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Federal Election Commission | United States of America

Shays and Meehan v. FEC (1:04CV01597)

Summary

On August 30, 2007, the U.S. District Court for the District of Columbia granted the Commission’s motion for summary judgment in Shays, et al. v. FEC. Congressman Christopher Shays and former Congressman Martin Meehan filed suit against the FEC asking the court to compel the Commission to issue new regulations requiring, with some exceptions, that groups registered with the Internal Revenue Service as political organizations under section 527 also register with the FEC as federal political committees.

In March 2006, the court had remanded the matter to the FEC to institute a rulemaking or to explain further its rationale for regulating so-called “527” organizations on a case-by-case basis rather than through a rule specific to those organizations. In response, the FEC issue a Supplemental Explanation and Justification of its rulemaking. The court found this revised explanation to be sufficient under the Administrative Procedure Act (APA).

Background

Definition of "political committee"

Under the Federal Election Campaign Act (the Act), a political committee must register with the FEC and follow the limits, prohibitions and reporting requirements of the federal campaign finance laws. The Act defines a “political committee” as “any committee, club, association, or other group of persons which receives contributions aggregating in excess of $1,000 during a calendar year or which makes expenditures aggregating in excess of $1,000 during a calendar year.” 2 U.S.C. §431(4). see also 11 CFR 100.5(a). Political committees must register and report with the FEC and are limited in the sources and amounts of contributions they may make and receive. 2 U.S.C. §§433, 434, 441a(a)(1)-(2), 441b(a) and 441f.

The Supreme Court has additionally construed “political committee” only to “‘encompass organizations that are under the control of a candidate or the major purpose of which is the nomination or election of a candidate.’” Buckley v. Valeo, 424 U.S. 1, 79 (1976). The definition of "political committee" set forth in the Commission's regulations repeats the statutory language described above and does not refer to the Court's "major purpose" standard. However, the FEC applies the test in enforcement actions against individual organizations.

Definition of "527 organizations"

The tax code at section 527 provides tax exempt treatment for certain income received by a "political organization." A "political organization" is defined as a "party, committee, association, fund, or other organization (whether or not incorporated) organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function." 26 U.S.C. §527(e)(1). An "exempt function" means the "function of influencing or attempting to influence the selection, nomination, or appointment of any individual to any Federal, State, or local public office or office in a political organization, or the election of Presidential or Vice Presidential electors . . ." 26 U.S.C. §527(e)(2).

FEC rulemaking

On March 11, 2004, the Commission issued a Notice of Proposed Rulemaking asking for comments regarding possible changes to the definition of “political committee” that would require certain groups not currently registered with the FEC to do so, including proposals to address when 527 organizations meet the "major purpose" requirement. [1]

In September 2004, the plaintiffs filed suit claiming that the Commission’s decision not to include a major purpose test in its regulations was arbitrary and capricious and asking the court to direct the Commission to promulgate regulations defining when a 527 group must register with the FEC.

In November 2004, the commission issued final rules that require organizations to treat more of their receipts as contributions and to use a greater percentage of federal funds for certain allocable expenses. While these rules could trigger registration for some groups, the Commission did not directly modify its definition of “political committee.” Instead the Commission decided that it would continue to construe the definition of “political committee” on a case-by-case basis.

The court remanded the case to the FEC to institute a new rulemaking on the definition of “political committee” or to explain more fully its 2004 decision not to issue such rules. The FEC published a Supplemental Explanation and Justification in the Federal Register on February 7, 2007. The plaintiffs subsequently moved for further relief, contending that the new explanation also violates the APA and that the court should order the FEC to issue an appropriate regulation.

Court complaint

On September 14, 2004, U.S. Representatives Christopher Shays and Martin Meehan filed a complaint in the U.S. District Court for the District of Columbia. The complaint challenged the Commission's alleged "failure . . . to promulgate legally sufficient regulations to define the term 'political committee,'" particularly as that term is applied to so-called 527 organizations. The plaintiffs asked the court to require the Commission to promulgate regulations, on an expedited basis, defining "political committee" and defining when a 527 organization becomes a political committee.

The plaintiffs, Christopher Shays, Martin Meehan and Bush-Cheney ’04, Inc., argued that the Commission’s 2004 decision to continue deciding case-by-case whether a group is a “political committee,” as defined in the Federal Election Campaign Act, was arbitrary and capricious. They also argued that the Commission should be compelled to issue a new rule.

The plaintiffs alleged that the Commission's failure to issue new rules defining "political committee" leaves in place "a legally inadequate rule that fails to properly implement the law, and under which multiple section 527 groups are currently spending tens of millions of dollars of soft money plainly for the purpose, and with the effect, of influencing the 2004 presidential and congressional elections." The plaintiffs asked the court to find that the Commission's decision not to promulgate regulations requiring 527 organizations to register as political committees when their major purpose is to influence federal elections and they raise or spend more than $1,000 to do so is:

  • Arbitrary, capricious, an abuse of discretion and otherwise not in accordance with law;
  • Contrary to the Act, as construed by the Supreme Court, and invalid because it constitutes agency action unlawfully withheld; and
  • Invalid insofar as the Commission, by initiating a rulemaking, acknowledged the need to revisit the definition of "political committee," but failed to state its reasons for not addressing the "major purpose" test or the status of 527 organizations.

The plaintiffs asked the court to require the Commission to begin an expedited rulemaking to promulgate appropriate regulations to define "political committee" and to define when a 527 organization must register and file as a political committee.

Court decision (2004)

On March 29, 2006, the U.S. District Court for the District of Columbia issued a ruling in Shays and Meehan/Bush–Cheney ’04, Inc. v. FEC (04-1612) granting in part and denying in part the plaintiffs’ motion for summary judgment.

The district court rejected plaintiffs’ contention that selecting adjudication rather than rulemaking was an abuse of discretion. Nevertheless, the court ruled that the Commission had failed to articulate a reasoned basis for its decision to continue case-by-case determinations of political committee status. Although the Commission had explained that a rulemaking would be complex and potentially over-inclusive, the court noted that the Commission did not explain why case-by-case adjudication would solve these problems. Additionally, the Commission did not address how unregistered groups’ due process or First Amendment rights would be protected without a clear rule to rely upon. Lastly, the Commission did not address how the enforcement process would be timely enough to prove effective.

The court denied the plaintiffs motion to compel the FEC to promulgate a new rule. It remanded the case to the FEC, however, ruling that it must either provide further explanation and justification for its decision to review the political committee status of unregistered organizations on a case-by-case basis or issue a new rule.

Court decision (2007)

On August 30, 2007, the Commission’s motion for summary judgment was granted. Suit was filed against the FEC asking the court to compel the Commission to issue new regulations requiring, with some exceptions, that groups registered with the Internal Revenue Service as political organizations under section 527 also register with the FEC as federal political committees.

According to the court, the “crux of the FEC’s revised justification is that the complexity of applying the ‘major purpose’ test to a particular organization requires that it be done through adjudication instead of rulemaking.” The court found that the question of whether the application of the “major purpose test” was too “multifaceted to be codified” is “exactly the type of question generally left to the expertise of an agency, and the applicable standard of review is that ‘agency discretion is at its peak.’” In addition, the court “recognize[d] that the FEC has successfully brought enforcement actions against 527 groups.” The court therefore concluded that the Commission’s Supplemental Explanation and Justification was sufficient under the APA and that the Commission’s decision not to promulgate the kind of regulation requested by the plaintiffs was not arbitrary and capricious. The court granted the FEC’s motion for summary judgment and denied the plaintiffs’ motion for further relief.

FOOTNOTE:

[1] See "Notice of Proposed Rulemaking on Political Committee Status," 69 FR 11736 (March 11, 2004).

Source:   FEC Record — October 2007; June 2006; November 2004

Documents

District Court (DC)

Court decisions:

Related documents:

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.