National Federation of Blind v. F.T.C.
| Decision Date | 24 February 2004 |
| Docket Number | No. CIV. JFM-03-963.,CIV. JFM-03-963. |
| Citation | 303 F.Supp.2d 707 |
| Parties | NATIONAL FEDERATION OF THE BLIND and Special Olympics Maryland, Inc., v. FEDERAL TRADE COMMISSION. |
| Court | U.S. District Court — District of Maryland |
Glenn A. Mitchell, Stein, Mitchell and Mezines LLP, Washington, DC, Mark Errol Copilevitz, Copilevitz and Canter LLC, Kansas City, MO, for Plaintiffs.
Lawrence DeMille Wagman, Michael Daniel Bergman, Washington, DC, for Defendant.
Plaintiffs National Federation of the Blind and Special Olympics Maryland, Inc. ("Plaintiffs") have filed this action against Defendant Federal Trade Commission ("FTC") challenging the amendments to the Telemarketing Sales Rule promulgated by the FTC. These amendments impose modest restrictions upon the activities of professional telemarketers who solicit charitable contributions on behalf of nonprofit organizations. Plaintiffs claim that the amended rule exceeds the FTC's statutory authority and violates the First and Fifth Amendments to the United States Constitution. Pending before the court are the parties' cross-motions for summary judgment. For the reasons stated below, Plaintiffs' motion for summary judgment will be denied and Defendant's cross-motion for summary judgment will be granted.
In 1994, Congress passed the Telemarketing Consumer Fraud and Abuse Prevention Act ("Telemarketing Act"), 15 U.S.C. §§ 6101 et seq. That legislation directed the FTC to prescribe rules prohibiting deceptive and abusive telemarketing acts or practices. 15 U.S.C. § 6102(a)(1). The definition of "telemarketing" in the statute was limited to plans, programs, or campaigns involving more than one interstate phone call, which sought to "induce purchases of goods or services." 15 U.S.C. § 6106(4) (1994;). Congress also instructed the FTC to include several specific rules with respect to "abusive" practices, namely: (1) a requirement that telemarketers not undertake a pattern of unsolicited calls that the reasonable consumer would consider coercive or abusive of his right to privacy; (2) restrictions on the hours of the day and night during which unsolicited calls could be made; and (3) a requirement that the telemarketer promptly and clearly disclose to the consumer receiving the call that the purpose of the call is to sell goods or services. 15 U.S.C. § 6102(a)(3) (1994).
The Telemarketing Act expressly limited the activities that could be regulated by the FTC to those activities that were within the FTC's jurisdiction as defined by the FTC Act. 15 U.S.C. § 6105(a). Under the FTC Act, the FTC has jurisdiction over "persons, partnerships, or corporations," except for banks, savings and loan institutions federal credit unions, common carriers, and some other entities not relevant to this case. 15 U.S.C. § 45(a)(2). To qualify as a "corporation," an entity must be organized to carry on business for its own profit or that of its members. 15 U.S.C. § 44. Incorporating these jurisdictional limits into the Telemarketing Act meant that nonprofit organizations were exempt from the scope of the statute.
In 1995, the FTC promulgated the original Telemarketing Sales Rule to implement the Telemarketing Act, codified at 16 C.F.R. §§ 310 et seq. This rule prohibited various deceptive telemarketing practices, 16 C.F.R. § 310.3, and also regulated certain abusive practices. 16 C.F.R. § 310.4. The FTC's jurisdiction; was not restated in the rule because the Telemarketing Act clearly defined the agency's jurisdiction by incorporating the FTC Act. 60 Fed.Reg. 43842, 43843, (Aug. 23, 1995). In addition, the FTC specifically stated in the Final Rule that it did not intend to expand or contract its jurisdiction or the scope of the rule's coverage. Id.
In October 2001, after the September 11 attacks, Congress, passed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act ("USA PATRIOT Act"), Pub.L. No. 107-56, 115 Stat. 272 (2001). Section 1011 of this statute amended the Telemarketing Act by expanding the definition of telemarketing to include calls intended to induce "a charitable contribution, donation, or gift of money or any other thing of value." 15 U.S.C. § 6106(4). The USA PATRIOT Act also added "fraudulent charitable solicitations" as a deceptive practice and directed the FTC to include rules in its regulations with respect to Rich solicitations, 15 U.S.C. § 6102(a)(2). Finally, the section of the Telemarketing Act describing the abusive practices that the FTC was to regulate was expanded to include a specific provision about the solicitation of charitable contributions. 15 U.S.C. § 6102(a)(3)(D). The USA PATRIOT Act did not, however, change the provision of the Telemarketing Act setting forth the FTC's jurisdiction. The FTC confirmed this point, stating, "Notwithstanding its amendment of these provisions of the Telemarketing Act, neither the text of section 1011 nor its legislative history suggest that it amends Section 6105(a) of the Telemarketing Act — the provision which incorporates the jurisdictional limitations of the FTC Act into the Telemarketing Act and, accordingly, the TSR." 67 Fed.Reg. 4492, 4496 (Jan. 30, 2002).
Soon after the enactment of the USA PATRIOT Act, in 2002, the FTC issued a Notice of Proposed Rulemaking that suggested a series of amendments to the original Telemarketing Sales Rule. The FTC received 64,000 comments about its proposed amendments and conducted a three-day public forum to discuss the amendments. 68 Fed.Reg. 4580, 4582 (Jan. 29, 2003). The Final Amended Rule ("TSR") was promulgated in January 2003. The TSR made clear that one consequence of the USA PATRIOT Act was the expansion of the coverage of the. Telemarketing Act (and thus the Telemarketing Sales Rule) to those telemarketers often called "telefunders" — that is, for-profit entities that solicit charitable contributions on behalf of non-profit organizations. See 68 Fed.Reg. at 4584-85. The FTC stated, "Reading the amendments to the Telemarketing Act effectuated by § 1011 of the USA PATRIOT Act together with the unchanged sections of the Telemarketing Act compels the conclusion that for-profit entities that solicit charitable donations now must comply with the TSR, although the Rule's applicability to charitable organizations themselves is unaffected." Id. at 4585. The TSR also added more restrictions on telemarketing to the original rule, only some of which applied to telefunders.
The restrictions in the TSR being challenged in this case are the following: (1) a company-specific do-not-call provision, which prohibits a telemarketer from calling any consumer who has indicated that she wants no further calls from that particular seller or organization, 16 C.F.R. § 310.4(b)(1)(iii)(A)1; (2) a prohibition on "abandoned calls," which requires the telemarketer to connect the call to a representative within two seconds of the person's completed greeting, 16 C.F.R. § 310.4(b)(1)(iv); (3) a prohibition on placing calls before 8:00 a.m. or after 9:00 p.m., 16 C.F.R. § 310.4(c); and (4) a requirement that telemarketers transmit caller ID information, 16 C.F.R. § 310.4(a)(7). The TSR also includes a specific requirement that telefunders promptly identify themselves and tell consumers that they are soliciting donations. 16 C.F.R. § 310.4(e).2
Also relevant to the issues presented in this case are certain statutes and rules involving the Federal Communications Commission ("FCC"). In 1991, Congress passed the Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227, which directed the FCC to issue rules concerning "the need to protect residential telephone subscribers' privacy rights to avoid receiving telephone solicitations to which they object." 47 U.S.C. § 227(c)(1). This statute expressly exempted calls or messages by tax-exempt nonprofit organizations from its definition of "telephone solicitation." 47 U.S.C. § 227(a)(3).
The FCC adopted rules implementing the TCPA in 1992, and in September 2002, it issued a Notice of Proposed Rulemaking seeking comments on whether to revise its TCPA rules. In early 2003, after the TSR was promulgated, Congress instructed the FCC to consult with the FTC to maximize consistency with the FTC's rules. In July 2003, the FCC released its final report amending the TCPA rules. The amended rules contain nearly identical provisions to those of the TSR that are challenged in this case, including the company-specific do-not-call provision, the time restrictions, the abandoned call provision, and the disclosure and caller ID provisions. See 16 C.F.R. §§ 64.1200, 64.1601. The FCC recognized that its amended rule would subject all commercial entities to its requirements, including those exempt from the FTC's jurisdiction. Report on Regulatory Coordination, 18 F.C.C.R. 18558, 18560, 2003 WL 22076540 (2003). However, the TCPA exempted nonprofit organizations from its provisions, and the amended TCPA rules maintained this exemption. 68 Fed.Reg. 44144, 44160 (Jul. 25, 2003). The FCC also concluded, "In light of the record before us, the Commission believes that there has been no change in circumstances that warrant distinguishing those calls made by a professional telemarketer on behalf of a tax-exempt nonprofit organization from those made by the tax-exempt nonprofit itself." Id.
Plaintiffs are both nonprofit organizations with tax-exempt status under § 501(c)(3) of the Internal Revenue Code. National Federation of the Blind is a group that provides support for blind persons and their, families, as well as education, information, and referral services about blindness. Special Olympics Maryland, Inc. provides sports training and athletic competition for citizens with mental retardation, as well as public education, community services, and outreach initiatives. Both plaintiffs require charitable contributions to fulfill their program...
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