Question 1:
(60-70 minutes)
The Federal Election Campaign Act (“FECA”) is a large and complex statute that regulates
activity related to federal election campaigns, including but not limited to (1) the amounts that
individuals and entities contribute to candidates and political committees; (2) the amounts
candidates and political committees may expend on campaigns; (3) requirements that candidates
and political committees disclose contributions and expenditures; (4) providing for the public
financing of presidential elections.
Section 441b of FECA regulates contributions and expenditures by national banks, corporations
and labor organizations. Section 441b(a) prohibits corporations1 from making “a contribution or
expenditure in connection with any federal election to any political office” and also prohibits “any
candidate or political committee from knowingly . . . accepting or receiving any contribution
prohibited by this section. See 2 U.S.C. § 441b(a). Section 441b also defines “contribution or
expenditure” as “any direct or indirect payment, distribution, loan, advance, deposit, or gift of
money, or any services, or anything of value . . . to any candidate, political committee, or political
party or organization, in connection with any election to any of the offices referred to in this
section” with a few exceptions. Id. § 441b(b)(2).
FECA was enacted after a series of scandals involving federal campaigns in the 1970s,
including corporate and industry attempts to gain favor with elected officials through alleged
campaign contributions and union attempts to force members to contribute to union war chests
used to fund certain political campaigns. Congress’s justifications for the regulation of corporate
political activity thus arises from the perceived need to (1) restrict the influence of political war
chests funneled through the corporate form, (2) to eliminate the effect of aggregated wealth on
federal elections, and (3) to curb the political influence of those who control large aggregations of
capital.
Despite Congress’s desire to regulate corporate political activity, FECA allows some
corporate contributions and expenditures. Section 441b(b) specifically provides for an exception
to the prohibition on corporate expenditures and allows corporations to make expenditures for “the
establishment, administration, and solicitation of contributions to a separate segregated fund to be
utilized for political purposes by a corporation.” See 2 U.S.C. § 441b(b)(2)(C). Such segregated
funds are considered to be “political committees” under FECA. See 2 U.S.C. § 431(4)(b).
The overall effect of these provisions is that corporations can set up separate segregated
funds, which are considered to be political committees within the meaning of FECA. Although
the corporations cannot themselves donate money to political campaigns or engage in certain
political activities, the corporation may encourage its employees to donate to the separate
segregated fund and the separate segregated fund may make and solicit political contributions or
engage in political activity. The corporation may control those activities as long as it does not use
its general treasury funds for such activities. See Pipefitters Local Union No. 562 v. United States,
407 U.S. 385 (1972); FEC v. Nat’l Right to Work Comm., Inc. 459 U.S. 197 (1982).
The Federal Election Commission (“FEC”) is responsible for administering FECA,
1
For purposes of FECA the term “corporation” includes any for-profit or non-profit corporation.
including the provisions discussed above. Under FECA, the FEC has a variety of enforcement
powers. Specifically, FECA gives the FEC the power to initiate an enforcement proceeding upon
receiving a written complaint that a person or entity has violated FECA. See 2 U.S.C. § 437g(a)(1).
If after a series of proceedings analogous to formal adjudications, the FEC determines that there
is “probable cause” to believe that a person or entity has violated or is about to violate FECA, it
may attempt to correct or avoid the violation by entering into conciliation agreements that may
include the imposition of fines. See 2 U.S.C. § 437g(a)(4)(A). If, however, the FEC cannot correct
or prevent a violation of FECA, it may institute a civil action for relief, including a request for a
permanent or temporary injunction or an order for civil penalty that does not exceed the greater of
$5,000 or an amount equal to any contribution or expenditure involved in the violation. See 2
U.S.C. § 437g(a)(6)(A). The civil proceeding may be instituted in any district court of the United
States in which the person against whom such actions is brought resides or transacts business. Id.
Due to FECA’s enormous complexity, numerous persons and entities often ask for advice
regarding its application in any given situation. FECA provides for these types of situations by
giving the FEC the power to issue advisory opinions. Section 437f provides that, at a person’s
request, the FEC must issue an advisory opinion within 60 days with respect to a specific
transaction or activity by the person. See 2 U.S.C. § 437f(a)(1). Section 437f also provides the
following with respect to advisory opinions:
(c) Persons entitled to rely upon opinions; scope of protection for good faith
reliance:
(1) Any advisory opinion rendered by the Commission under subsection (a)
of this section may be relied upon by-(A) any person involved in the specific transaction or activity with
respect to which such advisory opinion is rendered; and
(B) any person involved in any specific transaction or activity which is
indistinguishable in all its material aspects from the transaction or
activity with respect to which such advisory opinion is rendered.
See 2 U.S.C. § 437f(c)(1).
The National Justice Association (“NJA”) is a not-for-profit membership organization
similar to the ACLU or NRA. It is a corporation within the meaning of FECA. During the 2002
election cycle, the NJA made “payments” amounting to $5,279.84 to NJA’s separate segregated
fund, the Justice Victory Fund (“JVF”), which NJA created pursuant to Section 441b(b)(2)(C).
Specifically, the $5,279.84 in “payments” represented the donation of three NJA employees who
worked for the JVF on the campaigns of two candidates for the U.S. House of Representatives.
The amount of $5,279.84 represents the value of the NJA employee’s time while working on the
campaign. The JVF used these “payments” for political purposes, reimbursed the NJA within 30
days, and reported the payments to the FEC as independent expenditures by JVF.
After receiving a complaint, the FEC became suspicious of the JVF’s report of
“independent expenditures” regarding the $5,279.84. After investigating, it discovered that the
amount represented reimbursements for time donated by NJA employees as discussed above. The
FEC thus commenced administrative proceedings, subsequently finding “probable cause to
believe” that NJA and JVF had violated FECA under Section 437g(a)(4)(A). Following the failure
of conciliation efforts, the FEC brought a civil action for relief against NJA and JVF in the United
States District Court for the District of Columbia under Section 437g(a)(6)(A).
The FEC’s civil complaint claims that NJA and JVF have violated Section 441b(a) of
FECA, which (1) prohibits corporations from making contributions in connection with federal
elections and (2) prohibits political committees from knowingly receiving such contributions.
Specifically, the FEC claims that NJA’s donation of employee time to JVF, which in turn used
them on an election campaign, falls within the definition of prohibited contributions under Section
441b(b)(2).
NJA, however, claims that because JVF reimbursed it within 30 days of receiving the
donated item, NJF’s contribution of its employees’ time does not fall within the prohibitions of
FECA. Specifically, NJA points to the definition of “contribution” contained in Section 431 of
FECA, which is the overall statute’s general definition section:
The term contribution includes--(i) any gift, subscription, loan, advance, or
deposit . . . or anything of value made by any person for the purpose of
influencing any election for Federal office; or (ii) the payment by any person of
compensation for the personal services of another person which are rendered to
a political committee without charge for any purpose.
See 2 U.S.C. § 431(8). NJA argues that this more generally applicable definition of contribution
should override the definition in Section 441b. Consequently, because JVF reimbursed NJA for
the $5,279.84 within 30 days, NJA’s employee services were not provided “without charge,” and,
thus, their services were not “contributions” to JVF within the meaning of FECA.
The FEC has responded by pointing out that in its Advisory Opinion 2001-24, it expressly
ruled that a corporation - in that case the Sierra Club - may not provide to its separate segregated
fund the services of its employees to work on congressional campaigns, even if the fund fully
reimburses the corporation within thirty days. See 1 Fed. Election Campaign Fin. Guide at 11,08283 (2001).2 Specifically Advisory Opinion 2001-24, stated:
The initial disbursement of corporate treasury monies is a loan, advance, or
something of value to both the candidate and the corporation's separate
segregated fund. . . . None of the exceptions in the Act or regulations remove
such a disbursement from the general prohibition of § 441b. [O]nce the
corporation disburses its treasury funds to pay an employee for political services
rendered to a federal candidate, the corporation makes a prohibited contribution
or expenditure and a violation of the Act occurs. A reimbursement payment
method does not cause the violation to abate.
Id. at 11,083.
2
The Federal Election Campaign Finance Guide is a public document that contains opinion letters, advisory
opinions and other important matters published by the FEC. It is widely available and well-known to politically
active organizations.
You are the clerk for Judge Ellen Gates who has recently been appointed to the federal
bench in the United States District Court for the District of Columbia. Judge Gates believes that
this dispute hinges on the agency’s interpretation of the statute but she is unsure how to resolve
the issue.
Advise Judge Gates as to the appropriate standard of review to use in this case and
as to how you think it affects resolution of the issue before the judge.