AO 2012-23: Trade associations may solicit members for affiliated cooperative’s PAC

With prior approval, a group of trade associations may solicit their corporate members’ executives and stockholders for contributions to the separate segregated fund (PAC) of an affiliated cooperative.

Background

A group of seven 501(c)(5) sugarbeet growers associations (collectively, “the Associations”) promote the interests of sugarbeet growers in Idaho and Oregon. Each Association solicits membership from persons or entities that are both actively engaged in the cultivation of sugarbeets and members of Snake River Sugar Company (Snake River).

Snake River is an agricultural cooperative organized by the Associations to handle, manufacture, process and market the sugarbeets grown by its members. Snake River purchases these sugarbeets and sells them to the Amalgamated Sugar Company LLC (“Amalgamated”) which processes the sugarbeets and sells the resulting sugar. Amalgamated returns the proceeds to Snake River for distribution to its members, less the funds that Snake River withholds and remits to the Associations as members’ dues. Only agricultural producers who are engaged in the production of sugarbeets and their cooperative associations may be members of Snake River, the vast majority of which are also members of one of the seven Associations.

Snake River is the connected organization of Snake River PAC, which is a separate segregated fund. The Associations propose to solicit contributions to Snake River PAC from the shareholders, executive and administrative personnel  (and the families of each group) of corporations that are Association members, only after receiving prior approval to do so from their corporate members.

Analysis

Status as trade associations. The Commission concluded that the seven associations qualify as “trade associations” under the Act and Commission regulations, which define a trade association as “…a membership organization of persons engaging in a similar or related line of commerce, organized to promote and improve business conditions in that line of commerce and not to engage in a regular business of a kind ordinarily carried on for profit, and no part of the net earnings of which inures to the benefit of any member.” 11 CFR 114.8(a).

To qualify as a trade association, an organization must first be a membership organization, which Commission regulations define as a trade association, cooperative, or corporation without capital stock that 1) is composed of members, 2) expressly states the qualifications and requirements for membership in its articles, bylaws, constitution, or other formal documents, 3) makes its articles, bylaws, constitution, or other formal organizational documents available to its members upon request, 4) expressly solicits persons to become members, 5) expressly acknowledges the acceptance of membership, and 6) is not organized primarily for the purpose of influencing the nomination for election, or election, of any individual for federal office. 11 CFR 114.1(e)(1)(i)-(vi).

Based on the facts presented, the Commission concluded that the Associations satisfy each of the above criteria and thus qualify as membership organizations. Furthermore, because the Associations consist of persons engaged in a similar line of commerce (in this case, sugarbeets), and the revenue of the Associations is derived from their members’ dues, no part of which inures to the benefit of any individual member, the Associations qualify as trade associations.

Affiliation. The Associations and Snake River are affiliated under the Act and Commission regulations. Organizations are considered to be affiliated if they are established, financed, maintained or controlled by the same corporation, person or groups of persons. The Commission’s regulations on affiliation consider various factors to determine whether two organizations are affiliated, including common officers, employees or members indicating a formal or ongoing relationship between the different organizations. 11 CFR 100.5(g)(4) and 110.3(a)(3).

The Associations formed Snake River and participate significantly in its operations. There is also significant overlap in their membership and governance. Each member of the Association is and must be a member of Snake River; about 99.6 percent of Snake River’s members are also Association members. Snake River also plays a role in funding the Associations, since Snake River purchases all of the sugarbeets grown by members of the Associations, withholds members’ dues from its payments to the growers and remits those funds to the Associations. These funds comprise all of the Associations’ revenues.

Solicitations for the PAC. As the Associations and Snake River are affiliated, the Associations may solicit the executive and administrative personnel, stockholders and family members of their member corporations (also known as the “restricted class”) that have provided prior approval for such solicitations, for contributions to Snake River’s PAC.

The Act and Commission regulations allow incorporated trade associations with corporate members to solicit the restricted class of those corporate members, provided that the corporate members have granted “prior approval” to the trade association for the making of such solicitations during a calendar year. As a condition of prior approval, the corporation may not grant approval to more than one trade association during a single calendar year. 2 U.S.C. §441b(b)(4)(D) and 11 CFR 114.8(c) and (d).

In this instance, since the trade associations (the Associations) are affiliated with the PAC’s connected organization (Snake River), the Associations may solicit contributions to Snake River’s PAC in the same manner as if the Associations themselves were the connected organizations of the PAC. See AO 2005-17 (American Crystal Sugar). As a result, the Associations’ restricted class may be solicited for contributions to Snake River PAC, as well as the restricted class of any corporate members of the Associations that have granted prior approval.

Date issued: August 2, 2012; Length: 9 pages.

Resources:

• Advisory opinion 2012-23 [PDF; 9 pages]
• Commission discussion of AOR 2012-23