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State May Require Disclosure Of Role of For-Profit Resellers

State May Require Disclosure Of Role of For-Profit Resellers

Reversing trial court, appeals court says notice tells donors that professional solicitors will sell goods

The Fifth Circuit Court of Appeals has partially reversed a trial court and has held that Texas may require professional solicitors of clothing and other household goods to tell donors that they will be involved in selling the goods and giving proceeds to charity. While agreeing with the trial court that requirements to disclose the fee arrangement are unconstitutional, the Court has said that disclosure of the professionals’ participation in the sales will allow contributors to inquire about the arrangements if they so desire.  (National Federation of the Blind of Texas v. Abbott, No. 10-10236, 7/15/11.)

The case arises from the state’s attempt through legislation in 2009 to force disclosure of professional solicitor involvement in the collection and sale of donated clothing and household goods through roadside or parking lot bins or “receptacles” and through telephone or door-to-door solicitation, or mail solicitation.  The statute required notification if donations are not for charitable organizations and would be sold for profit, or if charities were to benefit, notification of the specific percentage arrangement or fixed fee arrangement. 

Several charities that used professional solicitors on a fixed fee basis sued to enjoin enforcement of the new law’s provisions.  The trial court ruled that because they were charities and not affected by the provision about disclosing the lack of charity involvement in such solicitations, they had no standing to contest that provision of the law. Although they did not receive percentage payments, the trial court ruled that they had standing to contest that provision because the legal analysis was substantially the same as the fixed fee provision and because the two provisions could not be logically separated in the law.

It also ruled that the requirement of the professional solicitor to identify itself was constitutional, but that the requirement to state the fee arrangement was not because it was not “narrowly tailored” to protect the public interest.  It held that the sold-for-profit disclosure requirement survived the constitutional test under the First Amendment, but failed under the Equal Protection clause because it discriminated against charities that hired professionals in contrast to charities that solicited and sold with their own personnel.  (See Nonprofit Issues®, 3/1/10.)

On cross appeals, the Court held that the charities did not have standing to contest the provisions as they applied for percentage fee arrangements but agreed with the trial court on the unconstitutionality of the requirements to disclose fee arrangements. It reversed the trial court on the sold-for-profit disclosure requirement, however.

“The required disclosure does not inform the reader whether or not the goods are ‘going to be resold instead of being reused or donated’ [as the trial court had written],” the Court wrote.  “Instead, it notifies the donor that the goods being donated will be resold by a third party, the professional solicitors.” Citing the U.S. Supreme Court, it said “requiring professional fundraisers to disclose their professional status to potential donors gives donors notice that at least a portion of the proceeds from the donations contributed will be retained by the professional solicitors.”

The Court went on to say: “All donated goods are resold or otherwise disposed of for charitable purposes. A donor is not defrauded when a charity resells the goods she donates or expends capital to facilitate that process; the evil occurs when a portion of the proceeds from a donation is diverted to a third-party professional solicitor without the knowledge of the donor. The point is notthat the donations will be resold, nor is it that a portion of the proceeds from the donations will be expended in that resale effort. Donors are undoubtedly aware that solicitations incur costs, to which part of their donation might apply. The point of the disclosure requirement is to make donors aware of a third party’s presence to the transaction. Texas cannot constitutionally compel the charities or the solicitor to ‘speak’ to the exact fee arrangement. But with knowledge of the third-party’s presence, a donor is free to inquire how much of the contribution will be turned over to the charity.”


The Supreme Court has accorded special protection to charitable solicitation speech under the First Amendment, but there are still areas in which the state has authority to impose regulation and disclosure requirements. A case like this can show how finely the distinctions must be drawn.

The Court of Appeals decision that these particular charitable plaintiffs did not have standing to contest the requirement that solicitors working with charities on a percentage fee arrangement technically means that the fee disclosure requirements ruled unconstitutional for fixed fee arrangements have not been overturned.  It’s no wonder that the public often feels that the wheels of justice of the law grind slowly.

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