Opposition Brief — Illinois Ex Rel. Madigan, Attorney General of Illinois v. Telemarketing Associates, Inc.

Supreme Court brief2003

Ask Donna

What actually matters in this document.

Text

No. 01-1806

In the

Supreme Court of the Gnited States

—

— —-

THE PEOPLE OF THE STATE OF ILLINOIS

ex rel. JAMES E. RYAN, Attorney General of Illinois,

Petitioner,

TELEMARKETING ASSOCIATES, INC., an Illinois

business corporation; ARMET INC., an Illinois

corporation; and RICHARD TROILA, Individually

and as an Officer, Director and Fiduciary of

TELEMARKETING ASSOCIATES, INC.; and ARMET INC.,

Respondents.

On Petition for Writ of Certiorari

to the Supreme Court of Illinois

BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

MICHAEL A. FICARO

Counsel of Record

SUSAN G. FEIBUS

UNGARETTI & HARRIS

Three First National Plaza

Suite 3500

Chicago, Illinois 60602

(312) 977-4400

Attorneys for Respondents

—

Midwest Law Printing Company/Photex — Chicago — (312) 321-0220

WA o'

QUESTION PRESENTED FOR REVIEW

Did the Illinois Supreme Court correctly hold that the

Illinois Attorney General’s amended complaint failed to

state a claim for fraud or breach of fiduciary duty because

the First Amendment to the United States Constitution |

bars such a claim based solely upon allegations that

professional fundraisers earned gross fees which the I]linois

Attorney General considered excessive and their gross fees

were not voluntarily disclosed to potential donors?

TABLE OF CONTENTS

Page

QUESTION PRESENTED FOR REVIEW ............ i

TABLE OF AUTHORITEED « .. oo 0 ovcincsvdueewenes iv

STATUTES INVOLVED voc cc ccccccceccccessse 1

STATEMENT OF THIB CAGE... cc cccccccccscecse 2

SUMMARY OF ARGUMENT ...............-.++5: 7

Ni PPT 10

I. THE ILLINOIS SUPREME COURT COR-

RECTLY HELD THAT THE ILLINOIS AT-

TORNEY GENERAL’S AMENDED COM-

PLAINT FAILED TO STATE A CLAIM FOR

FRAUD OR BREACH OF FIDUCIARY DUTY

BECAUSE THE FIRST AMENDMENT TO

THE UNITED STATES CONSTITUTION

BARS SUCH A CLAIM BASED SOLELY

UPON ALLEGATIONS THAT THE PROFES-

SIONAL FUNDRAISERS EARNED GROSS

FEES WHICH THE ILLINOIS ATTORNEY

GENERAL CONSIDERED EXCESSIVE AND

THEIR GROSS FEES WERE NOT VOLUN-

TARILY DISCLOSED TO POTENTIAL DO-

ODED . nw ccccccsccccsscvccesouanenuegenan 10

A. The First Amendment Prohibits the Attor-

ney General’s Amended Complaint ....... 10

1. The Illinois Supreme Court Properly

Applied Controlling Supreme Court

Precedent in Finding the Attorney Gen-

eral’s Action Infringed the Fundraisers’

Free Speech Rights ................. 10

2. Preventing Fraud Cannot Justify a

State’s Restrictions on Fundraisers’

ee. eo cacet 12

3. The Attorney General’s Amended Com-

plaint Violates the First Amendment

Because It Improperly Is Based Upon

the Amount of the Fundraisers’ Fees

and Their Failure to Disclose their Fee

i cccnccceuaéeuccestoes 17

4. The Attorney General Seeks to Uncon-

stitutionally Compel Protected Speech . 21

B. The Amended Complaint Does Not State

Valid Claims For Fraud or Breach of Fidu-

ciary Duty ........: eee ecesecscccescess 23

Il. NO IMPORTANT ISSUE IS PRESENTED

BY THE ILLINOIS SUPREME COURT'S

DECISION WHICH IS CONSISTENT WITH

THIS COURT'S PRECEDENT AND ALLOWS

STATE FRAUD ACTIONS PROPERLY

TABLE OF AUTHORITIES

CASES PAGE(S)

Board of County Comm'rs, Wabaunsee

County v. Umbehr, 518 U.S. 668 (1996) .......... 18

Buechin v. Ogden Chrysler-Plymouth, Inc.,

159 Ill.App.3d 237, 511 N.E.2d 1330

CRE TE, TED cc ccccccccccccssccccnccscccce 24

Central States Joint Board v. Continental -

Assurance Co., 117 Ill.App.3d 600, 453

N.E.2d 982 (1% Diet. 1963) .... cece ccc cccnnes 24

Chicago Park Dist. v. Kenroy,

78 Ill.2d 555, 402 N.E.2d 181(1980) ............ 23

Connick v. Suzuki Motor Co., |

174 Ill.2d 482, 675 N.E.2d 584 (1996) ......... 2, 24

Glazewski v. Coronet Ins. Co.,

108 Ill.2d 243, 483 N.E.2d 1263 (1985) .......... 25

Hirsch v. Feuer,

299 Ill.App.3d 1076, 702

N.E. 265 (1% Dist. 1998) .......... cece eeeeees 24

Hurley v. Irish-American Gay, Lesbian and

Bisexual Group of Boston, 515 U.S. 557 (1993) .... 27

In re Witt,

145 Ill.2d 380, 538 N.E.2d 526 (1991) ........... 25

Lagen v. Lagen,

14 Ill_App.3d 74, 302

N.E.2d 201 (1" Dist. 1973) ........---0eeeeeeee 24

Lidecker v. Kendall College,

194 Il]_App.3d 309, 550

N.E.2d 1121 (1" Dist. 1990) ................... 24

Meyer v. Grant,

GP es I vv ccc cccccccccccceccceeces ll

New York Times Co. v. Sullivan,

ED go occ ccccccvcccosceces 11, 18

Periman v. Time, Inc.,

64 Ill_App.3d 190, 380

N.E.2d 1040 (1* Dist. 1978) ................... 24

Pence v. United States,

EI eee 25

People v. Telemarketing Assoc.,

313 Ill.App.3d 559, 729

a 6

People v. Telemarketing Assoc.,

198 Ill.2d 345, 763 N.E.2d 289(2001) ..... >. passim

Riley v. National Fed’n of the Blind,

ae oe ci eresverone’ passim

Schaumburg v. Citizens for a Better

Env’'t, 444 U.S. 620 (1980) ................. passim

Secretary of the State of Maryland v. Joseph

A. Munson, 467 U.S. 947 (1984) ............ passim

United States v. Ciccone,

219 F.3d 1078 (9* Cir. 2000) ................... 25

United States v. Kokinda,

GOUT UG. THO CIBGSD 2... ccccccccccccccccccccess 11

CONSTITUTIONAL PROVISION

ee passim

STATUTES

Illinois Solicitation For Charity Act,

225 ILCS 460/9%c), 15(a), 15(bX5), 18(c) ......... 1,4

Illinois Consumer Fraud and Deceptive

Practices Act, 815 ILCS 505/1,2 ............ 1, 4,8

Uniform Deceptive Trade Practices Act,

SE PE ccccccceccdsccenscecsetose 1,4,9

. ) |). | seer 17

(; pile |) * || Serr rr ere 2

STATUTES INVOLVED

The Illinois Attorney General’s (“Attorney General”) brief

omits reference to the statutory provisions he raised in his

Amended Complaint:

tation For Charity Act, 225 ILCS 460/9%c), 15(a),

15(bX5)

815 ILCS 505/1, 2

® Uniform Deceptive Trade Practices Act (“UDTPA”),

815 ILCS 510/2.

Also relevant is Section 18(c) of the Illinois Solicitation

For Charity Act, 225 ILCS 460/18(c).'

' Pursuant to United States Supreme Court Rule 24(1\f),

these statutory provisions may be found at Appendix A.

STATEMENT OF THE CASE’

Respondents Telemarketing Associates, Inc. (“Tele-

marketing”) and Armet Inc. (“Armet”) are companies that

provide professional fundraising services for charitable

organizations: Respondent Richard Troia (“Mr. Troia”) is

the owner and an officer and director of these companies

(collectively the “Fundraisers”). Telemarketing entered

into arms-length contracts with an independent charita-

ble organization, Vietnow National Headquarters, Inc.

(“Vietnow”), an Illinois-based, not-for-profit corporation

with charitable purposes. Vietnow, which was not a party

to this suit, was organized in 1984 and is associated with

an Illinois state chapter and 26 Illinois local chapters.

Vietnow also operates as the national organization for

several State organizations. (Amended Complaint (“AC”)

48; R. Vol. I, C-4).° Vietnow’s Articles of Incorporation show

that its purposes include “to help increase community

2 Because the Circuit Court granted the Fundraisers’ motion

to dismiss, the Statement of Facts is based on the Attorney

General’s Amended Complaint which incorporated his original

Complaint. A motion to dismiss under Section 2-615 of the

Illinois Code of Civil Procedure, 735 ILCS 5/2-615, accepts all

well-pled facts but not conclusions of law or factual conclu-

sions which are unsupported by allegations of specific facts in

a plaintiff's complaint. Connick v. Suzuki Motor Co., 174 Ill.2d

482, 490, 675 N.E.2d 584 (1996). Nothing in this Statement of

the Case should be treated as an admission by the Fund-

raisers. Citation to the record on appeal (“R”) will be to the

volume of the record (“Vol.”) and the individual page at which

the citation may be found (“C-__”).

3 The Attorney General incorporated and realieged his orig-

inal Complaint, R. Vol. I, C-2-113, in his Amended Complaint.

Therefore, paragraphs 1-47 of the Amended Complaint are

actually citations set forth in the original Complaint. (R. Vol.

I, C-2-14).

awareness of the problems and readjustments encountered

by the Vietnam veteran and his family” and “to demon-

strate to our community that Vietnam veterans are a vital

resource.” (AC Ex. A; R. Vol. I, C-17).

Telemarketing is registered as a professional fundraiser

in Illinois and has filed financial information and reports.

(AC 9917, 22 & Ex. D; R. Vol. I, C-6, 8, 87-111). Beginning

in 1987, Telemarketing entered into three separate con-

tracts with Vietnow to act as a professional! fundraiser and

solicit charitable donations from the public on behalf of

Vietnow. (AC 9911, 49* & Exs. B, G; R. Vol. I, C-5, 21-28,

208, 214-18). In these contracts Vietnow expressly agreed

that Telemarketing was to receive 85% of the gross receipts

it collected from charitable solicitations on behalf of

Vietnow in Illinois. (AC 9911, 49, Exs. B, C, G; R. Vol. I,

C-4-5, 23, 27, 216).

Regarding Armet, since 1989 Armet acted as the broker

in obtaining third party professional fundraisers to conduct

out-of-state fundraising for Vietnow. Under these contracts,

the third party fundraisers were to receive 70-30% of the

funds solicited, Armet was to receive 10-20% as the finder

of these fundraisers and Vietnow was to receive the remain-

ing 10%. (AC 412 & Ex. C; R. Vol. I, C-5, 29-67). The

Fundraisers’ relationship with Vietnow was solely contrac-

tual, professional and independent. The Attorney General

made no allegation that the Fundraisers at any time had an

ownership interest in Vietnow or played any role in manag-

* In his Amendments to Complaint submitted December 4,

1996, R. Vol. II, C-319-26, the Attorney General renumbered

what had been paragraphs 47A-47C and 67D-670 of his

earlier Amendments to Complaint submitted June 25, 1996

as paragraphs 48-62 of the Amended Complaint. Paragraph

47B (R. Vol. I, C-208) therefore became paragraph 49 of the

Amended Complaint.

ing or operating Vietnow. (AC Ex. A; R. Vol. I, C-17-20). As

the Illinois Supreme Court found:

Vietnow does not complain that it did not receive

the amounts for which it contracted, and there is no

suggestion that defendants have not fully complied

with the terms of their contracts. Further, Vietnow

has never expressed dissatisfaction with the fund-

raisers and there is no allegation that defendants

made affirmative misstatements to potential donors.

198 I1].2d at 348 (emphasis supplied).

Further, in his Amended Complaint, the Attorney Gen-

eral admitted that fundraising has genuine expenses and

costs. (AC 932; R. Vol. I, C-11). He never has denied that

potential donors knew that some fundraising costs would be

associated with Vietnow’s solicitation. In sum, the Attorney

General sued the Fundraisers because he believed the

contract fee arrangement they negotiated with Vietnow was

“excessive.”

In 1991 the Attorney General filed his original complaint

which, in 1996, he amended (together the “Complaint”). In

these pleadings, the Attorney General claimed that the

Fundraisers violated the Solicitation For Charity Act, 225

ILCS 460/1 et seq. (the “Solicitation Act”), the Consumer

Fraud And Deceptive Business Practices Act, 815 ILCS

505/1 (the “Consumer Fraud Act”), and the Uniform De-

ceptive Trade Practices Act, 815 ILCS 510/2 (the “UDTPA”),

and breached their fiduciary duty and engaged in fraudu-

lent concealment. The Attorney General also complained

that Armet violated the Illinois Solicitation For Charity Act

by failing to register as a professional fundraiser with the

Attorney General or ensure thet the outside professionals

it hired had registered (the “Registration Claim”).

The Attorney General sought harsh and sweeping relief

against the Fundraisers, including an order barring the

Fundraisers from charitable fundrai ing in Illinois for five

years, requiring that Mr. Troia and Telemarketing forfeit

any compensation they have earned, holding each of the

Fundraisers liable for both compensatory and punitive

damages of more than $100,000 each, requiring the Fund-

raisers to provide an accounting, surcharging them for

monies for which they cannot fully account or which are

found to have been misspent or misused as well as for all

proceeds, fees and salaries paid to persons and entities that

the Attorney General claims should have been registered

with the state prior to engaging in fundraising, and direct-

ing the Fundraisers to help pay the state’s costs in investi-

gating and suing them. (R. Vol. I, C-14-15, 212-213; R. Vol.

II, C-325-26).

The Fundraisers moved to dismiss the Attorney General’s

Complaint because it violated their right of free speech

protected by the First Amendment of the United States

Constitution. U.S. CONST. amend. I. The Fundraisers’

position was based upon this Court’s decisions beginning

with Schaumburg v. Citizens for a Better Env’t, 444 U.S.

620 (1980) (“Schaumburg”), followed by Secretary of State

of Maryland v. Joseph A. Munson, 467 U.S. 947 (1984)

(“Munson”), and culminating in Riley v. National Fed’n

of the Blind, 487 U.S. 781 (1988) (“Riley”) (collectively

the “Riley Line of Authority”), that unequivocally stated

that charitable solicitation by professional fundraisers is

protected speech entitled to the fullest First Amendment

protection and that a state may not punish a fundraiser for

earning a high fee or treat as fraud the fundraiser’s failure

to affirmatively volunteer its fee arrangement to donors.

On November 4, 1996, based upon the Riley Line of

Authority, the trial court dismissed the Attorney General’s

fraud and other claims directed at the Fundraisers’ fees,

upheld the Registration Claim and gave the Attorney Gen-

eral leave to amerd his complaint. The Attorney General’s

amendments added allegations but asserted the Complaint

in its entirety (the “Amended Complaint”). The crux of the

Amended Complaint remained that the Fundraisers earned

a high fee under their contracts but failed to affirmatively

disclose this—exactly what the Riley Line of Authority for-

bids. The Fundraisers again successfully moved to dismiss

these claims. The Registration Claim remained. Subse-

quently, the Attorney General voluntarily dismissed the

Registration Claim and the trial court entered an agreed

judgment order in favor of the Fundraisers on all claims.

The Attorney General appealed.

On May 19, 2000, the Appellate Court affirmed the trial

court’s dismissal of the Amended Complaint. People v.

Telemarketing Assoc., 313 Ill.App.3d 559, 729 N.E.2d 965

(1 Dist. 2000). On November 21, 2002, after granting the

Attorney General's Petition for Leave to Appeal, the Illinois

Supreme Court again affirmed the dismissal of the

Amended Complaint on the grounds that it is prohibited

under First Amendment principles. People v. Telemarketing

Assoc., 198 Ill.2d 345, 763 N.E.2d 289 (2001).

SUMMARY OF ARGUMENT

The Attorney General and Amici Curiae claim that if the

Illinois Supreme Court’s decision is affirmed, unscrupulous

fundraisers will have a field day in Illinois and elsewhere

and that the Attorney General and amici States wil] have

no means of stopping their misconduct. The Attorney Gen-

eral’s and amici States’ position is absolutely incorrect.

Rather, all that affirmance of the decision below means is

that the Attorney General and Attorneys General in other

states cannot take action against professional fundraisers

in violation of the First Amendment as articulated by this

Court’s controlling authority. Specifically, as in this case,

where the Fundraisers’ conduct does not include affirmative

misrepresentations, this conduct is protected by the First

Amendment. As a result, the Illinois Supreme Court’s

decision does not create a constitutional issue of substantial

public importance left unresolved by this court’s prior

decisions. To the contrary, although this Court has recog-

nized that states may use their anti-fraud provisions “to

prohibit professional fundraisers from obtaining money on

false pretenses or by making false statements,” Riley, 487

U.S. at 800, the state must be able to allege a valid fraud

claim. As the Illinois Supreme Court properly concluded,

this was something the Attorney General could not do.

The Attorney General’s claim that the First Amendment’s

protection of speech does not prohibit his Amended Com-

plaint is erroneous. There is no dispute that the Fund-

raisers have taken as fees what their contracts with Viet-

now expressly permit, Vietnow is a sophisticated, national

independent charitable organization and Vietnow has not

complained about the Fundraisers’ fees or the quality of

their services. To the contrary, Vietnow renewed the Fund-

raisers’ contracts repeatedly over the years and since 1987

employed the Fundraisers to do solicitation on its behalf.

While Vietnow has not complained, the Attorney General

would put the Fundraisers out of business, confiscate their

earnings, fine them punitive and other damages and force

them to pay for the State’s own investigation and lawsuit

based upon the Attorney General’s arbitrary judgment that

the fees earned under the Fundraisers’ contracts are ex-

cessive and that the Fundraisers should have volunteered

their fee arrangements to donors who did not ask for this

information.

As the Illinois Supreme Court recognized, this is a text-

book illustration of what this Court found was an unconsti-

tutional invasion of a charitable fundraiser’s First Amend-

ment rights under the Riley Line of Authority which

unequivocally holds that a fundraiser cannot be penalized

for earning a hih fee and may not be compelled by a state

to affirmatively disclose this fee to potential donors.

The Attorney General similarly errs in claiming that the

Illinois Supreme Court’s decision misinterpreted the Riley

Line of Authority. Rather, it is the Attorney General who

engages in such a distortion. While the Riley Line of Auth-

ority allows a state to enforce its fraud laws against a

charitable fundraiser who makes an actual misstatement,

here there is no allegation of any false statement made by

any of the Fundraisers. Likewise, the Illinois Supreme

Court correctly recognized that requiring the Fundraisers

to affirmatively volunteer their fee arrangement with

potential donors cannot, consistent with this Court's First

Amendment teachings, be the basis for a suit against the

Fundraisers. 198 I1].2d at 361-362.

Finally, the Attorney General’s claim that the Amended

Complaint states valid fraud claims is erroneous. While the

Attorney Generei characterizes his Amended Complaint as

alleging common law fraud, in fact it alleges statutory

fraud based upon the Illinois Solicitation for Charity Act,

225 ILCS 460/1 et seq., the Illinois Consumer Fraud and

Deceptive Business Practices Act, 815 ILCS 505/1, and the

Uniform Deceptive Trade Practices Act, 815 ILCS 510/1. No

matter what the characterization, as the Illinois Supreme

Court correctly found, “fraud cannot be defined in such a

way that it places on solicitors the affirmative duty to

disclose to potential donors, at the point of solicitation, the

net proceeds to be returned to the charity.” 198 II].2d at

361.

While the Attorney General quotes the Illinois Supreme

Court’s observation that “this case has far-reaching implica-

tions for all fundraisers,” 198 I11.2d at 362, he distorts those

implications. The Illinois Supreme Court’s statement was

directed toward the abrogation of the constitutional pro-

tections afforded to professional fundraisers if they could be

severely punished by the Attorney General, based upon

common law principles or statutory claims based upon

common law principles, because, in his arbitrary opinion,

the fundraiser earned too much. Specifically, the Illinois

Supreme Court correctly observed that if the Amended

Complaint is upheld, “all fund-raisers in this state would

have the burden of defending the reasonableness of their

fees, on a case-by-case basis, whenever in the Attorney

General’s judgmert the public was being deceived about the

charitable nature of a fund-raising campaign because the

fundraiser’s fee was too high.” 198 II].2d at 362.

Contrary to the Attorney General’s and amici States’

claim, the Illinois Supreme Court’s decision is not unprece-

dented nor inconsistent with this Court’s precedent or

Illinois law. To the contrary, the Illinois Supreme Court’s

decision properly interprets this Court’s prior decisions and

Illinois law. Accordingly, the Petition for a Writ of Certio-

rari should be denied.

ARGUMENT

I. THEILLINOIS SUPREME COURT CORRECTLY HELD

THAT THE ILLINOIS ATTORNEY GENERAL'S

AMENDED COMPLAINT FAILED TO STATE A CLAIM

FOR FRAUD OR BREACH OF FIDUCIARY DUTY BE-

CAUSE THE FIRST AMENDMENT TO THE UNITED

STATES CONSTITUTION BARS SUCH A CLAIM

BASED SOLELY UPON ALLEGATIONS THAT PRO-

FESSIONAL FUNDRAISERS EARNED GROSS FEES

WHICH THE ILLINOIS ATTORNEY GENERAL CON-

SIDERED EXCESSIVE AND THEIR GROSS FEES

WERE NOT VOLUNTARILY DISCLOSED TO POTEN-

TIAL DONORS.

A. The First Amendment Prohibits the Attorney

General’s Amended Complaint.

1. The Illinois Supreme Court Properly Ap-

plied Controlling Supreme Court Precedent

in Finding the Attorney General’s Action

Infringed the Fundraisers’ Free Speech

Rights.

The Illinois Supreme Court correctly found that the

Attorney General’s Amended Complaint infringed upon the

Fundraisers’ constitutional rights. This Court repeatedly

has held that solicitation activity on behalf of a charity is

a form of free speech protected by the First Amendment

to the United States Constitution. U.S. CONST. amend. I. In

Schaumburg v. Citizens for a Better Enu't, 444 U.S. 620

(1980), this Court struck down on First and Fourteenth

Amendment grounds an ordinance which prohibited on-

street and door-to-door solicitations for contributions by any

charitable organization not using at least 75% of its re-

ceipts for charitable purposes. In reaching its decision this

Court emphasized that:

Prior authorities . . . clearly establish that charita-

ble appeals for funds, on the street or door-to-door,

involve a variety of speech interests—commun-

cation of information, the dissemination and propa-

gation of views and ideas, and the advocacy of

causes—that are within the protection of the First

Amendment.

Id. at 632.

This Court repeatedly has affirmed the broad scope of

First Amendment protection accorded charitable solicita-

tion. See e.g., United States v. Kokinda, 497 U.S. 720, 725

(1990) (“Solicitation is a recognized form of speech protected

by the First Amendment.”); Meyer v. Grant, 486 U.S. 414,

422 n.5 (1988) (“[T}he solicitation of charitable contribu-

tions often involves speech protected by the First Amend-

ment and... any attempt to regulate solicitation would

necessarily infringe that speech.”).

This Court has made it equally clear that these constitu-

tional rights fully apply even where charitable solicitation

is done by paid professionals. Schaumburg, 444 U.S. at 632.

As this Court noted in Riley:

It is well settled that a speaker’s rights are not lost

merely because compensation is received; a speaker

is no less a speaker because he or she is paid to

speak.

487 U.S. 781, 801 (citing New York Times Co. v. Sullivan,

376 U.S. 254, 265-66 (1964)). Riley stressed that a “fund-

raiser has an independent First Amendment interest in the

speech, even though payment is received.” Jd. at 794 n.8.

Government action that would impinge on such protected

speech is subject to strict scrutiny and may restrict free

speech only where the restriction is precisely tailored to

further a compelling state interest. See Riley, 487 U.S. at

799-800; Munson, 467 U.S. 947, 967-68 (1984); Schaum-

burg, 444 U.S. 620, 636. As the Illinois Supreme Court

correctly found, the Attorney General cannot meet these

strict standards.

2. Preventing Fraud Cannot Justify a State's

Restrictions on Fundraisers’ Fees.

This Court has made it clear that preventing fraud

cannot justify a state’s restrictions on fundraisers’ fees.

Thus, in Schaumburg, 444 U.S. 620, the Village, similar to

the Attorney General here, complained that more thar 60%

of the funds collected by the Respondent, Citizens for a

Better Environment, were spent for the benefit of employ-

ees and not for charitable purposes. Jd. at 626. The Village

argued that this high fee showed that the Respondent was

primarily devoted to raising funds for the benefit and

salary of its employees and that its charitable purposes

were negligible compared with its primary objective of

raising funds. Jd. The Village further argued that the

Schaumburg ordinance was “intimately related to substan-

tial governmental interest ‘in protecting the public from

fraud, crime and undue annoyance,” with the prevention

of fraud being the Village’s principal justification. Jd. at

636. This Court held that these proffered justifications were

inadequate and that the Schaumburg ordinance could not

“survive scrutiny under the First Amendment.” Jd.

Subsequently, in Munson this Court reaffirmed that a

state’s interest in preventing fraud could justify a restric-

tion on fundraisers’ fees. In Munson, this Court struck

down a Maryland statute that forbade contracts between

charities and professional fundraisers if they provided that

the fundraiser would retain more than 25% of the money

collected. In so doing, Munson broadly held that:

there is no necessary connection between fraud and

high solicitation and administrative costs. A num-

ber of other factors may result in high costs; the

most important of these is that charities often are

combining solicitation with dissemination of infor-

mation, discussion, and advocacy of public issues,

an activity clearly protected by the First Amend-

ment .... -

467 U.S. at 961 (emphasis added).

Munson stressed that it is unconstitutional for a state in

any context to equate the earning of a high fee by a charita-

ble solicitor with fraud:

The flaw in this statute is not simply that it in-

cludes within its sweep some impermissible appli-

cations but that in all its applications it operates on

a fundamentally mistaken premise that high solici-

tation costs are an accurate measure of fraud.

467 U.S. at 966 (emphasis added). Munson explained that

focusing on the percentage of a donation received by a

fundraiser is not narrowly tailored to the goal of preventing

fraud, as the First Amendment requires:

That the statute in some of its applications actually

prevents the misdirection of funds from the organi-

zation’s purported charitable goal is little more

than fortuitous. It is equally likely that the statute

will restrict First Amendment activity that results

in high costs but is itself a part of the charity's goal

or that is simply attributable to the fact that the

charity's cause proves to be unpopular. On the

other hand, if an organization indulges in fraud,

there is nothing in the percentage limitation that

prevents it from misdirecting funds. In either

event, the percentage limitation, through restrict-

ing solicitation costs, will have done nothing to

prevent fraud.

Id. at 966-67.

Although the Attorney General acknowledges Munson’s

recognition that it is a “fundamentally mistaken premise

that high solicitation costs are an accurate measure of

fraud,” (AG Pet. at 7), he totally misunderstands Munson’s

implications for this suit.

As the Illinois Supreme Court emphasized, 198 I1].2d at

354, Munson specifically rejected the argument raised by

the Attorney General that a fundraiser’s receipt of high fees

means that a solicitation does not serve charitable purposes

and makes the request for a donation a form of fraud.

Although the Munson dissent similarly had argued there is

an element of “fraud” if a high proportion of the funds

raised by a professional fundraiser are used for fundraising,

the majority appropriately found that this argument “sim-

ply misses the point.” 467 U.S. at 967-68. By pursuing a

fraud action on this same theory, the Attorney General

likewise “misses the point.”

Four years after Munson, in Riley, 487 U.S. 781, this

Court again emphasized that states may not punish a

fundraiser for earning a high fee. At issue in Riley was the

constitutionality of a North Carolina statute that defined a

professional fundraiser’s reasonable fee according to a

three-tiered schedule. Under that schedule, a fee of up to

20% of receipts collected was deemed reasonable. A fee

between 20% and 30% was deemed unreasonable upon a

showing that the solicitation at issue did not involve the

dissemination of information or advocacy relating to public

issues as directed by the charity. A fee exceeding 35% was

deemed unreasonable but the fundraiser was allowed to

rebut that presumption by a showing that the fee was

necessary. Jd. at 784-85. The statute also required that

before an appeal for funds professional fundraisers orally

disclose to potential donors the percentage of charitable

contributions collected during the previous twelve months

that were turned over to the charity. Jd. at 786.

Riley held that the state’s interest in preventing fraud

could not support these restrictions:

Our prior cases teach that the solicitation of chari-

table contributions is protected speech, and that

using percentages to decide the legality of the fund-

raiser’s fee is not narrowly tailored to the State's

interest in preventing fraud.

487 U.S. at 789 (emphasis added). This Court repeated that

“there is no nexus between the percentage of funds retained

by the Fundraiser and the likelihood that the solicitation is

fraudulent ... .” Jd. at 793 (emphasis added). These broad

determinations plainly embrace a common law fraud action

that attempts to draw such a nexus.

Riiey noted that solicitations could serve charitable pur-

poses even when, unlike here, these do not directly gener-

ate any fees for the charity:

The State presumes that the charity derives no

benefit from the funds collected but not turned over

to it. Yet this is not necessarily so. For example,

. . « Where the solicitation is combined with advo-

cacy and dissemination of information, the charity

reaps a substantial penefit from the act of solicita-

tion itself. Thus, a sufficient portion of the fund-

raiser’s “fee” may well go toward achieving the

charity’s objectives even though it is not remitted to

the charity in cash.

487 U.S. at 798-99.

Notably, Vietnow, the charity for which the Fundraisers

solicited money, has a goal of public education as part of its

mission. Among its charitable purposes are to “help in-

crease community awareness about the problems and

readjustments encountered by the Vietnam veteran and his

family” and “to demonstrate to the community that Viet-

nam veterans are a vital resource.” (R. Vol. I, C-17-18). The

Attorney General cannot and does not take issue with these

goals. He does not deny that Vietnow could expend signifi-

cant funds to do such public education itself. As Munson

shows, it is equally lawful for Vietnow to enter into con-

tracts to pay sums to a professional solicitor to do such

education on its behalf. The First Amendment does not

allow a state official to interfere with this choice.

Riley emphasized that the First Amendment prohibits

a state from interfering with a charity's determination of

how best to take its message to the public. Riley, therefore,

rejected that a percentage restriction paid to charitable

solicitors could be justified on the ground that charitable

organizations are economically unable to negotiate fair or

reasonable contracts without governmental assistance. As

this Court stated:

[T)his regulation burdens speech, and must be con-

sidered accordingly. There is no reason to believe

that charities have been thwarted in their attempts

to speak or that they consider the contracts in

which they enter to be anything less than equita-

ble. Even if such a showing could be made, the

state’s solution stands in sharp conflict with the

First Amendment’s command that government reg-

ulation of speech must be measured in minimums,

not maximums.

The state’s remaining justification—the paternalis-

tic premise that charities’ speech must be regulated

for their own benefit—is equally unsound. The First

Amendment mandates that we presume that

speakers, not the government, know best what they

want to say and how to say it.

487 U.S. at 790-91. Tellingly, here, there is no allegation

that Vietnow made any complaint about the Fundraisers’

fees. To the contrary, it renewed its fee arrangements with

the Fundraisers in a series of successive contracts over a

period of more than eight years.

3. The Attorney General’s Amended Complaint

Violates the First Amendment because It

Improperly is Based Upon the Amount of the

Fundraisers’ Fees and Their Failure to Dis-

close Their Fee Arrangements.

The Attorney General erroneously argues that the prob-

lem with the statutes in Riley was their across-the-board

applicability to all fee arrangements in excess of a certain

percentage and that Riley does not limit his right to bring

a common law fraud action against an individual fundraiser

who earns a particular high fee. (AG Pet. at 11). To begin

with, in arguing that his claim is one for common law fraud

the Attorney General mischaracterizes his own Amended

Complaint. He ignores that, just as in Riley, Munson and

Schaumburg, his case is grounded on alleged statutory

violations. Indeed, he claims the Fundraisers have violated

not one but three statutes—the Illinois Solicitation For

Charity Act, the Illinois Consumer Fraud and Deceptive

Practices Act and the UDTPA.®

The Attorney General further errs in claiming free speech

is less chilled by giving him the discretion to pick and chose

which fundraisers to sue than by a blanket statutory

prohibition. (AG Pet. at 12.) The Illinois Supreme Court

properly rejected this argument, reasoning that this Court’s

teachings regarding “the government’s rights to pursue ‘less

intrusive’ measures .. . plainly meant that the government

retained the right to regulate conduct of fundraisers in a

manner that was ‘less intrusive’ of their constitutional

rights. The present action is not ‘less intrusive’ . . . simply

because it is an instance of individual litigation.” 198 I1].2d

at 358 (emphasis in original).

° Of course, the precise nature of the Attorney General’s

claims is difficult to determine because he did not plead each

separate cause of action as a separate count as §2-603 of the

Illinois Code of Civil Procedure requires. 735 ILCS 5/2-603.

The First Amendment does not permit constitutional

rights to be eroded lawsuit by lawsuit. This Court has held

that actions in tort which would restrict First Amendment

freedoms violate the First and Fourteenth Amendments.

See, e.g., New York Times Co. v. Sullivan, 376 U.S. 254, 265

(1964); Board of County Comm’rs Wabaunsee County v.

Umbehr, 518 U.S. 668, 674 (1996) (“Constitutional viola-

tions may arise from the deterrent or ‘chilling’ effect of

governmental [efforts] that fall short of a direct prohibition

against the exercise of First Amendment rights.”).

Far from permitting fraud actions based upon official

discretion, Munson and Riley specifically held that these,

too, were unconstitutional. The Maryland statute in

Munson gave the Secretary of State the discretion to grant

a waiver of the statute “whenever necessary.” The Secre-

tary of State argued that this made the law constitutional

because she had granted such waivers in an extremely

liberal manner, with special care shown for the rights of

advocacy groups. 467 U.S. at 964 n.12. This Court dis-

agreed and explained why giving a state official such

discretion would threaten free speech: |

[E]ven if the Secretary of State were correct, the

waiver provision were broad enough to allow for

exemptions “whenever necessary,” we would find

the statute only slightly less troubling. Our cases

make clear that a statute that requires such a

“license” for the dissemination of ideas is inherently

suspect. By placing discretion in the hands of an

official to grant or deny a license, such a statute

creates a threat of censorship that by its very exis-

tence chills free speech. Under the Secretary's

interpretation, charities whose First Amendment

rights are abridged by the fundraising limitations

simply would have traded a direct prohibition on

their activity for a licensing scheme that, if it is

available to them at all, is available only at the

unguided discretion of the Secretary of State.

Id. (emphasis added).

Riley likewise stressed the dangers of allowing public

officials to decide whether to restrict free speech on a case-

by-case basis. While the North Carolina statute created s

presumption of unreasonableness, a professional solicitor

could still avoid its reach by showing to the factfinder’s

satisfaction that the fee was necessary. 487 U.S. at 793. As

described by the state in Riley, the factfinder made the

ultimate determination as to whether the fee was reason-

able on a case-by-case basis. Jd. This Court found this

scheme to be “fundamental[ly] flawed”:

Even if we agreed that some form of a percentage-

based measure could be used, in part, to test for

fraud, we could not agree to a measure that re-

quires a speaker to prové “reasonable” case by case

based upon what is at best a loose amenne that

the fee might be too high.

Id.

Riley explained why such an arrangement could only chill

free speech:

[O}f course, in every such case, the fundraiser must

bear the costs of litigation and the risk of a mis-

taken adverse finding by the factfinder, even if the

fundraiser and the charity believe that the fee was

in fact fair. This scheme must necessarily chill

speech in direct contravention of the First Amend-

ment’s dictates.

Id. at 794.

This case illustrates these predicted dangers. The At-

torney General has spent ten years litigating the fairness

of an arms-length, bargained-for fee arrangement between

a charity and its fundraisers based on his arbitrary conten-

tion that the Fundraisers’ gross fees are earning too much.

The Fundraisers have not only had to spend vast amounts

of money, time and resources fighting for their constitu-

tional rights, but also have had to labor under the cloud

that, should the Attorney General succeed, they could lose

their livelihood and face financial ruin.

To uphold the Amended Complaint would place all

charitable fundraisers at the mercy the Attorney General’s

whims. Potentially any gross fee can be called “too high.” —

Potentially any contract or arrangement can be called

“unreasonable.” Every time a fundraiser contracts with a

charity it would take the risk that it may lose the entire

fruit of its efforts, be forced out of business, face untold

amounts of punitive damages and other draconian civil and

possibly even criminal penalties for its conduct. There is

nothing to prevent the Attorney General from using fees as

a pretext to punish those charities he does not like.

Riley held that the constitution does not permit state

officials to so threaten protected speech:

This chill and uncertainty might well drive profes-

sional fundraisers out of North Carolina, or at least

encourage them to cease engaging in certain types

of fundraising (such as solicitations combined with

the advocacy and dissemination of information) or

representing certain charities (primarily small

or unpopular ones), all of which will ultimately

“reduc(e] the quantity of expression.” Whether one

views this as a restriction of the charity’s ability to

speak, or a restriction of the professional fund-

raisers’ ability to speak, the restriction is undoubt-

edly one on speech, and cannot be countenanced

here.

487 U.S. at 794 (citations omitted). Here, the Attorney Gen-

eral is specifically asking the Court to drive the Fund-

raisers out of business in Illinois, (R. Vol. I, C-213), exactly

what Riley said “cannot be countenanced.” Jd.

4. The Attorney General Seeks to Unconstitu-

tionally Compel Protected Speech.

The Attorney General argues that the Riley Line of

Authority permits a fraud action against the Fundraisers

because they allegedly represented that monies donated

would be used for Vietnow’s charitable purposes but did not

represent that, pursuant to their contracts with Vietnow,

only 15% of the proceeds raised went to Vietnow. Contrary

to the Attorney General’s claim, as the Illinois Supreme

Court correctly found, “the Amended Complaint is, in

essence, an attempt to regulate the [Fundraisers’] ability to

engage in a protected activity based upon a percentage-rate

limitation. This is the same regulatory principle that was

— in Schaumburg, Munson and Riley.” 198 I11.2d at

Significantly, and fatal to the Amended Complaint, the

Attorney General made no attempt to articulate when a

fundraiser has a “duty” to disclose its fees or what stan-

dards to use to make this determination. Instead, he asks

for arbitrary power that would chill speech. The Illinois

Supreme Court recognized the danger of the Attorney

General’s approach: “Fund-raisers . . . would be at a

constant risk of incurring litigation costs, as well as civil

and criminal penalties, which could produce a chilling effect

on protected speech, based on nothing more than a loose

inference that the fee might be too high.” 198 II].2d at_362

(internal quotation marks and citations omitted).

Along with striking down the fee schedule set forth in

North Carolina’s charitable solicitation statute, Riley also

struck down a provision of the statute which required a

fundraiser to disclose the percentage of funds it kept as its

fees during the prior twelve months. Just as the Attorney

General does here, (AG Pet. at 11), North Carolina argued

in Riley that the mandatory disclosure of fees was justified

by the state’s interest in informing donors how the money

they contribute is spent to dispel what the state alleged was

a misperception by donors that the money they give to pro-

fessional fundraisers goes in greater-than-actual proportion

to benefit charity. 487 U.S. at 798. This Court held that the

disclosure requirement compelled speech and was therefore

a content-based restriction subject to exacting First Amend-

ment scrutiny. Jd. at 789. This Court found that the man-

datory disclosure rule could not withstand such scrutiny

because the proffered state interest was “not as weighty as

the state asserts” and that “the means chosen to accomplish

it are unduly burdensome and not narrowly tailored.” Jd. at

798. The Attorney General’s claim not withstanding, these

same concerns apply as much to a lawsuit aimed at a

fundraiser’s failure to disclose as to a statute.

In Riley, this Court recognized that donors are aware that

solicitors incur costs to which part of their donation might

apply. Jd. at 799. The Attorney General never has disputed

this. Riley also emphasized that donors are free to inquire

how much of their contribution will be turned over to the

charity. Jd. Consistent with this allowable inquiry, Illinois

law requires fundraisers to respond truthfully to such

questions. See 225 ILCS 460/18(c).

Likewise, as the Riley Line of Authority notes, a state’s

legitimate interest in preventing fraud can be satisfied by

methods that do not impinge on First Amendment free-

doms. As Riley noted, a state is free to require charitable

fundraisers to discharge certain financial information to the

state. Id. at 795. As Ex. D to the Amended Complaint

demonstrates, (R. Vol. I, C-68-87), Illinois requires such

disclosures and Telemarketing has complied. Indeed, that

appears to be where the Attorney General obtained his

figures regarding the Fundraisers’ Illinois fees. (R. Vol. I,

C-207-208). Riley also noted a state is free to publish these

financial disclosure forms. /d. at 800. Moreover, a state may

turn to its existing fraud laws where actual misrepresenta-

tions were made. /d.; Munson, 467 U.S. at 967; Schaum-

burg, 444 U.S. at 637. Here the Attorney General can point

to no actual! misstatement by the Fundraisers because they

said nothing fraudulent or untruthful! in representing that

the funds raised benefited Vietnow. As a result, as dis-

cussed below, the Fundraisers’ fee arrangements cannot

provide the basis for fraud or breach of fiduciary duty

claims.

B. The Amended Complaint Does Not State Valid

Claims For Fraud or Breach of Fiduciary Duty.

The Attorney General argues that his Amended Com-

plaint states causes of action for fraud and breach of

fiduciary duty® based upon the facts that the Fundraisers

* In the Illinois courts, the Attorney General also erroneously

claimed that the Fundraisers, who solicit and receive money

from the donating public, breached a fiduciary duty based

upon their failure to affirmatively disclose the amount of their

fees. As with fraud [Illinois law imposes a disclosure obligation

only upon a fiduciary with a duty to disclose. E.g., Chicago

Park District v. Kenroy, 78 M1ll.2d 555, 402 N.E.2d 181 (1980).

Consistent with First Amendment analysis, no such duty

arises where what is not disclosed is protected speech. More-

over, even though the fundraisers in the Riley Line of Author-

ity solicited and collected money from the donating public, this

Court found they had a constitutional right not to disclose

(continued...)

charged gross fees that the Attorney General deems were

excessive and the Fundraisers did not disclose their gross

fee arrangements to potential donors. For the many reasons

discussed above, these allegations violate the First Amend-

ment.

To support his claim, the Attorney General cites a

number of cases setting forth the basic elements required

to plead a fraud claim. It is hornbook law however that

before an omission can be the basis of a fraud claim there

must be an intent to deceive “under circumstances creating

an opportunity and duty to speak.” Perlman v. Time, Inc.,

64 Ill.App.3d 190, 195, 380 N.E.2d 1040 (1" Dist. 1978)

(emphasis supplied). See Lidecker v. Kendall College, 194

Ill.App.3d 309, 314, 550 N.E.2d 1121 (1" Dist. 1990);

Central States Joint Board v. Continental Assurance Co.,

117 Ill.App.3d 600, 604, 453 N.E.2d 932 (1" Dist. 1983).

The same is true to state a claim for fraudulent conceal-

ment. See Connick v. Suzuki Motor Co., 174 Ill.2d 482, 500,

675 N.E.2d 584 (1996); Hirsch v. Feuer, 299 Ill.App.3d 1076,

1086, 702 N.E. 265 (1" Dist. 1998); Lagen v. Lagen, 14

Il].App.3d 74, 79, 302 N.E.2d 201 (1" Dist. 1973).’

Indeed, in the cases cited by the Attorney General, fraud

was found premised upon the existence of such a duty. For

example, Buechin v. Ogden Chrysler-Plymouth, Inc., 159

Il].App.3d 237, 511 N.E.2d 1330 (2d Dist. 1987), (AG Pet.

at 8), involved a consumer purchase of a car that was

falsely represented by the seller to be new. The basis for the

court’s finding that the seller had misrepresented material

(...continued)

their fees. In this Court, the Attorney General seems to have

abandoned his breach of fiduciary duty claim.

? The amici States advance a similarly incorrect analysis of

state fraud principles. (Amici Br. at 2-4.)

facts was the seller’s duty to advise the purchasers that the

cars previously had been sold. Likewise, in Pence v. United

States, 316 U.S. 332 (1942), (AG Pet. at 8), an insured was

found to have engaged in fraud where he made statements

about his health condition for purposes of obtaining disabil-

ity compensation that contradicted prior statements made

in his application for reinstatement of his life insurance

policy after it had lapsed for nonpayment of premiums—a

condition which he had a duty to report honestly. Similarly,

in Glazewski v. Coronet Ins. Co., 108 Ill.2d 243, 483 N.E.2d

1263 (1985), (AG Pet. at 7, 8), a complaint alleging fraud

against an insurance company was upheld where the

company failed to disclose that the uninsured motorist

coverage that it issued had no value, a disclosure that the

insurance company had a duty to make. Indeed, in Jn re

Witt, 145 I1l.2d 380, 538 N.E.2d 526 (1991), (AG Pet. at 7,

8), a judicial disciplinary proceeding, the court found the

judge had not engaged in fraud because he did not have a

duty to disclose on his Statement of Economic Interest a

loan from a litigant which was a legitimate economic

transaction.

Further, the Attorney General's reliance upon United

States v. Ciccone, 219 F.3d 1078 (9" Cir. 2000), (AG Pet. at

8 n.2), is particularly misplaced. In that case, the head of a

company that solicited charitable donations was convicted

of wire fraud and other criminal offenses based upon af-

firmative misrepresentations to potential donors including

that they had won a fabulous prize that did not exist.

Indeed, the defendant conceded that his company defrauded

people. His defense, which was not accepted, was that he

was not a knowing participant in the scheme.

. Further, the Attorney General's and amici States’ posi-

tion that the Illinois Supreme Court’s decision did not

question the sufficiency of the Amended Complaint under

state law and based its decision solely upon First Amend-

ment grounds is absolutely incorrect. In its recitation of

the facts, the Illinois Supreme Court highlights that the

Amended Complaint contains “no allegation that defen-

dants made affirmative misstatements to potential donors.”

198 I1].2d at 348. Moreover, in concluding that the Amend-

ed Complaint is an improper attempt to regulate the Fund-

raisers’ ability to engage in protected activity based upon a

percentage rate limitation, the Illinois Supreme Court

relied upon the insufficiency of the Amended Complaint

under state law: “(T]he statements made by defendants

during solicitation are alleged to be ‘false’ only because

defendants retained 85% of the gross receipts and failed to

disclose this information to donors.” 198 I1].2d at 359.

No matter how many ways the Attorney General tries to

cast it, the result is the same. His Amended Complaint does

not state a claim for fraud because the Fundraisers made

no affirmative mispresentations and, as made clear by this

Court’s teachings in the Riley Line of Authority, they had

no duty to voluntarily disclose the percentage of the fees

they retained to potential donors. The Illinois Supreme

Court recognized this deficiency and properly affirmed the

dismissal of the Amended Complaint.

TIONS.

The Attorney General's and amici States’ claim that the

Illinois Supreme Court’s ruling eliminates all governmental

fraud cases is disingenuous. All that is prohibited, consis-

tent with the First Amendment, are fraud actions based

upon the fundraiser’s failure to affirmatively volunteer its

fee arrangement. As this Court has made clear, there can

be no duty to disclose a fact about which one has a constitu-

tional right to remain silent. See Hurley v. Irish-American

Gay, Lesbian and Bisexual Group of Boston, 515 U.S. 557,

573 (1993). (“[O}ne important manifestation of the principle

of free speech is that one who chooses to speak may also

decide ‘what not to say.’”) (citation omitted). The Riley Line

of Authority gives the Fundraisers that right.

The Attorney General argues that donors would not have

given to Vietnow if they had known the Fundraisers’ fee.

But this is precisely why this Court in Riley found the com-

pelled disclosure of fees to be unconstitutional:

[T]he compelled disclosure will almost certainly

hamper the legitimate efforts of professional fund-

raisers to raise money for the charities they repre-

sent. First, this provision necessarily discriminates

against smaller and unpopular charities, which

must usually rely on professional fundraisers... .

Campaigns with high costs and expenses carried

out by professional fundraisers must make unfavor-

able disclosures, with the predictable result that

such solicitations will prove unsuccessful. Yet the

identical solicitation with its high costs and ex-

penses, if carried out by the employees of a charity

or volunteers, results in no compelled disclosure,

and therefore greater success. Second, in the con-

text of a verbal solicitation, if the potential donor is

unhappy with the disclosed percentage the fund-

raiser will not likely be given a chance to explain

the figure; the disclosure will be the last word

spoken as the donor closes the door or hangs up the

phone. Again, the predicable result is that the

professional fundraisers will be encouraged to quit

the State or refrain from engaging in solicitations

that result in an unfavorable disclosure.

487 U.S. at 799 (emphasis added).

The Attorney General claims that the Riley Line of

Authority left open the question “whether, and in what

manner, common law fraud principles must be modified to

accommodate the First Amendment in a particular factual

situation.” (AG Pet. at 15.) Those cases did nothing of the

sort. The very point of those cases was to make clear the

protections afforded professional fundraisers by the First

Amendment. The Attorney General’s desire to “modify”

state fraud principles is simply his attempt to make an end

run around these First Amendment protections.

Likewise, the Attorney General is incorrect when he

claims that the Illinois Supreme Court’s decision has ren-

dered useless a state’s use of its anti-fraud laws to combat

solicitation fraud. To the contrary, the Fundraisers are not

claiming to be immune from Illinois fraud laws. Rather, as

the Illinois Supreme Court recognized and as the Riley Line

of Authority holds, they are subject to fraud laws properly

and fairly applied to instances of actionable misrepresen-

tation. That is not what the Attorney General is doing.

Rather, he is trying to twist the meaning of Illinois fraud

law to apply to content—the amount of fundraisers’ fees

(without regard, of course, for the significant expenses

associated with their solicitation)—that this Court has said

is protected speech and may not be treated as a form of

fraud.

That the Amended Complaint was dismissed does not, as

the Attorney General and amici States disingenuously

claim, prohibit the Attorney General from ever looking

behind the use of funds solicited for a charity. If, unlike the

conduct here, fundraisers engage in affirmative misrepre-

sentation, then, consistent with the Riley Line of Authority,

state anti-fraud provisions appropriately can be used to

combat that misconduct. As a result, the imagined evils to

the donating public, as described by the Attorney General

and the amici States from affirmance of the decision below

are simply that—imagined. The Illinois Supreme Court’s

decision is consistent with this Court’s precedent and

Illinois law.

CONCLUSION

For each of the reasons set forth above, either independ-

ently or in combination, the Illinois Attorney General’s

Petition for Writ of Certiorari should be denied.

Respectfully submitted,

MICHAEL A. FICARO

Counsel of Record

SUSAN G. FEIBUS

UNGARETTI & HARRIS

Three First National Plaza

Suite 3500

Chicago, Illinois 60602

(312) 977-4400

Attorneys for Respondents

APPENDIX A

A-1-1

ILLINOIS SOLICITATION FOR CHARITY ACT

225 ILCS 460/9c). Actions for Violation of Act

Whenever the Attorney General shall have reason to be-

lieve that any charitable organization, professional fund-

raiser, or professional solicitor is operating in violation of

the provisions of this Act, or if any of the principal officers

of any charitable organization has refused or failed, after

notice, to produce any records of such organization or there

is employed or is about to be employed in any solicitation or

collection of contributions for a charitable organization any

device, scheme, or artifice to defraud or for obtaining money

or property by means of any false pretense, representation

or promise, or any false statement has been made in any

application, registration or statement required to be filed

pursuant to this Act, in addition to any other action autho-

rized by law, he may bring in the circuit court an action in

the name, and on behalf of the people of the State of Illinois

against such charitable organization and any other person

who has participated or is about to participate in such

solicitation or collection by employing such device, scheme,

artifice, false representation or promise, to enjoin such

charitable organization or other person from continuing

such solicitation or collection or engaging therein or doing

any acts in furtherance thereof, or to cancel any registration

statement previously filed with the Attorney General.

In connection with such proposed action the Attorney

General is authorized to take proof in the manner provided

in Section 2-1003 of the Code of Civil Procedure.

225 ILCS 460/15. Statements or representations

made during solicitation

(a) Trustees of charitable trusts, organizations and cor-

porations have a duty to supervise fund raising activities

to ensure that contributions are adequately protected and

A-1-2

devoted to the proper purpose and that statements or rep-

resentations made during solicitations to the public are true

and correct.

(h) If any person, including a charitable organization, a

professional! fundraiser or a professional solicitor, in con-

ducting a fundraising campaign for a charitable organiza-

tion or for charitable or ostensibly charitable purposes:

(5) Engages in any public solicitation and therein

purports to relate the purpose or purposes for which

the funds are solicited, such shall then be fully and

accurately identified to the prospective donor. If a

charitable organization whose purposes include the

rendering of nceducational program services intends

to expend or budget more than 50% of its program

service expenditures for informing or educating the

public and the funds being solicited will be used for

such purpose, the donor at his or her request must be

told that a primary use of the program funds will be

for public education.

225 ILCS 460/18. Misrepresentations of fact

In any solicitation of contributions for a charitable or-

ganization it shall be deemed a misrepresentation of fact if

any person:

solicitor and refuses or fails to supply, upon the request

of a person being solicited, the hourly rate charge or the

estimated percentage or actua! percentage, if known,

which is to be paid to or retained by the professional

fundraiser and solicitor and the amount to be paid to

the charitable organization under the fundraising con-

tract then in effect and the amount to be paid to the

A-1-3

ILLINOIS CONSUMER FRAUD AND

DECEPTIVE BUSINESS PRACTICES ACT

815 ILCS 505/1. Definitions

(a) The term “advertisement” includes the attempt by

publication, dissemination, solicitation or circulation to

induce directly or indirectly any person to enter into any

obligation or acquire any title or interest in any merchan-

dise and includes every work device to disguise any form of

business solicitation by using such terms as “renewal”,

“invoice”, “bill”, “statement”, or “reminder”, to create an

impression of existing obligation when there is none, or

other language to mislead any person in relation to any

sought after commercial transaction;

(b) The term “merchandise” includes any objects, wares,

goods, commodities, intangibles, real estate situated outside

the State of Illinois, or services;

legal representative, partnership, corporation (domestic and

foreign), company, trust, business entity or association, and

any agent, employee, salesman, partner, officer, director,

member, stockholder, associate, trustee or cestui que trust

thereof;

(d) The term “sale” includes any sale, offer for sale, or

attempt to sell any merchandise for cash or on credit.

(e) The term “consumer” means any person who pur-

chases or contracts for the purchase of merchandise not for

resale in the ordinary course of his trade or business but for

his use or that of a member of his household.

(f) The terms “trade” and “commerce” mean the advertis-

ing, offering for sale, sale, or distribution of any services

and any property, tangible or intangible, real, personal or

mixed, and any other article, commodity, or thing of value

wherever situated, and shall include any trade or commerce

directly or indirectly affecting the people of this State.

A-1-4

(g) The term “pyramid sales scheme” includes any plan

or operation whereby a person in exchange for money or

other thing of value acquires the opportunity to receive a

benefit or thing of value, which is primarily based upon the

inducement of additional persons, by himself or others,

regardless of number, to participate in the same plan or

operation and is not primarily contingent on the volume or

quantity of goods, ser: ‘ces, or other property sold or dis-

tributed or to be sold or distributed to persons for purposes

of resale to consumers. For purposes of this subsection,

“money or other thing of value” shall not include payments

made for sales demonstration equipment and materials

furnished on a nonprofit basis for use in making sales and

not for resale.

815 ILCS 505/2. Unlawful practices

Unfair methods of competition and unfair or deceptive

acts or practices, including but not limited to the use or

employment of any deception fraud, false pretense, false

promise, misrepresentation or the concealment, suppression

or omission of any material fact, with intent that others rely

upon the concealment, suppression or omission of such

material fact, or the use or employment of any practice

described in Section 2 of the “Uniform Deceptive Trade

Practices Act”, approved August 5, 1965, in the conduct

of any trade or commerce are hereby declared unlawful

whether any person has in fact been misled, deceived or

damaged thereby. In construing this section consideration

shall be given to the interpretations of the Federal Trade

Commission and the federal courts relating to Section 5(a)

of the Federal Trade Commission Act.

A-1-5

UNIFORM DECEPTIVE TRADE PRACTICES ACT

815 ILCS 510/2. Acts constituting deceptive trade

practice

(a) A person engages in a deceptive trade practice

when, in the course of his or her business, vocation, or oc-

cupation, the person:

(1) passes off goods or services as those of another;

(2) causes likelihood of confusion or of misunderstand-

ing as to the source, sponsorship, approval, or certifica-

tion of goods or services;

(3) causes likelihood of confusion or of misunderstand-

ing as to affiliation, connection, or association with or

certification by another;

(4) uses deceptive representations or designations of

geographic origin in connection with goods or services;

(5) represents that goods or services have sponsorship,

approval, characteristics, ingredients, uses, benefits, or

quantities that they do not have or that a person has a

sponsorship, approval, status, affiliation, or connection

that he or she does not have;

(6) represents that goods are original or new if they are

deteriorated, altered, reconditioned, reclaimed, used, or

secondhand;

(7) represents that goods or services are of a particular

standard, quality, or grade or that goods are a particu-

lar style or model, if they are of another;

(8) disparages the goods, services, or business of

another by false or misleading representation of fact;

(9) advertises goods or services with intent not to sell

them as advertised;

A-1-6

(10) advertises goods or services with intent not to

supply reasonably expectable public demand, unless the

advertisement discloses a limitation of quantity;

(11) makes false or misleading statements of fact con-

cerning the reasons for, existence of, or amounts of

price reductions;

(12) engages in any other conduct which similarly

creates a likelihood of confusion or misunderstanding.

(b) In order to prevail in an action under this Act, a

plaintiff need not prove competition between the parties or

actual confusion or misunderstanding.

otherwise actionable at common law or under other statutes

of this State.

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.