Customer donation programs work. Although consumer fatigue with answering round-up and add-a-dollar prompts is on the rise, these point-of-sale fundraising campaigns have become effective tools for nonprofits to fundraise and for companies to support the charitable causes they most care about.1 Given the proliferation of these fundraising requests, it may not be surprising that these programs are facing litigation from disgruntled shoppers and donors who feel they are being misled. For at least one New York plaintiff, though, this approach was unsuccessful.
On September 29, 2023, the U.S. District Court for the Eastern District of New York dismissed a New York resident’s lawsuit against CVS Health Corporation and CVS Pharmacy, Inc. (CVS) for CVS’s donation checkout program in support of the American Diabetes Association (ADA).2 CVS and ADA entered into a corporate sponsorship agreement in which CVS agreed to offer opportunities to its customers to donate to ADA, including through “in-store fundraising,” and whereby the company committed to raise from public contributions or otherwise donate at least $10 million to support certain ADA initiatives and “other initiatives at the Company’s discretion, so long as such other initiatives advance the ADA’s mission.”
The plaintiff alleged that CVS committed common-law fraud, breach of contract, and violations of consumer protection laws in soliciting customer donations at the register when the company promised ADA that it would make up any shortfall in its $10 million fundraising goal for the ADA and through the contractual clause that allegedly gave CVS discretion to redirect funds raised under the contract, among other particulars. The plaintiff argued that CVS was using customer donations to help fulfill a pledge rather than sending money directly to the ADA.
The court found that the plaintiff failed to sufficiently allege plausible violations of law and granted CVS’s motion to dismiss the case. For example, on the common-law fraud claim, the court found this claim failed because the plaintiff did not allege a material misstatement or culpable omission—to say nothing of a lack of a cognizable injury to the plaintiff. The plaintiff’s suggestion that the message provided to prospective donors at the register materially misstated the facts because CVS did not disclose that it would make up any shortfall of the overall $10 million goal failed because the omission of this detail was not a material misrepresentation and the plaintiff did not adequately plead that CVS had a duty to disclose this term of the agreement in public solicitations.
While the court dismissed the case on pleadings, the matter serves as a reminder that customer donation programs, such as round-up campaigns or add-a-dollar-at-checkout donation campaigns are regulated, industry best practices with respect to these campaigns are evolving, and customers are paying attention to how their contributions will be used and what promises are being made at the point of solicitation. That is, companies considering these fundraising campaigns should consider that:
- In addition to the more specific requirements imposed by various states’ charitable solicitation laws, both federal and state consumer protection laws apply to these campaigns, too. Often, the state fundraising laws require making certain disclosures at the retail point of sale, ensuring that the charity for which a company is fundraising is appropriately registered to solicit contributions, and putting into place an agreement between the parties that clearly outlines the terms of the campaign and authorizes the company to solicit on behalf of the charitable organization, among other terms. The consumer protection laws address more generally whether a particular promotion may be viewed as misleading or confusing to consumers.
- State regulators are keen to ensure that disclosures are clear and prominent, and donors are presented all material information (such as which charity will ultimately receive the benefit of a donor’s contribution). Providing this information is critical for helping donors make informed decisions. 3
As a final word of caution, the CVS case addressed an in-person donation program, but additional compliance obligations may arise with online customer donation programs. California’s new law regulating charitable fundraising platforms that operate or solicit within the state went into effect this year. The law regulates online activities whereby a company uses the internet to list one or more charitable organizations as receiving donations or grants of recommended donations by donors who use the platform. Still, regulations implementing the law have yet to be adopted, so companies still face some uncertainties regarding how and what they must do to comply with the law’s new requirements.
As your company or nonprofit considers engaging in a customer donation program (in person or online), this case serves as a reminder to make sure that you are ensuring compliance and transparency from the outset to mitigate your risks with not only state regulators, but also private plaintiffs, who may bring claims for failure to comply with applicable laws and requirements, including but not limited to making the requisite disclosure at the point of sale.
[1] See, e.g., Wall Street Journal, “Just Like Tip Prompts, Requests for Donations at Checkout Are Everywhere” (Aug. 29, 2023).
[2] McCabe v. CVS Health Corp. & CVS Pharmacy, Inc., Memorandum & Order, 22-CV-03116-RPK-RML (E.D.N.Y. Sept. 29, 2023).
[3] The assurance of voluntary compliance entered into between a cohort of 23 U.S. jurisdictions and the PayPal Charitable Giving Fund, Inc. (PPGF) continues to be a bellwether example of what disclosures should be made, and how. See, e.g., Venable LLP, California Enacts Law Regulating Charitable Fundraising Platforms (Oct. 11, 2021) (n. 13).
