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DISMISSAL OF

FEC V. MALCOLM S. FORBES, JR., ET AL.,

CASE NO. 98 CIV. 6148 (S.D.N.Y.)

 

 

STATEMENT OF REASONS

 

CHAIRMAN SCOTT E. THOMAS

COMMISSIONER DANNY LEE MCDONALD

           

    

 

At issue in FEC v. Forbes was whether a presidential candidate could freely use the corporate resources of a media outlet, owned and controlled by him, to feature and discuss campaign issues of importance to his candidacy.  On August 28, 1998, the Federal Election Commission filed a complaint in United States District Court alleging that Forbes Magazine and Forbes, Inc. had violated 2 U.S.C. 441b when it published columns by Malcolm S. Forbes, Jr. (“Mr. Forbes” or “Steve Forbes”) promoting many of the same issues discussed by Mr. Forbes in his presidential campaign.   The complaint also alleged that Mr. Forbes and the Forbes campaign had violated the statute by accepting these prohibited corporate contributions from Forbes, Inc. On December 9, 1998, however, Commissioners Elliott, Mason, Wold, and Sandstrom took the unprecedented step of voting to withdraw the suit with prejudice. 

 

We strongly disagree with their decision to withdraw the Commission’s lawsuit in FEC v. Forbes.  In our view, the use of a candidate-owned, incorporated media outlet to disseminate the candidate’s views on campaign issues featured by the candidate’s campaign, represents a clear violation of the statute.  In addition, given Mr. Forbes’ imminent candidacy for President of the United States in the year 2000 and his  continuing ownership of Forbes Magazine, this is a matter which will not go away and should not have been ducked by the Federal Election Commission.  We believe it would have been in the best interests of Mr. Forbes, Forbes Magazine, as well as the other presidential candidates who are undoubtedly interested in whether Mr. Forbes can unfairly draw upon this large corporate asset, for the courts to have considered this important matter and resolved the constitutional defenses asserted by the Forbes campaign.  Unfortunately, however, nothing was settled, and a cloud of uncertainty continues to hang over Mr. Forbes’ use of his magazine to promote his campaign issues while a presidential candidate.  For these reasons, we voted against the motion to withdraw the Commission’s suit in FEC v. Forbes.

 

 

I.

 

The Federal Election Campaign Act (“FECA” or “the Act”) prohibits “any corporation whatever” from making any contribution or expenditure from corporate treasury funds in connection with a federal election and further prohibits any candidate or committee from knowingly accepting any such contribution.  2 U.S.C. 441b.  The Act defines a “contribution or expenditure” to include “any direct or indirect payment, distribution, loan, advance, deposit, or gift of money, or any services, or anything of value. . . to any candidate or campaign committee in connection with” any federal election.  2 U.S.C. 441b(b)(2)(emphasis added). The Commission’s regulations define “anything of value” to include “all in-kind contributions” and further explain that “the provision of any goods or services without charge. . . is a contribution.”  11 C.F.R. 100.7(a)(1)(iii)(3)(A).

 

The Act, however, specifically excludes certain press activities from the definition of contribution or expenditure.  Qualification for the so-called “press exemption” is reserved for:

 

any news story, commentary, or editorial distributed through the facilities of any. . . newspaper, magazine, or other periodical publication, unless such facilities are owned or controlled by any political party, political committee, or candidate.

 

2 U.S.C. 431(9)(B)(i)(emphasis added).

 

On September 22, 1995, Steve Forbes filed a Statement of Candidacy for the 1996 Republican Presidential nomination and formally announced his candidacy.  At the time of his announcement, Mr. Forbes was the chief executive officer of Forbes, Inc., its majority voting stockholder and editor-in-chief of two of its publications—Forbes Magazine and The Hills-Bedminster Press.[1] On November 2, 1995, Mr. Forbes took a leave of absence from Forbes, Inc., but decided to continue to write a column in Forbes Magazine entitled “Fact and Comment.”  The masthead of Forbes Magazine continued to list Mr. Forbes as “president and Editor-in-Chief,” and Mr. Forbes’ weekly column continued to feature the byline “By Steve Forbes, Editor-in-Chief” along with his picture.  The Hills-Bedminster Press at this time published excerpts of Mr. Forbes’ “Fact and Comment” column.

 

On February 12, 1996, a complaint was filed with the Commission alleging that

as a candidate “Mr. Forbes has used and continues to use Forbes Magazine editorials, at no cost to his campaign committee, . . .to communicate information about himself and his political beliefs to thousands of potential voters, and to promote the central themes of his presidential campaign.”  Complaint at 1.  The complaint further alleged that at no time has Mr. Forbes’ political campaign committee reimbursed Forbes Magazine, Forbes, Inc., or the newspaper in New Jersey for the cost of publishing editorials that support his campaign, nor has Mr. Forbes’ committee reported any contributions or expenditures relating to these editorials.”  Id.  The matter was designated MUR 4305.

 

The Office of General Counsel prepared a report for Commission consideration that contained a factual and legal analysis of the allegations presented in the complaint as well as a response to the complaint received from Mr. Forbes.  On December 3, 1996, the Commission approved the General Counsel’s legal recommendations and found reason to believe that (1) Forbes, Inc. and Forbes Magazine violated 2 U.S.C. 441b(a) by making a prohibited contribution to the Forbes presidential campaign; (2) Forbes for President, Inc. and its treasurer violated 2 U.S.C. 441b(a) by knowingly accepting in-kind contributions from Forbes, Inc., and 2 U.S.C. 434(b)(2)(A) by failing to report these in-kind contributions; and (3) Malcolm S. “Steve” Forbes, Jr., as a candidate, violated 2 U.S.C. 441b(a) by knowingly accepting these in-kind corporate contributions, and as a corporate officer by consenting to the making of the contributions.  The Commission approved these recommendations by a vote of 4-1 and authorized the General Counsel to conduct an investigation of the matter.

 

After completing an investigation of the matter, the General Counsel recommended that the Commission find probable cause to believe that Forbes, Inc. had violated 2 U.S.C. 441b, Forbes for President and its treasurer had violated 2 U.S.C. 441b and 434(b)(2)(A), and that Mr. Forbes had violated 2 U.S.C. 441b(a).  On  February 19, 1998, the Commission voted to approve these probable cause recommendations by a vote of 4-1.  When the statutorily-required attempts at conciliation failed, the Commission authorized the Office of General Counsel to file a civil suit for relief against the respondents in United States District Court.  The Commission filed its complaint in this matter on August 28, 1998 in the United States District Court for the Southern District of New York.

 

On December 9, 1998, the matter was unexpectedly brought back to the Commission.  A motion was made that the Commission withdraw its lawsuit in FEC v. Forbes.  The motion carried on a vote of 4-2 with Commissioners Elliott, Mason, Wold and Sandstrom voting for the motion to drop the case.  Commissioners McDonald and Thomas dissented.  On February 19, 1999, the District Court dismissed the case with prejudice at the joint request of the parties.

 

 

II.

 

We believe that the actions of Mr. Forbes, Forbes for President, Forbes, Inc., and Forbes Magazine at issue in this matter constituted violations of the Federal Election Campaign Act.  There is no doubt that candidate Forbes received “something of value” from Forbes Magazine when it provided him with a free forum to espouse his issues as a presidential candidate.  Mr. Forbes repeatedly used Forbes Magazine to publicize and garner voter support for issues which he was simultaneously advocating on the campaign trail.  For example, in the speech announcing his candidacy for president on September 22, 1995, Mr. Forbes urged “scrapping the tax code.  Don’t fiddle with it. Junk it.” Mr. Forbes went on to promote the benefits of a “flat tax” maintaining that it was “simple” and that it “would eliminate the principal source of corruption in Washington.”  Moreover, Mr. Forbes argued a flat tax would “set off a boom by letting people keep more of what they earn and by lowering barriers to risk taking.” One month later, using much the same language found in his presidential candidacy statement, Mr. Forbes wrote in “Fact and Comment”:

 

The answer is to junk the current code and enact the flat tax.  The resulting simplicity would enormously increase compliance, would remove the major sources of corruption in Washington, would set off an economic boom because people could keep more of each dollar they earned, and would eliminate barriers to job-creating investments.

 

Forbes Magazine at 23 (October 23, 1995)(emphasis added). The similar (and in some cases, identical) language found in both the Forbes presidential announcement and in his later October 23, 1995 “Fact and Comment” leaves little doubt that Forbes Magazine was being used to amplify the message and issues of the Forbes presidential campaign.  Indeed, only one week earlier, in the “Fact and Comment” column appearing in the October 16, 1995 issue of Forbes, Mr. Forbes specifically referenced the election when he wrote  “[t]he way to get the economy growing as it should is to enact the flat tax.  That won’t happen until the next election.” (emphasis added).

        

The parallel between the issues promoted in his presidential campaign and those promoted in Forbes Magazine is unmistakable.  There are other examples.  Mr. Forbes also promoted his position in Forbes Magazine and the Hills-Bedminster Press, on such campaign issues as returning to the gold standard (Forbes Magazine at 24, November 20, 1995; The Hills-Bedminster Press, November 15, 1995); abortion (Forbes Magazine at 23, December 18, 1995; The Hills-Bedminster Press, December 20, 1995); Bosnia (Forbes Magazine at 23, October 23, 1995, November 6, 1995 at 23, and January 1, 1996 at 25; The Hills-Bedminster Press, November 1, 1995 and January 3, 1996); federal term limits (Forbes Magazine at 23, September 25, 1995); and capital gains taxes (Forbes Magazine at 24, September 25, 1995; The Hills-Bedminster Press, September 27, 1995).

 

It is  undeniable that the free distribution of Mr. Forbes’ campaign positions through Forbes Magazine and Forbes, Inc. was “something of value” to the Forbes presidential campaign.  See 2 U.S.C. 441b(b)(2).  It is also clear that Mr. Forbes controlled the content, length, and format of the “Fact and Comment” columns written by him in these publications while a federal candidate.  As such, the publication of Mr. Forbes’ “Fact and Comment” columns were made by Forbes, Inc., in “cooperation, consultation or concert, with, or at the request or suggestion of” Mr. Forbes while he was a candidate for federal office.  2 U.S.C. 441a(a)(7)(B).  Under the Act, these expenditures “shall be considered to be a contribution to such candidate.”  Id.   

 

Recently, the Commission dealt with a matter very similar to the Forbes case.  In MUR  3918, the Commission found that certain radio advertisements run by Hyatt Legal Services constituted excessive contributions to the 1994 United States Senate campaign of Joel Hyatt.   The basis for the Commission’s finding was that the Legal Services advertisements were controlled by the candidate and referred to issues raised in the campaign.  In a number of ways, the Forbes matter is more compelling than the Hyatt case.  For example, Steve Forbes’ name and the candidate’s picture are prominently featured in his “Facts and Comment” piece; whereas, the name “Joel Hyatt” and the candidate’s picture are not even seen in the advertisements at issue in MUR 3918.  Yet, on June 17, 1997, the Commission unanimously approved a conciliation agreement in which the Hyatt campaign and Hyatt Legal Services admitted a violation of the statute and agreed to pay a civil penalty.[2]  We think the Commission should have dealt with Mr. Forbes in the same manner it dealt with Mr. Hyatt.

 

Nor does the “press exemption”—expressly reserved for press entities not owned by political candidates--rescue this prohibited corporate activity.  If Congress had intended to exclude all expenditures made by all media corporations from the scope of  section 441b, it certainly could have done so. The fact that it didn’t is strong evidence that Congress did not want to allow a federal candidate, who owned a media outlet, to use that media corporation and make what would otherwise be prohibited contributions or expenditures. Mr. Forbes is the majority stockholder of Forbes, Inc., owning 51% of the outstanding voting shares of capital stock.  On its face, the press exemption is not available to Mr. Forbes or Forbes, Inc. because the corporation is “owned or controlled” by Mr. Forbes.  As a result, Mr. Forbes’ commentaries are not excluded from the general prohibition on corporate expenditures and contributions found at 2 U.S.C. 441b.

 

In finding these statutory violations, we cannot accept the argument that Mr. Forbes was merely engaging in “issue discussion” as a candidate and that, absent express advocacy, such candidate activity is outside the Commission’s jurisdiction and may be permissibly financed with prohibited source money.  To argue that candidate communications discussing “issues” do not constitute legitimate campaign activity covered by the statute is odd, to say the least.  It is “issues,” after all, which candidates promise to campaign upon and which, presumably, voters are most interested in having discussed.  “I intend to campaign on the issues” or “I pledge an issue-oriented campaign” are oft-repeated candidate assurances made during the course of a campaign.  Whether the forum for that issue discussion is a magazine inherited by the candidate or the campaign trail makes little difference.  In either case, corporate resources may not be used to disseminate the candidate’s message.  Indeed, if our colleagues believe that Mr. Forbes may use the corporate resources of Forbes Magazine, why couldn’t another candidate similarly enjoy the use of prohibited source money to engage in “issue discussion”?  For example, could candidates accept foreign national money or even drug cartel money to pay for advertisements discussing the candidate’s campaign issues in the Washington Post or the Chicago Tribune? 

 

Moreover, there is no basis for applying the express advocacy test urged by respondents for candidate communications.  Their suggested test is not found anywhere in the statute and, as a practical matter, would create a large loophole in the statute.    Indeed, the Forbes approach would effectively eliminate most candidate activity from the Act’s limitations, prohibitions, and reporting requirements.  For example, a recent, detailed study of the 1996 Senate race in Minnesota found that less than one-fifth of the candidate ads contained express advocacy, less than one-fourth of them featured the candidate addressing the voters, and only 21 percent of the candidate ads made any reference to the upcoming election.  Herrnson and Dwyre, “Party Issue Advocacy in Congressional Elections” in Green and Shea, eds., The State of the Parties at 95 (1998).  As it did most recently in the Hyatt matter, the Commission should continue to treat candidate discussion of campaign issues as subject to the jurisdiction of the Federal Election Campaign Act.

 

Likewise, we must reject the ill-founded argument that FEC v. Forbes should be dropped simply as a matter of prosecutorial discretion because the activity at issue was unlikely to be repeated and Commission resources would be better spent elsewhere.  To the contrary, we think the importance of the issues raised, combined with recent events, strongly suggests that the Commission should have submitted this matter to the courts for resolution. Indeed, far from saving Commission resources as was argued, it is more than possible that the Commission will eventually have to start completely over and commit additional resources on this matter anew. By all indications, Mr. Forbes will soon be a candidate for president in 2000 and will continue to be the majority stockholder of Forbes, Inc.  Additionally, it appears possible that Mr. Forbes will continue to run pieces in Forbes Magazine which may well mirror campaign issues advanced by Mr. Forbes in his presidential campaign.  We note, for example, a recent Forbes Magazine article which “fired the opening salvo against the vice president” in the 2000 presidential campaign.  Washington Post at C1 (February 15, 1999).  Proclaiming that “Al Gore is obsessed with protecting the environment,” Steve Forbes’ magazine charged that his possible 2000 presidential rival is an “environmental extremist”; his aides have an “anti-business bias”; and that some of  Mr. Gore’s ideas are “kooky.”  Forbes Magazine at 74-76 (February 22, 1999).

 

Does the above piece fall within the jurisdiction of the Federal Election Commission?  What about future articles or editorials published by Forbes Magazine which track statements and proposals promoted by candidate Forbes on the campaign trail?  Unfortunately, in considering these serious questions, we now will not have the benefit of judicial consideration because the instant litigation was prematurely dismissed.[3]  As a result, Forbes Magazine, Mr. Forbes, and competing candidates will be left without a definitive judicial ruling on this important matter.

 

 

III.

 

We strongly disagree with the decision of Commissioners Elliott, Mason, Wold, and Sandstrom to seek dismissal of Federal Election Commission v. Forbes, with prejudice.  It seems obvious to us that Mr. Forbes’ use of his magazine to disseminate campaign statements provided his campaign with “something of value” in violation of 2 U.S.C. 441b.  Moreover, the only defense to these communications—the press exemption—was plainly unavailable on its face because Mr. Forbes owns the magazine.  Accordingly, these candidate communications were in-kind contributions to Mr. Forbes’ campaign in violation of the prohibition on corporate contributions.  2 U.S.C. 441b(a).  Judicial treatment of this matter not only would have remedied this clear statutory violation, but it also would have settled conclusively an important area of the law and saved the Commission crucial resources. For these reasons, we opposed the motion to withdraw suit in FEC v. Forbes.

 

 

            2/19/99                                                                                    / s /

____________________                                                      _________________________

Date                                                                                       Scott E. Thomas

                                                                                               Chairman

 

            2/19/99                                                                                    / s /

____________________                                                      _________________________

Date                                                                                       Danny Lee McDonald

                                                                                              Commissioner

                                      



[1] Forbes Magazine, a biweekly magazine with a national circulation of at least 765,000, and The Hills-Bedminster Press, a weekly newspaper distributed in New Jersey with a circulation of approximately 6,200, are published by subdivisions of Forbes, Inc.

[2] The conciliation agreement in MUR 3918 relied, in part, on Advisory Opinion 1990-5, 2 Fed. Elec. Camp. Fin. Guide (CCH) 5982.  In that opinion, the Commission emphasized that any communication—          the content of which is under the control of a candidate—is “for the purpose of influencing” the   candidate’s election if: (1) the communication makes direct or indirect reference to the candidacy, campaign, or qualifications for public office of the candidate or the candidate’s opponent(s); or (2) the communication makes reference to the candidate’s views on public policy issues, or those of the candidate’s opponent(s); or (3) if distribution of the communication is expanded significantly beyond its usual audience, or in any other manner that indicates utilization of the communication as a campaign communication.

 

     Because Mr. Hyatt exercised control over the content of Hyatt Legal Services’ (“the Firm”) radio advertisements; because the content of four of the advertisements, as drafted by a campaign consultant and actually broadcast, made reference to issues known to be likely raised in the campaign; and because the Firm’s radio advertisements continued to be broadcast even after those issues were in fact raised in the campaign, the Commission unanimously concluded that the Firm’s radio advertisements were, in part, for the purpose of influencing Mr. Hyatt’s election campaign.  The Commission further found that because the Firm’s radio advertisements were coordinated with the candidate and were, in part, for the purpose of influencing the candidate’s election, and because all of their cost was borne by the Firm, their value constituted an in-kind contribution from the Firm to the campaign committee.  2 U.S.C. 441a(a)(7)(B)(i).

[3] It is important to remember that it is for the courts to consider constitutional disputes and “to say what the law is.”  Marbury v. Madison, 5 U.S. 137, 178 (1803).  FEC Commissioners have no such Article III role under the Constitution of the United States.