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Historically, states, not the federal government, have been responsible for regulating charities. State regulation is designed to protect consumers from fraud and abuse. The federal government’s role is generally limited to providing tax incentives, which inure to the benefit of valid charities. Most charitable organizations must register within their domiciled state. Thirty-eight states and the District of Columbia require charities to register in-state and file financial and other information prior to soliciting in those states. States, however, also routinely impose their registration requirements on out-of-state charities that solicit in-state in traditional ways (i.e., by having solicitors enter the state) or through the Internet. Charitable organizations that use the Internet to solicit contributions must register if they use their Internet solicitation to specifically target people in that state, or receive Internet contributions from the state on a repeated and ongoing basis or a substantial basis. State regulation of charity-oriented Internet transactions poses new challenges for states and charities. States must overcome Commerce Clause concerns, while charities must deal with the potential costs and activity regulations associated with registering in states outside of the state where the charity resides. The penalties for violating state solicitation laws vary. However, New York’s penalties are typical. If an unregistered charity solicits in New York, the state may assess damages equal to the entire amount of funds solicited without an offset for fundraising expenses incurred by the charity. The use of the Internet for fundraising presents the issue of whether a charity that raises money via a Web site will be required to register in every jurisdiction where its Web site is accessible. Some states have indicated that they believe charities that solicit online must register in their states. Seven states have actively pursued unregistered nonprofits that solicit via the Internet. These states are Connecticut, Florida, Illinois, Massachusetts, Minnesota, New York, Pennsylvania and South Carolina. A strong legal argument may be made against state regulators demanding registration from charities that solicit in their state solely via a Web site. The argument is weaker, however, when charities use e-mail solicitation, since states routinely impose their registration requirements on out-of-state charities that solicit in-state via mail or fax. Any state attempt to regulate out-of-state charities that solicit via the Internet must overcome Commerce Clause concerns about states regulating commerce outside of their borders, which may lead to conflicting state regimes. While it has been argued that the Due Process Clause of the Fourteenth Amendment and the dormant Commerce Clause significantly limit states’abilities to regulate online activities, increasingly, states have adapted their regulatory regimes to include Internet transactions. Under the traditional tests for personal jurisdiction, it seems likely that e-mail solicitations will subject the solicitor to personal jurisdiction, whereas a passive Web site with appropriate terms of use will not subject the solicitor to personal jurisdiction. A state can only regulate activity insofar as it can enforce its laws. For an entity with no local presence, such as an online solicitor, the state must obtain personal jurisdiction over the entity and get a default judgment. In International Shoe v. Washington, 326 U.S. 310 (1945), the Supreme Court held that for a forum to exercise jurisdiction over a defendant, the defendant must have “minimum contacts” with the forum state such that exercising jurisdiction would not offend “traditional notions of fair play and substantial justice.” Courts have addressed the issue of whether an individual or organization whose only contact with the forum state is a Web site may be subject to personal jurisdiction. The court in Inset Systems, Inc. v. Instruction Set, Inc., 937 F.Supp. 161 (1996), found that having an Internet site that was continuously available to Connecticut’s 10,000 Internet access sites met the requirements of Connecticut’s long-arm statute, which allowed for jurisdiction over claims arising from business solicited in the state if the company repeatedly solicited business in the state. Similarly, the court in Zippo Manufacturing Co. v. Zippo Dot Com, Inc., 952 F.Supp. 1119 (1997), found that selling passwords to 3,000 Pennsylvania subscribers constituted sufficient activity to justify jurisdiction. However, most courts adjudicating the issue of personal jurisdiction have required something more than the mere accessibility of a Web site in the forum state to assert personal jurisdiction. The court in Heroes, Inc. v. Heroes Foundation, 958 F.Supp. 1 (1996), found that a Web page solicitation was not enough. According to the court, a Web page solicitation combined with newspaper advertisement was required to create minimum contacts with the District of Columbia. The Supreme Court found in Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564 (1997), that both the Commerce Clause and the dormant Commerce Clause apply to nonprofit transactions. In particular, courts have upheld the application of solicitation statutes when applied to postal mail and fax solicitations against dormant Commerce Clause challenges. Similarly, therefore, states should be able to regulate online solicitations without violating the dormant Commerce Clause. Traditional state police powers and interests in preventing consumer fraud remain just as valid when applied to the new medium of the Internet. States should not lose any of the power they have to protect their citizens simply because the method of reaching their citizens has changed. There are steps charities can take to help limit legal liability associated with Internet solicitations. In particular, charities may instruct their Web master and Internet service provider to block access to out-of-state users. Alternatively, a charity should consider posting a notice as part of its terms of use agreement — the agreement which appears on the Internet site that typically addresses representations, disclosures and instructions as well as user rights and obligations. For example, the notice in the terms of use agreement for the ABC Charity, which is a charity registered in New Jersey, might state:
Gifts to the ABC Charity which result directly or indirectly from this Internet site may be accepted only in accordance with the terms and conditions set forth herein. No condition stated by the giver in making the gift shall be binding upon the ABC Charity if in conflict with, inconsistent with, or in addition to, the terms and conditions of the terms and conditions set forth herein and all such conflicting inconsistent and additional terms and conditions are hereby expressly rejected. Gifts to the ABC Charity which result directly or indirectly from this Internet site may be accepted by the ABC Charity only in New Jersey. Prior to the acceptance of any gifts to the ABC Charity, a giver must acknowledgment that such gives are executed in New Jersey and as a result of a New Jersey solicitation.

Jonathan Bick is of counsel to WolfBlock Brach Eichler of Roseland and is an adjunct professor of Internet law at Pace Law School and Rutgers Law School. He is also the author of “101 Things You Need To Know About Internet Law” [Random House 2000].

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