Divided Fourth Circuit Upholds FTC Do-Not-Call Rules for Telefunders
Last Friday, the United States Court of Appeals for the Fourth Circuit in Richmond, Va., issued a split 2-1 decision in National Federation of the Blind v. FTC that affirmed a Maryland federal court decision upholding the Federal Trade Commission's rules applicable to calls by for-hire telemarketers on behalf of non-profit entities. The National Federation of the Blind and Special Olympics of Maryland had challenged the rules on constitutional and other grounds, including that they violate the First Amendment and exceed the FTC's statutory authority.
Calls from or on behalf of non-profits, like political, polling, survey and other noncommercial calls, are not subject to FTC rules governing the National Do-Not-Call Registry. However, the FTC's rules also include "company-specific" do-not-call requirements (under which consumers can ask specific entities to not call again), along with time-of-day, call abandonment, disclosure, and caller ID obligations. These rules do not apply to charitable solicitations and other calls non-profit organizations make for themselves in-house. But they apply to charitable solicitations (but not surveys, etc.) if a non-profit hires a third-party commercial telemarketer to place the calls. Application of rules to such calls by "telefunders" arose out of changes made by the PATRIOT Act to the Telemarketing Act, which redefined the calls subject to regulation to include charitable solicitations, but did not alter the FTC's jurisdiction with respect to the non-profit organizations themselves. Accordingly, when the FTC adopted the National Do-Not-Call Registry and otherwise updated its telemarketing rules in 2003, it held that it could not apply the rules to non-profit entities, but could apply them to any for-profit telefunder the non-profit hired.
Plaintiffs National Federation of the Blind and Special Olympics argued that the FTC misapplied the PATRIOT Act amendments to the Telemarketing Act, which plaintiffs claimed intended to allow the FTC to regulate only fraudulent charitable solicitations. However, the District Court held, and the Fourth Circuit affirmed, that the Telemarketing Act empowers the FTC to regulate both telemarketing fraud and protect residential privacy from unwanted calls. Thus, because the Telemarketing Act definitions that were amended to reach charitable solicitations apply to both aspects of the FTC's powers, the FTC acted within its statutory mandate.
Even if the FTC has jurisdiction over for-profit telefunders, the plaintiffs argued, its decision to apply the company-specific do-not-call, abandonment rate, and other rules to calls made by third parties on behalf of charities, while charities making identical calls themselves go unregulated, is unconstitutional under the First Amendment and Supreme Court precedent governing charitable fundraising. But a majority of the Fourth Circuit held that the differential treatment accorded in-house charitable calls and third-party telefunding is permissible, because it arose not out of discriminatory intent or the content of calls, but rather limitations on FTC jurisdiction under the Telemarketing Act that it was powerless to change. The court consequently held that, even though the government cannot make arbitrary distinctions among speakers that bear no "reasonable fit" to the interests it seeks to advance, the rules applicable to telefunders are not unconstitutionally "underinclusive" rules that discriminate against some speakers without a "neutral justification" for doing so. Accordingly, the court held that when an agency regulates to the extent of its jurisdiction, though it will unavoidably leave out some speakers and some speech that is beyond its authority to regulate, in such cases the danger of governmental overreaching is removed, because these unavoidable distinctions are not a red flag indicating First Amendment problems such as attempting to favor one side of public debate or the pursuit of illegitimate governmental interests.
The dissent, which stated that the court's decision would have been unanimous had the rules applied to all charitable calls, rejected the majority's analysis of the rules' differential impact. It noted that the 1988 Supreme Court decision in National Federation of the Blind v. Riley made clear that non-profit organizations that use telefunders and those that keep solicitation in-house are similarly situated, and that laws or rules that disadvantage charities that choose (or find themselves limited to) the use of professional solicitors are impermissible. It went on to note that "the FTC has no evidence and no reason beyond jurisdictional authority justifying its decision to regulate charitable solicitations differently based upon the identity of the speaker."
The dissent characterized the majority's reliance on limits on FTC authority as being no different than divvying up administrative jurisdiction over the nation's political parties to separate agencies then allowing each of them to impose different burdens on grounds that each agency seeks to do no more than regulate to the extent of its jurisdiction. "The implications of this holding," the dissent notes, "are staggering," because "if a regulation that places different restrictions on speech based upon the identity of the speaker can be upheld simply by relying on the jurisdiction of the agency as the ‘neutral justification,'" it "creates a perverse incentive for all legislative bodies. Congress can restrict speech, even unconstitutionally, so long as it does so by parsing jurisdiction between various agencies."
Plaintiffs National Federation of the Blind and Special Olympics of Maryland have not indicated as yet whether they intend to seek Supreme Court review of the Fourth Circuit's decision.
Posted by Ronald London