud the public in the name of raising money for charity," the state argued.

In contrast, the defendants said in their own brief that the state court was right when it said the First Amendment barred such claims.

The fraud claims were "based solely upon allegations that the professional fundraisers earned gross fees which the Illinois attorney general considered excessive and their gross fees were not voluntarily disclosed to potential donors."

Monday, the U.S. Supreme Court agreed with the state and reversed the Illinois Supreme Court ruling.

Speaking from the bench for the whole court, Justice Ruth Bader Ginsburg said, "The First Amendment safeguards the right to engage in charitable solicitation, but it does not shield fraud."

Ginsburg acknowledged that in the past the justices "have also held that mere failure to volunteer the fundraiser's fee when contacting a potential contributor, standing alone, is insufficient to state a claim for fraud."

However, in the Illinois case, "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 contributions," she said.

The justice added that states, while bearing "the full burden of proof," have the authority "to stop fundraisers from misleading potential donors into believing that a substantial portion of their contributions would fund specific programs or services, knowing full well that the lion's share of contributions would be otherwise employed."

The U.S. Supreme Court sent the case back to the Illinois court for a rehearing and ruling based on Monday's opinion.

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(No. 01-1806, Illinois vs. Telemarketing et al.)