National Federation of the Blind v. F.T.C.

• Citation: 420 F.3d 331
• Decision Date: 26 August 2005
• Docket Number: No. 04-1378.,04-1378.
• Parties: NATIONAL FEDERATION OF THE BLIND; Special Olympics Maryland, Incorporated, Plaintiffs-Appellants, v. FEDERAL TRADE COMMISSION, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 331

420 F.3d 331

NATIONAL FEDERATION OF THE BLIND; Special Olympics Maryland, Incorporated, Plaintiffs-Appellants, v. FEDERAL TRADE COMMISSION, Defendant-Appellee.

No. 04-1378.

United States Court of Appeals, Fourth Circuit.

Argued December 1, 2004.

Decided August 26, 2005.

COPYRIGHT MATERIAL OMITTED

ARGUED: M. Errol Copilevitz, Copilevitz & Canter, L.L.C., Kansas City, Missouri, for Appellants. Michael Daniel Bergman, Federal Trade Commission, Washington, D.C., for Appellee. ON BRIEF: William E. Raney, Kristen E. Bloemker, Copilevitz & Canter, L.L.C., Kansas City, Missouri, for Appellants. William E. Kovacic, General, John F. Daly, Deputy General for Litigation, Lawrence DeMille-Wagman, Federal Trade Commission, Washington, D.C., for Appellee.

Before WILKINSON, TRAXLER, and DUNCAN, Circuit Judges.

Affirmed by published opinion. Judge WILKINSON wrote the opinion, in which Judge TRAXLER joined. Judge DUNCAN wrote a dissenting opinion.

OPINION

WILKINSON, Circuit Judge.

This case presents a challenge to the Federal Trade Commission's regulation restricting telemarketing practices as they apply to charitable fundraising. The regulation requires callers to make certain disclosures, refrain from making late-night early-morning, and "abandoned calls" (calls followed by silence), and comply with a charity-specific "do-not-call list." Since the FTC has no jurisdiction over non-profit organizations, the new rule does not apply to calls made by "in house" charity staff or volunteers. It does, however, apply to "telefunders" — that is, professional fundraisers from for-profit companies who solicit donations on behalf of charities. The appellants, two charities who contract with these companies, argue that the regulation is beyond the FTC's authority and violates the First Amendment.

We think Congress clearly authorized the FTC to promulgate this new rule. Because we are further convinced that it constitutes a "reasonable regulation," that is "narrowly drawn" to serve a "sufficiently strong subordinating interest that the [government] is entitled to protect," we find it to be constitutional. Sec. of State of Maryland v. Munson, 467 U.S. 947, 960-961, 104 S.Ct. 2839, 81 L.Ed.2d 786 (1984) (quotation omitted). The regulation preserves the important right of charities to make telephone solicitations. To strike down the rule, however, would disable the democratic branches from taking even the most modest steps necessary to protect the home environment from intrusive phone calls.

I.

In 1994, Congress passed the Telemarketing Consumer Fraud and Abuse Prevention Act ("Telemarketing Act"). Pub.L. No. 103-297, 108 Stat. 1545 (codified as amended at 15 U.S.C. §§ 601 et seq. (2000)). That legislation instructed the FTC to "prescribe rules prohibiting deceptive . . . and other abusive telemarketing acts or practices." 15 U.S.C. § 6102(a)(1) (2000). Specifically, Congress directed the FTC to forbid "unsolicited telephone calls which the reasonable consumer would consider coercive or abusive of such consumer's right to privacy," to restrict "the hours of the day and night when unsolicited telephone calls can be made," and to require that callers disclose information about the nature and purpose of the call. Id. § 6102(a)(3).

Two further provisions of the 1994 Telemarketing Act are particularly relevant to this case. First, Congress defined "telemarketing" to only cover calls "conducted to induce purchases of goods or services." Id. § 6106(4). Phone calls seeking charitable donations were thus outside the scope of the Telemarketing Act as it existed in 1994.

Second, Congress explained that the Telemarketing Act did nothing to affect activity beyond the FTC's jurisdiction. Id. § 6105(a). In this regard, Congress cross-referenced the jurisdictional provisions of the Federal Trade Commission Act ("FTCA"). The FTCA gives the FTC jurisdiction over "persons, partnerships, or corporations," with some exceptions not relevant here. Id. § 45(a)(2). An entity is only a "corporation," for FTCA purposes, if it is "organized to carry on business for its own profit or that of its members." Id. § 44. Thus, according to the FTC's organic statute, non-profit organizations fall outside the scope of the agency's jurisdiction. And, as Congress made clear, the Telemarketing Act did nothing to change that fact. Id. § 6105(a).

In 1995, the FTC implemented Congress' directives by promulgating the original Telemarketing Sales Rule ("TSR"). 16 C.F.R. § 310 et seq. (1995). The TSR imposed several restrictions on telemarketers — requiring them, inter alia, to make certain disclosures, obey time restrictions, and refrain from calling consumers who have asked not to be called by that particular seller. Before the 1995 TSR became effective, the FTC issued an advisory statement clarifying that the TSR did not regulate professional telemarketers calling on behalf of non-profit organizations (these professionals are often referred to as "telefunders"). The agency justified this decision by explaining that soliciting donations did not qualify as "telemarketing" under the Telemarketing Act.

Following new congressional instructions, however, the FTC's position towards telefunders has changed. In October 2001, Congress enacted the USA PATRIOT Act, which contained a section (section 1011) entitled "Crimes Against Charitable Americans." Pub.L. No. 107-56, 115 Stat. 396 (2001).

This section amended the Telemarketing Act in three significant ways. First, Congress inserted the phrase "fraudulent charitable solicitations" in its general description of what "deceptive telemarketing acts or practices" the FTC should regulate. 15 U.S.C.A. § 6102(a)(2) (West Supp.2004). Second, Congress added a new subsection specifically directing the FTC to include:

a requirement that any person engaged in telemarketing for the solicitation of charitable contributions, donations, or gifts of money or any other thing of value, shall promptly and clearly disclose to the person receiving the call that the purpose of the call is to solicit charitable contributions, donations, or gifts, and make such other disclosures as the Commission considers appropriate. . . .

Id. § 6102(a)(3)(D). And third, Congress altered the Act's definition of "telemarketing" to include a reference to charitable solicitations.¹ Id. § 6106(4).

One crucial part of the Telemarketing Act, however, remained unchanged by the PATRIOT Act. The PATRIOT Act did not purport to alter the FTC's jurisdiction, which is still governed by the jurisdictional provisions in the FTCA. As explained above, those provisions do not cover non-profit organizations. The PATRIOT Act, therefore, expanded what "acts and practices" could be regulated by the FTC under the Telemarketing Act, but it did not change what type of entity was subject to the FTC's control.

In January 2002, the FTC issued a notice of proposed rulemaking to adjust the TSR after the changes Congress had made to the Telemarketing Act. It received approximately 64,000 comments, some calling for more regulation and some asking for less. It then conducted a three-day public forum. In reviewing the feedback it received, the FTC concluded that "consumers are disturbed by unwanted calls regardless of whether the caller is seeking to make a sale or to ask for a charitable contribution." 68 Fed.Reg. 4637.

On January 29, 2003, the FTC promulgated a new TSR. 68 Fed.Reg. 4580 (Jan. 29, 2003) (codified at 16 C.F.R. § 310 (2005)). Attempting to formulate this new rule in accordance with Congress' directions, the FTC faced a quandary. Congress had not altered the jurisdictional provisions in the Telemarketing Act, thus leaving the FTC without jurisdiction over non-profit organizations. But, at the same time, Congress did amend the definition of "telemarketing" to cover charitable solicitations. To reconcile those two congressional mandates, the agency articulated the distinction which is now being challenged. It 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. Thus, professional telefunders calling on behalf of charities are subject to the new TSR, while "in house" callers from the charities themselves are not. It is this distinction that lies at the heart of the instant dispute.

The new TSR imposed several new restrictions on telemarketers generally, but only some of those restrictions apply to telefunders. Five such provisions are being challenged here:

(1) prohibitions on placing calls before 8:00 a.m. or after 9:00 p.m., 16 C.F.R. § 310.4(c);

(2) prohibitions on "abandoned calls" (a call is abandoned when a person at home answers the phone and is not connected to a telemarketer within two seconds), 16 C.F.R. § 310.4(b)(1)(iv);

(3) a requirement that callers promptly explain that they are seeking donations, and identify the charity on behalf of which the request is being made, 16 C.F.R. § 310.4(e);

(4) a requirement that telemarketers transmit their name and phone number to caller identification services ("caller ID"), 16 C.F.R. § 310.4(a)(7); and

(5) an obligation that telemarketers refrain from calling a person who has previously asked not to be called by a specific charity, 16 C.F.R. § 310.4(b)(1)(iii)(A).

Similar to this last restriction, the TSR also included a national do-not-call registry (one that is not entity-specific) which telemarketers are required to respect. However, the rule does not require that telefunders adhere to the national do-not-call list — instead requiring only their adherence to a more modest charity-specific list. 16 C.F.R. § 310.6(a).

Appellants National Federation of the Blind and Special Olympics Maryland,...