by Rachel Greifenkamp and Gary Taylor
(Federal District Court for the District of Nebraska, February 18, 2014)
In Lincoln, Nebraska the company Linc-Drop (a for-profit corporation) is contracted by the Nebraska chapter of the March of Dimes (a non-profit charity) to maintain donation drop boxes for secondhand clothing that is donated to them. The March of Dimes contracts with landowners for locations to place the donation boxes. The clothing that is donated is technically owned by the March of Dimes but Linc-Drop owns the donation drop boxes. The contract between March of Dimes and Linc-Drop provides that Linc-Drop can be directed to deliver the donated clothing to a location chosen by the March of Dimes; however, this has never happened. Instead, Linc-Drop sells the donated clothing for 20¢ per pound and pays the March of Dimes 2¢ per pound (totaling about $25,000-30,000 per year).
In response to this situation, the City of Lincoln enacted an Ordinance that contained two critical provisions. First, the Ordinance provides that no person may “place or hold out to the public any donation box for people to drop off articles of unwanted household items, clothing or other items of personal property, unless at least 80% of the gross proceeds from the sale of such items shall be utilized for charitable purposes.” (Charitable purposes is not defined in the Ordinance.) Second, the Ordinance requires a permit from the city to legally place a donation box. Only organizations that are tax exempt under Section 501(c)(3) or a school may obtain a permit. The Ordinance also requires that a donation box must clearly identify the charitable organization responsible for maintaining it. Violation of the Ordinance is punishable by a fine of up to $500 or up to 6 months imprisonment, and each day is considered to be a separate offense.
Linc-Drop challenged the constitutionality of the Ordinance on First Amendment grounds, and sought a preliminary injunction preventing the City from enforcing it pending the outcome of the challenge.
According to the Federal District Court for the District of Nebraska, when evaluating the regulation of professional charitable solicitation, the Court considers whether (1) the City had a sufficient or legitimate interest in enacting the Ordinance, (2) the interest identified is significantly furthered by a narrowly-tailored regulation, and (3) the regulation substantially limits charitable solicitations. The City resisted the application of this standard of review, arguing that Linc-Drop is not engaged in charitable solicitation but is rather “using the March of Dimes name to hoodwink the city’s unwitting residents into placing items in the donation boxes instead of donating them to legitimate charitable organizations.” The Court rejected this position, however, stating that that fact that Linc-Drop is being paid to engage in charitable solicitation does not make it less so. The court further clarified for the city that the constitutionality of the Ordinance, and not Linc-Drop’s conduct, was the issue of the case. “Whether Linc-Drop is violating the Ordinance, or even whether Linc-Drop is defrauding people, does not change the provisions of the Ordinance or the reasons for its enactment.”
Likewise the Court rejected the city’s position that the boxes are more akin to billboards and should be considered commercial speech. The Court stated that “the public receptacles are not mere collection points for unwanted items, but are rather silent solicitors and advocates for particular charitable causes….They represent far more than an ‘upturned palm’ or a mere ‘proposal of a commercial transaction that says donate goods here.'” The solicitation found on the boxes “is characteristically intertwined with informative and perhaps persuasive speech seeking support for particular causes or for particular views on economic, political or social issues.”
In defending the constitutionality of 80 percent requirement of the Ordinance, the City argued that the Ordinance serves two governmental purposes, “preventing deception and ensuring funds go to benefit charitable organizations,” and “protecting charities and the public from fraud.” The interest in protecting charities and the public from fraud is sufficiently substantial to justify a narrowly-tailored regulation, but the Court pointed out that federal courts have repeatedly decided that using percentages to decide the legality of a fundraiser’s fee is not narrowly tailored to the government’s interest in preventing fraud. Citing Supreme Court precedence, the Court noted “several legitimate reasons why a charity might reject the State’s overarching measure of a fundraising drive’s legitimacy…even if the government had a valid interest in protecting charities from their won naivete or economic weakness, a percentage requirement was not narrowly tailored to achieve it.”
The Court also struck down the provision barring professional fundraisers from obtaining permits. Federal courts have prevented local governments from restraining solicitation by professional fundraisers, even if a high percentage of the funds raised would be used to cover administrative costs. It is therefore axiomatic that the government cannot categorically restrain all solicitation by professional fundraisers, as the permit prohibition would do. It is not narrowly tailored to the government’s interest in preventing fraud.
The Federal District Court of Nebraska determined that the Ordinance is so plainly at odds with precedent of Supreme Court rulings the the preliminary injunction desired by Linc-Drop was granted, and the City was barred from enforcing any aspect of the Ordinance until a final decision is made by the United States Magistrate Judge.