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Federal Election Commission | United States of America

FEC v. NRA (85-1018)

Summary

On June 29, 2001, the U.S. Court of Appeals for the District of Columbia Circuit ruled that the National Rifle Association (the NRA) and its lobbying organization, the NRA American Institute for Legal Action (ILA), violated the Federal Election Campaign Act's (the Act) ban on corporate contributions and expenditures during the 1978 and 1982 election cycles. 2 U.S.C. §441b(a). While the district court had ruled that the NRA also violated the ban in 1980, the appellate court determined that during 1980 the NRA qualified for a constitutionally-mandated exemption from the ban. As a result, the appeals court remanded the case to the lower court in order to have civil penalties calculated based on the 1978 and 1982 violations alone.

Background

During the 1978, 1980 and 1982 election cycles, the NRA paid $37,833 of the Political Victory Fund's expenses for federal election activity, including payments for newspaper advertisements, direct mailings and other materials that supported or opposed individual candidates. The Political Victory Fund then distributed some of these materials to NRA members, firearms dealers and other related organizations. The Political Victory Fund later reimbursed the NRA for these expenses and reported the disbursements as independent expenditures on its FEC disclosure reports.

In 1985, the Commission filed a civil suit against the NRA, the ILA and the Political Victory Fund, claiming that they had violated the Act's prohibition on corporate contributions and expenditures.

In response, the NRA argued that its payments on behalf of the Political Victory Fund were for that committee's administrative expenses and, thus, permissible under the Act. The NRA also challenged the constitutionality of the Act as applied to its activities, arguing that the organization should qualify for the so-called MCFL exemption that allows certain nonprofit political corporations to make independent expenditures.

This exemption is based on the Supreme Court's decision in FEC v. Massachusetts Citizens for Life (MCFL), 479 U.S. 238 (1986). In that case, the Court held that the Act's general prohibition of corporate-financed independent expenditures could not constitutionally be applied to nonprofit ideological corporations that possess three specified features that preclude them from presenting the kinds of dangers at which the prohibition is directed.[1] See also Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990).

District court decision

The district court rejected the NRA's argument that its payments to the Political Victory Fund were merely for administrative expenses. The court also concluded that the NRA, unlike MCFL, did not qualify for the constitutionally-mandated exemption from the Act's prohibition of corporate independent expenditures. The NRA, the court stated, had not been formed for the express purpose of promoting political ideas and pursued a variety of activities, many of which were not political. The court also stated that the NRA had no policy of refusing contributions from business corporations. The court fined the NRA and ILA $25,000 for making prohibited contributions and expenditures, and it imposed a separate $25,000 civil penalty against the Political Victory Fund for receiving prohibited corporate contributions.

Appeals court decision

Statutory claims

On appeal, the NRA again argued that its payments on behalf of the Political Victory Fund were permissible payments of administrative expenses. In addition, the NRA argued that its:

  • In-kind contributions of corporate materials and facilities were allowable under Commission regulations that permit persons to use corporate facilities for election-related activity, so long as they reimburse the corporation within a commercially reasonable time for the market value of the production of the materials (11 CFR 114.9 (c)); and
  • Payments to NRA employees working for Political Victory Fund on the campaigns of federal candidates were permissible because those payments did not meet the statutory definition of contribution at 2 U.S.C. §431(8)(A).

The appeals court, however, deferred to the Commission's interpretation of the definition of administrative expenses at 11 CFR 114.1(b), which allows corporations to cover only the overhead and start-up costs of their political action committees. The court also deferred to the Commission's interpretation of 11 CFR 114.9(c), which allows only stockholders and employees acting as volunteers to use corporate facilities to produce materials in connection with a federal election. Finally, relying on FEC Advisory Opinion 1984-24, the court held that the NRA's payments to its employees who were working for the Political Victory Fund on candidates' campaigns were prohibited corporate contributions under the definition of contribution at section 441b(b)(2), which addresses corporate activity. The FEC's advisory opinions, the court stated, are entitled to deference. They not only reflect the Commission's considered judgment made pursuant to congressionally delegated lawmaking power, but [they] also have binding legal effect.

Constitutional challenge

In its appeal, the NRA also renewed its claim that, under the MCFL decision, it was exempt from the ban on corporate contributions. The NRA argued that it was not formed to amass capital, and its resources reflect not the economically motivated decisions of investors and customers, but rather its popularity in the political marketplace.

The Commission argued that, unlike MCFL, the NRA does not have a narrow political focus but instead performs a wide variety of nonpolitical services for its members. The Commission also argued that the NRA's extensive business activities and its acceptance of corporate contributions distinguished it from the kinds of corporations exempted by the Supreme Court in MCFL.

The appellate court stated that the Commission must demonstrate that the NRA's political activities threaten to distort the electoral process through the use of resources that, as MCFL put it, reflect the organization's success in the economic marketplace' rather than the power of its ideas. The court concluded that the Commission had failed to demonstrate that the NRA resembles a business firm more closely than a voluntary political association.

The court found, however, that the $7,000 and $39,786 in corporate contributions that the NRA received in 1978 and 1982, respectively, were substantial enough to risk turning it into a potential conduit for the corporate funding of political activity during these years. Thus, the court found no constitutional barrier to applying the Act's prohibitions to the NRA for those two years. In 1980, however, the NRA received only $1,000 in corporate contributions, an amount which, in the court's view, did not demonstrate that the organization was acting as a conduit for corporate contributions. Therefore, the court held that the NRA was not in violation of the Act for contributions and expenditures it made to the Political Victory Fund during that year.

Penalties

The appeals court ordered that the case be remanded to the district court to recalculate penalties against the NRA, the ILA and the Political Victory Fund based solely on the 1978 and 1982 violations.

Rehearing

On August 23, 2001, the Court of Appeals for the District of Columbia Circuit denied the Commission's petitions to have this case reheard by a panel of the court and heard en banc. The Commission had asked the court to revisit a portion of its June 29, 2001, ruling. The court had held that in 1980 the National Rifle Association (NRA) qualified for a limited exemption to the Federal Election Campaign Act's ban on corporate contributions and expenditures.

Although the court denied the FEC's petitions, it did at the Commission's request clarify that the NRA's 1980 exemption applied only to corporate independent expenditures and not to corporate contributions to candidates.

FOOTNOTE:

[1] The three features set forth in MCFL are:

  • The organization is a nonprofit ideological corporation formed for the express purpose of promoting political ideas, and cannot engage in business activities.
  • It has no shareholders or other persons affiliated so as to have a claim to its assets or earnings.
  • It has not been established by a corporation or labor union and has a policy not to accept contributions from such entities.254 F.3d 173.

Source:   FEC Record — December 2001; August 2001.

This information is not intended to replace the law or to change its meaning, nor does this information create or confer any rights for or on any person or bind the Federal Election Commission or the public.

The reader is encouraged also to consult the Federal Election Campaign Act of 1971, as amended (52 U.S.C. 30101 et seq.), Commission regulations (Title 11 of the Code of Federal Regulations), Commission advisory opinions and applicable court decisions.