Shays and Meehan v. FEC (1:02CV01984)

Summary

On October 21, the U.S. Court of Appeals for the D.C. Circuit declined to rehear en banc the Commission’s appeal of an earlier D.C. Circuit decision in Shays v. FEC that upheld a district court remand of several of the Commission’s regulations.

Background

The BCRA required the Commission to promulgate rules implementing its soft-money provisions within 90 days of the BCRA's enactment, and to promulgate rules implementing other BCRA provisions within 270 days. President Bush signed the BCRA into law on March 27, 2002, and the Commission completed its rulemaking process within the required timeframes.

Court complaint

On October 8, 2002, Representatives Christopher Shays and Martin Meehan filed a complaint in the U.S. District Court for the District of Columbia challenging Commission regulations that implement the "soft money" provisions of the Bipartisan Campaign Reform Act of 2002 (BCRA).

The complaint charged that the FEC regulations "contravene the language" of the BCRA and "will frustrate the purpose and intent of the BCRA by allowing soft money to continue to flow into federal elections and into the federal political process." The plaintiffs asked that the court invalidate the FEC regulations on the grounds that they are:

Arbitrary and capricious;
An abuse of discretion;
In excess of the FEC's statutory jurisdiction or authority; and
Otherwise not in accordance with law.

On May 20, 2002, the FEC published for public comment draft regulations implementing Title I of the BCRA, which contains the statutory ban on soft money. The final rules were published in the July 29, 2002, Federal Register (67 FR 49064). The plaintiffs alleged that these rules contain amendments that were not made available for public comment and that "undermined the letter and [the] purpose of the BCRA." The plaintiffs contended that these regulations contravene the BCRA's soft money ban in each of the three areas that, according to the complaint, Congress legislated to address:

The activities of the national parties;
The activities of the state parties; and
The activities of federal candidates and officeholders.

"Sham party entities"

The BCRA prohibits national party committees and any entity "directly or indirectly established, financed, maintained or controlled" by a national party committee from raising or spending soft money. 2 U.S.C. §323(a)(1) and (2). The plaintiffs charged that "without any basis" the Commission created a "grandfather" provision in its regulations. According to the plaintiffs, the "grandfather" or "safe harbor" provision in the regulations will take into account the relationship between the party committee and other entities only after November 6, 2002. The plaintiffs claimed that this provision will permit the creation of "sham party entities" that can raise and spend soft money after the effective date of the BCRA, notwithstanding their establishment by, and affiliation with, the national party committee prior to that date.

Definitions of "solicit and direct" and "state party" fundraisers

The BCRA prohibits federal candidates and officeholders from soliciting, directing or receiving soft money. 2 U.S.C.§323(a) and (e). According to the complaint, Commission regulations narrow the definitions for the terms "solicit" and "direct" to mean "ask." 11 CFR 300.2(m). These definitions, the plaintiffs alleged, will permit federal candidates and officeholders, as well as the national party officials, to continue to solicit and direct soft money as long as they do not explicitly "ask" for soft money contributions. The plaintiffs further contended that the FEC regulations allow federal candidates and officeholders to explicitly solicit and direct soft money at state fundraising events "without regulation or restriction," contrary to the intent of the BCRA. 11 CFR 300.64.

Definition of "agent"

The BCRA prohibits any "agent" acting on behalf of a national party committee or federal candidate or officeholder from raising or spending soft money. The complaint described FEC regulations as limiting the definition of "agent" to those who have "actual" authority to act on behalf of the party, and excluding those who have "apparent" authority. 11 CFR 300.2(b). The plaintiffs argued that the regulation creates the opportunity to circumvent the BCRA by allowing national or state party agents, or agents of a federal candidate or officeholder, with apparent authority to engage in activities that are otherwise prohibited under BCRA.

Leadership PACs

The BCRA prohibits any entity "directly or indirectly" controlled by a federal candidate or officeholder from raising or spending soft money. The plaintiffs claimed that this prohibition was intended to prohibit "Leadership PACs" from raising and spending soft money. According to the complaint, the FEC has adopted regulations, contrary to the intent of the law, that allow Leadership PACs established and controlled by federal officeholders to continue raising and spending soft money. 11 CFR 300.2(c)(2).

Definition of "Federal Election Activity"

Under the BCRA, state parties are prohibited from using soft money for "federal election activities." The plaintiffs argued that FEC regulations constrict the definition of "federal election activity" to allow the continued spending of soft money. The complaint contended that the FEC departed significantly from its past regulatory definitions of "get-out-the-vote activity," "voter identification," "generic campaign activity," "voter registration" and other key terms to allow activities that influence federal elections to be paid for with soft money.

Other provisions

The plaintiffs additionally alleged, among other things, that FEC regulations:

Allow the solicitation costs for raising so-called "Levin funds" to be paid with those funds, while the BCRA stipulates that those costs must be paid with federal funds;
Extend the use of state party building funds to office equipment and furniture, while the BCRA meant to limit the use of such funds to the purchase or construction of an office building; and
Improperly define "state," "district" or "local" party committees by requiring that such committees be part of "the official party structure." 11 CFR 100.14.

Relief

The plaintiffs asked the court to declare the referenced soft money regulations contrary to law, arbitrary and capricious and otherwise unlawful, and to enjoin the Commission from enforcing them.

District court decision

The standard for judicial review in a case such as this, where one party alleges that an agency's actions are contrary to the statute, is called Chevron review, after the Supreme Court's decision in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984). In Chevron review, the court asks first whether Congress has spoken to the precise issue at hand. If so, then the agency's interpretation of the statute must implement Congress's unambiguous intent. If, however, Congress has not spoken explicitly to the question at hand, the court must consider whether the agency's rules are based on a permissible reading of the statute.

In this case, the plaintiffs also claimed that in some instances the FEC failed to engage in a reasoned analysis when it promulgated the regulations, or failed to follow proper procedures regarding public notice and comment. Under the Administrative Procedure Act, regulations that are promulgated without a reasoned analysis may be found "arbitrary and capricious" and may be set aside by a reviewing court. 5 U.S.C. §706(2)(A).

The court found that the challenged portions of four regulations passed Chevron review and were consistent with requirements of the Administrative Procedure Act:

The safe harbor at 11 CFR 300.2(c)(3) that provides that an entity will not be considered to be directly or indirectly established, maintained or controlled by another entity based solely on activities that occurred before November 6, 2002;
The rules at 11 CFR 300.32(a)(4) providing for the payment of Levin fund fundraising costs;
The rules at 11 CFR 300.30(c)(3), which describe permissible accounting procedures for keeping nonfederal and Levin funds in a single account; and
The definition of "State committee," "district committee" and "local committee" at 11 CFR 100.14.

The court, however, found that portions of other challenged regulations either failed to pass Chevron review or violated the Administrative Procedure Act. These included:

The coordinated communications content test regulations at 11 CFR 109.21(c), including the provision excluding Internet communications from the coordinated communication rules at 11 CFR 109.21(c)(iv);
The definition of "agent" under the coordination rules at 11 CFR 109.3 and the nonfederal funds rules at 11 CFR 300.2(b);
The definitions of "solicit" and "direct" at 11 CFR 300.2(m) and 300.2(n);
The safe harbor for federal candidates' and officeholders' activities at state party fundraisers at 11 CFR 300.64(b);
The definitions (for the purposes of defining "federal election activity") of voter registration activity, get-out-the-vote activity, voter identification and generic campaign activity at 11 CFR 100.24(a)(2)-(a)(4) and 100.25;
The requirements for paying the salaries and wages of state party committee employees who spend less than 25 percent of their compensated time on activities in connection with a federal election (11 CFR 300.33(c)(2);
The exemption allowing certain federal election activity expenses that are under $5,000 in the aggregate to be paid entirely with Levin funds (11 CFR 300.32(c)(4);
The exemption for section 501(c)(3) organizations from the electioneering communications rules at 11 CFR 100.29(c)(6); and
The requirement at 11 CFR 100.29(b)(3)(i) that electioneering communications must be distributed for a fee.

The court denied the plaintiffs' request to enjoin the Commission from enforcing these regulations and to require the Commission to commence proceedings to promulgate new regulations within 15 days of the court's decision. Instead, the court remanded the case to the Commission for further action consistent with the court's opinion.

Appeals court decision

On July 15, 2005, the U.S. Court of Appeals for the District of Columbia upheld the appealed portion of the U.S. District Court for the District of Columbia’s September 18, 2004, decision invalidating several Commission regulations. The district court had upheld four of the regulations challenged in this case, but found that other regulations implementing provisions of the Bipartisan Campaign Reform Act of 2002 (BCRA) either were inconsistent with Congress’s intent in enacting the BCRA or violated the Administrative Procedure Act’s rules for promulgating regulations. The Commission subsequently appealed the district court’s decision concerning five of the invalidated regulations.[1]

Coordinated communications

Under the Commission’s regulations, a communication is considered a coordinated communication if it meets a three-pronged test regarding who paid for the communication, the communication’s content and whether the payer’s interaction with a candidate or party satisfies specified conduct standards. At issue here was the element of the conduct prong stating that a communication made within 120 days of a primary or general election and directed to the relevant electorate may be a coordinated communication if it refers to a political party or clearly identified federal candidate. Before the 120-day mark, the rule covers only communications that republish official campaign materials or contain express advocacy.

The plaintiffs argued in their complaint that the 120-day window offers a safe harbor for communications made outside of this window, which is not authorized by the statute. The district court found that, while Congress had not spoken directly to content restrictions, the regulation undercut the Federal Election Campaign Act’s statutory purpose, and, thus, did not pass the second step of Chevron review.

The appeals court disagreed in part with the district court and found that a standard based on content, time and place could be permissible. Nevertheless, the appeals court affirmed the district court’s decision to invalidate the regulation, finding that the rule was arbitrary and capricious under the APA. The appeals court found that the Commission offered no persuasive justification when it promulgated the rule for why 120 days is an appropriate time period for the content standard.

“Solicit” and “direct”

During its rulemaking process, the Commission defined “solicit” and “direct” to mean “ask.” The district court found that these regulations failed the second step of Chevron analysis because interpreting these terms to cover only direct requests created a potential for abuse that would defy Congress’s purpose in the BCRA.

However, the appeals court found that these regulations failed the first stage of Chevron review. According to the appeals court, Congress “has clearly spoken to this issue and enacted a prohibition broader than the one the FEC adopted. In context, BCRA’s terms ‘solicit’ and ‘direct’ cover indirect requests.” The appeals court therefore upheld the district court’s invalidating the regulations.

Electioneering communications

An electioneering communication is defined in the BCRA as “any broadcast, cable or satellite communication” that (1) refers to a clearly identified federal candidate, (2) “is made within” 60 days before a general or 30 days before a primary election and (3) is “targeted to the relevant electorate.” 2 U.S.C. §434(f)(3). The appeals court agreed with the district court’s finding that the FEC violated the intent of Congress by adding a provision in its regulations that a communication must be made “for a fee” in order to be considered an electioneering communication--thus exempting unpaid broadcasts such as public service announcements. According to the court, the Commission added a fourth qualification to the definition of electioneering communication that was not authorized by the statute. As a result, the regulation failed the first step of Chevron review.[2] The appeals court affirmed the district court’s invalidation of the regulation.

Salary allocation

Federal election activity (FEA) is a new concept under the BCRA that identifies activities that state and local party organizations must finance with federal funds. One category of FEA includes the salaries of state and local party employees devoting more than 25 percent of their paid time in any month to activities related to federal elections or FEA. Once an employee’s work in a month crosses this 25 percent threshold, the employee’s entire salary for that month must be paid exclusively with federally permissible funds. The plaintiffs took issue with the fact that the regulations eliminated any allocation requirement for salaries of employees devoting 25 percent or less of their time to federal activities, thus freeing state and local party committees to pay those salaries entirely with nonfederal funds.

The district court invalidated this regulation, finding that it did not pass the second step of Chevron review. The district court found that, because state party committees could avoid paying any salaries with federal funds by dividing the federal election workload among multiple employees working 25 percent of their time on federal activities, the exclusive use of nonfederal funds to pay for salaries and wages compromised the purposes of the BCRA.

The appeals court, in contrast, found that the regulation was arbitrary and capricious under APA requirements because the Commission did not provide a reasoned justification for not requiring allocation of these salaries. The appeals court therefore affirmed the district court’s invalidation of the regulation.

Levin funds

The final district court finding appealed by the Commission involved the “Levin Amendment,” which allows state and local party committees to finance certain types of FEA (generic party campaigning, get-out-the-vote activity and voter identification and registration drives) with monies called Levin funds that are subject to fewer controls than federal funds. Generally, party committees must allocate these FEA costs between Levin funds and federal funds, or use entirely federal funds. A regulatory exception, however, provides that committees need not allocate if they spend no more than $5,000 total on allocable expenditures, an amount the Commission considers to be de minimis. The appeals court found that the Commission presented no justification for this exemption. Accordingly, the district court’s invalidation was affirmed because the regulations fell short of APA standards.

Petition for rehearing

On August 29, 2005, the Commission filed with the U.S. Court of Appeals for the District of Columbia Circuit a petition for rehearing en banc of the court’s July 15, 2005, ruling in this case. In that ruling, a three-judge panel of the appeals court affirmed the appealed portions of the district court’s decision invalidating several Commission regulations that implement provisions of the Bipartisan Campaign Reform Act of 2002 (BCRA).

In its petition for rehearing, the Commission argues that consideration by the full appeals court is necessary because the decision by the three-judge panel with respect to whether Representatives Christopher Shays and Martin Meehan have standing to bring this suit conflicts with the Supreme Court’s findings in McConnell v. FEC and with the DC Circuit’s own decisions in prior cases.

The Commission also argues that rehearing is warranted because the three-judge panel’s decision involves exceptionally important issues. First, the appeals court decision regarding standing effectively allows any candidate to challenge nearly all Commission regulations without demonstrating any personal harm from a particular regulation. This interpretation of the court’s standing requirements creates “uncertainty and instability in the law affecting constitutionally protected advocacy during the relatively short congressional election cycles.” Second, the decision failed to give the required deference to the Commission’s “exercise of its judgment in balancing the conflicting policies and First Amendment interests underlying this complex statute.” The Commission thus requests that the court grant its petition for rehearing.

Petition for rehearing en banc denied

On October 21, 2005, the U.S. Court of Appeals for the D.C. Circuit declined to rehear en banc the Commission’s appeal of an earlier D.C. Circuit decision in Shays v. FEC that upheld a district court remand of several of the Commission’s regulations. (See the September 2005 Record). In response, the Commission has announced that it is moving forward aggressively to complete action on the affected regulations.

At the Commission’s November 3, 2005, open meeting, FEC Chairman Scott Thomas and Vice-Chairman Michael Toner said the agency is committed to completing action on all of the affected regulations by the end of February 2006. To accomplish that task, the Commission has scheduled two additional open meetings before the end of this year, and expects to meet frequently during January and February. The Commission began work on the affected regulations shortly after the district court’s decision in September 2004. Chairman Thomas noted: “We, in fact, already have accomplished a good deal of the work needed on the 15 regulation topics at issue. The Commission has held hearings on proposals for modifying 12 of the regulations, which has moved us to the final stage of the process for those rulemakings. We appreciate the numerous written comments and oral testimony, all of which we are carefully evaluating in reaching decisions on final rules and developing the detailed written explanations required by law.”

FOOTNOTES:

[1] As a threshold issue, the appeals court found that the plaintiffs, Christopher Shays and Martin Meehan, have standing to bring this suit and that the issues at hand are ripe for judicial decision.

[2] The district court also invalidated other parts of the electioneering communications regulations. However, the “for a fee” provision was the only aspect of the district court’s ruling on this regulation that the Commission appealed.

Source: FEC Record — December 2005; October 2005; September 2005; December 2004; November 2004; December 2002

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