Shays v. Federal Election Com'n

• Citation: 511 F.Supp.2d 19
• Decision Date: 30 August 2007
• Docket Number: Civil Action No. 04-1597 (EGS).
• Parties: Representative Christopher SHAYS, et al., Plaintiffs, v. FEDERAL ELECTION COMMISSION, Defendant.
• Court: United States District Courts. United States District Court (Columbia)

511 F.Supp.2d 19

Representative Christopher SHAYS, et al., Plaintiffs, v. FEDERAL ELECTION COMMISSION, Defendant.

Civil Action No. 04-1597 (EGS).

United States District Court, District of Columbia.

August 30, 2007.

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Roger Michael Witten, Wilmer Cutler Pickering Hale and Dorr, LLP, New York, NY, Donald Jay Simon, Sonosky, Chambers, Sachse, Endreson & Perry, Washington, DC, for Plaintiffs.

Colleen T. Sealander, Lawrence Howard Norton, Richard Blair Bader, Holly Jean Baker, Robert William Bonham, III, Thomasenia P. Duncan, General Counsel, David Kolker, Acting Associate General Counsel, Harry J. Summers, Acting Assistant General Counsel, Vivien Clair, Attorney, Margaret G. Perl, Attorney, Federal Election Commission, Washington, DC, for Defendant.

MEMORANDUM OPINION

EMMET G. SULLIVAN, District Judge.

Plaintiffs, Representatives Christopher Shays and Martin Meehan, brought this suit under the Administrative Procedures Act ("APA") to compel defendant, the Federal Election Commission ("FEC"), to issue regulations concerning the applicability of campaign finance laws to "527 groups." In March 2006, this Court remanded the matter to the FEC to institute rulemaking or properly explain why it was employing case-by-case adjudication rather than rulemaking to regulate 527 groups. The FEC issued its revised explanation and justification in February 2007. Pending before the Court are plaintiffs' motion for further relief and defendant's renewed motion for summary judgment. Upon consideration of the motions and supporting memoranda, the responses and replies thereto, the applicable law, the arguments made at the motions hearing on July 31, 2007, and the entire record, the Court determines that the FEC's revised explanation is sufficient under the APA to justify its choice not to engage in rulemaking. Therefore, for the reasons stated herein, plaintiffs' motion for further relief is DENIED, and defendant's motion for summary judgment is GRANTED.

BACKGROUND

In its 2006 opinion, the Court set out in detail the statutory background and procedural history at the agency level, Shays v. FEC, 424 F.Supp.2d 100, 105-08 (D.D.C. 2006), so it need only be summarized here. Section 527 of the Internal Revenue Code permits income tax exemptions for a "political organization." 26 U.S.C. § 527(a). A political organization, or "527 group," is defined as a "party, committee, association, fund, or other organization (whether or not incorporated) organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function." Id. § 527(e)(1) (emphasis added). An "exempt function" is "the function of influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office or office in a political organization, or the election of Presidential or Vice Presidential electors." Id. § 527(e)(2).

The Federal Election Campaign Act ("FE CA") and related campaign finance laws regulate "political committees." 2 U.S.C. § 431(4). Once an organization is defined as a political committee, it is subject to a host of regulations: it must file a "statement of organization" with the FEC, 2 U.S.C. § 433; file periodic disclosure reports of its receipts and disbursements, id. § 434; and adhere to contribution limits, id. § 441a-1(a)(1)-(2). A political committee is subject to these regulations even if it is engaged only in spending independent from any particular political party or candidate. 11 C.F.R. § 110.1(n).

A "political committee" is statutorily defined as "any committee, club, association or other group of person which receives contributions aggregating in excess of $ 1,000 during a calendar year or which makes expenditures aggregating in excess of $ 1,000 during a calendar year." 2 U.S.C. § 431(4). In addition, the Supreme Court has construed "political committee" only to "encompass organizations that are under the control of a candidate or the major purpose of which is the nomination or election of a candidate." Buckley v. Valeo, 424 U.S. 1, 79, 96 S.Ct. 612, 46 L.Ed.2d 659 (1976) (emphasis added). This "major purpose" test has never been codified in a regulation, but is applied by the FEC in its enforcement actions against individual organizations. Shays, 424 F.Supp.2d at 106.

Beginning in March 2004, the FEC considered promulgating additional rules concerning a variety of issues involving the definitions of "political committee," "contribution," and "expenditure." Id. at 106=07. The agency issued a notice of proposed rulemaking, received thousands of comments, and heard testimony from 31 witnesses. Id. The FEC specifically considered two proposals — the "Thomas-Toner proposal" and its General Counsel's recommendation — for regulations that would codify standards for the "major purpose" test, specifically with regard to 527 groups. Id. at 107-08. Both proposals were rejected and the FEC instead issued an Explanation and Justification on November 23, 2004, explaining why it took no action to re-define "political committee." Id. at 108. Thus, the FEC elected to continue applying the general "political committee" definition and "major purpose" test on a case-by-case basis instead of promulgating more detailed regulations. Id. at 108, 112-13.

Plaintiffs filed this suit in September 2004, claiming that the FEC's failure to issue a rule governing when 527 groups must register as political committees is arbitrary and capricious. Id. at 103. Plaintiffs asked the Court to direct the FEC to promulgate regulations defining when a 527 group must register as a political committee. Id. In 2006, the Court ruled on the parties' cross-motions for summary judgment. As an initial matter, the Court concluded that plaintiffs had standing to bring their claims and that the claims were ripe for adjudication. Id. at 110-12. On the merits, the Court concluded that the agency's decision to pursue adjudication over rulemaking of 527 groups was not, per se, an abuse of discretion. Id. at 114.

The Court, however, concluded that the FEC had failed to provide a reasoned explanation for its decision to regulate 527 groups through adjudication instead of rulemaking. Id. at 116. The Court found that the agency had described why the regulation of 527 groups is complicated, but had failed to explain "how the problem becomes any less complicated or any more manageable if the FEC pursues case-by-case adjudication." Id. at 115. The Court also expressed concerns over whether regulation through case-by-case adjudication would be: (1) sufficiently definitive to satisfy First Amendment and Due Process concerns; (2) more effective than rulemaking in carrying out Congress's intent to prevent the flow of "soft money" into federal campaigns; (3) executed on a timely basis within an election cycle; and (4) resolved in a way that would provide guidance to other 527 groups more generally. Id. at 115-16. In issuing a remedy, the Court refused to direct the FEC to promulgate rules regarding 527 groups and the definition of "political committee," and instead remanded the case to the agency to either better explain its decision or institute new rulemaking. Id. at 116.

In response to the Court's order, the FEC issued a supplemental explanation and justification in February 2007. Political Committee Status, Supplemental Explanation and Justification, 72 Fed.Reg. 5595 (Feb. 7, 2007). The explanation began by setting forth the agency's view of the operative regulatory regime, specifically with regard to the "contribution," "expenditure," and "major purpose" requirements of the definition of "political committee." Id. at 5596-97. In this analysis, the FEC asserted that the Supreme Court in Buckley limited "expenditure," when applied to communications made independently of a candidate, to only include "express advocacy." Id. at 5597 (citing Buckley, 424 U.S. at 44, 80, 96 S.Ct. 612). In the explanation's second part, the agency established why all 527 groups may not qualify as a "political committees." Id. at 5597-99. In the explanation's third part, the agency demonstrated that Congress has heretofore decided not to classify every 527 group as a "political committee." Id. at 5599-5601. In the explanation's fourth part, the agency asserted that application of the "major purpose" test requires the flexibility of case-by-case analysis of an organization's conduct that is incompatible with rulemaking. Id. at 5601-02. In the explanation's fifth part, the agency claimed that two rules enacted in 2004 concerning the definition of "contribution" and the allocation of federal funds strengthened its regulation of 527 groups. Id. at 5602-03. Finally, in the explanation's sixth part, the agency asserted that recent resolutions of several administrative enforcement matters involving 527 groups established the effectiveness of its adjudicative approach. Id. at 5603-06. For these reasons, the FEC stated that it would continue applying the general "political committee" definition and "major purpose" test on a case-by-case basis. Id. at 5606.

Following issuance of the supplemental explanation, plaintiffs moved for further relief. Plaintiffs contend that the new explanation also violates the APA and that the Court should order the FEC to issue an appropriate regulation focused on 527 groups within 90 days of the Court's order. Specifically, plaintiffs argue that the FEC still has not provided a reasoned explanation for its decision to eschew rulemaking for 527 groups, and that its new explanation is premised on a fundamental misinterpretation of the law. The FEC opposes this motion and also moves for summary judgment, contending that its actions now satisfy the APA. Specifically, the FEC argues that its revised explanation easily passes muster under the highly deferential standard of review that the...