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People ex rel Ryan v. Telemarketing Associates

May 19, 2000

PEOPLE OF THE STATE OF ILLINOIS, EX REL. JAMES E. RYAN, ATTORNEY GENERAL OF ILLINOIS,
PLAINTIFF-APPELLANT,
V.
TELEMARKETING ASSOCIATES, INC., AN ILLINOIS BUSINESS CORPORATION, ARMET INC., AN ILLINOIS CORPORATION, AND RICHARD TROIA, INDIVIDUALLY AND AS AN OFFICER, DIRECTOR AND FIDUCIARY OF TELEMARKETING ASSOCIATES, INC. AND ARMET, INC.,
DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County. No. 91 CH 4926 Honorable Thomas A. Hett Judge Presiding.

The opinion of the court was delivered by: Presiding Justice Zwick

The Attorney General filed an Amended Complaint charging the defendants-appellees with common law fraud and breach of fiduciary duty. The amended complaint alleged that the defendants-appellees are professional fund raisers for charity who, over an eight year period, consistently retained more than 85% of the proceeds of their solicitations on behalf of an Illinois-based charity, VietNow Memorial Headquarters (hereinafter "VietNow"). The complaint alleged that defendant-appellees made solicitations on behalf of VietNow without informing prospective donors that only 15 cents out of every dollar they contributed would be made available for charitable purposes -- while the balance would be kept by the fund raisers. The trial court granted defendants' motion to dismiss the complaint pursuant to section 2-615 of the Code of Civil Procedure. 735 ILCS 5/2-615 (West 1996).

The Attorney General raises the following issues for our review:

(1) whether the allegations of the complaint plead a cause of action for common-law-fraud-based misrepresentation, breach of fiduciary duty, constructive fraud and/or for imposition of a constructive trust; (2) whether the First Amendment's prohibition against "forcing speech" bars the causes of action alleged; and (3) whether the First Amendment bars the claims alleged despite the fact that they are "straightforward" and based upon "content-neutral principles of law."

The original complaint in this case alleges that Telemarketing Associates, Inc. (Telemarketing) and Armet Inc. (Armet) are companies which provide professional fundraising services for charitable organizations. Defendant-Appellee Richard Troia is the owner and an officer and director of these companies (collectively, the "fundraisers"). Telemarketing has entered into contracts with a charitable organization, Vietnow, which provide that Telemarketing is to receive approximately 85% of the funds it collects for its professional efforts for Vietnow in Illinois. In addition, Armet has contracts under which it retains third party solicitors to raise money for Vietnow outside of Illinois. Under these contracts, the outside solicitors receive 70%-80% of the proceeds raised, while Armet receives 10-20% of the proceeds for its services.

There is no dispute that the fundraisers have honored their contracts with Vietnow. The Attorney General makes no claim that Vietnow is dissatisfied with the fundraisers professional services. Similarly, the Attorney General makes no allegation that the fundraisers have affirmatively misstated any information to any donor. The Attorney General instead alleges that the fundraisers fraudulently concealed material information by not affirmatively volunteering their fee arrangement with the donors. By so acting, the complaint claims the fundraisers violated the Charitable Solicitation Act, 225 ILCS 460/1 et seq. (West 1998)(the Solicitation Act), the Consumer Fraud and Deceptive Practices Act, 815 ILCS 501/1 (West 1998), and the Uniform Deceptive Trade Practices Act, 815 ILCS 510/2 (West 1998), and breached their fiduciary duty by engaging in fraudulent concealment. The Attorney General also complained that Armet violated the Solicitation Act by failing to register as a professional fundraiser with the Attorney General or ensure that the outside professionals it hired had registered.

The complaint sought broad relief against the fundraisers, including barring them from fundraising in Illinois for five years, forfeiture of their compensation, liability for both compensatory and punitive damages and a requirement that they pay the Attorney General for the costs of investigation and suit.

In dismissing the complaint, the trial court found that the United States Supreme Court's opinion in Riley v. National Federation of the Blind, 487 U.S. 781, 108 S. Ct. 2667, 101 L. Ed. 2d 669 (1988), established unequivocally that charitable solicitation by professional fundraisers is protected speech entitled to full First Amendment protection and that a state may not punish a fundraiser for earning a high fee or treat as fraud the fundraiser's failure to affirmatively explain its fee arrangement to prospective donors. The court, however, allowed the count alleging non-registration by Armet to stand.

The Attorney General then filed certain amendments to the complaint, adding additional allegations but continuing to assert the earlier complaint in its entirety. The crux of the Attorney General's amended complaint continued to be that the fundraisers had earned an excessive fee and failed to disclose this to Vietnow's donors. The court again granted dismissal of the complaint with the exception of the non- registration claim against Armet.

On December 1, 1998, the Attorney General voluntarily dismissed the non-registration claim and the court entered an agreed order in favor of the fundraisers on all claims. The Attorney General then filed this appeal challenging the dismissal of the fraud-based claims directed at the fundraisers' fees.

Initially, we observe that a section 2-615 motion to dismiss challenges only the legal sufficiency of a complaint and alleges only defects on the face of the complaint. Vernon v. Schuster, 179 Ill. 2d 338, 344, 688 N.E.2d 1172 (1997). The critical inquiry in deciding upon a section 2-615 motion to dismiss is whether the allegations of the complaint, when considered in a light most favorable to the plaintiff, are sufficient to state a cause of action upon which relief can be granted. Vernon, 179 Ill. 2d at 344, citing Bryson v. News America Publications, Inc., 174 Ill. 2d 77, 86-87, 672 N.E.2d 1207 (1996), and Urbaitis v. Commonwealth Edison, 143 Ill. 2d 458, 475, 575 N.E.2d 548 (1991). A cause of action will not be dismissed on the pleadings unless it clearly appears that the plaintiff cannot prove any set of facts that will entitle it to relief. Vernon, 179 Ill. 2d at 344, citing Gouge v. Central Illinois Public Service Co., 144 Ill. 2d 535, 542, 582 N.E.2d 108 (1991). Accordingly, in reviewing the circuit court's ruling on defendants' section 2-615 motion to dismiss, we apply a de novo standard of review. Doe v. McKay, 183 Ill. 2d 272, 274, 700 N.E.2d (1998).

The circuit court correctly found that the Attorney General's amended complaint infringes upon the fundraisers' constitutional rights. The United States Supreme Court has repeatedly held that solicitation activity on behalf of a charity is a form of free speech protected by the First Amendment to the United States Constitution. In Village of Schaumburg v. Citizens for a Better Environment, 444 U.S. 620, 100 S. Ct. 826, 63 L. Ed. 2d 73 (1980), the Court struck down on First and Fourteenth Amendment grounds an ordinance which prohibited on-street and door-to-door solicitations for contributions by any charitable organization not using at least 75% of its receipts for charitable purposes. In reaching its decision the Court emphasized that:

"Prior authorities *** clearly establish that charitable appeals for funds, on the street or door-to-door, involve a variety of speech interests - communication of information, the dissemination and propagation of views and ideas, and the advocacy of causes - that are within the protection of the First Amendment." Schaumburg, 444 U.S. at 632.

The Supreme Court and numerous lower courts have repeatedly affirmed the broad scope of First Amendment protections accorded charitable solicitations. See e.g., United States v. Kokinda, 497 U.S. 720, 725, 110 S. Ct. 3115, 111 L. Ed. 2d 571 (1990)("Solicitation is a recognized form of speech protected by the First Amendment"); Meyer v. Grant, 486 U.S. 414, 422, n. 5 (1988)("[T]he solicitation of charitable contributions often involves speech protected by the First Amendment and *** any attempt to regulate solicitation would necessarily infringe that speech"); Gaudiva Vaishnava Society v. City of San Francisco, 952 F.2d 1059, 1063 (9th Cir. 1991)("The Supreme Court has held that fundraising for charitable organizations is fully protected speech"); ...


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