Heritage Village Church and Missionary Fellowship, Inc. v. State, 87

• Citation: 263 S.E.2d 726,299 N.C. 399
• Decision Date: 05 March 1980
• Docket Number: No. 87,87
• Court: North Carolina Supreme Court
• Parties: HERITAGE VILLAGE CHURCH AND MISSIONARY FELLOWSHIP, INC., Plaintiff, The Holy Spirit Association for the Unification of World Christianity, Intervening Plaintiff, v. The STATE of North Carolina, Rufus L. Edmisten, Attorney General of North Carolina, Sarah T. Morrow, Secretary of Human Resources of the State of North Carolina; and Peter S. Gilchrist, III, District Attorney for the 26th Prosecutorial District of North Carolina, Defendants-Appellants.

Page 726

263 S.E.2d 726

299 N.C. 399

HERITAGE VILLAGE CHURCH AND MISSIONARY FELLOWSHIP, INC., Plaintiff The Holy Spirit Association for the Unification of World Christianity, Intervening Plaintiff, v. The STATE of North Carolina, Rufus L. Edmisten, Attorney General of North Carolina, Sarah T. Morrow, Secretary of Human Resources of the State of North Carolina; and Peter S Gilchrist, III, District Attorney for the 26th Prosecutorial District of North Carolina, Defendants-Appellants.

No. 87.

Supreme Court of North Carolina.

March 5, 1980.

Wardlow, Knox, Knox, Robinson & Freeman by H. Edward Knox and John S. Freeman, Charlotte, for original plaintiff-appellee.

Melrod, Redman & Gartlan by Dorothy Sellers, Washington, D. C., and Chambers, Stein, Ferguson & Becton, P.A. by Jonathan Wallas, Charlotte, for intervenor-plaintiff.

Rufus L. Edmisten, Atty. Gen. by William F. O'Connell, Sp. Deputy Atty. Gen., and Robert R. Reilly, Asst. Atty. Gen., Raleigh, for the State.

EXUM, Justice.

This case involves a variety of challenges based on state and federal constitutional grounds to G.S. 108-75.1 et seq., the "Solicitation of Charitable Funds Act" (Act). We hold that Section 75.7(a)(1) of the Act, which exempts from compliance all religious organizations except those whose "financial support is derived primarily from contributions solicited from persons other than its own members" deprives the Act of that neutrality toward religion required by the Establishment Clause of the First Amendment and Article I, §§ 13 and 19, of the North Carolina Constitution. We also hold that other provisions of the Act generally cause the state to become excessively entangled with religion so as to violate these same constitutional provisions. We find it unnecessary to address other challenges to the Act.

The Act seeks to "protect the general public and public charity in the State of North Carolina" and to "prevent deceptive and dishonest statements and conduct" in the solicitation of funds for charitable purposes. G.S. 108-75.2. Its provisions are designed "to require full public disclosure of facts relating to persons and organizations who solicit funds from the public for charitable purposes, the purposes for which such funds are solicited, and their actual uses." Ibid. To this end the Act empowers the Department of Human Resources (Department) to issue licenses to charitable organizations and professional solicitors who wish to solicit funds for charity, in accordance with rules and regulations promulgated by the Social Services Commission (Commission) and with the provisions of the Act. G.S. 108-75.4. The Commission is to be aided by the Committee on Charitable Organizations (Committee), an appointed body which is to recommend appropriate rules and regulations to the Commission. G.S. 108-75.5. Some of the factors the Committee is to take into account in formulating its recommended rules are specified in section 75.5(c):

"The rules and regulations shall take into consideration the existence of an adequate, responsible and functioning governing board of the charitable organization, professional fund-raising counsel or professional solicitor; its chartered responsibility; its need to conduct public solicitation; the proposed uses of solicited funds; the percentage of solicited funds used for management and fund-raising expenses, fund-raising activities, including but not limited to sale and benefit affairs and program services; the accountability of the charitable organization professional fund-raising counsel or professional solicitor and disclosure of information and financial reports to the general public; and other matters proper for the protection of the public interest with respect to public solicitation."

The Act requires that a charitable organization which intends to solicit funds within the state first apply to the Department for a license. The application must divulge such information as the names and addresses of the organization and its chapters and affiliates; its place, form, and mode of organization; the names, addresses, and occupations of its "key personnel"; the location of its financial records; the method, purposes, and extent of its fund-raising activities; and such other information "as may be reasonably required by the Commission." G.S. 108-75.6. In addition, pursuant to section 75.6(6), an applicant must furnish:

"A copy of the balance sheet and income and expense statement audited by an independent public accountant for the organization's immediately preceding fiscal year, or a copy of a financial statement audited by an independent public accountant covering, in a consolidated report, complete information as to all of the preceding year's fund-raising activities of the charitable organization, showing the balance sheet, kind and amounts of funds raised, costs and expenses incidental thereto, allocation or disbursement of funds raised, changes in fund balances, notes to the audit and the opinion as to the fairness of the presentation by the accountant. This report shall conform to the accounting and reporting procedures set forth in the 'Audit Guides' published by the American Institute of Certified Public Accountants, and as may be modified from time to time by said Institute or its successor . . . ."

All information filed with the Department is treated as a public record and is open to the public for inspection. G.S. 108-75.9. Furthermore, applicant organizations are required by section 75.12 to maintain fiscal records "in accordance with the rules and regulations promulgated by the Commission" and to make such records available for inspection, upon demand, to the Department, the Commission, or the Attorney General.

Section 75.18 specifies that the Secretary of the Department (Secretary) shall revoke, suspend, or deny issuance of a license to solicit charitable funds upon a finding of one or more of the following:

"(1) One or more of the statements in the application are not true.

(2) The applicant is or has engaged in a fraudulent transaction or enterprise.

(3) A solicitation would be a fraud upon the public.

(4) An unreasonable percentage of the contributions solicited, or to be solicited, is not applied, or will not be applied to a charitable purpose.

(5) The contributions solicited, or to be solicited, are not applied, or will not be applied to the purpose or purposes as represented in the license application.

(6) Solicitation and fund-raising expenses . . . will exceed . . . thirty-five percent (35%) of the total . . . received by reason of any solicitation and/or fund-raising activities or campaigns. . . .

(7) The applicant or lessee has failed to comply with any of the provisions of this Part, or with any rules and regulations adopted by the Commission pursuant to this Part. (Emphasis supplied.)

Charitable organizations subject to the provisions of the Act include those organizations operated for "religious" purposes. G.S. 108-75.3(1), (2). Section 75.7(a)(1), however, specifically exempts from the licensing requirements:

"A religious corporation, trust, or organization incorporated or established for religious purposes, or other religious organizations which serve religion by the preservation of religious rights and freedom from persecution or prejudice or by the fostering of religion, including the moral and ethical aspects of a particular religious faith: Provided, however, that such religious corporation, trust or organization established for religious purposes shall not be exempt from filing a license application . . . if its financial support is derived primarily from contributions solicited from persons other than its own members, excluding sales of printed or recorded religious materials . . . . (Emphasis supplied.)

The enforcement provision of the Act, section 75.22, provides in pertinent part that failure to file a license application, a report, document, statement, "or any other information required to be filed with the Department" may lead to the denial of issuance of a license or to the revocation or suspension of the license then in effect. If any charitable organization "in any other way violates the provisions" of the Act, the Secretary may also deny or revoke the license. The Secretary is given authority, "upon his own motion or upon the complaint of any person," to investigate any charitable organization for possible violations of the Act. (Emphasis supplied.) Finally, the Secretary may exercise the authority granted by this section "against any charitable organization which operates under the guise or pretense" of being an organization exempted from the Act but which "is not in fact an organization entitled to such an exemption."

Plaintiff Heritage Village Church and Missionary Fellowship, Inc., filed this action in Mecklenburg Superior Court seeking declaratory and injunctive relief to bar application of the Act to its charitable solicitation activities. Plaintiff Holy Spirit Association for the Unification of World Christianity was subsequently allowed to intervene with a complaint seeking substantially the same relief.

Both plaintiffs are non-profit entities which engage in substantial religious activities throughout the state. Both derive their financial support "primarily" from contributions solicited from the general public. Both contend that, as applied to them, the Act violates the First and Fourteenth Amendments to the United States Constitution and Sections 1, 13, 14 and 19 of Article I of the Constitution of North Carolina. The state does not contest that the solicitation of funds from the general public by plaintiffs is a religious activity conducted pursuant to the religious beliefs of each plaintiff respectively.

By order of 27 June 1978 Judge Ervin found in favor of plaintiffs and permanently enjoined defendants from taking any action against plaintiffs under the Act in consequence of plaintiffs' solicitation activities. In the...