High Court Weighs Fee Disclosures for Charitable Fund-Raisers
The callers said they were seeking donations for VietNow, a charity that provided for Vietnam War veterans who were hungry, homeless, disabled or unemployed.
That much was true. What the donors were not told was that only 3% of the money collected paid to support these veterans.
On Monday, the Supreme Court took a hard look at this practice to decide whether such fund-raising pitches can be prosecuted as frauds.
In the past, telephone soliciting has been deemed to be free speech and protected from laws that would force fund-raisers to tell donors what share of the contributions goes to true charitable work.
Under its contract with VietNow, a professional fund-raising firm known as Telemarketing Associates kept 85% of the donations it solicited. And VietNow spent 80% of the rest on its operations and overhead.
During Monday’s argument, Illinois prosecutors and the Bush administration urged the court to drop the 1st Amendment barrier and to allow a broader crackdown on deceptive fund-raising schemes.
“Charitable solicitors are not free to commit fraud just because they are charitable solicitors,” said Illinois prosecutor Richard Huszagh. The fund-raisers did not tell “explicit lies, but they engaged in misrepresentations. And half-truths are not constitutionally protected.”
The Illinois attorney general brought a fraud charge against Telemarketing Associates, but it was thrown out on free-speech grounds by the Illinois courts.
“Nothing in the 1st Amendment says that fraud in charitable solicitations need go unpunished,” Deputy Solicitor General Paul Clement argued.
But the state’s case ran into surprisingly sharp questioning from the justices.
Because no one could say just when high fund-raising costs became too high, fund-raisers would not know when they were violating the law, several justices said.
“I’m not comfortable leaving this to a jury,” Justice Antonin Scalia said.
If 85% is too high, what about 65% or 50%, asked Justice David H. Souter. “My concern is there is no way to predict in advance” what is considered a fraud, he said. “It would be a dice throw.”
However, other justices wondered how the public can be protected. Probably 95% of those who donated money would not have done so if they thought nearly all of it went to the fund-raisers, Justice Anthony M. Kennedy said.
“Isn’t that saying this is a misrepresentation?” he asked.
But a lawyer for the telemarketers stood his ground and argued the government has no authority to “second-guess” how solicitors do their work.
“High fund-raising costs alone are not enough to make out a case of fraud,” said attorney M. Errol Copilevitz of Kansas City, Mo.
He agreed that professional fund-raisers “commonly have fees of 80% to 90%.”
It is harder to collect donations for charities that are new or little-known, he said. “You can’t measure the worth of an organization by its financial efficiency,” he added.
In the 1980s, the high court struck down a series of state laws that required solicitors to disclose the percentage of contributions that would go to the charity.
On Monday, the justices sounded closely split on whether to retreat from those rulings and to allow states to bring fraud charges against fund-raisers.
The case, Madigan vs. Telemarketing Associates, is expected to be decided by June.
During a second argument, the justices also struggled over whether the government can forcibly medicate a criminal defendant so he can stand trial.
In the past, the court has said dangerous, violent prisoners can be given drugs to calm them.
Government lawyers said the same rule should apply to a 53-year-old dentist from Missouri who has been charged with Medicaid fraud.
The dentist, Dr. Charles Sell, suffers from a mental disorder that causes him to believe the government is pursuing him.
“He believes the FBI is out to discredit him,” Sells’ attorney, Barry Short, told the justices.
The dentist has been held by federal agents since 1997, but he refuses to take anti-psychotic drugs that are supposed to help him.
Sell argues he has a constitutional right to refuse medication. A U.S. government lawyer countered that prosecutors can trump that right because they have “a fundamental interest” in trying the defendant.
“What are we to do with him?” asked Scalia. “It’s just a crazy situation.”
One possibility, Scalia suggested, is to throw out the case of Sell vs. U.S. and to say the indicted dentist had no right to appeal before his trial.
Justice Stephen G. Breyer objected to the use of the phrase “mind-altering drugs” by Sell’s lawyer. “A lot of people are genuinely helped by these drugs,” he said.
Maybe so, the lawyer responded, “but our position is that Dr. Sell has the right to make the choice.”