FEC v. Club for Growth, Inc.

On September 19, 2005, the Federal Election Commission asked the U.S. District Court for the District of Columbia to find that Club for Growth, Inc. ("Club") violated the Federal Election Campaign Act (the Act) by failing to register with the Commission after meeting both the statutory definition of "political committee" and the "major purpose" test established by the Supreme Court.

Background

The Act requires groups that receive contributions or make expenditures in excess of $1,000 during a calendar year, to register as a political committee. 2 U.S.C. § 433. In its landmark Buckley v. Valeo decision, the Supreme Court further defined the term "political committee" to include groups whose major purpose is to influence the election of candidates to office. 424 U.S. 1, 79 (1976).

This matter was initiated by an administrative complaint filed with the Commission by the Democratic Senatorial Campaign Committee (DSCC) alleging, among other things, that the Club, a Virginia Corporation registered with the Internal Revenue Service (IRS) as a political organization under Section 527 of the Internal Revenue Code, had improperly failed to register with the FEC as a political committee.

On October 19, 2004, after finding reason to believe that the Club accepted contributions and made expenditures in excess of the $1,000 registration threshold, the Commission authorized an administrative investigation. Based on the results of that investigation, the Commission's General Counsel notified the Club on April 25, 2005, that he was prepared to recommend that the Commission find probable cause to believe the Club violated the Act by failing to register as a political committee. The Club filed a response on May 31, 2005.

On July 19, 2005, the Commission voted to find probable cause to believe that the Club violated the Act and approved a proposed conciliation agreement. The Commission was unable to secure an acceptable conciliation agreement with the Club, prompting this suit.

Court Complaint

According to the Commission's complaint, the Club was formed primarily to help elect candidates to Congress who would vote for and implement its policy views. In fact, in its registration statement with the IRS, the Club describes itself as primarily dedicated to helping elect pro-growth, pro-freedom candidates through political contributions and issue advocacy campaigns.

Based on its investigation, the Commission determined that the Club met the threshold for registration as a political committee by spending millions of dollars on federal campaign activity during the 2000, 2002, and 2004 election cycles, and by soliciting funds from donors indicating their funds would be spent to help elect or defeat specific federal candidates. The Club encouraged large donations from federally-prohibited sources, and accepted many contributions from individuals that exceed the Act's $5,000 per year contribution limit on contributions to political committees. Some of the Club's solicitations clearly indicated that the funds received would be used to support or oppose specific federal candidates. As a result, those contributions apply towards the political committee registration threshold. See FEC v. Survival Education Fund, Inc., 65 F.3d 285, 295 (2d Cir. 1995).

The Commission found that the largest component of the Club's expenditures during the last three election cycles was political advertising, and that many of its ads contained messages that expressly advocated the election or defeat of clearly identified federal candidates. Based on those ads alone, the Commission alleges that the Club triggered political committee status in August 2000, at the latest.

Request for Relief

The Commission asks that the District Court find that the Club:

• Failed to register as a political committee and as a result, failed to file periodic reports of its receipts and disbursement with the Commission;
• Knowingly accepted prohibited corporate contributions and contributions exceeding the limitations established by the Act; and
• Alternatively, made prohibited corporate expenditures.

Additionally, the Commission asks the Court to permanently enjoin the Club from violating the Act; order the Club to register and file disclosure reports with the FEC until it terminates its status as a political committee; order the Club to disgorge all excessive and prohibited contributions it has received since it became a political committee; and assess an appropriate civil penalty.

U.S. District Court for the District of Columbia, [case # 1:05cv01851].