FEC Faulted for Failure to Enforce Disclosure on Nonprofits

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By Kenneth P. Doyle

Sept. 19 — Republican commissioners on the Federal Election Commission acted “contrary to law” by dismissing an FEC enforcement case against conservative nonprofit groups that refused to disclose their donors, a federal court ruled ( Citizens for Responsibility and Ethics in Washington v. FEC, D.D.C., No. 14-cv-1419, memorandum opinion 9/19/16 ).

The ruling by Judge Christopher R. Cooper of the U.S. District Court for the District of Columbia may be appealed, but it could have a major effect on the ability of nonprofit groups to spend money to influence elections while keeping their funding sources secret. Such spending—which critics call “dark money”—has risen in amount and impact since the 2010 Supreme Court decision in Citizens United v. FEC.

The new ruling came in a case filed by the liberal nonprofit group Citizens for Responsibility and Ethics in Washington (CREW). The organization challenged the FEC dismissal of an enforcement complaint on a party-line, deadlocked vote of the six FEC commissioners.

The enforcement action was filed against the conservative groups American Action Network (AAN) and Americans for Job Security (AJS), which spent millions on political ads without disclosing any donors.

Ads Attacked House Democrats

Cooper's ruling came less than a week after a hearing in which the judge questioned whether Republican FEC commissioners voting to dismiss enforcement action against these groups carefully considered the content of the ads the groups sponsored.

Cooper quizzed lawyers for the FEC and conservative groups about whether the ads sponsored by these groups could be considered “genuine issue ads,” rather than campaign ads intended to elect or defeat candidates. The question is crucial for determining whether the groups had a “major purpose” of influencing elections and thus were required to register with the FEC as political action committees and report their donors.

In a 28-page written opinion, the judge cited $1 million worth of TV ads aired by AAN in 2010 targeting specific Democratic House incumbents for backing President Barack Obama's health care legislation. The ads named the lawmakers and said the bill they voted for provided “free health care for illegal immigrants” and “Viagra for convicted sex offenders.”

The ads ended with the call: “In November, fix the healthcare mess Congress made.”

“It blinks reality to conclude that many of the ads considered by the Commissioners in this case were not designed to influence the election or defeat of a particular candidate in an ongoing race,” the judge said in the ruling.

Cooper remanded the enforcement matter back to the FEC to reconsider the ads aired by the conservative groups and determine whether the groups violated campaign finance law by sponsoring the ads without disclosing who funded them. Under the ruling, the FEC will face a tight, 30-day deadline in which to act.

AAN: Judge's Ruling ‘Not Conclusive.'

Cooper's ruling could be appealed by the FEC, though it appeared unlikely a four-vote majority of the six-member commission would approve an appeal. The FEC's three Republican commissioners have long been at odds with the three commissioners recommended by Democrats over disclosure issues.

The case appeared more likely to be appealed by AAN, which moved to intervene in the litigation shortly after the court case was filed in 2014.

Emily Davis, a spokeswoman for AAN, suggested the group would wait to see what the FEC does with the enforcement matter on remand.

“While we respectfully disagree with the judge’s opinion, this preliminary ruling does not conclusively resolve the case,” Davis told Bloomberg BNA in an e-mail.

“We are confident that the FEC’s original ruling to dismiss this matter was correct and will be affirmed. AAN will continue to move forward as it always has: a social welfare organization primarily dedicated to center-right policy advocacy,” Davis said.

While Davis played down the significance of the court ruling, CREW Executive Director Noah Bookbinder said it was “a huge victory on many important grounds.”

“From now on, we hope to see a major change in the way the FEC approaches investigations of non-profit organizations engaged in politics.” Bookbinder said. “This could be the beginning of meaningful enforcement of rules meant to ensure transparency and restrict the ability of powerful interests to influence politics without disclosure.”

‘Shot Across the Bow.'

There was no immediate comment from the FEC as a whole on Cooper's ruling.

One commissioner, FEC Vice Chairman Steven Walther, called the decision, “a shot across the bow” that would make campaign spending groups pay more attention to disclosure rules.

Walther, who holds a Democratic seat on the FEC, has voted to pursue enforcement cases that have been dismissed due to the deadlocks between Democratic and Republican commissioners. He told Bloomberg BNA in a phone interview that Cooper's decision could still be appealed, but for now the judge's ruling is “one of the most important tools in terms of enforcement that we've had for years.”

Daniel Petalas, former FEC enforcement chief and acting general counsel, had recommended that the FEC pursue enforcement action against AAN, AJS and other nondisclosing groups when he served at the agency. Petalas left the FEC earlier this month to enter private practice with the firm Garvey Schubert Barer.

The ruling is likely to be appealed and could ultimately be decided by “a much higher court,” Petalas told Bloomberg BNA in a phone interview. In the meantime, he said, the district court ruling “could have a significant impact” on groups that have continued to sponsor political ads without disclosing their donors.

These groups may have been reassured they would not face enforcement action because of the votes of the three Republican commissioners not to pursue most disclosure cases, Petalas said. Such assurances will now be called into question, he said.

Cooper ruled that courts are not required to defer to the FEC's judgment in an enforcement case that calls on commissioners to interpret previous court precedents, Petalas noted.

Judges are more qualified than FEC commissioners to interpret court decisions, the district judge's ruling indicated.

The new ruling could have a significant impact, election law expert Richard Hasen, a law professor at the University of California, Irvine, said.

“There’s still a long road here,” Hasen said on his Election Law Blog, “but it is possible that the FEC will finally be forced to treat these sham Super PACs as political committees and force disclosure of election-related spending.”

Citizens United Upheld Disclosure

In the district court ruling, Cooper repeatedly cited the Supreme Court's holding in Citizens United, which struck down limits on corporate spending in elections, but upheld as constitutional requirements for disclosure of such spending. Since Citizen United, the judge said, several federal appellate courts “have resoundingly concluded” that the distinction between campaign ads and issue ads relied on by the conservative groups and Republican FEC commissioners “is simply inapposite in the disclosure context.”

During the Sept. 12 court hearing in the case, Cooper quizzed lawyers for the FEC and conservative groups repeatedly about whether the ads involved in the enforcement matter could be considered “genuine issue ads,” rather than campaign ads intended to elect or defeat candidates. Cooper hinted during the hearing that he might remand the case to the FEC to re-examine the ads involved, though he did not indicate he would move as quickly as he did.

Charles Kitcher, an FEC attorney, and Claire Evans, an attorney with the firm Wiley Rein representing the conservative groups, both insisted during the hearing that the Republican FEC commissioners voting to dismiss enforcement action considered these ads to be issue ads, not campaign ads, and that the courts must defer to their decision.

Few FEC Challenges Succeed

Campaign finance law allows entities that file enforcement complaints to the FEC, such as CREW, to proceed with a court challenge if the agency dismisses a complaint. Few of these court cases succeed, usually because of procedural hurdles and the courts' deference to the FEC's prosecutorial discretion.

In recent years, liberal groups challenging conservative nonprofits' nondisclosure of donors going back to the 2010 campaign have filed a series of court cases challenging the FEC's failure to enforce disclosure requirements. None of these ongoing court cases had been decided until now.

A similar case, filed by the liberal nonprofit Public Citizen, involves the FEC dismissal of an enforcement action against the conservative nonprofit Crossroads GPS, which is linked to prominent Republican political adviser Karl Rove. Another judge in the federal district court in Washington, Richard Leon, held a hearing last month in the case involving Crossroads GPS but has given no indication how or when he would rule on summary judgment motions.

The conservative nonprofit groups involved in these court challenges have spent tens of millions on dollars on political ads. This spending by outside groups is not directly linked to candidates, but has mainly supported Republican candidates. The spending may have been funded by corporations, as well as wealthy individuals, but the donors to these groups have never been revealed.

The current status of Crossroads GPS, AAN and AJS, in terms of involvement in elections, is unclear. Although the groups reported spending a combined amount of nearly $200 million to influence elections from 2010 through 2014, they have reported no major independent expenditures to the FEC in the current election cycle.

Other groups engaged in such spending have proliferated, however.

Total campaign spending by “dark money” groups that disclose none of their funding sources has reached more than $60 million in the current cycle, though the percentage of outside campaign spending from undisclosed sources is less than in the last election, according to an analysis of FEC reports by the nonprofit Center for Responsive Politics.

To contact the reporter on this story: Kenneth P. Doyle in Washington at kdoyle@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

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