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On March 15, 1983, the U.S. District Court for the District of Columbia granted Satellite Business Systems' (SBS's) motion to dismiss, without prejudice, its suit against the FEC.
In its suit, filed in October 1982, SBS had claimed that the FEC had misconstrued section 441b(a) of the Act in an advisory opinion issued to SBS in March 1982. In that opinion (AO 1981-56), the Commission had stated that the Act barred SBS (a partnership of three corporations) from either establishing a separate segregated fund or making direct contributions for federal elections. SBS had asked the court to declare that:
- The Commission's decision in AO 1981-56 was erroneous and that SBS should have been allowed to participate in federal elections; and
- Section 441b(a), as construed by the Commission in AO 1981-56, had violated SBS's First and Fifth Amendment rights.
SBS and four of its managerial personnel filed the motion to dismiss on March 4, 1983, stating that SBS was "not now in a position to commit the additional personnel and financial resources that it currently appears would be necessary to litigate..." the suit. In asking the court to dismiss its suit without prejudice, SBS argued that the FEC would not "suffer plain legal prejudice other than the mere prospect of a second lawsuit."
Source: FEC Record -- May 1983, p. 6.
Pursuant to 2 U.S.C. §437g(a)(8)(A), Mr. Richard Segerblom asked the court to declare that the FEC acted contrary to law by failing to act on his administrative complaint within 120 days after he filed it.1 The complaint concerned potential violations of the election law by James Santini and the Santini for Senate Committee (the Committee), Mr. Santini's principal campaign committee for his 1982 Senate bid.
In the complaint, Mr. Segerblom claimed that the respondents had used contributions for Mr. Santini's general election campaign to pay expenses of his primary campaign. Mr. Segerblom further alleged that the Committee had fraudulently reported: (1) refunds of these general election contributions and (2) a zero balance for both the primary and general election accounts of the Committee.
Mr. Segerblom therefore asked the court to order the FEC to:
- Complete an investigation of these alleged violations within 30 days; and
- Issue certain discovery requests attached to the complaint.
(U.S. District Court for the District of Columbia, Civil Action No. 86-2843, October 16, 1986.)
On December 15, 1986, an order of dismissal was filed by Mr. Segerblom and on the next day the case was dismissed.
Source: FEC Record -- December 1986, p. 5.
On July 8, 2002, Michael Schaefer, a 2002 Congressional primary candidate in Arizona , asked the U.S. District Court for the District of Arizona to find unconstitutional the Federal Election Campaign Act's (the Act):
- Definition of "contribution;"
- Limits on individual contributions; and
- Prohibition on corporate contributions.
Mr. Schaefer alleges that these provisions of the Act favor incumbent candidates and violate Article I of the Constitution and the First and Tenth amendments.
Under the Act, a contribution includes "any gift, subscription, loan, advance, or deposit of money or anything of value made by any person for the purpose of influencing any election for Federal office." 2 U.S.C. §431(8)(A)(i). A bank loan made in the ordinary course of business is not a contribution. However, the endorsement or guarantee of a loan is considered a contribution in the amount that each endorser or guarantor is liable. 2 U.S.C. §§431(8)(B)(vii) and 431(8)(B)(vii)(I). The Act limits contributions from individuals to candidates to $1,000 per election and prohibits corporations from making any contribution or expenditure to influence a federal election. 2 U.S.C. §§441a(a)(1) and 441b.
Mr. Schaefer claims that he is unable to obtain a sufficient loan for his campaign because the endorsement or guarantee of the loan would be considered a contribution from each individual endorser or guarantor and thus subject to the Act's contribution limits. Moreover, his family's corporation cannot endorse or guarantee the loan because of the ban on corporate contributions. In his complaint, Mr. Schaefer alleges that these provisions of the Act "appear to be protection of the incumbents, by the incumbents and for the incumbents," because, he asserts, incumbent candidates have greater access to funds from other sources, such as political action committees and party committees.
Mr. Schaefer asks the court for declaratory judgment that:
- He has the right to finance his campaign with personal or borrowed funds from any source; and
- A guarantor of a loan is not a contributor in a case where there is no evidence that the loan is intended to be forgiven rather than repaid.
Source: FEC Record -- September 2002 [PDF].
On August 20, 2008, Congressional
Candidate Jan Schneider
(FL/13) filed a complaint pursuant
to 2 U.S.C. §437g(a)(8) in the U.S.
District Court for the District of Columbia
alleging that the Commission
had failed to act on an administrative
complaint she filed against her
general election opponent.
According to the court complaint,
Ms. Schneider filed an administrative
complaint with the FEC on March 17, 2008, alleging that her opponent, Christine Jennings (FL/13), and her political committees violated the Federal Election Campaign Act (the Act) during the 2004, 2006 and 2008 election cycles. The administrative complaint alleged that Ms. Jennings and her political committees withheld payroll taxes from campaign employees and
then appropriated those funds for campaign purposes. Ms. Schneider
alleged that these funds constitute excessive contributions from employees to the campaign. The complaint also alleged the committees violated reporting requirements by failing to disclose tax payments accurately and in a timely manner. The complaint further alleged the violations caused "irreparable harm" to Ms. Schneider, who ran against Ms. Jennings in the 2004 and 2006 primary elections and is currently running against her in the 2008 general election.
The Act provides that the Commission
has 120 days from receipt of
an administrative complaint before
a complainant can file suit against
the Commission alleging a failure to
act, and 30 days to comply with any
subsequent court declaration that the Commission has unlawfully failed to
act. The Commission had only two members for several months during 2008 and did not have the four affirmative votes required to take certain actions in handling an administrative complaint.
Ms. Schneider asked the court to declare that the Commission’s alleged failure to act on the administrative complaint is contrary to law; direct the FEC to rule on the merits of the complaint within thirty days; and take such further or different actions as the court may deem just and proper.
Source: FEC Record -- October 2008 [PDF].
On October 21, the U.S. Court of Appeals for the D.C. Circuit declined to rehear en banc the Commission’s appeal of an earlier D.C. Circuit decision in Shays v. FEC that upheld a district court remand of several of the Commission’s regulations.
The BCRA required the Commission to promulgate rules implementing its soft-money provisions within 90 days of the BCRA's enactment, and to promulgate rules implementing other BCRA provisions within 270 days. President Bush signed the BCRA into law on March 27, 2002, and the Commission completed its rulemaking process within the required timeframes.
On October 8, 2002, Representatives Christopher Shays and Martin Meehan filed a complaint in the U.S. District Court for the District of Columbia challenging Commission regulations that implement the "soft money" provisions of the Bipartisan Campaign Reform Act of 2002 (BCRA).
The complaint charged that the FEC regulations "contravene the language" of the BCRA and "will frustrate the purpose and intent of the BCRA by allowing soft money to continue to flow into federal elections and into the federal political process." The plaintiffs asked that the court invalidate the FEC regulations on the grounds that they are:
- Arbitrary and capricious;
- An abuse of discretion;
- In excess of the FEC's statutory jurisdiction or authority; and
- Otherwise not in accordance with law.
On May 20, 2002, the FEC published for public comment draft regulations implementing Title I of the BCRA, which contains the statutory ban on soft money. The final rules were published in the July 29, 2002, Federal Register (67 FR 49064). The plaintiffs alleged that these rules contain amendments that were not made available for public comment and that "undermined the letter and [the] purpose of the BCRA." The plaintiffs contended that these regulations contravene the BCRA's soft money ban in each of the three areas that, according to the complaint, Congress legislated to address:
- The activities of the national parties;
- The activities of the state parties; and
- The activities of federal candidates and officeholders.
"Sham Party Entities"
The BCRA prohibits national party committees and any entity "directly or indirectly established, financed, maintained or controlled" by a national party committee from raising or spending soft money. 2 U.S.C. §323(a)(1) and (2). The plaintiffs charged that "without any basis" the Commission created a "grandfather" provision in its regulations. According to the plaintiffs, the "grandfather" or "safe harbor" provision in the regulations will take into account the relationship between the party committee and other entities only after November 6, 2002. The plaintiffs claimed that this provision will permit the creation of "sham party entities" that can raise and spend soft money after the effective date of the BCRA, notwithstanding their establishment by, and affiliation with, the national party committee prior to that date.
Definitions of "Solicit and Direct" and "State Party" Fundraisers
The BCRA prohibits federal candidates and officeholders from soliciting, directing or receiving soft money. 2 U.S.C.§323(a) and (e). According to the complaint, Commission regulations narrow the definitions for the terms "solicit" and "direct" to mean "ask." 11 CFR 300.2(m). These definitions, the plaintiffs alleged, will permit federal candidates and officeholders, as well as the national party officials, to continue to solicit and direct soft money as long as they do not explicitly "ask" for soft money contributions. The plaintiffs further contended that the FEC regulations allow federal candidates and officeholders to explicitly solicit and direct soft money at state fundraising events "without regulation or restriction," contrary to the intent of the BCRA. 11 CFR 300.64.
Definition of Agent
The BCRA prohibits any "agent" acting on behalf of a national party committee or federal candidate or officeholder from raising or spending soft money. The complaint described FEC regulations as limiting the definition of "agent" to those who have "actual" authority to act on behalf of the party, and excluding those who have "apparent" authority. 11 CFR 300.2(b). The plaintiffs argued that the regulation creates the opportunity to circumvent the BCRA by allowing national or state party agents, or agents of a federal candidate or officeholder, with apparent authority to engage in activities that are otherwise prohibited under BCRA.
The BCRA prohibits any entity "directly or indirectly" controlled by a federal candidate or officeholder from raising or spending soft money. The plaintiffs claimed that this prohibition was intended to prohibit "Leadership PACs" from raising and spending soft money. According to the complaint, the FEC has adopted regulations, contrary to the intent of the law, that allow Leadership PACs established and controlled by federal officeholders to continue raising and spending soft money. 11 CFR 300.2(c)(2).
Definition of "Federal Election Activity"
Under the BCRA, state parties are prohibited from using soft money for "federal election activities." The plaintiffs argued that FEC regulations constrict the definition of "federal election activity" to allow the continued spending of soft money. The complaint contended that the FEC departed significantly from its past regulatory definitions of "get-out-the-vote activity," "voter identification," "generic campaign activity," "voter registration" and other key terms to allow activities that influence federal elections to be paid for with soft money.
The plaintiffs additionally alleged, among other things, that FEC regulations:
- Allow the solicitation costs for raising so-called "Levin funds" to be paid with those funds, while the BCRA stipulates that those costs must be paid with federal funds;
- Extend the use of state party building funds to office equipment and furniture, while the BCRA meant to limit the use of such funds to the purchase or construction of an office building; and
- Improperly define "state," "district" or "local" party committees by requiring that such committees be part of "the official party structure." 11 CFR 100.14.
The plaintiffs asked the court to declare the referenced soft money regulations contrary to law, arbitrary and capricious and otherwise unlawful, and to enjoin the Commission from enforcing them.
District Court Decision
The standard for judicial review in a case such as this, where one party alleges that an agency's actions are contrary to the statute, is called Chevron review, after the Supreme Court's decision in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984). In Chevron review, the court asks first whether Congress has spoken to the precise issue at hand. If so, then the agency's interpretation of the statute must implement Congress's unambiguous intent. If, however, Congress has not spoken explicitly to the question at hand, the court must consider whether the agency's rules are based on a permissible reading of the statute.
In this case, the plaintiffs also claimed that in some instances the FEC failed to engage in a reasoned analysis when it promulgated the regulations, or failed to follow proper procedures regarding public notice and comment. Under the Administrative Procedure Act, regulations that are promulgated without a reasoned analysis may be found "arbitrary and capricious" and may be set aside by a reviewing court. 5 U.S.C. §706(2)(A).
The court found that the challenged portions of four regulations passed Chevron review and were consistent with requirements of the Administrative Procedure Act:
- The safe harbor at 11 CFR 300.2(c)(3) that provides that an entity will not be considered to be directly or indirectly established, maintained or controlled by another entity based solely on activities that occurred before November 6, 2002;
- The rules at 11 CFR 300.32(a)(4) providing for the payment of Levin fund fundraising costs;
- The rules at 11 CFR 300.30(c)(3), which describe permissible accounting procedures for keeping nonfederal and Levin funds in a single account; and
- The definition of "State committee," "district committee" and "local committee" at 11 CFR 100.14.
The court, however, found that portions of other challenged regulations either failed to pass Chevron review or violated the Administrative Procedure Act. These included:
- The coordinated communications content test regulations at 11 CFR 109.21(c), including the provision excluding Internet communications from the coordinated communication rules at 11 CFR 109.21(c)(iv);
- The definition of "agent" under the coordination rules at 11 CFR 109.3 and the nonfederal funds rules at 11 CFR 300.2(b);
- The definitions of "solicit" and "direct" at 11 CFR 300.2(m) and 300.2(n);
- The safe harbor for federal candidates' and officeholders' activities at state party fundraisers at 11 CFR 300.64(b);
- The definitions (for the purposes of defining "federal election activity") of voter registration activity, get-out-the-vote activity, voter identification and generic campaign activity at 11 CFR 100.24(a)(2)-(a)(4) and 100.25;
- The requirements for paying the salaries and wages of state party committee employees who spend less than 25 percent of their compensated time on activities in connection with a federal election (11 CFR 300.33(c)(2);
- The exemption allowing certain federal election activity expenses that are under $5,000 in the aggregate to be paid entirely with Levin funds (11 CFR 300.32(c)(4);
- The exemption for section 501(c)(3) organizations from the electioneering communications rules at 11 CFR 100.29(c)(6); and
- The requirement at 11 CFR 100.29(b)(3)(i) that electioneering communications must be distributed for a fee.
The court denied the plaintiffs' request to enjoin the Commission from enforcing these regulations and to require the Commission to commence proceedings to promulgate new regulations within 15 days of the court's decision. Instead, the court remanded the case to the Commission for further action consistent with the court's opinion.
Appeals Court Decision
On July 15, 2005, the U.S. Court of Appeals for the District of Columbia upheld the appealed portion of the U.S. District Court for the District of Columbia’s September 18, 2004, decision invalidating several Commission regulations. The district court had upheld four of the regulations challenged in this case, but found that other regulations implementing provisions of the Bipartisan Campaign Reform Act of 2002 (BCRA) either were inconsistent with Congress’s intent in enacting the BCRA or violated the Administrative Procedure Act’s rules for promulgating regulations. The Commission subsequently appealed the district court’s decision concerning five of the invalidated regulations.1
Under the Commission’s regulations, a communication is considered a coordinated communication if it meets a three-pronged test regarding who paid for the communication, the communication’s content and whether the payer’s interaction with a candidate or party satisfies specified conduct standards. At issue here was the element of the conduct prong stating that a communication made within 120 days of a primary or general election and directed to the relevant electorate may be a coordinated communication if it refers to a political party or clearly identified federal candidate. Before the 120-day mark, the rule covers only communications that republish official campaign materials or contain express advocacy.
The plaintiffs argued in their complaint that the 120-day window offers a safe harbor for communications made outside of this window, which is not authorized by the statute. The district court found that, while Congress had not spoken directly to content restrictions, the regulation undercut the Federal Election Campaign Act’s statutory purpose, and, thus, did not pass the second step of Chevron review.
The appeals court disagreed in part with the district court and found that a standard based on content, time and place could be permissible. Nevertheless, the appeals court affirmed the district court’s decision to invalidate the regulation, finding that the rule was arbitrary and capricious under the APA. The appeals court found that the Commission offered no persuasive justification when it promulgated the rule for why 120 days is an appropriate time period for the content standard.
“Solicit” and “Direct”
During its rulemaking process, the Commission defined “solicit” and “direct” to mean “ask.” The district court found that these regulations failed the second step of Chevron analysis because interpreting these terms to cover only direct requests created a potential for abuse that would defy Congress’s purpose in the BCRA.
However, the appeals court found that these regulations failed the first stage of Chevron review. According to the appeals court, Congress “has clearly spoken to this issue and enacted a prohibition broader than the one the FEC adopted. In context, BCRA’s terms ‘solicit’ and ‘direct’ cover indirect requests.” The appeals court therefore upheld the district court’s invalidating the regulations.
An electioneering communication is defined in the BCRA as “any broadcast, cable or satellite communication” that (1) refers to a clearly identified federal candidate, (2) “is made within” 60 days before a general or 30 days before a primary election and (3) is “targeted to the relevant electorate.” 2 U.S.C. §434(f)(3). The appeals court agreed with the district court’s finding that the FEC violated the intent of Congress by adding a provision in its regulations that a communication must be made “for a fee” in order to be considered an electioneering communication--thus exempting unpaid broadcasts such as public service announcements. According to the court, the Commission added a fourth qualification to the definition of electioneering communication that was not authorized by the statute. As a result, the regulation failed the first step of Chevron review.2 The appeals court affirmed the district court’s invalidation of the regulation.
Federal election activity (FEA) is a new concept under the BCRA that identifies activities that state and local party organizations must finance with federal funds. One category of FEA includes the salaries of state and local party employees devoting more than 25 percent of their paid time in any month to activities related to federal elections or FEA. Once an employee’s work in a month crosses this 25 percent threshold, the employee’s entire salary for that month must be paid exclusively with federally permissible funds. The plaintiffs took issue with the fact that the regulations eliminated any allocation requirement for salaries of employees devoting 25 percent or less of their time to federal activities, thus freeing state and local party committees to pay those salaries entirely with nonfederal funds.
The district court invalidated this regulation, finding that it did not pass the second step of Chevron review. The district court found that, because state party committees could avoid paying any salaries with federal funds by dividing the federal election workload among multiple employees working 25 percent of their time on federal activities, the exclusive use of nonfederal funds to pay for salaries and wages compromised the purposes of the BCRA.
The appeals court, in contrast, found that the regulation was arbitrary and capricious under APA requirements because the Commission did not provide a reasoned justification for not requiring allocation of these salaries. The appeals court therefore affirmed the district court’s invalidation of the regulation.
The final district court finding appealed by the Commission involved the “Levin Amendment,” which allows state and local party committees to finance certain types of FEA (generic party campaigning, get-out-the-vote activity and voter identification and registration drives) with monies called Levin funds that are subject to fewer controls than federal funds. Generally, party committees must allocate these FEA costs between Levin funds and federal funds, or use entirely federal funds. A regulatory exception, however, provides that committees need not allocate if they spend no more than $5,000 total on allocable expenditures, an amount the Commission considers to be de minimis. The appeals court found that the Commission presented no justification for this exemption. Accordingly, the district court’s invalidation was affirmed because the regulations fell short of APA standards.
Petition for Rehearing
On August 29, 2005, the Commission filed with the U.S. Court of Appeals for the District of Columbia Circuit a petition for rehearing en banc of the court’s July 15, 2005, ruling in this case. In that ruling, a three-judge panel of the appeals court affirmed the appealed portions of the district court’s decision invalidating several Commission regulations that implement provisions of the Bipartisan Campaign Reform Act of 2002 (BCRA).
In its petition for rehearing, the Commission argues that consideration by the full appeals court is necessary because the decision by the three-judge panel with respect to whether Representatives Christopher Shays and Martin Meehan have standing to bring this suit conflicts with the Supreme Court’s findings in McConnell v. FEC and with the DC Circuit’s own decisions in prior cases.
The Commission also argues that rehearing is warranted because the three-judge panel’s decision involves exceptionally important issues. First, the appeals court decision regarding standing effectively allows any candidate to challenge nearly all Commission regulations without demonstrating any personal harm from a particular regulation. This interpretation of the court’s standing requirements creates “uncertainty and instability in the law affecting constitutionally protected advocacy during the relatively short congressional election cycles.” Second, the decision failed to give the required deference to the Commission’s “exercise of its judgment in balancing the conflicting policies and First Amendment interests underlying this complex statute.” The Commission thus requests that the court grant its petition for rehearing.
Petition for Rehearing En Banc Denied
On October 21, 2005, the U.S. Court of Appeals for the D.C. Circuit declined to rehear en banc the Commission’s appeal of an earlier D.C. Circuit decision in Shays v. FEC that upheld a district court remand of several of the Commission’s regulations. (See the September 2005 Record [PDF]). In response, the Commission has announced that it is moving forward aggressively to complete action on the affected regulations.
At the Commission’s November 3, 2005, open meeting, FEC Chairman Scott Thomas and Vice-Chairman Michael Toner said the agency is committed to completing action on all of the affected regulations by the end of February 2006. To accomplish that task, the Commission has scheduled two additional open meetings before the end of this year, and expects to meet frequently during January and February.
The Commission began work on the affected regulations shortly after the district court’s decision in September 2004. Chairman Thomas noted: “We, in fact, already have accomplished a good deal of the work needed on the 15 regulation topics at issue. The Commission has held hearings on proposals for modifying 12 of the regulations, which has moved us to the final stage of the process for those rulemakings. We appreciate the numerous written comments and oral testimony, all of which we are carefully evaluating in reaching decisions on final rules and developing the detailed written explanations required by law.”
2 The district court also invalidated other parts of the electioneering communications regulations. However, the “for a fee” provision was the only aspect of the district court’s ruling on this regulation that the Commission appealed.
On August 30, 2007, the U.S. District Court for the District of Columbia granted the Commission’s motion for summary judgment in Shays, et al., v. FEC. Congressman Christopher Shays and former Congressman Martin Meehan filed suit against the FEC asking the court to compel the Commission to issue new regulations requiring, with some exceptions, that groups registered with the Internal Revenue Service as political organizations under section 527 also register with the FEC as federal political committees.
In March 2006, the court had remanded the matter to the FEC to institute a rulemaking or to explain further its rationale for regulating so-called “527” organizations on a case-by-case basis rather than through a rule specific to those organizations. In response, the FEC issue a Supplemental Explanation and Justification of its rulemaking. The court found this revised explanation to be sufficient under the Administrative Procedure Act (APA).
Definition of "political committee"
Under the Federal Election Campaign Act (the Act), a political committee must register with the FEC and follow the limits, prohibitions and reporting requirements of the federal campaign finance laws. The Act defines a “political committee” as “any committee, club, association, or other group of persons which receives contributions aggregating in excess of $1,000 during a calendar year or which makes expenditures aggregating in excess of $1,000 during a calendar year.” 2 U.S.C. §431(4). see also 11 CFR 100.5(a). Political committees must register and report with the FEC and are limited in the sources and amounts of contributions they may make and receive. 2 U.S.C. §§433, 434, 441a(a)(1)-(2), 441b(a) and 441f.
The Supreme Court has additionally construed “political committee” only to “‘encompass organizations that are under the control of a candidate or the major purpose of which is the nomination or election of a candidate.’” Buckley v. Valeo, 424 U.S. 1, 79 (1976). The definition of "political committee" set forth in the Commission's regulations repeats the statutory language described above and does not refer to the Court's "major purpose" standard. However, the FEC applies the test in enforcement actions against individual organizations.
Definition of "527 organizations"
The tax code at section 527 provides tax exempt treatment for certain income
received by a "political organization." A "political organization" is defined
as a "party, committee, association, fund, or other organization (whether
or not incorporated) organized and operated primarily for the purpose of directly
or indirectly accepting contributions or making expenditures, or both, for
an exempt function." 26 U.S.C. §527(e)(1). An "exempt function" means the "function
of influencing or attempting to influence the selection, nomination, or appointment
of any individual to any Federal, State, or local public office or office
in a political organization, or the election of Presidential or Vice Presidential
electors . . ." 26 U.S.C. §527(e)(2).
On March 11, 2004, the Commission issued a Notice of Proposed Rulemaking asking for comments regarding possible changes to the definition of “political committee” that would require certain groups not currently registered with the FEC to do so, including proposals to address when 527 organizations meet the "major purpose" requirement. 1
In September 2004, the plaintiffs filed suit claiming that the Commission’s decision not to include a major purpose test in its regulations was arbitrary and capricious and asking the court to direct the Commission to promulgate regulations defining when a 527 group must register with the FEC.
In November 2004, the commission issued final rules that require organizations to treat more of their receipts as contributions and to use a greater percentage of federal funds for certain allocable expenses. While these rules could trigger registration for some groups, the Commission did not directly modify its definition of “political committee.” Instead the Commission decided that it would continue to construe the definition of “political committee” on a case-by-case basis.
The court remanded the case to the FEC to institute a new rulemaking on the definition of “political committee” or to explain more fully its 2004 decision not to issue such rules. The FEC published a Supplemental Explanation and Justification in the Federal Register on February 7, 2007. The plaintiffs subsequently moved for further relief, contending that the new explanation also violates the APA and that the court should order the FEC to issue an appropriate regulation.
On September 14, 2004, U.S. Representatives Christopher Shays and Martin Meehan filed a complaint in the U.S. District Court for the District of Columbia. The complaint challenged the Commission's alleged "failure . . . to promulgate legally sufficient regulations to define the term 'political committee,'" particularly as that term is applied to so-called 527 organizations. The plaintiffs asked the court to require the Commission to promulgate regulations, on an expedited basis, defining "political committee" and defining when a 527 organization becomes a political committee.
The plaintiffs, Christopher Shays, Martin Meehan and Bush-Cheney ’04, Inc., argued that the Commission’s 2004 decision to continue deciding case-by-case whether a group is a “political committee,” as defined in the Federal Election Campaign Act, was arbitrary and capricious. They also argued that the Commission should be compelled to issue a new rule.
The plaintiffs alleged that the Commission's failure to issue new rules defining "political committee" leaves in place "a legally inadequate rule that fails to properly implement the law, and under which multiple section 527 groups are currently spending tens of millions of dollars of soft money plainly for the purpose, and with the effect, of influencing the 2004 presidential and congressional elections." The plaintiffs asked the court to find that the Commission's decision not to promulgate regulations requiring 527 organizations to register as political committees when their major purpose is to influence federal elections and they raise or spend more than $1,000 to do so is:
- Arbitrary, capricious, an abuse of discretion and otherwise not in accordance with law;
- Contrary to the Act, as construed by the Supreme Court, and invalid because it constitutes agency action unlawfully withheld; and
- Invalid insofar as the Commission, by initiating a rulemaking, acknowledged the need to revisit the definition of "political committee," but failed to state its reasons for not addressing the "major purpose" test or the status of 527 organizations.
The plaintiffs asked the court to require the Commission to begin an expedited rulemaking to promulgate appropriate regulations to define "political committee" and to define when a 527 organization must register and file as a political committee.
Court Decision (2004)
On March 29, 2006, the U.S. District Court for the District of Columbia issued a ruling in Shays and Meehan/Bush–Cheney ’04, Inc. v. FEC (04-1612) granting in part and denying in part the plaintiffs’ motion for summary judgment.
The district court rejected plaintiffs’ contention that selecting adjudication rather than rulemaking was an abuse of discretion. Nevertheless, the court ruled that the Commission had failed to articulate a reasoned basis for its decision to continue case-by-case determinations of political committee status. Although the Commission had explained that a rulemaking would be complex and potentially over-inclusive, the court noted that the Commission did not explain why case-by-case adjudication would solve these problems. Additionally, the Commission did not address how unregistered groups’ due process or First Amendment rights would be protected without a clear rule to rely upon. Lastly, the Commission did not address how the enforcement process would be timely enough to prove effective.
The court denied the plaintiffs motion to compel the FEC to promulgate a new rule. It remanded the case to the FEC, however, ruling that it must either provide further explanation and justification for its decision to review the political committee status of unregistered organizations on a case-by-case basis or issue a new rule.
Court Decision (2007)
On August 30, 2007, the Commission’s motion for summary judgment was granted. Suit was filed against the FEC asking the court to compel the Commission to issue new regulations requiring, with some exceptions, that groups registered with the Internal Revenue Service as political organizations under section 527 also register with the FEC as federal political committees.
According to the court, the “crux of the FEC’s revised justification is that the complexity of applying the ‘major purpose’ test to a particular organization requires that it be done through adjudication instead of rulemaking.” The court found that the question of whether the application of the “major purpose test” was too “multifaceted to be codified” is “exactly the type of question generally left to the expertise of an agency, and the applicable standard of review is that ‘agency discretion is at its peak.’” In addition, the court “recognize[d] that the FEC has successfully brought enforcement actions against 527 groups.” The court therefore concluded that the Commission’s Supplemental Explanation and Justification was sufficient under the APA and that the Commission’s decision not to promulgate the kind of regulation requested by the plaintiffs was not arbitrary and capricious. The court granted the FEC’s motion for summary judgment and denied the plaintiffs’ motion for further relief.
1 See "Notice of Proposed Rulemaking on Political Committee Status," 69 FR 11736 (March 11, 2004) [PDF].
On June 13, 2008, a three-judge panel of the U.S. Court of Appeals for the District of Columbia affirmed in part and reversed in part the district court’s judgment in the Shays III case.
Specifically, the appeals
court agreed with the district court in finding deficient regulations regarding the content standard for coordination, the 120-day coordination
window for common vendors and former campaign employees and the definitions of "GOTV activity"
and "voter registration activity." The appeals court reversed the district
court’s decision to uphold the provision allowing federal candidates
to solicit funds without restriction
at state and local party events. These regulations were remanded to the FEC to issue "regulations consistent
with the Act’s text and purpose."
The court did not vacate the regulations, so they remain in effect, pending further action. The appeals court upheld the FEC’s regulations regarding the firewall safe harbor for coordination by former employees
and vendors, which the district court had found deficient.
On July 11, 2006, U.S. Representatives Christopher Shays and Martin Meehan (the plaintiffs) filed a complaint in the U.S. District Court for the District of Columbia. The complaint challenges the FEC’s recently amended regulations governing coordinated communications, federal election activity (FEA) and solicitations by federal candidates and officeholders at state party fundraising events. The plaintiffs claim that the rules do not comply with the judgment in Shays I or with the Bipartisan Campaign Reform Act of 2002 (BCRA). The complaint also alleges the FEC did not adequately explain and justify its actions.
District Court Complaint
In response to the court decisions
and judgment in Shays I, the
FEC held rulemaking proceedings
during 2005 and 2006 to revise a
number of its BCRA regulations,
including the rules governing coordinated
definitions of FEA, and the solicitation
of soft money by federal
officeholders and candidates at
state party fundraising events. For
more information, see the August 2005 [PDF], March 2006 [PDF], and July 2006 [PDF] Record.
With respect to these challenged regulations, the plaintiffs allege that the FEC:
- Did not adequately address the questions and instructions of the district court and D.C. Circuit in Shays I;
- Failed to promulgate new rules that comply with BCRA and the Shays I mandate; and
- Provided inadequate explanation and justification for its actions.
The plaintiffs contend, among other things, that the Commission’s revised regulations undermine the purposes of the BCRA by allowing soft money to continue to flow into federal elections and the federal political process.
Coordinated Communications. The plaintiffs charge that the Commission’s revised "content standard" impermissibly reduces the pre-election window for coordinated communications 1 in House and Senate races from 120 days to 90 days, in violation of the decision in Shays I. The plaintiffs also argue that the Commission impermissibly retained the election year "gap period" in Congressional races (which begins on the day of the primary and runs until 90 days before the general election) and preserved the Presidential 120-day pre-primary window that was struck down by the court in Shays I. The cumulative effect of these actions, the plaintiffs charge, is to permit unregulated spending by candidates, political parties and others on coordinated communications in many states during much of the election year, provided the communications do not contain republished campaign materials or "express advocacy."
Agency Action Arbitrary and
Capricious. According to the plaintiffs, the Commission relied almost exclusively on a set of data from TNS Media Intelligence/CMAG to support its revised coordination regulations. The plaintiffs allege that the Commission’s use of the data was both arbitrary and capricious because the data do not support the revised regulations and, in some instances, actually undermine them. The plaintiffs further allege that, given the volume and complexity of the CMAG data and the fact that the Commission gave only five business days for public comment in its
Supplemental Notice of Proposed Rulemaking, the Commission violated the APA by failing to afford interested parties a meaningful opportunity to participate in the rulemaking.
Definitions of Federal Election Activity. In Shays I, the court held that the Commission had not provided adequate notice of the approach it took in defining FEA "voter registration" and FEA "GOTV activity." The plaintiffs allege that the Commission unlawfully left intact the limitation that only activities that "assist voters by individualized means" may constitute FEA "voter registration" or FEA "GOTV" activity, and did not revise its definition of voter registration activity, thereby allowing state and local parties to fund substantial amounts of activities that influence federal elections with soft money in violation of BCRA’s "language, structure and purpose." The plaintiffs also argue that the Commission failed to provide notice in the Notice of Proposed Rulemaking that it might limit the scope of "voter registration" and "GOTV" activities in this manner, which effectively denied parties the opportunity to offer comments that could persuade the agency to modify its rule.
Candidate and Officeholder Solicitation at State Party Fundraisers. In Shays I, the court found that the Commission failed to articulate a satisfactory explanation for its regulation governing candidate and officeholder solicitations at state party fundraisers. In its revised Explanation & Justification, the Commission contends that distinguishing between "informational speech" and "solicitations" at a state party fundraising events is more difficult than in other contexts and suggests that the unique difficulty arises largely from the special relationship between federal officeholders and candidates and their state parties. The plaintiffs argue that the Commission failed to explain why the broad exemption is uniquely necessary in the state party fundraising context and contend that the Commission’s failure to provide a reasoned basis for the exemption fails to meet the APA’s requirements for reasoned decision-making.
The plaintiffs ask the court to declare the referenced regulations to be contrary to law, arbitrary and capricious, and an abuse of discretion. The plaintiffs also ask the court to:
- Enjoin the operation of the regulations and order the Commission to commence expedited rulemaking proceedings;
- Direct the Commission to adopt appropriate interim regulations during its rulemaking proceedings; and
- Retain jurisdiction over the matter
to ensure the Commission’s
timely and sufficient compliance
with the court’s decision.
District Court Decision
On September 12, 2007, the U.S. District Court for the District of Columbia granted in part and denied in part the plaintiffs’ motion for summary Judgment in this case. The court remanded to the FEC a number of FEC regulations implementing certain provisions of the BCRA. These rules included:
- The revised coordinated communications content standard at 11 CFR 109.21(c)(4);
- The 120-day window for coordination through common vendors and former employees under the conduct standard at 11 CFR 109.21(d)(4) and (d)(5);
- The safe harbor from the definition of "coordinated communication"
for a common vendor that establishes a "firewall"’ (11 CFR 109.21(h)(1) and (h)(2)); and
- The definitions of "voter registration activity" and "GOTV" at 11 CFR 100.24(a)(2)-(a)(3).
The standard for judicial review in a case such as this, where one party alleges that an agency’s actions are contrary to the statute, is called Chevron review, after the Supreme Court’s decision in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984). In Chevron review, the court asks first whether Congress has spoken to the precise issue at hand. If so, then the agency’s interpretation of the statute must implement Congress’s unambiguous intent. If, however, Congress has not spoken explicitly to the question at hand, the court must defer to the agency’s answer unless it rests on an impermissible construction of the statute.
In this case, the plaintiffs also claimed that in some instances the FEC failed to engage in a reasoned analysis when it promulgated the regulations, or failed to follow proper procedures regarding public notice and comment. Under the APA, regulations that are promulgated without a reasoned analysis may be found "arbitrary and capricious" and may be set aside by a reviewing court. 5 U.S.C. §706(2)(A).
Candidate and officeholder solicitation at state party fundraisers. Commission regulation 11 CFR 300.64(b) provides that federal candidates and officeholders may speak at state, district or local party fundraising events "without restriction or regulation." The regulation implements 2 U.S.C §441i(e)(3), which permits federal candidates and officeholders to attend, speak or be featured guests at such events. The court held that the regulation passed Chevron review and was consistent with the requirements of the APA.
The plaintiffs had argued that the Commission had failed to explain why this broad exemption is uniquely necessary in the state party fundraising context and thus failed to provide a reasoned basis for the exemption. The court, however, found that this exemption was both supported by the record and rationally explained. The court noted that Congress itself treated state, district and local party committee fundraisers differently from other fundraisers when it enacted 2 U.S.C §441i(e)(3).
Coordinated communications content standard. The plaintiffs charged that the Commission’s revised "content standard" impermissibly reduces the pre-election window1 for coordinated communications in House and Senate races from 120 days to 90 days, in violation of the decision in Shays I. The plaintiffs also argued that the Commission impermissibly retained the election year "gap period" in Congressional races (which begins on the day of the primary and runs until 90 days before the general election) and preserved the Presidential 120-day pre-primary window that was struck down by the court in Shays I.
The court found the revised content standard to be consistent with the statute. However, it ruled that the Explanation and Justification for the revised rule failed to explain how the regulation rationally separated election-related activity from other activity that occurs outside of the coordinated communications windows. According to court, the record before the FEC "demonstrates that candidates do run advertisements—which do not necessarily include express advocacy, but are nevertheless intended to influence federal elections—outside of the pre-election windows included in the revised content standard. The E&J presents no persuasive justification for writing off that evidence and does not suggest that it would somehow be captured by the 'functionally meaningless' express advocacy standard." The court thus found that the revised regulation does not meet the APA standard of reasoned decision-making.
As a separate issue, the plaintiffs challenged the Commission’s methodology in determining these pre-election windows, alleging that the Commission’s use of a set of data from TNS Media Intelligence/CMAG to support its revised coordination regulations was arbitrary and capricious because the data set does not support the revised regulations and, in some instances, actually undermines them. The court, however, noted that it lacked "any basis, either factual or legal, on which to conclude that the FEC’s very reliance on the CMAG data was arbitrary and capricious." The court further noted that in drawing a bright-line rule the FEC "appears to have drawn the line in a reasonable place based on the data available to it."
Common vendor and former employee conduct standard. Following
the court decisions in Shays I, the Commission revised the conduct standard of the coordinated communications rules that addresses the activities of common vendors and former employees of a candidate or a political party committee. Under the revised rule, this standard can be met based on the activities of common vendors or former employees during a 120-day period, rather than during the entire election cycle, as was the case in the original rule. 11 CFR 109.21(d)(4) and (d)(5). The court found that the standard for "reasoned analysis" in a case where an agency changes course requires that the agency explain that its prior rules are being “deliberately changed” rather than "casually ignored." The court found that the Commission had not adequately explained how the new rules would capture the "universe of coordinated communications" and thus found the rule arbitrary and capricious, in violation of the APA.
Firewall safe harbor. During its rulemaking process, the Commission also revised its rules to create a safe harbor for an organization using a common vendor or individuals who currently or previously provided services to a candidate clearly identified in the organization’s communication or to that candidate’s opponent or to a political party committee. For the safe harbor provision to apply, the vendor, former employee or political committee must establish a "firewall" between the parts of the organization working on each project. The court found that this provision both fails the second part of the Chevron test and is arbitrary and capricious in violation of the APA.
Under the Federal Election Campaign
Act (the Act), expenditures count as contributions when they are made "in cooperation, consultation, or concert, with, or at the request or suggestion of, a candidate." 2 U.S.C. § 441a(a)(7). The court found that the Commission’s safe harbor completely
exempts communications when the organization creating them provides information that a firewall is in place. However, the court concluded
that the rule fails to provide "substantive guidance" concerning what constitutes an effective firewall.
The court further determined that the safe harbor might permit information to be passed through an organization’s leaders or administrative
personnel and "sets a high evidentiary standard for overcoming the presumption created by the firewall." According to the court, these factors together create a potential for gross abuse and compromise the purposes of the Act. Thus, the court found that the rule failed the second step of the Chevron test.
The court also found the rule arbitrary and capricious, in violation of the APA, because, again, the standard for "reasoned analysis" is higher when an agency changes course, and the Commission’s explanation of this rule had not met that standard.
Definitions of federal election activity. In Shays I, the court held that the Commission had not provided adequate notice of the approach it took in defining FEA "voter registration" and FEA "get-out-the-vote activity" (GOTV activity). In response, the Commission expanded its Explanation & Justification for the definitions. In the current case, the plaintiffs alleged that the Commission unlawfully left intact the limitation that only activities that "assist" voters by “individualized means” may constitute FEA "voter registration" or FEA "GOTV" activity, and did not revise its definition of voter registration activity.
The court found that the expanded Explanation & Justification for the regulation defining voter registration activity does not “address the vast gray area of activities that state and local parties may conduct and that may benefit federal candidates,” nor does it show that activities that fall within this gray area do not directly benefit candidates or significantly affect federal elections. Thus, the court ruled that the regulation “unduly compromises the Act” and therefore violates the second part of the Chevron test. The court additionally found that, for this same reason, the rule is arbitrary and capricious in violation of the APA. The court found that the expanded Explanation & Justification “focuses on straw men, citing only examples falling at the far ends of the spectrum of potential voter registration activity without explaining how its definition, which apparently excludes the significant amount of activity in between, either supports or does not undermine BCRA’s purposes.” As a result, the court did not find that the rule meets the APA’s requirement of reasoned decision-making.
The court also found that the expanded Explanation & Justification fails to establish that the Commission’s definition of GOTV activity will not “unduly compromise” the Act’s purposes. In addition, citing the same reasons it gave in finding that the Commission failed adequately to explain its definition of voter registration activity, the court held that the Commission failed to provide a reasoned explanation in promulgating its definition of GOTV activity.
Decision. The court granted in part and denied in part the plaintiffs’ motion for summary judgment in this case and remanded these regulations
to the Commission for further actions consistent with the court’s opinion.
Notices of Appeal
On October 16, 2007, the Commission
filed a Notice of Appeal seeking appellate review of all of the adverse rulings issued by the district court. On October 23, Representative
Shays cross-appealed the district court’s judgment insofar as it denied the plaintiff’s “claims or requested relief.”
Appeals Court Decision - Motion to Enforce
On April 11, 2008, the U.S. District Court for the District of Columbia denied the plaintiff’s “motion to enforce” the court’s earlier final judgment in the Shays III litigation.
On November 7, 2007, Representative Christopher Shays (the plaintiff) filed a Motion to Enforce the court’s September 12, 2007, judgment that remanded certain regulations to the FEC for further action. In its September 12, 2007, Memorandum Opinion, the court expressly denied the plaintiff’s requests that the court enjoin the operation of the regulations, order the Commission to commence expedited rulemaking proceedings and adopt interim regulations, and retain jurisdiction over the matter to ensure the FEC’s timely and sufficient compliance with the court’s decision. In doing so, the court noted that under settled principles of administrative law, when a court reviewing agency action determines that an agency made an error of law, the court’s inquiry is at an end; the case must be remanded to the agency for further action consistent with corrected legal standards. While the court noted its assumption that “on remand, the Commission would act promptly, in light of the impending 2008 elections,” ultimately it is up to the agency to determine how to proceed next, not for the court to decide or monitor. Therefore, the court concluded that it has no authority to grant the relief plaintiff sought in his Motion to Enforce.
The court also found that the record provides no basis for granting
plaintiff’s relief. The court noted that the FEC’s Response to plaintiff’s Motion to Enforce indicates that the Commission is currently undertaking the very steps that the court previously required it to undertake pending the appeal in Shays I, and the Commission is aware that it “must take significant steps during the appeal to prepare for possible new regulations.” In its Response, the Commission also highlighted competing priorities, including three major rulemakings necessitated by acts of Congress and a Supreme Court case, which preclude it from undertaking the type of immediate action plaintiff seeks. The court held that it “is in no position to grant the relief Plaintiff seeks, i.e., to essentially reorder the FEC’s priorities.” Given the fact that oral arguments on the FEC’s appeal of the September 12th judgment were scheduled for May 5, 2008, the court stated that in “the present posture, … the Court lacks both a reason for and the authority to order the FEC to comply with any particular timetable in taking ‘significant steps’ so that it will ‘have new, fully compliant regulations
ready for immediate implementation
after the expiration of its appeals process.’”
Appeals Court Decision
The appellate court upheld the majority of the district court’s decision, including the remand of the content standard for coordination,
the 120-day common vendor coordination time period and the definitions of GOTV activity and voter registration activity. While the district court had held the firewall safe harbor for coordination by former employees and vendors invalid,
the court of appeals reversed the district court and upheld the safe harbor provision. The court of appeals reversed the district court’s decision to uphold the provision permitting federal candidates to solicit funds without restriction at state or local party events.
Coordination Content Standard. The court of appeals held that, while the Commission’s decision to regulate ads more strictly within the 90- and 120-day periods was "perfectly reasonable," the decision
to regulate ads outside of the time period only if they republish campaign material or contain express
advocacy was unacceptable. Although the vast majority of communications
are run within the time periods and are thus subject to regulation
as coordinated communications,
the court held that the current regulation allows "soft money" to be used to make election-influencing
communications outside of the time periods, thus frustrating the purpose of the BCRA. The appellate court remanded the regulations to the Commission to draft new regulations concerning the content standard.
Coordination by Common Vendors and Former Employees. The appellate court affirmed the district court’s decision concerning the 120-day prohibition on the use of material information about "campaign plans, projects, activities and needs" by vendors or former employees of a campaign. The court held that some material could retain its usefulness for more than 120 days and also that the Commission did not sufficiently support its decision to use 120 days as the acceptable time period after which coordination would not occur.
Firewall Safe Harbor. Contrary to the decision of the district court, the court of appeals approved the firewall safe harbor regulation to stand as written. The safe harbor is designed to protect vendors and organizations
in which some employees are working on a candidate’s campaign and others are working for outside organizations making independent expenditures. The appellate court held that, although the firewall provision states generally as to what the firewall should actually look like, the court deferred to the Commission’s decision to allow organizations to create functional firewalls that are best adapted to the particular organizations’ unique structures.
Definitions of GOTV and Voter Registration Activity. The court of appeals upheld the district court’s decision to remand the definitions of "GOTV" and "voter registration activity." The court held that the definitions impermissibly required "individualized" assistance directed towards voters and thus continued to allow the use of soft money to influence federal elections, contrary to Congress’ intent.
Solicitations by federal candidates at state party fundraisers. While the district court had upheld the regulation permitting federal candidates and officeholders to speak without restriction at state party fundraisers, the court of appeals disagreed. The court stated that Congress did not explicitly state that federal candidates could raise soft money at state party fundraisers; rather, Congress permitted the federal candidates to "appear, speak, or be a featured guest." Congress set forth several exceptions to the ban on federal candidates raising soft money, and state party events were not included in the exceptions. Thus, the court found the regulation impermissible.
1 A communication that satisfies the payment, content and conduct prongs of the “coordinated communication test” is an in-kind contribution from the entity paying for the communication. 11 CFR 109.21.
On July 31, 1984, the Sierra Club and its separate segregated fund, the Sierra Club Committee on Political Education (SCCOPE), filed suit against the FEC in the U.S. District Court for the District of Columbia (Civil Action No. 84-2354). The plaintiffs challenged the FEC's construction and application of 2 U.S.C. §441b in an advisory opinion the agency had issued to the Sierra Club on July 13, 1984. In the opinion, AO 1984-24, the Commission rejected the two financing methods proposed by the Club for selling its goods and services to SCCOPE as part of SCCOPE's in-kind contribution program for federal candidates.
The Sierra Club asked the court to declare that:
- The election law permits the Club to provide goods and services to SCCOPE for use in SCCOPE's in-kind contribution program, provided: a) SCCOPE makes payments in advance to an escrow account or reimburses the Club within a commercially reasonable time, and b) the goods and services are purchased at fair market value.
- Section 441b, both on its face and as applied to plaintiff's activities, violates the First Amendment by abridging plaintiff's freedom of association and by being unconstitutionally vague.
- Advisory Opinion 1984-24 is contrary to law and to the First and Fifth Amendments.
Plaintiff also asked the court to enjoin the FEC from commencing or continuing any enforcement proceedings designed to prevent SCCOPE from using Sierra Club goods and services for its in-kind contribution program.
District Court's Initial Ruling
On August 11, 1984, the district court issued an order dismissing the suit. The court ruled that the case was not ripe for its consideration became the Club had not exhausted the administrative remedies available to it before filing suit.
Appeals Court Remand to District Court
The Sierra Club appealed this ruling to the U.S. Court of Appeals for the District of Columbia Circuit. The appeals court treated the Club's motion to expedite the appeal as a motion for summary reversal. In its order of September 7, 1984, the appeals court granted this motion, reversing the district court's dismissal, and remanded the case to the district court for further consideration.
District Court's Second Ruling
On October 31, 1984, the district court granted the FEC's motion to dismiss the suit. In its November 5 opinion, the court upheld AO 1984-24 as a reasonable interpretation of the law's prohibition on corporate contributions, noting that "the Federal Election Commission is the type of agency to which considerable weight and deference should presumptively be accorded.... " The court also rejected the Club's claim that the opinion violated its First Amendment rights, which, the court stated, were "overborne by the interests Congress has sought to protect in enacting Section 441b."
Source: FEC Record -- September 1984, p. 10; and FEC Annual Report 1984, p. 26.
Sierra Club v. FEC, 593 F. Supp. 166 (D.D.C.), rev'd mem. (D.C. Cir. 1984), on remand (D.D.C. Nov 5, 1984) (unpublished opinion).
On January 2, 1979, a three-judge panel in the U.S. District Court for the District of Columbia approved a consent decree in a suit by the Socialist Workers Party (SWP) against the FEC and Common Cause (which had intervened as co-defendant). In the consent decree the three parties agreed that, for a limited time, SWP would not be required to comply with certain disclosure provisions of the Act. Until the close of the FEC's reporting period for 1984, SWP will not be required to report the names, addresses and occupations of individuals who contributed $100 or more to SWP, or to identify recipients of SWP expenditures.
SWP had filed suit against the Commission in July 1976, alleging that specific sections of the Act deprived SWP and its supporters of certain First Amendment rights. The decree noted that SWP and those connected with it "had been subjected to systematic harassment." Citing the standard for the potential unconstitutional application of the disclosure provisions set forth in a 1976 Supreme Court decision (Buckley v. Valeo, 424 U.S.(1), the decree states that SWP had demonstrated at least "a reasonable probability that the compelled disclosure" of names of its contributors and recipients of its expenditures would continue to "subject them to threats, harassment, or reprisals from either government officials or private parties." (Buckley v. Valeo, 424 U.S. at 74). Consequently, the defendants concurred, without necessarily agreeing to all the facts presented, that SWP should not constitutionally be compelled to comply with the reporting requirements of the Act which require identification of individuals.
The decree also provided that:
- SWP must file all reports required by the Act, except that contributors and recipients of expenditures need not be identified.
- SWP must maintain all records required by the Act so that all information normally required to be reported is available. If the FEC has reason to believe that SWP has violated any provision of the Act other than the disclosure requirements and that the nondisclosed information is needed to investigate the suspected violation the FEC may apply to the court for an order to require SWP to produce the information.
- In addition to the notice required on all literature and advertisements under 2 U.S.C. §435(b), SWP may add the following: "A Federal court ruling allows us not to disclose the names of contributors in order to protect their First Amendment rights."
The procedural disagreement between defendants and plaintiff, focusing on the duration of the decree and the mechanism by which it could be extended, was resolved so that:
- The provisions of the decree will remain in force until the end of the reporting period for 1984.
- Six months prior to that date, SWP can file for an extension.
- If SWP does request an extension, the FEC must respond to the request three months prior to the expiration date of the current decree.
Source: FEC Record -- March 1979, p. 4.
Socialist Workers 1974 National Campaign Committee v. FEC, 2 Fed. Elec. Camp. Fin. Guide (CCH) ¶9068 (D.D.C. 1979).
On August 26, 1986, the U.S. District Court for the Southern District of New York granted the FEC's motion for summary judgment in Spannaus v. FEC (Civil Action No. 85-Civ-0404 (LLS)). The Court dismissed plaintiffs' suit with prejudice. It held that Lyndon LaRouche's 1984 Presidential primary campaign committee and the campaign's treasurer, Edward W. Spannaus, had "failed to make even a preliminary showing of bad faith on the part of the Commission [in conducting investigations of the campaign's potential violations of the election law] or to allege facts sufficient to show an infringement of their First Amendment rights...."
In a suit filed with the district court on January 16, 1985, plaintiffs asked the court to make the following declarations:
- FEC investigations of the LaRouche Campaign's 1984 campaign activities were "motivated solely by bad faith" and were "an abuse of process," in violation of federal laws and the U.S. Constitution.
- The FEC was "selectively and discriminatorily enforcing the election laws resulting in violation of the plaintiffs' rights of equal protection."
- In seeking information from contributors to the LaRouche Campaign concerning certain credit card contributions, the FEC had abridged First Amendment rights by creating a chilling effect on: (1) the contributors' participation in the electoral process and (2) the LaRouche Campaign's ability to recruit volunteers.
- The FEC had violated the confidentiality provisions of the federal election laws.
District Court's Ruling
The court affirmed the FEC's claim that, in initiating investigations against the LaRouche Campaign, the agency had followed procedures established by the Federal Election Campaign Act and FEC regulations and had undertaken each investigation "for legitimate purposes." Although plaintiffs asserted that the FEC had failed to respond to the LaRouche Campaign's inquiries concerning the agency's investigations into the campaign's activities, the court noted that plaintiffs had "failed to make even a preliminary showing of bad faith and accordingly are not entitled to discovery into the FEC's motives and activities."
With regard to alleged discriminatory enforcement of the election law, the court held that "plaintiffs have not alleged facts demonstrating unequal treatment under the Act."
Similarly, the court found no merit to plaintiffs' claim that their First Amendment rights had been abridged. The court concluded that "to the extent that the Commission's investigation has 'chilled' any volunteer activities on the part of contributors...that chill does not under the circumstances rise to a constitutional claim."
Appeals Court's Ruling
On October 28, 1986, the defendant filed an appeal with the U.S. Court of Appeals, Second Circuit. The FEC filed a motion to dismiss the appeal on November 12, 1986. The Court of Appeals affirmed the District Court's ruling on March 3, 1987 (Civil Action No. 86-6229).
Source: FEC Record -- October 1986, p. 6; and October 1987, p. 6.
Spannaus v. FEC, 641 F. Supp. 1520 (S.D.N.Y. 1986), aff'd mem., 816 F.2d 670 (2d Cir. 1987).
On April 20, 1993, the U.S. Court of Appeals for the District of Columbia Circuit ruled on the 60-day deadline for requesting a court review of an FEC decision to dismiss an administrative complaint. No. 92-5191. The court held that the 60-day period begins on the date the FEC dismisses the complaint, based on a mandatory literal reading of the statute. The appellant, Edward W. Spannaus (treasurer of the LaRouche Democratic Campaign), had argued that the period should begin on the date the complainant receives notice of the dismissal. The ruling by the court of appeals affirmed the district court's dismissal of the suit. (Civil Action No. 91-0681.)
Under the Federal Election Campaign Act, a petition for judicial review must be filed "within 60 days after the date of the dismissal" of the complaint. 2 U.S.C. §437g(a)(8)(B). The court of appeals said that, in accordance with a Supreme Court decision on filing deadlines, the statutory language must be read literally. Therefore, based on the "date of dismissal" of the complaint, the court of appeals found that Mr. Spannaus filed his petition for review after the 60-day deadline.
(The Commission dismissed Mr. Spannaus's complaint on January 9, 1991. The notice of dismissal arrived at his post office box on January 28 and was claimed on February 2. He filed his petition for review with the district court on April 2, 1992.)
Mr. Spannaus said that he had relied on a district court opinion holding that the 60-day review period begins "when the complainant actually receives notice of the dismissal." Common Cause v. Federal Election Commission, 630 F. Supp. 508, 512 (D.D.C. 1985). The court of appeals, however, rejected that holding. Commenting on the appellant's reliance on Common Cause, the court stated that it "[could not] extend the filing deadline for Spannaus simply because he relied on an unreviewed and, we now hold, incorrect district court decision."
Mr. Spannaus alternatively argued that he should be granted a dispensation from the 60-day time period in light of his late receipt of the FEC's notice of dismissal. The court refused the request, noting that Mr. Spannaus "was less than fully diligent" in filing his review petition. The court pointed out that the FEC's notification letter "conspicuously stated the dismissal date and referred Spannaus to the appropriate review provision."
1 In the case of air travel contracted from a corporation that is not licensed to provide commercial charter air service (e.g., a private corporate jet), a committee may pay the first-class fare if traveling between cities linked by regular commercial service.
Source: FEC Record -- June 1993, p. 7.
On March 26, 2010, the D.C. Circuit Court of Appeals held that the provisions of the Federal Election Campaign Act that limit the contributions that individuals may make to SpeechNow.org, and the contributions that SpeechNow.org may accept from them, violate the First Amendment.
SpeechNow is a nonprofit, unincorporated association organized as a section 527 entity under the Internal Revenue Code. The organization was formed by individuals who seek to pool their resources to make independent expenditures expressly advocating the election or defeat of federal candidates. SpeechNow plans to accept contributions only from individuals, not corporations or other sources prohibited under the Act. The individual plaintiffs wish to contribute to SpeechNow, both in federally permissible amounts and in amounts exceeding the federal limits.
SpeechNow submitted an advisory opinion request with the Commission on November 19, 2007, asking whether its activities, raising funds from individuals to pay for independent communications that contained express advocacy, would require it to register as a political committee under the Act. The General Counsel’s Office prepared a draft opinion for Commission discussion stating that contribution limits would apply to contributions given to SpeechNow, and that SpeechNow would be required to register as a political committee once it raised or spent more than $1,000 in a calendar year for the purpose of influencing federal elections. Since the Commission only had two of the requisite four members at the time the draft was considered, it could not issue an advisory opinion. The Commission notified SpeechNow of that fact on January 28, 2008.
On February 14, 2008, SpeechNow, a group formed to make independent expenditures, and several individual plaintiffs, filed a complaint in the U.S. District Court for the District of Columbia challenging the constitutionality of the Federal Election Campaign Act (the Act) provisions governing political committee registration, contribution limits and disclosure.
The plaintiffs contend that the Act unconstitutionally restricts their association guaranteed under the First Amendment. By requiring registration as a political committee and limiting the monetary amount that an individual may contribute to a political committee, SpeechNow and the other plaintiffs assert that the Act unconstitutionally restricts the individuals’ freedom of speech by limiting the amount that an individual can contribute to SpeechNow and thus the amount the organization may spend. SpeechNow also argues that the reporting required of political committees is unconstitutionally burdensome.
The plaintiffs asked the court to find the contribution limits, reporting requirements and political committee registration requirements unconstitutional as applied to their proposed activities. The plaintiffs also requested that the court preliminarily and permanently enjoin the FEC from enforcing these provisions against SpeechNow and the individual plaintiffs.
District Court Decision on Preliminary Injunction
The District Court denied SpeechNow’s request for a preliminary injunction, refusing to apply strict scrutiny review and holding that sufficiently important government interests support limits on contributions to political committees, including groups like SpeechNow who intend to spend all of their money on independent expenditures.
SpeechNow argued that limits on contributions to committees that make only independent expenditures implicate the same First Amendment interests as limits on independent expenditures themselves, and therefore should be subject to strict scrutiny as expenditure limits generally are. The court disagreed, finding that limits on contributions to committees that make only independent expenditures are not the same as direct limits on expenditures of either the organization or its donors. "[C]ontributors to SpeechNow are not, through their donations," the court explained, "engaging in direct speech. SpeechNow, as a legally separate organization, is speaking as their proxy." Citing Buckley and McConnell, the court held that strict scrutiny did not apply because the limits do not restrict the amount that the political committee can spend on independent expenditures, but rather limit the source and amounts of contributions. Accordingly, the court concluded that the $5,000 limit is subject to intermediate scrutiny, meaning that the regulation need only be "closely drawn" to further a "sufficiently important" government interest.
Applying intermediate scrutiny, the district court held that limits on contributions to committees making solely independent expenditures serve important government interests by preventing actual and apparent corruption. Looking to the past behavior of so-called "527 groups" that did not register with the Commission yet had close ties with the major political parties and made millions of dollars of expenditures influencing the federal elections of 2004, the court found that such "nominally independent" organizations are "uniquely positioned to serve as conduits for corruption both in terms of the sale of access and the circumvention of the soft money ban."
Additionally, the court explained that the $5,000 limit on contributions to political committees like SpeechNow "promotes the important government interests underlying the Act’s disclaimer requirements." The court held that SpeechNow’s proposed course of action would conceal from the public the source of the advertisement’s funding in the advertisement itself and would allow wealthy donors to hide behind "dubious and misleading names," thus evading the Act’s disclaimer requirements.
In denying the preliminary injunction, the Court stated that since the regulations are "closely drawn to match the government interests in preventing corruption and the circumvention of the Act’s disclaimer requirements, plaintiffs have failed to demonstrate a likelihood of success on their claim that [the Act’s] $5,000 contribution limit is unconstitutional as applied to independent expenditure committees."
Appellate Court Decision
On March 26, 2010, the U.S. Court of Appeals for the District of Columbia Circuit ruled in SpeechNow.org. v. FEC that the contribution limits of 2 U.S.C. §441a are unconstitutional as applied to individuals’ contributions to SpeechNow. The court also ruled that the reporting requirements of 2 U.S.C. §§432, 433 and 434(a) and the organizational requirements of 2 U.S.C. §431(4) and §431(8) can be constitutionally applied to SpeechNow.
The court of appeals held that when the government attempts to regulate the financing of political campaigns and express advocacy through contribution limits, it must have a countervailing interest that outweighs the limit’s burden on the exercise of First Amendment rights. In light of the Supreme Court’s recent decision in Citizens United v. FEC, in which the Supreme Court held that the government has no anti-corruption interest in limiting independent expenditures, the appeals court ruled that “contributions to groups that make only independent expenditures cannot corrupt or create the appearance of corruption.” As a result, the court of appeals held that the government has no anti-corruption interest in limiting contributions to an independent group such as SpeechNow. Contribution limits as applied to SpeechNow “violate the First Amendment by preventing [individuals] from donating to SpeechNow in excess of the limits and by prohibiting SpeechNow from accepting donations in excess of the limits.” The court noted that its holding does not affect direct contributions to candidates, but rather contributions to a group that makes only independent expenditures.
Disclosure and Reporting Requirements
The appeals court held that, while disclosure and reporting requirements do impose a burden on First Amendment interests, they “‘impose no ceiling on campaign related activities’” and “‘do not prevent anyone from speaking.’” Furthermore, the court held that the additional reporting requirements that the Commission would impose on SpeechNow if it were organized as a political committee are minimal, “given the relative simplicity with which SpeechNow intends to operate.” Since SpeechNow already has a number of “planned contributions” from individuals, the court ruled that SpeechNow could not compare itself to “ad hoc groups that want to create themselves on the spur of the moment.” Since the public has an interest in knowing who is speaking about a candidate and who is funding that speech, the court held that requiring such disclosure and organization as a political committee are sufficiently important governmental interests to justify the additional reporting and registration burdens on SpeechNow.
On May 27, 2010, the U.S. District Court for the District of Columbia entered final judgment on behalf of SpeechNow.org and declared that the contribution limitations in 2 U.S.C. §§441a(a)(1)(C) and 441a(a)(3) cannot be constitutionally applied against SpeechNow.org and others who wish to contribute to SpeechNow.org and ordered that the Commission is permanently enjoined from enforcing those contribution limits.
On January 8, 1979, the U.S. District Court for the District of Columbia granted defendant Jimmy Carter's motion for summary judgment and upheld the President's recess appointment of John McGarry to the Federal Election Commission.
The action against President Carter was filed in October 1978 by former FEC Commissioner Neil Staebler. Mr. Staebler, whose term of office expired in April 1977, still held the seat (under the hold over provisions of 2 U.S.C. §437c(a)(2)(B)) to which Carter appointed Mr. McGarry on October 25, 1978. After the Senate had twice failed to act on Mr. McGarry's nomination, the President appointed him to the Commission during the 1978-79 congressional recess.
Mr. Staebler challenged the appointment on the grounds that:
- A vacancy occurs on the Commission, not at the close of the statutory term, but upon the lawful appointment of a successor.
- A successor is lawfully appointed only when he is nominated by the President and confirmed by the Senate.
The court determined that neither the statutory language nor the legislative history of the Act supported these premises.
- The court interpreted 2 U.S.C. §437c(a)(2)(C) to mean that "a vacancy shall occur upon the expiration of the term of office." In the case of Mr. Staebler, then, a vacancy existed since April 30, 1977, the date upon which his term expired.
- In the view of the court, moreover, there is no support for the argument that Congress intended to prohibit some or all recess appointments to the FEC.
The court concluded that a vacancy did exist, the President had the authority to make the McGarry appointment, and that Mr. McGarry is a lawful member of the Federal Election Commission.
This case, the court noted, involved not only the interests of the defendant and plaintiff, but also the proper distribution of power between the branches of government. Under the plaintiff's interpretation, it would be possible for a member of a Commission, once appointed and confirmed, to remain in office indefinitely. As long as the Senate did not act, either to confirm the nomination of a successor or to bring a nomination to a vote, the President would be powerless to protect the powers of appointment granted to him by Article II, Section 2 of the Constitution.
This argument is "especially compelling," the decision pointed out, when applied to the "politically sensitive" FEC. By providing the Senate with de facto authority to retain appointed officeholders, long beyond the expiration of their statutory terms, plaintiff's interpretation would facilitate the legislative domination of the FEC, which the Supreme Court condemned in Buckley v. Valeo. The court pointed out, however, that had the Senate rejected Mr. McGarry's nomination, the President would have been "unable to grant a recess appointment to McGarry."
Source: FEC Record -- March 1979, p. 4.
Staebler v. Carter, 464 F. Supp. 585 (D.D.C.), appeal dism'd, 2 Fed. Elec. Camp. Fin. Guide (CCH) ¶9080 (D.C. Cir. 1979).
On August 20, 1987, the U.S. District Court for the District of Columbia issued an order dismissing with prejudice a complaint brought by Congressman Fortney H. "Pete" Stark, a Democrat from California, in Stark v. FEC; (Civil Action No. 87-1024.) Congressman Stark had sought a court order requiring the FEC to act within 120 days on his administrative complaint, which he had filed in 1986 against his Republican opponent and the opponent's supporters. Since the FEC had taken final action on Congressman Stark's complaint by dismissing it on June 8, 1987, the court dismissed it on June 9, 1987, as moot.
On February 8, 1988, the court dismissed another suit brought by Congressman Stark against the Commission in Stark v. FEC; Civil Action No. 87-1700. The court found that the Commission had not acted contrary to law in dismissing, in a deadlock vote, Congressman Stark's complaint. The court accordingly granted judgment in the Commission's favor.
Shortly before election day in 1986, Congressman Stark filed an administrative complaint that alleged, among other things, that excessive contributions made to Daniel M. Williams' 1986 Congressional campaign by the American Medical Association Political Action Committee (AMPAC) resulted in violations of the election law by both parties. (AMPAC is the separate segregated fund of the American Medical Association.) In the complaint, Congressman Stark also alleged other violations of the election law's contribution limits by the American Medical Association (AMA), AMPAC and certain state PACs affiliated with AMPAC.
After a preliminary review of the complaint as amended in February 1987, the General Counsel's Office recommended that the Commission find no reason to believe AMPAC's affiliates had violated the law.
With regard to the other allegation, the General Counsel recommended that the Commission find reason to believe that AMPAC had violated the law by making excessive contributions to the Williams campaign and that the Williams campaign had violated the law by accepting them. (See 2 U.S.C. §§441a(a) and (f).) The General Counsel's staff found that AMPAC had made three mailings to its membership describing Williams' positions on certain issues and advocating Williams' election. One of the mailings had also solicited funds for Williams' campaign. The solicitation mailing included pre-addressed envelopes for donors to mail their contributions directly to candidates and pledge cards pre-addressed to AMPAC, which AMPAC could use to verify donors' contributions.
AMPAC claimed that its spending for the mailings constituted independent expenditures. However, citing an advisory opinion that dealt with a similar situation (AO 1980-46), the General Counsel reasoned that AMPAC's expenditures for the solicitation mailing constituted in-kind contributions to the Williams campaign. (In AO 1980-46, the Commission had decided that expenditures by a PAC to facilitate earmarked contributions to candidates constituted in-kind contributions to candidates rather than independent expenditures on their behalf.)
Furthermore, the General Counsel found that, taken together, the circumstances of the mailings were sufficient to indicate that AMPAC and the Williams campaign might not have remained at arms length throughout the campaign. For example, the General Counsel found that AMPAC's substantial spending on behalf of the Williams campaign, when compared with the low spending by the campaign itself, raised questions concerning the independence of AMPAC's expenditures.
Pursuant to 2 U.S.C. §437g(a)(8)(C), Congressman Stark asked the court to declare that the FEC acted contrary to law by failing to act on his administrative complaint within 120 days after he filed it in October 1986. (Civil Action No. 87-1024, April 14, 1987.)
Congressman Stark further asked the court to:
- Issue an order directing the FEC to act on the complaint within 30 days, as required by 2 U.S.C. §437g;
- Declare that Commissioner Lee Ann Elliott should recuse herself from any further participation in the FEC's consideration of the complaint, consistent with Canon 4 of the Canons of Judicial Ethics; and
- Retain jurisdiction over the suit, so that, if the FEC failed to act on his complaint, Congressman Stark could bring a separate suit against defendant AMPAC. (In a stipulation filed with the court on May 8, 1987, Congressman Stark agreed to voluntarily dismiss his claim against AMA and AMPAC, both defendants in the suit.)
On June 9, 1987, the Commission voted to accept the General Counsel's recommendation to dismiss the allegation concerning excessive contributions by AMPAC's affiliates. However, the Commissioners were divided by a series of 3-3 votes on the General Counsel's recommendation concerning AMPAC's alleged excessive in-kind contributions to the Williams campaign. Since the Commission can act only on "the affirmative vote of four members," the agency voted unanimously to close the enforcement file. Consequently, Congressman Stark's first suit was dismissed from the district court as moot following the Commission's final action.
District Court Ruling Second Suit
Congressman Stark filed a second suit asking the district court to find the FEC's dismissal of his administrative complaint to be contrary to law (Civil Action No. 87-1700, June 22, 1987).
Following a decision by the U.S. Court of Appeals for the D.C. circuit in Democratic Congressional Campaign Committee (DCCC) v. FEC (831 F.2d 1131 (D.C. Cir. 1987)), the district court held that it could review the case because the provision of the election law affording judicial review of dismissals "imposes neither vote count nor substantive-issue conditions on the right it confers." (See 2 U.S.C. §437g(a)(8)(A).)
The court noted, however, that, unlike the DCCC case, the Stark case included a statement from Commissioner Thomas Josefiak setting forth his reasons for voting against the General Counsel's recommendations. Commissioner Lee Ann Elliott filed a concurrence with that statement.
The court observed that in their statements the dissenting Commissioners had said that they disagreed with the conclusion of AO 1980-46, the advisory opinion that the General Counsel had cited in arguing that AMPAC's solicitation expenditures might be in-kind contributions. Thus, concluded the Commissioners, the rationale of that opinion should not be extended beyond the facts presented in that case. The Commissioners argued that independent expenditures (e.g., AMPAC's expenditures for contribution envelopes sent to candidate Williams' potential donors) did not lose their independence because the candidate subsequently derived indirect benefit from them.
Further, the dissenting Commissioners rejected the idea that a "dollar disparity" between AMPAC's spending and spending by the Williams campaign implied cooperation between the two committees. The Commissioners also rejected Congressman Stark's allegations concerning a "debate arrangement" made by AMPAC and the duplication of Williams' campaign materials by AMPAC for solicitation purposes.
In determining whether the dissenting Commissioners acted reasonably in voting to dismiss the Stark allegations, the court found that the DCCC case required "that the same deference be accorded the reasoning of 'dissenting' Commissioners who prevent Commission action by voting to deadlock as is given the reasoning of the Commission when it acts [by at least four affirmative votes] as a body to dismiss a complaint."
Accordingly, the court concluded that the dissenting Commissioners' statement of reasons was "'sufficiently reasonable,' if not 'the only reasonable [decision] or even the [one] the court would have reached' on the General Counsel's Report on his findings.... "
Source: FEC Record -- June 1987, p. 6; September 1987, p. 8; October 1987, p. 6; and April 1988, pp. 8-9.
Stark v. FEC, 683 F. Supp. 836 (D.D.C. 1988).
On December 11, 1990, The U.S. Court of Appeals for the District of Columbia Circuit affirmed the district court decision granting the Commission's motion for judgment on the pleadings. Philip M. Stern had claimed that the General Electric Company (GE) violated the Federal Election Campaign Act by making unlawful corporate expenditures for the establishment, administrative and solicitation expenses of its separate segregated fund, GE/PAC.
Although section 441b(a) of the Federal Election Campaign Act prohibits corporations from using their general treasury funds to make contributions or expenditures in connection with a federal election, another provision of the Act specifically excludes from the definitions of contribution and expenditure the use of corporate treasury funds for "the establishment, administration, and solicitation of contributions to a separate segregated fund to be utilized for political purposes...." (Emphasis added.) 2 U.S.C. §441b(b)(2)(C). In his complaints filed with the FEC and the courts, Mr. Stern alleged that GE/PAC's contributions were not made for "political purposes" but, rather, were made to advance GE's lobbying interests. As a result, he claimed, GE's funding of the PAC resulted in prohibited corporate expenditures.
When the Commission dismissed his administrative complaint, finding "no reason to believe" that GE had violated the law, Mr. Stern sought judicial review of the agency's decision. The district court ruled that the Commission had not acted contrary to law in dismissing the complaint, holding that GE/PAC's direct contributions to the campaigns of federal candidates were permissible under any construction of "political purposes." The district court found it unnecessary to reach the question of whether lobbying was a permissible activity for a separate segregated fund, although the court characterized the Commission's position-that separate segregated funds could be used "for any lawful purpose"-as a reasonable interpretation of the Act.
Appeals Court Decision
In his arguments, Mr. Stern claimed that several types of contributions made by GE/PAC were not made for "political purposes":
- Contributions to unopposed candidates or to those facing weak opposition;
- Contributions made without regard to the candidate's position on business issues;
- Contributions to opposing candidates in the same election;
- Post-election contributions to winners; and
- Contributions to incumbents.
The appeals court examined these claims but found that the GE/PAC's contributions did not violate the Act. Like the district court, the appeals court found no reason to reach the question of how the phrase "political purposes" should be interpreted. "Even under the narrowest possible definition urged by Stern-namely, that segregated funds may be used only 'in connection with an election'-the GE/PAC practices he challenges do not violate the Act."
Source: FEC Record -- November 1989, p. 4; and February 1991, p. 7.
Stern v. FEC, No. 89-0089 (D.D.C. 1989) (memorandum opinion), 921 F.2d 296 (D.C. Cir. 1990).
On January 28, 1991, the U.S. Court of Appeals for the Second Circuit ruled that the Federal Election Campaign Act (the Act) does not preempt state law doctrine on corporate waste. Philip M. Stern, a General Electric (GE) stockholder, filed suit alleging that GE's funding of its separate segregated fund (GE/PAC) constituted a waste of corporate assets under state law.
The district court had dismissed the allegations, ruling that they were preempted by the Act. Reversing the district court decision on this issue, the appeals court held that the Act did not preempt Mr. Stern's allegations of corporate waste. The court, however, dismissed the allegations on other grounds but granted Mr. Stern leave to replead. With respect to Mr. Stern's allegations that GE violated federal lobbying and anti-bribery statutes, the appeals court affirmed the district court's dismissal of the claims.
Allegations of Corporate Waste
Mr. Stern alleged that GE's payment of GE/PAC's administrative and solicitation expenses constituted a waste of corporate assets under state law because:
- GE did not realize any benefit from GE/PAC's contributions to incumbent candidates since they were made without regard to the candidates' positions on issues of concern to GE; and
- GE's payments for administrative and solicitation expenses were excessive in relation to the amount of contributions the PAC collected.
In response, GE argued that the allegations should be dismissed because they fell within the FEC's exclusive jurisdiction under 2 U.S.C. §437c(b)(1). (Under that provision, the FEC has exclusive jurisdiction over civil enforcement of the Act.) The appeals court rejected this argument because Mr. Stern's allegations focused on GE's waste of corporate assets under state law rather than on whether GE's activities violated the Act.
In reversing the district court holding that the allegations of corporate waste were preempted by the Act, the appeals court pointed out the "narrow wording" of statute's preemption clause: the Act preempts "any provision of state law with respect to election to Federal office." 2 U.S.C. §453. The court said that Congress did not intend the Act to preempt the entire field of corporate political spending. That would result in a total absence of regulation on the appropriate amounts that corporations may spend on their PACs, since the Act is silent on this issue.
The court found that state regulation of corporate waste did not conflict with federal law in this case. The Act's provision allowing a corporation to pay for the costs of administering and soliciting contributions to a PAC (2 U.S.C. §441b(b)(2)(C)) was designed to limit, rather than encourage, corporate political spending "in order to preserve the integrity of the political process....Thus, state-law regulations that tend to reduce a corporation's support of its political action committee do not impede the FECA's goals."
The court, however, dismissed Mr. Stern's allegations of corporate waste because he failed to allege fraud or "bad faith" on the part of the company's directors. The court, however, granted Mr. Stern leave to replead these allegations.
The court of appeals upheld the district court's dismissal of Mr. Stern's allegation that GE's administrative and solicitation payments for GE/PAC were actually lobbying expenditures that should have been reported pursuant to the Federal Regulation of Lobbying Act. Mr. Stern had alleged that the failure on the part of GE directors to comply with this statute exposed GE to prosecution under 2 U.S.C. §269 and therefore constituted a breach of fiduciary duty. The appeals court disagreed, finding that GE's spending did not constitute "direct communication" with government officials and therefore was not subject to the lobbying statute.
Similarly, the court of appeals upheld the district court's dismissal of Mr. Stern's allegation that GE directors exposed GE to liability by acquiescing in GE/PAC's violation of the federal anti-bribery statute. Mr. Stern had claimed that certain GE/PAC contributions violated the statute because they were given to "grandfathered" Members of Congress with the knowledge that the contributions might be converted to the candidate's personal use under 2 U.S.C. §439a. The appeals court said that because such use is lawful under the Act, the contributions did not violate the anti-bribery statute (18 U.S.C. §203). Moreover, "[c]riminal intent under section 203 turns not on what the contributor expects the recipient to do with the money, but rather on what the contributor expects to receive for that money."
Source: FEC Record -- July 1991, p. 6.
Stern v. General Electric Co., 924 F.2d 472 (2d Cir. 1991).
On May 7, 2002, William J. Stevens and the Libertarian Party of Illinois (the Party) filed a complaint in the U.S. District Court for the Northern District of Illinois, Eastern Division, asking the court to set aside or modify the Commission's final determination that the Party, and its former treasurer Mr. Stevens, failed to file a required disclosure report. The plaintiffs also asked the court to enjoin the Commission from enforcing a civil money penalty it assessed under the administrative fine regulations.
On June 5, 2003, the U.S. District Court for the Northern District of Illinois granted the Commission's motion to dismiss the plaintiffs' complaint. The complaint had challenged the Commission's final determination that the Libertarian Party of Illinois (LPI) and its former treasurer William J. Stevens had failed to file timely the committee's 2001 mid-year report and the assessment of civil penalty. 2 U.S.C. §434(a).
According to the complaint, in March 2002 the Commission made a final determination that Mr. Stevens and the Party had violated the Federal Election Campaign Act (the Act) by failing to file a 2001 Mid-Year Report. 2 U.S.C. §434(a). The Commission also assessed a $7,875 civil money penalty under its Administrative Fine program based, according to the complaint, on "an assumed level of activity in the amount of $108,755." Under the Commission's Administrative Fine regulations, penalties for nonfiled reports are determined by the estimated level of activity on the report and any prior violations under the administrative fine regulations. 11 CFR 111.43.
Mr. Stevens and the Party claim that, because they did not raise any federal campaign funds during the reporting period in question and allocated only $14,552.64 as shared federal/nonfederal activity, they were not involved in any substantial activity that fell within the Commission's jurisdiction. The plaintiffs allege that in determining the penalty, the Commission overestimated the amount of activity on the nonfiled report by calculating the penalty based on the Party's federal and nonfederal activity. The complaint also claims that the Commission counted the same funds twice by determining the penalty according to both receipts and disbursements.
The plaintiffs ask the court to declare that "the application of the Federal Election Campaign Act is limited to federal election campaigns and cannot be applied to nor include non-federal funds nor nonfederal activities." They ask the court to:
- Find that the plaintiffs are not in violation of 2 U.S.C. §434(a) and declare the civil money penalty null and void;
- Enjoin the Commission from enforcing the civil money penalty; and
- Enter an order and judgment setting aside the Commission's final determination or modifying it to limit its application to federal funds and activities only.
The court found that the plaintiffs' claims were barred by the statute of limitations because they had not appealed the Commission's determination with 30-day time period allotted by the Federal Election Campaign Act (the Act). 2 U.S.C. §437g(a)(4)(C)(iii). The court also denied the plaintiffs' request to amend their complaint. Plaintiffs had asked to add 2 U.S.C. §437h as a basis for jurisdiction, in order to challenge whether the Commission has jurisdiction over the types of funds disclosed in the LPI's reports. The plaintiffs argued that the FEC required them to report local and state activity on the mid-year report. The court stated that the mid-year appeared only to require the LPI to report federal contributions and disbursements, with the exception of requiring LPI to report shared federal/nonfederal operating expenditures. The court explained that in Buckley v. Valeo the Supreme Court had already found the compelled disclosure of federal campaign finance activity to be constitutional. The court further reasoned that the plaintiffs wanted to contest the activity on their report that the Commission used to determine the civil penalty, they should have made this challenge through the Commission's administrative process.
The court granted the Commission's motion to dismiss and denied the plaintiffs' cross-motion for summary judgment.
In August 1996, a U.S. District Court in Texas dismissed Congressman Stephen E. Stockman's claim that the FEC had unreasonably delayed its investigation into his 1994 campaign. The court said: "There is no evidence showing that the time spent to investigate this matter is a product of anything other than the excessive demands on a strapped federal agency."
In an earlier decision, the court dismissed the claim that the FEC had improperly leaked information about the matter to the press.
On March 27, 1998, the U.S. Court of Appeals for the Fifth Circuit sustained the district court's ruling in this case for the FEC, but it based the dismissal on lack of jurisdiction rather than on the merits.
Former Congressman Stephen E. Stockman was a respondent in an administrative complaint the FEC received concerning a newspaper that was published at Mr. Stockman's residence and campaign headquarters during the 1994 primary election season. In February 1996, Mr. Stockman asked the U.S. District Court for the Eastern District of Texas, Beaumont Division, to direct the FEC to dismiss the administrative complaint because, among other reasons, the FEC allegedly had unreasonably delayed its investigation and FEC personnel allegedly had leaked information about the investigation to the press, in violation of statutory and regulatory confidentiality requirements.
District Court Decisions
In decisions rendered in June and August 1996, the district court rejected Mr. Stockman's arguments. While the district court found that it had jurisdiction over the delay claim, it ruled that the delay in the investigation was not unreasonable in light of the FEC's work load and lack of resources. The district court dismissed Mr. Stockman's breach-of-confidentiality claim for lack of jurisdiction because Mr. Stockman had failed to follow FEC procedures for resolving such a claim. In the alternative, the court found that there was no factual basis for Mr. Stockman's allegations of press leaks by the FEC. Mr. Stockman then appealed the case.
Appeals Court Decision
The appellate court, citing 2 U.S.C. §437g(a)(8), concluded that the Federal Election Campaign Act (the Act) does not create a cause of action for a delay claim by an administrative respondent (as opposed to the person who files the complaint). Section 437g(a)(8), the court pointed out, states that only an administrative complainant who is aggrieved by the FEC's failure to act may petition for judicial relief, and then only in the U.S. District Court for the District of Columbia. The court further held that Mr. Stockman's delay claim could not be based on the Administrative Procedure Act, which does not apply where the underlying statute precludes judicial review. The court found that the Act precludes judicial review of delay claims by plaintiffs, like Mr. Stockman, who were not administrative complainants and did not file suit in the District of Columbia. The district court therefore lacked jurisdiction, the court of appeals held, over Mr. Stockman's delay claim.
On September 9, 2004, the U.S. District Court for the District of Columbia granted the FEC's motion to dismiss and also granted all other defendants' requests for dismissal "to the extent that other defendants' motions to dismiss join in Defendant's FEC's motion.." The plaintiff filed a Notice of Appeal on October 13, 2004. On April 13, 2005, the U.S. Court of Appeals for the District of Columbia Circuit, in an unpublished decision, granted the Commission’s motion for summary affirmation of the district court's decision.
On February 24, 2004, Jim Sykes, the Green Party's nominee in Alaska's November 2 Senate election, filed a complaint asking the court to find unconstitutional unspecified provisions of the Federal Election Campaign Act (the Act) that allow non-Alaska residents to make contributions to a Senate candidate in Alaska's 2004 general election, either personally or through political committees. The plaintiff alleged that these non-resident contributions unconstitutionally burdened his First and Fifth Amendment rights to associate politically, both as a candidate and a voter, with other Alaska voters.
The plaintiff asked the court, among other things, to:
- Certify this action as a class action against all individuals and political committees who are not Alaska residents and who have made or may make contributions to a Senate candidate in Alaska;
- Convene a three-judge panel, or certify the questions raised in this complaint to the U.S. Court of Appeals for the District of Columbia pursuant to 2 U.S.C. 437h;
- Enter a declaratory judgment that the Act severely burdens the plaintiff's exercise of his right to political association to the extent that it authorizes non-Alaska residents to contribute to Alaska's Senate candidates; and
- Preliminarily and permanently enjoin the individuals and political committees named in this action, and the members of the classes they represent, from contributing to Senate candidates in Alaska and direct these defendants to seek refunds of contributions they have already made.
District Court Decision
In order to have standing to bring suit in federal court, a plaintiff must meet a three-part test. The plaintiff must:
- Demonstrate an "injury in fact" that is concrete, distinct and palpable;
- Establish a causal connection between the injury and the conduct described in the suit, such that the injury is "fairly traceable" to the action of the defendants and not the result of some third party that is not before the court; and
- Show the "substantial likelihood" that the requested relief will remedy the alleged injury in fact.
The court found that the plaintiff was unable to establish any of these three requirements for standing.
Having found that the plaintiff did not have standing in this case, the court did not reach the issue of whether the case was also frivolous. The court granted the FEC's motion to dismiss the case in its entirety and found that there was no need to convene a three-judge panel or to certify the plaintiff's questions to the appeals court.