targeted moneyAs previously discussed on this blog, the Telephone Consumer Protection Act (TCPA) prohibits “telephone solicitations” to numbers listed on the National Do-Not-Call list (NDNC). There is a rarely litigated exception to the TCPA’s do-not-call provisions, however, for calls placed by or on behalf of tax-exempt, nonprofit organizations. On October 11, 2017, in Spiegel v. Reynolds, No. 1:15-cv-08504 (N.D. Ill.), a putative nationwide class action, the U.S. District Court for the Northern District of Illinois held both that (1) the TCPA’s nonprofit exemption from do-not-call liability extends to a professional fundraiser acting on behalf of the nonprofit under federal common law agency principles – even if the majority of the money raised for the nonprofit is paid to the fundraiser; and (2) calls seeking charitable donations are not “telephone solicitations” actionable under the TCPA, even if the donations will be – in part – used to procure goods for charitable recipients.

In Spiegel, the plaintiff claimed that several fundraising calls were placed to his residential telephone number in 2013 and 2014, while his number was on the NDNC list. He sued the principals of the charity, The Breast Cancer Society (Society), as well as the Society’s paid fundraiser, Associated Community Services, Inc. (ACS), alleging that such fundraising calls to him and other United States residents violated the TCPA.

The plaintiff is an experienced TCPA plaintiff, and he knows that calls made by or for nonprofit organizations are beyond the law’s do-not-call reach. To get around this, he asserted that the Society was not a legitimate tax-exempt nonprofit organization, but rather was a “sham” charity (based on an unrelated governmental investigation of the organization’s governance and operations). At the motion to dismiss stage, the court rejected the plaintiff’s “sham charity” theory; the Society had been duly recognized as exempt from federal taxation by the Internal Revenue Service, and the court declined an invitation to second-guess the IRS. The court, however, did allow limited discovery on the plaintiff’s alternative legal theory: that, because ACS retained a majority of the gross revenues from donors’ contributions to the Society, ACS was not truly acting “on behalf of” its charity client. The fundraiser – the plaintiff posited – was really in business for itself and was not the Society’s agent, thus depriving it of the nonprofit exemption’s protection from TCPA liability.

In a sweeping victory in an area where, as the court noted, “case law applying the TCPA nonprofit exemption is sparse,” the court awarded summary judgment to ACS, the defendant-professional fundraiser. The court first concluded that ACS acted in the Society’s interest and as the Society’s agent and, as such, was exempted of TCPA liability for the calls. The court specifically focused on the contractual arrangement between ACS and the Society and how that arrangement was executed between the parties. Under the arrangement, the Society was able to exercise control over the manner of ACS’ solicitations by retaining the right to review, modify, and veto the solicitation scripts. Additionally, the Society controlled the flow of cash from the fundraising campaign. And, as the court explained, “the actual conduct of the parties reflect[ed] a genuine agency relationship.” Notably, the court flatly rejected the plaintiff’s cornerstone argument that the applicability of the TCPA’s tax-exempt, nonprofit exemption depended on the percentage of funds received by the nonprofit, as opposed to the fundraiser, from every donation dollar:

[I]n addition to being a poor legal standard, interpreting the nonprofit exemption to include a percentage-of-funds threshold would likely cause the TCPA to run afoul of the first amendment. . . . The fact that ACS kept the lion’s share of the money also does not help [plaintiff]. The essence of the nonprofit exemption is the recognition that some charities find it advantageous to contract out their fundraising efforts to private companies. But the TCPA does not require that the terms of these contracts be favorable to the nonprofit. In fact, asking the courts to scrutinize those relationships would come close to litigating the nonprofit’s tax-exempt status – a job that Congress assigned to the IRS, not the courts.

The court further concluded that ACS also merited summary judgment on the ground that the applicability of the TCPA’s do-not-call provisions to “telephone solicitations” does not extend to requests for donations because such donation calls do not “encourage[e] the purchase or rental of, or investment in, property, goods, or services” – the definition of telephone solicitation.

Although this decision resulted in a big win for ACS, tax-exempt nonprofit organizations, and their paid fundraisers, courts will continue to look closely at the specifics of the relationship between the parties when applying the TCPA’s exemption, and analyze the exemption’s applicability on a case-by-case basis. Moreover, charities and paid fundraisers should not lose sight of the fact that charity regulators closely scrutinize (and are often suspicious of) relationships that appear to be disproportionately advantageous to the fundraiser. And, while the Spiegel decision may head off TCPA litigation against nonprofits and their fundraisers in the future, it likely will do little to ebb the heavy flow of TCPA litigation that continues in state and federal courts. (A list of recent TCPA filings is available here.)

Venable LLP served as counsel to Associated Community Services, Inc. in the Spiegel litigation.