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UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT

On Appeal from the United States District Court
for the District of Utah

The Honorable Dee Benson
District Judge

Civil No. 2:97CV 0610B

APPELLANT'S BRIEF IN RESPONSE TO MINNESOTA BRIEF

Respectfully submitted,

MARK J. FITZGIBBONS
American Target Advertising, Inc.
9625 Surveyor Court, Suite 400
Manassas, Virginia 20110
(703) 392-7676

GIFFORD W. PRICE
Mackey, Price & Williams
170 South Main Street, Suite 900
Salt Lake City, Utah 84101-1655
(801) 575-5000

ARGUMENT

The Appellant, American Target Advertising, Inc. ("American Target"), by its attorneys, hereby submits this Brief for purposes of responding to certain misleading and inaccurate facts and arguments contained in the Brief of Amici Curiae Mike Hatch, Minnesota Attorney General, et al., in Support of Appellee (American Target hereinafter refers to that amici brief as the "Minnesota Brief"). The Minnesota Brief injects, and relies in part upon, certain purported facts and/or statistics which are not found in the record of the District Court. American Target disputes the accuracy of those facts and/or statistics. The arguments in the Minnesota Brief that rely upon such facts and/or statistics should be accordingly discounted. American Target submits herewith facts for the sole purpose of showing that certain information found in the Minnesota Brief is misleading or false.

The Minnesota Brief relies in part on data from reports prepared by four amici Attorneys General about expenditures of money contributed to nonprofits that use outside experts in communications and fundraising. These data are not part of the evidence in the record and should be disregarded by the Court. Additionally, these data are not only misleading to those unfamiliar with the costs of issuing nonprofit communications, but they do not cure the constitutional defects of the Utah Charitable Solicitations Act.

The arguments in the Minnesota Brief which rely on the reports of four amici Attorneys General should be disregarded for other reasons too. These reports purportedly depict data garnered by the Attorneys General of the respective four states from the licensing documents filed by nonprofit organizations and the professional fundraising service providers defined under the respective state charitable solicitation licensing laws. As explained herein, those reports inaccurately portray, and omit key information about how money contributed by the public to nonprofit organizations is spent. Additionally, the Minnesota Brief uses one term, "fundraiser", throughout the Brief when referencing three distinctly different types of professional service providers. The three types of service providers defined in the Utah Charitable Solicitations Act are "professional solicitor", "professional fundraiser", and "professional fundraising counsel". The Minnesota Brief uses statistics about "fundraisers" even though those statistics do not apply to fundraising counsel, thereby potentially confusing or even misleading the Court with regard to the arguments in the Minnesota Brief based on those alleged statistics. The Minnesota Brief attempts to inappropriately blur lines of distinction that the states themselves have created by statute.

The Minnesota Brief cites a number of statistics found in several reports which purportedly support the arguments of the amici Attorneys General. These reports were created by several of the amici themselves. Upon closer scrutiny, both the use and accuracy of the statistics found in those reports are severely flawed. For example, the Minnesota Brief cites the increase in amount of charitable contributions since 1979 (Minnesota Brief, at 2) as if to imply that the increase in charitable giving somehow justifies the imposition of unconstitutional laws. The use of those alleged statistics do nothing to cure the constitutional defects of the Utah Act.

I. THE COSTS OF COMMUNICATIONS BY NONPROFIT ORGANIZATIONS

Before addressing some of the many flaws in the Minnesota Brief, an explanation of the costs of nonprofit communications is helpful. A basic premise about nonprofit communications is that they cost money. The United States Supreme Court "has never suggested that the dependence of a communication on the expenditure of money operates itself to introduce a non speech element or to reduce the exacting scrutiny required by the First Amendment." Buckley v. Valeo, 424 U.S. 1, 16 (1976).

The focus of the communications and the purposes for which funds are raised vary from organization to organization. But whatever the purpose of the organization, the money contributed by supporters not only enables such organizations to pay for their respective programs, but those monies enable the nonprofit organizations to engage in future communications to other citizens, thereby perpetuating the existence of the organization. The United States Supreme Court has already acknowledged "the reality that without solicitation the flow of ... information and advocacy [from nonprofit organizations] would likely cease." Village of Schaumburg v. Citizens for a Better Environment, 444 U.S. 620, 632 (1980). Indeed, the communications not only support the nonprofits' fundraising activities, the communications are an integral part of the nonprofits' programs and purposes, such as organizations whose purposes include issue advocacy.

Nonprofit organizations that cannot afford, or otherwise do not rely upon, in-house staff with expertise in communication techniques usually retain outside experts with such skills which the states have defined as "solicitors", "fundraisers" or "fundraising counsel". Some nonprofits have experts in communication techniques on their staffs that perform the very same functions of outside experts, but the Minnesota Brief does not provide data about this category of in-house experts. The nonprofit organizations with in-house experts do not need to worry about whether their experts could afford to register in 42 states and numerous counties and cities. See, Minnesota Brief at 6 (which does not reference the cities and counties that have charitable solicitation licensing laws).

II. THE ATTORNEYS GENERAL REPORTS CITED IN THE MINNESOTA BRIEF ARE INACCURATE AND/OR MISLEADING.

The Minnesota Brief cites four reports prepared by four of the amici Attorneys General. See, Minnesota Brief, at 7 - 9. These reports purport that they present data garnered through the licensing documents of nonprofit organizations and their professional fundraisers. However, those four reports contain inaccurate and/or misleading information, as demonstrated below. Because the reports are inaccurate and contain information not found in evidence in the District Court's record, the use of those reports by the Minnesota Brief is flawed, and the Minnesota Brief should be thus discounted.

A. The Minnesota Brief Misrepresents What Funds Are Paid to "Fundraisers". The four above-referenced reports are inaccurate in their representation of how funds are distributed. A report similar in scope and purpose to the four above-referenced reports was issued by the New Hampshire Attorney General in 1996, entitled, "Report on Charitable Fundraising Campaigns in New Hampshire" (the "NHAG Report"). Like the four reports cited by the Minnesota Brief, the NHAG Report allegedly represented the distribution of contributed funds between nonprofits and solicitors.¹ The NHAG Report represented that, for contributions by New Hampshire residents, nonprofits received 25.21%, and 74.79% "was paid to solicitors as 'expenses'". NHAG Report, at 2.² These data and their characterizations in the NHAG Report are misleading, as described in the Commentary, attached hereto as Exhibit 1, Mark J. Fitzgibbons, "New Hampshire's Report Shows No Understanding of Fundraising", The NonProfit Times, June 1997, at 58. Exhibit 1 provides an analysis of a simple direct mail communication to show precisely how and why the NHAG Report is misleading The four Attorneys General reports cited in the Minnesota Brief suffer from the same lack of accuracy.

There is an example in Exhibit 1 which is illustrative of many direct mail communications designed for and mailed by nonprofit organizations. If a nonprofit organization were to mail a particular letter, the cost per letter could range from approximately $.25 to over one dollar. The example in Exhibit 1 deals with a letter mailed to 100,000 people. The cost per letter is determined by adding up the costs of producing and mailing 100,000 letters and dividing the total costs by 100,000. In the example used in the article, the total costs to simply mail the letter are $44,000. The cost per each letter is thus $.44 ($44,000 divided by 100,000). The component costs of that letter are as follows: $.14 for printing the letter, stuffing it in an envelope and delivering the letter to the post office; $.11 for postage at the special nonprofit rate available only to nonprofits that have the applicable mailing permit; $.09 to rent lists of names to which the letter will be mailed, $.02 for the data processing needed to transfer names from computerized format to a format that may be used to address the envelopes; and $.06 paid to the outside fundraising and communications expert. Of the $44,000 spent on mailing the letter, only $6,000 (13.6%) is attributable to the fees of the outside fundraising expert.

The remaining costs needed to mail the letter in the example, $38,000 (86.4%), would be paid by a nonprofit organization regardless of whether or not it uses the services of an outside fundraising expert. And this does not even take into account the salaries and other overhead expenses of in-house experts for those nonprofit organizations that do not use outside fundraising agencies. As stated in Exhibit 1, small or new nonprofit organizations typically lack the money or staff with expertise to conduct their direct mail communication operations in-house, thus they must rely on the services of outside experts. The NHAG Report and the four reports cited in the Minnesota Brief do not show the costs of communications conducted by nonprofits that have in house staff to conduct their communications. By omitting data about this latter category of nonprofits, these reports seem to be designed to discourage citizens from contributing to organizations that use outside experts versus organizations that do not.

As Exhibit 1 also points out, the NHAG Report (like the four other reports cited in the Minnesota Brief) fails to accurately attribute any costs of the nonprofit communications to either education, information, advocacy or other non-fundraising First Amendment activities of the nonprofit. As the Supreme Court acknowledged in Village of Schaumburg, these nonprofit communications are "characteristically intertwined with informative, and perhaps persuasive speech seeking support for particular causes or for particular views...." Village of Schaumburg, supra at 632. The NHAG Report and the four state reports mislead the public in this regard.

B. The Licensing Laws Foster Existing and Potential Abuses by the States. The July 1997 Professional Fund-raising Report, prepared by the Illinois Attorney General (the "Illinois Report"), is one of the four reports cited in the Minnesota Brief. The Illinois Report is attached hereto as Exhibit 2. That Illinois Report is illustrative of the misrepresentations and inaccuracies contained in the four reports. The Illinois Report is purportedly designed to show how much money contributed to nonprofit organizations was actually received by the nonprofits and how much was "paid" to outside fundraisers. The Illinois Report relies on a statistical sampling prepared by the Illinois Attorney General's office itself to conclude that nonprofits received 26% of contributions, and the fundraiser "fee was an average of 74 cents of each dollar donated". See Illinois Report, page entitled "How to interpret this report" (emphasis added). As demonstrated above, this statistic, in and of itself, is false because only a portion of the 74 cents that is not received by the nonprofit organization is actually paid to the fundraising and communications expert as a fee. Much of 74 cents pays for the costs of printing and mailing letters, postage, and other costs provided by third parties other than the fundraising expert. This latter category of costs are not the "fee" of the fundraiser. The report misrepresents this fact.

The statistical sampling in the Illinois Report is flawed for another reason. On the same above-referenced page, the Illinois Report represents that "[t]he figures shown in the tables are based on the records on file in the Attorney General's Office as submitted by the fundraisers or as noted by the charities" (emphasis added). However, the report actually omits the data of any nonprofit that "classifies a significant portion of its public contact and solicitation costs as charitable programs (i.e., public education) and allocates the expense to charity rather than fundraising". Illinois Report, at 1, Footnote 1, "Joint Cost Allocation". This position of the Illinois Attorney General is not consistent with the decision in Village of Schaumburg, supra. Additionally, this omission of data skews the totals.

On February 16, 1998, American Target wrote to the Illinois Attorney General to question some of the inaccurate and misleading information contained in the Illinois Report. See Exhibit 3, attached hereto. The Office of the Illinois Attorney General responded on March 18, 1998 with little or no information, and avoided answering certain questions posed by American Target. See, Exhibit 4. American Target pressed for accurate answers. See, Exhibit 5, letter dated May 9, 1998. In a response dated September 4, 1998, the Office of the Illinois Attorney General further failed to admit that it had misinformed the public in its claim that fundraisers fees average 74% of monies raised. See, Exhibit 6. The Illinois Report is not accurate on its face, and the Office of the Illinois Attorney General was either unwilling or unable to explain how it came to misreport key data in the report.

American Target similarly questioned the accuracy of the report issued by the California Attorney General (the "California Report") which was also cited in the Minnesota Brief at page 8. American Target sent correspondence on June 16, 1998 to the Office of the California Attorney General. See, Exhibit 6. In that letter, American Target asked 25 questions about seriously inaccurate and misleading information contained in the California Report. The Office of the California Attorney General, like the Office of the Illinois Attorney General, sent a response that was also non-responsive. See, Exhibit 7, letter of Peter Shack dated June 26, 1998.

The point is that the Minnesota Brief relies on flawed, inaccurate and misleading reports concocted by four amici Attorneys General. The substantive inaccuracies in the reports issued by the four amici Attorneys General highlight the dangers of states acting as stewards of First Amendment material. Someone who is not familiar with nonprofit communications could easily be confused by the misrepresentations and false data found in those reports. The Minnesota Brief argues that the licensing laws are necessary "so that a giving public can make informed choices" about voluntary contributions to nonprofit organizations. Minnesota Brief at 11. However, these reports do not provide accurate information for either citizens or the Court, and any reliance on such information would be highly inappropriate. There are many other sources of reliable data about nonprofit fundraising (the tax returns of the nonprofits, industry watchdog groups, the internet, the charity itself) on which citizens may rely without states inaccurately filtering data gathered through unconstitutional licensing laws, misrepresenting that data, and then skewing the results and conclusions to the detriment of nonprofit organizations that use fundraising and communications experts.

Additionally, the information contained in the Minnesota Brief does not alleviate the First Amendment and other constitutional deficiencies found in the Utah Act. The Minnesota Brief attempts to create a disparate impact by alleging facts of questionable or no merit. Those alleged facts are neither found in the record nor subject to cross examination in the District Court. As American Target points out herein, it seriously questions both the accuracy and the use of that information in this proceeding and in the public domain in general.

The Utah Act cannot survive exacting scrutiny which this Court must apply. The Court should not be swayed from its obligation to apply exacting scrutiny to the Utah Act, and it should rely only on facts found in the record, and not on the self-serving, misleading and even false statistics concocted by four of the amici.

Dated this 2nd day of February, 1999.

Respectfully submitted,

Mark J. Fitzgibbons American Target Advertising, Inc. 9625 Surveyor Court Suite 400 Suite 900 Manassas, Virginia 20110 (703) 392-7676

Gifford W. Price Mackey Price & Williams 170 South Main Street Salt Lake City, Utah 84101 (801) 575-5000

² Fundraising counsel such as American Target do not solicit, as noted in prior briefs.

CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing BRIEF IN RESPONSE TO MINNESOTA BRIEF was furnished by United States Mail or delivered to the following on this the 2nd day of February, 1999 to:

Jeffrey S. Gray, Esquire
Assistant Attorney General
Consumer Rights Division
160 East 300 South
Fifth Floor
Salt Lake City, Utah 84114-0872

and

Roberta J. Cordano
Assistant Attorney General
445 Minnesota Street, Suite 1200