Considering whether the nonprofit organization exemption under the Telephone Consumer Protection Act applied to a telemarketer working on behalf of a charity, a federal court judge in Michigan ruled that because the charity controlled the content of the solicitation and consumers paid the charity directly, the defendant telemarketer was not liable under the statute.

DialAmerica Marketing operated a program for the Special Olympics of Michigan (SOMI) and made calls on the charity’s behalf to seek donations and sell magazine subscriptions. One call recipient filed a TCPA class action against the marketing company, claiming that she received 23 calls despite being registered on the federal Do Not Call Registry.

The defendant moved for summary judgment, relying on the Nonprofit Exemption at Section 227(a)(4) that exempts calls placed “on behalf of” a “tax-exempt nonprofit organization” from liability. U.S. District Court Judge Matthew F. Leitman agreed that the calls made by DialAmerica as part of its program with SOMI fell within the exemption.

The court noted that DialAmerica had learned from past mistakes. In the early 2000s, the company implemented a “Sponsor Program” where it sold magazine subscriptions and donated a portion of the proceeds to charitable organizations. DialAmerica asked the Federal Communications Commission in 2005 for a ruling that calls made as part of the program were covered by the Nonprofit Exemption. The agency denied the request.

DialAmerica launched a new program, the “Professional Fundraising Program,” with several changes from the first iteration. If a consumer purchased a magazine, the resulting contractual and business relationship was between the consumer and the charity and not DialAmerica. Bills were sent in the charity’s name and all monies flowed directly to the charity, which later transferred payment for fees and expenses to DialAmerica. The new program also featured the option for direct donations from consumers, with the charities receiving 100 percent.

SOMI signed on to the Professional Fundraising Program in 2008. The charity retained considerable control over the solicitation process, the court noted. It reviewed, approved and updated the fundraising script used by DialAmerica. Over a six-year period, the defendant made 28,267 magazine sales through the program and generated 1,191 direct donations, with SOMI netting $734,208.58 as a result.

Judge Leitman recognized that for-profit fundraisers can provide “critical support” to nonprofit entities that may have limited expertise, resources, and infrastructure. While DialAmerica’s first program failed to achieve the protection of the Nonprofit Exemption, the court distinguished the Professional Fundraising Program, where SOMI directed and controlled the fundraising and the content of the solicitations.

“Here, DialAmerica acts for SOMI’s benefit, in SOMI’s interest, and as SOMI’s common-law agent,” the court wrote. “Thus, DialAmerica calls ‘on behalf of’ SOMI when it makes telephone solicitations pursuant to the SOMI-DialAmerica Program. Its phone calls to [the plaintiff] therefore qualify for the Nonprofit Exemption.”

The court listed “substantial” evidence in support of its conclusion, from the parties’ contract terms to the solicitation script (controlled by the charity) that began with an explanation that DialAmerica is calling “for” SOMI. Further, consumers received all their communications from SOMI, not DialAmerica, and paid the charity directly. “Thus, when a DialAmerica solicitation call is successful, it results in a business and contractual relationship between the customer and SOMI, not between the customer and DialAmerica,” Judge Leitman wrote.

Rejecting the plaintiff’s contention that DialAmerica delivered its own commercial message, the court emphasized SOMI’s control and direction of the script, which “describes SOMI’s mission, extolls SOMI’s good works, and stresses SOMI’s financial needs,” as well as highlighting upcoming SOMI events.

“These undisputed facts demonstrate that DialAmerica’s calls under the SOMI-DialAmerica Program are placed ‘on behalf of’ SOMI and thus fall within the Nonprofit Exemption,” the court said, granting summary judgment for the defendant. “Indeed, the FCC has confirmed that calls like these—‘calls made by a for-profit telemarketer hired to solicit the purchase of goods or services or donations on behalf of a tax-exempt non-profit organization’—fit comfortably within the exemption. Thus, DialAmerica’s alleged calls to [the plaintiff] are not actionable under the TCPA.”

The court found only two unpublished decisions considering the application of the Nonprofit Exemption under similar circumstances, with both the Ohio Court of Appeals and a federal court in South Carolina holding that the calls in question did fall within the exemption.

To read the order in Wengle v. DialAmerica Marketing, Inc., click here.

Why it matters: Few courts have considered the TCPA’s Nonprofit Exemption, and DialAmerica’s Professional Fundraising Program appears to provide a road map for marketers partnering with tax-exempt nonprofits. The order emphasized that the charity exercised considerable control over the script of solicitation calls and that any ensuing business relationship (including the transfer of monies) existed between the consumer and the charity, not the marketing company.