Fed. Election Comm'n v. O'Donnell, C.A. No. 15-17-LPS

CourtUnited States District Courts. 3th Circuit. United States District Court (Delaware)
Writing for the CourtSTARK, U.S. District Judge
PartiesFEDERAL ELECTION COMMISSION, Plaintiff, v. CHRISTINE O'DONNELL, et al., Defendants.
Docket NumberC.A. No. 15-17-LPS
Decision Date19 April 2017

FEDERAL ELECTION COMMISSION, Plaintiff,
v.
CHRISTINE O'DONNELL, et al., Defendants.

C.A. No. 15-17-LPS

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

April 19, 2017


Seth Nesin, Lisa J. Stevenson, Kevin Deeley, Harry J. Summers, Robert W. Bonham III, FEDERAL ELECTION COMMISSION, Washington, DC

Attorneys for Plaintiff.

Stephen M. Hoersting, Chris Gober, THE GOBER GROUP PLLC, Austin, TX

Attorneys for Defendants.

MEMORANDUM OPINION

April 19, 2017
Wilmington, Delaware

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STARK, U.S. District Judge:

This case is an enforcement action by the Federal Election Commission ("FEC" "Commission" or "Plaintiff") against Christine O'Donnell ("O'Donnell"), a candidate for the United States Senate; the Friends of Christine O'Donnell, a campaign committee supporting O'Donnell's candidacy ("Committee"); and Matthew Moran, in his official capacity as the Committee's treasurer (collectively, "Defendants").1 On September 21, 2016, the Court granted summary judgment, determining that Defendants unlawfully used campaign contributions to pay the rent for O'Donnell's residence. See Fed. Election Comm'n v. O'Donnell, 2016 WL 5219452 (D. Del. Sept. 21, 2016). At that time, the Court declined to determine the appropriate remedy for Defendants' violations. See id. at *12-14.

Following the Court's decision on summary judgment, the parties indicated to the Court that they were engaged in negotiations in an effort to reach a settlement. (See D.I. 66 at 3) The parties subsequently participated in mediation proceedings with Chief Magistrate Judge Thynge. (See D.I. 67, 68, 69) Having failed to reach a settlement agreement, the parties submitted letter briefs to the Court addressing what remedy is appropriate for Defendants' personal-use violations. (See D.I. 70, 71, 72, 73)

For the reasons stated below, the Court will order (i) O'Donnell to disgorge $5,701.85, (ii) Defendants jointly to pay a penalty of $25,000, and (iii) enjoin Defendants from converting campaign contributions to personal use.

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DISCUSSION

Under the Federal Election Commission Act ("FECA"), following "a proper showing that the person involved has committed . . . a violation of this Act," a court "may grant a permanent or temporary injunction, restraining order, or other order, including a civil penalty which does not exceed the greater of [$7,500] or an amount equal to any contribution or expenditure involved in such violation." 52 U.S.C. § 30109(a)(6)(B); 11 C.F.R. § 111.24(a)(1). The Court has considerable discretion to determine the appropriate remedies for violations of the statute. See Fed. Election Comm'n v. Craig for U.S. Senate, 816 F.3d 829, 847 (D.C. Cir. 2016); see also United States v. Mun. Auth. of Union Twp., 150 F.3d 259, 264 (3d Cir. 1998).

The Commission submits that the appropriate remedy for Defendants' conversion of campaign funds to pay for O'Donnell's personal residence is to: order O'Donnell to disgorge $5,701.85, which is an estimate of the benefit she received from her violations, plus pre-judgment interest; impose a civil penalty of $25,000, jointly payable by O'Donnell and the Committee; and enter an injunction prohibiting Defendants from converting campaign funds for personal use. Defendants do not contest that the Court may impose the Commission's proposed remedies. (See D.I. 73 at 1) But Defendants contend that disgorgement plus a lower civil penalty - of $11,403.70 - "would equally serve the interests of justice and deterrence." (Id.)

A. Disgorgement

Disgorgement - a remedy within the statutory category of "other order[s]," 52 U.S.C. § 30109(a)(6)(B) - may be proper when it is "necessary to avoid the unjust enrichment" of the violator. Fed. Election Comm'n v. Craig for U.S. Senate, 70 F. Supp. 3d 82, 97 (D.D.C. 2014), aff'd, 816 F.3d 829 (D.C. Cir. 2016); see also SEC v. Hughes Capital Corp., 124 F.3d 449, 455

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(3d Cir. 1997). Disgorgement is not meant to be punitive or compensatory; rather, "the primary purpose of disgorgement is . . . to deprive the wrongdoer of his ill-gotten gain." Craig, 816 F.3d at 847 (internal quotation marks and alteration omitted); see also SEC v. Teo, 746 F.3d 90, 105 (3d Cir. 2014).

Disgorgement is appropriate here. The Court previously concluded that "[e]ven assuming it could be viewed as proper for the Committee to pay the portion of the rent and facilities on the Townhouse associated with the non-personal residence parts of the Townhouse, and for O'Donnell to have to pay only the portion of the rent and facilities associated with the master bedroom and the other parts of the house which she used or had control over, the uncontested facts still establish that O'Donnell's payments to the Committee were insufficient." O'Donnell, 2016 WL 5219452, at *8. The Court determined that "[a] reasonable, conservative estimate of O'Donnell's fair share . . . is equal to $1,694.29 per quarter. But the undisputed evidence is that O'Donnell paid only $770 per quarter, which is far less than the value of what she obtained." Id. Based on these figures, the Commission calculates that O'Donnell underpaid by approximately $4,620 ($924.29 per quarter, for five quarters). (See D.I. 71 at 4) The Commission then estimates pre-judgment interest to be $1,081.85. (See id. at 4-5) Defendants do not dispute that the Commission's calculations result in a reasonable estimate of the amount O'Donnell benefitted from the personal use of campaign contributions. (See D.I. 73 at 2) Thus, the Court finds that disgorgement and pre-judgment interest are warranted and that $5,701.85 is a reasonable, but conservative, estimate of the amount O'Donnell benefitted from the Committee's improper payment of her residence.

The Court will order O'Donnell to disgorge these funds to the U.S. Treasury. Although

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disgorgement to a candidate's campaign committee is sometimes appropriate, here it would not be, as "the Committee is largely inactive" and the Committee has transferred at least $142,000 to O'Donnell's own PAC. (D.I. 71 at 4; see also D.I. 70 at 3; Craig, 70 F. Supp. 3d at 101) Therefore, disgorging to the Committee would not meaningfully accomplish the goal of depriving O'Donnell of her ill-gotten gain. In such circumstances, "courts of appeals have often affirmed the propriety of directing disgorged funds to the U.S. Treasury." Craig, 816 F.3d at 848; see also SEC v. Cavanagh, 445 F.3d 105, 117 (2d Cir. 2006).

B. Civil Penalty

Civil penalties are generally "intended to punish culpable individuals," not simply "extract compensation or restore the status quo." Tull v. United States, 481 U.S. 412, 422 (1987). FECA explicitly authorizes courts to impose civil penalties, not to exceed the greater of $7,500 per violation or the amount of any contribution or expenditure involved. See 52 U.S.C. § 30109(a)(6)(B); 11 C.F.R. § 111.24(a)(1). When determining the amount of civil penalty to impose, the Court will consider a number of factors, such as "(1) the good or bad faith of the defendants; (2) the injury to the public; (3) the defendant's ability to pay; and (4) the necessity of vindicating the authority of the responsible federal agency," Fed. Election Comm'n v. Furgatch, 869 F.2d 1256, 1258 (9th Cir. 1989); see also Craig, 70 F. Supp. 3d at 97; Fed. Election Comm'n v. Am. Fed'n of State, Cty. & Mun. Employees-P.E.O.P.L.E. Qualified, 1991 WL 241892, at *2 (D.D.C. Oct. 31, 1991), as well as the penalty's deterrent effect, see Craig, 70 F. Supp. 3d at 99-100.

The Commission requests that the Court impose a civil penalty of $25,000. This amount, the Commission argues, is based on the full amount of FECA violations: 15 months rent and

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utilities that were paid by the Committee, totaling $25,639.40. (See D.I. 71 at 2) The Commission contends that this is in the middle of the range that FECA authorizes, based on the "amount equal to any contribution or expenditure involved," 52 U.S.C. § 30109(a)(6)(B), as O'Donnell and the Committee each violated the law, and therefore could be each be assessed a penalty of...

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