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On October 31, 1996, the U.S. District Court for the Southern District of New York assessed a $30,000 civil penalty against Angelo Parisi for exceeding the contribution limits of the Federal Election Campaign Act.
The lawsuit against Mr. Parisi grew out of an administrative complaint filed with the FEC in 1994 by the Center for Responsive Politics.
Among the violations, the FEC uncovered the following transactions:
- Contributions in excess of the individual $25,000 annual limit. 2 U.S.C. §441a(a)(3). Mr. Parisi made $33,942 in contributions in 1991, $66,262 in contributions in 1992 and $40,405 in contributions in 1993.
- Contributions in excess of the $20,000 per individual limit on contributions to a national political party committee. 2 U.S.C. 441a(a)(1)(B). Mr. Parisi gave $27,262 to the National Republican Senatorial Committee (NRSC) and $22,750 to the National Republican Congressional Committee in 1992. He also gave $24,655 to the NRSC in 1993.
- Contributions in excess of the $5,000 annual limit on contributions to a PAC. 2 U.S.C. §441a(a)(1)(C). In 1991, Mr. Parisi gave $6,200 to American Citizens for Political Action.
Because of unusual mitigating circumstances, all but $5,000 of the penalty was suspended. However, Mr. Parisi will be required to pay the remaining $25,000 if he violates the contribution limits again.
Source: FEC Record -- January 1997.
On July 16, 1981, the U.S. District Court for the District of Columbia denied an FEC petition for court enforcement of two subpoenas the Commission had issued to Phillips Publishing, Inc. (FEC v. Phillips Publishing, Inc., Civil Action No. 81-0079). The court granted the respondent's motion to enjoin any further FEC investigation of either Phillips Publishing, Inc. or its biweekly newsletter, The Pink Sheet on the Left (The Pink Sheet).
The FEC had issued the subpoenas to the staff of Phillips Publishing, Inc. as part of an investigation into a complaint filed by the Kennedy for President Committee on March 18, 1980. The Kennedy Committee claimed that the publishing company had distributed a promotional mailing for The Pink Sheet that expressly advocated the defeat of Senator Edward Kennedy (D-Mass.) in his bid for the 1980 Presidential nomination. The Kennedy Committee alleged that, in making expenditures for the mailing, the respondent had violated the following provisions of the Act:
- §433, by failing to register as a political committee;
- §434(c)(1), by failing to report independent expenditures for the mailing in excess of $250;
- §435(b),1 by failing to include a notice on the mailing indicating that committee reports were available at the FEC and could be purchased;
- §441(b), by making a prohibited corporate expenditure advocating the defeat of a candidate in a federal election; and
- §441(d), by failing to identify who had paid for and authorized the mailing.
In responding to these allegations, Phillips Publishing, Inc. contended that, since The Pink Sheet was a periodical and was not controlled by any political party, candidate or committee, the promotional mailing constituted a news activity exempted from the Act's definition of contribution or expenditure. 2 U.S.C. §431(9)(B)(i). In finding reason to believe the alleged violations had occurred, the FEC concluded that this issue, as well as others, had to be investigated further to make a factual determination with regard to the respondent's claim that the promotional mailing constituted an exempted news activity. Based on a facial comparison, the Commission noted, for example, that the title of the solicitation letter was not printed in the same format as that of the regular Pink Sheet newsletter, that the mailing did not contain legends normally carried on The Pink Sheet and that the respective contents of the mailing and The Pink Sheet were dissimilar. Moreover, the promotional mailing was not distributed through the facilities of a periodical publication.
On April 8, 1981, after company officials to whom the subpoenas had been directed failed to respond, the Commission filed its petition with the district court. On May 29, 1981, Phillips Publishing, Inc. filed a motion to dismiss the FEC's petition and a motion to bar any further investigation of The Pink Sheet and the promotional mailing.
District Court Ruling
In denying the FEC's petition for enforcement of the subpoenas, the court found that the FEC had sufficient information to determine that the mailing met the criteria for the news story exemption. "As early as April 1980, the FEC received responses from Phillips Publishing, through its counsel, stating that The Pink Sheet and its publisher 'are not political committees, do not solicit or receive any political contributions, or make any contributions to any candidate.... '" Moreover, the court said, "...the solicitation letter was to publicize The Pink Sheet and to obtain new subscribers, both of which are normal, legitimate press functions.... " The court concluded, therefore, that the FEC's petition for further information should be denied.
Motion to Appeal Withdrawn
On October 30, 1981, the U.S. Court of Appeals for the District of Columbia Circuit granted the FEC's motion to withdraw its appeal of FEC v. Phillips Publishing, Inc. (Civil Action No. 81-2015). In a motion filed on October 21, 1981, the Commission stated that it was withdrawing the appeal "in the interest of judicial economy," but that it continued to believe "the district court's decision was erroneous."
Source: FEC Record -- September 1981, p. 2; and December 1981, p. 6.
FEC v. Phillips Publishing, Inc., 517 F. Supp. 1308 (D.D.C. 1981).
On August 21, 1991, the U.S. Court of Appeals for the Second Circuit ruled that Political Contributions Data, Inc., did not violate 2 U.S.C. §438(a)(4) by selling, for profit, individual contributor information copied from FEC reports. (Civil Action No. 91-6084.) This ruling reversed the district court's decision.
On June 17, 1993, the court of appeals also reversed the district court's ruling on attorneys' fees. The appellate court held the FEC liable for payment of PCD's attorneys. On February 22, 1994, the Supreme Court denied the FEC's petition for review of that decision.
Section 438(a)(4) protects information on individual contributors (including names, addresses, occupations and employers) that is disclosed on reports filed with the FEC. Under section 438(a)(4), information copied from such reports "may not be sold or used by any person for the purpose of soliciting contributions or for commercial purposes...." (The names and addresses of political committees, however, may be used for solicitation purposes.)
In AO 1986-25, issued to Public Data Access, Inc. (PDA), the Commission considered PDA's proposed sale of information on individual contributors that was compiled from FEC reports. The Commission concluded that the proposed sale would be for "commercial purposes" and would therefore violate section 438(a)(4).
After the opinion was issued, PDA established Political Contributions Data, Inc. (PCD), a for-profit corporation, which then sold lists of individual contributor information compiled from FEC reports. PCD marketed two standard reports: a list of contributions made by officers and upper-level employees of the 700 largest U.S. corporations; and a list of individuals contributing $500 or more, sorted by congressional district.
The Commission filed suit in August 1989 alleging that PCD had violated section 438(a)(4).
District Court Decision
On December 19, 1990, the U.S. District Court for the Southern District of New York ruled that PCD's sale of contributor lists violated the "commercial purposes" prohibition. (Civil Action No. 89-CIV-5238.) In reaching this decision, the district court found that the FEC's determination in AO 1986-25 was reasonable. The Commission had concluded that PDA's for-profit status indicated a commercial purpose. The Commission also concluded that PDA could not claim the exception for media use of contributor information under 11 CFR 104.15(c) because PDA's lists would have a commercial value to list brokers and because the FEC information contained in the lists was not incidental to the sale of the communication (as in a newspaper) but was instead the primary focus of the communication.
The court also considered but rejected PCD's constitutional challenges to section 438(a)(4). The court imposed a $5,000 penalty against PCD but stayed payment pending the resolution of PCD's appeal.
Court of Appeals Decision
The court of appeals rejected the Commission's conclusion in AO 1986-25 as an unreasonable interpretation of section 438(a)(4) and 11 CFR 104.15(c). The court instead found that PCD's sale of contributor lists was permissible under those provisions.
Under section 104.15(c), the use of information copied from FEC reports "in newspapers, magazines, books or other similar communications is permissible as long as the principal purpose of such communications is not to communicate any contributor information...for the purpose of soliciting contributions or for other commercial purposes." [emphasis added]
The court found that PCD's contributor lists qualified as "other similar communications" and that PCD's sale of FEC information did not violate the commercial purposes prohibition: "The absence from PCD's reports of mailing addresses and phone numbers, as well as the caveat on each page against solicitation and commercial use, make it virtually certain that these reports will be used for informative purposes (similar to newspapers, magazines, and books...), not for commercial purposes (similar to soliciting contributions or selling cars)."
The court based this conclusion on its interpretation of the commercial purposes prohibition: "The §438(a)(4) prohibition is only violated by a use of FEC data which could subject the 'public-spirited' citizens who contribute to political campaigns to 'all kinds of solicitations,'" such as commercial solicitations for magazine subscriptions or credit cards. The court said that this reading of the prohibition balances the need to protect the privacy of individual contributors with statutory intent to promote public disclosure of campaign finance information.
Finding the PCD did not violate section 438(a)(4), the court remanded the case to the district court with instructions to dismiss the FEC's complaint.
Application for Attorneys' Fees
On December 19, 1991, PCD applied to the district court for an award of $55,022 in attorneys' fees and other expenses pursuant to the Equal Access to Justice Act (EAJA). 28 U.S.C. §2412(d)(1)(A). To be considered by a court, an application for attorneys' fees must be filed within 30 days of the date the judgment has become final. Citing judicial precedent, the district court said that "a judgment has been found to be final when the 'losing party asserts that no further appeal will be taken.'" The court found that the FEC provided "clear and unequivocal notice" that it would not appeal the court of appeals' decision in a letter from the FEC's attorney to PCD's attorney. The letter, which stated the FEC's reasons for not pursuing an appeal, was dated October 30, 1991; accordingly, the court found that the deadline expired 30 days later, on November 29, 1991, nearly a month before PCD filed its application for attorneys' fees. The court therefore denied the application because it was filed late. 807 F. Supp. 311 (S.D.N.Y. 1992).
The district court also said that defendants' application would have to be denied on the grounds that the FEC's position was "substantially justified." 1 Applying criteria set forth by the Supreme Court in Pierce v. Underwood, 487 U.S. 552 (1988), the court found that the FEC's position had a "reasonable basis both in law and fact" and "could satisfy a reasonable person."
Reversing the district court decision, the U.S. Court of Appeals for the Second Circuit, on June 17, 1993, found that PCD had filed its application for attorney's fees within 30 days of the "final judgment," as required under the EAJA. (No. 92-6240.) The court said that, in this instance, the date of "final judgment" was the last day the Commission could have applied for a writ of certiorari with the Supreme Court.
The appeals court also found that the FEC's position on the "sale or use" restriction was not "substantially justified." The court found that the 1991 appeals court ruling, which had held the FEC's interpretation to be "unreasonable," precluded the current panel from finding the agency's position "substantially justified" under the EAJA. "This is so," the court reasoned, "because the legal standards which governed the merits phase of this litigation are precisely those to be applied to the EAJA question." The court also relied on Oregon Natural Resources Council v. Madigan, 980 F.2d 1330 (9th Cir. 1992), a decision which was issued after this appeal had been filed.
On February 22, 1994, the U.S. Supreme Court denied the FEC's petition to review the appellate court judgment. The FEC was required to pay PCD's attorneys $54,610.
In its Supreme Court petition, the FEC argued that the Second Circuit's ruling contradicted legislative intent as well as the Supreme Court's own rulings and those of other appellate courts. The FEC's brief quoted the Supreme Court in Pierce v. Underwood, where the Court observed that a court's agreement or disagreement with the government "does not establish whether its position was substantially justified. Conceivably, the Government could take a position that is not substantially justified, yet win; even more likely it could take a position that is substantially justified, yet lose." (487 U.S. 552, 569 (1988).)
The Solicitor General, who filed a friend of the court brief supporting the FEC's petition, said that the PCD holding "seriously expands the government's liability for attorney fees under EAJA."
Source: FEC Record -- February 1991, p. 8; May 1991, p. 7; October 1991, p. 11; October 1992, p. 10; August 1993, p. 6; and May 1994, p. 4.
FEC v. Political Contributions Data, Inc., 753 F. Supp. 1122 (S.D.N.Y. 1990), rev'd, 943 F.2d 190 (2d Cir. 1991).
On March 22, 1989, the U.S. District Court for the District of Columbia issued a final consent order and judgment in FEC v. Populist Party (Civil Action No. 88-0127). By the terms of the consent order, the court declared that the Populist Party, a political committee, and Willis Carto, acting as treasurer, violated the election law and regulations by:
- Failing to file 1985 mid-year and year-end reports on time (2 U.S.C. §434(a)(4)(A)(iv));
- Failing to file, in a timely manner, amended Statements of Organization reflecting Mr. Carto's role as treasurer of the committee and a change in the committee's campaign depository (2 U.S.C. §433(c));
- Failing to file, in a timely manner, quarterly reports for April, July and October 1986 (2 U.S.C. §434(a)(4)(A)(i));
- Failing to file in a timely manner, a 1986 post-general election report (2 U.S.C. §434(a)(4)(A)(iii));
- Failing to disclose in any report the purpose of approximately $8,000 in operating expenditures made to one payee (2 U.S.C. §434(a)(4)(A)(iii));
- Failing to disclose, in a timely manner, the receipt of a $500 contribution from an individual (2 U.S.C. §434(b)(3)(A));
- Failing to disclose and continuously report certain outstanding debts and obligations, amounting to approximately $299,817 (2 U.S.C. §434(b)(8), 11 CFR 104.11); and
- Knowingly accepting corporate contributions (2 U.S.C. §441b(a)).
The court also found that the corporations had violated the law in making contributions to the committee. The Spotlight, a weekly newspaper, and its owner, Cordite Fidelity, Inc., had made $10,479 in prohibited corporate contributions; Liberty Lobby, Inc., had contributed $7,500. The court also found that Mr. Carto, in his capacity as a director or officer of both corporations (in addition to being treasurer of the Populist Party), had violated 2 U.S.C. §441b(a) by consenting to the corporate disbursements.
The consent order required the defendants Populist Party, Liberty Lobby, Inc., Cordite Fidelity, Inc., The Spotlight and Mr. Carto, both personally and as treasurer of the Populist Party, to pay a civil penalty of $20,000 within 20 days; the defendants were jointly and severally liable for the payment. The court also permanently enjoined the defendants from similar future violations of the election law.
Source: FEC Record -- May 1989, p. 8.
On May 31, 1991, the U.S. Court of Appeals for the District of Columbia, in a per curiam decision, granted the FEC's motion for summary reversal of a district court order that had imposed a date by which the Commission had to conclude its investigation of the Populist Party. (Civil Action No. 90-7169.) The appeals court said the district court had exceeded its jurisdiction by setting the deadline.
The FEC had filed suit in the U.S. District Court for the District of Columbia seeking enforcement of subpoenas and orders the agency had issued to the Populist Party and other respondents in an internal enforcement case (Matter Under Review or MUR). The district court, on October 18, 1990, ordered the respondents to furnish the information to the Commission by November 15, 1990. The court, however, also ordered the agency to conclude its investigation by November 29, 1990. The FEC appealed this portion of the order, and the district court granted a stay of the deadline pending resolution of the appeal.
In its motion for summary reversal of the district court order, the FEC argued that the court had exceeded its limited jurisdiction under 2 U.S.C. §437d(b), the subpoena enforcement provision of the Federal Election Campaign Act (the Act). The FEC said: "Section 437d(b) bestows no license on the court to decide where the Commission's limited resources will be directed or to determine how the underlying investigation should be run."
The FEC also argued that the Act does not provide for judicial review of the length of a Commission investigation that arises from an agency-generated enforcement case, such as the case involving the Populist Party. But even in cases that originate from outside parties, only the complainants-not the respondents-have the right to seek judicial review of an investigation's pace. 2 U.S.C. §437g(a)(8).
The appeals court found the merits of the Commission's position "so clear as to justify summary action."
Source: FEC Record -- August 1991, p. 11.
On April 20, 1995, the U.S. District Court for the District of Columbia issued a consent order and judgment stating that defendants violated the Federal Election Campaign Act (the Act) by making and accepting corporate and excessive contributions in 1984, and ordering defendants to pay a $20,000 civil penalty for these violations.
Specifically, the court, by agreement of the parties involved, determined that:
- Liberty Lobby, Inc., and Cordite Fidelity, Inc., violated 2 U.S.C. §441b(a), which prohibits the use of corporate money in connection with federal elections, by providing services (in-kind contributions) to the Populist Party in the amount of $268,056 and $82,346, respectively;
- Willis A. Carto, the director of both corporations and treasurer of the Populist Party, violated 2 U.S.C. §441b(a) by consenting to the provision of the corporate services mentioned above;
- Blayne Hutzel, comptroller of both corporations, violated 2 U.S.C. §441b(a) by accepting corporate services, loans and payments valued at $352,903 on behalf of the Populist Party;
- The Populist Party violated 2 U.S.C. §441b(a) by accepting the above corporate contributions and other corporate contributions, for a total of $368,303 in illegal corporate money;
- The Populist Party violated 2 U.S.C. §441a(f), which prohibits committees from accepting contributions in excess of established limits, by accepting contributions from individuals in excess of their annual limit of $5,000 per party committee;
- The Populist Party violated 2 U.S.C. §441a(a)(1)(A) and (C) by making excessive contributions to the Maureen Salaman for Vice President Committee and the Bob Richards for President Committee; and
- The Bob Richards for President committee violated 2 U.S.C. 441a(f) by accepting $9,756 in excessive contributions from the Populist Party.
Source: FEC Record -- July 1995, p. 9.
FEC v. Populist Party, No. 92-0674(HHG) (D.D.C. Apr. 20, 1995).
On October 10, 2001, the U.S. Court of Appeals for the Eleventh Circuit ruled that Public Citizen, Inc., and its separate segregated fund, Public Citizen's Fund for a Clean Congress (the Fund), violated 2 U.S.C. §441d(a) by failing to include a disclaimer stating that their independent expenditures had not been authorized by any candidate or candidate's committee. This ruling reversed the decision on this issue by the U.S. District Court for the Northern District of Georgia, which had granted summary judgment to the defendants in September 1999.
Public Citizen, Inc. (Public Citizen) is an incorporated, nonprofit membership organization. It created the Fund in 1992. The Fund, in turn, sponsored several communications that opposed Newt Gingrich in the 1992 primary for Georgia 's Sixth Congressional District: a television ad, a direct mailing and a series of flyers-all of which urged voters to "Boot Newt" in the upcoming primary.
District Court Decision
On September 15, 1999, the U.S. District Court for the Northern District of Georgia, Atlanta Division, dismissed an enforcement case brought by the Federal Election Commission against Public Citizen and the Fund.
The Commission had alleged that the Fund had violated 2 U.S.C. §441b by making excessive in-kind contributions to Herman Clark, a 1992 primary opponent of former Representative Newt Gingrich. The Commission maintained that the contributions resulted from the fact that the Fund had coordinated several expenditures, made in opposition to Mr. Gingrich, with the Clark campaign. The court ruled that the expenditures were permissible independent expenditures-not coordinated expenditures.
The court also ruled in favor of the Fund on eight other charges brought against it, including charges that, in some or all cases, it failed to:
- Report expenditures as contributions;
- Indicate, in disclaimers, whether its television advertisement and flyers were authorized by a candidate;
- Inform contributors about the political purpose of the fund;
- Inform contributors of their right to refuse to contribute without reprisal; and
- Inform contributors that a checklist for donations, reading "$20, $40, $50, OTHER," was merely a suggestion.
The FEC alleged that the expenditures against Mr. Gingrich, totaling $59,200, were not independent expenditures but, rather, were coordinated expenditures, which resulted in excessive contributions on behalf of Mr. Gingrich's opponent, Mr. Clark. 2 U.S.C. §441a(a)(1)(A).
The Act defines independent expenditure as an expenditure which expressly advocates the election or defeat of a clearly identified candidate and which is not made in concert with, or at the request or suggestion of, the candidate or the campaign. 2 U.S.C. §431(17).
FEC regulations elaborate on this definition. They add the following presumption:
"An expenditure will be presumed to be so made [in cooperation with the campaign] when it is based on information about the candidate's plans, projects, or needs provided to the expending person by the candidate, or by the candidate's agents with a view toward having an expenditure made." 11 CFR 109.1(b)(4)(i)(A).
The Commission had argued that repeated contacts between the Fund and representatives of Mr. Clark's campaign constituted coordination. The court disagreed.
The court held that, "even construed most favorably for the FEC," the evidence did not support the allegation that the expenditures by the Fund were coordinated with the Clark campaign. Coordination, the court stated, implies "'some measure of collaboration beyond a mere inquiry as to the position taken by a candidate on an issue.'"1
The court ruled that, because the expenditures had not been coordinated with the Clark campaign, the Fund did not need to report them as contributions.
The FEC alleged that the Fund failed to include the disclaimer required by 2 U.S.C. §441d(a) in the "Boot Newt" television advertisement or in the "Boot Newt" flyers.
The statute states that, whenever a person makes an independent expenditure (see definition above), the communication must disclose both the name of the person who paid for the communication and the fact that the communication was not authorized by the candidate or his/her committee.
Although the Clark campaign identified who paid for the ads, it did not include a disclaimer stating whether or not the communications had been authorized by a candidate.
Based on a 6th Circuit decision,2 the court found that the disclaimer requirement was broader than necessary to achieve the government's interests in notifying the public of the source of campaign funds, in preventing actual and perceived corruption in the political process, and in creating a recordkeeping method to detect violations of the Act's contribution limitations-interests identified by the Supreme Court in Buckley v. Valeo. The court stated that the disclaimer used by the Fund, which stated that the ads were paid for by the Fund, was sufficient to accomplish all three of the government's objectives. The additional requirement that the disclaimer identify whether the communication was authorized by any candidate or candidate's committee, the court said, violated the Fund's First Amendment rights.
Special Fundraising Notices by Corporations and Labor Organizations
The FEC alleged that the Fund's solicitation letters failed to make adequate disclosures required by the Act. First, two letters violated 2 U.S.C. §441b(b)(3)(B) and 11 CFR 114.5(a)(3) by failing to inform solicitees of the political purposes of the Fund. One solicitation stated that the Fund planned to vote out targeted incumbents by using "everything-T.V., radio, door-to-door canvassing-to let their constituents know what their members of Congress have been up to for the past few years." In another solicitation, the Fund asked for solicitees' help "to tackle nine other House members." The court stated that it was uncertain how the Fund could have been more explicit in stating the political purpose of their solicitation, and concluded that the letter did not violate 2 U.S.C. §441b(b)(3)(B).
Additionally, the FEC alleged that both letters violated 2 U.S.C. §441b(b)(3)(C) and 11 CFR 114.5(a)(4) by failing to inform solicitees of their right to refuse to contribute to the Fund without reprisal. The court dismissed this charge, stating that the purpose of the notice was "to prevent organizations with economic leverage over employees or members from using that leverage to coerce involuntary donations." It was nonsensical, the court stated, for Public Citizen, a purely voluntary, nonprofit membership organization, to include such a disclaimer since it controlled no benefits that could be denied to its individual members.
Lastly, the FEC alleged that the Fund violated 2 U.S.C. §441b(b)(3)(C) and 11 CFR 114.5(a)(2), which requires that, when a corporation suggests a contribution guideline in a solicitation for its separate segregated fund, the solicitees must be informed that the guidelines are merely suggestions and that solicitees are free to contribute more or less than the suggested amount. The court found that the Fund's solicitation included an alternative called "other," making it clear to the solicitee that the listed amounts were suggestions only. Therefore, the court stated, the letter was not violative of the Act.
Appeals Court Decision
The FEC appealed this case to the U.S. Court of Appeals for the Eleventh Circuit. On appeal, the FEC argued that 2 U.S.C. §441d(a) served the governmental interest in protecting the integrity of the electoral process by immediately informing the voters whether a political advertisement was attributable to a candidate or to other persons, including the candidate's supporters. The appeals court agreed and ruled that the statute was narrowly tailored to serve the stated governmental interest because it applied only to candidate elections and was limited to communications that expressly advocated the election or defeat of a clearly identified candidate. As a result, the court found that the disclaimer requirements in 2 U.S.C. §441d(a) did not "impermissibly infringe on Public Citizen's First Amendment rights to free speech."
The appeals court vacated the district court's grant of summary judgment for Public Citizen and remanded the case to the district court to grant summary judgment to the FEC on its §441d(a) claims and to determine appropriate relief for the violations.
1 Clifton v. Federal Election
Commission, 114, F.3d 1309, 1311 (1st Cir. 1997), citing Buckley
v. Valeo, 424 U.S. 1, 46-47 and n.53 96 S.Ct. 612, 647-48 and n. 53 46
L.Ed.2d 659 (1976).
2 Kentucky Right to Life, Inc. v. Terry, 108 F.3d 637, 647-48 (6th Cir. 1997).268 F.3d 1283.
On February 28, 2008, the U.S. District Court for the Northern District of Florida dismissed the amended counterclaim filed by the Reform Party of the United States of America (the Reform Party) for lack of jurisdiction and failure to state a claim upon which relief could be granted. In addition to granting the FEC’s motion to dismiss, the court modified an injunction against the Reform Party to permit the party to make expenditures to raise funds to repay the amount owed to the U.S. Treasury.
Under the Presidential Election Campaign Fund Act (the Fund Act), the national party committee of an eligible major or minor party is entitled to receive public funding to finance the party's presidential nominating convention. 26 U.S.C. § 9008. To receive these funds, the national committee must establish a convention committee that "shall be responsible for conducting the day to day arrangements and operations of that party's presidential nominating convention." 11 CFR 9008.3(a)(2). The convention committee may use the funds only to pay for permissible convention expenses, defined as "all expenses incurred by or on behalf of a political party's national committee or convention committee with respect to and for the purpose of conducting a presidential nominating convention or convention-related activities." 11 CFR 9008.7(a)(4). The Reform Party received $2,522,690 in public funds for its 2000 presidential nomination convention.
The Fund Act also requires that the FEC conduct an audit of any committee that receives public funding. The Final Audit Report, adopted by the FEC on September 26, 2002, included a determination that the defendants must repay $333,558 to the U.S. Treasury for expenditures that were not permissible convention expenses or were not properly documented. 11 CFR 9008.7(a) and 9008.10. The RPUSA submitted a timely request for administrative review of the repayment determination, and after review, the FEC upheld the repayment determination. The RPUSA requested reconsideration of the FEC's repayment determination, which the FEC rejected as untimely.
By law, public funding recipients may—among other things—ask the Commission to reconsider its repayment determinations, and seek additional review by the US Court of Appeals for the DC Circuit. The Reform Party repeatedly asked both the Commission and the courts to review its repayment obligation, but most of its requests were not filed within statutory and regulatory deadlines, and all were denied. The FEC brought this action to recover the repayment amount. The RPUSA then filed a petition for review
in the U.S. Court of Appeals for the District of Columbia Circuit, which the D.C. Circuit dismissed as untimely.
On July 21, 2004, the Federal Election Commission (FEC) filed an action with the U.S. District Court for the Northern District of Florida to collect $333,558 from RPUSA and its treasurer, William D. Chapman, Sr., and the Reform Party 2000 Convention Committee and its treasurer, Gerald M. Moan. The suit arose from a final determination by the FEC regarding the financing of the RPUSA's 2000 Presidential nominating convention, during which the Party spent some of the public money grant it received to pay for convention expenditures not permitted by law.
In its court complaint, the FEC asserted that the repayment determination
was "final and conclusive" and the merits of the repayment determination
was not subject to judicial review. The defendants have not paid any of the
$333,558 debt. The FEC asked the court to declare that the defendants are obliged
to pay to the U.S. Treasury $333,558, plus interest, order defendants to make
that repayment, and to give preference to the repayment over all other outstanding
obligations of the committee, other than federal taxes.
District Court Decision
On November 22, 2005, the U.S. District Court for the Northern District of Florida ordered the Reform Party of the United States of America (RPUSA) to repay $333,558 with calculated interest to the United States Treasury and enjoined the party from diverting any of its assets to any other expenditures other than repayment of federal taxes until it completes its repayment obligation.
The district held that the U.S. Court of Appeals for the DC Circuit is the only venue in which repayment determinations made by the FEC may be challenged. Accordingly, the district court ruled that the Reform Party could not now raise defenses that it failed to properly bring to the DC Circuit. Finding that this case was simply an effort by the FEC to recover funds it had already determined the party owed, the court granted the FEC’s motion for summary judgment and ordered the defendants to repay $333,558 plus interest calculated in accordance with 11 CFR § 9007.2(d)(3). In addition, the court found that the Reform Party to date has failed to repay the funds and thus enjoined the Reform Party from diverting any of its assets to any expenditures other than repayment of federal taxes until it completes its repayment obligation.
Appeals Court Decision
On March 1, 2007, the U.S. Court of Appeals for the 11th Circuit affirmed the district court’s decision requiring the Reform Party of the United States (the Reform Party) to repay $333,558 in public funds to the U.S. Treasury. The court also ruled that all challenges to FEC repayment determinations must occur in the U.S. Court of Appeals for the District of Columbia.
RPUSA appealed the district court decision, arguing that summary judgment was improperly granted because:
- The district court erroneously found it did not have jurisdiction to hear the Reform Party’s defenses and claims against the Commission;
- The Reform Party was denied discovery; and
- The injunction violates the Reform Party’s first amendment right to
The appeals court agreed that the district court lacked jurisdiction to review the repayment obligation because the Act clearly designates the DC Circuit as the forum for judicial review of any certification, determination or other action by the Commission. The appeals court also found no procedural irregularity in the grant of summary judgment because the Reform Party failed to demonstrate how discovery would have assisted it in rebutting the Commission’s showing that there were no genuine issues of fact concerning the final and conclusive repayment determination. Finally, the appeals court did not consider whether the injunction violates the first amendment because the argument was raised for the first time on appeal.
Counterclaim by the Reform Party
The Reform Party renewed its First Amendment argument in a counterclaim filed in the district court. The Reform Party argued that the injunction was an invalid spending restraint on political speech by a political party.
District Court Decision
The district court granted the Commission’s motion to dismiss the Reform Party’s counterclaim. The court held that since the relief requested by the Reform Party—modification of the injunction—can only be provided by the court, not the FEC, the Reform Party failed to state a claim. Additionally, the court lacked subject matter jurisdiction over the Reform Party’s suit, as the plaintiffs did not ask the court to interpret any portion of the Presidential
Election Campaign Fund Act and the United States has not waived its sovereign immunity.
The court analyzed whether the injunction should be modified. The court found that while the injunction involved First Amendment activity by prohibiting the Reform Party from spending its funds to promote political
views or candidates, the injunction is narrowly tailored to address a specific harm and thus permissible.
To alleviate the Reform Party’s concern that it could not spend money to raise money to pay the debt owed to the U.S. Treasury, the court agreed with the Commission’s suggestion to modify the injunction slightly to permit the Reform Party to make expenditures for the purpose of raising funds to meet the repayment obligation.
On May 2, 1986, the U.S. District Court for the Northern District of Illinois approved a consent order between the Commission and the Rhoads for Congress Committee (the Committee), Mark Q. Rhoads' principal campaign committee for his 1982 Illinois House race, and the Committee's treasurer, William E. Naegel. Defendants acknowledged that they had violated section 441a(f) of the election law by accepting excessive contributions from:
- Mary G. Rhoads, the candidate's mother, who made the excessive contributions by personally endorsing and providing security for two loans, portions of which (i.e., $17,000) were accepted by the Committee;1 and
- The Mid-America Conservative Political Action Committee (MAPAC), a nonconnected PAC. (At the time MAPAC made the excessive contributions, its per election limit was $1,000, rather than $5,000, because the PAC had not yet qualified for multicandidate status.)
Defendants agreed to pay a $2,000 civil penalty within 30 days of the court's order.
1 Under the election law and FEC regulations, endorsements and guarantees of loans, including those made by the candidate's family, count as contributions to the extent of the outstanding balance of the loan. 2 U.S.C. §431(a)(A)(i) and 11 CFR 100.7(a)(1)(i)(C).
Source: FEC Record -- June 1986, p. 9.
On March 22, 1989, the U.S. District Court for the District of Columbia issued a final consent order and judgment in FEC v. Bob Richards for President Committee, Washington, D.C. (Civil Action No. 88-2832). The Richards (Washington) committee is a nonauthorized committee affiliated with the Waco, Texas, Bob Richards for President Committee, Mr. Richards' principal campaign committee for his 1984 Presidential campaign.
By the terms of the consent order, the court declared that the Richards (Washington) committee violated the election law and FEC regulations by:
- Failing to file an amended Statement of Organization (FEC Form(1) reflecting its affiliation with the Richards (Texas) committee (2 U.S.C. §433(c));
- Using Mr. Richards' name in its committee name (a nonauthorized committee may not use a candidate's name in its committee name) (2 U.S.C. §432(e)(4));
- Knowingly accepting an excessive contribution in the form of a $60,000 loan from the Populist Party (2 U.S.C. §441a(f));
- Transferring $5,000 to the Richards (Texas) committee from funds derived from excessive (i.e., prohibited) contributions (11 CFR 102.6(a)(1)(iv)); and
- Failing to include an authorization notice in a solicitation letter that expressly advocated Mr. Richards' election (2 U.S.C. §441d(a)).
The consent order required the defendants to:
- File the amended Statement of Organization, reflecting the Richards (Washington) committee's affiliation with the Richards (Texas) committee, with the Commission within 20 days; and
- Pay a civil penalty of $15,000 within 20 days.
The court also permanently enjoined the defendants from future similar violations of the election law.
Source: FEC Record -- May 1989, p. 9.
On June 29, 1989, the U.S. District Court for the District of Columbia granted the FEC's motion for summary judgment in FEC v. Bob Richards for President Committee, Waco, Texas (Civil Action No. 89-0254). The court ordered the defendants to comply fully with the terms of a conciliation agreement entered into with the Commission a year before. Under that agreement, the defendant had admitted to several violations of the Federal Election Campaign Act and had agreed to pay a civil penalty of $12,000 and to file various reports and statements required under the election law.
Source: FEC Record -- September 1989, p. 8.
FEC v. Bob Richards for President Committee, Waco, Texas, No. 89-0245 (D.D.C. June 29, 1989) (memorandum opinion).
On October 28, 1988, the U.S. District Court for the Middle District of Florida granted the FEC's motion for a default judgment in a case that the FEC had reopened against Cesar Rodriguez in June 1988 (Civil Action No. 86-687-CIV-T-10).
In 1994, Mr. Rodriguez was held in contempt for failing to pay a $5,000 penalty imposed by the court.
In its original complaint against Mr. Rodriguez, filed in November 1986, the FEC asked the district court to declare that, during 1980, Cesar Rodriguez had violated §441f of the election law by accepting contributions for the Carter/Mondale Presidential Committee which were made by one person in the names of other persons. Specifically, on behalf of Alan Wolfson, Mr. Rodriguez had solicited contributions to the Carter/Mondale Presidential Committee and had subsequently reimbursed each contributor for his or her contribution.
District Court Action
The Florida district court, on May 5, 1987, denied the Commission's motion for summary judgment. The court held that the defendant had aided and abetted a violation of the first clause of 2 U.S.C. §441f ("No person shall make a contribution in the name of another...") rather than the last clause of §441f, as the Commission had alleged ("No person shall knowingly accept a contribution made by one person in the name of another..."). Based on this finding, the court directed the Commission to address the question of whether the agency "can effectively amend the complaint and go forward with this case, or whether it must begin again under the governing statute at the administrative level."
On May 20, 1987, the FEC notified the court that it had decided to reopen its own administrative proceedings in the case. Based on these proceedings, the Commission subsequently found probable cause to believe that Mr. Rodriguez had violated the election law by assisting in the making of contributions in the name of another. Failing to reach conciliation with the defendant, the Commission on March 15, 1988, again initiated a civil suit against Mr. Rodriguez.
Rather than bringing a new complaint against Mr. Rodriguez for this violation, however, the FEC decided to ask the court to:
- Reopen the file on the FEC's original complaint; and
- Accept an amended complaint reflecting the agency's new findings.
In its October 1988 default judgment, the court decreed that:
- Mr. Rodriguez violated 2 U.S.C. §441f by knowingly assisting in the making of contributions in the name of another.
- Mr. Rodriguez was required to pay, within 15 days of the court's entry of the judgment, a $5,000 civil penalty, together with $22.95, to cover costs incurred by the FEC in the suit.
Finally, the court enjoined Mr. Rodriguez from future, similar violations of the election law.
Four years later, in November 1992, the penalty remained unpaId. At a December 1992 contempt hearing, the FEC and the defendant told the judge that they had reached a tentative settlement under which Mr. Rodriguez was to pay $300 per month while the FEC looked into his financial position. But he later refused to make the payments or to provide information on his finances.
In February 1994, the FEC again requested that the court hold Mr. Rodriguez in contempt. In granting that request on March 31, 1994, the court ordered him to pay the $5,000 penalty, plus interest, and $100 per day until the penalty is repaid. The court also ordered him to reimburse the FEC for its costs in the contempt proceeding.
Source: FEC Record -- August 1988, p. 6; January
1989, p. 10; and June 1994, p. 5.
FEC v. Rodriguez, No. 86-687-CIV-T10 (M.D. Fla. Nov. 12, 1986).
Court Decisions and Related Documents:
- Final Order and Default Judgment (10/28/88)
- FEC's Motion for Default Judgment (10/17/88)
- FEC's Motion to Reopen Case and Amend Complaint (5/9/88)
- Order (5/5/87)
- Defendant's Memorandum and Opposition to Motion for Summary Judgment (11/28/86)
- FEC's Motion for Summary Judgment (11/12/86)
On February 22, 1984, the U.S. District Court for the District of Columbia issued an order granting Congressman Rose's petition to dismiss a suit he had filed against the Commission on June 13, 1983. (Charles E. Rose v. FEC; Civil Action No. 83-1687.) Pursuant to the election law's procedures for obtaining administrative relief, Congressman Rose had asked the court to issue an order directing the FEC to take final action on his administrative complaint within 30 days. (See 2 U.S.C. §437g(a)(8)(A) and (C).)
In his suit, Congressman Rose stated that he had filed an administrative complaint with the FEC alleging that:
- A marketing company had contributed to his opponent in the Democratic primary (in violation of 2 U.S.C.§441b and 11 CFR 114.2).
- The primary opponent had paid for political broadcasting time with a personal check (in violation of 2 U.S.C. §432(h)(1) and 11 CFR 102.10).
- The principal campaign committee of Congressman Rose's primary election opponent had made excessive in-kind contributions to the general election campaign of the Republican candidate opposing Congressman Rose (in violation of 2 U.S.C.§§441a(a)(1)(A) and 441b; and 11 CFR 110.1(a) and 114.2).
- The Congressional Club, which owned the marketing company (cited above), had failed to report the election activities of the company (in violation of 2 U.S.C. §§434(b), 441a and 441b; and 11 CFR 104.3, 110 and 114.2).
After the Commission petitioned the U.S. District Court for the Eastern District of North Carolina to enforce subpoenas issued as part of its investigation into Congressman Rose's complaint, he requested that his suit be dismissed.
Congressman Charles E. Rose repetitioned the U.S. District Court for the District of Columbia to issue an order requiring the FEC to take action on his administrative complaint filed with the FEC in October 1982. On February 22, 1984, Congressman Rose dismissed his first petition because the FEC had filed subpoena enforcement actions with the district court for the Eastern District of North Carolina as part of its investigation into his complaint.
Claiming that the FEC had taken no subsequent action on his complaint, Congressman Rose had filed a second petition with the D.C. district court (Civil Action No. 84-2278).1 Pursuant to 2 U.S.C. §437g(a)(8), he asked the court to:
- Declare that the FEC's continued failure to act on his administrative complaint was contrary to law;
- Issue an expedited order directing the FEC to act on his complaint within 30 days; and
- Retain jurisdiction over his petition in the event the FEC fails to take action on his complaint.
On October 4, 1984, the district court found that the FEC had acted contrary to law by failing to resolve the complaint. However, after reviewing the case on appeal, on October 24, 1984, the appeals court summarily reversed the district court's original decision and remanded the case to the district court for reconsideration.
Upon reconsideration, the district court again granted the plaintiff's motion for summary judgment. On October 31, 1984, the court issued an order stating that the FEC's delay in acting on Congressman Rose's administrative complaint was contrary to law. The court concluded that a variety of factors had unreasonably delayed the conclusion of the investigation into Congressman Rose's administrative complaint and ordered the FEC to conform its conduct to the decision within 30 days of the order. See 2 U.S.C.§437g(a)(8).
On July 24, 1984, the FEC appealed the district court's determination that the agency was liable for these litigation expenses.
Appeal by FEC
On December 2, 1986, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion in FEC v. Congressman Charles E. Rose (Civil Action No. 85-1455), which reversed an earlier decision by the U.S. District Court for the District of Columbia. The appeals court determined that the FEC was not liable for litigation costs and attorney's fees which Congressman Rose incurred in a suit he had brought against the FEC. The appeals court concluded that, under the statute governing such fee awards, the Equal Access to Justice Act, "the district court [had] erred in holding that the FEC's position in the case was not 'substantially justified.'" The appeals court therefore remanded the case to the district court, with orders to dismiss Congressman Rose's application to have the FEC bear his court costs.
Appeals Court Ruling
Initially, the appeals court noted that its determination concerning the FEC's liability for Congressman Rose's litigation costs and attorney's fees should be based on the Equal Access to Justice Act (EAJA), as amended in 1985. Under the 1985 amendments to this statute, a government agency is not liable for litigation costs and attorney's fees if the agency can show "that both its position in the litigation and its conduct that led to the litigation were substantially justified." To determine whether a government agency's actions were "substantially justified," the court may not use the standard used to challenge an agency's action on an administrative complaint (i.e., whether the action was "arbitrary and capricious"). Rather, in applying the EAJA standard, the court "is obliged to reexamine the facts under a different legal standard to determine whether that conduct is slightly more than reasonable."
While the appeals court found that the district court had used the "correct legal standards" in making its determination with regard to the FEC's liability, the appeals court nevertheless concluded that the district court "fell into error in applying those standards." The court concluded that "the FEC's handling of Congressman Rose's administrative complaint was 'substantially justified.' Far from suggesting unjustifiable delay, the record demonstrates prompt and sustained agency attention to Representative Rose's complaint and thorough consideration of the issues it raised."
The court also found that the FEC's litigation position was substantially justified. "The Commission, in truth, had no practical alternative to defending against Congressman Rose's action. It cannot be forgotten that the Congressman was advancing interpretations of the Campaign Act that would have drastically altered the agency's operations. and the arguments are dead wrong."
The appeals court rejected Congressman Rose's argument that the Act required the FEC to act on his administrative complaint within a 120-day time frame. Instead, the court confirmed the FEC's argument that the FEC's handling of the complaint should be judged under the deferential standard of review prescribed in the Administrative Procedures Act.
1 See also National Congressional Club v. FEC.
Source: FEC Record -- August 1983, pp. 9-10; April 1984, p. 10; October 1984, p. 9; December 1984, p. 4; and February 1987, pp. 7-8.
FEC v. Rose, 608 F. Supp. 1 (D.D.C., rev'd, 806 F.2d 1081 (D.C. Cir. 1986).
On January 6, 1986, the U.S. District Court, Northern District of California issued an opinion granting defendants' motion for summary judgment in FEC v. Sailors' Union of the Pacific Political Fund (Civil Action No. 84-7763-WWS). The court ruled that the separate segregated funds of three maritime unions, the Sailors' Union of the Pacific Political Fund, the Maritime Firemen's Union Political Fund and the Seafarers' Political Donation, were not affiliated. Accordingly, the defendant committees were not subject to a single $1,000 limit on contributions they made to California Governor Jerry Brown's 1982 Senate primary campaign. (Affiliated political committees, on the other hand, are subject to a single contribution limit on both contributions they make and receive. 2 U.S.C. §441a(a)(5).)
On September 15, 1987, the Court of Appeals for the Ninth Circuit affirmed the district court's ruling (Civil Action No. 86-1775).
On December 10, 1984, the FEC filed suit against the defendant political committees in the district court. The Commission asked the court to:
- Declare that, by virtue of their affiliation, the committees had violated 2 U.S.C. §441a(a)(2)(A) by, together, contributing more than $5,000 to Governor Brown's primary; and
- Order the three committees to disclose their affiliation by amending their respective statements of organization.
In its suit, the FEC argued that the three committees' respective parent organizations were affiliated on two grounds:
- The parent organizations were parts of the Seafarers' International Union (SIU).
- The parent organizations were subject to SIU's control.
The defendant political committees contended, on the other hand, that the three unions were not controlled by SIU and, further, that the independent histories, structures and management of the unions demonstrated that they did not meet the criteria for affiliation.
District Court Ruling
The district court ruled that the member unions of the Seafarers' Union were an "association of independent unions" and, as such, were not affiliated. Accordingly, the unions' separate segregated funds were not affiliated political committees. The court found that "the [Seafarers] constitution embodies the rules that govern the relationship of these unions and those rules preserve their independence, a fact confirmed by the undisputed evidence of their past conduct." The court said that "other than having the power to collect dues, Seafarers has no power over the affairs of its member unions."
Appeals Court Ruling
The court decided that it would examine the organizational authority of Seafarers in order to determine whether its member unions were affiliated under 2 U.S.C. §441a(a)(5). The court, in making this decision, looked to the legislative history for guidance: "Various comments in the records of both the House and Senate suggest that...Congress intended to aggregate campaign contributions of locals of international unions but did not intend to aggregate contributions of member unions of labor federations."
The court then examined the relationship between the Seafarers' International Union and its member unions to determine whether the degree of control Seafarers exercised over them was closer to the highly intrusive authority of the United Steelworkers of America, the international union which the court had adopted as a model, or the less restrictive authority of a federation of unions, like the AFL-CIO. Acknowledging that Seafarers had powers beyond those of the AFL-CIO (the authority to regulate dues, audit members and appoint financial custodians for members), the court nevertheless judged that "the level of authority exercised over locals by traditional international unions like the Steelworkers far exceeds the level of control that Seafarers may exercise under its constitution." Noting that Seafarers' authority was more like the limited power of the AFL-CIO, the court concluded that two of the member unions were independent of Seafarers and that their separate segregated funds were not, therefore, subject to a common contribution limit.
The court pointed out that one might question the autonomy of the third union and Seafarers because one individual was president of both organizations. However, the court did not have to decide the question because the three member unions involved would still not be subject to a single contribution limit.
Source: FEC Record -- February 1986, p. 3; and November 1987, p. 6.
FEC v. Sailors' Union of the Pacific Political Fund, 624 F. Supp. 492 (N.D. Cal. 1986), aff'd, 828 F.2d 502 (9th Cir. 1987).
On February 26, 1999, the FEC appealed this case to the U.S. Court of Appeals for the Seventh Circuit. The U.S. District Court for the Northern District of Illinois, Eastern Division, had dismissed this case on the grounds that it was identical to a case the Commission had previously filed in the court. That first case (98-1321) was dismissed on technical grounds. In both suits, the FEC asked the court to find that the Al Salvi for Senate Committee misreported or failed to report more than $1.1 million in contributions and loans during the 1996 election cycle.
More specifically, the Commission alleged that the Committee:
- Reported bank loans to Mr. Salvi as personal loans from the candidate, never identifying the source of the funds;
- Failed to report debts to the candidate;
- Failed to file 48-hour notices for personal advances from the candidate; and
- Failed to disclose campaign-related payments by the candidate to vendors and a bank.
In addition to asking the court to find that the Committee violated federal election law, the FEC asked the court to assess a civil penalty against the Committee and its treasurer and to enjoin them from committing further violation of the Federal Election Campaign Act.
Appeals Court Decision
On March 8, 2000, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court order dismissing a civil enforcement action the FEC had brought against the Al Salvi for Senate Committee and its treasurer.
On June 8, 1984, the U.S. District Court for the Northern District of Illinois entered a default judgment against Gus Savage for Congress '82, the principal campaign committee of Congressman Gus Savage (D-IL), and Thomas J. Savage, the campaign's treasurer. The Savage campaign had failed to answer the FEC's suit against the campaign (FEC v. Gus Savage for Congress '82 Committee; Civil Action No. 84-C1076; January 6, 1984).
Pursuant to the FEC's petition for a declaratory judgment, the court ordered the Savage campaign to file, within 30 days, the following reports required by the election law:
- The July and October quarterly reports, the pre- and post-general election reports and the year-end report required during the 1982 election year (see 2 U.S.C. §434(a)(2)(A)(i)-(ii); and
- The mid-year report required during the 1983 nonelection year (see U.S.C. §434(a)(2)(B)(i)).
The court further ordered the Savage campaign to file all reports due in the future and assessed a $5,000 civil penalty against the campaign.
Denial of Contempt Petition
On April 12, 1985, the U.S. District Court, Northern District of Illinois, Eastern Division, denied the Commission's petition to hold in civil and criminal contempt Gus Savage for Congress '82 (the Committee), the principal campaign committee for Congressman Gus Savage's 1982 reelection campaign, and Thomas Savage, the Committee's treasurer. The court found that, after the Commission's filing of the contempt petition, the Committee had brought itself into compliance with a default judgment entered against it on June 8, 1984. The Committee had filed the reports required by the default judgment and had established a satisfactory schedule for repaying the $5,000 civil penalty imposed by the default judgment.
Source: FEC Record -- July 1984, p. 7; and June 1985, p. 3.
FEC v. Gus Savage for Congress '82 Committee, 606 F. Supp. 541, (D. Ill. 1985).
These suits arose from an FEC enforcement proceeding against Friends of Schaefer and J. Michael Schaefer, as treasurer. Mr. Schaefer was a 1986 Senatorial candidate in Maryland. The agency filed suit against the respondents on May 15, 1991.
Penalty Claims Against Schaefer
On April 19, 1991 (after the FEC had notified him of its intention to file suit), Mr. Schaefer filed an adversary proceeding against the FEC in the U.S. Bankruptcy Court for the Southern District of California, where he had filed for bankruptcy. In Schaefer v. FEC (No. 91-9024), he argued that the FEC had failed to file a proof of claim with the court and therefore could not make a claim against him with respect to the payment of any civil penalty that might result from the agency's enforcement efforts.
The FEC asked the court to dismiss Mr. Schaefer's adversary proceeding or, alternatively, to refer the matter to the federal district court, which was the proper forum to litigate campaign finance issues. On July 2, 1991, the bankruptcy court denied the FEC's motion to dismiss and also denied the alternative motion, stating that it should be brought before the district court. The FEC then asked the U.S. District Court for the Southern District of California to take jurisdiction over this issue. (FEC v. Friends of Schaefer, No. 91-0650, was then pending in that court.)
The district court consolidated the two cases. On November 25, 1991, the court held that, because a civil penalty is a nondischargeable debt, the FEC could enforce a civil penalty against Mr. Schaefer, regardless of the agency's failure to file a claim in bankruptcy court. (Judgment was entered April 3, 1992.)
On May 16, 1991, claiming that the Bankruptcy Code barred the FEC from filing suit against him, Mr. Schaefer moved that the bankruptcy court hold FEC Chairman John Warren McGarry in contempt of court and incarcerate him until the FEC's district court case was dismissed. The FEC opposed the motion, arguing that the provision cited by Mr. Schaefer did not apply to a government agency enforcing its regulatory power. The bankruptcy court agreed with the FEC and, on October 28, 1991, ordered Mr. Schaefer to pay the FEC $750 in sanctions for filing a frivolous motion.
On April 7, 1992, the district court entered a final judgment in FEC v. Friends of Schaefer and ordered defendant Schaefer to pay a $3,000 civil penalty.
The court found that Mr. Schaefer and his committee had violated the Federal Election Campaign Act by:
- Failing to file a Statement of Candidacy and Statement of Organization on time;
- Accepting an excessive contribution (Mr. Schaefer received a $30,000 loan from an individual, deposited the money in his personal account and then loaned the money to his committee);
- Failing to continuously report the loan until it was extinguished;
- Knowingly accepting a $28,000 loan from a corporation (Mr. Schaefer obtained a $28,000 margin loan drawn on his account with Charles Schwab & Co. and then loaned the funds to his committee); and
- Failing to file three reports on time (they were filed between two months and over one year late).
Based upon Mr. Schaefer's continuing refusal to remedy several of the violations, the court enjoined him from committing similar violations for one year, unless the FEC demonstrates that an extension is necessary.
Source: FEC Record -- June 1992, p. 6.
On March 12, 2002, the U.S. District Court for the Eastern District of Pennsylvania granted the Commission's request for declaratory and injunctive relief against Koro Aviation, Inc. (Koro). Pursuant to a stipulation between the Commission and Koro, the court held that Koro violated 2 U.S.C. §441b(a) by making in-kind corporate contributions to Arlen Specter '96 in the form of air travel services charged at less than the usual and normal rate. The court permanently enjoined Koro from violating 2 U.S.C. §441b(a) by providing goods or services to any federal candidate at less than the usual and normal charge. The court also ordered Koro to pay a $25,000 civil penalty.
On June 22, 2000, the Commission asked the court to find that Arlen Specter '96, Senator Specter's Presidential campaign committee, and Paul S. Diamond, as treasurer, accepted unlawful in-kind contributions from Koro. The Commission argued that since Koro was an FAA-licensed commercial charter service carrier, Specter '96 should have paid the "usual and normal" rate for the air travel provided by Koro, rather than the first-class fare actually paid by Specter '96. Under Commission regulations, a campaign committee must pay the charter fare for travel on an FAA-licensed commercial charter carrier. 11 CFR. 114.9(e). 1
The order entered by the court stated that the first-class fares that Specter '96 paid for air travel were less than the charter fares charged to other Koro customers based on Koro's published hourly rate, and, as a result, Koro made an in-kind contribution to Specter '96 in violation of 2 U.S.C. §441b(a). Both the Commission and Koro stipulated to the entry of the court's judgment, and Koro waived all rights of appeal. Koro was ordered to pay the civil penalty within 10 days of the entry of the court's order and judgment.
1 The difference between the usual and normal cost of a service and the amount paid by a candidate or committee represents an in-kind contribution. 11 CFR. 100.7(a)(1)(iii)(A). The Commission argued that Specter '96's payment of the first-class fare rather than the charter rate resulted in an unlawful in-kind corporate contribution from Koro in the amount of $233,768.
On January 28, 1991, the U.S. District Court for the District of Maryland issued a consent order and judgment in which the FEC and Harry Speelman agreed that defendant Speelman exceeded the contribution limits of the Federal Election Campaign Act by making a total of $11,470 in contributions to American Citizens for Political Action during 1987. These contributions exceeded the $5,000 per year limit under 2 U.S.C. §441a(a)(1)(C). The court permanently enjoined Mr. Speelman from future similar violations of the Act. Because of extenuating circumstances that came to the agency's attention after it had filed this suit, the Commission agreed to drop its request for a civil penalty and court costs. (Civil Action No. 90-2190.)
Source: FEC Record -- March 1991, p. 10.
In a January 12, 1994, decision, the U.S. District Court for the Southern District of New York ruled that communications paid for by Survival Education Fund, Inc. (SEF) and National Mobilization for Survival, Inc. (NMS) did not violate the prohibition on corporate expenditures or the disclaimer requirements.
The U.S. Court of Appeals for the Second Circuit, on September 12, 1995, affirmed that the two nonprofit corporations did not violate the corporate prohibition but reversed the district court's ruling on the disclaimer violation.
On September 3, 1996, the district court issued a consent order imposing a $2,000 penalty against the SEF for failing to comply with the disclaimer rules of 2 U.S.C. §441d(a)(3). The parties agreed to the district court's imposition of the $2,000 penalty and dismissal of the case.
The defendant corporations paid $16,500 to distribute about 30,000 copies of two letters critical of President Reagan, who was up for reelection. The first letter, mailed in July 1984-four months before the Presidential general election-asked readers to complete and return a "special election-year ANTI-WAR BALLOT" seeking "your No vote for President Reagan" on several policies pursued by his administration. The ballots, which were to be forwarded to the President, ended with the statement: "My vote in the November election will be influenced by your response to these demands." The second letter, a "1984 election survey," was headed "Ronald Reagan: Four More Years?" and asked readers to express their views on predictions that a second Reagan term would bring arms escalation, war in Central America and "life-threatening cuts in human services." The letter said that the survey results would be used "to educate Americans who will be voting."
District Court Decision
In ruling that SEF did not violate the prohibition on corporate expenditures (2 U.S.C. §441b(a)), the district court relied on Supreme Court cases that interpreted §441b as applying only to communications that expressly advocate the election or defeat of a candidate in words such as "vote for," "elect," "support," "cast your ballot," "Smith for Congress," "vote against," "defeat," and "reject." 1
Based on those rulings, the district court concluded that "[b]oth letters fell short of expressly advocating how the readers should vote." The court commented: "Obviously, the courts are not giving a broad reading of this statute." In the court's view, "...expressions of hostility to the positions of an official, implying that official should not be reelected-even when that implication is quite clear-do not constitute express advocacy which runs afoul of the statute."
Appeals Court Decision
The appeals court declined to address the express advocacy question and instead used different grounds to affirm the district court's decision that defendants' letter did not violate §441b. The appeals court accepted SEF's argument that SEF was within the class of nonprofit advocacy corporations whose independent campaign advocacy the Supreme Court has found to be exempt from the prohibition in §441b(a) because of the First Amendment. The appeals court relied on the Supreme Court's ruling in FEC v. Massachusetts Citizens for Life (MCFL) to support this idea. In that case, the Supreme Court concluded that the prohibition on corporate expenditures could not be applied to independent political communications made by certain nonprofit groups. The Court determined that MCFL, a nonprofit corporation formed for antiabortion advocacy, had three characteristics that made it "more akin to voluntary political associations than business firms." MCFL, 479 U.S. at 251. The Court ruled that a corporation was allowed to make independent expenditures if:
- Its purpose was promoting political activities as opposed to amassing capital;
- It lacked shareholders or other persons having a claim on its assets or earnings; and
- It was not formed by a labor or corporate organization and had a policy of refusing contributions from such entities.
The appeals court rejected FEC arguments that SEF did not qualify under these terms because, unlike MCFL, it did not have an express policy against accepting contributions from corporations or labor unions, and had in fact accepted corporate contributions. The court maintained that the core concerns of MFCL are the amount of for-profit corporate funding a nonprofit receives, rather than the establishment of a policy not to accept corporate contributions. Day v. Holahan, 34 f.3d 1356 (8th Cir. 1994), cert. denied, 115 S. Ct. 936 (1995). The court determined that the evidence did not show that SEF received a significant amount of corporate contributions.
With regard to the disclaimer issue, the appeals court reversed the district court ruling and upheld the FEC's arguments that SEF and NMS violated §441d(a)(3) in the July 1984 mailing. The court found that even if the communication itself did not expressly advocate the defeat of a candidate (Mr. Reagan), it was a solicitation for funds that "would be used to advocate President Reagan's defeat at the polls, not simply to criticize his policies during the election year." The letter read: "your special election-year contribution today will help us communicate your views to hundreds of thousands of members of the voting public (emphasis added), letting them know why Ronald Reagan and his anti-people policies must be stopped."
Section 441d(a)(3) requires disclaimers in political communications that either expressly advocate election or defeat of a clearly identified candidate, or solicit contributions. The appeals court only addressed the second category in this case and concluded that requiring disclosure of the identity of a group that is soliciting a contribution does not run afoul of the First Amendment.
The court concluded that §441d(a)(3) serves several compelling interests that justify any infringement on SEF's First Amendment rights. The government has an interest, the court reasoned, in ensuring that contributors know whether they are donating their money directly to a candidate or, instead, to independent critics of another candidate. Further, disclosure of the identity of the sponsor of a solicitation helps private contributors determine whether a new contribution would cause them to exceed their aggregate contribution limit for that group.
Thus, the application of §441d(a)(3) to SEF and NMS does not conflict with the Supreme Court's recent decision in McIntyre v. Ohio Elections Commission. In that case, the Supreme Court ruled unconstitutional a state law banning the distribution of anonymous campaign literature. The Supreme Court determined that Ohio "had not shown that its interest in preventing the misuse of anonymous election-related speech justified a prohibition of all uses of that speech."
1 FEC v. Massachusetts Citizens for Life, Inc., 479 U.S. 238, 248-248 (1986); Buckley v. Valeo, 424 U.S. 1, 44 n. 52 (1976).
Source: FEC Record -- March 1994, p. 1; December 1995, p. 4; and November 1996.
FEC v. Survival Education Fund, Inc., No. 89 Civ. 0347 (TPG) (S.D.N.Y. Feb. 25, 1992); 1994 WL 9658 (S.D.N.Y. Jan. 12, 1994); 65 F.3d 285 (2d Cir. 1995).