State ex rel. Petro v. Gold

• Decision Date: 02 March 2006
• Docket Number: No. 04AP-873.,No. 04AP-863.,04AP-863.,04AP-873.
• Citation: 850 N.E.2d 1218,166 Ohio App.3d 371,2006 Ohio 943
• Parties: The STATE ex rel. PETRO, Atty. Gen., Appellee, v. GOLD et al., Appellees; ADSA, Inc. et al., Appellants. The State ex rel. Petro, Atty. Gen., Appellee, v. Gold et al., Appellees; Charitable Resource Foundation, Inc., Appellant.
• Court: Ohio Court of Appeals

Page 1218

850 N.E.2d 1218

166 Ohio App.3d 371

2006-Ohio-943

The STATE ex rel. PETRO, Atty. Gen., Appellee, v. GOLD et al., Appellees; ADSA, Inc. et al., Appellants.

The State ex rel. Petro, Atty. Gen., Appellee, v. Gold et al., Appellees; Charitable Resource Foundation, Inc., Appellant.

No. 04AP-863.

No. 04AP-873.

Court of Appeals of Ohio, Tenth District, Franklin County.

Decided March 2, 2006.

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Jim Petro, Attorney General, Vivian P. Tate, Columbus, and Samuel J. Kirk, Assistant Attorneys General, for appellee state of Ohio.

Swedlow, Butler, Lewis, Madison & Dye Co., L.P.A., and Michael D. Bonasera, for Jeffrey M. Lewis, receiver.

Victoria E. Ullmann, Columbus, for appellants ADSA, Inc. and Larry Smith.

Kopech & Associates and David A. Kopech, for appellant Charitable Resources Foundation, Inc.

McGRATH, Judge.

{¶ 1} Defendants-appellants, Larry Smith, American Deputy Sheriffs' Association ("ADSA"), and Charitable Resource Foundation, Inc. ("CRF"), appeal from a July 30, 2004 judgment entry of the Franklin County Court of Common Pleas, which, after a bench trial, entered judgment in favor of plaintiff-appellee, the former Attorney General, Betty D. Montgomery ("the state" or "the Attorney General"). CRF also appeals the trial court's April 1, 2004 judgment entry, which denied CRF's constitutional challenges to R.C. 1716.02(A)(2).

{¶ 2} Reduced to its essence, this action explores some of the legal parameters of R.C. Chapter 1716. Many of the issues presented on appeal, we believe, are questions of first impression. To facilitate a more complete understanding of the issues, it is first useful to briefly outline the statutory scheme involved and summarize the relationships between the parties, before proceeding to the facts, procedural history, and merits.

I. R.C. CHAPTER 1716 — OHIO'S CHARITABLE-SOLICITATIONS ACT

{¶ 3} In 1990, the Ohio General Assembly passed a comprehensive revision of the Ohio's charitable-solicitation laws, codified as R.C. Chapter 1716. The purpose of this chapter was to curtail fraudulent activities in the solicitation of charitable donations and ensure donor confidence by protecting the public against loss of charitable assets through fraud or mismanagement. Thus, "every officer, director, trustee, or employee" involved with the solicitation, collection, and/or expenditure of charitable contributions is considered a fiduciary and "as acting in a fiduciary capacity." R.C. 1716.17 and 1702.30(B) and (C).

{¶ 4} As relevant to this discussion, R.C. 1716.02(B) requires all nonexempt charitable organizations intending to solicit contributions in Ohio to register with the state. This statute requires a variety of information to be provided on the registration form, including names, addresses, and telephone numbers of the charity's executive personnel, annual financial report for the preceding fiscal year, and a statement regarding whether solicitations will be made directly or via another charitable organization, fund-raising counsel, or professional solicitors. If a third party, such as a professional solicitor,¹ will be soliciting donations on behalf of the charity, then the registration must also include a statement "setting forth the specific terms of the arrangements for salaries, bonuses, commissions, expenses, or other remunerations" that the professional solicitor will be paid. R.C. 1716.02(B)(9).

{¶ 5} Similar to the requirement for a charitable organization, R.C. 1716.07(B) requires professional solicitors to register with the state prior to soliciting donations. The registration application must be in writing and under oath, appear in the approved format, and be accompanied by a $200 fee. Id. It must also contain the name and address of each employee and agent working under its direction. Id. Additionally, the professional solicitor must obtain a surety bond in the amount of $25,000, which must be approved by the state and filed at the time of registration or renewal. R.C. 1716.07(C).

{¶ 6} R.C. 1716.08(A) requires a written contract between a professional solicitor and a charitable organization that sets forth the obligations of each party and contains the percentage of the gross revenue that the charitable organization will receive from the charitable-solicitation campaign. That percentage must be expressed as either a fixed percentage of the gross revenue or a reasonable estimate thereof. R.C. 1716.08(A)(2).

{¶ 7} At the point of solicitation, a professional solicitor must advise the potential donor that he or she is being contacted by a professional solicitor, disclose the name of the professional solicitor as it appears on file with the state (as opposed to an acronym), and identify, by name and address, the charitable organization on whose behalf the contribution is being solicited. R.C. 1716.08(B)(1)(a) and (b). After receipt of a donation, a professional solicitor must deposit it within two days in a bank account held in the name of the charitable organization. R.C. 1716.08(F) and 1716.14(A)(11). Within 90 days following the completion of a charitable campaign, a professional solicitor must provide the charitable organization with a financial report of the campaign, including the gross revenue received and an itemized list of expenses; the report must also be filed with the Attorney General. R.C. 1716.07(E).

{¶ 8} Consistent with the statute's intent to curtail fraud, the General Assembly specifically empowered the office of the Attorney General to bring a civil action to enforce the provisions of R.C. Chapter 1716, in addition to its authority derived from common law. R.C. 1716.16(A). Following a judicial determination that a party committed a violation of R.C. Chapter 1716, the court can "make any necessary order or enter a judgment including, but not limited to, an injunction, restitution, or an award of reasonable attorney's fees and costs of investigation and litigation, and may award to the state a civil penalty of not more than ten thousand dollars for each violation of this chapter or rule." R.C. 1716.16(B). That provision also eases the restrictions for the Attorney General to seek injunctive relief, by removing the burden of demonstrating irreparable harm. Instead, the Attorney General need only show a violation of R.C. Chapter 1716 or that injunctive relief is in the public interest.

II. THE PARTIES

{¶ 9} ADSA is a nonprofit Texas corporation that was formed in 1993. ADSA's purported purpose is that of a charitable organization, whose goal is to secure "a large membership base of county law enforcement employees" and assist that membership with equipment, training, scholarship assistance, and financial support, as well as provide death benefits to the families of its deceased members. During the time period covered by the complaint, Smith was ADSA's president, executive director, chief executive officer, chief operating officer, and consultant.

{¶ 10} Mitchell Gold² was the officer, director, manager, agent, and owner of U.S. Marketing, a for-profit Nevada corporation, and North American Charitable Services ("NACS"), a for-profit California corporation (collectively referred to as "the Gold defendants" or "Gold and his companies"). As such, he formulated, directed, established, and controlled the policies, practices, and procedures of those companies. Both U.S. Marketing and NACS operated as professional solicitors as defined by R.C. 1716.01(J), soliciting contributions on behalf of ADSA in Ohio and other states.

{¶ 11} With assistance and direction from Gold, Jeffrey Atkins formed CRF, a for-profit Indiana corporation, in 1995. Like U.S. Marketing and NACS, CRF operated as a professional solicitor on behalf of ADSA, as well as for other charities, in Ohio and nationwide. CRF contracted with AdminiServe, Inc. to provide employees for its various charitable-solicitation campaigns. Pursuant to that contract, the individuals provided to CRF by AdminiServe, Inc., were considered the employees of CRF for the purposes of registration and compliance with R.C. Chapter 1716.

III. PROCEDURAL HISTORY

{¶ 12} The state filed the instant action on November 26, 1999, alleging that Smith ADSA, CRF, Gold, U.S. Marketing, and NACS had violated multiple provisions of R.C. Chapter 1716. On May 18, 2000, the trial court granted the state's motion for default judgment against the Gold defendants, neither of which had filed answers to the state's complaint or appeared in the action.

{¶ 13} The state moved for partial summary judgment against Smith, ADSA, and CRF, and, on August 30, 2001, the trial court granted that motion in part; the entry relative to that decision was filed on September 21, 2001. On December 3, 2001, a bench trial commenced on the remaining issues. The trial court subsequently issued its findings of fact and conclusions of law on July 30, 2004, finding that Smith, ADSA, and CRF had violated several provisions of R.C. Chapter 1716. That order also indicated that a receiver would be appointed over ADSA, and on August 24, 2004, the trial court appointed Jeffrey M. Lewis as the receiver for ADSA.

{¶ 14} Prior to trial, CRF raised constitutional challenges to R.C. 1716.02(A)(2) in its trial brief. CRF argued that the statute was overly broad and acted as a prior restraint, thereby violating the First and Fourteenth Amendments to the United States Constitution. On April 1, 2004, the trial court issued a decision rejecting CRF's claims, finding that R.C. 1716.08(A)(2) was a disclosure statute that passed constitutional muster. In a separate entry filed that day, the trial court granted the state's motion to strike portions of CRF's reply brief on the grounds that certain exhibits attached thereto constituted new evidence not previously submitted.

{¶ 15} It is from the above orders that Smith, ADSA, and CRF appeal; Smith and ADSA jointly appealed. On September 9,...