A federal District Court in Utah has ruled that an association lacks standing to claim that Utah’s statute requiring fundraising counsel to register with the state if their clients solicit charitable contributions in Utah is unconstitutional “as applied.”  The Court has left standing a prior ruling in the case that a fundraising counsel threatened with penalties if it didn’t register has standing to contest the requirement.  (American Charities for Reasonable Fundraising Regulation v. O’Bannon, D. UT, No. 2:08-cv-875, 9/13/16.)  

Utah requires fundraising counsel whose clients solicit in Utah to register even if the counsel has no office in Utah, employs no one in the state, does not work on solicitations directed specifically toward the state, and has no other contact with the state.  Utah has enforced its rule by denying registration to charities that employ fundraising counsel that are not registered in the state and by penalizing counsel who don’t register directly.

This case was originally filed in 2008 by American Charities for Reasonable Fundraising Regulation and Rainbow Direct Marketing.  American Charities is an association including fundraising counsel among its members.  Rainbow Direct is a member of American Charities that provides consulting services to advocates for LGBT rights.  In 2008, Rainbow Direct was told that it was required to register and would face administrative action if not registered by the time its client sought to renew its registration to solicit as a charitable organization. Rainbow Direct stopped providing services to its client under its contract.

In 2009, the District Court concluded that American Charities had associational standing to litigate the case.  (See Nonprofit Issues, 1/1/10.)  In 2012, the Court (with a different judge) held that the law was not unconstitutional on its face, but refused to rule on the challenge to the rule “as applied” without more facts.  After further discovery, each side filed a motion for summary judgment on the questions of standing.  A third judge has now ruled that Rainbow has standing, but that American Charities does not.

Citing the “law of the case” doctrine that legal rulings will not be reversed during the pendency of a case except in extraordinary circumstances, the Court ruled that Rainbow had met the standing test because it had an injury in fact, caused by the challenged conduct, and a likelihood that the injury would be redressed by a favorable decision.  It said that none of the extraordinary circumstances necessary to change the ruling had occurred.

But it said that the requirements for associational standing were not met as the case had developed.  Associational standing, it said, requires members who otherwise have standing to sue in their own right, the interests it protects must be germane to the organization’s purpose, and “neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.”  Although the association met the first two standards, the Court said it could not meet the third in a case challenging the law “as applied.”

In arguing that the statute is unconstitutional because the members do not have the minimum contacts with Utah to justify the regulation, the Court said, the argument would be “fact-specific” and could not be brought without the participation of the individual members affected. 

The Court recognized that the individual participation element of the test “arises out of prudential considerations” and not the Constitution’s case or controversy requirement, but concluded that “administrative convenience and efficiency are best served by requiring each affected … member to participate in the suit so the court can adequately assess the individual contacts of each with the State.”

The Court also rejected the association’s claim for standing on the basis of an assignment of the claim of one of its members for violation of the member’s constitutional rights under Section 1983.  While Section 1983 provides no guidance on the validity of an assignment of rights, the Court said, state law in Utah prohibits the assignment of personal injury rights and state law should apply.

YOU NEED TO KNOW

The lack of standing for the association should not prevent the ultimate determination of this question if the consultant directly affected proceeds with the litigation.  Utah takes an incredibly broad approach to its jurisdiction over fundraising counsel, and any decision at the District Court level is likely to be appealed.  It is the kind of case not likely to be totally resolved without a Supreme Court decision in the matter.