AO 2014-17: LLC owned by two corporations may authorize solicitations by a trade association

A limited liability company (LLC) owned and controlled by two corporations may authorize a trade association of which it is a member to solicit its executive and administrative personnel.

Background
Berkadia Commercial Mortgage LLC (Berkadia) was formed and is wholly owned by two corporations: Berkshire Hathaway Inc. (Berkshire) and Leucadia National Corporation (Leucadia). Each corporation owns a 50 percent interest in Berkadia and shares 50 percent of its profits. Berkshire and Leucadia appoint two individuals to Berkadia’s four-member Board of Managers (the Board), and all decisions of the Board require the assent of at least one Berkshire and one Leucadia appointee. The Board controls and manages Berkadia and has the authority to hire and fire its employees.

Berkadia is a member of several trade associations that administer separate segregated funds (SSFs). It asks if it may authorize any one of them to solicit its executive and administrative personnel.

Analysis
As an exception to the Federal Election Campaign Act’s (the Act) corporate contributions ban, incorporated trade associations may solicit contributions to their SSF from their own executive and administrative personnel. They may also solicit individual members and members that are unincorporated entities. They may not solicit incorporated members, but they generally may, with specific written approval by the member, solicit the stockholders and executive and administrative personnel of incorporated members. 52 U.S.C. § 30118(b)(4)(D) (formerly 2 U.S.C. § 441b(b)(4)(D)); 11 CFR 114.8(c) and (d).

Contributions by an LLC that elects to be treated as a partnership for tax purposes are treated as contributions from a partnership. 11 CFR 110.1(g)(2). Partnerships are generally permitted to make contributions directly to federal candidates and political committees. 11 CFR 110.1(g)(2) and 110.1(e). However, since contributions by partnerships must be attributed both to the partnership and to its partners, a partnership consisting solely of corporate partners is prohibited from making contributions. See AO 2001-07 (Nuclear Management Company PAC).

Berkadia is treated as a partnership under Commission regulations because it is an LLC that has elected to be treated as a partnership for tax purposes. Commission regulations, however, do not explicitly address trade association SSF solicitations of member partnerships that are wholly owned by corporations. A trade association may not solicit Berkadia directly for contributions because any contributions made by Berkadia must be attributed to its corporate owners (i.e., partners), who are prohibited from making contributions. Furthermore, since Berkadia is not treated as a corporation, the Commission’s regulations do not explicitly allow a trade association to solicit Berkadia’s executive and administrative personnel. See, e.g., AO 2005-14 (Association of Kentucky Fried Chicken Franchisees). Thus, the regulations do not clearly indicate how Berkadia may lawfully participate in the SSF of a trade association of which Berkadia is a member.

In analogous situations, the Commission has recognized that partnerships wholly owned by corporations “warrant special consideration.” AO 2010-16 (EmblemHealth Services). To avoid prohibiting these partnerships from making contributions and establishing and administering their own SSF, the Commission has allowed them to pay the administration and solicitation costs of their corporate owner’s SSF, but only when the partnership was wholly owned by corporations and affiliated with at least one of the corporations. Id.

The Act and Commission regulations state that SSFs that are established, financed, maintained or controlled by the same corporation, labor organization, person or group of persons are considered to be affiliated. 52 U.S.C. § 30116(a)(5) (formerly 2 U.S.C. § 441a(a)(5)); 11 CFR 100.5(g)(2) and 110.3(a)(1)(ii). The Commission may analyze a number of factors that examine the relationship between two or more organizations to determine if they are in fact affiliated. 11 CFR 100.5(g)(4)(i)-(ii) and 110.3(a)(3)(i)-(ii). The Commission concludes that Berkadia is affiliated with both of its corporate owners because they share equal ownership, control and profits of Berkadia.

The Commission has concluded that partnerships and LLCs that “warrant special consideration” — like Berkadia does here — may establish and administer an SSF, and the executive and administrative personnel of such entities may be solicited for contributions to their SSF or an SSF of their affiliated owners. AO 1997-13 (USA PAC); AO 2010-16 (EmblemHealth). The Commission finds that the same considerations warrant allowing the trade association solicitations at issue here. Thus, to avoid prohibiting Berkadia from making contributions to a trade association’s SSF and from having its executive and administrative personnel solicited for contributions to such an SSF, the Commission interprets the Act and its regulations to allow a trade association to solicit the executive and administrative personnel of partnerships (and LLCs electing tax treatment as partnerships) that are wholly owned by and affiliated with corporations. Accordingly, the Commission concludes that Berkadia may authorize a trade association of which it is a member to solicit its executive and administrative personnel, so long as Berkadia and the trade association abide by the requirements of 11 CFR 114.8.

Date issued: 11/06/14; Length: 7 pages.

Resources:

• Advisory opinion 2014-17 [PDF]
• Commission discussion of advisory opinion 2014-17