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Shays and Meehan v. FEC (1:06CV01247)

Summary

On June 13, 2008, a three-judge panel of the U.S. Court of Appeals for the District of Columbia affirmed in part and reversed in part the district court’s judgment in the Shays III case.

Specifically, the appeals court agreed with the district court in finding deficient regulations regarding the content standard for coordination, the 120-day coordination window for common vendors and former campaign employees and the definitions of "GOTV activity" and "voter registration activity." The appeals court reversed the district court’s decision to uphold the provision allowing federal candidates to solicit funds without restriction at state and local party events. These regulations were remanded to the FEC to issue "regulations consistent with the Act’s text and purpose." The court did not vacate the regulations, so they remain in effect, pending further action. The appeals court upheld the FEC’s regulations regarding the firewall safe harbor for coordination by former employees and vendors, which the district court had found deficient.

Background

On July 11, 2006, U.S. Representatives Christopher Shays and Martin Meehan (the plaintiffs) filed a complaint in the U.S. District Court for the District of Columbia. The complaint challenges the FEC’s recently amended regulations governing coordinated communications, federal election activity (FEA) and solicitations by federal candidates and officeholders at state party fundraising events. The plaintiffs claim that the rules do not comply with the judgment in Shays I or with the Bipartisan Campaign Reform Act of 2002 (BCRA). The complaint also alleges the FEC did not adequately explain and justify its actions.

District Court Complaint

In response to the court decisions and judgment in Shays I, the FEC held rulemaking proceedings during 2005 and 2006 to revise a number of its BCRA regulations, including the rules governing coordinated Communications, certain definitions of FEA, and the solicitation of soft money by federal officeholders and candidates at state party fundraising events. For more information, see the August 2005, March 2006, and July 2006 Record.

With respect to these challenged regulations, the plaintiffs allege that the FEC:

  • Did not adequately address the questions and instructions of the district court and D.C. Circuit in Shays I;
  • Failed to promulgate new rules that comply with BCRA and the Shays I mandate; and
  • Provided inadequate explanation and justification for its actions.

The plaintiffs contend, among other things, that the Commission’s revised regulations undermine the purposes of the BCRA by allowing soft money to continue to flow into federal elections and the federal political process.

Coordinated communications. The plaintiffs charge that the Commission’s revised "content standard" impermissibly reduces the pre-election window for coordinated communications [1] in House and Senate races from 120 days to 90 days, in violation of the decision in Shays I. The plaintiffs also argue that the Commission impermissibly retained the election year "gap period" in Congressional races (which begins on the day of the primary and runs until 90 days before the general election) and preserved the Presidential 120-day pre-primary window that was struck down by the court in Shays I. The cumulative effect of these actions, the plaintiffs charge, is to permit unregulated spending by candidates, political parties and others on coordinated communications in many states during much of the election year, provided the communications do not contain republished campaign materials or "express advocacy."

Agency action arbitrary and capricious. According to the plaintiffs, the Commission relied almost exclusively on a set of data from TNS Media Intelligence/CMAG to support its revised coordination regulations. The plaintiffs allege that the Commission’s use of the data was both arbitrary and capricious because the data do not support the revised regulations and, in some instances, actually undermine them. The plaintiffs further allege that, given the volume and complexity of the CMAG data and the fact that the Commission gave only five business days for public comment in its Supplemental Notice of Proposed Rulemaking, the Commission violated the APA by failing to afford interested parties a meaningful opportunity to participate in the rulemaking.

Definitions of Federal Election Activity. In Shays I, the court held that the Commission had not provided adequate notice of the approach it took in defining FEA "voter registration" and FEA "GOTV activity." The plaintiffs allege that the Commission unlawfully left intact the limitation that only activities that "assist voters by individualized means" may constitute FEA "voter registration" or FEA "GOTV" activity, and did not revise its definition of voter registration activity, thereby allowing state and local parties to fund substantial amounts of activities that influence federal elections with soft money in violation of BCRA’s "language, structure and purpose." The plaintiffs also argue that the Commission failed to provide notice in the Notice of Proposed Rulemaking that it might limit the scope of "voter registration" and "GOTV" activities in this manner, which effectively denied parties the opportunity to offer comments that could persuade the agency to modify its rule.

Candidate and officeholder solicitation at state party fundraisers. In Shays I, the court found that the Commission failed to articulate a satisfactory explanation for its regulation governing candidate and officeholder solicitations at state party fundraisers. In its revised Explanation & Justification, the Commission contends that distinguishing between "informational speech" and "solicitations" at a state party fundraising events is more difficult than in other contexts and suggests that the unique difficulty arises largely from the special relationship between federal officeholders and candidates and their state parties. The plaintiffs argue that the Commission failed to explain why the broad exemption is uniquely necessary in the state party fundraising context and contend that the Commission’s failure to provide a reasoned basis for the exemption fails to meet the APA’s requirements for reasoned decision-making.

Relief

The plaintiffs ask the court to declare the referenced regulations to be contrary to law, arbitrary and capricious, and an abuse of discretion. The plaintiffs also ask the court to:

  • Enjoin the operation of the regulations and order the Commission to commence expedited rulemaking proceedings;
  • Direct the Commission to adopt appropriate interim regulations during its rulemaking proceedings; and
  • Retain jurisdiction over the matter to ensure the Commission’s timely and sufficient compliance with the court’s decision.

District Court Decision

On September 12, 2007, the U.S. District Court for the District of Columbia granted in part and denied in part the plaintiffs’ motion for summary Judgment in this case. The court remanded to the FEC a number of FEC regulations implementing certain provisions of the BCRA. These rules included:

  • The revised coordinated communications content standard at 11 CFR 109.21(c)(4);
  • The 120-day window for coordination through common vendors and former employees under the conduct standard at 11 CFR 109.21(d)(4) and (d)(5);
  • The safe harbor from the definition of "coordinated communication" for a common vendor that establishes a "firewall"’ (11 CFR 109.21(h)(1) and (h)(2)); and
  • The definitions of "voter registration activity" and "GOTV" at 11 CFR 100.24(a)(2)-(a)(3).

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 defer to the agency’s answer unless it rests on an impermissible construction 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 APA, 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).

Candidate and officeholder solicitation at state party fundraisers. Commission regulation 11 CFR 300.64(b) provides that federal candidates and officeholders may speak at state, district or local party fundraising events "without restriction or regulation." The regulation implements 2 U.S.C §441i(e)(3), which permits federal candidates and officeholders to attend, speak or be featured guests at such events. The court held that the regulation passed Chevron review and was consistent with the requirements of the APA.

The plaintiffs had argued that the Commission had failed to explain why this broad exemption is uniquely necessary in the state party fundraising context and thus failed to provide a reasoned basis for the exemption. The court, however, found that this exemption was both supported by the record and rationally explained. The court noted that Congress itself treated state, district and local party committee fundraisers differently from other fundraisers when it enacted 2 U.S.C §441i(e)(3).

Coordinated communications content standard. The plaintiffs charged that the Commission’s revised "content standard" impermissibly reduces the pre-election window [1] for coordinated communications in House and Senate races from 120 days to 90 days, in violation of the decision in Shays I. The plaintiffs also argued that the Commission impermissibly retained the election year "gap period" in Congressional races (which begins on the day of the primary and runs until 90 days before the general election) and preserved the Presidential 120-day pre-primary window that was struck down by the court in Shays I.

The court found the revised content standard to be consistent with the statute. However, it ruled that the Explanation and Justification for the revised rule failed to explain how the regulation rationally separated election-related activity from other activity that occurs outside of the coordinated communications windows. According to court, the record before the FEC "demonstrates that candidates do run advertisements—which do not necessarily include express advocacy, but are nevertheless intended to influence federal elections—outside of the pre-election windows included in the revised content standard. The E&J presents no persuasive justification for writing off that evidence and does not suggest that it would somehow be captured by the 'functionally meaningless' express advocacy standard." The court thus found that the revised regulation does not meet the APA standard of reasoned decision-making.

As a separate issue, the plaintiffs challenged the Commission’s methodology in determining these pre-election windows, alleging that the Commission’s use of a set of data from TNS Media Intelligence/CMAG to support its revised coordination regulations was arbitrary and capricious because the data set does not support the revised regulations and, in some instances, actually undermines them. The court, however, noted that it lacked "any basis, either factual or legal, on which to conclude that the FEC’s very reliance on the CMAG data was arbitrary and capricious." The court further noted that in drawing a bright-line rule the FEC "appears to have drawn the line in a reasonable place based on the data available to it."

Common vendor and former employee conduct standard. Following the court decisions in Shays I, the Commission revised the conduct standard of the coordinated communications rules that addresses the activities of common vendors and former employees of a candidate or a political party committee. Under the revised rule, this standard can be met based on the activities of common vendors or former employees during a 120-day period, rather than during the entire election cycle, as was the case in the original rule. 11 CFR 109.21(d)(4) and (d)(5). The court found that the standard for "reasoned analysis" in a case where an agency changes course requires that the agency explain that its prior rules are being “deliberately changed” rather than "casually ignored." The court found that the Commission had not adequately explained how the new rules would capture the "universe of coordinated communications" and thus found the rule arbitrary and capricious, in violation of the APA.

Firewall safe harbor. During its rulemaking process, the Commission also revised its rules to create a safe harbor for an organization using a common vendor or individuals who currently or previously provided services to a candidate clearly identified in the organization’s communication or to that candidate’s opponent or to a political party committee. For the safe harbor provision to apply, the vendor, former employee or political committee must establish a "firewall" between the parts of the organization working on each project. The court found that this provision both fails the second part of the Chevron test and is arbitrary and capricious in violation of the APA.

Under the Federal Election Campaign Act (the Act), expenditures count as contributions when they are made "in cooperation, consultation, or concert, with, or at the request or suggestion of, a candidate." 2 U.S.C. § 441a(a)(7). The court found that the Commission’s safe harbor completely exempts communications when the organization creating them provides information that a firewall is in place. However, the court concluded that the rule fails to provide "substantive guidance" concerning what constitutes an effective firewall. The court further determined that the safe harbor might permit information to be passed through an organization’s leaders or administrative personnel and "sets a high evidentiary standard for overcoming the presumption created by the firewall." According to the court, these factors together create a potential for gross abuse and compromise the purposes of the Act. Thus, the court found that the rule failed the second step of the Chevron test.

The court also found the rule arbitrary and capricious, in violation of the APA, because, again, the standard for "reasoned analysis" is higher when an agency changes course, and the Commission’s explanation of this rule had not met that standard.

Definitions of Federal Election Activity. In Shays I, the court held that the Commission had not provided adequate notice of the approach it took in defining FEA "voter registration" and FEA "get-out-the-vote activity" (GOTV activity). In response, the Commission expanded its Explanation & Justification for the definitions. In the current case, the plaintiffs alleged that the Commission unlawfully left intact the limitation that only activities that "assist" voters by “individualized means” may constitute FEA "voter registration" or FEA "GOTV" activity, and did not revise its definition of voter registration activity.

The court found that the expanded Explanation & Justification for the regulation defining voter registration activity does not “address the vast gray area of activities that state and local parties may conduct and that may benefit federal candidates,” nor does it show that activities that fall within this gray area do not directly benefit candidates or significantly affect federal elections. Thus, the court ruled that the regulation “unduly compromises the Act” and therefore violates the second part of the Chevron test. The court additionally found that, for this same reason, the rule is arbitrary and capricious in violation of the APA. The court found that the expanded Explanation & Justification “focuses on straw men, citing only examples falling at the far ends of the spectrum of potential voter registration activity without explaining how its definition, which apparently excludes the significant amount of activity in between, either supports or does not undermine BCRA’s purposes.” As a result, the court did not find that the rule meets the APA’s requirement of reasoned decision-making.

The court also found that the expanded Explanation & Justification fails to establish that the Commission’s definition of GOTV activity will not “unduly compromise” the Act’s purposes. In addition, citing the same reasons it gave in finding that the Commission failed adequately to explain its definition of voter registration activity, the court held that the Commission failed to provide a reasoned explanation in promulgating its definition of GOTV activity.

Decision. The court granted in part and denied in part the plaintiffs’ motion for summary judgment in this case and remanded these regulations to the Commission for further actions consistent with the court’s opinion.

Notices of Appeal

On October 16, 2007, the Commission filed a Notice of Appeal seeking appellate review of all of the adverse rulings issued by the district court. On October 23, Representative Shays cross-appealed the district court’s judgment insofar as it denied the plaintiff’s “claims or requested relief.”

Appeals Court decision - Motion to enforce

On April 11, 2008, the U.S. District Court for the District of Columbia denied the plaintiff’s “motion to enforce” the court’s earlier final judgment in the Shays III litigation.

On November 7, 2007, Representative Christopher Shays (the plaintiff) filed a Motion to Enforce the court’s September 12, 2007, judgment that remanded certain regulations to the FEC for further action. In its September 12, 2007, Memorandum Opinion, the court expressly denied the plaintiff’s requests that the court enjoin the operation of the regulations, order the Commission to commence expedited rulemaking proceedings and adopt interim regulations, and retain jurisdiction over the matter to ensure the FEC’s timely and sufficient compliance with the court’s decision. In doing so, the court noted that under settled principles of administrative law, when a court reviewing agency action determines that an agency made an error of law, the court’s inquiry is at an end; the case must be remanded to the agency for further action consistent with corrected legal standards. While the court noted its assumption that “on remand, the Commission would act promptly, in light of the impending 2008 elections,” ultimately it is up to the agency to determine how to proceed next, not for the court to decide or monitor. Therefore, the court concluded that it has no authority to grant the relief plaintiff sought in his Motion to Enforce.

The court also found that the record provides no basis for granting plaintiff’s relief. The court noted that the FEC’s Response to plaintiff’s Motion to Enforce indicates that the Commission is currently undertaking the very steps that the court previously required it to undertake pending the appeal in Shays I, and the Commission is aware that it “must take significant steps during the appeal to prepare for possible new regulations.” In its Response, the Commission also highlighted competing priorities, including three major rulemakings necessitated by acts of Congress and a Supreme Court case, which preclude it from undertaking the type of immediate action plaintiff seeks. The court held that it “is in no position to grant the relief Plaintiff seeks, i.e., to essentially reorder the FEC’s priorities.” Given the fact that oral arguments on the FEC’s appeal of the September 12th judgment were scheduled for May 5, 2008, the court stated that in “the present posture, … the Court lacks both a reason for and the authority to order the FEC to comply with any particular timetable in taking ‘significant steps’ so that it will ‘have new, fully compliant regulations ready for immediate implementation after the expiration of its appeals process.’”

Appeals Court decision

The appellate court upheld the majority of the district court’s decision, including the remand of the content standard for coordination, the 120-day common vendor coordination time period and the definitions of GOTV activity and voter registration activity. While the district court had held the firewall safe harbor for coordination by former employees and vendors invalid,the court of appeals reversed the district court and upheld the safe harbor provision. The court of appeals reversed the district court’s decision to uphold the provision permitting federal candidates to solicit funds without restriction at state or local party events.

Coordination content standard. The court of appeals held that, while the Commission’s decision to regulate ads more strictly within the 90- and 120-day periods was "perfectly reasonable," the decision to regulate ads outside of the time period only if they republish campaign material or contain express advocacy was unacceptable. Although the vast majority of communications are run within the time periods and are thus subject to regulation as coordinated communications, the court held that the current regulation allows "soft money" to be used to make election-influencing communications outside of the time periods, thus frustrating the purpose of the BCRA. The appellate court remanded the regulations to the Commission to draft new regulations concerning the content standard.

Coordination by common vendors and former employees. The appellate court affirmed the district court’s decision concerning the 120-day prohibition on the use of material information about "campaign plans, projects, activities and needs" by vendors or former employees of a campaign. The court held that some material could retain its usefulness for more than 120 days and also that the Commission did not sufficiently support its decision to use 120 days as the acceptable time period after which coordination would not occur.

Firewall safe harbor. Contrary to the decision of the district court, the court of appeals approved the firewall safe harbor regulation to stand as written. The safe harbor is designed to protect vendors and organizations in which some employees are working on a candidate’s campaign and others are working for outside organizations making independent expenditures. The appellate court held that, although the firewall provision states generally as to what the firewall should actually look like, the court deferred to the Commission’s decision to allow organizations to create functional firewalls that are best adapted to the particular organizations’ unique structures.

Definitions of GOTV and voter registration activity. The court of appeals upheld the district court’s decision to remand the definitions of "GOTV" and "voter registration activity." The court held that the definitions impermissibly required "individualized" assistance directed towards voters and thus continued to allow the use of soft money to influence federal elections, contrary to Congress’ intent.

Solicitations by federal candidates at state party fundraisers. While the district court had upheld the regulation permitting federal candidates and officeholders to speak without restriction at state party fundraisers, the court of appeals disagreed. The court stated that Congress did not explicitly state that federal candidates could raise soft money at state party fundraisers; rather, Congress permitted the federal candidates to "appear, speak, or be a featured guest." Congress set forth several exceptions to the ban on federal candidates raising soft money, and state party events were not included in the exceptions. Thus, the court found the regulation impermissible.

Footnote:

1. A communication that satisfies the payment, content and conduct prongs of the “coordinated communication test” is an in-kind contribution from the entity paying for the communication. 11 CFR 109.21.

Source:   FEC Record -- September 2006; November 2007; June 2008; June 2008.

Documents

Appeals Court (07-5360, 07-5361)

Court decisions:

Related documents:

District Court (C.A. No. 06-1247)

Court decisions:

Related documents: