Austin v. Michigan State Chamber of Commerce

On March 27, 1990, the Supreme Court ruled that a Michigan state law prohibiting independent expenditures by corporations was constitutional. Reversing a Sixth Circuit U.S. Court of Appeals decision in Austin v. Michigan State Chamber of Commerce, the Court said that the state could prohibit corporations from using their treasury funds to make independent expenditures in connection with state elections.

Background

The suit originated in a 1985 district court complaint filed by the Michigan State Chamber of Commerce. The Chamber is a nonstock, nonprofit incorporated membership organization funded by dues. Three quarters of its members are for-profit corporations.

The Chamber sought to make an independent expenditure for a newspaper advertisement supporting a candidate for the state legislature. Although the Chamber had established a separate segregated fund for political purposes (which could lawfully have been used to make the expenditure), the organization wanted to purchase the ad with its general treasury funds. Finding that section 54(1) of the Michigan Campaign Finance Act appeared to prohibit independent expenditures made with corporate treasury funds, the Chamber filed suit against Richard Austin, Michigan's Secretary of State, challenging the constitutionality of the state law.

The law was upheld by the district court; the appeals court overturned the lower court's decision, finding the prohibition unconstitutional as applied to the Chamber.

Supreme Court decision

First Amendment issue

The Court held that the Michigan law, which permitted corporations to set up segregated political funds, was narrowly tailored to serve the compelling state interest of preventing the distortions in the political process that might result from allowing corporations to spend their general treasury funds to express their political views. "This potential for distortion," the Court said, "justifies §54(1)'s general applicability to all corporations"-regardless of their size or earnings-because all corporations "receive from the state the special benefits conferred by the corporate structure." Thus, the burden imposed on free speech by section 54(1) was permissible.

The Court further held that the Chamber did not qualify for the constitutional exemption to the ban on corporate spending set forth in FEC v. Massachusetts Citizens for Life, Inc. (MCFL), 479 U.S. 238 (1986). In that decision, the Court addressed the federal election law's prohibition against corporate independent expenditures and found that the law was unconstitutional as applied to MCFL, a small, nonprofit corporation. The Court found that three characteristics of MCFL qualified the organization for an exception (based on the First Amendment) from the federal law's general ban on corporate spending because they negated the government's interest in preventing the threat or appearance of corruption.

The three features of MCFL that exempted it from the ban on corporate spending were that MCFL:

• Was a nonprofit corporation established to promote political ideas and not to engage in business activities;
• Had no shareholders or other persons with a claim on its assets or earnings; and
• Was not set up by a corporation and had an established policy not to accept donations from corporations or labor organizations.

With regard to the first characteristic, the Court observed that, unlike MCFL, the Chamber's activities were not limited to political and public educational purposes. The Chamber's bylaws set forth several purposes beyond politics, including, for example, the promotion of ethical business practices, the provision of group insurance for members and litigation on behalf of the Michigan business community.

The Chamber also failed to meet the second of the MCFL criteria. The Court concluded, "[W]e are persuaded that the Chamber's members are more similar to the shareholders of a business corporation than to the members of MCFL." Because the Chamber provided its members with several nonpolitical benefits and services, members had an economic disincentive to withdraw support from the organization even if they disagreed with its political views. In the MCFL case, the Court had stressed that the MCFL's lack of shareholders or other financially affiliated persons meant that members had no disincentive to disassociate from the group.

With respect to the third MCFL feature, the Court noted that here "the Chamber differs most greatly from the Massachusetts organization." While "MCFL was not established by, and had a policy of not accepting contributions from, business corporations," three fourths of the Chamber's members were business corporations, and the organization's treasury contained corporate funds in the form of membership dues. "Because the Chamber accepts money from for-profit corporations, it could, absent application of §54(1), serve as a conduit for corporate political spending," the Court concluded.

Finally, the Court rejected the Chamber's claim that, because the Michigan law did not include a similar ban on political expenditures by labor organizations, it was underinclusive. The Court noted that although unincorporated labor organizations had power to accumulate wealth, they did not have the special legal privileges enjoyed by incorporated organizations, such as limited liability and perpetual life. The Court further distinguished unions from corporations like the Chamber by pointing out that the Constitution precludes unions from having the power to compel members to support their political activities. "[T]he funds available for a union's political activities more accurately reflect members' support for the organization's views than does a corporation's general treasury," the Court said.

Fourteenth Amendment Issue

The Chamber claimed that section 54(1) violated the Equal Protection Clause of the Fourteenth Amendment because it did not apply the restrictions to unincorporated associations having the ability to raise large amounts of money or to corporations in the news media.

Having clarified that a compelling state interest in preventing corruption justified the restrictions on political activity by corporations, the Court rejected the Chamber's arguments with respect to the application of the prohibition to unincorporated entities. Corporate status, the Court said, was a state-granted privilege that facilitated the amassing of wealth, the source of the threat of corruption.

The Court also affirmed that the limited "media exception" in the state law for news stories and editorials disseminated by corporations operating in any of the news media did not constitute a breach of equal protection because of the unique public informational and educational role that such organizations play. "The media exception ensures that the Act does not hinder or prevent the institutional press from reporting on and publishing editorials about newsworthy events."

Source:   FEC Record — May 1990. Austin v. Michigan State Chamber of Commerce, 856 F.2d 783 (6th Cir. 1988), rev'd, 494 U.S. 652, 110 S. Ct. 1391 (1990).