Campaign Legal Ctr. v. Fed. Election Comm'n

• Decision Date: 07 June 2018
• Docket Number: Case No. 1:16–cv–00752 (TNM)
• Citation: 312 F.Supp.3d 153
• Parties: CAMPAIGN LEGAL CENTER, et al., Plaintiffs, v. FEDERAL ELECTION COMMISSION, Defendant, F8, LLC, et al., Intervenor–Defendants.
• Court: U.S. District Court — District of Columbia

312 F.Supp.3d 153

CAMPAIGN LEGAL CENTER, et al., Plaintiffs,

v.FEDERAL ELECTION COMMISSION, Defendant,F8, LLC, et al., Intervenor–Defendants.

Case No. 1:16–cv–00752 (TNM)

United States District Court, District of Columbia.

Signed June 7, 2018

Joseph Gerald Hebert, Law Offices of Joseph Gerald Hebert, Alexandria, VA, Megan P. McAllen, Tara Malloy, Campaign Legal Center, Washington, DC, for Plaintiffs.

Charles Kitcher, Haven G. Ward, Steve Nicholas Hajjar, Erin R. Chlopak, Federal Election Commission, Washington, DC, for Defendant.

George J Terwilliger, III, McGuire Woods LLP, Washington, DC, for Intervenor–Defendants.

MEMORANDUM OPINION

TREVOR N. MCFADDEN, United States District JudgePlaintiffs Campaign Legal Center and Democracy 21 claim that it was unlawful for the Federal Election Commission to decline to investigate three complaints that corporate entities committed "straw donor" violations of the Federal Election Campaign Act's prohibition on making "a contribution in the name of another person or knowingly permit[ting] [one's] name to be used to effect such a contribution." 52 U.S.C. § 30122 ; Compl. ¶¶ 1–2. Three of the alleged violators intervened as Defendants, and all parties have filed cross motions for summary judgment. Finding that there was a rational basis for the Commission's exercise of its prosecutorial discretion, the Court will grant summary judgment for all Defendants.

I. BACKGROUND

A. The Federal Election Commission's Enforcement Authority

The Federal Election Commission is an agency that "administer[s], seek[s] to obtain compliance with, and formulate[s] policy with respect to" the Federal Election Campaign Act (the Act), and has "exclusive jurisdiction with respect to the civil enforcement of such provisions." 52 U.S.C. § 30106(b)(1). The Commission comprises "6 members appointed by the President, by and with the advice and consent of the Senate." Id. § 30106(a)(1). "No more than 3 members of the Commission ... may be affiliated with the same political party." Id. "All decisions of the Commission with respect to the exercise of its duties and powers ... shall be made by a majority vote of the members of the Commission." Id. § 30106(c). "The voting and membership requirements mean that, unlike other agencies—where deadlocks are rather atypical—[the Commission] will regularly deadlock as part of its modus operandi. " Pub. Citizen, Inc. v. Fed. Energy Regulatory Comm'n , 839 F.3d 1165, 1171 (D.C. Cir. 2016).

"Any person" may file an administrative complaint with the Commission alleging a violation of Act. 52 U.S.C. § 30109(a)(1). "If the Commission ... determines, by an affirmative vote of 4 of its members, that it has reason to believe that a person has committed, or is about to commit, a violation," then the Commission "notif[ies] the person of the alleged violation," and begins "an investigation ... which may include a field investigation or audit." Id. § 30109(a)(2). The Commission then votes on whether there is "probable cause" to believe that the person "has committed, or is about to commit, a violation of [the] Act." Id. § 30109(a)(4)(A)(i). If the Commission finds probable cause, it must attempt to remedy the violation informally, with a conciliation agreement ratified by four Commissioners. Id. If a conciliation agreement cannot be reached, then the Commission (again with the vote of four Commissioners) may institute a civil enforcement action in federal district court. Id. § 30109(a)(6)(A). If at any point the Commission dismisses an administrative complaint, the party who filed the complaint may file suit in this District, asserting that "the dismissal of the complaint ... is contrary to law." Id. § 30109(a)(8).

Here, the Plaintiffs asked the Commission to enforce the Act's requirement that "political committees" must file publicly available reports detailing receipts and expenditures, 52 U.S.C. § 30104(a) – (b), and its straw donor prohibition: "No person shall make a contribution in the name of another person or knowingly permit his name to be used to effect such a contribution, and no person shall knowingly accept a contribution made by one person in the name of another person." Id. § 30122. The Act defines "person" to include a "corporation." 52 U.S.C. § 30101(11).

B. The Commission Dismisses Plaintiffs' Complaints

This case involves three administrative complaints filed by the Plaintiffs in 2011–2013. Two of the complaints focused on $1 million donations made in March 2011 by limited liability companies (LLCs) Eli Publishing L.C. and F8 LLC, respectively, to a registered independent-expenditure-only political action committee (or super PAC) called Restore Our Future, Inc. R. at 78.¹ The Plaintiffs filed two complaints alleging that Steven Lund (who founded Eli Publishing) and others (who operated F8 LLC) were the true sources of the contributions. R. at 32. The complaints also asserted that the LLCs were "political committees" subject to reporting requirements under 52 U.S.C. § 30104. Id. Mr. Lund told news media that he made the donations through a corporation for "accounting advantages," and was not trying to hide them. R. at 78. The Commission's Office of General Counsel recommended finding reason to believe that Mr. Lund, both companies, and the unknown operators of F8 violated the straw donor prohibitions of 52 U.S.C. § 30122, but counseled taking no action on the political committee allegations. R. at 80.

The third complaint concerns a series of donations totaling over $12 million from Specialty Investment Group Inc., and its subsidiary Kingston Pike Development LLC to FreedomWorks for America, another super PAC. R. at 79. William Rose was Specialty Group's CEO, president, and board chairman, and the sole manager of Kingston Pike, id. , and the Plaintiffs alleged that FreedomWorks board member Richard Stephenson made the contributions through Mr. Rose's companies, with assistance from Adam Brandon, a FreedomWorks' executive vice president. R. at 323. The Commission's General Counsel recommended finding reason to believe that Mr. Stephenson, Mr. Rose, both companies, FreedomWorks, and Mr. Brandon had violated the straw donor prohibition, but recommended against investigating the political committee allegations. R. at 80.²

In February 2016, the Commission deadlocked—three votes to three—on whether to find reason to believe that any violation had occurred and to proceed with an investigation. R. at 67–68, 543–44. As a result, the Commission voted unanimously to close the files and "[s]end the appropriate letters." Id. The letters informed the Plaintiffs of their right "to seek judicial review of the Commission's dismissal." R. at 70–71, 73–74, 546–47, 550–51. The Commissioners who voted against an investigation released a Statement of Reasons in April 2016, R. at 75–89, which "necessarily states the agency's reasons for acting as it did" because it comes from the Commission's "controlling group." Fed. Election Comm'n v. Nat'l Republican Senatorial Comm. , 966 F.2d 1471, 1476 (D.C. Cir. 1992). The dissenting Commissioners also provided a Statement of Reasons. R. at 90–94.

The Commission stated that it declined to find reason to believe a violation occurred as "an exercise of the Commission's prosecutorial discretion," id. at 77, because the Supreme Court's decision in Citizens United v. Fed. Election Comm'n , 558 U.S. 310, 130 S.Ct. 876, 175 L.Ed.2d 753 (2010) created a sea change in campaign finance law, overturning the ban on corporate political speech and making it necessary to examine as "an issue of first impression" how Section 30122's straw donor ban applied to corporate contributions. R. at 75–76. The Commission also "kept ... in mind" (1) that the Commission had previously applied the straw donor ban "almost exclusively" in situations involving "excessive and/or prohibited contributions," while the matters under review involved donations to super PACs not subject to such limitations, (2) that "Commission precedent has treated funds deposited into a corporate account and then used for contributions as the funds of that corporation," (3) that the Commission had "rejected an attribution rule that would deem the individual owners of corporate LLCs as the makers of those LLC's contributions,"³ and (4) that "the speech rights recognized in Citizens United would be hollow if closely held corporations and corporate LLCs were presumed to be straw donors—thus, triggering investigations and potential punishment—each time they made contributions." R. at 76.

The Commission therefore announced a new standard to evaluate straw donor allegations in this factual context, focused on "whether the funds used to make a contribution were intentionally funneled through a closely held corporation or corporate LLC for the purpose of making a contribution that evades the Act's reporting requirements, making the individual ... the true source." Id. The Commission declined to proceed with investigations of Plaintiffs' complaints, concluding that "because past Commission decisions ... may be confusing in light of recent legal developments[;] principles of due process, fair notice, and First Amendment clarity counsel against applying a standard to persons and entities that were not on notice of the governing norm." Id.

The three dissenting Commissioners reasoned that "current law clearly prohibits contributors from using the names of LLCs to shield their identity from disclosure to the public," and that the issue presented was "not [ ] difficult." R. at 91–92. They acknowledged that "the ability of individuals and corporations to make unlimited contributions to super PACs is a post- Citizens United ... phenomenon," but argued that "the longstanding prohibition against making contributions in the name of another remains unchanged and squarely applies in these cases." R. at 92. In a separate Statement, two dissenting Commissioners criticized the controlling Commissioners for delaying their decision, and...