State v. TVI, Inc.

• Decision Date: 16 August 2021
• Docket Number: 80915-6-I
• Court: Washington Court of Appeals
• Parties: STATE of Washington, Respondent, v. TVI, INC., d/b/a Value Village, Appellant.

493 P.3d 763

STATE of Washington, Respondent,

v.TVI, INC., d/b/a Value Village, Appellant.

80915-6-I

Court of Appeals of Washington, Division 1.

FILED August 16, 2021

Sarah Cox, Ross Colin Siler, James Condon Grant, Davis Wright Tremaine LLP, 920 5th Ave., Ste. 3300, Seattle, WA, 98104-1610, for Appellant(s).

John Nelson, Shidon Burton Aflatooni, Seann C. Colgan, WA. State Attorney General's Office, 800 Fifth Ave., Ste. 2000, Seattle, WA, 98104-3188, for Respondent(s).

PUBLISHED OPINION

Bowman, J.

¶ 1 The State sued TVI Inc. under the Consumer Protection Act (CPA), chapter 19.86 RCW, alleging that TVI's marketing deceived consumers by creating an impression that TVI is a nonprofit entity and that charities benefit from sales at TVI's Value Village thrift stores. TVI argued its marketing amounts to constitutionally protected charitable solicitation and moved to dismiss the CPA claims. The trial court denied the motion and, after a bench trial, determined that TVI "knew or should have known" that its marketing could deceive consumers. We conclude that TVI's marketing inextricably intertwines commercial speech and charitable solicitation and that statutes regulating charitable solicitation must survive strict constitutional scrutiny. Because the CPA as applied to TVI's marketing does not leave sufficient breathing room for protected speech under the First Amendment to the United States Constitution, we reverse and remand to dismiss the State's CPA claims.

FACTS

¶ 2 TVI is a for-profit corporation that owns and operates several Value Village thrift stores in Washington. It buys donated textiles and household items from selected partner charities¹ at low cost² and then sells them to the public at higher prices in its stores. TVI sells unsold items and those unfit for retail sale to recycling centers that ship the items overseas to secondary markets or dispose of the items. TVI also maintains community donation centers at its stores, where it accepts items donated by the public. It then pays its charity partners a fee based on the amount of materials donated directly to each store.

¶ 3 TVI markets itself as a philanthropic company trying to reduce waste, recycle materials, and support its charity partners’ work in the community. TVI does not donate directly to charities, and its charity partners do not receive any of its sales revenue. But by buying in bulk from charitable organizations, TVI provides a predictable source of revenue on which the charities heavily rely.

¶ 4 To induce the public to donate and shop at its stores, TVI uses in-store signs and banners, in-store public address announcements, online marketing, brochures, and social media posts. TVI identifies itself as a for-profit company in its marketing and does not tell shoppers it donates profits to charity. That said, it markets slogans that suggest its charitable partners benefit from the amount of items TVI sells. For example, one sign reads, " ‘These racks support more than just clothes. By shopping and donating at this store, you support: [charity logos][.] Value Village good all around.’ " Or, " ‘Value Village is about giving back and helping others, too.’ " Another states, " ‘Donate to a nonprofit here’ " and, " ‘Clothing [plus] Household Items,’ " with a smaller caption that states, " ‘Value Village is a for profit professional fundraiser.’ " Some advertisements are more detailed:

"For over 60 years, Value Village has helped charities, communities and the planet prosper through the power of re-use. Our charity partners sell us goods they collect for reliable revenue that helps fund their missions."

¶ 5 Public address announcements made to shoppers include messages like, " ‘When you donate your reusable items here at our store, we pay it forward to others in a big way! Your donations mean support for local nonprofits - helping to fund vital programs right here in our community. Pretty awesome, huh?’ "

¶ 6 TVI also encourages shoppers to donate at its in-store collection bins with messages like, " ‘DO SOMETHING GREAT DO GOOD DO YOUR PART DO NATE,’ " " ‘DO A GOOD DEED DO FAVORS DO YOUR PART DO NATE,’ " and, " ‘Value Village pays local nonprofits every time you donate. Thank you! ’ " Most Value Village stores use a compilation of these themes in their banners, brochures, and signs. Some stores have a "primary" charity partner highlighted in their advertising. The stores also hand out "stamp cards," giving shoppers discounts on purchased items in exchange for donating goods.

¶ 7 In 2014, the State notified TVI that it must register with the secretary of state as a commercial fundraiser under the charitable solicitations act (CSA), chapter 19.09 RCW.³ TVI complied. Around the same time, the attorney general's office (AGO) began investigating TVI's marketing for possible CPA violations.⁴ The AGO initiated the investigation after receiving at least one complaint accusing TVI of creating a community perception that it was a nonprofit organization and that charities received direct benefits from its sales at Value Village stores.

¶ 8 Eventually, the State sued TVI under the CSA, alleging that TVI failed to place disclaimers "at the point of solicitation" between January and October 2015, and advertised for solicitations using "false, misleading, or deceptive information." The State also alleged TVI's marketing was deceptive under the CPA because it created a "deceptive net impression" that TVI is a nonprofit corporation and that customer sales directly benefit charities. The State also accused TVI of deceptive marketing related to the Rypien Foundation, a charity group dedicated to helping families battling cancer

. In exchange for using the foundation's logos in its marketing and store windows, TVI paid the Rypien Foundation a flat fee of $4,000 per month.⁵ But the State claimed TVI misled consumers into believing it paid the foundation based on the amount of donations to Value Village stores in Spokane. The State sought injunctive relief as well as civil penalties of up to $2,000 for each CPA violation. It also sought restitution for Value Village customers as well as attorney fees and costs.

¶ 9 TVI moved to dismiss the State's CPA claims as an unconstitutional regulation of protected speech as applied to its marketing. TVI argued that its marketing amounts to charitable solicitation, and statutes regulating charitable solicitation must pass strict constitutional scrutiny. It asserted the CPA cannot pass strict scrutiny because it lacks a mens rea element to protect against liability for unintentional false statements or deception. The trial court agreed that TVI's marketing includes some charitable solicitation subject to constitutional scrutiny. But it did not dismiss the State's CPA claims. Instead, the court required the State to prove at trial that TVI "knew or should have known" its marketing could create a deceptive net impression.

¶ 10 The case proceeded to bench trial. At the close of the State's case, TVI again moved to dismiss the CPA claims, arguing that the State failed to satisfy First Amendment strict scrutiny standards. The court denied the motion. After trial, the court determined that the State satisfied its burden of proof on three of its seven claims.⁶ The court found the State proved that (1) before 2016, TVI used advertising that had the capacity to deceive consumers by suggesting that TVI itself was a nonprofit entity; (2) TVI used ads that had the capacity to mislead the public into believing that purchasing items at a Value Village store would "benefit the downtrodden, the poor, those who need charity"; and (3) TVI used ads that had the capacity to deceive shoppers into believing the Rypien Foundation received money for each item donated. The court entered findings of fact and conclusions of law.

¶ 11 TVI petitioned for discretionary review before the trial court determined damages. A commissioner of this court granted TVI interlocutory discretionary review.

ANALYSIS

¶ 12 TVI argues that the CPA, as applied to its marketing, unconstitutionally chills protected speech—charitable solicitation. The State counters that TVI's marketing amounts to only commercial speech properly regulated under the CPA. In the alternative, the State argues that the CPA as applied to TVI's marketing survives strict scrutiny under the trial court's "knew or should have known" standard. We agree with TVI.

Standard of Review

¶ 13 We interpret statutes and constitutional provisions de novo. City of Spokane v. Rothwell, 166 Wash.2d 872, 876, 215 P.3d 162 (2009) ; Fed. Way Sch. Dist. No. 210 v. State, 167 Wash.2d 514, 523, 219 P.3d 941 (2009). We also review challenges invoking the right to free speech under the First Amendment de novo. Catlett v. Teel, 15 Wash. App. 2d 689, 699, 477 P.3d 50 (2020) (citing Resident Action Council v. Seattle Hous. Auth., 162 Wash.2d 773, 778, 174 P.3d 84 (2008) ). Generally, we presume statutes to be constitutional, and the party challenging a statute bears the burden of proving otherwise. State v. Bahl, 164 Wash.2d 739, 753, 193 P.3d 678 (2008) ; Voters Educ. Comm. v. Pub. Disclosure Comm'n, 161 Wash.2d 470, 481, 166 P.3d 1174 (2007). But the State " ‘usually bears the burden of justifying a restriction on [free] speech.’ " State v. Immelt, 173 Wash.2d 1, 6, 267 P.3d 305 (2011)⁷ (quoting Voters Educ. Comm., 161 Wash.2d at 482, 166 P.3d 1174 ).

¶ 14 In assessing a First Amendment challenge, we first determine whether the speech at issue is constitutionally protected. Bd. of Trs. of State Univ. of N.Y. v. Fox, 492 U.S. 469, 475, 109 S. Ct. 3028, 106 L. Ed. 2d 388 (1989). In doing so, we conduct " ‘an independent review of the record ... to be sure that the speech in question actually falls within [a] protected category.’ " Playtime Theaters, Inc. v. City of Renton, 748 F.2d 527, 535 (9th Cir. 1984) (quoting Bose Corp. v. Consumers Union of U.S., Inc., 466 U.S. 485, 505, 104 S. Ct. 1949, 80 L. Ed. 2d 502 (1984) ), rev'd on other grounds by ...