Linc-Drop, Inc. v. City of Lincoln et al

Filing 63

MEMORANDUM AND ORDER - Linc-Drop's motion for a preliminary injunction (filing 3 ) is granted. The City, and its officers, agents, and employees, are preliminarily enjoined from enforcing any aspect of the Ordinance, pending a final judgment in this case. This case is referred to the United States Magistrate Judge for further case progression. Ordered by Judge John M. Gerrard. (GJG)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
LINC-DROP, INC., A Nebraska
Corporation,
4:13-CV-3133
Plaintiff,
vs.

MEMORANDUM AND ORDER

CITY OF LINCOLN, A political
subdivision of the State of Nebraska,
et al.,
Defendants.
The plaintiff, Linc-Drop, Inc., is a for-profit corporation that owns and
maintains donation drop boxes for secondhand clothing donated to the March
of Dimes. In this case, Linc-Drop is challenging the constitutionality of a
Lincoln, Nebraska municipal ordinance that requires a permit for such boxes,
limits the issuance of permits to certain non-profit organizations, and
requires that at least 80 percent of the proceeds from the boxes be used for
charitable purposes.
This matter is currently before the Court on Linc-Drop's motion for a
preliminary injunction (filing 3). The Court finds that given the relevant
Supreme Court precedent, Linc-Drop is highly likely to succeed on the merits
of its complaint, and that the other criteria for issuance of a preliminary
injunction are satisfied. Therefore, the Court will grant Linc-Drop's motion
and enjoin enforcement of the ordinance.
BACKGROUND
Linc-Drop, by contract, is responsible for maintaining donation drop
boxes placed on private property for collecting secondhand clothing and other
items that are being donated to the Nebraska chapter of the March of Dimes,
a non-profit charity. Filing 53-2 at 12-13; filing 53-3 at 12, 23. The March of
Dimes, through independent contractors, contracts with landowners for
locations to place donation boxes. Filing 53-2 at 36-37; filing 53-3 at 20-21,
48-49. Linc-Drop then constructs and places the donation boxes at those
locations on behalf of the March of Dimes. Filing 53-2 at 37; filing 53-3 at 55.

Each donation box resembles a small shed, with a swinging door at the
top to accept donations. Filing 2-4. The donation box is labeled "Clothing
Donation Drop Off," and a sign on the donation box solicits the donation of
clothing, accessories, linens, housewares, and small household goods. Filing
48-2. The sign prominently displays the name and logo of the March of
Dimes, along with recycling logos, and briefly explains what the March of
Dimes does. Filing 48-2. Another sign states that "A portion of the proceeds
Helps Support March of Dimes Babies." Filing 48-2. Nothing on the box
mentions Linc-Drop. Filing 48-2.
The March of Dimes technically owns the clothing until it is sold, but
Linc-Drop owns the boxes themselves. Filing 53-2 at 51-53; filing 53-3 at 52,
59. The contract between the March of Dimes and Linc-Drop affords the
March of Dimes the right to direct Linc-Drop to deliver the collected goods to
a location chosen by the March of Dimes, although the March of Dimes has
never exercised that right. Filing 53-2 at 50-51, 67; filing 53-3 at 54. Instead,
Linc-Drop sells the donated clothing to used clothing graders and recyclers at
20¢ per pound. Filing 53-2 at 54; filing 53-3 at 60. Linc-Drop then pays the
March of Dimes 2¢ per pound, which amounts to about $25,000-30,000 per
year to the March of Dimes from donation boxes in Lincoln. Filing 53-2 at 4344, 54, 67; filing 53-3 at 21, 37.
Apparently in response to Linc-Drop's activities, the City of Lincoln
enacted Lincoln, Neb., Code Ch. 9.30, "Donation Boxes" ("the Ordinance").1
See filings 2-1 and 2-2. The hearing testimony in favor of the Ordinance
generally expressed the frustration of other local charities that items placed
in Linc-Drop's donation boxes were sent out of Lincoln, and explained that
other local recipients of donated items were being deprived of resources by
competition from Linc-Drop's services. Supporters of the Ordinance were
generally of the opinion that other local charities did more good in the
community with the proceeds of donations. See generally filing 48-1.
As relevant, the Ordinance explains:
(a)
It has come to the attention of the council that
commercial enterprises are soliciting donations of clothing,
household items, or other items of personal property to donation
boxes that appear to be for charitable purposes, but that such
commercial enterprises may thereafter be selling such items for
profit with little or no benefit to any charitable organization.
The transcript of the City Council hearing and the record as a whole make clear that
Linc-Drop was the reason the Ordinance was enacted—there is no evidence of any other
business or charity in Lincoln placing similar donation boxes before the Ordinance was
enacted.
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Maintenance of such donation boxes by commercial enterprises
have the potential to deceive the public into believing that they
are making contributions to charity, cause taxpayers to attempt
to claim improper tax deductions on state and federal income tax
returns in the mistaken belief that they have made deductions
[sic] to a charitable organization, and divert donations from
charitable organizations within the city that perform valuable
services for the residents of Lincoln.
(b)
It is the purpose of this chapter to prevent deception
and confusion of the public, prevent mistaken attempts to claim
tax deductions for charitable contributions, and to support the
public purposes and benefits of legitimate charitable
organizations by prohibiting commercial enterprises from
soliciting donations of household items, clothing or other items of
personal property by the furnishing of commercial donation boxes
on commercial properties, which result in gifts to such
commercial enterprises that do not benefit charitable
organizations or purposes.
Ch. 9.30.20.
Two provisions of the Ordinance are particularly critical. First, the
Ordinance provides that no person may "place or hold out to the public any
donation box for people to drop off articles of unwanted household items,
clothing or other items of personal property, unless at least 80% of the gross
proceeds from the sale of such items shall be utilized for charitable purposes."
Ch. 9.30.030(a). "Charitable purposes" is not defined by the Ordinance.
Second, the Ordinance prohibits the placement or use of a donation box
without a permit from the City, ch. 9.30.030(b), and
[o]nly entities or organizations that have a tax status under
Section 501(c)(3) of the Internal Revenue Code, as amended, or a
public, parochial or private school, may apply for and obtain a
permit. Proof of such tax status or that the applicant is a public,
parochial or private school and a letter of authority or permission
from the owner of the real property upon which the donation box
is to be located must accompany an application for a permit.
Ch. 9.30.040(b). The fee for a permit is $150.00. Ch. 9.30.040(e).
In addition, a donation box must have "clearly identified, in writing, on
its face the charitable organization that is maintaining the donation box." Ch.
9.30.040(c). A "charitable organization" under the Ordinance is

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a benevolent, educational, philanthropic, humane, patriotic,
religious, or eleemosynary organization of persons organized for
any lawful purpose or purposes not involving pecuniary profit or
gain for its officers or members that has received a determination
that it is exempt under Section 501(c)(3) of the federal "Internal
Revenue Code of 1986", as amended, or a public, parochial or
private school.
Ch. 9.30.010. (In other words, not a for-profit company.) Violation of the
Ordinance is a misdemeanor punishable by a fine of up to $500 or up to 6
months' imprisonment, and each day that a violation continues is a separate
offense, punishable as such. Ch. 9.30.50(c). And persons punishable for such
violations include not only the owner or maintainer of a donation box, but the
owner or lessee of the premises on which a donation box is maintained. Ch.
9.30.50(a).
Before the Ordinance took effect, Linc-Drop filed this action against the
City and several City officials (collectively, "the City"), and asked the Court to
enjoin enforcement of the Ordinance based on the City's alleged violation of
the Free Speech Clause of the First Amendment and the Equal Protection
Clause of the Fourteenth Amendment. Filing 1; filing 3. The City agreed not
to enforce the Ordinance until the Court had resolved Linc-Drop's motion for
a preliminary injunction. See filing 13. The parties, after submitting evidence
and briefing the issues, advised the Court that an in-court hearing on the
motion was unnecessary.2 See filing 62. As a result, the matter is fully
submitted for disposition. See filing 62.
STANDARD OF REVIEW
When deciding whether to issue a preliminary injunction, the Court
turns to the four Dataphase factors: (1) the threat of irreparable harm to the
movant; (2) the state of the balance between this harm and the injury that
granting the injunction will inflict on other parties; (3) the probability that
the movant will succeed on the merits; and (4) the public interest. Johnson v.
Minneapolis Park & Recreation Bd., 729 F.3d 1094, 1098 (8th Cir. 2013);
(citing Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981)
(en banc)). A preliminary injunction is an extraordinary remedy, and the
An evidentiary hearing is only required before issuing an preliminary injunction if there is
a material factual controversy. United Healthcare Ins. Co. v. AdvancePCS, 316 F.3d 737,
744-45 (8th Cir. 2002); see also, Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke
Corp., 511 F.3d 535, 552-53 (6th Cir. 2007); Four Seasons Hotels & Resorts, B.V. v.
Consorcio Barr, S.A., 320 F.3d 1205, 1211 (11th Cir. 2003); Aoude v. Mobil Oil Corp., 862
F.2d 890, 893-94 (1st Cir. 1988).
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movant bears the burden of establishing its propriety. Roudachevski v. AllAmerican Care Centers, Inc., 648 F.3d 701, 705 (8th Cir. 2011); see also H&R
Block Tax Servs. LLC v. Acevedo-Lopez, No. 13-1387, 2014 WL 539788, at *2
(8th Cir. Feb. 12, 2014). And in a challenge to a federal statute, state statute,
or other government action based on presumptively reasoned democratic
processes, the movant must show that he or she is likely to prevail on the
merits. Johnson, 729 F.3d at 1098. But, when a plaintiff has shown a likely
violation of his or her First Amendment rights, the other requirements for
obtaining a preliminary injunction are generally deemed to have been
satisfied. Minn. Citizens Concerned for Life, Inc. v. Swanson, 692 F.3d 864,
870 (8th Cir. 2012); see also Johnson, 729 F.3d at 1102.
ANALYSIS
Linc-Drop's arguments separately challenge the two primary provisions
of the Ordinance: the requirement that 80 percent of the proceeds from
donations be used for charitable purposes, and the permit requirement.
Linc-Drop's arguments rely on several pertinent Supreme Court decisions.
Because of that, it will be clearer to examine those decisions in some detail
before returning to discuss the parties' specific arguments.
SUPREME COURT PRECEDENT
In Murdock v. Pennsylvania, 319 U.S. 105, 106-07 (1943), the
defendants were Jehovah's Witnesses who had been convicted of violating a
municipal ordinance requiring persons "canvassing" or "soliciting" within the
municipality to purchase a license to do so. The defendants, without
obtaining a license, had been engaged in distributing religious literature and
soliciting the purchase of other religious books and pamphlets. Id. But the
Supreme Court reversed their convictions on First Amendment grounds,
reasoning that "a tax laid specifically on the exercise of [First Amendment]
freedoms would be unconstitutional . . . [y]et the license tax imposed by [the
municipal] ordinance is in substance just that." Id. at 108. The Court
emphasized that the ordinance at issue was not a simple registration system,
under which those going from house to house were required to identify
themselves to the authorities. Id. at 113. The license tax was, instead, a fixed
amount unrelated to the scope of the activities of the defendants or their
earnings, and was not a nominal fee imposed as a regulatory measure to
defray the expenses of policing the activities in question. Id. at 113-14.
Instead, it was a flat fee collected as a condition to exercising First
Amendment freedoms, and served to restrain and suppress the exercise of
those freedoms. Id. at 114.

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Relying in part on Murdock, the Court in Schaumburg v. Citizens for a
Better Environment, 444 U.S. 620, 630 (1980), struck down the first of a
series of laws with a marked similarity to the Ordinance at issue in this case.
In Schaumburg, a village ordinance prohibited charitable organizations from
soliciting contributions unless they used at least 75 percent of their receipts
"'directly for the charitable purpose of the organization.'" Id. at 624. The term
"charitable purposes" was defined to exclude salaries and commissions paid
to solicitors, and other administrative expenses. Id. And, much like the City
in this case, the village justified the ordinance by asserting that an enterprise
that did not devote enough of its receipts to "charitable purposes" was
fraudulently misrepresenting itself as a charity. Id. at 636.
The Court began by making clear that solicitation of charitable
donations was, without question, speech protected by the First Amendment.
Id. at 633. Accordingly, the 75-percent limitation was "a direct and
substantial limitation on protected activity" that could not be sustained
unless it served a "sufficiently strong, subordinating" governmental interest.
Id. at 636. The Court agreed that fraud prevention was a substantial
governmental interest, but found that the 75-percent requirement "only
peripherally" served that interest, because an organization may use more
than 25 percent of its receipts on fundraising, salaries, and overhead and still
remain a "charitable" enterprise. Id. at 636-37. The village could not,
consistent with the First Amendment, label such groups "'fraudulent'" and
bar them from soliciting donations. Id. at 637. Nor, the Court explained,
could the village
lump such organizations with those that in fact are using the
charitable label as a cloak for profitmaking and refuse to employ
more precise measures to separate one kind from the other. The
Village may serve its legitimate interests, but it must do so by
narrowly drawn regulations designed to serve those interests
without unnecessarily interfering with First Amendment
freedoms.
The Village's legitimate interest in preventing fraud can be
better served by measures less intrusive than a direct prohibition
on solicitation. Fraudulent misrepresentations can be prohibited
and the penal laws used to punish such conduct directly. Efforts
to promote disclosure of the finances of charitable organizations
also may assist in preventing fraud by informing the public of the
ways in which their contributions will be employed. Such
measures may help make contribution decisions more informed,
while leaving to individual choice the decision whether to
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contribute to organizations that spend large amounts on salaries
and administrative expenses.
Id. at 637-38 (citations omitted).
Four years later, in Secretary of State of Md. v. Munson, 467 U.S. 947,
950 (1984), the Court invalidated a Maryland law that prohibited charitable
organizations from fundraising if they paid or agreed to pay as expenses more
than 25 percent of the amount raised. The Maryland law was distinguishable
from Schaumburg, because it permitted an exception if the 25-percent
limitation "'would effectively prevent the charitable organization from raising
contributions.'" Munson, 467 U.S. at 950-951, n.2. But the Court held that the
waiver provision did not save the statute. Id. at 962. The Court explained
that while there
no doubt are organizations that have high fundraising costs not
due to protected First Amendment activity and that, therefore,
should not be heard to complain that their activities are
prohibited, this statute cannot distinguish those organizations
from charities that have high costs due to protected First
Amendment activities. The flaw in the statute is not simply that
it includes within its sweep some impermissible applications, but
that in all its applications it operates on a fundamentally
mistaken premise that high solicitation costs are an accurate
measure of fraud. That the statute in some of its applications
actually prevents the misdirection of funds from the
organization's purported charitable goal is little more than
fortuitous. It is equally likely that the statute will restrict First
Amendment activity that results in high costs but is itself a part
of the charity's goal or that is simply attributable to the fact that
the charity's cause proves to be unpopular. On the other hand, if
an organization indulges in fraud, there is nothing in the
percentage limitation that prevents it from misdirecting funds. In
either event, the percentage limitation, though restricting
solicitation costs, will have done nothing to prevent fraud.
Munson, 467 U.S. at 966-67. Fraud could be punished directly, and the
charitable organization could be required to disclose its finances so that a
member of the public could make an informed decision about whether to
contribute. Id. at 961 n.9.
The Court expressly extended Schaumburg and Munson to professional
fundraisers in Riley v. Nat'l Fed'n of Blind of N.C., Inc., 487 U.S. 781 (1988).

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In Riley, a North Carolina law prohibited professional fundraisers from
retaining an "'unreasonable'" or "'excessive'" fee. 487 U.S. at 784. Fees below
20 percent of the gross receipts were deemed reasonable, fees between 20 and
35 percent were deemed unreasonable if the State could prove that the
solicitation did not involve advocacy or disseminating information, and fees
above 35 percent were presumptively unreasonable. Id. at 784-86. But the
Court invalidated the law, holding once again that fraud cannot be inferred
simply from the percentage of charitable donations allocated to fundraising
costs. Id. at 789; see Madigan v. Telemarketing Assocs., 538 U.S. 600, 615
(2003). "[T]he solicitation of charitable contributions is protected speech,
and . . . using percentages to decide the legality of the fundraiser's fee is not
narrowly tailored to the State's interest in preventing fraud." Riley, 487 U.S.
at 789. The Court explained that
there are several legitimate reasons why a charity might reject
the State's overarching measure of a fundraising drive's
legitimacy—the percentage of gross receipts remitted to the
charity. For example, a charity might choose a particular type of
fundraising drive, or a particular solicitor, expecting to receive a
large sum as measured by total dollars rather than the
percentage of dollars remitted.
Id. at 791-92. The North Carolina law also required professional fundraisers
to disclose to potential donors, before soliciting funds, what percentage of its
previous year's receipts it had actually turned over to a charity. Id. at 795.
North Carolina argued that the provision was an appropriate means to
inform the public. See id. at 798. But the Court disagreed, characterizing the
disclosure provision as "unduly burdensome," and based on the incorrect
assumption that the charity did not "benefit from funds collected but not
turned over to it." Id. at 798, 800.
In sum, "[i]n Schaumburg, Munson, and Riley, the Court invalidated
laws that prohibited charitable organizations or fundraisers from engaging in
charitable solicitation if they spent high percentages of donated funds on
fundraising—whether or not any fraudulent representations were made to
potential donors." Madigan, 538 U.S. at 619. The Court has drawn a clear
constitutional line "'between regulation aimed at fraud and regulation aimed
at something else in the hope that it would sweep fraud in during the
process.'" Id. at 619-20 (quoting Munson, 467 U.S. at 969-70).

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STANDING
Against that backdrop, the Ordinance's constitutional flaws are readily
apparent. But first, the Court must address the City's argument that
Linc-Drop lacks standing to raise them. The City's primary argument seems
to be that it is the March of Dimes, not Linc-Drop, whose constitutional rights
are really at issue. Filing 49 at 8-9. But that argument is squarely foreclosed
by Munson.
In Munson, the Court reiterated the familiar principle that
prudentially, a plaintiff generally must assert his or her own legal rights and
interests, and cannot rest a claim to relief on the legal rights or interests of
third parties. 467 U.S. at 955. That limitation frees the courts from
unnecessary pronouncements on constitutional issues, and from prematurely
interpreting statutes in areas where their constitution application might be
cloudy, and it assures the court that the issues before it will be concrete and
sharply presented. Id.
But the plaintiff in Munson was, like Linc-Drop, a for-profit
professional fundraiser, not a charity.3 467 U.S. at 950. The plaintiff did not
claim that its own First Amendment rights had or would be infringed by the
challenged statute. Id. at 955. Yet the Court found no prudential reason not
to allow the plaintiff to challenge the statute pursuant to the doctrine of jus
tertii standing, explaining that the plaintiff had a sufficient injury-in-fact to
satisfy Article III's case-or-controversy requirement, and that as a prudential
matter, the plaintiff could be reasonably expected to properly frame the
issues and present them with the necessary adversarial zeal. Id. at 956, 958.
In the First Amendment context, the Court said, "[f]acial challenges to overly
broad statutes are allowed not primarily for the benefit of the litigant, but for
the benefit of society—to prevent the statute from chilling the First
Amendment rights of other parties not before the court." Id. at 957-58. The
activity sought to be protected was "at the heart of the business relationship"
between the plaintiff and its clients, and the plaintiff's interests in
challenging the statute were "completely consistent with the First
Amendment interests of the charities it represents." Id. at 958.
The same is true here. Under the Ordinance, Linc-Drop would suffer an
injury-in-fact, and its interest in challenging the Ordinance is entirely
The City suggests that Linc-Drop is "a company contracting with [the March of Dimes] not
even as a professional fundraiser." Filing 49 at 9, 15-17. But Linc-Drop is paid, by the
March of Dimes, to solicit donations on its behalf. The Court does not know what the City
understands the expression "professional fundraiser" to encompass, but Linc-Drop clearly
meets any reasonable definition of the term. Compare Munson, 467 U.S. at 950
(characterizing a for-profit corporation engaged in promoting fundraising events as a
"professional for-profit fundraiser").
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consistent with that of the March of Dimes. The City, in fact, does not even
attempt to argue that Linc-Drop cannot be expected to frame and present the
issues adequately. The City contends that the overbreadth exception to
prudential standing is "'strong medicine' that should be invoked only 'as a
last resort,'" but the Court explained in Munson that concern over whether a
regulation's overbreadth is "substantial" is properly reserved for the
determination of a First Amendment challenge on the merits. 467 U.S. at
958-59. And furthermore, in Riley, the Court said that in addition to the
relationship between a fundraiser's interests and a charity's speech, "the
fundraiser has an independent First Amendment interest in the speech, even
though payment is received." 487 U.S. at 794 n.8.
The City also argues that Linc-Drop lacks standing because the various
provisions of the Ordinance are severable. Filing 49 at 10-13. The City's
argument goes something like this: even if the 80-percent requirement was
struck down, Linc-Drop could not, as a for-profit company, obtain a permit to
operate donation boxes. Filing 49 at 10-13. So, the City concludes,
Linc-Drop's injury is not redressable, because the injury would still be
inflicted by other provisions of the Ordinance. Filing 49 at 13 (citing
Advantage Media, L.L.C. v. City of Eden Prairie, 456 F.3d 793, 801-02 (8th
Cir. 2006)). It is true that the overbreadth doctrine applies on a provision-byprovision basis; that is, a plaintiff must establish an injury-in-fact under a
particular provision of a regulation that is validly applied to its conduct, then
assert a facial challenge, under the overbreadth doctrine, to vindicate the
rights of others not before the Court under that provision. Nat'l Fed'n of the
Blind of Tex., Inc. v. Abbott, 647 F.3d 202, 210 (5th Cir. 2011); see also
Advantage Media, 456 F.3d at 801-02. But the City's argument suffers from a
fundamental flaw: Linc-Drop has also challenged the permit requirement,
meaning that all of its injuries are fully redressable.4 Even if the challenged
provisions of the Ordinance are severable, Linc-Drop has standing to
challenge each.

And, the Court notes, Linc-Drop has alleged two distinct injuries: its inability to obtain a
permit, and the effect on its business that necessarily flows from the 80-percent
requirement. By contrast, in Advantage Media, the plaintiff was alleging a single injury in
the denial of its permits, which was supported by both challenged and uncontroverted
provisions. 456 F.3d at 798-800. The City even suggests in this case that Linc-Drop "could
alter its operations to still service donation boxes placed by charities, provided that 80% of
the proceeds serve charitable purposes." Filing 49 at 34. It would, therefore, hardly be
speculative to find that Linc-Drop's business interests would be injured by the 80-percent
requirement, even if its challenge to the permit requirement was unavailing.
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80-PERCENT REQUIREMENT
Linc-Drop's central argument is that the 80-percent requirement of the
Ordinance violates the First Amendment. When evaluating regulation of
professional charitable solicitation, the Court considers whether (1) the City
had a sufficient or legitimate interest in enacting the Ordinance, (2) the
interest identified is significantly furthered by a narrowly-tailored regulation,
and (3) the regulation substantially limits charitable solicitations. See,
Fraternal Order of Police v. Stenehjem, 431 F.3d 591, 597 (8th Cir. 2005);
Ass'n of Cmty. Orgs. for Reform Now a/k/a ACORN v. City of Frontenac, 714
F.2d 813, 817 (8th Cir. 1983); see also, Riley, 487 U.S. at 789; Munson, 467
U.S. at 960-61; Schaumburg, 444 U.S. at 636-37; Abbott, 647 F.3d at 213;
Coal. for the Abolition of Marijuana Prohibition v. City of Atlanta, 219 F.3d
1301, 1318 (11th Cir. 2000); Am. Target Adver., Inc. v. Giani, 199 F.3d 1241,
1247 (10th Cir. 2000). And while a duly-enacted regulation normally carries a
presumption of constitutionality, when it allegedly infringes on the exercise
of First Amendment rights, its proponent bears the burden of establishing its
constitutionality. ACORN, 714 F.2d at 817; see also Marijuana Prohibition,
219 F.3d at 1318; Giani, 199 F.3d at 1247.
The City complains about that standard of review, arguing that it is
inapplicable in this case. First, the City contends that Linc-Drop is not
engaged in charitable solicitation—the City accuses Linc-Drop of "using [the
March of Dimes'] name to hoodwink the City's unwitting residents into
placing items in the donation boxes instead of donating them to legitimate
charitable organizations." Filing 49 at 15. In fact, a substantial portion of the
City's brief is devoted to attacking Linc-Drop's fundraising activities. See
filing 49, passim.
In fact, Linc-Drop is engaged in charitable solicitation. The fact that it
is paid to do so does not change that. See Munson, 467 U.S. at 967 n.16 (citing
Schaumburg, 444 U.S. at 635-36); see also Riley, 487 U.S. at 787-790. But the
problem with the City's argument is more fundamental: as the Court has
repeatedly tried to tell the City, Linc-Drop's conduct is not at issue in this
case. See, filing 47 at 4-5; filing 57 at 1. The issue in this case is the
constitutionality of the Ordinance. Whether Linc-Drop is violating the
Ordinance, or even whether Linc-Drop is defrauding people, does not change
the provisions of the Ordinance or the reasons for its enactment. Therefore,
the question is not whether Linc-Drop is engaged in charitable solicitation—
it is whether the Ordinance regulates charitable solicitation. And it does.
Law regulating the fees of professional charitable solicitors are not
significantly different from laws regulating the expenditures of charities.
Shannon v. Telco Commc'ns, 824 F.2d 150, 152-53 (1st Cir. 1987).

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The City also contends that the donation boxes are more akin to
billboards, and should be considered commercial speech instead of a
charitable solicitation. Filing 49 at 17-18. But as the Fifth Circuit explained
in rejecting an effectively-identical argument,
solicitation [is] the act or an instance of requesting or seeking to
obtain something. Solicitation is not limited to in-person
communication. More importantly the speech interests identified
in
Schaumburg—communication
of
information,
the
dissemination and propagation of views and ideas, and the
advocacy of causes—are surely implicated by the public
receptacles. The mere inclusion of the name of a charity on a
donation box communicates information about the beneficiary of
the benevolence and explicitly advocates for the donation of
clothing and household goods to that particular charity. At a
minimum, the donation boxes implicitly advocate for that
charity's views, ideas, goals, causes, and values.
Abbott, 647 F.3d at 212-13 (citations and quotations omitted). Because
citizens wishing to donate goods are "faced with a marketplace of charitable
options; the public receptacles are not mere collection points for unwanted
items, but are rather silent solicitors and advocates for particular charitable
causes." Id. at 213. As a result, the donation boxes "represent far more than
an 'upturned palm' or a mere 'proposal of a commercial transaction that says
donate goods here.'" Id. "Rather, the donation bins' 'solicitation is
characteristically intertwined with informative and perhaps persuasive
speech seeking support for particular causes or for particular views on
economic, political, or social issues.'" Id. (quoting Schaumburg, 444 U.S. at
632). Accordingly, the Fifth Circuit rejected the government's
"characterization of the speech related to the public receptacles as mere
commercial speech." Id. This Court agrees.
Once the merits of Linc-Drop's constitutional argument are reached, it
is apparent that the Ordinance's 80-percent requirement cannot survive
comparison to Schaumburg, Munson, and Riley. The City attempts to justify
the Ordinance as serving two governmental purposes: "preventing deception
and ensuring funds actually go to benefit charitable organizations."5 Filing 49
The City also makes reference to the possibility that the donation boxes display inaccurate
information about the tax-deductibility of any donations, and suggests that there is a
governmental interest in ensuring "that the public is not misled as to tax-deductible
status." Filing 49 at 18. This does not strike the Court as being substantially different from
attempting to protect the public from fraud. In any event, this suggestion requires only
5

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at 19. The interest in protecting charities and the public from fraud is
sufficiently substantial to justify a narrowly-tailored regulation. Riley, 487
U.S. at 793. But courts have repeatedly rejected the contention that a
percentage requirement such as the Ordinance's is narrowly tailored to serve
that interest. See, Riley, 487 U.S. at 789-90; Munson, 467 U.S. at 960-69;
Schaumburg, 444 U.S. at 636-38; Fernandes v. Limmer, 663 F.2d 619, 630-31
(5th Cir. 1981); State v. Events Int'l, Inc., 528 A.2d 458, 461-62 (Maine 1987).
It could not, in fact, be more clear that using percentages to decide the
legality of a fundraiser's fee is not narrowly tailored to the government's
interest in preventing fraud. Riley, 487 U.S. at 789.
Nor is the Court persuaded by the City's asserted interest in ensuring
that solicited funds actually benefit charitable organizations. The Supreme
Court rejected a functionally-identical argument in Riley, dismissing the
government's "paternalistic premise that charities' speech must be regulated
for their own benefit." 487 U.S. at 790. The Court reasoned that "there are
several legitimate reasons why a charity might reject the State's overarching
measure of a fundraising drive's legitimacy" and concluded that even if the
government "had a valid interest in protecting charities from their own
naiveté or economic weakness," a percentage requirement was not narrowly
tailored to achieve it. Id. at 791-92.
The City makes no meaningful attempt to distinguish these cases on
their facts. The City, in fact, "urges the Court to review the dissent in Riley
for the sensible proposition that the 80% requirement in the Ordinance
should not be deemed an unconstitutional infringement." Filing 49 at 22.
That, of course, is not how stare decisis works. See Winslow v. Fed. Energy
Regulatory Comm'n, 587 F.3d 1133, 1135 (D.C. Cir. 2009) (citing U.S. Const.
art. III, § 1). The Court declines the City's invitation to depart from Supreme
Court precedent.
The City does suggest that because the Ordinance only regulates
donation boxes, it does not prohibit other "innumerable methods of charitable
solicitation," thereby "leav[ing] adequate alternative avenues for free speech."
Filing 49 at 24. But as the Eighth Circuit has said, "'one is not to have the
exercise of his liberty of expression in appropriate places abridged on the plea
that it may be exercised in some other place.'" ACORN, 714 F.2d at 819
(quoting Schneider v. New Jersey (Town of Irvington), 308 U.S. 147, 151-52
(1939)). The Ordinance is effectively proscribing an entire means of
solicitation to some, but not all organizations—a means of solicitation that is
brief analysis: there is no reasonable basis to find that the 80-percent requirement (or the
permit requirement) serves an interest in preventing shoddy tax advice, much less that it is
narrowly tailored to do so.

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apparently effective, and more importantly the one that has been chosen by
the March of Dimes as best serving its needs. Whether a regulation leaves
open alternative avenues for expression is relevant if it governs the time,
place, and manner of the expression—for instance, a zoning ordinance. See
Blue Moon Entertainment, LLC v. Bates City, Mo., 441 F.3d 561, 565 (8th Cir.
2006). But this is clearly not a time, place, or manner regulation, as the
limitations imposed by the Ordinance are based on the identity of the actor
making the charitable solicitation and the disposition of any proceeds, not the
time, place, or manner of the solicitation. See Planned Parenthood League of
Mass., Inc. v. Attorney Gen'l, 464 N.E.2d 55, 60 (Mass. 1984); cf. City of
Cincinnati v. Discovery Network, Inc., 507 U.S. 410, 427-29 (1993). The City
does not explain why donation boxes—as opposed to other means of
charitable solicitation—are more likely to produce fraud, or why the proceeds
of donation boxes require more careful scrutiny than other solicited funds. So
while the Ordinance may be narrower than the laws at issue in Schaumburg,
Munson, and Riley, the Ordinance is no more narrowly tailored to the City's
claimed interests in combatting fraud or promoting "legitimate" charities.
The City's reliance on Madigan, 538 U.S. 600, is also unavailing.
Madigan, in fact, is so plainly distinguishable that it supports Linc-Drop's
argument. The City characterizes Madigan as supporting the proposition
that allegedly-fraudulent charitable solicitation is unprotected by the First
Amendment. Filing 49 at 17. But in Madigan, the government had filed suit
against professional fundraisers alleging, among other things, that particular
solicitations contained specific misrepresentations regarding the extent to
which any donations would be dedicated to identified charitable endeavors.
538 U.S. at 607-08. The Supreme Court found that those specific allegations
saved the government's case, explaining that "[i]n contrast to the prior
restraints inspected in [Schaumburg, Munson, and Riley], a properly tailored
fraud action targeting fraudulent representations themselves employs no
'broad prophylactic rule,' lacking any 'nexus to the likelihood that the
solicitation is fraudulent[.]'" Madigan, 538 U.S. at 619 (citations and
quotations omitted).
Accordingly, the Supreme Court found that "[f]raud actions so tailored,
targeting misleading affirmative representations about how donations will be
used," are "plainly distinguishable . . . from the measures invalidated in
Schaumburg, Munson, and Riley," reasoning that "[s]o long as the emphasis
is on what the fundraisers misleadingly convey, and not on percentage
limitations on solicitors' fees per se, such actions need not impermissibly chill
protected speech." Madigan, 538 U.S. at 619. It is equally plain that the
Ordinance is not such a tailored fraud action—it is, rather, precisely the sort

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of "broad prophylactic rule" that the Supreme Court has repeatedly struck
down. See id.
Simply put, under the Supreme Court's binding precedent, there is no
doubt that the 80-percent requirement of the Ordinance is unconstitutionally
overbroad. It is fair to say, then, that so far, Linc-Drop's likelihood of success
on the merits is substantial.
PERMIT REQUIREMENT
The permit requirement of the Ordinance fares no better. The City
suggests, and Linc-Drop concedes, that some sort of registration or disclosure
requirement could be constitutionally imposed. See, filing 49 at 20; filing 54
at 15. That much is clear. See, e.g., Madigan, 538 U.S. at 623; Watchtower
Bible & Tract Soc'y of N.Y., Inc. v. Village of Stratton, 536 U.S. 150, 162-63
(2002); Riley, 487 U.S. at 799-800; Abbott, 647 F.3d at 214-15; Nat'l Fed'n of
the Blind v. Fed. Trade Comm'n, 420 F.3d 331, 343 (4th Cir. 2005). But the
Ordinance goes beyond that: the Ordinance bars a professional fundraiser
from obtaining a permit at all, thereby foreclosing a paid solicitor from using
a donation box to solicit donations—and, in turn, preventing a charitable
organization from hiring a paid solicitor to place a donation box.
And the government cannot, consistent with the First Amendment, ban
a charity from hiring a professional fundraiser. See, Riley, 487 U.S. at 794-95;
Munson, 467 U.S. at 967 n.16; Planned Parenthood, 464 N.E.2d at 61. If the
government cannot "categorically restrain[]" solicitation by professional
fundraisers "if a high percentage of the funds raised would be used to cover
administrative or fundraising costs," Madigan, 538 U.S. at 610, then it is
axiomatic that the government cannot categorically restrain solicitation by
professional fundraisers, period. Barring professional fundraisers from
placing donation boxes is certainly no more reasonably calculated—much less
narrowly tailored—to the government's interest in preventing fraud.
Furthermore, mandatory application for a license or permit "is a prior
restraint typically disfavored in First Amendment cases." Nat'l Fed'n of the
Blind, 420 F.3d at 343; see, Munson, 467 U.S. at 968-69; Schaumburg, 444
U.S. at 629. "A scheme of prior restraint gives 'public officials the power to
deny use of a forum in advance of actual expression.'" Giani, 199 F.3d at 1250
(quoting Se. Promotions, Ltd. v. Conrad, 420 U.S. 546, 553 (1975)). Because
the Ordinance bars Linc-Drop—or any other person—from soliciting via
donation boxes before complying with the Ordinance's requirements, the
Ordinance is by definition a prior restraint. See id. And it is well established
that a prior restraint which fails to place limits on the time within which the
decisionmaker must issue the license is impermissible. Id. (citing FW/PBS,
Inc. v. Dallas, 493 U.S. 215, 225 (1990)); see Riley, 487 U.S. at 802. The
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Ordinance "on its face does not purport to require when a determination must
be made," see Riley, 487 U.S. at 802, so even if Linc-Drop were eligible for a
permit, the Ordinance's permit requirement would be an unconstitutional
prior restraint. The permit requirement is an impermissible prior restraint
on the First Amendment rights of any person or organization wishing to place
a donation box, whether or not they are eligible for such a permit.
And even if there was some constitutional justification for precluding
professional fundraisers from placing donation boxes—and to be clear, there
is not—the criteria used by the Ordinance to distinguish between a
"legitimate" charity and a for-profit fundraiser are unjustifiable. The
Ordinance allows a permit to be issued only to a school or a corporation that
is tax-exempt under 26 U.S.C. § 501(c)(3). Tax-exempt corporations under §
501(c)(3) include those that are "organized and operated exclusively for
religious, charitable, scientific, testing for public safety, literary, or
educational purposes." But § 501(c) exempts many other categories of nonprofit organization, including other charities. For example, § 501(c)(4)
exempts "[c]ivic leagues or organizations not organized for profit but operated
exclusively for the promotion of social welfare," or local employee
associations, "the net earnings of which are devoted exclusively to charitable,
educational, or recreational purposes."6 Section 501(c) also exempts, among
others, fraternal societies and military and veterans' associations. § 501(c)(8),
(10), and (19). The Ordinance's use of § 501(c)(3) as a proxy for a non-profit or
"charitable" organization is, at best, imperfect.
In sum, the Ordinance's permit requirement is no more constitutionally
sound than the 80-percent requirement, for most of the same reasons. As a
result, Linc-Drop's likelihood of success on the merits is obviously strong.
"CHARITABLE PURPOSES"
Linc-Drop also challenges the term "charitable purposes" as being
unconstitutionally overbroad and vague. Because the Ordinance fails to
define "charitable purposes," Linc-Drop argues, "it is unclear on exactly what
80-percent of donation box proceeds must be spent, making the provision
overbroad." Filing 4 at 32. And, Linc-Drop says, the term is
unconstitutionally vague because it neither provides adequate notice to
citizens of what is required nor establishes adequate standards to prevent
arbitrary or discriminatory enforcement. Filing 4 at 32; see generally, Musser
"Generally speaking, the primary differences between Section 501(c)(3) organizations and
Section 501(c)(4) organizations are that contributions to the former are tax deductible while
those to the latter are not, and the latter can engage in some political activities while the
former cannot." United States v. George, 448 F.3d 96, 99 n.4 (1st Cir. 2006); see also Regan
v. Taxation With Representation of Washington, 461 U.S. 540, 543 (1983).
6

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v. Mapes, 718 F.3d 996, 1000 (8th Cir. 2013); United States v. Tebeau, 713
F.3d 955, 961 (8th Cir. 2013). The Court views Linc-Drop as primarily raising
an issue of unconstitutional vagueness. As the Court understands
Linc-Drop's overbreadth argument, it is that First Amendment-protected
activity will be inhibited because it is not clear how to comply with the
Ordinance—or, in other words, that the Ordinance is unconstitutionally
overbroad because it is unconstitutionally vague.
The City again raises a question of standing, asserting that Linc-Drop
does not have standing to raise a vagueness challenge because the
overbreadth exception to prudential standing is not available on that issue.
But Linc-Drop is not limited to asserting the First Amendment rights of
others—it may, on this point, assert its own Due Process rights, because the
vagueness doctrine is grounded in Due Process, not the First Amendment.
See United States v. Ghane, 673 F.3d 771, 776-77 (8th Cir. 2012). In order for
Linc-Drop to have standing to challenge the Ordinance as vague, it must be
unconstitutional as applied to Linc-Drop's specific conduct at issue. Musser,
718 F.3d at 1000. And the term "charitable purposes," as given effect by the
Ordinance, clearly implicates Linc-Drop's business activities. The Ordinance
subjects "the person or entity which owns, maintains, or operates a donation
box"—in other words, Linc-Drop—to criminal penalties if not enough of the
proceeds are used for "charitable purposes." Ch. 9.30.030 and 9.30.50. It is,
therefore, incumbent upon Linc-Drop to be aware of what constitutes a
"charitable purpose," and Linc-Drop has standing to complain about the
Ordinance's failure to define the term.
On the merits of Linc-Drop's argument, the Court is aware of
authority—albeit not unanimous—suggesting that the term "charitable," in
the context of solicitation, is a word of "common understanding" that a person
of ordinary intelligence can discern. See, Gospel Missions of America v. City of
Los Angeles, 419 F.3d 1042, 1048-49 (9th Cir. 2005); Ryan v. World Church of
the Creator, 760 N.E.2d 953, 962 (Ill. 2001); but see Assoc. of Cmty. Orgs. for
Reform Now (ACORN) v. City of Chicago, No. 84 C 10536, 1986 WL 2746, at
*7-8 (N.D. Ill. Feb. 24, 1986). That said, those cases arose in the context of
regulations directed at the general "charitable" purpose of an organization or
event. See id. That is somewhat different from a regulation that, like the
Ordinance, might well involve a detailed examination of an organization's
accounting records to determine whether particular line items were or were
not sufficiently "charitable." The Ordinance seems, on its face, to demand
inquiry into not just the purpose of a solicitation or whether the proceeds of a

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donation box are given to a charitable organization, but into how that
organization spends the money.7
But given the Court's previous conclusions with respect to Linc-Drop's
First Amendment arguments, it is not necessary to further address
Linc-Drop's vagueness argument. While Linc-Drop's likelihood of success on
this point is less clear, it has already established a likelihood of success on
the overall merits that is sufficient to warrant a preliminary injunction.
EQUAL PROTECTION
Similarly, it is not necessary for the Court to comprehensively evaluate
Linc-Drop's Equal Protection argument. As with previous issues, the parties
dispute even the standard of review. The City contends that the Ordinance's
distinctions should be reviewed only for a rational basis. Filing 49 at 28-31.
Linc-Drop, on the other hand, contends that heightened scrutiny is
appropriate because First Amendment rights are implicated. Filing 54 at 44.
On that point, Linc-Drop has the better of the argument. Where a
regulation implicates a fundamental right, such as the First Amendment's
free speech guarantee, a court reviews the regulation under heightened
scrutiny. Peeper v. Callaway Cnty. Ambulance Dist., 122 F.3d 619, 622 (8th
Cir. 1997) (citing Clements v. Fashing, 457 U.S. 957, 963 (1982)). Only if no
fundamental right is implicated do traditional Equal Protection principles
apply. Id.; see also Carey v. Brown, 447 U.S. 455, 461-62 (1980). Because First
Amendment rights are implicated by the classifications created here, the
Court must apply the same level of scrutiny to those classifications that is
dictated by the First Amendment rights at issue. See Peeper, 122 F.3d at 622.
That having been said, there may be appropriate constitutional
justifications for treating professional fundraisers differently in some
respects from § 501(c)(3) corporations and schools, or stand-alone donation
boxes from receptacles enclosed by a larger building. Cf. Abbott, 647 F.3d at
214-15. For instance, it might make sense to treat a professional fundraiser
differently for purposes of some sort of registration or disclosure requirement.
See id. Of course, the regulation at issue here goes far beyond registration or
disclosure—but whether the Ordinance goes too far has already been
discussed in the context of the First Amendment. And because Linc-Drop has
established a likelihood of success on its First Amendment claims, the Court
need not further consider its Equal Protection claim at this point. See Child

That is, in fact, the only reasonable interpretation of the Ordinance, given that under the
permit requirement, only § 501(c)(3) corporations or schools are permitted to have donation
boxes. At that point, the only conceivable purpose for the 80-percent requirement is to
regulate how those organizations spend each dollar of the proceeds.
7

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Evangelism Fellowship of Minn. v. Minneapolis Special Sch. Dist. No. 1, 690
F.3d 996, 1004 n.4 (8th Cir. 2012).
BALANCE OF DATAPHASE FACTORS
For the foregoing reasons, the Court finds that Linc-Drop has an
extremely strong likelihood of success on the merits of its First Amendment
claims. But the City also contends that Linc-Drop has not shown a threat of
irreparable harm. Filing 49 at 34. This contention ignores black-letter law
that "[t]he loss of First Amendment freedoms, for even minimal periods of
time, unquestionably constitutes irreparable injury." Elrod v. Burns, 427 U.S.
347, 373 (1976) (emphasis supplied). A likelihood of success on the merits of a
First Amendment claim is likely enough, standing alone, to establish
irreparable harm. Child Evangelism Fellowship, 690 F.3d at 1000.
The City also contends that the balance of harms does not warrant
temporary injunction, and that an injunction would not be in the public
interest. Filing 49 at 35-38. But the City's arguments rest on the premise
that the Ordinance is itself in the public interest because it protects the
public, by preventing fraud and directing donations to "legitimate charities."
Filing 49 at 38. That premise is no more sound here than in the earlier
context of the City's First Amendment argument. And in any event, as noted
above, when a plaintiff has shown a likely violation of the First Amendment,
the other requirements for obtaining a preliminary injunction are generally
deemed to have been satisfied. Swanson, 692 F.3d at 870.
CONCLUSION
The Court finds that, when the Dataphase factors are considered,
Linc-Drop has sustained its burden of establishing the propriety of a
preliminary injunction. The Ordinance has, as a practical matter, only two
provisions of substance, and Linc-Drop has established that both of them are
more than likely unconstitutional. Accordingly, the Court will enjoin
enforcement of the Ordinance in its entirety.
The Ordinance is, in fact, so plainly contrary to U.S. Supreme Court
precedent that the Court is somewhat surprised the case has reached this
juncture. The Court had considered advancing trial on the merits, but the
City objected, so the Court is at this point only entering a preliminary
injunction. See, filing 58; filing 59; filing 62. The writing on the wall,
however, should be readily apparent. The Court will, therefore, refer this case
to the United States Magistrate Judge for progression toward a timely
resolution.
That is not to suggest that the end result of this case is an absolutely,
irrevocably, foregone conclusion. Nor is the Court suggesting that the City

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could not take more narrowly-tailored measures: for example, directly
proscribing or prosecuting fraud, or enacting reasonable registration or
disclosure requirements to help citizens make informed choices. But it is
difficult at this point to imagine what evidence or argument could save the
Ordinance as it is currently written. The Ordinance says what it says, and
the Supreme Court has said what it's said, and there's very little that can be
done about either.
IT IS THEREFORE ORDERED:
1.

Linc-Drop's motion for a preliminary injunction (filing 3) is
granted.

2.

The City, and its officers, agents, and employees, are
preliminarily enjoined from enforcing any aspect of the
Ordinance, pending a final judgment in this case.

3.

This case is referred to the United States Magistrate Judge
for further case progression.

Dated this 18th day of February, 2014.
BY THE COURT:

John M. Gerrard
United States District Judge

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