Petition — Secretary of State of Md. v. Joseph H. Munson Co.
Supreme Court brief1984
Ask Donna
What actually matters in this document.
Text
ALEXANDER L. STEVAS.
CLERK
In THe
Supreme Court of the United States
Octoper Term, 1982
SECRETARY OF STATE OF MARYLAND.
Petitioner.
JOSEPH H. MUNSON COMPANY. INC.
Re spond: nt
Own Petition For Writ or CERTIORARI TO THE
Court or APPEALS oF MARYLAND
PETITION FOR WRIT OF CERTIORARI
AND APPENDIX
SrerHen H. Sacus,
Attorney General of Maryland,
Diana G. Morz,
James G. Kiar,
Assistant Attorneys General,
Ropert A. Zarnocn,
Assistant Attorney General.
Counsel of Record.
Seven North Calvert Street.
Baltimore, Maryland 21202.
(301) 376-6338.
an
QUESTIONS PRESENTED
Is a percentage limitation only on the
fundraising ecosts of charities facially
unconstitutional per se under the First
Amendment no matter how moderate, flex-
ible or reasonably applied?
Does State law imposing a criminal pen-
alty or authorizing withdrawal of regis-
tration from a charity spending more than
25% on fundraising costs constitute a
"prior restraint” on that charity when
compliance with percentage limitation is
not a condition precedent for registra-
tion and a charity may be exempted from
the percentage limitation requirement,
even after that limitation has _ been
exceeded?
May a professional fundraiser to whom a
percentage limitation on fundraising fees
may be validly applied challenge that
limitation on its face with respect to
others in the absence of prior restraint
or a showing of real and substantial
First Amendment overbreadth?
-i-
PARTIES
The parties to the proceedings in the
Court of Appeals of Maryland were the Joseph
H. Munson Company, Ine. and the Secretary of
State of Marvland, at that time Fred L. Wine-
land. Mr. Wineland resigned on July 1, 1982
and was subsequently replaced by Patricia G.
Holtz.
-ii-
TABLE OF CONTENTS
Page
Questions Presented... ..ceeeeveee i
Parties .cccccccccccccccccseeseses ii
Opinions Below... ...ceeeeeeeecces ]
JUPISAGICRION.. cc ccccccccccveseces 2
Constitutional Provisions,
Statutes and Regulations
INVO]L VOR. ccccccccccccsccceseces 2
Statement of the Case... ..eeeeees 8
Reasons for Granting Review...... 17
COMNELUSION. .cccccccccccscccsecese 32
TABLE OF AUTHORITIES
5 Cases
Bread Political Action v.
Federal Election Commission,
635 F.2d 629 (7th Cir. 1980)... 26
Broadrick v. Oklahoma, 413
Cube Gee CEGrePcceuces ceseeees — =
Conion v. City of North
Kansas City, Missouri,
530 F.Supp. 985 (W.D. Mo.
CROSR De cccccccesccccccccccccsce BG,
v. Boren, 429 U.S. 190
a ee 17
-iii-
29,
30
Erznoznik v. City of
Jacksonville, 422 U.S.
SOG CIOTE) cccccccsccecccscevess 28
Fernandex v. Limmer, 663
F.2d 619 (5th Cir. 1981)....... 27
Holloway v. Brown, 62 Ohio
St. 2865, 403 N.E. 2d 191
Ol. | PPP TTerTerTiLiLi 15, 25
Larson v. Valente, 102 S.Ct.
oy tl | rere eee ee is, 33, 38
National Black United Fund,
Inc. v. Campbell, 494
F.Supp. 748 (D.D.C. 1980)
reversed on other grounds,
667 F.2d 173 Oxon Cir.
| |} rrr rrr rrr Ter TIPE eEne Tt 16, 26
National Foundation v.
Fort Worth, 415 F.2d
41 (5th Cir. 1969),
cert. denied 396
gg, re 18, 18, 23,
26, 33
Singleton v. Wulff, 428
U.S. 106 (1976)... cence TrTrTTT 29
Southeastern Promotion, Ltd.
v. Conrad, 420 U.S. 546
Pt bad pete neh 6660666082 000% 21
State ex rel. Olsen v.
WRG, 314 N.W.2d 842
(N.D. Dts -ceee6e660006000066 24, 25
Thornhill v. Alabama, 310 U.S.
88 Dh. ached eadeeeseeeses 30
Village of Sehaumburg v.
Citizens for Better
Environment, 444 U.S.
GSO CESSES) o 6 cence sO 0bcesecuens 18, 17, 18,
Si. 88. B46.
26, 30, 31,
32, 33
28 U.S.C.
Ot. .¢t) SSS ree re ee 2
PO EOU COD cc 660065040000 6864408 68 2
United States Constitution
Firat AmenGmMent .ccccocesecocessees 13
Fourteenth Amendment.......eeee08 13
Annotated Code of Maryland
Article 41 ~
i, Seererrrert rrr TT passim
il Of eae rere eo 10
PUT 6 66 660064 bbb ee eeneneee 10
if 0 Peer rrr er ee eee 9
st EON PPTeTTT TT rere re ee .
DRGs 666.646 00bsesesvenseontau Q
PEGS se covetedseeececeacuneas a
Maryland Regulations
COMAR 01.02.04.04B(3)........ cooe SF
COMAR 01.02.04.05A.... cee en eeee » BE
CORR 01. OS OG. SSW ec ccccccevcceces 11, 30
Miscellaneous
Ark. Stat. Ann., §04-1610........ 20
Chapter 679, Laws of
Maryland for 1976....eeeeeee008 9
-Vvo=
Conn. Gen. Stat., §$19-3230.......
9 Fla. State. Univ. Law
Rev. 182, 192 (1981).......568.
Fla. Stat., S496. 11]... cee eee eeees
Ga. Code $35-1008.... cee eee cnnees
Haw. Rev. Stat., S467B-7.......4..
Be Mew. BGOt. gg GOIGS cccccsccceces
Kan. Stat. SI7-1747.... cece eeenes
Mass. Gen. Laws Ann. Ch. 68,
Dee eeebeceescooesooosseceocecs
Minn. Stat., $309.555.....000000-
N.H. Rev. Stat., §$320.20.........
N.J. Rev. Stat., §45.17A-10......
N.D. Cent. Code, §$50-22-04.1.....
NAAG, State Regulation of
Charitable Trusts and
Solicitation (Aug. 1977).......
National Health Council,
Model for State Legis-
lation Regulating
Charitable Organizations
C1OTO) .cccccccccccccscccscccens
Note, "Standing to Assert
Constitutional Jus.
Tertii”™, 88 Harv. L.
Rev. 423, 424 (1974). ..ccccnuee
-vi-
20
19
Okla. Stat., Tit. 18, §5523...... 20,
65 Opinions of the Attorney
General 58 (1980). ..ce eee eeneees ll,
Or. Rev. Stat. §128.855...... cooe 86
Pa. Cons. Stat. Ann.,
00) eee ee 20
R.1. Gen. Laws, 5-53-4...--ee0ee 20
$.C. Code, Ann. §33-55-80....... . 20
Ss
.C. Com. Laws Ann.
S
Tenn. Code Ann. §$48-2213.....+45. 20
Village of Schaumburg v.
Citizens for a Better
Environments and
Religious Solicitation:
Freedom of Speech and
Freedom to Religion
Coverage, 13 Loyola of
Los Angeles Law Rev.
953, 955 (1980)....cceeeees coco BO
Wash. Rev. Code, §10.09.100...... 20
W.Va. Code, $29-19-7....ceeeeeeee 20
-vii-
NO.
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1982
SFCRETARY OF STATE OF MARYLAND
Petitioner
Vv.
JOSEPH H. MUNSON COMPANY, INC.
Respondent
ON PETITION FOR WRIT OF CERTIORARI
TO THE COURT OF APPEALS OF MARYLAND
PETITION FOR WRIT OF CERTIORARI
The Secretary of State of Maryland,
Patricia G. Holtz, prays that a writ of cert-
iorari issue to review the judgment entered
in this ease on August 5, 1982 by the Court
of Appeals of Maryland.
OPINIONS BELOW
The opinion of the Court of Appeals of
Maryland is reported as Joseph H. Munson Co.,
Inc. v. Secretary of State, Md. , 448
A.2d 935 (1982) and is reprinted in the
appendix to this petition (App. la). The
opinion and judgment of the Court of Special
Appeals of Maryland reversed by the State's
highest court is reported as Joseph H.
Munson Co., Ine. v. Secretary of State, 48
Md.App. 273, 426 A.2d 985 (1981), and is also
reprinted in the appendix (App. 23 ). The
Opinion and order of the Circuit Court for
Anne Arundel County that occasioned an appeal
is unreported, but is reprinted in the appen-
dix (App. 38¢@).
JURISDICTION
The judgment of the Court of Appeals was
entered on August 5, 1982. The jurisdiction
of this Court rests on 28 U.S.C. §1257(3) and
28 U.S.C. §2101(e).
CONSTITUTIONAL PROVISIONS, STATUTES
“AND REGULATIONS INVOLVED
Constitution of the United States
Amendment I
Congress shall make no law
respecting an establishment of religion, or
prohibiting the free exercise thereof; or
abridging the freedom of speech, or of the
press; or the right of the people peaceably
to assemble, and to petition the
Government for a redress of grievances.
Amendment XIV, Section 1:
All persons born or naturalized in
the United States, and subject to the
jurisdiction thereof, are citizens of the
United States and of the State wherein
they reside. No State small make or
enforce any law which shall abridge the
privileges and immunities of citizens of
the United States; nor shall any State
deprive any person of life, liberty, or
property, without due process of law; nor
deny to any person within its jurisdiction
the equa! protection of the laws.
Annotated Code of Maryland
Article 41, §103D:
(a) A charitable organization other
than a charitable salvage organization
may not pay or agree to pay as expenses in
connection with any fund-raising activity
a total amount in excess of 25 percent of
the total gross income raised or received
by reason of the fund-raising activity.
The Secretary of State shall, by rule or
regulation in accordance with the
“standard of accounting and fiscal
reporting for voluntary health and welfare
organizations” provide for the reporting of
actual cost, and of allocation of expenses,
of a charitable organization into those
which are in connection with a fund-
raising activity and those which are not.
The Secretrary of State shall issue rules
and regulations to permit a charitable
organization to pay or agree to pay for
expenses in connection with a fund-raising
activity more than 25% of its total gross
income in those instances where the 25%
limitation would effectively prevent the
charitable organization from _ raising
contributions.
The 25% limitation in _ this
subsection shall not apply to compensation
or expenses paid by a charitable
organization to a professional fund-raiser
counsel for conducting feasibility studies
for the purpose of determining whether or
not the charitable organization should
undertake a fund-raising activity, such
compensation or expenses paid for
feasibility studies or preliminary planning
not being considered to be expenses paid
in connection with a fund-raising activity.
(b) For purposes of this section,
the total gross income raised or received
shall be adjusted so as not to include
contributions received equal to the actual
cost to the charitable organization of (1)
goods, food, entertainment, or drink sold
or provided to the public, nor should these
costs be included as fund-raising costs; (2)
the actual postage paid to the United
States Postal Service and printing
expenses in connection with the soliciting
of contributions, nor should these costs be
included as fund-raising costs.
(c) Every contract or agreement
between a professional fund-raiser counsel
or a professional solicitor and a charitable
organization shall be in writing, and a
copy of it shuil be filed with the Secretary
of State within ten days after it is entered
into and prior to any solicitations.
Code of Maryland Regulations
COMAR 01.02.04.05:
A. Calculating Fund-raising
Expenses. If an organization confines its
solicitation to one or more clearly
delineated campaign periods, the 25-
percent limitation contained in Article 41,
§103D(a), Annotated Code of Maryland,
may be applied retrospectively on an
annual basis or on a campeign-by-
campaign basis. Under no circumstances,
however, may an organization enter into
an agreement to pay as expenses in
connection with a fund-raising activity a
total amount in excess of 25-percent of
the total gross income raised or received
by reason of the fund-raising activity,
except as set forth in Article 41, §103D(a)
and (b), Annotated Code of Marylend,
and this regulation.
B. Exceeding the 25-percent
Limitation.
(1) The Secretary
may permit an organization to
exceed the 25-percent limitation
contained in Article 41, §103D(a),
Annotated Code of Maryland, upon
a showing that it is necessary to
the accomplishment of _ the
organization's charitable purpose
and that there is no. other
reasonable alternative.
(2) Instances in which
the 25-percent limitation would
effectively prevent an organization
from raising contributions, include,
but are not limited to, the
following situations:
(a) When there
are extraordinary, unusual, and
non-recurring circumstances which
ean be factually supported; and
(bo) When an
organization is less than 2 fiscal
years old and in the developmental
state.
(3) An organization
which expects to exceed or does
exceed the 25-percent limitation
shall file a request for a waiver
with the Secretary on forms pro-
vided by him before further engag-
ing in solicitation. The organiza-
tion shall provide the Secretary
with the percentage amount by
which it expects to exceed or has
exceeded the 25-percent limitation.
(4) If the Secretary
denies a request for a waiver of the
25-percent limitation, the organiz-
ation adversely affected may
request a hearing pursuant to
COMAR 01.02.03.
C. Disclosure of Waiver of 25-
percent Limitation.
(1) As used in this
regulation, the terms "gross
income" and "fund-raising
expenses” are limited as set forth
in Article 41, $103D(a) and (b),
Annotated Code of Maryland.
(2) When the Secre-
tary, pursuant to Article 41,
§103D(a), Annotated Code of
Maryland, and this regulation,
grants a waiver to an organization
which expects to exceed the 25-
percent limitation, the organization
shall disclose to the public the
percentage amount authorized
bythe Secretary to be used for
fund-raising expenses. The organ-
ization shall print or affix this
disclosure by stamp or label on
each item of the goods to be sold or
publications to he distributed in
letters of eight-point tvpe or larger
as follows: "The percentage of
gross income raised as a result of
this solicitation which may be used
for fund-raising expenses may not
exceed __ percent. The Maryland
Secretary of State has euthorized a
waiver of the statutory 25-percent
limitation on fund-raising
expenses.”
(3) When it is not
feasible to print or affix this
information on each item of goods
to be sold, a sign disclosing the
information in the form prescrived
above shall be printed in block
letters at least 1 inch high and
conspicuously displayed eat each
location where the sale of goods
occurs.
(4) In the case of
telephone solicitation, oral com-
munication, or media solicitation,
an organization which:
(a) Expects to
exceed the 25-percent limitation
shall disclose ir each case of soli-
citation the information prescribed
by §C(2) above; or
(b) Does
exceed the 25-percent limitation
shall disclose in each case of soli-
citation the information prescribed
in §C(5), delow.
(5) An organization
which exceeds the 25-percent
limitation shall include for the next
year in all solicitation mailings,
ublieations, and advertisements of
anv sort, a statement in letters of
eight-point type or larger indicat-
ing that the limit was exceeded and
disclosing the actual percentage of
the total gross income raised as a
result of fund-raising activities
which was used for fund-raising
exenses. The statement may
indicate that the waiver of the 25-
percent limitation on fund-raising
expenses was authorized by the
Secretary in accordance with the
law.
STATEMENT OF THE CASE
A. The Statute and Regulations at Issue
The statute at issue in this case,
Article 41, Seetion 103D of the Annotated
Code of Maryland, provides for a flexible 25%
limitation on a charity's fund-raising
expenses. Section 193D does not mandate that
a set amount or set percentage be spent by a
charity on charitable puroses. Thus, a
charity's administrative or other non-charit-
able expenses are in no way limited. The
only expenditures that are in any limited are
certain amounts spent solely on fund-raising.
Moreover, while $103D does prohibit a
charity from paving or agreeing to pay fund-
raising expenses "in excess of 25 percent of
the total gross income raised or received by
reason of the fund-raising activity,” meeting
such a requirement, however, is not a econdi-
tion of securing registration. There is no
provision for prior approval of contracts
between a charitable organization and a pro-
fessional fund-raiser in Maryland law. A
mechanism which so provided was specifically
deleted from the 1976 bill which later became
§103D. See Chapter 679, Laws of Maryland for
1976. All that remains is a requirement that
such contracts be filed with the Secretary of
State. §103D(¢e). The only punishments for
violating §103D are: (1) possible cancel-
lation of registration (which is a disecretin-
ary rather than a mandatory penalty), Article
41, $103L(a) and (2) @ criminal penalty, Art.
41, §103L(b).!
The Maryland law also contains major
exemptions that further diminish the impact
of the 25% restriction. Exeluded from fund-
1 Authorization for a civil suit against a professional fund
raiser by the charity was deleted from the 1976 bill. See Ch.
679, Laws of Maryland of 1976.
raising costs are all costs ineurred for
goods, food, entertainment, or drinks sold or
provided to the publie and for postage and
printing expenses in connection with the
solicitation. $103D(b). In addition,
charities are free to pay and professional
fund raisers are free to charge what they
want -- without any limitation -- for "feas-
ibility studies” and "preliminary
planning.” $§103D(a).
Most importantly, the Marvland statute
provides that:
The Secretary of State shall issue rules
and regulations to permit a charitable
organization to pay or agree to pay for
expenses in connection with a fund raising
activity more than 25% of its total gross
income in those instances where the 25%
limitation would effectively prevent the
charitable organization from _ raising
contrit.tions.
These regulations illustrate the flexibility
of the Maryland statute. A charity can
choose the applicable period during which the
25 percent limitation is in effect and can
2 In describing "a trend toward allowing more flexibility in
the amount spent for fund raising,” a 1977 study of the
National Association of Attorneys Genera! specifically took
note of the Maryland statute. See NAAG, State R ation
of Charitable Trusts and Solicitation (Aug. 1977) at 31.
-10-
apply it retroactively on an annual basis or
on a campaign-by-campaign basis. See COMAR
01.02.04.05A. The rules place no limit on
the type of circumstances justifying relief
from the percentage limitation. See COMAR
01.02.04.05B. Specifically identified as
justifying an exemption is the case where "an
organization is less than 2 fiseal years old
and in the developmental stage” and "“extraor-
dinary, unusual and non-recurring circum-
stances.” An organization can file for an
exemption at any time, including after it
actually exceeds the 25 percent limitation.
COMAR 01.02.03.04B(3).
Finally, the Maryland law is being
administered in a careful fashion with atten-
tion being paid to the First Amendment rights
of advocacy groups. A 1980 Opinion of the
Maryland Attorney General advised the Secre-
tary of State that the 25 percent limitation
was not to be considered as an advance
requirement for registration; that a charit-
able organization be given a hearing before
any attempt is made to cancel a registration
for violation of §103D and that the Secretary
consider staving such a cancellation attempt
pending judicial affirmation. 65 Opinions of
the Attorney General 58, 61, 64 .(1980).
offe
Significantly, the Attorney Genera! advised
that "the Secretary of State should not hesi-
tate to grant waivers that are based on a
responsible showing of justification, espe-
cially as regards the public-interest type
organization described in the Schaumburg
Opinion.” Id. at 65.3
B. The Proceedings Below
On March 7, 1978, the Joseph H. Munson
Company, Ine. ("Munson"), an Indiana eorpora-
tion operating as a professional promoter
providing advice to organizations desiring to
raise money, filed suit against Maryland's
Secretary of State in the Cireuit Court for
Anne Arundel County, Maryland, seeking a
declaration’ that it was not liable to
register as a professional fund raiser under
State law and that §103D of Article 41 of the
Annotated Code of Maryland was unconstitu-
tional as an unlawful delegation of legisla-
tive authority. In addition, Munson prayed
for injunetive relief against enforcement of
these statutes. Specifically, the firm
alleged that its activities in Maryland were
3 Although the Respondent in this case admitted
contrary to §103D since 1978, the Secretary of State did not
take legal or punitive action against it or any of its clients.
limited to “advising its elients [various
chapters of the Fraternal Order of Police! as
to how to go about promoting a particular
entertainment event” and that it "regularly
charged” these chapters a fee in excess of 25
percent of the total gross income of the
event. Following a motion to dismiss for
failure to exhaust administrative remedies,
the court dismissed the claims regarding
registration of professional fund raisers but
allowed the challenge to §103D to continue.
The State answered and nothing occurred in
the case for nearly two years, until an
attempt was made to dismiss the suit for want
of prosecution. After the suit was allowed
to continue, Munson, on May 13, 1980, filed
an amended complaint realleging the same
factual averments but also raising for the
first time a federal constitutional claim.
The firm contended that the 25 percent limit-
ation on fund-raising expenses contained in
$103D "is unconstitutional and in viclation
of the First and Fourteenth Amendment![s) of
the United States Constitution, as it vio-
lates the Plaintiff's right to free speech
and assembly and unduly intrudes thereon.”
The State again answered and in an accompany-
ing memorandum questioned Munson's standing
to bring its action.
The case was heard by the Circuit Court
on the basis of a five-sentence stipulation
which stated that Munson's contract with the
Fraternal Order of Police called for a fee in
excess of 25 percent of the net income raised
via the event; that the organization was
engage’i in the dissemination of information
and the advocacy of causes on behalf of
police officers and that a singie chapter of
the Fraternal Order of Police was “reluctant”
to enter into a contract with Munson because
of §103D. The firm offered no evidence to
show a connection between advocacy activities
of the Fraternal Order of Police and Munson's
dispensation of fund-raising advice or the
particular events of individual chapters; or
that any other chapter of the organization
(allegedly being overcharged for fund-raising
services since 1978) had refused Munson's
services or was reluctant to engage them; or
that any chapter of the Fraternal Order of
Police had attempted to seek a waiver of the
$103D limitation or was denied a requested
waiver.
On July 2, 1980, the Cireuit Court
issued its opinion (App. 38a) upholding the
-14-
challenged statute. Relving upon National
Foundation v. Fort Worth, 415 F.2d 41 (5th
Cir. 1969), cert. denied 396 U.S. 1040 (1970)
and distinguishing Village of Schaumburg v.
Citizens for Better Environ., 444 U.S. 620
(1980), the Cirevit Court **d that $§103D
presented no prior restraint on protected
activities and, because of the Secretary's
power to grant exemptions to the 25 percent
limitation, provided “a sufficiently flexible
standard” to accommodate First Amendment
rights ‘App. 6a). The court also found no
invalid delegation of legislative power.4 An
appeal was taken by Munson to the Court of
Special Appeals, which affirmed for prim-
arily the same reasons. Joseph H. Munson
Co., Ine. v. Secretary of State, 48 Md.App.
273, 426 A.2d 985 (1981)App. 37a ). The
appellate court agreed there was no prior
restraint and that the flexible Maryland
statute with its many exceptions and provi-
sions for waiver, fit the model of the law
upheld in National Foundation as well as
percentage limitation provisions upheld in
| Ohio, Holloway v. Brown, 62 Ohio St. 2865,
‘ No mention was made in the Circuit Court opinion of the
State’s contention regarding standing.
-15-
403 N.E.2d 191 (1980) and the District of
Columbia, National Black United Fund, Ine. v.
Campbell, 494 F.Supp. 748 (D.D.C.
1980)(App. Joe ). In conelusion§ the
appellate court said:
We think section 103D regulates First
Amendment freedom of speech in such a
way as to minimize encroachment upon
individual rights while simultaneously
protecting the citizenry of this State from
sham and fraud. In sum, section 103D is
drawn in a manner calculated to protect
the publie interest ‘without unnecessarily
interfering with First Amendment free-
doms.’ The statute is constitutional.
(App.3 sa
Munson petitioned the Court of Appeals
of Maryvland for certiorari, contending that
§$193D was fatally overbroad on its face in
violation of the First Amendment, and for the
first time, arguing that in light of the
waiver feature of $§103D “the diseretion
vested in enforcement officials as a result
of the lack of standards is itself an uncon-
stitutional infringement on First Amendment
interests.” The Secretary of State cross-
petitioned on the standing issue. The
State's highest court agreed to hear the case
5 The Court of Special Appeals declined to consider the
State’s objection regarding Munson’s standing, concluding that
the issue had not been decided below. (App29@.
-16-
and reversed. First, the Court of Appeals
concluded thet under Schaumburg and Craig v.
Boren, 429 U.S. 190, 193-197 (1976), Munson
had standing to challenge the statute on its
face (App. 13g ). Second, without reference
to the legislative history of §103D or its
implementing regulations or the obvious
record of its non-enforcement via a permit
scheme, 65 Opinions of the Attorney General
58 (1980), the Maryland Court found an imper-
missible prior restraint (App. l3a). Third,
the Court found no difference between the
Maryland law and the statute invalidated in
Schaumburg (App. l6ea ~). In addition, the
opinion suggested that the waiver feature of
§193D at the same time conferred too much
diseretion on State officials and was
"extremely narrow”. (App. 20a). Thus, the
Court held that §$103D was violative of the
First Amendment as overly broad and invalid
on its face.
REASONS FOR GRANTING REVIEW
I.
THIS COURT SHOULD REVIEW THE
INVALIDATION OF A _ PERCENTAGE
RESTRICTION ON THE FUND RAISING
COSTS OF CHARITIES, WHICH
INVOLVES NO PRIOR RESTRAINT AND
IS FLEXIBLE, MODERATE AND MORE
LIMITED THAN PERCENTAGE
REQUIREMENTS INDICATED AS
ACCEPTABLE BY THIS COURT AND IN
EFFECT IN MANY STATES.
-17-
The court below held Maryland's 25%
limitation on a charity's fund-raising
expenses -- a limitation which is not only
modest but also flexible -- “invalid under
the First Amendment of the United States
Constitution.” 448 A.2d at 947. To reach
this holding the Marvland court created a per
se rule that would effectively invalidate any
percentage limitation in a charitable soli-
citation law.
Such a rule is unsanetioned by this
Court. For this Court has never held that
such percentage limitations are per se or
intrinsically invalid. Indeed, in Schaumburg
v. Citizens for Better Environ., 444 U.S.
620, 635-36 (1980), this Court indicated to
the contrary by distinguishing the absolute
and unrealistic ceiling on a charity's opera-
tions which it struck down in that case, from
the flexible percentage ceiling on solicita-
tion expenses upheld in National Foundation
v. City of Fort Worth, 415 F.2d 41 (1969),
cert. denied 396 U.S. 1040 (1970). And more
recently in Larson v. Valente, 102 S.Ct. 1673
(1982), this Court again noted that
evenhanded state regulation of charitable
solicitation, including a provision for with-
drawing the registration of an organization
-18-
spending "an unreasonable amount” for manage-
ment, general and fund-raising costs, was not
"intrinsically impermissible.” Id. at
1688. Undoubtedly, it is because of this
implicit approval of percentage limitations,
and because of the simplicity and ease of
administration afforded by such limitations,
that many states have employed them to pro-
tect the contributing publie and charitable
beneficiaries from fraud and the charities
themselves® from the unscrupulous practices
of professional fund raisers.
However, if the per se rule adopted by
the lower court is left undisturbed by this
Court, and followed by the courts of other
jurisdictions, it would seriously hinder any
reasonable regulation of excessive fees
charged charities by professional fund
raisers. At present more than two-thirds of
the states and numerous municipalities sub-
stantially regulate charitable solicitations
both to protect the publie and the
§ In fact, model state legislation to regulate charitable
organizations proposed by thirteen national health charities,
Suggests a reasonable percentage limitation on fees paid
pro onal fund raisers. See National Health Council, Model
for State Legislation Regulating Charitable Organizations
-19-
charities. Moreover, twenty-one (21) states
have established percentage limitations of
varying degrees of flexibility and severity
on the amounts a charity may pay to profes-
sional fund raisers or on those sums paid for
solicitation and administration costs.”
Many
impose more difficult requirements than that
contained in the Maryland statute. See, e.g.
Mass. Gen. Laws Ann. Ch. 48, §21;: N.H. Rev.
7 ARK. STAT. ANN., §64-1610 (25% to professional fund
raiser); CONN. GEN. STAT., §19-3230 (25% TO 50% sliding
scale); FLA. STAT., $496.11 (25% to professional fund raiser):
GA. CODE, §35-1008 (30% for fund raising and administrative
costs); HAW. REV. STAT., §467B-7 (20% to professional fund
raiser); I.. REV. STAT., §5108 (25% for fund raising and
administrative costs); KAN. STAT., §17-1747 (25% for fund
raising and administrative costs); MASS GEN. LAWS ANN.,
Ch. 68, §21 (15% to professional fund raiser); WINN. STAT.,
§309.555 (30% to professional fund raiser); N.H. REV. STAT.
ANN., §320.20 (15% for fund raising and administrative
costs); N.J. REV. STAT. $45.17A-10 (15% to professional fund
raiser); N.D. CENT. CODE, §50-22-04.1 (35% total; 15% to
professional fund raiser); OKLA. STAT., Tit. 18, $5523 (10%
to professional fund raiser); OR. REV. STAT., §128.855 (25%
for solicitation costs; 50% for solicitation and administration
costs); PA. CONS. STAT. ANN., §160-6 (35% total; 15% to
professional fund raiser; R.I. GEN. LAWS, 5-53-4 (50% total;
25% to professional rund raiser); S.C. CODE, ANN. §33-55-80
(“reasonable percent” to professional fund raiser); S.C. COM.
LAWS ANN., §37-27-24 (30% to professional fund raiser);
TENN. CODE ANN., §48-2213 (less than 25% to professional
fund raiser creates rebuttable presumption of
reasonableness} WASH. REV. CODE, §19.09.100 (20% for
cost of solicitation); W.VA. CODE, §29-19-7 (15% to
professional fund raiser).
-20-
Stat. Ann. $320.20: Okla. Stat., Tit. 18,
§5523.
The critical mistake the Maryland court
made was to attempt to analyze the Maryland
statute as if it were the truly dissimilar
statute condemned in Schaumburg. The Mary-
land statute and the regulations interpreting
it are in fact light vears away fron the
situation condemned in Schaumburg.
First, §103D imposes no prior restraint
on protected activities. The Secretary of
State has never administered §103D as @ con-
dition precedent to registration and was
specifically advised not to do so. And the
regulations of the Secretary permit a person
to apply for an exemption from the 25 percent
limitation even after §103D has been vio-
lated. Indeed, the Respondent in its brief
below conceded that the Maryland statute is
not "a prior restraint.” Brief of Jossph H.
Munson Co., Ine. at 12-13.% Both the trial
8 We do not contend that the absence of prior restraint
exempts State regulation of charitable solicitation from the
| requirements of the First Amendment. However, outside the
area of prior restraint, State justifications for alleged
| interference with First Amendment rights do not have to
meet an impossible burden. See Southeastern Promotion Ltd.
v. Conrad, 420 U.S. 546 (1975). Absent a statutory prior
-2l-
court and Maryland's intermediate appellate
courts found no prior restraint. See Joseph
H. Munson Co. v. See. of State, 48 Md.App.
273, 426 A.2d 985 (1981).
Second, this ease has little, if anv-
thing, to do with speech or advocacy. Unlike
Schaumburg, the record in this case does not
reveal any connection between the dissemina-
tion of ideas and the charitable solicitation
efforts of respondent's elients.? Respondent
is an out-of-state professional fund raiser
seeking to charge exorbitant fees for the
sole funetion of “advising its [Maryland]
clients as to how to go about promoting a
particular entertainment event.” It is hard
to see how particular charities are harmed by
state law restricting the fees thev must
pay for such services. Surely, given the
liberal provisions of Maryland's laws, there
will always be professiona! fund raisers
restraint, the respondent — a professional fund raiser — does
not have stending to challenge the Maryland statute as overly
broad as to advocacy groups. See infra.
9 All the record discloses is that Respondent's clients —
chapter of the Fraternal Order of Police — disseminate
information and advocate causes. No such activity is
described or in fact is related to particular charitable
solicitations.
-22-
willing to offer such services at a 25 per-
cent fee in Maryland, even if Munson is
driven from the market.
Third, Marvland's law is a restriction
on fund raising expenses not a!1 non-charity
related expenditures. In fact, in
Schaumburg, the charity in question spent
less than 25 percent of its ineome on fund
raising and would not have encountered a
problen under Maerviand law. 444 U.S. at
626. Moreover, as outlined within, Marvy-
land's percentage limitation contains so many
generous features as to present little
practical burden to a charity or responsible
professional fund raiser.
Fourth, §103D is the kind of flexible
limitation reviewed by this Court in National
Foundation v. Fort Worth, 415 F.2d 41 (5th
Cir. 1969), cert. denied 396 U.S. 1040 (1970)
and endorsed in Schaumburg v. Citizens for a
Better Environ., 444 U.S.620 (1980) and
Larson v. Valente, 1092 $.Ct. 1672, 1685
(1981). Indeed, §103D, which contains no
element of prior restraint and which applies
only to fund raising expenses, is an even
more liberal statute than those discussed in
Schaumburg and Valente.
-23-
Il.
THE DEEP DIVISION AND VISUNDER-
STANDING AMONG THE LOWER COURTS
AS TO THE EFFECT OF THE SCHAUYV-
BURG DECISION WHICH RESULTED IN
THE UNSANCTIONED HOLDING BELOW,
SHOULD BE RESOLVED BY THIS
COURT.
In the two years since this Court's
decision in Sechaumburg, the lower courts have
exhibited deep division as to the proper
interpretation and true effect of that deci-
sion.
On one hand, the Supreme Court of North
Dakota, State ex rel. Olsen v. WRG, 314
N.W.2D 842 (N.D. 1982), a federal district
court in Misscuri, Conlon v. Citv of North
Kansas City, Missouri, 530 F.Supp. 985 (W.D.
Mo. W.D. 1981) and most recently Maryland's
highest court in this case, have misread
Schamburg concluding that it mandates that
all percentage limitations on charitable
fundraising costs are per se _ unconstitu-
tional. However, in the North Dakota case
the challenged statute was far more restriec-
tive than the Maryland statute at issue here;
it limited charitable fund-raising expenses
to 15% rather than 25%. Moreover, that case
involved a prosecution by the state for
alleged violation of the statute so that
-24-
there were none of the standing problems
present in this case. See infra. The North
Kansas City ordinance at issue in Conlor
required a permit or certificate of registra-
tion before any solicitation by a charity and
anyone soliciting without such a permit was
subject to arrest. 530 F.Supp. at 990. Thus
both earlier cases involve facts which put
them closer to the Schaumburg than the case
at hand. Moreover this Court, less than six
months ago, after both State ex rel. Olsen v.
WRG, supra, and Conlon v. City of North
Kansas City, Missouri, supra, reiterated its
view that a state regulation of charitable
solicitation whieh permitted withdrawal of
registration from a charity spending "an
unreasonable amount” for management, general
and fundraising costs” was not “intrinsically
impermissible”, Larson v. Valente, 102 S.Ct.
1673, 1688 (1982). Nevertheless, the Court
below concluded fundraising percentage limit-
ations were unconstitutional per se and thus
Marvland's moderate, flexible limitation must
fall.
On the other hand, the Supreme Court of
Ohio, Holloway v. Brown, 62 Ohio St.2d 65,
403 N.E.2d 191 (1980) and the District Court
for the District of Columbia, National Black
-25-
United Fund, Ine. v. Campbell, 494 F.Supp.
748, 759-60 (D.D.C. 1980), reversed on other
grounds, 667 F.2d 173 (D.C. Cir. 1981), and
both the trial court (App. 36g )and the inter-
mediate appellate court (App. 23g) in this
case have determined that Schaumburg does not
require this result. See also, Bread
Political Action v. Federal Election Comis-
sion, 635 F.2d 621,629 (7th Cir. 1980),
reversed on other grounds, 102 S.Ct. 1235
(1982). Rather, thev have concluded that in
Schaumburg, this Court, at least indicated,
that & moderate flexible percentage
limitation on charitable fundraising costs,
particularly if such a limitation was not
part of a scheme which contained a prior
restraint on speech, was permissible, and so
upheld such carefully crafted statutes. This
view, it may be noted, is shared by the com-
mentators. See Village of Schaumburg v.
Citizens for a Better Environment and Reli-
gious Solicitation: Freedom of Speech and
Freedom of Religion Converge, 13 Loyola of
Los Angeles Law Rev. 953, 955 (1980)("The
Schaumburg opinion suggests that certain
types of state regulations can be maintained
against even constitutionally protected soli-
citation"); 9 Fla. State Univ. Law Rev. 185,
-26-
192 (1981)(the Court “implicitly approved the
ordinance in National Foundation as an appro-
priate alternative to the inflexibility of
the Schaumburg ordinance”).
The latter conclusion is, we believe,
for the reasons set forth within, not only
clearly correct as a matter of constitutional
law but also eritically important to any
effective regulation of excessive and unrea-
sonable fundraising fees. Certiorari should
be granted here so that this important public
policy question, upon which the lower courts
are so obviously divided and which affects
many of the states and numerous local
municipalities, can definitively be resolved
by this Court.!"
10 The flexibility of a statute imposing a 25% limit on
solicitation costs as part of a licensing scheme was an issue in
Fernandes v. Limmer, 663 F.2d 619 (5th Cir. 1981), petition
for certiorari dismissed under Rule 53, 51 U.S.L.W. 3174
(Sept. 7, 1982). However that case, unlike the present one,
was decided on the basis of the First Amendment's protection
of religious freedom. Moreover, to the limited extent it
would have presented issues similar to those in the case at
hand, its dismissal eliminates the possibility of consideration
of those issues by this Court in any pending case other than
the one at hand.
-27-
ITl.
REVIEW BY THIS COURT IS NECES-
SARY TO RECTIFY AN UNTHINKING
AND UNWARRANTED DEPARTURE FROM
TRADITIONAL RULES OF STANDING
THAT IS CLEARLY AT ODDS WITH
DECISIONS OF THIS COURT.
Under traditional rules governing con-
stitutional adjudication, a person to whom a
statute may constitutionally be applied wil!
not be heard to challenge the law as applied
to others. Broadrick v. Oklahoma, 413 U.S.
601, 611 (1973). There are a number of
exceptions to this rule, notadly cases
involving certain First Amendment facia!
overbreadth challenge and certain claims of a
litigant that a single application of a law
both injures him and others [hereinafter
referred to as jus _ tertii standing). See
Note: Standing to Assert Constitutional
Jus Tertii, 88 Harv. L. Rev. 423, 424
(1974). However, this Court, unlike the
lower court here, has never allowed these
exceptions to swallow up the rule.
In Broadrick v. Oklahoma, supra, at 613,
this Court said that liberalized standing in
First Amendment overbreadth cases is "strong
medicine” and has been employed “sparingly
and only as a last resort.” And in Erznoznik
v. City of Jacksonville, 422 U.S. 205, 216
-28-
(1975), this Court said that when considering
a facial challenge, “it is necessary to pro-
ceed with caution and restraint, as invalid-
ation may result in unnecessary interference
with a state regulatory program.” It is for
this reason that this Court has said that for
liberalized standing in First Amendment
overbreadth cases to exist “the overbreadth
of a statute must not only be real, but sub-
stantial as well, judged in relation fo the
statute's plainly legitimate sweep.” Broad-
rick v. Oklahoma, supra, at $15.
Similarly, where jus tertii standing is
alleged, this Court has generally focused on
three factual elements to determine whether
such standing should be accorded: (1) the
presence of some substantial relationship
between the litigant and third parties; (2)
the impossibilitv of the third parties
asserting their own constitutional rights;
and (3) the need to avoid a dilution of third
party rights that would result were the
assertion of jus _ tertii not permitted.
Singleton v. Wulff, 428 U.S. 106, 114-116
(1976); Note: Standing to Assert Constitu-
tional Jui Tertii, 88 Harv. L. Rev. 423, 425
(1974).
The lower court hes cast aside these
principles of self-restraint in its rush to
Squeeze the Maryland statute into the Schaum-
burg mold. First, the Maryland Court impro-
perly extended Schaumburg, a prior restraint
case, with e@ factual record of real and sub-
stantial overbreadth, to a situation where
none of these elements were present.
Schaumburg quite properly reflected a
Cesire to accord liberalized standing where
Drotected speech or conduct fell vietim to
the power of the censor. See Thornhill v.
Alabama, 310 U.S. 88, 97 (1949)("It is not
merely the sporadic abuse of power bv the
censor Dut the pervasive threat inherent in
its very existence that constitutes the
Ganger to freedom of expression.”). However,
“overbreadth serutiny has generally been
somewhat less rigid in the eontext of
Statutes regulating conduct in the shadow of
the First Amendment, but doing so in a
neutral, noncensorial manner.” Broadrick v.
Oklahoma, supra, at 614-15. The Maryland
Statute and implementing regulations which
allow @ group to obtain a waiver of the 25-
percent fundraising limitation even after
that limit hes been exceeded, COMAR
01.02.04.05B(3), clearly do not reveal the
hand of the censor.
Moreover, the factual predicate of real
and substantial overbreadth apparent in
Schaumburg is lacking here. The Schaumburg
ordinance was challenged by an advocacy group
that had established a relationship between
its advocacy and its fundraising and that was
effectively put out of business by an inflex-
ible ceiling on all non-charitable expendi-
tures. Schaumburg v. Citizens for a _ Better
Environ., supra, at 626. Here, the Maryland
law has been challenged by a professional
fund raiser with no tangible First Amendment
claim of its own who routinely overcharged
Maryland organizations since 1978, apparently
without fear of prosecution or penalty for
itself or its elients. In addition, the
sparse record establishes no connection
between alleged advocacy activities of
Murson's clients and the firm's furnishing of
advice, or shows that any organization
attempted to obtain a waiver of the 25-per-
cent limitation which the Attorney General of
Maryland had advised the Secretary of State
to freely grant. Unlike the organization in
Schaumburg, Munson clearly failed to show a
real and substantial overbreadth necessary to
assert the claims of its clients.
-31-
Nor does this Court's jus tertii dee-
sions warrant liberalized standing in this
case. Such standing requires factual predi-
cates not present in this facial challenge to
the Maryland statute. For example, there is
no factual connection between Munson's
services and the advocacy interests of its
clients or any demonstration that the organ-
izations will not be able to obtain the same
services from others at a fee permitted under
§193D. There is no reason to believe that
the organizations themselves, which have
neither suffered detriment from §103D nor
sought a waiver of its provisions, will have
their rights diluted or will be precluded
from challenging the statute should the need
ever arise.
For all of these reasons, the State
contends that the Maryland Court's wide
departure from the principles of this Court's
standing cases and its unwarranted extension
of Schaumburg beyond its reasonable peri-
meters furnishes an additional ground for
review of this case.
CONCLUS ION
Shortly after its enactment, the Mary-
land law at issue here was praised in a
national study as reflecting “a trend toward
allowing more flexibility in the amount spent
for fund raising.” See NAAG, State Regula-
tion of Charitable Solicitation ‘Aug. 1977
at 31. This “trend” has been encouraged by
the Court in the National Foundation case and
continued by the careful distinetions drawn
in Schaumburg. However, if decisions like
that of the Maryland Court in this case ere
allowed to stand, the trend toward flex-
ibility in fund raising regulation will see
its end and a host of reasonable fund raising
limitations in other states and munici-
palities will be eviscerated. For these
reasons and those stated above, we urge the
Court to issue a writ of certiorari to the
Court of Appeals of Maryland to review the
judgment it entered on August 5, 1982.
Respectfully submited,
STEPHEN H. SACHS
Attorney General of Marvland
DIANA G. MOTZ
Assistant Attorney Genera!
JAMES G. KLAIR
Assistant Attorney General
ROBERT A. ZARNOCH
Assistant Attorney General
-33-
la
APPENDIX
OPINION
Filed August 5, 1982)
In The Court of Appeals of Mc~land
No. 42
September Term, 1981
Joseph H. Munson Company, Inc.
v.
Secretary of State of The
State of Marvland
Murphy, C.J., Smith, *Digges, Eldridge, Cole, Davidson,
Rodowsky, JJ.
Opinion by Eldridge, J.
The principal issue in this case is whether Maryland
Code (1957, 1978 Repl. Vol.), Art. 41, § 103D, which places
* Digges. J.. now retired, participated in the hearing and
conference of this case while an active member of this Court:
after being recalled pursuant to the Constitution, Article IV,
Section 3A, he also participated in the decision and adoption of
this opinion.
2a
a limit upon the amount of expenses that a charitable
organization may pay in connection with fund-raising
activity, violates the First Amendment to the United
States Constitution. A second issue concerns the standing
of the plaintiff to raise this question.
Art. 41, § 103D, prohibits a charitable organization, in
connection with any fund raising activity. from paying or
agreeing to pay as expenses more than 25 percent of the
gross amount raised. The statute also states that the
Secretary of State shall issue rules and regulations to
permit a charitable organization to pay or agree to pay as
expenses more than 25 percent of the amount raised where
the 25 percent limitation would “effectively prevent the
charitable organization from raising contributions.”
' Art. 41, $103Dia) and ‘b), states:
"$103D. Limitations on amount of payments for solicita-
tion activities.
(a) A charitable organization other than a charitable
salvage organization may not pay or agree to pay as
expenses in connection with any fund-raising activity a
total amount in excess of 25 percent of the total gross
income raised or received by reason of the fund-raising
activity. The Secretary of State shall. by rule or regulation
in accordance with the “standard of accounting and fisca!
reporting for voluntary health and welfare organizations”
provide for the reporting of actual! cost. and of allocation of
expenses, of a charitable organization into those which are
in connection with a fund-raising activity and those which
are not. The Secretary of State shal! issue rules and
regulations to permit a charitable organization to pay or
agree to pay for expenses in connection with a fund-raising
activity more than 25% of its total gross income in those
instances where the 25% limitation would effectively
prevent the charitable organization from raising contribu-
tions.
“The 25% limitation in this subsection shal! not apply to
a or expenses paid by a charitable organization
to a professional fund-raiser counsel for conducting feasi-
bility studies for the purpose of determining whether or not
the charitable organization should undertake a fund-
3a
Section 103D is part of a comprehensive subtitle,
enacted by Ch. 679 of the Acts of 1976. for the purpose of
regulating charitable organizations and charitable soli-
citations. See Art. 41, $ 103A-103L. For example. $ 103B
provides for the registration of charitable organizations
with the Secretary of State and the furnishing of detailed
financial data to the Secretary. Under § 103F, one may not
act as a professional fund-raiser counsel or a professional
solicitor for a charitable organization unless he also
registers with the Secretary, furnishes certain informa-
tion, pays an annual fee, files a bond, and complies with
the requirements of the subtitle. Section 103Dic) states
that “lelvery contract or agreement between a professional!
fund-raiser counsel or a professional solicitor and a
charitable organization shall be in writing. and a copy of it
shall be filed with the Secretary of State within ten days
after it is entered into and prior to any solicitations.”
Under $103L‘a), a charitable organization, professional
fund-raiser counsel or professional solicitor is subject to
criminal liability for wilfully violating the requirements of
raising activity, such compensation or expenses paid for
feasibility studies or preliminary planning not being
considered to be expenses paid in connection with a
fund-raising activity.
“\b) For purposes of this section, the total gross income
raised or received shal! be adjusted so as not to include
contributions received eaual to the actual cost to the
charitable organization of (1) goods, food, entertainment, or
drink sold or provided to the public, nor should these costs
be included as fund-raising costs; (2) the actual postage
paid to the United States Postal Service and printing
expense in connection with the soliciting of contributions,
nor should these costs be included as fund-raising costs.”
4a
the subtitle.- Other sanctions for violating the subtitle are
contained in $ 103Lib) and ‘c).
The Joseph H. Munson Co.. Inc.. instituted this action in
the Circuit Court for Anne Arundel County. seeking
declaratory and injunctive relief against the Secretary of
State. Munson is in the business of promoting fund raising
events and giving advice to clients on how those events
should be conducted. In Marviand. Munson’s clients
consist of various chapters of the Fraternal Order of
Police. In its amended bill of complaint. Munson alleged
that it “regularly charges the said chapters of the
Fraternal Order of Police an amount in excess of twenty-
five percent (25°) of the total gross income of the event
which it is involved in promoting.” Munson further alleged
* Art. 41, $ 103Lia) provides ‘emphasis supplied:
“\a’ A charitable organization. professiona! fund-raiser
counsel, or professional solicitor which wilfully fails to file
a registration statement. report. or other information with
the Secretary of State or wilfully files such a statement,
report, or other information which is materially false, or
otherwise wilfully violates the requirements of this subtitle.
is guilty of a misdemeanor, and upon conviction, shall be
fined not more than $5,000 or sentenced to imprisonment
for not more than one year. or be both fined and
imprisoned. An officer, director. partner, or trustee of a
charitable organization, professional fund-raiser counsel.
or professional solicitor which is organized in corporate,
partnership, or other organizational form who causes the
entity to commit a wilful violation of this subtitle is also
guilty of a misdemeanor, and, upon conviction, is subject to
the same penalties as the entity.”
’ Art. 41, § 103L‘b) and (c) provides:
“(b) The Secretary of State is authorized, upon complaint
or upon his own motion, to investigate alleged violations of
this subtitle. If he finds that a charitable organization,
professional fund-raiser counsel, or professiona! solicitor
has violated a provision of this subtitle, he may:
(1) Cancel and annul the registration of the violator:
(2) Refer the matter to the Attorney Genera! for civil
enforcement under subsection ‘c): and
(3) Refer the matter to the appropriate State's attorney
for prosecution.
5a
that it had been in contact with the Secretary of State. and
that the Secretary had taken the position “that the
Plaintiff is subject to |$103D). . . and that the continued
failure to comply therewith will require the Defendant to
seek prosecution of the Plaintiff for violation of the said
statute.” In counts I and II of its five-count amended bill of
complaint,‘ Munson sought a declaratory judgment as to
whether it was subject to the registration and 25 percent
fund-raising limitation provisions of the statute, as well as
injunctive relief. In count III, Munson prayed a declara-
tory judgment that $ 103D contained an unconstitutional
delegation of legislative authority to the Secretary of
State. In count V. Munson sought a declaration that
$103D on its face violates the First and Fourteenth
Amendments to the United States Constitution, on the
ground that the 25 percent fund-raising limitation unduly
intrudes upon Munson’s right to free speech and assembly.
Finally. in count IV, Munson asked for an injunction
restraining the Secretary from enforcing $ 103D.
In its answer, the Secretary did not flatly deny that he
had initially threatened Munson with criminal prosecu-
tion. Instead, the Secretary’s denial of the allegation
concerning threatened prosecution was on the ground that
“there had been no determination concerning the applica-
bility of the statute to the Plaintiff or that he is in
violation of the Charitable Solicitation Act.” The Secretary
(c) Upon referral by the Secretary of State, the Attorney
General may file a civil action in the Circuit Court for
Anne Arundel County for an order restraining further
violations of this subtitle, restraining the defendant from
conducting any further fund-raising activities in Maryland,
enforcing compliance with this subtitle, and such other
relief as he deems appropriate. As a condition of registra-
tion, each charitable organization. professional fund-raiser
counsel, and professional solicitor shall consent in writing
to the jurisdiction and venue of the Circuit Court for Anne
Arundel County to grant appropriate relief.”
‘ We note that the use of counts in a bill in equity is
inappropriate. Nick-George Ltd. v. Ames-Ennis, Inc., 279 Md.
385, 387 n.1, 368 A.2d 1001 (1977), Maryland Rule 370 a 1.
6a
sought a dismissal of counts | and II on the ground that
Munson had not exhausted administrative remedies cre-
ated by regulations of the Secretary of State. Otherwise.
the Secretary asserted that § 103D was constitutional. In a
memorandum accompanying the Secretary's answer. the
Secretary stated that it “seriously questions Plaintiff's
standing to seek a declaratory judgment.” In a sup-
plemental memorandum of law. the Secretary argued that
Munson lacked standing.
No testimony was taken in the circuit court. Instead.
according to the opi ion of the circuit court, the case was
decided on the pleac ngs. the memoranda of law submit-
ted, and a stipulation of facts. One of the stipulated facts
was that “the Fraternal Order of Police. Montgomery
County Chapter,. . . is reluctant to enter into a contract
with the Plaintiff. . . for promotion of fund raising events
due to the limitation imposed by Article 41. Section 103,
. . that nothing in excess of 25% of the gross income
raised through fund raising activities may be expended on
fund raising expenses.” It was also stipulated that Mun-
son’s contracts with Fraternal Order of Police Chapters
call for a fee for each event in excess of 25% of the net
income raised.
The circuit court dismissed counts I and II of the
amended bill of complaint on the ground that Munson had
failed to exhaust administrative remedies. With regard to
counts III and V, the court issued a detailed opinion and
declaratory judgment that § 103D was facially valid, and
that it neither amounted to an unconstitutional delegation
of legislative authority nor violated the free speech
guarantee of the First and Fourteenth Amendments. The
court accordingly refused to enjoin enforcement of § 103D.
Munson took an appea! to the Court of Specia] Appeals,
contending only that § 103D on its face violated the First
and Fourteenth Amendments. The Secretary took no
cross-appeal. The Court of Special Appeals affirmed, Joseph
H. Munson Co. v. Sec. of State, 48 Md. App. 273, 426 A.2d
985 (1981). Munson then filed a petition for a writ of
7a
certiorari, raising only the free speech issue under the
First and Fourteenth Amendments, and the Secretary
filed a cross-petition, asserting that Munson lacked stand-
ing to challenge the First Amendment validity of § 103D.
We granted both the petition and the cross-petition.
I. Standing
A
Although we granted the Secretarys cross-petition
challenging Munson’s standing, a preliminary question is
raised by Munson as to whether we should consider this
issue. We shall assume that the Secretary properly raised
the issue in the circuit court when. in a memorandum of
law, it argued that the action should be dismissed for lack
of standing. Instead of dismissing the action, however. the
trial court in effect upheld Munson’s standing and ren-
dered a declaratory judgment on the merits of the
constitutional issues presented in counts III and V of the
bill of complaint. Although Munson took an appeal from
the declaratory judgment, the Secretary did not file an
order of appeal. Munson argues in this Court that, because
of the Secretary’s failure to take a cross-appeal on the
issue of standing, the issue is not properly before us.
Under circumstances where absence of standing would
present an alternate ground for upholding a trial court's
judgment, an appellee is entitled to argue that ground in
an appellate court. Temon:, v. State, 290 Md. 251, 261, 429
A.2d 1018 (1981), and cases there cited. In such situation,
a cross-appeal would be unnecessary and, in fact, would be
improper. Offutt v. Montgomery Co. Bd. of Ed., 285 Md.
557, 564 n. 4, 404 A.2d 281 (1979). Moreover, in that
situation, even if lack of standing were not raised by the
appellee, an appellate court noticing the issue would
normally consider it sua sponte under the principle that a
judgment will ordinarily be affirmed on any ground
adequately shown by the record, whether or not relied on
by the trial court or raised by a party. Robeson v. State,
285 Md. 498, 502, 403 A.2d 1221 (1979), cert. denied, 444
U.S. 1021, 100 S. Ct. 680, 62 L. Ed. 2d 654 (1980).
8a
Thus. in the case at bar. if the trial court had dismissed
the action on some ground other than lack of standing. the
Secretary as appellee would be entitled to argue Munson's
alleged lack of standing as an alternate basis for affirm-
ance. However. the trial court did not dismiss the action.
Instead, it rendered a declaratory judgment on the merits.
Munson’s alleged lack of standing would not furnish an
alternate ground for affirming the declaratory judgment.
On the contrary, the Secretary's argument amounts to an
attack upon the judgment. If the issue is properly before
us, and if we agreed that Munson had no standing. we
would be obliged to order that the trial court's judgment be
reversed and that the case be remanded with directions to
dismiss the action.
Consequently, the Secretary is attempting to challenge
the trial court’s judgment in this case without having
taken an appeal. A party to a trial court proceeding.
however, is not entitled to seek direct appellate review and
reversal of the trial court’s judment unless he has filed a
valid, timely order of appeal. See, e.g.. Pearlman v. State,
226 Md. 350, 173 A.2d 733 (1961): Riviere v. Quinlan. 210
Md. 76, 122 A.2d 332 (1956); Gaines v. Lamkin, 82 Md.
129, 33 A. 459 (1895); Hopper v. Jones, Adm’r, 64 Md. 578.
4 A. 273 (1886); Walters v. Second Nat'l Bank of Baltimore.
56 Md. 138 (1881); 2 Poe, Pleading and Practice $$ 823-824
(5th ed. H. Tiffany 1925); Maryland Rules 1010, 1011. The
Secretary, not having filed an order of appeal, may not on
appeal attack the trial court’s declaratory judgment.
Furthermore, the filing of a cross-petition for a writ of
certiorari in this Court cannot overcome the failure of a
purported cross-appellant to have taken an appeal from
the trial court’s judgment.
While the Secretary is in no position to challenge the
trial court's judgment, the standing issue may be that type
of question which we will resolve on our own motion.
When a case is properly before us on an order of appeal!
and writ of certiorari, we will sua sponte address a narrow
category of issues whch come to our attention even
9a
though not raised by an appellant. and which may require
a reversal of the judgment below. This category includes
the jurisdiction of the intermediate appellate court, the jur-
isdiction of the trial court, and the certain fundamen-
tal questions of policy relating to the trial court's exercise
of jurisdiction. See, e.g.. Creamer v. Helferstay, Md.
. A.2d (1982) [No. 7. September Term. 1981.
decided August 4. 1982) ‘authority of the trial court to
grant a particular type of relief): Sec.. Dep't of Human Res.
v. Wilson, 286 Md. 639, 644-645. 409 A.2d 713 (1979)
(failure to exhaust administrative remedies): Attorney
Gen. v. A. A. Co. School Bus, 286 Md. 324. 407 A.2d 749
(1979) (mootness!: Biro v. Schombert, 255 Md. 290, 293,
402 A.2d 71 (1979) (jurisdiction of the Court of Special
Appeals); Reves v. Prince George's County, 281 Md. 279,
282-283, 380 A.2d 12 \1977) ‘whether suit is collusive’:
Harford County v. Schultz, 280 Md. 77, 371 A.2d 428
(1977) ‘whether there is an “actua! controversy” between
contending parties within the meaning of the Declaratory
Judgments Act): State v. McCray. 267 Md. 111, 126, 297
A.2d 265 (1972) ‘subject matter jurisdiction of the trial
court). See also Smith v. Tavlor, 285 Md. 143, 147, 400
A.2d 1130 (1979) (jurisdiction of this Court).
Several Maryland cases, however. indicate that ques-
tions concerning the plaintiff's standing to maintain the
action do not fall within this category. They take the
position that, if the plaintiff's alleged lack of standing is
not properly raised by the defendant. an appellate court
will not consider the matter. See Toomey v. Gomeringer,
235 Md. 456, 460-461. 201 A.2d 842 (1964); Costello v.
Seiling, 223 Md. 24, 29, 161 A.2d 824 (1960); Pressman v.
Baltimore, 222 Md. 330, 334, 160 A.2d 379 (1960);
Baltimore v. NAA.CP., 221 Md. 329. 332. 157 A.2d 433
(1960); Pumphrev v. Pumphrey, 11 Md. App. 287, 292-293,
273 A.2d 637 (1971). On the other hand. some cases seem
to suggest that the « anding of a plaintiff to maintain an
action is an issue which an appellate court will address on
its own motion. Reyes v. Prince George's County, supra,
281 Md. at 287-289; Ginn v. Farley, 43 Md. App. 229, 232,
10a
403 A.2d 858 (1979); cert. denied sub nom. Engel v. Farley,
286 Md. 747 (1980); Balance Limited. Inc. v. Short, 35 Md.
App. 10, 11, 368 A.2d 1116 (1977). See also Craig v. Boren,
429 U.S. 190, 192-194, 97 S. Ct. 451, 20 L. Ed. 2d 397
(1976). The rationale for this view would appear to be that.
if a plaintiff lacks standing, there may be no “interested
parties” asserting adverse claims, and thus there may be
no “justiciable controversy,” which is a matter regularly
noticed by appellate courts sua sponte. Reves v. Prince
George's County, supra, 281 Md. at 288: Harford County v.
Schultz, supra. See also Patuxent Co. v. Commissioners,
212 Md. 543, 548-549, 129 A.2d 847 (1957).
Whether there is a conflict among the above-cited cases.
and whether Munson’s standing is an issue properly before
us, are questions which need not be resolved in the present
case. If we assume for purposes of argument that the issue
is before us despite the Secretary's failure to take a
cross-appeal, the result will be no different. for we believe
that Munson clearly had standing to challenge the facial
constitutionality of Art. 41, § 103D.
B
The Secretary's contention that Munson has no standing
to attack the constitutionality of $ 103D seems to have two
related prongs. First, the Secretary argues that § 103D
only applies to charitable organizations and there has
been no final administrative determination that the
various chapters of the Fraternal Order of Police with
which Munson contracts are charitable organizations
within the meaning of § 103D. Munson, according to the
Secretary, failed to exhaust its administrative remedies in
this regard. Second, the Secretary contends that even if
* “Standing,” of course, does involve principles beyond the
requirement of a “justiciable controversy.” Craig v. Boren, 429
U.S. 190, 193-194, 97 S. Ct. 451, 50 L. Ed. 2d 397 (1976); Warth
v. Seldin, 422 U.S. 490, 95 S. Ct. 2197, 45 L. Ed. 2d 343 (1975);
Eisenstadt v. Baird, 405 U.S. 438, 443-445, 92 S. Ct. 1029, 31 L.
Ed. 2d 349 (1972).
lla
the Fraternal Order of Police chapters are charitable
organizations. Munson may not assert their First Amend-
ment rights.
However. Munson has clearly suffered injury as a result
of $ 103D. as the stipulation of facts in the trial court was
that the Montgomery County Chapter of the Fraternal
Order of Police would not contract with Munson for
promotion of fund-raising events because of the 25 percent
limitation imposed by $ 103.
Furthermore. Munson alleged that the Secretary had
been in contact with Munson’s counsel. had taken the
position that Munson is subject to $ 103D. and had stated
that. if Munson failed to comply with the statute, the
Secretary would seek prosecution of Munson. The Secre-
tary’s denial of this allegation was because there had been
no final determination by the Secretary concerning the
applicability of the statute to Munson or whether Munson
was in violation of :103D. Thus. the Secretary is essen-
tially arguing a failure to exhaust administrative reme-
dies. We have consistently held. however, that when
one is attacking the validity of a statute on its face, rather
than a particular application of the statute. administrative
remedies ordinarily need not be exhausted. National
Asphalt v. Prince Geo’s Co., 292 Md. 75, 77. n. 2, 437 A.2d
651 (1981); Shipp v. Bevard, 291 Md. 590, 599, 435 A.2d
1114 (1981): Harbor Island Murina v. Calvert Co., 286 Md.
303. 308-309. 407 A.2d 738 (1979), and cases there cited.
The contention that Munson may not assert the First
Amendment rights of the Fraternal Order of Police
Chapters with which Munson normally contracts. is also
without merit. Although ordinarily one may not assert the
constitutional rights of others. nevertheless where a
statute is directed at persons with whom the plaintiff has
a business or professional relationship. and impairs the
plaintiff in that relationship with such other persons.
thereby threatening real and immediate injury to the
plaintiff. he is normally accorded standing to challenge the
12a
validity of the statute. Craig v. Boren, supra, 429 US.
194-197; Singleton v. Wulff, 428 U.S. 106, 112-118. 96 S.
Ct. 2868, 49 L. Ed. 2d 826 (1976): Doe v. Bolton, 410 U.S.
179, 188, 93 S. Ct. 739, 35 L. Ed. 2d 201 (1973); Eisenstadt
v. Baird, 405 U.S. 438, 443-446, 92 S. Ct. 1029, 31 L. Ed.
2d 349 (1972); Griswold v. Connecticut, 381 U.S. 479, 481,
85 S. Ct. 1678, 14 L. Ed. 2d 510 (1965): Pierce v. Society of
Sisters, 268 U.S. 510, 535-536, 45 S. Ct. 571, 69 L. Ed.
1070 (1925); Baltimore v. A. S. Abell Co., 218 Md. 273.
281-282, 145 A.2d 111 (1958).
Finally, an argument similar to that which the Secre-
tary makes here was rejected in Schaumburg v. Citizens
For Better Environ., 444 U.S. 620, 100 S. Ct. 826. 63 L. Ed.
2d 73 (1980), also involving a challenge to a charitable
solicitation statute imposing a limitation like that in Art.
41, §$103D. In Schaumburg, the soliciting organization
(CBE) had obtained summary judgment declaring the
statute void and enjoining its enforcement. The defendant
argued in the Supreme Court that summary judgment was
inappropriate because “there was an unresolved factual
dispute concerning the true character of CBE’s organiza-
tion” and that the defendant should have had an opportun-
ity to show that CBE “may appropriately be deemed an
organization existing for private profit rather than for
charitable purposes.” 444 U.S. at 633. In rejecting this
argument, the Supreme Court stated (id. at 633-634)
‘footnote omitted):
“We agree with the Court of Appeals that CBE was
entitled to its judgment of facial invalidity if the
ordinance purported to prohibit cavassing by a sub-
stantial category of charities to which the 75-percent
limitation could not be applied consistently with the
First and Fourteenth Amendments, even if there was
no demonstration that CBE itself was one of these
organizations. Given a case or controversy, a litigant
whose own activities are unprotected may neverthe-
less challenge a statute by showing that it substan-
tially abridges the First Amendment rights of other
parties not before the court. Grayned v. City of
Rockford, 408 U.S. 104, 114-121 (1972) Chaplinsky v.
13a
New Hampshire, 315 U.S. 568 (1942); Schneider v.
State, 308 U.S., at 162-165: Lovell v. Griffin, 303 US.,
at 451; Thornhill v. Alabama, 310 U.S. 88, 97 (1940).
See also the discussion in Broadrick v. Oklahoma, 413
U.S. 601, 612-616 (1973); and in Bigelow v. Virginia,
421 U.S. 809, 815-817 (1975). In these First Amend-
ment contexts, the courts are inclined to disregard the
normal rule against permitting one whose conduct
may validly be prohibited to challenge the proscrip-
tion as it applies to others because of the possibility
that protected speech or associative activities may be
inhibited by the overly broad reach of the statute.”
We hold, therefore, that Munson had standing to challenge
the facial validity of § 103D.
II. Constitutionality Of § 103D
In our view, the Supreme Court's opinion in Schaum-
burg v. Citizens For Better Environ., supra, is also
dispositive of the merits, and requires a declaration that
2 103D is unconstitutional under the First and Fourteenth
Amendments.
Schaumburg involved a municipal ordinance which
required that every charitable organization intending to
solicit contributions in the village “ “by door-to-door soli-
citation or the use of public streets and public ways, shall
prior to such solicitation apply for a permit.’” 444 U.S. at
623. The permit application had to contain satisfactory
proof " ‘that at least seventy-five per cent of the proceeds of
such solicitation will be used directly for the charitable
purpose of the organization.” Jd. at 624. CBE, an
environmental organization which solicited contributions
from door-to-door, and which could not demonstrate that it
would use 75 percent of the receipts for charitable
purposes, brought an action for declaratory and injunctive
relief.
The Supreme Court in Schaumburg held that the
expense limitation provision of the ordinance, requiring
that 75 percent of the funds collected be used for
l4a
charitable purposes, violated the free speech clause of the
First Amendment, applicable to state legislation under the
Fourteenth Amendment. In reaching this conclusion. the
Court rejected the Village's argument that charitable
solicitation is not “speech” protected by the First Amend-
ment as long as the charity is free to propagate its views
The Court discussed and relied on several cases holding
that the charitable, religious or other solicitation Is
protected by the First Amendment. Schneider. State. 305
U.S. 147, 60 S. Ct. 146, 84 L. Ed. 155 1939). Cantwell
Connecticut, 310 U.S. 296, 60 S. Ct. 900, 84 L. Ed 1213
(1940): Jamison v. Texas, 318 U.S. 413.63 8. Ct. 669.87 L
Ed. 869 (1943); Largent v. Texas. 318 US. 418, 63 S.Ct
667, 87 L. Ed. 873 (1943); Murdock v. Pennsvivania. 319
U.S. 105, 63 S. Ct. 870, 87 L. Ed. 1292 1943): Martin +
Struthers, 319 U.S. 141, 63 S. Ct. 862. 87 L. Ed. 1313
(1943); Thomas v. Collins, 323 U.S. 516. 65 5. Ct. 315. 59
L. Ed. 430 (1945); Hynes v. Mayor of Ordel!, 425 U.S. 610.
96 S. Ct. 1755, 48 L. Ed. 2d 243 1976). The Court also
relied on Valentine v. Chrestensen, 316 Us 52.625. Ct.
920, 86 L. Ed. 1262 (1942), and Breard v. Alexandria, 341
U.S. 622, 71 S. Ct. 920, 95 L. Ed. 1233 (1951). involving
commercial solicitation, with the Court noting 444 U.S. at
632-633, n.7) that today, under Va. Pharmacy Board: Va
Consumer Counsel, 425 U.S. 748. 758-759. 96 S.Ct. 1817,
48 L. Ed. 2d 346 (1976), commercia! speech is not excluded
from First Amendment protections. After reviewing these
cases, the Court stated (444 US. at 632.
“Prior authorities, therefore. clearly establish that
charitable appeals for funds, on the street or door to
door, involve a variety of speech interests — com-
munication of information. the dissemination and
propagation of views and ideas, and the advocacy of
causes — that are within the protection of the First
Amendment. Soliciting financial support is un-
doubtedly subject to reasonable regulation but the
latter must be undertaken with due regard for the
reality that solicitation is characteristically inter-
twined with informative and perhaps persuasive
speech seeking support for particular causes or for
particular views on economic, political, or social
l5a
issues, and for the reality that without solicitation
the flow of such information and advocacy would
likely cease.”
The Court then set forth what it regarded as the issue in
the case ‘id. at 633):
“The issue before us, then, is not whether chari-
table solicitations in residential neighborhoods are
within the protections of the First Amendment. It is
clear that they are. {Ojur cases have long protected
speech even though it is in the form of ... a
solicitation to pay or contribute money. New York
Times Co. v. Sullivan {376 U.S. 254 (1964)|.” Bates v.
State Bar of Arizona, 433 U.S., at 363.
“The issue is whether the Village has exercised its
power to regulate solicitation in such a manner as not
unduly to intrude upon the rights of free speech.”
In considering whether the expense limitation unduly
intruded upon free speech, the Court in Schaumburg
characterized “the 75-percent limitation {as}. . . a direct
and substantial limitation on protected activity that
cannot be sustained unless it serves a strong, subordinat-
ing interest that the Village is entitled to protect.” 444
U.S. at 636 “ointing out that prevention of fraud was the
Village’s principal justification (ibid.), the Court stated
that many charitable organizations may use more than 25
percent of the receipts for salaries, research, etc., and that
a governmental! body “consistently with the First Amend-
ment, may not label such groups ‘fraudulent’ and bar them
from canvassing,” id. at 636-637. The Court, in striking
down the ordinance, concluded that the “legitimate in-
terest in preventing fraud can be better served by
measures less intrusive than a direct prohibition on
sclicitation. Fraudulent misrepresentations can be prohib-
ited and penal laws used to punish such conduct directly.”
Id. at 637.°
~The Court in Schaumburg also pointed out that requiring
public “disclosure of the finances of charitable organizations also
may assist in preventing fraud by informing the public of the
=e in which their contributions wil] be employed.” 444 US. at
~
16a
The Secretary of State argues that the instant case Is
distinguishable from Schamurg in two significant re-
spects. It is contended that, in light of these two distinc-
tions, the 25 percent expense limitation in * 103D 1s valid
under the principles set forth in Schaumburg
First, the Secretary states that Schaumdurg involved a
“prior restraint” upon charitable solicitation. as solicita-
tion from door-to-door or solicitation using the public
streets was absolutely prohibited unless a permit was first
obtained. Under $103D. the Secretary s argument con-
tinues, solicitation is permitted without having to obtain a
permit from an administrative official. The Secretary
asserts “that the Marviand statute dues not impose any
prior restraints on the solicitation and collection of funds.”
(Brief, p. 11). According to the Secretary. it is only when
the solicitation is in violation of the statute that it
becomes prohibited and subject to the criminal! penalty in
$103Lia). The Secretary. in oral argument before us.
urged that the criminal penalty under the Marvland
statute was the type of criminal sanction to prevent fraud
of which the Supreme Court approved in Schaumburg
Preliminarily. with regard to the matter of “prior
restraint,” we point out that the distinction between the
two statutes is not as clear-cut as the Secretary’ argu-
ment seems to suggest. It is not a situation where one
statute involves complete prior restraint upon charitable
solicitation whereas the other statute involves no prior
restraint. In fact. the Maryland Act would seem to involve
a much more sweeping “prior restraint” upon protected
speech than the Schaumburg ordinance. The Schaumburg
ordinance required a permit only to solicit from door-to-
door or by using the public streets No permit was required
for other types of charitable solicitation. Under the
l7a
fee. and meet other requirements. Art. 41, $$ 103B and
103F. Furthermore, under $ 103Fid), no solicitation may
begin until the Secretary “shall approve the registration”
of a professiona! fund-raiser counsel or professional solici-
tor. 4nd he is only to approve such registration if he finds
that the application is in conformity with the require-
ments of the subtitle as well as the rules and regulations
of the Secretary. Jbid. It would seem that the difference
Art. 41, $ 103F, provides as follows:
“$103F. Registration of professional fund-raiser counsel]
and professional! solicitor: bonds.
a’ A person may not act as a professional fund-raiser
counsel or professional solicitor fur a charitable organiza-
tion unless he has first registered with the Secretary of
State. Applications for registration shall be in the form
prescribed by the Secretary of State. shall contain the
information required by him, and shal! be under oath. The
application for registration by a professional fund-raiser
counsel or a professional solicitor or renewal of it shal! be
accompanied by an annual fee of $100. A partnership.
corporation or other entity which intends to act as a
professional fund-raiser counsel or professional solicitor,
may register for and pay a single fee of $100 on behalf of
all its members, officers, agents, and employees. However,
the names and addresses of all officers. agents. and
employees, of the professional fund-raiser counsel or profes-
siona! solicitor, and al] other persons employed to work
under its direction must be listed in the application.
‘b) Every professional fund-raiser and professional
solicitor shall, at the time of making application, file with
and have approved by the Secretary of State a bond in
which the applicant shall be the principal obligor in the
sum of ten thousand dollars ($10,000) with one or more
sureties satisfactory to the Secretary of State. whose
liability in the aggregate as such sureties wil! at least
equa! the sum and maintain the bond in effect so long as a
registration is in effect. The bond shal! run to the State of
Marvliand for the use of the State and anv person who may
have a cause of action against the obligor of the bonds
l&Sa
between a “permit” issued by an administrative official
and an “approval” of a registration application issued by
an administrative official is purely a semantic one.
The Maryland statute involves a ‘prior restraint” upon
speech in other respects. Under : 103Dic’. every contract
between a charitable organization and a professional
fund-raiser counsel or professiona! solicitor must be sub-
mitted to the Secretary of State within ten days of the
contract. A charity which contracts with a professional!
fund-raiser counsel or prof~ssional solicitor to pay as
expenses more than 25 percent of the gross income raised,
must under § 103D obtain a “permit” from the Secretary of
State before charitable solicitation under the contract can
begin.
Another example of prior restraint is found in $ 103Lib
and (c). Under that section, if the Secretary believes that a
charitable organization, professional] fund-raiser counsel
or professional solicitor has violated a provision of the
swittitle, he may cancel the alleged violator’s registration.
or he may refer the matter to the Attorney General who is
authorized to seek a court order “restraining the defendant
from conducting any further fund-raising activities in
Maryland.”
Apart from the degree of “prior restraint” in the
Marvland statute, we do not believe that. in the context
the Secretary of State. payment of the renewal fee, and
proof that the required bond, cash. or cash equivalent is
and will remain in effect.
(d) If the Secretary of State finds that the application is
in conformity with the requirements of this section and the
rules and regulations adopted pursuant to it, and that the
registrant has complied with the requirements of this
subtitle and the rules and regulations adopted pursuant to
it, he shall approve the registration. An applicant whose
application for registration is denied. may within 30 days
from the date of notification of the denial, request in
writing a hearing before the Secretary of State. A hearing
shal! be held within 60 days from the date the Secretary of
State receives the request.”
19a
here, there is any merit in the distinction drawn by the
Secretary between “prior restraint” of a form of speech and
criminal sanctions for engaging in a form of speech. In
Schaumburg, the Court clearly held that charitable solici-
tation for funds is protected speech within the meaning
of the First Amendment. and that a 25 percent limit upon
the amount that could be paid for expenses unduly
intruded upon the right of free speech. The Court in no
way suggested that enforcement of this limitation by a
criminal sanction. as opposed to a permit requirement,
would make it substantially less an intrusion upon free
speech. On the contrary. in reaching its conclusion, the
Supreme Court relied on several cases involving criminal
sanctions for solicitation rather than permit requirements.
See Hynes v. Mavor of Ordell, supra. 425 U.S. at 612-613;
Breard v. Alexandria, supra; Martin v. Struthers, supra:
Jamison v. Texas, supra, Valentine v. Chrestensen, supra.
Lastly, it is clear that the criminal penalty for exceeding
the 25 percent expense limitation, Art. 41, $ 103D, is not
the type of criminal! penalty for fraud which the Supreme
Court sanctioned in Schaumburg. The Secretary argues
that the 25 percent expense limitation protects “the
citizenry of Marvland from sham and fraud.” ‘Brief. p. 18.)
However, under the Maryland statute. if one fails to meet
the 25 percent limitation in a charitable solicitation and
has not obtained a permit from the Secretary waiving the
limitation, he is criminally liable regardless of whether he
has made fraudulent misrepresentatious. The Supreme
Court in Schaumburg, when it indicated that ‘less
intrusive means” to prevent fraud could be used than a
prohibition on solicitation if less than 75 percent went to
charitable purposes, stated that “|fjraudulent misrepre-
sentations can be prohibited and pena! laws used to punish
such conduct directly.” 444 U.S. at 637. Obviously the
Court was referring to a statute punishing only fraudulent
misrepresentations, and not a statute punishing non-
fraudulent solicitations if the expenses exceeded a particu-
lar percentage.
20a
B
The second distinction between Schc»mhurg and the in-
stant case, which the Secretary argues is constitution-
ally significant. is that the Schaumburg ordinance contained
no exception to the 25 percent expense limitation. whereas
>103Dia) directed the Secretary to “issue rules and
regulations to permit a charitable organization to pay or
agree to pay for expenses in connection with a fund-raising
activity more than 25‘: of its total gross income in those
instances where the 25% limitation would effectively
prevent the charitable organization from raising contribu-
tions.” Because of this exception in $ 103D. the Secretarv
argues that the Marvland statute is more flexible and
“regulates First Amendment freedom of speech in such @
way as to minimize encroachment on individual! rights.”
‘Brief, p. 18).
The argument that the 25 percent expense limitation in
$103D represents substantially less an intrusion upon
First Amendment rights than the Schaumburg ordinance,
is difficult to accept. considering that the Schaumburg
ordinance was limited to solicitations from door-to-door
and those using the public streets. whereas $103D
embraces all charitable solicitations including telephone
solicitations, mail solicitations. speeches at meetings held
in private places as well as public. etc.
Moreover, the exemption in the Marvland statute is not
an exemption by virtue of the state alone; instead the
Secretary of State is directed to issue regulations to
provide for such exemption and to issue permits. Permit
requirements to engage in protected solicitation, even with
guidelines for the issuing administrative officials. were
invalidated in several prior cases relied upon by the
Supreme Court in Schaumburg. See Largent v. Texas.
supra; Cantwell v. Connecticut, supra; Schneider v. State,
supra.
Finally, the authorization for exemption regulations in
the Maryland statute is extremely narrow. The Secretary,
2la
in promulgating regulations for permits waiving the 25
percent expense limitation, is confined to “those instances
where the 25% limitation would effectively prevent the
charitable organization from raising contributions.” Art.
41, $103D. In Schaumburg, however. the Court did not
limit its concern to organizations which could not raise
contributions without exceeding the 25 percent expense
limitations. Rather, the Court clearly indicated that
charitable organizations making a policy decision to use
more than 25 percent of the proceeds raised for purposes
other than “charitable,” had a constitutional! right to do so,
that all such organizations could not be lumped with those
engaging in fraud. and that the governmental body may
implement its legitimate interests in preventing fraud
only “by narrowly drawn ‘regulations designed to serve
those interests without unnecessarily interfering with
First Amendment freedoms. 444 U.S. at 637.
We conclude that the limited provision in § 103D.,
directing the Secretary to promulgate regulations for
waiver permits in those instances where the 25 percent
limitation would “effectively prevent the charitable orga-
nization from raising contributions,” does not save the
section under the Schaumburg opinion.”
* Both the Court of Special Appeals and the circuit court. in
upho!ding $ 103D, relied on the pre-Schaumburg decision of the
United States Court of Appeals for the Fifth Circuit in Nationa!
Foundation v. City of Fort Worth, 415 F.2d 41 (5th Cir. 1969),
cert. denied, 396 U.S. 1040, 90 S. Ct. 688, 24 L. Ed. 2d 684
(1970). In that case, the Fifth Circuit upheld an ordinance which
contained a presumption that solicitation expenses exceeding 20
percent of the amount raised were “unreasonable,” although one
could show that under the circumstances expenses higher than
20 percent “were not unreasonable.” The statute also contained
many other exemptions from the regulations of charitable
solicitations, and thus from the expense limitation. The Su-
preme Court in Schaumburg, without indicating approval or
disapproval of the Fifth Circuit's decision, noted that it was
distinguishable. 444 U.S. at 635-636. We need not in this case
decide whether National Foundation can be squared with the
principles set forth in Schaumburg, because the ordinance
involved in National Foundation was quite different than
22a
Upon remand, the circuit court should enter a judgment
declaring that Art. 41, § 103D‘a) and ‘b). is invalid under
the First Amendment to the United States Constitution.
The court should also enjoin the enforcement of subsec-
tions (a) and ‘b) of § 103D.
JUDGMENT OF THE COURT OF
SPECIAL APPEALS REVERSED.
AND CASE REMANDED TO THAT
COURT WITH DIRECTIONS TO RE-
VERSE THE JUDGMENT OF THE
CIRCUIT COURT FOR ANNE ARUN-
DEL COUNTY AND REMAND THE
CASE FOR ENTRY OF A JUDG-
MENT CONSISTENT WITH THIS
OPINION. RESPONDENT TO PAY
COSTS.
$103D. In that case. the ordinance itself contained much
broader exemptions from the expense limitation. See also
Fernandes v. Limmer, 663 F.2d 619, 630-632 (5th Cir. 1981)
‘applying Schaumburg to invalidate a statute imposing an
expense limitation on charitable solicitations. and distin-
guishing Nationa! Foundation because of the exemptions in the
ordinance involved in that case).
23a
APPENDIX
OPINION
Filed March 11. 1981
Joseph H. Munson Compan: Inc
?
Secretary of State for the
State of Marvland
—_—_———
Gilbert. C.J.. Morton, Moore. JJ
ee
Opinion by Gilbert, CJ.
—
Sometimes a government. in its zeal to protect the
governed, enacts laws that trespass unnecessarily upon
the constitutional rights of some of the governed. It is
extremely difficult in regulating any practice. custom.
business. or industry not to trample. to a degree. upon the
constitutional mghts of someone Governmental intrusion
upon the constitutional rights of one group for the
24a
protection of a larger group. while looked upon with
disfavor, is not. however, ipso facto invalid. The test is not
whether there has been an infringement upon the rights of
those regulated. but rather, whether the regulation un-
necessarily encroaches on the rights of the regulated.
In this appee’', we must examine a State statute in order
to determine whether it is unconstitutional.
The Preamble to Laws 1976. ch. 679 provides in part
“The Governor on August 16. 1974. created a
Commission on Charitable Organizations to examine
the existing statutes and to make recommendations.
The Commission concluded its work and found that
the present laws’ were inadequate and recom-
mended the original bills ‘S.B. 287. H.B. 487) in their
unamended form. These bills as introduced by the
Administration were nearly identical to the Mode!
for State Legislation Regulating Charitable Orga-
nizations’ and endorsed by the numerous National
Voluntary Health Agencies.”
The Preamble also stated that bills had been “intro-
duced in the 1975 Session as a result of impetus coming”
from publications in which it was alleged that “various
organizations soliciting funds from the public had exces-
sively high administrative and other expenses. which
resulted in a relatively small portion of the
contributions . . . being used for their intended purpose.”
Obviously, chapter 679 was enacted with the intent of
protecting the public by assuring that the organization
that solicited the funds was regulated as to the amount of
monies that went toward “expenses in connection
with _. . |the| fund-raising activity.” Section 3 of that
chapter created what is now also known as Md. Ann. Code
art. 41, § 103D. That section provides:
“(a) A charitable organization other than a chari-
table salvage organization may noi pay or agree to pay
Introduced in the General Assembly as House Bil! No. 777.
* Md. Ann Code art. 41, $$ 103A-103E (1971 Repl. Vol.
25a
as expenses in connection with any fund-raising
activity a total amount in excess of 25 percent of the
total gross income raised or received by reason of the
fund-raising activity. The Secretary of State shall. bv
rule or regulation in accordance with the ‘standard of
accounting and fiscal reporting for voluntary health
and welfare organizations provide for the reporting of
actual cost. and of allocation of expenses. of a
charitable organization into those which are in con-
nection with a fund-raising activity and those which
are not. The Secretary of State shal! issue rules and
regulations to permit a charitable organization to pay
or agree to pay for expenses in connection with a
fund-raising activity mure than 25‘; of its total gro--
income in those instances where the 25% limitation
would effectively prevent the charitable organization
from raising contributions
The 25% limitation in this subsection shall not
apply to compensation or expenses paid by a chari-
table organization to a professional! fund-raiser counsel
for conducting feasibility studies for the purpose of
determining whether or not the charitable organiza-
tion should undertake a fund-raising activity. such
compensation or expenses paid for feasibility studies
or preliminary planning not being considered to be
expenses paid in connection with a fund-raising
activity.
‘b) For purposes of this section. the total gross
income raised or received shal! be adjusted so as not
to include contributions received equal to the actual
cost to the charitable organization of 1) goods. food,
entertainment. or drink sold or provided to the public.
nor should these costs be included as fund-raising
costs. (2) the actual postage paid to the United States
Postal Service and printing expense in connection
with the soliciting of contributions. nor should these
costs be included as fund-raising costs
\c’ Every contract or agreement between a profes-
8 ee Se So 2 ne ann
canteen
a copy of it shal! be filed with the Secretary of State
26a
within ten davs after it is entered into and prior to
any solicitations.”
Joseph H. Munson Company, Inc.. an Indiana corpora-
tion (Munson), and a “promotion business.” was desirous of
entering into a contract with the Fraternal Order of
Police, Montgomery County Chapter ‘F.O.P.'. Munson was
to raise funds for F.O.P., an organization, described in the
stipulation of facts, which was engaged in the dissemina-
tion of information and the promotion of causes on behalf
of police officers. Because of the fee limitations prescribed
in the statute referred to above. no contractual rela-
tionship developed between Munson and F.O.P.
Apparently believing itself unlawfully barred from
doing business in Maryland because of section 103D.
Munson filed. in the Circuit Court for Anne Arunde!
County, a bill of complaint in which it sought a declara-
tory decree that would hold section 103D unconstitutional.
The Secretary of State for the State of Maryland |Secre-
tary) was named as defendant. The court was asked to
enjoin permanently the enforcement of the registration
provisions and the civil or criminal sanctions permitted by
that statute.’
' The Secretary of State is charged with investigating any
alleged violations of the Charitable Organizations Subtitle of
Article 41, $$: 103A-103L. Upon finding a violation, subsection
103L\b) confers upon the Secretary severa] enforcement a!terna-
tives, namely:
“(1) Cancel and annul! the registration of the violator;
(2) Refer the matter to the Attorney General for civil
enforcement .. . ; and
(3) Refer the matter to the appropriate State's attorney
for prosecution.”
Additionally, section 103L\a) declares the criminal penalties
for violating the Charitable Organizations Act to be:
“A charitable organization, professional! fundraiser coun-
sel, or professional! solicitor which wilfully fails or file a
registration statement, report, or other information with
the Secretary of State or wilfully files such a statement,
report, or other information which is materially false, or
otherwise wilfully violates the requirements of this sub-
title, is guilty of a misdemeanor, and, upon conviction,
27a
The case was heard in the circuit court by Judge Eugene
N. Lerner on a stipulation of facts. The judge held that
Munson was not entitled to declaratory relief “since . . .
|'Munson| has not exhausted its administrative remedies.”
Furthermore. the trial judge stated that there was no
improper delegation of authority to the Secretary of State.
and that the statute is constitutional.
On appeal to this Court, Munson poses three questions
which we believe mav be stated fairly in but one.’ scilicet:
Is Md. Ann. Code art. 41. $ 103D unconstitutional on the
basis that it infringes on the First Amendment right of
shall be fined not more than $5,000 or sentenced to
imprisonment for not more than one year, or be both fined
and imprisoned.”
’ The three questions raised by Munson were:
“1. Should not the decision below be reversed for reason
that Article 41, Section 103D of the Annotated Code of
Maryland is unconstitutional and in violation of the
Appellant's rights under the First and Fourteenth Amend-
ments of the United States Constitution in light of the facts
that the said statute is overbroad in its regulation of
protected speech activities, in that it bears an insignificant
relation to asserted State interests. fails to unilize the least
drastic means available to serve such interests and fails to
provide any Constitutionally sufficient exception to the
25% expense limitation?
2. Did not the lower court err in holding that the proper
construction of the exception in Section 103D is sufficiently
broad to include a ‘flexible’ percentage scheme and the
statute is therefore Constitutional. in light of the facts that
the plain language and obvious intent of the exception
power is insufficient to create such a flexible scheme; and
further, even if such a flexible scheme is included, such a
scheme is no less intrusive on First Amendment interests
than is a fixed percentage scheme?
3. Did not the lower court err in holding that the proper
construction of the exception in Section 103D is sufficiently
broad to protect First Amendment interests, in light of the
fact that under such a broad construction, the discretion
vested in enforcement officials as a result of the lack of
standards is itself an unconstitutional infringement on
First Amendment interests?”
25a
freedom of speech, and is it an impermissible delegation of
legislative authority to the Secretary’
Previminary Issce or Stawpin
Before we undertake to discuss the constitutionality cel
non of section 103D, we must first consider the Secretary s
contention that Munson lacks standing to challenge the
statute and, therefore. is not @ proper party to have
brought the suit in the first instance
Our review of the record discloses that in response to the
original bill of complaint the Secretary. in a motion to
dismiss, averred inter alia that Munson was not an
“interested .. . ‘party asserting adverse claims
The motion was heaid by Judge H Chester “Goudy. Jr.
who granted the dismissal in part and denied it in part
Significantly, he did not rule upon Munson's standing as
an “interested party.”
Subsequently, Munson filed an amended bill. The
Secretary answered it without posing any question as to
Munson’s being an “interested party. Nevertheless, the
Secretary did raise the question minimally in a Memoran-
dum of Law that it submitted to Judge Lerner We
characterize the standing issue as minimally posited
because in eleven pages of typing the only reference to
standing is the single sentence. “The . Secretary |
seriously questions .. . ‘Munson’s) standing to seek a
declaratory judgment.”
Apparently the Assistant Attorney General. represent-
ing the Secretary, had misgivings about the inattention
given to standing in his Memorandum of Law because
approximately two weeks later he submitted to Judge
Lerner a “Supplemental Memorandum of Law.” In the
supplement, he dispelled any doubt as to the Secretary's
position with respect to Munson’s standing inasmuch as
the entire supplemental memorandum is devoted exclu-
sively to that question.
29a
Judge Lerner. in his “Memorandum Opinion and
Order,” did not, however, address the issue of standing bu.
denied relief strictly on the questions of constitutionality.
Md. Rule 1085 provides in part that “/t|his Court will
not ordinarily decide any point or question which does not
plainly appear .. . to have been tried and decided by the
lower court... .”
We decline to consider the issue of standing because it
was not decided by Judge Lerner inasmuch as he made his
decision on other grounds. Md. Rule 1985. But see. Village
of Schaumber v. Citizens for a Better Environment, 444
U.S. 620, 634. 100 S. Ct. 826, 834-35, 63 L. Ed. 2d 73 (1980):
Dombrowski v. Pfister, 380 U.S. 479, 486. 85 S. Cr. 1116.
1121. 14 L. Ed. 2d 22 (1964); United States v. Raines, 362
U.S. 17, 21, 80 S. Ct. 519, 522. 4 L. Ed. 2d 524 1960):
Thornhill v. Alabama, 310 U.S. 88, 97-98. 60 S. Ct. 736.
742. 84 L. Ed. 2d 1093 (1939).
ConsTITUTIONALITY Vet Non oF
Mp. Ann. Cove Arr. 41, § 103D
The Supreme Court has held that the regulation of
charitable solicitation is a function of the State's police
power and a fulfillment of its duty to protect its citizens
from fraudulent charitable organizations. Hynes v. Mayor
of Oradell, 425 U.S. 610, 96 S. Ct. 1755, 48 L. Ed. 2d 243
(1976). The Court has also recognized that First Amend-
ment freedoms are intertwined with any type of solicita-
tion and should be protected. See Virginia Pharmacy
Board v. Virginia Consumer Council, 425 U.S. 748, 96 S.
Ct. 1817, 48 L. Ed. 2d 346 (1976) (commercial solicitation);
Hynes v. Mayor of Oradell, supra ‘charitable and political
solicitation); Cantwell v. Connecticut, 310 U.S. 296, 60 S.
Ct. 900, 84 L. Ed. 2d 1213 (1940) ‘religious solicitation). At
first blush it would seem that Hynes is in conflict with the
free speech solicitation right. The conflict. however, may
be reconciled by the State’s imposing reasonable regula-
tions on charitable solicitations.
30a
Recently. in Village of Schaumberg v. Citizens for a
Better Environment. supra. the Court. speaking through
Justice White. addressed the balancing of police power
vis-a-vis solicitations. The Village ordinance prevented a
charitable organization from obtaining a solicitation per-
mit unless ” ‘{sjatisfactory proof that at least seventy-five
percent of the proceeds of such solicitations . . . | would’
be used directly for the charitable purpose of the
organization.’ ” (Footnote omitted.) 444 U.S. at 624. 100 5.
Ct. at 829. Citizens for a Better Environment ‘Citizens’.
an organization that promoted the protection of the
environment, was denied a permit by the Village in-
asmuch as Citizens “could not demonstrate that 75 percent
of its receipts would be used for ‘charitable
purposes’... .” Jd. at 625, 100 S. Ct. at 830. Citizens’
excessive expenditures were attributed to its employment
of door-to-door “canvassers” who. in addition to collecting
contributions, distributed “‘literature on environmenta!
topics and answerjed|] questions of an environmental
nature when posed” and accepted complaints about the
state of the environment. Jd. As a result of the Village's
refusal to grant a permit to Citizens. it challenged the
ordinance on the ground that it violated its First and
Fourteenth Amendment rights to freedom of speech.
The Court held that particular ordinance to be an
unconstitutional infringement on freedom of speech.
Chaitable solicitations are a form of speech entitled to
First Amendment protection. the majority said. To pass
constitutional muster, any State regulation of charitable
soliciation must “serve a sufficiently strong. subordinating
interest .. . that the . . . [State) is entitled to protect.”
Id. at 636, 100 S. Ct. at 836. Consequently. the regulation
must be drawn in such a narrow manner as to serve the
State’s interest “without unnecessarily interfering with
First Amendment freedoms.” Jd. at 637, 100 S. Ct. at 836.
See Consolidated Edison Co. v. ublic Service Commission,
—___. U.S. —_—., 100 S. Ct. 2326, _. L. Ed. 2d — _ (1980).
* Justice Renquist dissented. 444 U.S. at 639-45, 100 S. Ct. at
837-40.
3la
Earlier. in NAACP v. Button, 371 U.S. 415, 438, 83 S. Ct.
328, 340. 9 L. Ed. 2d 405 (1963), the Court had opined that
“[blroad prophylactic rules in the area of free expression
are suspect... . Precision of regulation must be the
touchstone. . . .” (Citations omitted.)
Although the Court believed the Village's interest in
protecting its citizens from “fraud. crime and undue
annoyance.” was substantial, the inflexible 25‘ solicita-
tion limitation was not narrowly drawn and interfered
“unnecessarily” with the freedom of speech. The Court
rejected Village’s rationale that “any organization using
more than 25 percent of its receipts on fundraising.
salaries, and overhead is not a charitable, but a commer-
cial. for profit enterprise and that to permit it to represent
itself as a charity is fraudulent.” 444 U.S. at 636, 100 S.
Ct. at 836. The Supreme Court agreed with the United
States Court of Appeals (7th Cir.) that “this cannot be true
of those organizations that are primarily engaged in
research, advocacy, or public education and that use their
own paid staff to carry out these function as well as solicit
financial support.” (Emphasis supplied.). Jd. Such orga-
nizations may need to spend more than 25% of the
solicitation on non-charitable purposes. Village’s ordinance
failed to take into consideration the research, advocacy or
public education type of organizations and summarily
prevented them from soliciting funds for their charitable
purpose.
The Court noted that “Village's legitimate interest in
preventing fraud can be better served by measures less
intrusive than a direct prohibition on solicitation.” Jd. at
637, 100 S. Ct. at 836. Among other things, Village may
prohibit “fraudulent misrepresentations” and enact penal
laws to punish violations.
The flaw in the ordinance that Village enacted was the
ban on solicitation by any charitable organization that
expended more than 25% of its funds for charitable
purposes. The prior restraint imposed on all charitable
32a
organizations without exception was an unnecessary in-
trusion on the freedom of speech. The ordinance either
ignored or arbitrarily classified all charitable organiza-
tions as one and the same. By so doing, they failed to
recognize that the research, advocacy, or educational
organization fits a different mold. Moreover. the ordinance
also failed to acknowledge that there might be a valid
reason why more than 25% of the proceeds was needed at a
given time for other than strictly charitable purposes.
Even if a charitable solicitor could show clearly that a sum
greater than 25% was necessary to its particular needs,
the demonstration would have been to no avail because
the ordinance permitted no flexibility.
Statutes or ordinances regulating the solicitation of
funds by charitable organizations have, however, been
judicially sanctioned. See e.g., National Foundation v. City
of Fort Worth, 415 F.2d 41 ‘(CA5 1969). cert. denied, 396
U.S. 1040 (1970). We must then look to the holdings of
such cases in order to find the reason or reasons why those
ordinances or statutes were free of constitutional! defect.
The National Foundation v. Fort Worth ordinance
required each charitable organization to obtain a license
before solicitation of funds. The license would be denied if
it was determined that an applicant was expending or was
expected to spend for solicitation costs more than 20% of
the gross amount raised. The 20% limitation was not,
however, an inflexible barrier. An applicant with an
expenditure or expected expenditure cf more than the
specified 20% could, nevertheless, obtain a license if it
demonstrated special facts or circumstances that reason-
ably justified such an expenditure. The Fifth Circuit Court
of Appeals said that the pliant feature in the 20%
limitation buttressed the ordinance’s constitutionality by
recognizing that a fixed percentage “might be undesirable
and inapplicable if applied to all types of charitable
organizations.” Jd. at 46. Furthermore, the suppleness of
33a
the limitation made it “a valid and constitutional means of
achieving the city’s purpose of protecting its citizens.”
Another case in which a charitable solicitation regula-
tion ordinance was held to be constitutionally valid is
Holloway v. Brown, 62 Ohio St. 2d 65, 403 N.E. 2d 191
(1980). There, a solicitation permit would not be issued if
the cost of solicitation was more than 15% of the gross
total raised through the solicitation. Excessive expendi-
tures were. howeve., only prima facie evidence of un-
reasonableness. and the permit would be issued if the
applicant could show that spending more than 15% of the
gross solicitation was reasonable. The court concluded that
the ordinance was sufficiently narrow to comply with
Schaumburg’s standards. Manifestly, the saving feature of
the ordinance was the elasticity allowed in the percentage
limitation. The limitation, coupled with the authority to
increase it for good cause, enabled the local government to
“screen out only those solicitations which indeed pos|ed!} a
substantial risk of invoking fraud or misrepresentation.”
Id. at 73-74, 191 N.E.2d at 197.
A similar regulation was addressed in National Black
United Fund, Inc. v. Campbell, 494 F. Supp. 748 (D.C.D.C.
1980), wherein a federal program allowed charitable
organizations “the luxury” of soliciting federal employees
while the employees were at work. In order to be . ligible
for participation in the program, an organization had to
meet certain requirements, one of which was a fixed
percertage limitation on the cost of administrative ex-
penses. If those expenses exceeded 25% of the organiza-
"It is interesting tu note that the Schaumburg Court
distinguished the Fort Worth ordinance from the Schaumburg
ordinance and impliedly endorsed the 20% flexible limitation as
a constitutional means of regulating charitable solicitation. 444
U.S. at 635, n. 9, 100 S. Ct. at 835. Unlike the Fort Worth
ordinance, the regulation in Schaumburg failed to provide
means whereby an organization, which legitimately needed to
expend more that 25% on non-charitable costs, could show that
the excessive cost was reasonable.
34a
tion’s annual income. the organization had to demonstrate
that the excess expenditures were reasonable.
The district court stuck down the regulation on the basis
that it was unconstitutionally applied. The court, however,
concluded that the regulation was valid on its face. In so
doing. the court recognized that the “flexible percentage
limitation” distingusihed the valid federal regulation from
that of the Schaumburg ordinance.
With the holdings of Schaumburg. National Foundation,
Holloway and National Black United Fund, supra, firmly
in mind, we shal] begin our analysis of the above-quoted
:103D of Article 41.
We observe that the Marvland statute is similar to those
found in National Fund, Holloway and National Black
United Fund. In all three of those cases. the laws limiting
solicitations were held to permit enough flexibility to
survive an attack built upon First Amendment freedom of
speech. While it is true that section 103D proscribes the
expenditure for non-charitable purposes of more than 25%
of the gross total income raised through a fund-raising
activity, any charity may be exempted from the strictures
of that prohibition if the charity demonstrates that “the
25% limitation would effectively prevent .. . [it] from
raising contributions.” An organization which legitimately
needs to expend more than 25% of its total gross income
for administrative costs is not summarily characterized as
“fraudulent” and, thereby, subjected to prosecution, as
were the charitable organizations in Schaumburg, supra.
Additionally, the spending limitation of section 103D
does aot place a prior restraint on the First Amendment
freedom of speech associated with charitable solicitation.
As we see it, section 103D regulates charitable solicitation
through the means suggested by the Schaumburg court,
namely, penal laws and financial disclosure requirements.
While registration is mandated in order for a charitable
organization to solicit contributions, Md. Ann. Code art.
41, § 103B, the organization is not denied registration, ipso
oS ed
35a
facto, if it expends more than 25% of its funds for
non-charitable purposes. Irrespective of the amount spent
or to be spent on solicitation, a license is issued upon
completion of the registration. Should a registered charity
then decide to expend more than the sanctioned 25% on
non-charitable costs, without being exempted by the
Secretary, it violates section 103D and is, thereby. exposed
to the criminal penalties spelled out in section 103L. The
threat of criminal prosecution. not prior restraint. deters
fraudulent activity.
The registration statements, dictated by Md. Ann Code
art. 41, § 103B, contain an “income and expense state-
ment, and a financial report ‘including the kind and
amount of its gross income raised, costs and expenses
incidental to the fund-raising activities... .)... .” Pur-
suant to Md. Ann. Code art. 41, $ 103G. the statement
becomes a public record and, of course. is open to public
scrutiny. Furthermore, the actual contracts between a
charity and a professional solicitor are also filed as public
records, /d., after having been filed with the Secretary.
Md. Ann. Code art. 41, § 103D<‘c).
We think section 103D regulates First Amendment
freedom of speech in such a way as to minimize encroach-
ment upon individual rights while simultaneously protect-
ing the citizenry of this State from sham and fraud. In
sum, section 103D is drawn in a manner calculated to
protect the public interest “without unnecessarily interfer-
ing with First Amendment freedoms.” The statute is
constitutional.
THe Devecation or Lecistative AUTHORITY
Munson’s lawyers, as careful tacticians, did not “put all
their eggs in one basket.” They had a fall-back position. In
the instant case, it took the form of an assault upon what
Munson avers to be an unconstitutional delegation of
legislative authority to the Secretary.
36a
Munson asserts that section 103D vests too much
discretion in the Secretary in that there are insufficient
standards because reasonable guidelines are not present.
We have an entirely different view.
Rarely has a statute been held unconstitutional! because
of an impermissible delegation of legislative power. The
rule used in measuring whether the Legislature has
properly delegated authority is:
The Legislature has the power to grant to an
administrative agency the discretion to implement
statutory provisions, through rules and regulations.
provided that the agency is furnished reasonable
guidelines or standards tu follow in fulfilling the
legislative command.
Governor of Marviand v. Exxon Corp.. 279 Md. 410, 370
A.2d 1102 (1977); Gino’s of Marviand, Inc. +. City of
Baltimore, 250 Md. 621, 244 A.2d 218 (1968). Mason v.
State. 12 Md. App. 655, 280 A.2d 753 ‘1971).
As we see it the Legislature has delineated clearly the
guidelines to be followed by the Secretary in implementing
the charitable organization's 25°¢ “overhead” limitation
whenever funds are solicited from the public. The guide-
lines are:
1) Section 103D (a) instructs the Secretary to use
the “standard of accounting and fiscal reporting for
voluntary health and welfare organizations” when
allocating costs of an organization between those
expended in connection with a fund-raising activity
and those which are not.
2) Section 103D ‘b) sets out the expenditures which
are not to be included in the total gross income when
computing the 25% limitation, nor are they to be
considered as fund-raising costs. The exclusions are
the costs of “goods, food, entertainment, or drink sold
or provided to the public” and “the actual postage
~* Davis, 1 Administrative Law Treatise $8 2.01-.16 (1958).
37a
paid. . . and printing expense in connection with the
soliciting of contributions.”
3) After the authorized deductions are made from
the total gross income generated by the fund-raising
solicitation. the 25% limitation on non-charitable
expenses is computed.
4) If the expenditure for non-charitable purposes
exceeds 25% of the total gross. less allowable deduc-
tions. a charity can avoid violating section 103D if the
Secretary of State determines that “the 25% limita-
tion would effectively prevent the charitable orga-
nization from raising contributions.”
The Secretary. in accordance with the legislative direc-
tive relative to the adoption of rules and regulations, has
promulgated regulations that provide a mechanism
through which a charitable organization can demonstrate
to the Secretary that the 25% limitation would amount to
prohibition of the charity's fund-raising activity. See
COMAR .01.02.04.05-.13.
We hold that Md. Ann. Code art. 41. $102" is not
constitutionally ailing. The Legislature did not >) permis-
sibly delegate authority to the Secretary. Judge Lerner did
not err in upholding the validity of the statute.
JUDGMENT AFFIRMED. COSTS
TO BE PAID BY APPELLANT.
38a
APPENDIX
OPINION AND ORDER
(Filed July 2, 1980)
In The Circuit Court for Anne Arundel County
Equity No. 24.949
Joseph H. Munson Co., Inc.. an
Indiana Corporation
Plaintiff
v.
Fred L. Wineland, Secretary of State
for the State of Maryland
Defendant
MEMORANDUM OF OPINION AND ORDER
This matter came on for hearing on June 16. 1980, on
Plaintiff's Bill of Complaint seeking a Declaratory Judg-
ment and Injunctive Relief. Counsel were heard in open
Court and the pleadings together with memoranda filed in
these proceedings have been read and considered herein by
the Court.
39a
The parties to this action have stipulated to the
following facts:
1. That the Charitable Solicitation Laws contained
in Article 41. Section 103. et seg.. of the Annotated
Code of Marviand (1978. 1979 Cum. Supp.) which
limits the amount that can be allocated for fund
raising expenses are generally enforced in the State
of Marviand.
2. That the Fraternal Order of Police. Montgomery
County Chapter. hereinafter referred to as FOP) is
reluctant to enter into a contract with the Plaintiff,
Joseph H. Munson Co.. Inc.. hereinafter referred to
as Plaintiff) for promotion of fund raising events due
to the limitation imposed by Article 41. Section 103.
et seg., supra., that nothing in excess of 25° of the
gross income raised through fund raising activities
may be expended on fund raising expenses
3. That the Plaintiff's contract with the FOP calls
for a fee in excess of 25% of the net income raised
through fund raising activities
4. That the FOP is engaged in the dissemination of
information and the advocacy of causes on behalf of
police officers.
5. That except for the contractual relationship
regarding promotion of fund raising activities. as
indicated above in Number 3. there exists no other
a relationship between the Plaintiff and the
This Court by an Order dated May 25. 1978 dismissed
Counts I and II of the Plaintiff's Bill of Complaint seeking
a Declaratory Judgment that the Plaintiff is not in
violation of Article 41. Section 103. ef seg.. supra. and an
injunction to prevent the Defendant from finding that the
Plaintiff is in violation of this Statute. The dismissal of
Counts I and II were based on this Court's finding that a
special form of remedy regarding the issues raised in the
said Counts have been provided for by statute and that.
therefore, the Plaintiff is not entitled to judicial relief
absent an exhaustion of administrative remedies. The
40a
Plaintiff filed an Amended Bill of Complaint realleging
Counts I and II. The purpose presumably being that it
wished to include same in the amended pleading to reserve
for reconsideration by the Court andor for a possible
appeal. This Court again dismisses Counts I and II for the
same reasons. Remaining for determination are the issues
raised by Counts III, IV and V of the Plaintiff's Amended
Bill of Complaint. These issues will be treated in turn.
The Plaintiff in Counts III and IV alleges that among
the provisions of Article 41, Section 103. ef seq., supra..
those contained in Section 103Dia) which state in part
that “the Secretary of State shall issue rules and regula-
tions to permit a charitable organization to pay or agree to
pay for expenses in connection with a fund raising activity
more than 25% of its total gross income in those instances
where the 25% limitation would effectively prevent the
charitable organization from raising contributions” repre-
sents a constitutionally impermissible delegation of leg-
islative authority since the said provisions contain no
guidelines or inadequate guidelines for the Secretary of
State to implement such rules and regulations. For this
reason the Plaintiff requests that Section 103Dia) be
declared unconstitutional and that the Defendant, Fred L.
Wineland, Secretary of State for the State of Maryland,
‘hereinafter referred to as the Defendant), be enjoined
pendente lite and permanently from enforcing the terms in
Article 41, Section 103D.
This Court herein finds that the Plaintiff's contention
that Section 103D creates a constitutionally impermissible
delegation of legislative authority is without any real
merit. This Court recognizes the well established principle
that, generally, a statute or ordinance vesting an adminis-
trative official with discretion to make rules or regulations
without fixing any standards for guidance is an unconsti-
tutional delegation of legislative power. Pressman v.
Barnes, 209 Md. 544 (1956). However, the application of
this principle is not without qualification. A review of
recent decisions reveals that the prevailing view is
4la
“toward a greater liberality in permitting grants of
discretion to administrative officials in order to facilitate
the administration of laws as the complexity of gov-
ernmental and economic conditions increases.” Pressman
v. Barnes, supra, at 555; Mason v. State, 12 Md. App. 655
(1971). In Governor of Maryland v. Exxon Corp.. 279 Md.
41) (1976), the Court considered the question of unlawful
delegation of legislative authority with regard to a grant
of authority to the Comptroller enabling him to adopt
regulations and administer exceptions from the Retail
Gasoline Service Station Divestiture Statute. The Court
upheld the grant of authority as proper and found that
although sufficient standards and guidelines ordinarily
must be fixed when delegating legislative authority to an
administrative official. it is well recognized “that the
complexity of modern economic conditions makes it im-
possible to tailor specific guidelines for every conceivable
Situation and that latitude in granting discretion is
necessary.” Governor of Marviand v. Exxon Corp., supra, at
440.
This Court finds that a perusal of Article 41, Section
103D, supra, in its entirety shows that the power dele-
gated to the Secretary of State to administer exceptions to
the 25% expenditure limitation or charitable organiza-
tions clearly does not represent an unconstitutional dele-
gation of legislative authority. The statute contains
provisions permitting the Secretary of State to establish
an exception from the 25% expenditure limitation for fund
raising activities where the said limitation would effec-
tively prevent the charitable organization from raising
contributions. In permitting an exception the Secretary of
State is directed to promulgate “rules and regulations in
accordance with the ‘standard of accounting and fiscal
reporting for voluntary health and welfare
organizations.” Further, the statute provides that the
25% limitation does not apply to compensation or expenses
paid to a professional fund raiser counsel for conducting
feasibility studies and that the total gross income subject
to the 25% limitation excludes funds raised which equal
42a
the cost of food, drink. entertainment and goods sold or
provided to the public and the actua! amount expended on
postage or printing expenses in connection with soliciting
contributions. This Court herein finds that the above
mentioned provisions serve as adequate guidelines for the
purpose of a constitutional delegation of legislative au-
thority. In light of the above authorities. specifically
tailored standards or guidelines outlining al! or a majority
of situations in which to apply the 25% limitation
exception is not constitutionally required bs the legisla-
ture in delegating its power The provisions of Section
103D set forth reasonable guidelines for the Secretary of
State in administering the exception without clogging up
the works in the proper administration of Article 41.
Section 103, et seg., supra, in its entirety. Accordingly. this
Court finds that the delegation of powers under Section
103D/a) falls within constitutional! boundaries
This Court next considers the Plaintiff's contention
contained in Count V that Article 41. Section 103. et seg.,
supra, which prohibits charitable organizations from
paying or agreeing to pay as expenses in connection with
fund raising activities a total amount in excess of 25% of
the total gross income raised or received as a result of fund
raising activities, is unconstitutional in violation of the
right of free speech and assembly afforded by the First and
Fourteenth Amendments. In support of this contention the
Plaintiff relies primarily upon the decision handed down
in Village of Schaumburg v Citizens for Better Environ-
|
=
wn
|
w
°
x
b-
i
5
£
e
ha
e
43a
by charitable organizations that do not use at least 75‘« of
their receipts for “charitable purposes.”
The Supreme Court in that case first recognized that
charitable appeals for funds involve a variety of speech
interests such as communication of information and
dissemination of views and ideas which are within the
ambit of the First Amendment right to freedom of speech.
The Supreme Court then considered the ordinance at issue
in light of the right to freedom of speech. The ordinance in
the Shaumburg decision prohibited solicitation of chari-
table contributions on the public streets without first
applying for a permit and, further. that in order to obtain
a permit the applicant must provide satisfactory proof that
at least 75° of the funds raised will be used directly for a
charitable purpose. The Supreme Court held that the
absolute 75% limitation of the ordinance from which no
exceptions were made resulted in an unconstitutionally
overbroad ordinance in violation of the First and Four-
teenth Amendments. The Court reasoned that regulation
of charitable solicitation, though properly subject to
reasonable regulation, must be carried out in a manner so
as not to unnecessarily intrude upon the rights to freedom
of speech.
In Schaumburg, the Supreme Court found that the
ordinance’s 75° requirement was unreasonable on its face
since it effectively prohib'ted solicitation by a substantial
category of charitable organizations to which the 75%
limitation could not be applied consistently with the First
and Fourteenth Amendments. Such organizations being
those that are primarily engaged in research, advocacy or
public education and that use their own paid staff to carry
out these functions as well as to solicit financial support.
The Supreme Court was unable to perceive any substan-
tial relationship between the 75% limitation and the
+4a
would threaten the public safety than other charitable
organizations. Accordingly. the Schaumburg ordinance
impermissibly and unnecessarily infringed upon First
Amendment rights because it failed to provide any
discretion in the hands of the administrative officials to
provide for exceptions to the 75% limitation and had the
effect of a prior restraint on First Amendment rights
In the present action the Plaintiff asserts that Article
41, Section 103. ef seg.. supra. is analogous to the
Schaumburg ordinance. The Plaintiff contends that the
25% limitation for fund raising expenses in conjunction
with the exception provided by Section 103Di\a) represents
an unconstitutionally overbroad statutory requirement
and results in a prior restraint on First Amendment
rights. At oral argument. Counsel for the Plaintiff
asserted that the exception under Section 103D:a’ was a
very narrow one allowing for an exception in only one
instance and that, therefore. the exception does not
provide an adequate “escape hatch” from the limitations of
the statute which would enable the statute to pass
constitutional muster. As a result. the Plaintiff argues
that the ordinance in question is constitutionally invalid
since it represents a form of regulation which unneces-
sarily intrudes upon the right to freedom of speech in a
manner inconsistent with the First and Fourteenth
Amendments.
This Court herein finds that the Plaintiff's challenge as
to the validity of the ordinance in question on the basis of
First and Fourteenth Amendment rights does not hold any
real weight.
First, this Court finds that the Schaumburg decision is
distinguishable from the present case. In Schaumburg. the
ordinance in question required that a permit be obtained
befi ; te
45a
exception at all was provided from the 75% limitation. In
essence. either the charitable organization qualified or it
did not. The result of the ordinance was an inflexible
standard which significantly infringed upon the rights of a
class of charitable organizations which maintained paid
employees and used less than 75% of its proceeds for
charitable purposes. In the present case, the charitable
organizations are not required to obtain or qualify for a
permit to solicit funds by first showing that they meet the
25% limitation contained in the statute. Additionally, the
statute in question provides an exception to accommodate
those charitable organizations “where the 25% limitation
would effectively prevent the charitable organization from
raising contributions.” The statute further delineates
certain adjustment to the 25‘« limitation so as not to
include some of the expenses related to solicitation such as
postage. printing and the actual costs of the food. drink
and entertainment provided to the public for solicitation
purposes. Under the terms of the statute then, charitable
organizations are not subjected to a prior restraint of their
solicitation rights in violation of the First and I‘uurteenth
Amendments since they need not obtain a permit at the
outset.
Second. this Court herein finds that the exception
provided under Section 103D of the statute is not drawn so
narrowly as to provide an inadequate “escape Satch” in
violation of the constitution. The exception explicitly
empowers the Secretary of State to “permit a charitable
organization to pay or agree to pay for expenses in
connection with a fund raising activity more than 25% of
its total gross income in those instances where the 25%
limitation would effectively prevent the charitable orga-
nization from raising contributions. This Court interprets
the above language as previding for a sufficiently broad
exception allowing the statute to withstand a constitu-
46a
For the above reasons, this Court finds that the
Schaumburg decision is not analogous to the present case
and, therefore, its reasoning does not apply across the
board to the facts of this case in order to appropriately find
the statute in question unconstitutional. Rather. this
Court finds that the present case is analogous to the
decision presented in National Foundation v. Fort Worth,
415 F.2d 41 (5th Cir. 1969) cert. denied, 396 U.S. 1040
(1970). In that case the United States Court of Appeals
considered an ordinance which contained a 20° limitation
similar to the 25% limitation in the statute presently
before this Court. However. the Fort Worth ordinance also
contained a provision permitting a charitable organization
to obtain a permit for solicitation by demonstrating that
the costs in excess of 20% of the amount collected is
reasonable under the special facts or circumstances con-
cerning the charitable organization. The Court of Appeals
upheld the Fort Worth ordinance as constitutional and
found that the provisions of the ordinance contained
reasonable standards for the regulation of charitable
organizations consistent with constitutional rights. This
case was cited with approval! in the Schaumburg decision.
This Court fails to see, as the Plaintiff contends, where the
exception contained in the Fort Worth ordinance is
singificantly broader than the exception contained in the
statute in question. This Court finds that the words “in
those instances where the 25% limitation would effectively
prevent a charitable organization from raising contribu-
tions” provide a sufficiently flexible standard which
impliedly takes into consideration the special circum-
stances of a charitable organization which may be entitled
to be exempt from the 25% limitation.
For the above reasons, this Court finds that Article 41,
Section 103, et seg., supra, is valid as a constitutional
means of regulating the solicitation activities of charitable
organizations without impermissibly infringing upon their
rights under the First and Fourteenth Amendments.
WHEREFORE, it is this 2nd day of July, 1980. by the
Cireuit Court for Anne Arunde! County. ORDERED
47a
That this Court, sitting as a Court of Equity, hereby
declares:
1. That the Plaintiff is not entitled to a Declaratory
Judgment under Count I to the effect that Plaintiff is
not violating nor has violated the registration or fund
raising limitations of Article 41. Section 103A, et seq..
supra, since it has not exhausted its administrative
remedies.
2. That the Plaintiff is not ent. d toa Declaratory
Judgment under Count II to enjoin the Defendant
from finding that the Plaintiff is subject to the
registration provisions of Article 41. Section 103A, et
seq.. supra, since it has not exhausted its administra-
tive remedies.
3. That Article 41, Section 103D. supra, is not
unconstitutional as alleged in Counts III and IV since
the provisions of the said statute do not constitute an
improper and unconstitutional delegation of legisla-
tive authority for the reasons stated in the instant
Memorandum of Opinion and Order.
4. That Article 41. Section 103, ef seg., supra,
which prohibits a charitable organization from paying
or agreeing to pay as expenses in connection with any
fund raising activity a total amount in excess of 25%
of the total gross income raised by reason of the fund
raising activity, is not unconstitutional since regula-
tion of fund raising activities by charitable organiza-
tions imposed under the said statute is reasonable
and is not violative of the First and Fourteenth
Amendments for the reasons stated in the instant
Memorandum of Opinion and Order.
45a
It is. therefore. ORDERED. ADJUDGED and DE-
CREED:
a. That Counts I and II of the Plaintiff's Amended
Bill of Complaint. be, and the same are hereby
dismissed.
b. That judgment be entered in favor of the Defend-
ant and against the Plaintiffs with respect to Counts
Ill. IV and V.
It is further. ORDERED. that the Plaintiff pay the costs
of these proceedings.
Evcense M. Lerner.
Judge.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.