The Van Hollen Case and the FEC’s Power

One way of looking at a case like Van Hollen v. FEC is to evaluate its result. Did the decision promote anti-corruption goals, or impede them? Reform proponents have celebrated the result in Van Hollen, which vacated a 2007 rule that allowed corporations and unions to narrow their disclosure when sponsoring” electioneering communications”— issue ads that mention candidates on television or radio during the 30 or 60 days before an election. Some have noted that the decision will instead encourage these same groups to make independent expenditures instead and actually advocate the candidates’ election or defeat, under narrower disclosure requirements that still stand. Nonetheless, advocates for greater disclosure have celebrated the decision as a “victory for transparency,” as Commissioner Ellen Weintraub Tweeted last week.

Yet another way of looking at a case like Van Hollen is through the lens of agency power. Does the Federal Election Commission—charged with exclusive civil jurisdiction to interpret and enforce the campaign finance laws—have less room to act than before? When a court finds that the FEC’s decision-making process was irrational and based on a “clear error of judgment,” as the Van Hollen court found, then what does that say about how the FEC must approach its future decisions? For example, if the full FEC were to respond favorably to Commissioner Ann Ravel’s recent call for new rules “to address corruption and increase disclosure in the political process,” then might not a future litigant cite the Van Hollen case to argue that the agency overstepped its bounds when writing rules to require new disclosure?

One of the ironies of federal campaign finance law these days is that the biggest proponents of the FEC’s mission frequently seek to curb its power, while skeptics of campaign finance regulation favor creative uses of that same power.

On the reform side, this has largely resulted from McCain-Feingold. That law’s most vocal proponents saw the FEC’s rulemaking process as key to its effectiveness. When reform proponents did not obtain from the FEC the results they wanted on coordination, candidate appearances at party fundraising events, and state and local party spending, they went to court. Through the Shays litigation, they built a strong body of case law that struck down FEC action on general administrative law grounds. In the long term, the Shays cases may end up standing less for vigorous campaign finance regulation, and more for curbs on FEC decision-making—curbs which, in a different time and place, critics of regulation may try to interpose against agency rules or enforcement.

At the same time, the enforcement process has sometimes seen a high level of flexibility in interpreting statutes and rules toward deregulatory ends. To take just one example: the rule struck down in Van Hollen  provided that a corporation need only disclose donors who gave “for the purpose of furthering electioneering communications.” In MUR 6002 involving Sheldon Adelson’s Freedom’s Watch, it was contended that even this narrowed requirement applied only when a donor gave to further a specific advertisement. Might not a future FEC, one more sympathetic to regulation, try to use this same flexibility on other questions of statutory interpretation—perhaps in ways favoring regulation, as the FEC did in several matters that arose from the 2004 Presidential election?

None of this is meant to engage the result in Van Hollen. One can certainly argue that the FEC might have avoided defeat by writing the rules more carefully in 2007 or by defending them less glibly on remand in 2012. Rather, it is to say that, when the FEC loses in court on administrative law grounds, the reasoning—and not just the result—can have long-term consequences for agency power.

In Brief: The FEC’s New Citizens United Rules

Yesterday the Federal Election Commission adopted rules to implement the Supreme Court’s decision in Citizens United v. FEC. The rules will not take effect before the November 4 election, although they largely codify practices that have been understood to be lawful since Citizens United came down nearly five years ago.

Here—briefly—is what the FEC did:

  • The FEC rules will now expressly permit corporations and labor unions to make independent expenditures and electioneering communications—as Citizens United held that they must.
  • The FEC concluded that “the Court’s holding applies to all non-coordinated corporate and labor organization expenditures, regardless of whether they fall into the narrower statutory definition of an ‘independent expenditure.’” Yet the FEC left standing a wide range of restrictions on corporate fundraising activity that do not necessarily involve coordination with parties. These restrictions are a potential source of future controversy.
  • The FEC adopted its first explicit acknowledgement of so-called “Super PACs” in the regulations: it added a note to the rules, making clear that corporations and unions may make unlimited contributions to independent expenditure-only PACs and to the non-contribution accounts of  “Carey” PACs.  The FEC said it will undertake a separate rulemaking on Super PACs, but did not say when.
  • The FEC left standing the existing disclosure rules for corporate and union independent expenditures and electioneering communications. For electioneering communications, it left a gap between the treatment of corporations and unions, which must only disclose donations “made for the purpose of furthering electioneering communications”—and other unincorporated entities, which must disclose a far wider range of donors. This is an ironic application of the Court’s holding in Citizens United, which was “that the First Amendment does not allow political speech restrictions based on a speaker’s corporate identity.”
  • The new rules allow a corporation or union to establish a segregated bank account for making electioneering communications—although the narrowness of the general disclosure requirements, as discussed above, provides a compelling reason not to do that.
  • The new rules draw a confusing and potentially controversial distinction between partisan and non-partisan voter drives targeted to a corporation or union’s “restricted class.” It allowed corporations and unions to withhold information and help based on support for or opposition to a particular candidate or party. But in that case, the voter drive would not qualify as “nonpartisan,” would be treated as an expenditure, and apparently may not be coordinated with candidates or parties.

FEC Updates Rules in Response to Citizens United and McCutcheon, Approves Request on Presidential Nominating Conventions

At today’s public meeting, the FEC updated its rules in response to the Supreme Court decisions in Citizens United v. FEC and McCutcheon v. FEC, and approved an advisory opinion allowing the Democratic and Republican national party committees to establish separate committees to raise convention funds under a separate contribution limit.

While the decision in Citizens United, which allowed corporations, unions, and associations to spend unlimited amounts in elections, was handed down nearly five years ago, the Commission had yet to update its rules to conform to the decision. The delay was caused by a divide between the Democratic- and Republican-appointed Commissioners over whether updates to the rules should include provisions on the disclosure of campaign spending. Commissioners Walther and Weintraub argued that any new rules should address the disclosure issue; Vice-Chair Ravel, however, joined the Republican Commissioners in voting to update the rules, giving the Commission the four votes it needed to proceed.

Commissioner Weintraub was vocal in her opposition to the new rule, arguing that the Commission was “falling down on the job” by not requiring disclosure of all political expenditures. She said the Commission was “rigging the game” to prevent new disclosure regulations. Weintraub also brought up a list of other items on which she sought Commission regulatory action, including the ban on contributions from foreign nationals, coercion of employees and union members, and corporate facilitation rules.

In addition to the rules in response to Citizens United, the Commission unanimously approved rules implementing the Supreme Court’s decision in McCutcheon v. FEC, which invalidated the law’s aggregate limits on contributions from individual donors. The interim final rule would remove the invalidated cap on individual contributions from the Commission’s existing regulations.

The Commission also adopted an advanced notice of proposed rulemaking (ANPRM) on McCutcheon and announced that it will hold a hearing on February 11, 2015.  The subjects to be discussed include potential changes in disclosure rules, earmarking, and rules for political action committees and joint fundraising committees. The ANPRM also asked for comments on the agency’s presentation of campaign finance data.

After debating the Citizens United and McCutcheon rules, the Commission turned to a joint advisory opinion request from the Democratic and Republican national party committees. Perkins Coie’s Bob Bauer and Graham Wilson represented the DNC in the request. The parties filed the request after Congress passed a law stripping the presidential nominating conventions of their public funding. To make up the shortfall, the parties proposed to create separate committees, subject to the amount limitations and source restrictions, that would raise funds to finance the conventions. The Commission granted the request by a 4-2 vote. Commissioners Weintraub and Walther voted against the proposal, arguing that the matter would be better addressed through rulemaking.

Last, the Commission briefly discussed two identical advisory opinion requests from David Brat and Jack Trammell. Brat and Trammell are both candidates for Virginia’s 7th Congressional District seat, which Eric Cantor resigned in August after losing to Brat in the primary election. Both Brat and Trammell are professors at Randolph-Macon College, and both sought to continue receiving benefits from the college while taking a leave of absence to run for Congress. The Commission appeared poised to approve the requests, but the meeting was cut short when Vice-Chair Ravel had to leave to catch a flight.

In Independence Institute, a Pro-Disclosure Decision—But With No Disclosure to Follow

It was hardly surprising that the U.S. District Court for the District of Columbia, in Independence Institute v. FEC, would reject a challenge to McCain-Feingold’s disclosure requirements for “electioneering communications.” These are television or radio ads, sponsored by unregistered groups, that refer to candidates before the voters during the thirty or sixty days before the election. But the decision will have no impact on the information voters will receive before November, because of how narrowly the FEC interprets these same requirements. And the decision may face skeptical appellate review.

When Congress passed the electioneering communications restrictions in 2002 as part of McCain-Feingold, it was trying to regulate so-called “sham” issue ads. These were communications that eluded federal campaign finance regulation by eschewing phrases like “vote against,” and using others instead like, “He preaches family values, but he took a swing at his wife.” McCain-Feingold banned corporations and unions from sponsoring electioneering communications, required other sponsors to disclose their donors, imposed disclaimer requirements on these communications, and limited their coordination with federal candidates and party committees.

The Supreme Court initially upheld these restrictions in McConnell v. FEC. But the framework quickly collapsed.  In 2007, in Wisconsin Right to Life v. FEC, the Supreme Court narrowed the corporate ban so that it applied only to ads containing “the functional equivalent of express advocacy.” In 2010, in Citizens United v. FEC, the Supreme Court struck down the corporate ban altogether, while leaving in place the disclosure, disclaimer and coordination provisions. (One of Citizens United’s many ironies is how the Supreme Court decried “laws that force speakers to retain a campaign finance attorney,” while striking down the only simple part of the particular law before it—the ban itself.)

While the Supreme Court was rolling back the ban on corporate and union-sponsored electioneering communications, the FEC was sharply narrowing the disclosure provisions. In 2007, the FEC responded to the Wisconsin Right to Life case with a rule requiring corporations and unions to disclose only those who gave specifically to further electioneering communications. In 2010, it deadlocked on whether this narrow rule could be triggered even when a lone donor micro-managed the sponsor’s activities. In Citizens United, the Supreme Court spoke approvingly of how “prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters.” But by then, the FEC had already rolled back the disclosure requirements for these very same corporations.

In Independence Institute, the district court was emphatic that neither Wisconsin Right to Life nor Citizens United provided any basis to curtail disclosure. The district court said that Wisconsin Right to Life involved only “the regulation of expenditures,” not “the disclosure requirements,” and that  Citizens United “squarely foreclosed” any effort to narrow disclosure. The unavoidable implication of the district court’s opinion is that the FEC’s current rules are contrary to law, insofar as the agency adopted them in response to Wisconsin Right to Life.

But this logic puts the district court at loggerheads with the D.C. Circuit’s opinion two years ago in Center for Individual Freedom v. Van Hollenwhich the district court neither discussed nor even cited. In Van Hollen, the D.C. Circuit rejected a challenge to the FEC’s rollback of the disclosure rules, saying: “The statute is anything but clear, especially when viewed in the light of the Supreme Court’s decisions in Citizens United … and Wis. Right to Life, Inc. …” The D.C. Circuit remanded Van Hollen to the FEC, but rebuffed the challenge to the narrower disclosure rules, because they were “an attempt by the agency to  provide regulatory guidance under the BCRA following the partial invalidation of the speech prohibition imposed on corporations and labor unions in the context of ‘electioneering communications.’”

Thus, Independence Institute may prove to be a glass half-empty for disclosure proponents, much like the D.C. Circuit’s recent opinion in Stop This Insanity Inc. Employee Leadership Fund v. FEC was. The district court upheld the agency with a full-throated defense of the constitutionality of disclosure requirements. But it teed the issue up for decision by a D.C. Circuit that may prove more skeptical, even while Congress and the FEC each remains at an impasse over disclosure policy. And the district court’s opinion may be vulnerable to review, while securing no additional disclosure in the meantime.

Major Victory for Voters’ Rights in North Carolina

In a major victory for voting rights, the Fourth Circuit today issued an order forbidding the State of North Carolina from implementing certain provisions in a law impeding voters rights in that state. Perkins Coie LLP represented several North Carolina voters in the litigation. Marc Elias, a partner with Perkins Coie involved in the efforts to stop the law from implementation, stated the proposed law “has been widely recognized as one of the most audacious of the recent efforts to suppress voter registration and turnout across the country.” The Fourth Circuit found that the provisions repealing North Carolina’s same day registration program, through which voters could register to vote and cast a ballot on the same day during the early voting period, and out-of-precinct voting, which ensured that voters who voted in the wrong precinct in the county in which they were registered to vote would have their ballots counted, violated Section 2 of the Voting Rights Act. Please click here to read the decision.  

Deception and Disclosure in the Iowa Endorsement-Buying Case

Few face greater peril under the campaign finance and criminal laws than an undisputed bad actor. Yesterday, former Iowa state senator Kent Sorenson admitted in a plea agreement that he willfully caused Representative Ron Paul’s 2012 presidential campaign to falsely report payments made to two companies. In fact, Sorenson acknowledged, the campaign paid the companies—who then paid Sorenson—to induce him to switch his endorsement to Paul from Representative Michele Bachmann. The Center for Responsive Politics has published the text of Sorenson’s plea agreement here, along with other documents and a summary of the case. Continue Reading

FEC Approves Three Advisory Opinions, Permits Internet Company to Use Agency Data

At yesterday’s public meeting, the FEC voted unanimously to approve three advisory opinions, including one requested by the internet startup Crowdpac. The company, which was represented by a bipartisan team of Perkins Coie’s own Marc Elias and Tyler Hagenbuch, along with veteran election lawyer Benjamin Ginsberg of Jones Day, plans to use an algorithm to synthesize data on political candidates and provide information and suggestions on the candidates to potential donors.

While Crowdpac’s original request covered practically every relevant aspect of its planned operations, the discussion at yesterday’s open meeting focused primarily on whether the company’s proposed use of FEC contributor data was permissible. Specifically, Crowdpac sought to display the names, cities, and states of individual contributors identified from FEC reports alongside aggregated campaign finance data about candidates.

However, the Federal Election Campaign Act prohibits FEC data from being “sold or used by any person for the purpose of soliciting contributions.” One draft released by the FEC employed a strict reading of this provision that would have prohibited Crowdpac’s proposed activity. But the Commissioners unanimously decided that Crowdpac simply sought “to promote … the transparency of political information” – not use contributor data for solicitation purposes.

In addition to Crowdpac’s request, the Commission approved two other advisory opinions. One allowed Reed Marketing Consultants to develop and market an affinity card product for political committees that would allow cardholders to forward their rebates to committees of their choosing. The second opinion allowed Joan Farr, an Independent Senate candidate in Oklahoma, to purchase and distribute a book she authored. Last, the Commission made a small revision to a final audit report for the Nebraska Democratic Party.

No Satisfaction – Or At Least Mixed Emotions – With the D.C. Circuit in Stop This Insanity

Besides choosing the wrong Rolling Stones song to quote in a campaign finance opinion – “Salt of the Earth” from Beggars Banquet would have been better, with its references to “stay at home voters” and “gray suited grafters” – there was a lot that the D.C. Circuit got wrong in Stop This Insanity Inc. Employee Leadership Fund v. FEC.

First, the court repeatedly asserted that the separate segregated fund – or what laypeople call a “corporate PAC” – is a “statutory artifact,” “functionally obsolete,” and a “relic.” Yet it remains the prescribed, lawful way by which corporations, and also unions, contribute to federal candidates. And it remains the dominant mode of federal political participation for most major companies. The court glosses over the holding of Citizens United v. FEC and v. FEC, which is that the state may regulate contributions more stringently than independent expenditures. It strongly suggests that STII should just go ahead and make independent expenditures, instead of bothering to form a PAC. The court’s strange assault on the PAC option is a startling embrace of the brave new world of campaign finance that has followed Citizens United.

Second, the court failed to confront why STII wanted to shun direct independent expenditures in the first place. A section 501(c)(4) social welfare organization, STII feared that, if it made independent expenditures except through a PAC, it might become a federal political committee and trigger disclosure for the entire organization. Republicans on the FEC readily grasped this fear when STII made the advisory opinion request that gave rise to the litigation. As Commissioner McGahn said then:

Let’s say you do this out of the (c)4, and set aside the tax issues. You only have a handful of employees, you’re not that large, and you start doing independent expenditures … Couldn’t your whole thing become a political committee at some point? Particularly the way the Commission sort of has a case-by-case … There’s no way you’re going to know.

(You can hear McGahn’s comments here at 15:47, with similar comments from McGahn at 2:30 and 33:33, and from Commissioner Matthew Petersen at 26:41.)

A corporation might have many reasons to “do things the hard way” and finance independent expenditures through a PAC, regardless of any desire to evade disclosure of political spending. A tax-exempt organization that genuinely operates as a 501(c)(4) has reason to separate its social welfare activities from its political activities, and to limit disclosure only to those who give for electoral purposes. Indeed, STII appeared to want to preserve the anonymity of one group of donors – those to the 501(c)(4) – by raising and disclosing contributions from an entirely different group of donors – those to the PAC. Were that not the case, then STII would have had little reason to sue, except to avoid other burdens of FEC registration, which it had already chosen to accept by forming the PAC.

Still, the court’s eagerness to urge onto STII what is now a largely unregulated course of action is hardly an outcome for disclosure proponents to celebrate.

FEC Approves Advisory Opinion Allowing Rep. Ryan to Promote Upcoming Book

At its public meeting today, the FEC approved two advisory opinions, one of which allows Rep. Paul Ryan’s campaign committee and leadership PAC to promote the Congressman’s upcoming book.

The FEC released three drafts prior to the meeting, all of which allowed the committees to promote the book to varying degrees. As Brian Svoboda explained on this blog yesterday, the drafts differed as to just how much Representative Ryan’s leadership PAC, Prosperity Action, could promote the book. Rep. Ryan will receive royalties from sales of the book.

The Commissioners disagreed generally over the scope of the Federal Election Campaign Act’s prohibition on the personal use of campaign funds, and specifically over whether the prohibition applies to leadership PACs. Members of Congress may not use campaign funds for payments that would exist irrespective of their campaign or status as an officeholder. The Commission has repeatedly found that the personal use prohibition can be implicated when a campaign purchases or promotes a book from which the candidate receives royalties. However, it asked Congress last year to amend the personal use statute to apply to leadership PACs, implying at least that the prohibition does not extend to them.

The Commission adopted a modified version of Draft C, allowing Rep. Ryan’s PAC to promote the book on the Internet under the same limits that apply his campaign, but stating that the Commission could not agree on whether the personal use restrictions applied to his PAC.

Commissioner Ravel said that she was not comfortable allowing unlimited promotion of the book by the leadership PAC, because Rep. Ryan will receive royalties from book sales. Commissioners Weintraub and Walther went further and argued that even de minimis promotion, whether by the leadership PAC or the campaign, would violate the personal use prohibition.

After voting on the opinion, Commission Chair Goodman raised the separate issue of whether the publisher’s promotion of the book was covered by the media exemption from the campaign finance laws. Draft C stated that the book publisher’s costs were not subject to the Act’s regulation because they stemmed from bona fide commercial activity. But Goodman argued forcefully that the Commission should have relied on the “media” exemption instead, stating that the exemption for commercial activity subjected the publisher to additional regulation. He said the opinion could create a “festering legal uncertainty” that could restrict activity by nonprofit book publishers and prevent them from stating their editorial viewpoints. Commissioners Weintraub and Ravel disagreed forcefully with Goodman, arguing that since Congress did not include the category of books in the media exemption, the Commission had to rely on the commercial vendor exception instead.

The Commission unanimously approved a request from the Henry Ford Health System Government Affairs Services Political Action Committee, a corporate PAC that sought to raise funds from its corporate parent and the parent’s subsidiaries. The Commission was scheduled to consider a request from a congressional candidate who sought to appear on a reality TV show, but the candidate withdrew the request late last night.

The Tangled Web of Paul Ryan’s FEC Request

At issue in Advisory Opinion Request 2014-06 is whether Representative Paul Ryan’s leadership PAC, Prosperity Action, may promote the sale of his upcoming book on the Internet beyond de minimis levels. Representative Ryan intends to receive royalties from the book.

The Federal Election Commission published two drafts of a response to his request. The first, Draft A, would grant it. The second, Draft B, broadly asserts that “the Act’s personal use prohibition applies to leadership PACs, such as Prosperity Action.” Adopting Draft B would be a significant policy change for the FEC. In its legislative recommendations just last year, the FEC asked Congress to amend 2 U.S.C. § 439a to cover leadership PACs, saying: “Congress might not have considered the application of the personal use prohibition to this particular type of political committee.”

But at the heart of the request is a highly technical question that vexed many during the failed prosecution of John Edwards. A separate FEC regulation, 11 C.F.R. § 113.1(g)(6), asks: when a third party pays an expense that the candidate’s campaign cannot pay, when is that payment still treated as a contribution to the candidate, and thus as a prohibited personal use of campaign funds by the candidate? If the third party would not have made the payment irrespective of candidacy, then the payment is a contribution, and a prohibited personal use of funds. In the Edwards case, the “third party” was Bunny Mellon, and the expense was to conceal an extramarital affair. In Representative Ryan’s request, the third party is Prosperity Action, and the expense is to promote his book. Draft B holds that Prosperity Action would trigger personal use through excessive promotion.

As Marc Elias Tweeted yesterday evening, the FEC considered a very similar question before. In 2008, it told Senator Kit Bond that, while his campaign may not pay the co-author of a book he was writing on terrorism, his leadership PAC could make the payment. “Because the book would advance the leadership PAC’s goals and the leadership PAC would pay for the book and the co-author’s expenses irrespective of the campaign, the $25,000 payment to the co-author would not constitute a contribution under 11 CFR 113.1(g)(6).” Unlike Representative Ryan, Senator Bond averred that he would not receive royalties on the book. But one can certainly argue that the receipt of royalties is irrelevant to whether the book advances PAC goals, and whether the PAC would have paid for it irrespective of the Member’s campaign.

Even if the FEC sides with Representative Ryan and adopts Draft A, Prosperity Action still may not be able to promote the book beyond a de minimis level. This is because House ethics rules separately prohibit the personal use of campaign funds—and this prohibition can apply to leadership PACs. (A sensational “60 Minutes” report last October completely overlooked the separate congressional ethics restrictions, claiming instead that a “loophole” allowed Members of Congress to spend their leadership PAC funds on personal use “with no restrictions.”) The Committee on Ethics tells Members specifically that the House prohibition on personal use reaches beyond their own principal campaign committees “to any campaign funds under a Member‘s control”—which can include their leadership PACs. (House Ethics Manual at 152.)

In fact, if the FEC were to reject Draft B, Representative Ryan may even be worse off. To reject Draft B, the Commission would have to conclude—at least tacitly—that the PAC would make the payment even if Representative Ryan were not running for federal office. Affirming the personal nature of the expense in such a way would not help Representative Ryan before the Committee on Ethics or the Office of Congressional Ethics, if they were to review the PAC’s payments.