Opposition Brief — Carbaugh v. Telco Communications, Inc.

No. 89-1911

In The

SUPREME COURT OF THE UNITED STATES

October Term, 1989

—

S. MASON CARBAUGH, as he is

Commissioner of the Department

of Agriculture and Consumer Services

Petitioner,

v.

TELCO COMMUNICATIONS, INC.

Respondent.

——@—

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

a

BRIEF IN OPPOSITION

—@—.

PETER S. BROOKS

. Telco Communications, Inc.

21 Industrial Court

Seekonk, MA 02771

508-336-6633

JOHN G. DOUGLASS

Wright, Robinson, McCammom,

Osthimer & Tatum

411 East Franklin Street

Richmond, VA 23219

804-783-1100

*LOUIS J. SCERRA, JR.

Goldstein & Manello

265 Franklin Street

Boston, MA 02110

617-439-8900

*Counsel cf Record

BEST AVAILABLE COPY” Eee

QUESTION PRESENTED

Where a state agency has commenced an investigation and has held

one informal meeting with a party, but has not commenced a formal

administrative proceeding, should a federal court abstain from exer-

cising jurisdiction in a suit by the target of that investigation?

TABLE OF CONTENTS

Page

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TABLE OF AUTHORITIES

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Cases

City of Houston, Texas v. Hill, U.S._ 107 S.Ct. 2502

IIT ili Latta acacdendancbendiiadbatu\eubisunaiidbsntasvndenvessaesuesinian 8

Colorado River Water Conservation v. United States, 424

I cand ndachcnchsanniaanindidrtahanceniniaeseenseonabs 8

County of Allegheny v. Frank Mashuda Co., 360 U.S. 185,

sc snasataensbnennnnbnnpiiabebases 8

Doran v. Salem Inn, Inc., 422 U.S. 922 (1975) woe eceeeeeeeeeeee 9

Hawaii Housing Authority v. Midkiff, 467 U.S. 299, 237

iain ch hnhacclabmieahd nc obihincintnivensesaesesbrenssess 8

Hicks v. Miranda, 422 U.S. 332, 349 (1975) ..........ccccssssrrresesees 9

Lake Carriers Association v. MacMullan, 406 U.S. 498,

a aihattcaddiacacichdbinicaninindduiloastasstunsaviubtaneness 5

Middlesex County Ethics Committee v. Garden State Bar

Association, 457 U.S. 423, 433-34 (1982) 00.0... ccceeeeeeeeeee 6

Ohio Civil Rights Commission v. Dayton Christian Schools,

as ccdwesbunsmbensuayneiaceunnnss 6

Steffel v. Thompson, 415 U.S. 452 (1974) won. ccccceeeeeeneeeeees me

Wulp v. Corcoran, F.2d 826, 831 (1st Cir. 1972) oo... eeeeees 7

POET F. TEMPER, SOL UD. BT (IGT) .cccessccrsssssevesssesscccccnsnsnsee 5

STATEMENT OF THE CASE

Telco is a Rhode Island corporation engaged in the business of

providing professional fund raising services to civic organizations

and labor unions for a fee. Telco publishes a series of handbooks

relating to public health and safety and arranges for the sale of

advertising to be included in these handbooks. The proceeds from the

sale of advertising are divided among Telco, its sales representatives,

and Telco's clients.

In March of 1988, Telco was advised by the Office of Consumer

Affairs of the Commonwealth of Virginia ("OCA") of an investiga-

tion of its fund raising activities in Virginia. Specifically, the OCA

advised Telco that it appeared that Telco had failed to disclose to

potential advertisers the percentage of the gross receipts to be paid to

the organizations for whom Telco was selling advertising, in viola-

tion of Virginia Code Section 57-55.1. (R.App.7)! In response,

Telco's counsel requested a meeting with the OCA to discuss the

issues raised by its letter and the enforceability of the disclosure

requirement. (R.App. 4-5).

In addition to charging Telco with failing to disclose the division

of the advertising revenues, the OCA also charged Telco with failing

to submit accurate scripts of the sales presentations made by its sales

representatives. The OCA claimed to have evidence that sales

representatives made statements to potential advertisers that were at

variance with the scripts of the presentations that Telco was required

to and did submit to the OCA (App.11-15). After several further

requests by Telco for a meeting to discuss the charges of the OCA, the

OCA finally agreed to such a meeting in June of 1988. An informal

conference was held in early July of 1988 to discuss the charges by the

OCA and Telco and the OCA stipulated that the meeting was to be

"settlement negotiations" and the parties agreed that any statements

made could not be used as evidence or admissions. (R.App. 8). No

settlement of the dispute was accomplished and Telco thereafter filed

suit in the federal court.

' Reference is to the appendix of the Respondent set forth herein. Respondent shall

refer to the appendix contained in the Petition as “App”.

2

—_

Telco challenged four provisions of the charitable solicitation

law under the First and Fourteenth Amendments to the United States

Constitution. First, Telco claimed that Section 57-55.1 of the

Virginia Code, which requires the disclosure of the percentage of the

gross revenue to be remitted to a charitable or civic organization, was

unconstitutional under the First Amendment. Second, Telco chal-

lenged Section 57-55.2 (iii), which requires a paid solicitor todisclose

the availability of a financial statement to each contributor. Third,

Telco challenged the requirement that it submit the text of its oral

solicitation to the OCA. Finally, Telco challenged the right of the

Commonwealth of Virginia to suspend or revoke a paid solicitor's

license.

The OCA took no administrative action after the meeting in July

and after Telco filed suit. The OCA simply chose not to commence

an administrative action, but rather to await the outcome of the

litigation. (R.App. 10-12) The OCA did not even pursue an admin-

istrative action for the alleged violations of the Virginia Code that

were not challenged by Telco in the federal court .?

The petition of the OCA to this Court completely fails to disclose

that the District Court below invited the OCA to commence an

administrative action and the OCA declined the invitation. The

District Court below issued an order directing the OCA to state,

within fifteen days, “whether the Office of Consumer Affairs has

initiated a formal hearing under the Virginia Administrative Process

Act...for the revocation or suspension of plaintiff's registration"

(R.App. 9) In response, the OCA admitted that no administrative

action had been taken since the filing of Teico's complaint and that it

had no plans to commence such action. (R.App.10-12) The District

Court then denied the OCA's motion, holding that there was no

pending administrative proceeding to which it could or should defer.

(App. 19-26)

2 Telco was charged with failing to identify itself and failing to state that it was a

paid solicitor. A Telco solicitor was also charged with falsely stating that he was

a volunteer and Telco was cited for failing to timely file a financial statement. The

consututionality of these provisions of the Virginia Code allegedly violated by

Telco was not challenged by Telco.

The District Court granted Telco's motion for summary judg-

ment and declared each of the four challenged provisions to be uncon-

stitutional under the First Amendment. The Court of Appeals for the

Fourth Circuit affirmed the decision of the District Court in part and

reversed in part. The Court of Appeals ruled that the District Court

correctly declined to abstain and correctly determined the script

requirement to be unconstitutional. However, the Court of Appeals

held Telco's challenge to Section 57-55. i to be moot and its challenge

to the license revocation provisions to be non-justiciable. The Court

of Appeals reversed the decision of the District Court as to the

constitutionality of Virginia Code Section 57-55.2 (iii). The Com-

monwealth sought rehearing and rehearing in banc with respect to the

Court of Appeals’ decision that abstention was not required. The

motion for rehearing and for rehearing in banc was denied.

In affirming the District Court's denial of the OCA's motion to

dismiss on the ground of abstention, the Court of Appeals correctly

noted that there was no ongoing state proceeding disrupted by Telco's

suit. (App. 32) The "informal fact finding conference" held by the

OCA on July 6, 1988 did not constitute the commencement of a state

administrative proceeding, according to the Court of Appeals, be-

cause there was no further proceeding that necessarily follows from

that informal conference. The Court of Appeals also noted that nearly

four months had passed from the initial notice of investigation from

the OCA until the first settlement conference and there was no

provision under the Administrative Process Act to ensure that Telco's

constitutional challenge could be promptly adjudicated through the

administrative process. (App.32) Thus, Telco was faced with a

continuing infringement of its First Amendment rights by the OCA

yet was provided with no forum in which to contest the administrative

charges except by proceeding with an action in federal court.

The Court of Appeals also noted that the informal fact finding

provisions of the Virginia Administrative Code are net sufficiently

"judicial in nature" so as to invoke the principles of Younger absten-

tion. Specifically, the Court of Appeals noted that the participants

were not swom, nor was a record maintained of the proceeding. There

was nO opportunity to examine or cross-examine witnesses: "(t]he

meeting was simply a settlement conference to see if the dispute could

be consensually resolved." (App.32) Asa result, the Court of Appeals

concluded that the administrative process had not reached the level

where Younger abstention required a federal court to abstain.

-—-@—-—

SUMMARY OF ARGUMENT

The petition for certiorari should be denied because the decision

of the Court of Appeals is consistant with the prior decisions of this

Court and other decisions of the courts of appeals. The principle of

abstention enunciated in Younger v. Harris and its progeny only

applies when there is an ongoing state proceeding that is judicial in

nature and the commencement of suit in the federal court disrupts that

ongoing state proceeding. In the instant case, the OCA had only

commenced an investigation and held one, "off the record", settle-

ment conference at the time Telco filed suit in the federal court.

Nothing further was scheduled to occur and the informal fact finding

under Virginia Code Section 9-6.14:11 had been concluded. More-

over, there was no pending state proceeding that was "judicial in

nature" that would warrant federal court deference. There was no

opportunity to subpoena and examine or cross-examine witnesses.

No record of the settlement conference was maintained. The partici-

pants were not swom and there was no neutral arbitrator to hear and

resolve the dispute. The action of the OCA simply never advanced

beyond a preliminary investigation and Younger does not require

abstention in deference to a mere investigation by a state agency.

(pp.5-8)

The OCA completely ignores the fact that it could have pro-

ceeded with an administrative action against Telco after suit was filed

and then moved for abstention. Indeed, the District Court invited the

OCA to proceed with a formal administrative complaint against Telco

but the OCA refused. Accordingly, the suit by Telco did not disrupt

orinterfere with any pending state administrative proceeding because

the OCA could have proceeded with the commencement of a formal

action against Telco but failed to do so. (p.9)

ARGUMENT

I. No Administrative Action Was

Pending That Warranted Abstention.

The OCA asserts that the July meeting with Telco constituted the

commencement of a proceeding under the Administrative Process

Act. The OCA further contends that Telco's suit disrupted that state

proceeding and, consequently, the District Court and the Court of

Appeals erred in refusing to abstain. The OCA concludes that the

decisions of the District Court and the Court of Appeals conflict with

the decision of this Courtin Younger v. Harris and should be reviewed

by this Court.

The fundamental flaw with the position of the OCA is that no

administrative proceeding was pending at the time Telco filed suit in

the federal court that would require abstention under Younger v.

Harris, 401 U.S. 37 (1971). In Younger, this Court, based on the

principles of comity and federalism, held that injunctive relief in the

federal court is not normally available to halt a state criminal

prosecution. Two years later, however, in Steffel v. Thompson, 415

U.S. 452 (1974), this Court emphasized that "the relevant principles

of equity, comity and federalism ‘have little force in the absence of a

pending state proceeding."" Id. at 462, quoting Lake Carriers Associ-

ation v. MacMullan, 406 U.S. 498, 509 (1972). "Federal declaratory

relief is not precluded when no state prosecution is pending and a

federal plaintiff demonstrates a genuine threat of enforcement of a

disputed state criminal statute, whether an attack is made on the

constitutionality of the statute on its face or as applied." Steffel v.

Thompson, supra, 415 U.S. at 475. Notions of federalism are simply

inapposite where no interruption of orintervention in an ongoing state

proceeding by a federal court occurs.

No action was pending before the OCA or any other agency or

court of the Commonwealth of Virginia at the time the complaint was _

filed or at anytime thereafter. Even if one accepts the OCA's charac-

terization of the July settlement conference as “informal :act finding"

under Virginia Code Section 9-6.14:11, that conference was con-

cluded. Nothing further was ever commenced. The OCA has not

cited a single decision of this Court or any other court where

abstention has been held appropriate in deference to a mere state

investigation and potential future administrative action.

Even where a state proceeding is pending it is only those state

proceedings that are "judicial in nature" that are "of a character to

warrant federal court deference." Middlesex County Ethics Commit-

tee v. Garden State Bar Association, 457 U.S. 423, 433-34 (1982).

The meeting between the OCA and Telco hardly amounted to a

judicial proceeding. The only participants were Telco, the OCA, and

their respective counsel. No record was maintained of the proceeding,

nor were any of the participants swom. There was no opportunity to

subpoena and examine and cross-examine witnesses. The meeting

was nothing more than a settlement conference to determine if the

dispute could be resolved and falls far short of the requirement that the

administrative proceeding be "judicial in nature" to warrant absten-

non.

The recent decisions of this Court finding abstention to be ap-

propriate all involved cases where a federal plaintiff was faced with

a formal administrative proceeding at the time suit was commenced

in the federal court. For example, in Ohio Civil Rights Commission

v. Dayton Christian Schools, 477 U.S. 619 (1986), a complaint had

been filed with the Civil Rights Commission. The Commission had

completed its investigation of that complaint and made a determina-

tion of probable cause to find that discrimination had occurred.

Thereafter, the commission filed a complaint initiating formal admin-

istrative proceedings. It was at that stage of the administrative process

that the subject of the administrative complaint brought suit in the

federal court.

Similarly, in Middlesex County Ethics Committee v. Garden

State Bar Association, 457 U.S. 423 (1982) an attomey, prior to the

commencement of the federal court action, had received a formal

statement of charges from the Ethics Committee and was required to

file an answer to those charges within ten days. The statement of

charges followed from an investigation and a report and recommen-

dation to the District Ethics Committee. It was clear that, at the time

the suit was commenced, a proceeding that was judicial in nature was

pending.

The requirement that a judicial proceeding be pending before ab-

stention is required is premised not only on principles

of comity and federalism, but also on the theory that, once such a

proceeding has been commenced, it is likely that there will be a

prompt determination of the issues. As the Court of Appeals stated

in Wulp v. Corcoran, 454 F.2d 826, 831 (1st Cir. 1972):

Once the state has initiated its processes, it can be

expected in the great majority of cases to press the

matter with some expedition. When no prosecution

is pending, there is no guarantee that prosecution and

a chance for ultimate vindication of constitutional

claims will quickly follow on the heels of a violation

of the state's statute.

If a court were to defer to a mere investigation by a state agency,

parties who claim that the state's actions violated important constitu-

tional rights would have no assurance that their claim would be

promptly adjudicated through the administrative or state proceeding.

In the matter sub judice, four months had passed from the beginning

of the state's investigation until the time suit was filed and no

administrative proceeding had been commenced. There was certainly

no assurance to Telco that its constitutional claims would be promptly

determined through the state administrative process and any subse-

quent judicial review.

The OCA's position that abstention is required whenever a state

agency commences an investigation would result in the untenable

conclusion that state agencies could never be sued in federal court for

an adjudication of the constitutionality of their actions. A party

claiming to be deprived of its civil rights is not entitled to relief in a

federal court unless there has been an actual threat of enforcement of

an unconstitutional statute. See, e.g. Steffel v. Thompson, 415 U.S.

452 (1974). But, according to the OCA, once that threat of enforce-

ment is made, an administrative proceeding is then pending and a

federal court must abstain from exercising its jurisdiction. Thus, a

plaintiff claiming to be aggrieved by a deprivation of its constitutional

rights would be barred from the federal courts and relegated to the

State administrative process and state judicial review of that admin-

istrative process. This result is contrary to the well accepted rule that

“the doctrine of abstention...is an extraordinary and narrow exception

to the duty of a district court to adjudicate a controversy properly

before it." Colorado River Water Conservation v. United States, 424

U.S. 800, 812 (1976), quoting County of Allegheny v. Frank Mashuda

Co., 360 U.S. 185, 188-189. See also City of Houston, Texas v. Hill,

_U.S._, 107S.Ct. 2502 (1987); Hawaii Housing Authority v. Midkiff,

467 U.S. 229, 237 (1984).

The District Court and the Court of Appeals in this case correctly

balanced the competing interests of a state in the administration of its

own judicial proceedings and the interests of a private litigant in

access to the federal courts for the prompt adjudication of its consti-

tutional rights. If the District Court had abstained, there would have

been no assurance that Telco's rights would have been promptly

determined in an administrative proceeding or subsequent state court

review. Indeed, under the Virginia Administrative Process Act, the

OCA could have waited years before proceeding with a formal admin-

istrative complaint against Telco that would have triggered the

judicial- like proceeding in which Telco's rights could be determined.

The First Amendment rights of Telco and its clients, which both the

District Court and the Court of Appeals determined to have been

violated by the OCA, would have continued impaired while the OCA

considered proceeding with an administrative action against Telco.

Under these circumstances, the District Court and the Court of

Appeals correctly determined that there was no pending proceeding

to which the federal courts should defer and certainly the decision of

the Court of Appeals does not conflict with any prior decision of this

Court or another court of appeals.

II. The Action Commenced By

Telco Did Not Disrupt

Any Administrative Proceeding

The OCA asserts that Telco's suit disrupted their ongoing admin-

istrative proceeding. However, the OCA does not explain or substan-

tiate how Telco's suit interfered in any way with any administrative

action contemplated by the OCA. No preliminary injunction to

restrain an administrative proceeding was requested or issued. The

OCA was free to continue its investigation and to proceed with an

administrative action to suspend or revoke Telco's license. In fact, the

District Court invited the OCA to proceed with an administrative

action against Telco and the OCA declined to do so. (R.App. 9-10).

When the OCA declined to proceed, neither Telco nor the District

Court had any assurance that Telco's constitutional challenge to the

charitable solicitation law would be promptly resolved. The OCA

should not now be heard to complain that the District Court erred in

refusing to abstain where the Court's action was founded on the OCA's

own refusal to proceed expeditiously with its administrative process.

Itis well established that a federal court may abstain in deference

to a subsequently commenced administrative proceeding where the

federal action is in its early stages and there has been no proceedings

of substance on the merits. Hicks v. Miranda, 422 U.S. 332, 349

(1975); Doran v. Salem Inn, Inc., 422 U.S. 922 (1975). Hence, the

OCA's fear of a “race to the court house” after informal fact finding

has been initiated is completely baseless. Even if the subject of an

administrative investigation wins the race to the court house, the

Commonwealth may simply proceed with its administrative action

and then seek to stay or dismiss the suit based on Younger.

Younger and its progeny are founded on the tenet that a federal

court should not interfere with a pending proceeding established

under state law. If there is no disruption of a state proceeding, the

principles of federalism upon which Younger and its progeny rely

have no application and abstention is inappropriate. In this case, the

OCA has simply failed todemonstrate how the suit by Telco disrupted

any action taken or contemplated by the OCA and, therefore, both the

District Court and the Court of Appeals correctly determined that

abstention was not required.

10

CONCLUSION

For the reasons stated above, the respondent respectfully re-

quests that the petition for a writ of certiorari be denied.

Respectfully Submitted,

Peter S. Brooks

Telco Communications, Inc.

21 Industrial Court

Seekonk, MA 02771

508-336-6633

John G. Douglass

Wright, Robinson, McCammom,

Osthimer & Tatum

411 East Franklin Street

Richmond, VA 23219

804-783-1100

*Louis J. Scerra, Jr.

Goldstein & Manello

265 Franklin Street

Boston, MA 02110

617-439-8900

*Counsel of Record

R.App. 1

COMMONWEALTH OF VIRGINIA

Office of the Attorney General

March 24, 1988

VIA CERTIFIED MAIL

Mr. Jeff Springer, Phone Room Manager

Telco Communications

950 S. Sycamore Street, Bldg.D.

Petersburg, VA 23803

RE: F.O.P. #16, Show Date: April 30, 1988

Dear Mr. Springer:

We are in receipt of the Notice of Solicitation from Telco Com-

munications which identifies you as the phone room manager for the

above referenced campaign. Please be aware that the Virginia

Solicitation of Contribution Law (copy enclosed) contains disclosure

and reporting requirements, some of which are detailed below.

Specifically:

Section 57-55.1 requires that you disclose to the con-

sumer at the time of solicitation the minimum per-

centage of any contribution which the charitable or

civic Organization will receive for its own use.

Section 57-55.2 requires also that each solicitor

disclose his or her name; the name of the company

whichemploys them; that they are paid solicitors and

further, shall disclose in writing that financial state-

ments (of the sponsor) are available from the Vir-

ginia Office of Consumer Affairs.

Section 57-61 (h) states that any change in informa-

tion shall be filed with this office within seven days.

R.App.2

If the campaign involves the selling of tickets to events and these

tickets may be donated for use by a third party, you must comply with

Sections 57-61 (e) and 57-61 (g) requiring the following:

For not less than three years, the solicitor shall

maintain the name and addresses of contributors

donating tickets and the number of tickets donated

by each, as well as the names and addressed of all

organizations receiving donated tickets for use by

others, including the number of tickets received by

each organization. (Section 57-61 (e) 2.)

Also, you may not represent that tickets to events

may be donated for the use of others unless: 1)

commitments have been obtained in writing from

persons, charitable or civic organizations stating that

they will accept donated tickets and the number of

tickets they will accept, and 2) the solicitor has

solicited and accepted no more contributions for

donated tickets than the number of written ticket

commitments it has received from persons, chari-

table or civic organizations. Once the number of

commitments has been fulfilled, the solicitor must

begin using a straight sales script.

Please be aware, Mr. Springer, that failure to comply with these

and other provisions not outlined in this correspondence may result

in the state seeking legal remedies against you individually as well as

against youremployer. We respectfully suggest that you make your

employees and agents aware of these responsibilities and we trust that

R.App.3

you will contact this Office if you should have questions or we may

be of service.

Sincerely,

s/

Larry Roberts

Coordinator

Charitable Solicitations Section

Enclosure

R.App.4

GOLDSTEIN & MANELLO

Counsellors at Law

April 28, 1988

Mr. Larry A. Roberts

Coordinator

State Office of Consumer Affairs

Department of Agriculture and

Consumer Services

Post Office Box 1163

Richmond, Virginia 23209

Dear Mr. Roberts:

I have repeatedly requested a meeting with the Office of Con-

sumer Affairs, both in writing and in discussions with Mr. Wright and

the Attorney General's office. I was assured several weeks ago that

such a meeting would be arranged and that the request for information

submitted by your office and by me would be put on hold until that

meeting.

At this point, I have still not received any response to my request

for a meeting with your office and with the Attomey General's office.

Instead, I get a request for further information. We will obviously

provide whatever information to which your office is entitled. However,

there are substantial issues as to whether or not the laws cited in your

letter apply to the activity of my client and issues as to whether the

disclosure laws are constitutional. Once those issues are resolved, we

will then address your specific request for information from us.

I have previously advised Mr. Wright, as well as representatives

from the Attorney General's office, that a refusal to meet and discuss

the issues of concem to Telco will leave us with no alternative but to

file suit. It is not our desire to take that route, and we firmly believe

that a resolution of the pending issues can be accomplished by

R.App.5

negotiation and compromise. However, unless I receive some

response to my request for a meeting, I will assume that you wish to

have these issues resolved by a court.

Very truly yours,

s/

Peter S. Brooks

PSB/ms

cc Mark D. Hayes

John G. Douglass, Esquire

R.App.6

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF VIRGINIA

TELCO COMMUNICATIONS, INC.,

Plaintiff

v.

CIVIL ACTION

NO. 88-0471-R

S. MASON CARBAUGH, as he is

Commissioner of the Department

of Agriculture and Consumer

Services of the Commonwealth of

Virginia

Defendant

Ne ee Ne ee ee ee es ee ee es Se “Se”

AFFIDAVIT OF MARK D. HAYES

Mark D. Hayes, under oath, deposes and says:

1. I am the president of the plaintiff, Telco Communications,

Inc., and I am making this affidavit in connection with the motion for

summary judgment filed by the defendant. This affidavit is made as

to facts of my own personal knowledge.

2. Telco is a publisher of a series of publications relating to

public health and safety. For example, Telco publishes a handbook

on drug and alcohol awareness, fire prevention, children's safety, and

consumer fraud.

3. Telcohas contracted with several local police and fire organi-

zations to publish one or more of these books on their behalf. In

addition, Telco has arranged for telephone solicitors to be engaged by

the local police or fire organizations to solicit advertising to be

included in the books. The proceeds of the advertising revenue are

divided among Telco, the telephone solicitors, and the local police or

fire organization.

4. The funds generated from the advertising that are retained by

the police or fire organization have, to date, been used for the general

R.App.7

business purposes of the organization and not for any charitable

purpose. In addition, no charitable appeal is used by the telephone

solicitors. As a result, the revenues generated for the organization

benefit only the members of that organization and not the public at

large. However, Telco also engages in fund raising for charitable

Organizations in other states and intends to do so at some point in time

in Virginia. The investigation by the Department and its interpreta-

tion of the charitable solicitation laws in Virginia have dissuaded

Telco from pursuing such charitable fund raising.

5. In March of 1988, the Department advised Telco that it had

received a tape recording of an alleged conversation between a

telephone solicitor and a prospective advertiser. The Department

claimed that the tape revealed a failure by Telco to comply with the

disclosure requirements under the charitable solicitation laws in

Virginia. A subsequent investigation of the tape by Telco revealed

that a competitor of Telco's in Virginia supplied the recording to the

Department and the tape's authenticity could not be verified.

6. Following the Department's receipt of the tape recording, a

campaign was then commenced by the Department to harass and

intimidate the telephone solicitors and Telco's clients. For example,

investigators from the Department entered the premises of the tele-

phone solicitors without notice and demanded that documents and

information be supplied immediately. The Department communi-

cated with clients of Telco on repeated occasions seeking information

as to the advertising solicitation and interfered with the relationship

that Telco has established with its clients. The Department also

communicated with the managers of the telephone solicitors and

threatened the managers with civil and criminal penalties for any non-

compliance with the charitable solicitation laws.

7. Inresponse to the action of the Department, counsel for Telco

requested a meeting with representatives of the Department to discuss

their jurisdiction in view of the fact that Telco had not contracted with

charitable organizations or made any charitable appeal for funds.

Telco also asked for an opportunity to discuss the enforceability of the

charitable solicitation laws in view of recent decisions of the United

States Supreme Court. After repeated requests for such a meeting, the

Department finally acceded to the request and a meeting was held in

R.App.8

early July of 1988. See Exhibit "]" annexed hereto.

8. Atnotime priorto or during the meeting was Telco informed

that the meeting was being held pursuant to the provisions of the

Virginia Administrative Process Act. Indeed, no notice has been

received by Telco as of this date of any administrative proceedings,

under the Administrative Process Act or otherwise. It has expressly

agreed during the meeting that the discussions would be considered

"settlement negotiations" and would not be used as evidence or

admissions.

9. Telco and the Department discussed the constitutionality of

certain provisions of the charitable solicitation law during the meeting

and also discussed whether or not the sale of advertising by independ-

ent telephone solicitors on behalf of organizations that benefit only

their members subjected Telco, the publisher, to the charitable

solicitation laws. The Department maintained that Telco was subject

to those laws and that the disclosure requirements remained in effect

notwithstanding the recent Supreme Court ruling that invalidated

substantially all mandated disclosures by professional fund raisers.

Since the Department was threatening to enforce the charitable

solicitation laws, Telco then commenced this action for a judicial

determination of the constitutional issue and the scope of the chari-

table solicitation laws.

Signed under the penalties of perjury this day of August,

1988. .

s/

MARK D. HAYES

Telco Communications, Inc.

Subscribed and swom to before me this___ day of August,

1988.

s/

NOTARY PUBLIC

My Commission Expires:

R.App.9

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

RICHMOND DIVISION

TELCO COMMUNICATIONS, INC.

Plaintifi,

V.

CIVIL ACTION

S. MASON CARBAUGH, as he is NO. 88-0471-R

Commissioner of the Department

of Agriculture and Consumer Services

of the Commonwealth of Virginia,

Defendant.

Nm ee ee a ee ee ee ee ee ee ee”

ORDER

The Court is in receipt of defendant's motion for summary

judgment and supporting memorandum, plaintiffs memorandum in

opposition, and defendant's rebuttal memorandum. Deeming it just

and proper so to do, it is hereby ADJUDGED and ORDERED as

follows:

1. Defendant must, within fifteen (15) days of this date, notify

the Court whether the Office of Consumer Affairs has initiated a

formal hearing under the Virginia Administrative Process Act, Va.

Code s 9-6.14:12 (1985 & 1988 Supp.) for the revocation or suspen-

sion of plaintiff's registration.

2. Hearing on the motion for summary judgment, previously

scheduled for September 26, 1988 at 1:00 p.m. will be continued until

further order of the Court. ;

Let the Clerk send a copy of this order to all counsel of record.

s/

UNITED STATES DISTRICT JUDGE

R.App.10

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

RICHMOND DIVISION

TELCO COMMUNICATIONS, INC.,

Plaintiff,

Vv.

CIVIL ACTION

S. MASON CARBAUGH, as he is NO. 88-0471-R

Commissioner of the Department of

Agriculture and Consumer Services

of the Commonwealth of Virgina,

Defendant.

a ee ee ee, ee, ee ee

DEFENDANT'S RESPONSE TO COURT'S ORDER

NOW COMES defendant S. Mason Carbaugh, by counsel, and

in response to this Court's Order of September 15, 1988, submits the

following:

1. By its Order of September 15,1988, this Court ordered defen-

dant to notify the Court "whether the Office of Consumer Affairs has

initiated a formal hearing under the Virginia Administrative Process

Act, Va. Code s 9-6.14:12 (1985 & 1988 Supp.), for the revocation or

suspension of plaintiff's registration.”

2. Defendant, by affidavit of Larry Roberts dated August 8,

1988, attached to his motion for summary judgment, stated, in part, the

following:

a. Following an initial investigation of complaints

against TELCO, an informal conference was sched-

uled pursuant to the Administration Process Act

between the Office of Consumer Affairs, TELCO

and their respective counsel. The conference was

held on July 6, 1988.

R.App.11

b. Following that meeting, the Office of Consumer

Affairs requested further documents from TELCO.

The next step would have been for the Office of

Consumer Affairs to serve notice upon TELCO for

a formal administrative hearing under the APA.

c. At that point, TELCO filed suit and defendant did

not initiate any formal administrative hearing be-

cause of that filing. Defendant has not taken any

further action to initiate a formal hearing and has no

present plans to do so until this litigation has been

completed.

WHEREFORE, having responded to this Court's order, defen-

dant renews its request that its motion for summary judgment seeking

abstention from this Court be granted because of the pendency of

proceedings under the Virginia Administrative Process Act.

Respectfully submitted,

S. MASON CARBAUGH

By: s/

Mary Sue Terry

Attomey General of Virginia

Gail Starling Marshall

Deputy Attomey General

Guy W. Horsley, Jr.

Senior Assistant Attorney General

Edward P. Nolde

James P. Wheeler

Assistant Attomeys General

R.App.12

Office of the Attomey General

101 North Eighth Street

Supreme Court Building

Richmond, VA 23219

(804) 786-6563

(804) 786-2115