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Court to debate telemarketer liability for misrepresentation

Tuesday, November 5, 2002

WASHINGTON -- The Supreme Court is taking on the subject of pesky phone solicitors in a case that could give states more ammunition to go after people who raise money over the phone in the name of charity but pocket much of the cash.

Justices said Monday that they will decide next year whether Illinois can sue a company that kept 85 percent of the money it raised for Vietnam veterans.

Illinois and 18 other states had urged the court to use the case to make it easier to pursue fraud cases against people who misrepresent their solicitations. Justices will balance the free-speech rights of callers against state public protection efforts.

Charity solicitors bring in more than $200 billion a year, and much of the work is handled by for-profit fund-raising companies, the court was told.

The charity in this case, VietNow, had an agreement with Telemarketing Associates Inc. in which the charity got 15 percent of the money and the fund-raiser kept the rest for salaries, expenses and profit.

VietNow had no problem with the arrangement, and the state's complaint was dismissed in state court on free-speech grounds.

The Illinois Supreme Court "transformed the First Amendment into a license for unscrupulous fund-raisers to defraud the public in the name of raising money for charity," Illinois Attorney General James Ryan said in the appeal.

State prosecutors want to prove that telemarketers intentionally misled donors.

"When people give their money to a charity, do they think 90 percent is going into the fund-raisers' pocket, to the person who just called them on the phone?" asked Floyd Perkins, who handles charity cases in the attorney general's office. "Most people don't think that's right."

Michael Ficaro, an attorney for the telemarketing company, said in a filing that to allow the lawsuit would place all charitable fund raisers at the mercy "of the attorney general's whims. Potentially any gross fee can be called too high. Potentially any contractor arrangement can be called unreasonable."

He said it was unconstitutional for the state to sue just on allegations that fund-raisers were earning excessive fees.

Ficaro also said the company raised money for VietNow and educated the public about the needs of veterans.

Ruled against states before

In a series of decisions in the 1980s, the Supreme Court repeatedly ruled against states in disputes over charitable solicitations. In 1988, the court barred states from placing strict regulations on professional, for-profit organizations that solicit contributions for charities.

John Colombo, a University of Illinois law professor specializing in charities, said some non-profits may worry that the Supreme Court will limit fund-raising on their behalf with the latest case.

"The wildcard is maybe people would end up trusting the system more and not turn off when they get fund-raising calls," Colombo said.

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