Joseph H. Munson Co. v. Secretary of State

Gilbert, C. J., delivered the opinion of the Court. Sometimes a government, in its zeal to protect the governed, enacts laws that trespass unnecessarily upon the constitutional rights of some of the governed. It is extremely difficult in regulating any practice, custom, business, or industry not to trample, to a degree, upon the constitutional rights of someone. Governmental intrusion upon the constitutional rights of one group for the protection of a larger group, while looked upon with disfavor, is not, however, ipso facto invalid.

The test is not whether there has been an infringement upon the rights of those regulated, but rather, whether the regulation unnecessarily encroaches on the rights of the regulated. In this appeal, we must examine a State statute in order to determine whether it is unconstitutional. The Preamble to Laws 1976, ch. 679 1 2 provides in part: "The Governor on August 16, 1974, created a Commission on Charitable Organizations to examine the existing statutes and to make recommendations. The Commission concluded its work and found that the present laws [ 2 ] were inadequate and recommended the original bills (S.B. 287, H.B. 487) in their unamended form.

These bills as introduced by the Administration were nearly identical to the 'Model for State Legislation Regulating Charitable Organizations’ and endorsed by the numerous National Voluntary Health Agencies.” The Preamble also stated that bills had been "introduced in the 1975 Session as a result of impetus coming” from publications in which it was alleged that "various organizations soliciting funds from the public had excessively high administrative and other expenses, which resulted in a rela ²⁷⁵ tively small portion of the contributions . .. being used for their intended purpose.” Obviously, chapter 679 was enacted with the intent of protecting the public by assuring that the organization that solicited the funds was regulated as to the amount of monies that went toward "expenses in connection with .. . [the] fund-raising activity.” Section 3 of that chapter created what is now also known as Md. Ann. Code art. 41, § 103D. That section provides: "(a) A charitable organization other than a charitable salvage organization may not pay or agree to pay as expenses in connection with any fund-raising activity a total amount in excess of 25 percent of the total gross income raised or received by reason of the fund-raising activity. The Secretary of State shall, by rule or regulation in accordance with the 'standard of accounting and fiscal reporting for voluntary health and welfare organizations’ provide for the reporting of actual cost, and of allocation of expenses, of a charitable organization into those which are in connection with a fund-raising activity and those which are not. The Secretary of State shall issue rules and regulations to permit a charitable organization to pay or agree to pay for expenses in connection with a fund-raising activity more than 25% of its total gross income in those instances where the 25% limitation would effectively prevent the charitable organization from raising contributions.

The 25% limitation in this subsection shall not apply to compensation or expenses paid by a charitable organization to a professional fund-raiser counsel for conducting feasibility studies for the purpose of determining whether or not the charitable organization should undertake a fund-raising activity, such compensation or expenses paid for feasibility studies or preliminary planning not being considered to be expenses paid in connection with a fund-raising activity. ²⁷⁶ (b) For purposes of this section, the total gross income raised or received shall be adjusted so as not . to include contributions received equal to the actual cost to the charitable organization of (1) goods, food, entertainment, or drink sold or provided to the public, nor should these costs be included as fund-raising costs; (2) the actual postage paid to the United States Postal Service and printing expense in connection with the soliciting of contributions, nor should these costs be included as fund-raising costs. (c) Every contract or agreement between a professional fund-raiser counsel or a professional solicitor and a charitable organization shall be in writing, and a copy of it shall be filed with the Secretary of State within ten days after it is entered into and prior to any solicitations.” Joseph H. Munson Company, Inc., an Indiana corporation (Munson), and a "promotion business,” was desirous of entering into a contract with the Fraternal Order of Police, Montgomery County Chapter (F.O.P.). Munson was to raise funds for F.O.P., an organization, described in the stipulation of facts, which was engaged in the dissemination of information and the promotion of causes on behalf of police officers. Because of the fee limitations prescribed in the statute referred to above, no contractual relationship developed between Munson and F.O.P. Apparently believing itself unlawfully barred from doing business in Maryland because of section 103D, Munson filed, in the Circuit Court for Anne Arundel County, a bill of complaint in which it sought a declaratory decree that would hold section 103D unconstitutional.

The Secretary of State for the State of Maryland (Secretary) was named as defendant. The court was asked to enjoin permanently the enforcement of the registration provisions and the civil or criminal sanctions permitted by that statute. 3 ²⁷⁷ The case was heard in the circuit court by Judge Eugene M. Lerner on a stipulation of facts. The judge held that Munson was not entitled to declaratory relief "since ... [Munson] has not exhausted its administrative remedies.” Furthermore, the trial judge stated that there was no improper delegation of authority to the Secretary of State, and that the statute is constitutional. On appeal to this Court, Munson poses three questions which we believe may be stated fairly in but one. 4 scilicet: ²⁷⁸ Is Md. Ann. Code art. 41, § 103D unconstitutional on the basis that it infringes on the First Amendment right of freedom of speech, and is it an impermissible delegation of legislative authority to the Secretary? — PRELIMINARY ISSUE OF STANDING — Before we undertake to discuss the constitutionality vel non of section 103D, we must first consider the Secretary’s contention that Munson lacks standing to challenge the statute and, therefore, is not a proper party to have brought the suit in the first instance.

Our review of the record discloses that in response to the original bill of complaint the Secretary, in a motion to dismiss, averred inter alia that Munson was not an "interested . . . [party] asserting adverse claims . . . .” The motion was heard by Judge H. Chester Goudy, Jr., who granted the dismissal in part and denied it in part. Significantly, he did not rule upon Munson’s standing as an "interested party.” Subsequently, Munson filed an amended bill. The Secretary answered it without posing any question as to Munson’s being an "interested party.” Nevertheless, the Secretary did raise the question minimally in a Memorandum of Law that it submitted to Judge Lerner. We characterize the standing issue as minimally posited because in eleven pages of typing the only reference to standing is the single sentence, "The ... [Secretary] seriously questions ... [Munson’s] standing to seek a declaratory judgment.” Apparently the Assistant Attorney General, representing the Secretary, had misgivings about the inattention given to standing in his Memorandum of Law because approximately two weeks later he submitted to Judge Lerner a "Supplemental Memorandum of Law.” In the supplement, he dispelled any doubt as to the Secretary’s position with ²⁷⁹ respect to Munson’s standing inasmuch as the entire supplemental memorandum is devoted exclusively to that question.

Judge Lerner, in his "Memorandum Opinion and Order,” did not, however, address the issue of standing but denied relief strictly on the questions of constitutionality. Md. Rule 1085 provides in part that "[t]his Court will not ordinarily decide any point or question which does not plainly appear ... to have been tried and decided by the lower court....” We decline to consider the issue of standing because it was not decided by Judge Lerner inasmuch as he made his decision on other grounds. Md. Rule 1085. But see, Village of Schaumburg v. Citizens for a Better Environment, 444 U.S. 620, 634 , 100 S. Ct. 826, 834-35 , 63 L. Ed. 2d 73 (1980); Dombrowski v. Pfister, 380 U.S. 479, 486 , 85 S. Ct. 1116, 1121 , 14 L. Ed. 2d 22 (1964); United States v. Raines, 362 U.S. 17, 21 , 80 S. Ct. 519, 522 , 4 L. Ed. 2d 524 (1960); Thornhill v. Alabama, 310 U.S. 88, 97-98 , 60 S. Ct. 736, 742 , 84 L. Ed. 2d 1093 (1939). —CONSTITUTIONALITY VEL NON OF MD.

ANN. CODE ART. 41, § 103D— The Supreme Court has held that the regulation of charitable solicitation is a function of the State’s police power and a fulfillment of its duty to protect its citizens from fraudulent charitable organizations. Hynes v. Mayor of Oradell, 425 U.S. 610 , 96 S. Ct. 1755 , 48 L. Ed. 2d 243 (1976). The Court has also recognized that First Amendment freedoms are intertwined with any type of solicitation and should be protected.

See Virginia Pharmacy Board v. Virginia Consumer Council, 425 U.S. 748 , 96 S. Ct. 1817 , 48 L. Ed. 2d 346 (1976) (commercial solicitation); Hynes v. Mayor of Oradell, supra (charitable and political solicitation); Cantwell v. Connecticut, 310 U.S. 296 , 60 S. Ct. 900 , 84 L. Ed. 2d 1213 (1940) (religious solicitation). At first blush it would seem that Hynes is in conflict with the free speech solicitation right. The conflict, however, may be ²⁸⁰ reconciled by the State’s imposing reasonable regulations on charitable solicitations. Recently, in Village of Schaumburg v. Citizens for a Better Environment, supra, the Court, speaking through Justice White, addressed the balancing of police power vis-a-vis solicitations.

The Village ordinance prevented a charitable organization from obtaining a solicitation permit unless " '[satisfactory proof that at least seventy-five percent of the proceeds of such solicitations ... [would] be used directly for the charitable purpose of the organization.’ ” (Footnote omitted.) 444 U.S. at 624 , 100 S. Ct. at 829 . Citizens for a Better Environment (Citizens), an organization that promoted the protection of the environment, was denied a permit by the Village inasmuch as Citizens "could not demonstrate that 75 percent of its receipts would be used for 'charitable purposes’....” Id. at 625 , 100 S. Ct. at 830 . Citizens’ excessive expenditures were attributed to its employment of door-to-door "canvassers” who, in addition to collecting contributions, distributed "'literature on environmental topics and answerfed] questions of an environmental nature when posed’ ” and accepted complaints about the state of the environment. Id.

As a result of the Village’s refusal to grant a permit to Citizens, it challenged the ordinance on the ground that it violated its First and Fourteenth Amendment rights to freedom of speech. The Court held the particular ordinance to be an unconstitutional infringement on freedom of speech. Charitable solicitations are a form of speech entitled to First Amendment protection, the majority said. 5 To pass constitutional muster, any State regulation of charitable solicitation must "serve a sufficiently strong, subordinating interest... that the ... [State] is entitled to protect.” Id. at 636 , 100 S. Ct. at 836 . Consequently, the regulation must be drawn in such a narrow manner as to serve the State’s interest "without unnecessarily interfering with First Amendment freedoms.” Id. at 637 , 100 S. Ct. at 836 .

See Consolidated Edison Co. v. Public Service Commission, 447 ²⁸¹ U.S. 530, 100 S. Ct. 2326 , 65 L.Ed.2d 319 (1980). Earlier, in NAACP v. Button, 371 U.S. 415, 438 , 83 S. Ct. 328, 340 , 9 L. Ed. 2d 405 (1963), the Court had opined that "[b]road prophylactic rules in the area of free expression are suspect. ... Precision of regulation must be the touchstone. .. (Citations omitted.) Although the Court believed the Village’s interest in protecting its citizens from "fraud, crime and undue annoyance,” was substantial, the inflexible 25% solicitation limitation was not narrowly drawn and interfered "unnecessarily” with the freedom of speech.

The Court rejected Village’s rationale that "any organization using more than 25 percent of its receipts on fundraising, salaries, and overhead is not a charitable, but a commercial, for profit enterprise and that to permit it to represent itself as a charity is fraudulent.” 444 U.S. at 636 , 100 S. Ct. at 836. The Supreme Court agreed with the United States Court of Appeals (7th Cir.) that "this cannot be true of those organizations that are primarily engaged in research, advocacy, or public education and that use their own paid staff to carry out these functions as well as solicit fínancial support.” (Emphasis supplied.) Id. Such organizations may need to spend more than 25% of the solicitation on non-charitable purposes. Village’s ordinance .failed to take into consideration the research, advocacy or public education type of organizations and summarily prevented them from soliciting funds for their charitable purpose.

The Court noted that "Village’s legitimate interest in preventing fraud can be better served by measures less intrusive than a direct prohibition on solicitation.” Id. at 637, 100 S. Ct. at 836. Among other things, Village may prohibit "fraudulent misrepresentations” and enact penal laws to punish violations. The flaw in the ordinance that Village enacted was the ban on solicitation by any charitable organization that expended more than 25% of its funds for charitable purposes. The prior restraint imposed on all