How Much Money Must You Give To Charity If You Induce People To "Donate"?

• Published date: 22 June 2022
• Subject Matter: Corporate/Commercial Law, Media, Telecoms, IT, Entertainment, Charities & Non-Profits , Advertising, Marketing & Branding
• Law Firm: Frankfurt Kurnit Klein & Selz
• Author: Ms Terri Seligman

The headline on the homepage of the Omaze website says "Win [Something Great] and help [Worthy Cause]". You hit the enter button and go to a page describing the prize, the intended beneficiaries of the donation you'll make to enter and, if you keep scrolling, the "stuff our lawyers want you to read." In that section, if you keep scrolling, you'll find a section called Fundraising Transparency. There, you find out that although 100% of your donation goes to CAF America, Omaze's designated charity, of that amount, 85% will go back to Omaze to cover its "costs". In other words, [Worthy Cause] will get 15% of the entrants' donations.

That didn't sit too well with a group of consumers who used the Omaze website. They filed a putative class action suit in California district court, alleging that Omaze's marketing is deceptive and violates California law. Plaintiffs allege that Omaze misled them in two main ways: (1) by suggesting that most or all of the donated money would go to charity; and (2) by suggesting that Plaintiffs would be more likely to win prizes if they made donations than if they entered for free. They also allege that Omaze's charitable fundraising violates California law regulating raffles, sweepstakes, and lotteries, and "is just a front for illegal lotteries."

Defendant's motion to dismiss followed, which the Court granted in part and denied in part.

First, the Court addressed plaintiffs' allegation that Omaze's characterization of their payments as "donations" and its use of the "donate" language in its website and advertisements were themselves misleading because such language implied that most of the money they paid to Omaze would go to charity. Relying on two Supreme Court decisions (Riley v. National Federation of the Blind of N.C., Inc., 487 U.S. 781 (1988); and Illinois, ex rel. Madigan v. Telemarketing Assocs., Inc., 538 U.S. 600 (2003)), Omaze argued that these allegations fail because "(1) a reasonable consumer would have understood that a portion of the donations would be used for expenses and fees, especially in light of Omaze's disclosure that it was retaining a portion of the proceeds, and (2) the First Amendment precludes the imposition of liability or the injunctive relief Plaintiffs seek."

The Court agreed with Omaze that the Supreme Court has made it clear that "[h]igh fundraising costs, without more, do not establish fraud. And mere failure to volunteer the fundraiser's fee when contacting a potential donee, without more...