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On April 12, 1988, the U.S. District Court for the Northern District of New York entered an order granting summary judgment to the FEC in United States Defense Committee (USDC) v. FEC (Civil Action No. 84-CV-450).
In a decision of November 7, 1988, the U.S. Court of Appeals for the Second Circuit held that the USDC's complaint against the FEC was not ripe for the court's review. The appeals court therefore remanded the case to the U.S. District Court for the Northern District of New York with instructions for the district court to dismiss the case.
In those opinions, the Commission expressed the view that corporate treasury expenditures for certain voter guides which USDC proposed to compile and distribute to the general public were not exempted under Part 114 of FEC regulations. Consequently, the voter guides were prohibited by 2 U.S.C. §441b because, as drafted, the language of the guides suggested an election-influencing purpose. (Taken together, these legal provisions prohibit corporations, labor organizations and incorporated membership organizations from distributing to the general public voter guides that favor one candidate or political party over another.)
In response to the opinions, USDC asked the court to declare that USDC's proposed expenditures were not proscribed by FEC regulations. USDC also raised three constitutional questions concerning its distribution of the voter guides. For example, USDC asked the court to consider whether 441b abridged its First and Fifth Amendment rights by discriminating between incorporated organizations like USDC and the institutional press. (Costs incurred by news media corporations for bona fide coverage of political events are exempt from the election law's broad prohibition on corporate expenditures, provided the news corporation is not owned or controlled by any political party, political committee or candidate.)
In a statement read into the public record, the district court judge presiding in this case held that the court had jurisdiction to review USDC's complaint. While the court acknowledged that the election law did not specifically provide for judicial review of FEC advisory opinions, the court found that its authority to review the complaint had not been "explicitly restricted by statute or by Congress...."
In ruling on the merits of the case, the court rejected USDC's claim that the election law discriminates against USDC by permitting the institutional press to disseminate information on political candidates to the general public while prohibiting USDC from disseminating information in the form of voter guides. The court held that the press exemption had a "valid basis" in that it recognizes the need for informing the public on federal election-related issues. Further, the press is not covered by this exemption when it exceeds its legitimate press function. The court also rejected USDC's argument that the guides were not covered by the 441b prohibition because they did not include an explicit request for the recipients to vote one way or another.
Finally, the court held that the Supreme Court's decision in FEC v. Massachusetts Citizens for Life, Inc. (MCFL), (Civil Action No. 85-701) did not exempt USDC from 441b's prohibition against corporate expenditures in connection with federal elections. To be eligible for the MCFL exception, among other things, a nonprofit corporation must have a policy of not accepting contributions from business corporations or labor organizations. Since USDC had accepted money from its corporate members, the court found that the organization was not eligible for the MCFL exception.
USDC subsequently filed an appeal of the district court's decision with the U.S. Court of Appeals for the Second Circuit.
In deciding that USDC's case was not ripe for judicial review, the appeals court said that nothing in the legislative history indicated that Congress thought advisory opinions were reviewable. Further, the appeals court explained that an FEC advisory opinion was not "final or binding.... " In this regard, the court noted that "if a person proceeded to act contrary to an FEC advisory opinion, [that person] would be entitled to all of the enforcement protections, including conciliation, conference, persuasion and the like, provided under 2 U.S.C. §437g."
The appeals court further noted that AO 1987-7 was "particularly inappropriate for judicial resolution at this time. As a consequence of the Supreme Court's decision in FEC v. Massachusetts Citizens for Life the Commission is engaged in a rulemaking proceeding which could alter the very regulations applied in the opinion."
On remand, the district court dismissed the case.
Source: FEC Record -- July 1988, p. 6.
United States Defense Committee, Inc. v. FEC, No. 84-CV-450 (N.D.N.Y. April 27, 1988) (unpublished order), vacated and remanded, 861 F.2d 765 (2d Cir. 1988).
On October 1, 1979, the U.S. Court of Appeals for the Ninth Circuit issued a decision in United States v. International Union of Operating Engineers. Reversing the lower court, the appeals court concluded that "nothing in these provisions [the Federal Election Campaign Act, as amended] suggests...that action by the Department of Justice to prosecute a violation of the Act is conditioned upon prior consideration of the alleged violation by the FEC."
On August 13, 1976, the U.S. District Court for the District of Oregon dismissed an indictment brought by the Department of Justice against the union. The district court decided that the Attorney General was required to refer the case to the FEC for an administrative remedy before seeking criminal penalties against the defendant for violations of 2 U.S.C. §§431-455.
The administrative remedy to which the district court was referring was provided for in §437g of the FECA, which said that "any person who believes" a violation of the election law has occurred "may file a complaint with the Commission," and which prescribed a detailed process for the FEC to take action. If the Commission found reason to believe that a violation had occurred, there was a period during which the agency had to attempt to reach a conciliation agreement with the respondent; the agreement could include a civil penalty.1 If the parties were unable to work out a conciliation agreement, the law allowed the FEC to seek relief through the federal courts. The law also provided that the FEC could refer cases of "knowing and willful violation" of the FECA to the Justice Department for criminal prosecution. Furthermore, a completed conciliation agreement with the FEC could be introduced by the respondent as mitigating evidence in any criminal action brought by the Attorney General.
The district court concluded that "the procedural scheme devised by Congress to protect candidates from the adverse effects of groundless or insubstantial charges will be frustrated if the Attorney General has the power to step in and obtain an indictment in a case which was never referred to the FEC."
The Attorney General appealed the district court's decision.
On October 1, 1976, the court of appeals issued an opinion reversing the decision of the district court.
The appeals court observed that the lower court had based its conclusion not on legislative history but on inferences from the language of the Act. Acknowledging that the statute does contain many restrictions designed to minimize the risk that the administrative process might be used unfairly, the appeals court concluded that the restrictions were aimed at complainants and the FEC, but not the Attorney General.
The court cited the legislative history of the FECA to corroborate this conclusion. The Senate's version of the 1974 amendments to the FECA, the judges noted, had included a provision which allowed the Justice Department to take action on civil and criminal violations of the Act "only after the Commission [was] consulted and consent[ed] to such a prosecution." The provision was dropped from the bill by the conferees. The conference report made explicit that Congress intended, in its final version of the 1974 amendments, to grant the FEC primary powers of civil enforcement. The court further pointed out that the 1976 amendments to the Act gave the FEC "exclusive responsibility" for civil enforcement while it preserved the Justice Department's customary jurisdiction over criminal violations.
Finally, the court stated, the Act specifies that if the FEC finds probable cause that a "knowing and willful violation" has occurred, the agency may refer the case to the Justice Department without first attempting a conciliation agreement.
By the time the appeals court issued this decision, the Justice Department and the FEC had entered into a memorandum of understanding which adopted similar principles. The Commission retained exclusive primary authority for the prosecution of civil violations of the Act, while the Justice Department retained independent authority for the prosecution of criminal violations of the Act.
1 The phrase in 2 U.S.C. §437g(a)(2) to which the court was referring, "if it [the Commission] has reason to believe that any person has committed a violation," was deleted in the 1979 amendments to the Act. The current enforcement procedures outlined in §437g would not have altered the outcome of this decision.
On June 14, 2010, the U.S. Court of Appeals for the 9th Circuit reversed and remanded an earlier decision by the U.S. District Court for the Central District of California which found that 2 U.S.C. §441f, which states that “no person shall make a contribution in the name of another person,” applied only to direct contributions made under false names. The U.S. Court of Appeals found instead that the statute applies not only to so-called false name contributions, but also to indirect, straw donor contributions.
The case revolves around alleged political contributions from Pierce O’Donnell to the Edwards for President campaign in 2003. Mr. O’Donnell solicited 13 individuals to donate contributions to the campaign in their own names under the arrangement that he would either advance them the funds for the contributions or reimburse them at a later date. He was charged with contributing in the names of others, which is a violation of §441f.
The case came down to whether §441f applies only to direct, “false name” contributions or also to indirect contributions made through straw donors. False name contributions are those in which the actual contributor making the contribution does so directly but under either another individual’s name or a fictional name. Straw donor contributions are those in which the actual contributor making the contribution does so secretly and indirectly, through an undisclosed third party, either by advancing or reimbursing the third party the contribution funds.
The court analyzed who in a straw donor situation would be considered to be the actual contributor who actually made the contribution. It found that the straw donor who actually delivers the money to the committee is only acting as a mechanism, and that the original source of the contribution is the individual who actually made the contribution. Therefore, because O’Donnell was the original source of the contribution, he was the individual who made the contribution to the committee and his name should have been provided as the source.
The court clarified that in the context of reimbursements of straw donors, when the defendant and straw donor have a prior arrangement for the straw donor to make a contribution, coupled with a promise by the defendant to reimburse the straw donor at a later date, the violation of §441f would occur the moment the committee receives the contribution from the intermediary.
The court determined that the purpose behind §441f is to “ensure the complete and accurate disclosure of the contributors who finance federal elections” and therefore, the statute applies to both indirect, straw donor contributions, as well as direct “false name” contributions. The appeals court reversed the district court’s dismissal of counts one and two—which alleged violations of §441f—and remanded the case to the district court for further action consistent with its decision. U.S. Court of Appeals for the 9th Circuit, 09-50296.
Source: FEC Record -- July 2010 [PDF].
On May 18, 1999, the U.S. Court of Appeals for the District of Columbia Circuit reversed a district court decision to dismiss five counts of a six-count criminal indictment charging Maria Hsia, a Democratic fundraiser, with collecting and disguising impermissible contributions in the 1995-96 election cycle.
The five counts of the indictment that were reinstated accuse Ms. Hsia of causing the Clinton/Gore '96 Primary Committee, the Democratic National Committee and The Friends of Patrick J. Kennedy '96 to make false statements in their reports filed with the FEC. The appellate court also denied Ms. Hsia's cross-appeal of the remaining count in the indictment, which accuses her of conspiracy to defraud the FEC and the Immigration and Naturalization Service.
The court remanded the case to the U.S. District Court for the District of Columbia for further proceedings.
The Department of Justice (DOJ), which filed this suit, alleged that Ms. Hsia and the International Buddhist Progress Society (IBPS), an incorporated, tax-exempt religious organization in California, funneled money through straw donors to various campaigns. The indictment alleged that Ms. Hsia and IBPS asked nuns, monks and others with ties to IBPS to make contributions to Democratic campaigns, and later reimbursed them with IBPS funds. Ms. Hsia was also accused of using straw donors to funnel money from two clients of her Los Angeles immigration consultant business to Democratic campaigns.
The Federal Election Campaign Act (the Act) prohibits corporations from making contributions in connection with any federal election. 2 U.S.C. §441b(a). The Act also prohibits any person from making a contribution in the name of another. 2 U.S.C. §441f. Additionally, the U.S. tax code bars certain organizations, such as IBPS, from participating in any political campaigns. 26 U.S.C. §501(c)(3). Finally, under 18 U.S.C. §§2 and 1001, it is unlawful to willfully cause an offense by another person against the United States.
The appeals court first addressed the willful nature of Ms. Hsia's alleged conduct. The district court had concluded that Ms. Hsia's actions were not willful because the DOJ failed to show that she knew her conduct was unlawful. The appellate court, however, stated that the government need not prove that Ms. Hsia knew that her conduct was unlawful; only that she knew that the information provided to the political committees regarding the sources of contributions was false and that she intentionally caused false statements to be made by another.
The appeals court also rejected the district court's finding that the causal link between Ms. Hsia's conduct and the false statements in the political committees' reports was too "attenuated." In fact, the appeals court concluded the conduit scheme together with the names on the checks caused false statements to be made by the political committees. The appellate court pointed to several cases where the courts previously upheld applying the "false statement prohibition" to conduit contribution schemes. In those cases, defendants used straw donors to conceal their own contributions. Here, Ms. Hsia did not funnel her own money to straw donors: instead, the money belonged to immigration clients or to IBPS. Hsia, however, arranged for the conduits to do their part. The distinction of whose money was used is irrelevant to this situation, the appeals court found. FEC regulations state that a contribution made by check should be reported as a contribution by the last person signing it. 11 CFR 104.8(c). "The simple interposition of conduits to sign the checks is certainly enough to 'cause' a committee to make false statements in its report," the appeals court wrote in its decision.
The appeals court also rejected the lower court's finding that the contributor information filed with the Commission by the three committees was "literally true." The district court had reasoned that, because the indictment did not allege that the committees' treasurers had any wrongful knowledge about the true contributors, the statements in their reports had to be considered in compliance with the Act, and therefore not false.
This reasoning assumes that the safe harbor provision protecting treasurers of political committees who use "best efforts" to report all required information, 11 CFR 104.7, modifies the substantive reporting requirements of the Act. However, the court added, "it would make no sense for Congress to allow treasurers to rely on the provision of information by others while at the same time giving others a virtual carte blanche to provide inaccurate information."
Source: FEC Record -- July 1999 [PDF].
USA v. Hsia, 176 F.3d 517 (D.C. Cir. 1999).
On October 8, 1999, the U.S. Court of Appeals for the District of Columbia Circuit reversed a district court decision to dismiss charges against Pornpimol Kanchanalak and Duangnet Kronenberg for illegally using conduits to disguise donations from foreign nationals and corporations. The Department of Justice originally filed suit against Ms. Kanchanalak and Ms. Kronenberg for willfully causing the Democratic National Committee (DNC) and other committees to file false reports of hard money contributions and soft money donations with the Federal Election Commission (FEC), in violation of 18 U.S.C. §§2(b), 1001.1 The defendants were allegedly involved in a scheme in which permanent U.S. residents signed checks for both hard and soft money when the actual source of the funds was a foreign corporation, Ban Chang International (USA), Inc. The U.S. District Court for the District of Columbia dismissed the charges against Ms. Kanchanalak and Ms. Kronenberg. In regard to the hard money counts, the district court concluded that the government had failed to prove that the defendants had directly caused the making of false reports to the FEC. With regard to the soft money counts, the court determined that neither the Federal Election Campaign Act (the Act) nor Commission regulations require political committees to report the sources of soft money donations. The Court of Appeals reversed on each of these matters.
The appeals court reinstated the hard money counts against the defendants based on its previous decision in United States v. Hsia,2 which established that the Act requires political committees to report the true source of the federal funds they receive. 2 U.S.C. §441f. The appellate court ruled that the defendants' scheme of illegally utilizing conduits caused the DNC and other committees to report the conduits rather than the true sources of the contributions on FEC forms. Because the defendants' actions "caused false statements to be made to a government agency," the appeals court summarily reversed the district court's decision on these counts.
The court of appeals also reversed the district court's ruling regarding the soft money reporting regulation. The appellate court did not question the lower court's determination that nothing in the Act requires soft money reporting, but pointed to the Commission's regulation at 11 CFR 104.8(e), which requires disclosure about any entity that "donates an aggregate amount in excess of $200 in a calendar year to the committee's nonfederal account(s)." In upholding the FEC's interpretation of its regulation to require the disclosure of the true sources of soft money, the opinion noted the appeals court's long history of deferring to agencies' interpretations of their own regulations, and quoted a Supreme Court opinion which stated '"that the [Federal Election] Commission is precisely the type of agency to which deference should presumptively be afforded.'"3
In reversing the district court's judgment with regard to the soft money counts, the appeals court found that the FEC had reasonably interpreted the Act to forbid soft money donations by foreign nationals. While the defendants had argued that the prohibition applied only to federal elections, the appellate court ruled that it extends to state and local elections as well. The opinion cited 2 U.S.C.441e, which states that "it shall be unlawful for a foreign national directly or through any other person to make any contribution...in connection with an election to any political office." While the defendants had focused on the fact that "contribution" is defined to include "any gift...made by any person for the purpose of influencing any election for Federal office" (2 U.S.C.§431(8)(A)(i)), the appeals court emphasized the use of the term "any political office." The appeals court compared §441e to §441b, which differentiates between contributions in connection with elections to federal office and those in connection with election to "any political office." The opinion noted that, "[b]y distinguishing federal offices from 'any political office,' Congress plainly intended to reach certain contributions made to state and local offices." In this regard, the appellate court again relied on the FEC's interpretation of the law, which has consistently been that nonfederal offices are included in the foreign national prohibition.
1 The court of appeals stated that "hard money"
refers to funds that have been deposited by the Committee into a "federal
account" and are used to finance federal election campaigns, whereas "soft
money" refers to funds that are deposited into a "nonfederal" account and
are supposed to be used for, among other things, state and local campaigns.
2 United States v. Hsia, 176 F.3d 517 (D.C. Cir. 1999).
3 FEC v. Democratic Senatorial Campaign Committee, 454 U.S. 27, 37 (1981).
Source: FEC Record -- January 2000 [PDF].
192 F. 3d 1037 (D.C. 1999)
On March 2, 2010, the U.S. Court of Appeals for the District of Columbia Circuit reversed the District court’s decision in Unity08 v. FEC (Case No. 08-5526) and ruled in favor of the Plaintiff, Unity08. The appeals court found that Unity08 is not subject to regulation as a political committee unless and until it selects a "clearly identified" candidate.
Unity08, a nonprofit corporation organized under the laws of the District of Columbia, described itself as a "political movement" formed for the purpose of nominating and electing a "Unity Ticket" in the 2008 Presidential election. Unity08 intended to solicit funds via the Internet in order to qualify for a position on the ballot in approximately 37 states and planned to hold an "Internet online nominating convention" to select its candidates for President and Vice President. Unity08 submitted an advisory opinion (AO) request asking whether it would be considered a "political committee" before the conclusion of its online convention in the summer of 2008.
In AO 2006-20, the Commission concluded that Unity08 would be a political committee once it spent more than $1,000 for ballot access, since spending money for ballot access is considered an expenditure under the Federal Election Campaign Act (the Act), Commission regulations and prior advisory opinions. See 11 CFR 100.111(a). Additionally, the Commission determined that Unity08’s "major purpose" was the nomination or election of federal candidates, and therefore the FEC was not prevented by the First Amendment from finding that Unity08’s activities qualified it as a political committee.
On January 10, 2007, Unity08 and individual members of its Board of Directors (the plaintiffs) filed a complaint in the U.S. District Court for the District of Columbia, challenging the FEC’s recent Advisory Opinion that concluded that the group’s proposed activities would require it to register as a political committee. The plaintiffs ask the court to rule that this conclusion was "arbitrary" and in violation of the First Amendment. The plaintiffs also seek to enjoin the FEC from enforcing the Act’s reporting provisions and contribution limitations against Unity08.
The plaintiffs contend that the FEC’s conclusion in AO 2006-20 was:
As well as alleging a violation of the Administrative Procedure Act (APA), the plaintiffs also contend, among other things, that the Commission’s determination was vague and overbroad, thus violating the First Amendment.
The plaintiffs ask the court to preliminarily and permanently enjoin the FEC from enforcing its ruling in AO 2006-20. The plaintiffs also ask the court to:
On October 16, 2008, the district court held that, since Unity08 sought to obtain ballot access merely as a placeholder for its candidates, it was reasonable for the Commission to conclude that any monies Unity08 spent to qualify for the ballot would be considered expenditures under the Act. The court held that Unity08’s ballot access was certain to benefit its candidates, who would be identified by party affiliation and office sought, and who would have declared their intentions to run for federal office when this benefit was conferred upon them. Large, unregulated disbursements made to obtain such access would therefore present the possibility of actual or apparent corruption that the Act was intended to limit. The court also concluded that the FEC’s determination that Unity08 would qualify as a political committee did not violate the First Amendment because Unity08’s major purpose was to nominate and support candidates for federal office.
The appeals court reversed the district court’s decision and ruled in favor of the Plaintiff.
The appeals court rejected the Commission’s argument that the case was moot once Unity08 ceased activity. The court noted that Unity08 claims it will continue operations if it wins this appeal. The court also rejected the Commission’s argument that the Administrative Procedure Act does not authorize review of advisory opinions because the opinion is not "final agency action." The court, quoting Chicago & Southern Air Lines v. Waterman Steamship Corp, 333 U.S. 103, 113 (1948), noted that administrative orders are final when "they impose an obligation, deny a right or fix some legal relationship as a consummation of the administrative process." In this case, the court found that the advisory opinion procedure is complete and deprives the Plaintiff of a legal right—2 U.S.C. §437f(c)’s reliance defense, which the Plaintiff would enjoy if it had obtained a favorable resolution in the advisory process. Additionally, the court rejected the Commission’s argument that the text and structure of the Act indicated Congressional intent to preclude judicial review of Commission advisory opinions. The court stated it was "improbable that Congress’s imposition of some procedural rules for investigations should, with little else, be read as an intention to implicitly preclude judicial review, particularly in contexts implicating First Amendment values." Slip op. at 10.
Additionally, the court agreed with the Plaintiff’s argument that Unity08 is not subject to regulation as a political committee unless and until it selects a "clearly identified" candidate. The court applied its ruling in FEC v. Machinists Non-Partisan Political League, 655 F.2d 380 (D.C. Cir. 1981), which found that draft groups were outside of the scope of the Act. In Machinists, the court used the "major purpose" test in Buckley v. Valeo, 424 U.S. 1, 79 (1976), to determine that draft groups "whose activities are not under the control of a 'candidate' or directly related to promoting or defeating a clearly identified 'candidate'" enjoyed protection from regulation under the Act. 655 F.2d at 393. Similar to Machinists, Unity08 did not fulfill the "major purpose" test from Buckley. The court also found the risk of corruption from Unity08’s activities no greater than the risk presented by the draft groups in Machinists.
Finally, the court rejected the Commission’s argument that accepting Unity08’s reading of Machinists would exempt political parties from regulation as political committees each election cycle until they actually nominated their candidates. According to the court, Unity08’s request for an AO "presented only the question of whether a group that has never supported a clearly identified candidate—and so far as appears will not support any candidate after the end of its 'draft' process—comes within the holding of Machinists." The court found that Unity08 stands in contrast to political parties that have previously supported "clearly identified" candidates and almost invariably intend to support their nominees.
On March 8, 2010, the U.S. District Court for the District of Columbia denied the Commission’s motion to dismiss and denied Utility Workers Union of America, Local 369’s (Plaintiff’s) oral motion for summary judgment regarding the Plaintiff’s suit against the FEC for dismissing an administrative complaint alleging that Covanta Energy Corporation (“Covanta”) unlawfully solicited contributions to its separate segregated fund (SSF) in its employee handbook. The district court remanded the case to the Commission for further explanation and proceedings consistent with the court’s opinion.
The Plaintiff filed an administrative complaint with the Commission in October 2008 alleging that Covanta violated the Federal Election Campaign Act (the Act) by including language in its employee handbook that solicited contributions from employees to Covanta’s SSF. Under the Act, SSFs may only solicit contributions from a corporation’s "restricted class," which consists of stockholders, executive and administrative personnel and the families of both groups. 2 U.S.C. §441b(b). The Plaintiff alleged that the handbook violated the Act by impermissibly soliciting all employees and by not following other requirements.
The FEC dismissed the Plaintiff’s complaint. Applying the standard set forth in Commission advisory opinions for determining whether a communication amounts to a solicitation, the Commission concluded that the language in Covanta’s employee handbook was not a solicitation because it did not encourage support for the [SSF] or facilitate the making of contributions to the [SSF], but "merely convey[ed] information that might engender inquiry."
The Plaintiff brought suit challenging the Commission’s dismissal of its administrative complaint under 2 U.S.C. §437g(a)(8)(A), which states that any party aggrieved by an order of the Commission dismissing a complaint may file a petition with the U.S. District Court for the District of Columbia.
The Plaintiff argued that the Commission’s dismissal of the administrative complaint was flawed and that the Commission’s Explanation and Justification (E&J) on SSF solicitations calls into question the Commission’s order. That E&J explains that an SSF "may accept unsolicited contributions from persons otherwise permitted by the Act to make contributions. Informing persons of the right to accept such contributions is, however, a solicitation." H.R. Doc. No. 95-44, 109 (January 12, 1977). 1
The district court held that it could not sustain the Commission’s administrative decision because neither the Factual and Legal Analysis explaining the decision nor the precedent it cites enables the court to discern the Commission’s rationale in determining that the Covanta handbook did not inform persons of the SSF’s right to accept contributions, and thus that is was not a solicitation as interpreted by the E&J.
The court held that a remand to the Commission for further explanation is the appropriate remedy in this situation because, on remand, the Commission may be able to supply a reasoned analysis for its dismissal of the Plaintiff’s complaint in a manner consistent with the E&J. The court also held that the Commission did not improperly rely on its own past advisory opinions when it cited them in its order.
1 The Commission’s Explanation and Justification is available on the FEC’s website.
Source: FEC Record -- April 2010 [PDF].