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Linc-Drop, Inc. v. City of Lincoln

United States District Court, D. Nebraska

February 18, 2014

LINC-DROP, INC., A Nebraska Corporation, Plaintiff,
v.
CITY OF LINCOLN, A political subdivision of the State of Nebraska, et al., Defendants.

MEMORANDUM AND ORDER

JOHN M. GERRARD, District Judge.

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 43-44, 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. 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

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 movant bears the burden of establishing its propriety. Roudachevski v. All-American 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 ...


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