Free Fathers, Inc. v. State, Department of State, Charitable Solicitations Division, No. M2006-02329-COA-R3-CV (Tenn. App. 2/7/2008)
| Decision Date | 07 February 2008 |
| Docket Number | No. M2006-02329-COA-R3-CV.,M2006-02329-COA-R3-CV. |
| Parties | FREE THE FATHERS, INC. v. STATE OF TENNESSEE, DEPARTMENT OF STATE, CHARITABLE SOLICITATIONS DIVISION |
| Court | Tennessee Court of Appeals |
Appeal from the Chancery Court for Davidson County; No. 05-2073; III Ellen Hobbs Lyle, Chancellor.
Judgment of the Chancery Court Affirmed.
D. Marty Lasley, Chattanooga, Tennessee, for the appellant, Free the Fathers, Inc.
Robert E. Cooper, Jr., Attorney General and Reporter, and Joe Shirley, Assistant Attorney General, for the appellee, State of Tennessee.
William B. Cain, P.J., M.S., not participating.
OPINION
This appeal arises from an enforcement action against a not-for-profit charitable corporation to compel the corporation's compliance with the registration provisions of the Solicitation of Charitable Funds Act, Tenn. Code Ann. § 48-101-501, et. seq. The corporation contended that it was a religious institution and thus exempt from the Act; however, it failed to submit an application for exempt status after numerous requests from the Charitable Solicitations Division of the Tennessee Department of State to do so. The Secretary of State issued an administrative decision enjoining the corporation from soliciting charitable funds and imposing a $40,000 civil penalty against the organization. The corporation filed a petition for judicial review in the Chancery Court of Davidson County challenging the constitutionality of the Act. The Chancellor found the constitutional challenges to be without merit and affirmed the decision of the Secretary of State. Finding no merit to the issues raised, we affirm.
Free the Fathers, Inc., is a Tennessee not-for-profit corporation that was incorporated in 1984. The original name of the corporation was Let Freedom Ring. The corporate name was changed in 1987 to Free The Fathers, Inc. The corporation has maintained its principal offices in Chattanooga, Tennessee since its incorporation, and John M. Davies, the founder of the corporation, has served as its president and chief executive officer at all times.
The stated mission of the corporation has been to support freedom of religion and particularly freeing Roman Catholic Priests jailed in foreign lands. A principal component of the corporation's activities has comprised mailing literature to concerned Catholics to educate them concerning the plight of Catholic priests who are incarcerated by hostile nations and to raise funds in furtherance of the corporation's efforts. The corporation applied for federal recognition as an Internal Revenue Code § 501(c)(3) charitable organization, which the Internal Revenue Service approved in March of 1987.
At all times material to this action, the corporation has utilized its Chattanooga office to solicit contributions from residents of Tennessee and residents of other states and countries. The corporation's solicitation efforts have been most successful. Its annual receipts of charitable contributions have averaged in excess of $200,000 per year since 1991.
Although the corporation applied for and received federal recognition as a charitable entity, the corporation never registered as a charitable solicitation organization with the Charitable Solicitations Division of the Tennessee Department of State (hereinafter "Division" or "Department") as required by Tenn. Code Ann. § 48-101-504(a). Moreover, it never submitted an application for exemption as a religious institution. There is, however, a significant and lengthy history of communications by the State of Tennessee with the corporation and its founder and president, John M. Davies, encouraging the corporation to apply for registration or exempt status.
That history began in 1991 with a letter from the Director of the Charitable Solicitations Division ("Division") to the corporation. The letter was addressed to the attention of John M. Davies, notifying him of the requirements for registration with the Division. A copy of Tenn. Code Ann. § 48-101-501, et seq., the Solicitation of Charitable Funds Act ("Act"), was enclosed. Mr. Davies sent a letter to the Director of the Division responding on behalf of the corporation, stating in a conclusory fashion that the corporation was exempt as a religious institution. Although Mr. Davies claimed the corporation was a religious institution and therefore exempt, he did not submit an application for exemption, as the statute required; he merely enclosed a copy of the 501(c)(3) determination letter from the IRS.
In 1993, the Division Director again notified the corporation by letter that it was not registered as a charitable organization. The Director also advised the corporation that soliciting funds from the public without registration would constitute a violation of the Solicitation of Charitable Funds Act, Tenn. Code Ann. § 48-101-501, et. seq. As a courtesy, the Director enclosed a charitable solicitation pamphlet and a registration application form along with a request that the corporation comply with the Act. Neither Mr. Davies nor anyone else responded on behalf of the corporation.
When a new Director was appointed in the latter part of 1993, the Director sent another letter to the corporation, to the attention of Mr. Davies, requesting that the corporation complete and submit the registration packet previously provided. In his letter, the Director specifically noted that registration was a condition precedent to solicitation and that a violation of the Act subjects the corporation to civil penalties and possibly criminal prosecution.
Mr. Davies responded to the new Director's letter stating that the corporation was exempt from registration due to its religious status. Again, Mr. Davies did not submit an application for exemption, as requested by the Division; he merely enclosed a copy of his 1991 letter and commented that his 1991 letter should answer the Division's questions.
Due to a myriad of circumstances, the corporation and the Department continued to dance around the issue for the next three years. One reason for the protracted waltz was a challenge to the constitutionality of the exemption provision of the Act in an unrelated proceeding. See State v. Smoky Mountain Secrets, Inc., 937 S.W.2d 905 (Tenn. 1996). Because the exemption was under scrutiny in State v. Smoky Mountain Secrets, the Division sent written notice to the corporation in December 1993, stating that no determinations of exemption would be made until the constitutionality of the Act had been resolved. Thereafter, in January and May of 1996, following the Supreme Court's determination that the Act was constitutional, the Division sent letters to the corporation requesting documentation to support the corporation's conclusory claims that it was exempt as a religious institution. Neither Mr. Davies nor anyone else on behalf of the corporation responded to either letter.
In October of 1997, the Director again sent a letter to the attention of Mr. Davies encouraging the corporation to either register as a charitable organization or provide supporting documentation that the corporation qualified for an exemption from the registration requirement. Again, the Director advised that solicitation without registration could lead to civil penalties, requested an explanation for not being registered, and requested that Mr. Davies complete and return the enclosed form by the following week. As had occurred on previous occasions, neither Mr. Davies nor anyone else on behalf of the corporation responded to the Director's letter.
On December 17, 1997, the Division sent a certified letter to the corporation stating that the corporation was in violation of the Act. The Director of the Division enclosed in the letter a form that was marked "FINAL NOTICE." The receipt from the certified mail showed that it was received by Mr. Davies on December 22, 1997. Mr. Davies responded on behalf of the corporation on January 21, 1998, by repeating his contention that the corporation was exempt from registration as a religious institution. As before, however, he failed to provide an application for exemption to demonstrate the corporation qualified for the exemption. Although it had been provided to him previously, Mr. Davies also requested a copy of the exemption request form and a copy of applicable state law. The Division promptly honored his request by mailing the requested information and documentation to him on February 2, 1998. The Division never received a reply to its February 2, 1998 letter.
Thereafter, on April 17, 1998, the Division dispatched two investigators to Chattanooga to conduct an inspection of the corporation. Upon completing their investigation, the investigators notified the corporation that it was soliciting and receiving financial contributions in violation of the registration requirement and issued a Notice of Violations, a Notice of Rights, and another exemption form package to complete and return to the Division. The corporation did not respond to the Notice of Violations and did not submit the exemption forms.
After the Division Director and Mr. Davies had a telephone conversation, the Director sent a letter in January of 1999, stating "This will confirm our telephone conversation today in which you telephoned to confirm that `Free the Fathers' will submit an application with our office to register the organization's charitable fund raising activities." Enclosed with the letter was another registration package with instructions that, "[t]he completed package must be returned to our office by January 29, 1999." The letter was sent by certified mail, and a return receipt showed that the corporation received the package on January 21, 1999. The corporation again failed to register and failed to submit an application to be exempt from...
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