Donald Trump, Mike Pence Pledged To Limit Gaming, Then Helped Casinos After Campaign Donations

At first glance, gambling appears to be one of the many issues on which Donald Trump and Mike Pence differ. Trump is an East Coast casino magnate who has boasted of using his fortune to influence lawmakers. Pence is a socially conservative Midwesterner who says he has never even bought a lottery ticket. He has cast himself as an opponent of expanding gaming in a state whose campaign finance laws aim to limit casino moguls’ political power.

But a closer look shows the Republican standard-bearers have plenty in common: As casino industry cash went around Indiana’s anti-corruption laws and into groups supporting Pence’s campaigns, the GOP governor used his power to help gambling interests. While Trump has promised throughout the 2016 presidential campaign that his personal wealth would insulate his administration from donor influence, the actions of his running mate on the gaming issue challenge that pledge.

A review of campaign finance records shows that despite Indiana statutes officially banning gaming industry donations to state officials, Indiana gaming interests gave more than $2 million to groups supporting Pence since he first began running for governor. That includes gaming-linked lobbying firms and their employees donating nearly a half-million dollars directly to Pence’s campaign account.

Mike Pence, Gambling, campaign donations
Photo Credit: Darren Hauck, Getty Images News

During much of Pence’s term, he was serving in a leadership and fundraising role at the Republican Governors Association while the group raised money from Indiana gaming operators. Meanwhile, casinos hit a legislative jackpot at Indiana’s state Capitol: Pence signed tax legislation benefiting the gaming industry; and, by not vetoing the bill, he allowed for the passage of separate landmark legislation permitting riverboat operators to move casinos on shore. His administration also helped a major RGA donor from the lottery industry, GTECH. (That company has since merged with a competitor, International Game Technology.)

In an emailed statement, Pence’s 2016 campaign spokesperson, Marc Lotter, said the gaming companies in question “have a long history, dating back a decade, of supporting the Republican Governors Association because they want to see the type of strong, pro-growth leadership that has led to Indiana becoming one of the best states in the nation for business continue and expand to other states. Gov. Pence is proud to support and have received support from the RGA.”

Referring to the gaming-backed bills that became law under Pence, Lotter added: “Since taking office, Gov. Pence has held the position that gaming should not be expanded in Indiana and every executive action he has taken on legislation has been consistent with that principle.”

This look at Pence’s relationship with the gaming industry is the first in a series on how companies are circumventing longstanding anti-corruption laws designed to restrict their election spending and political influence. The trend has occurred just as court decisions deregulating the nation’s campaign finance laws have let a torrent of cash into state and local races. In many cases, the donations arrived shortly before or after governments cemented everything from road contracts to economic development subsidies to pension deals. The continued flow of cash has defanged pay-to-play laws that were supposed to make sure government decisions are based on the public’s best interest — not political favoritism.

In Indiana, that larger trend has played out in gaming policy. Pence initially pledged to oppose efforts to grow the state’s gambling industry. “I do not support an expansion of gaming in Indiana,” he said in March of 2013, just two months after becoming governor. The statement won praise from a major religious group in the state. Pence also trumpeted his congressional efforts to outlaw Internet gaming, and said, “I’ve never bought a lottery ticket.”

Our review, however, shows that since 2011, Pence received roughly $2.2 million from Indiana gaming operators and their lobbying firms. That includes about $490,000 from nine gaming-linked lobbying firms and their employees directly to Pence’s campaign; at least $360,000 more from gaming industry lobbying firms and their employees to the Indiana Republican Party; and $1.4 million from Indiana gaming interests and their lobbying firms to the RGA, which backed Pence’s gubernatorial bids.

With that money flooding into the state, the governor helped Indiana’s gaming industry just when it was facing increased competition from neighboring states.

Continue reading on the National Law Review…

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Three Employee-Friendly Bills That May Be Affected By Upcoming Elections

employee-friendly billsIn the past few years, Democratic members of Congress have introduced several decidedly pro-employee bills, none of which have yet passed, but which may be impacted by the elections in November. Such bills were first introduced in the 113th Congress when Republicans controlled the House of Representatives and Democrats controlled the Senate. Versions of these bills were reintroduced in the 114th Congress, although Republicans control both the House and the Senate. The November election not only will decide the next President, but also may change the balance of power in both houses of Congress.

Healthy Families Act

  • Would allow employees of an employer with 15 or more employees to earn 7 days of sick time per year after 60 days of employment.

  • 113th Congress: Introduced to the House and Senate on March 20, 2013. Co-sponsored by 134 Democrats in the House and 23 Democrats in the Senate.

  • 114th Congress: Introduced to the House and Senate on February 12, 2015. Co-sponsored by 145 Democrats in the House and 31 Democrats and 2 Independents in the Senate.

Family and Medical Insurance Leave Act

  •  Would create a trust fund within Social Security to collect fees and provide compensation to employees on FMLA.

  • 113th Congress: Introduced to the House and Senate on December 12, 2013. Co-Sponsored by 101 Democrats in the House and 6 Democrats in the Senate.

  • 114th Congress: Introduced to the House and Senate on March 18, 2015 with 134 Democrats co-sponsoring in the House and 20 Democrats and 1 Independent co-sponsoring in the Senate.

Family and Medical Leave Enhancement Act

  • Most recent version of this Act would extend FMLA coverage to employees at worksites with 15-49 employees, including part-time workers. The Act would also protect (1) parental involvement leave to participate in school activities or programs for children or grandchildren and (2) parental involvement leave to care for routine medical needs including: (a) medical and dental appointments of an employee’s spouse, child, or grandchild, and (b) needs related to elderly individuals, such as nursing and group home visits.

  • A version of this bill has been introduced to Congress each session since 1997.

  • The most recent version was introduced to the House on June 16, 2016 with 7 Democrats co-sponsoring.

Following the elections later this year, employers should be on the lookout for versions of these bills being reintroduced, potentially in a political climate where they have a stronger chance of passing.

Federal Election Commission to Reconsider Political Involvement by U.S. Subsidiaries of Foreign Corporations on Tuesday

Feederal Election CommissionForeign nationals, both individuals and corporations, have long been barred from making contributions in federal, state or local elections in the United States. The statutory prohibition includes contributions made “directly” or “indirectly,” bars the solicitation as well as the making of contributions, and since 2002, includes a ban on expenditures, independent expenditures, or electioneering communications by foreign nationals.  Penalties are stiff, including incarceration for a criminal violation.

But how should the law treat U.S. corporations that are subsidiaries of a foreign corporate parent? Are they “American” if run by U.S. citizens, incorporated in the United States, and U.S. citizens make all funding and spending decisions?  The Federal Election Commission first answered this question in a  1978 advisory opinion and, in essence concluded that if U.S. citizens control the decisions about contributions and the operation of the PAC, using corporate funds raised from U.S. operations, and the PAC contains only funds from lawful U.S. donors, the ban on “indirect” contributions by a foreign national does not apply, even if the U.S. subsidiary is wholly owned by a foreign parent company.

This view has always had its dissenters, but for decades this has been the view of a majority at the FEC. However, since 2012, at least three FEC Commissioners have argued that this view of the law is incorrect, and that the issues should be reconsidered and/or reversed so that U.S. subsidiaries of foreign corporations would be barred from making contributions or expenditures in federal, state or local elections, including being barred from operating a corporate PAC.  This has generated 3-3 deadlocks in a number of advisory  opinions. The FEC will revisit the issue Tuesday, as Commissioner Ravel has placed the issue on the agenda for the FEC’s next meeting, seeking to remove the exemption for U.S. subsidiaries run by U.S. nationals.

There seem to be three principal arguments in favor of a change.

  • The tools presently available to enforce the law are too weak to address the threat, and only an outright ban is sufficient to stop foreign involvement.

  • Even when foreign nationals have no direct role in contribution decisions, the foreign ownership alters the thinking of the Americans who run the U.S. subsidiary, and their loyalties cannot help but shift to the interests of their foreign owners, and only a total ban can prevent this indirect influence.

  • Citizens United led to an unwarranted expansion of corporate political power, and this is one way to reign it in.

In a statement released in advance of the meeting, Commissioner Ravel seems to be advancing the first of these arguments, citing a recent and successful Justice Department prosecution of a foreign national who funneled contributions into a state election, and a recent news report alleging that foreign nationals directly controlled a U.S. corporation’s decision to give to a super PAC. Some will take this as a sign the current regime is working, with violations being uncovered and prosecuted.

The issue is unlikely to be resolved at the FEC on Tuesday, but will remain a hot button topic in campaign finance, and should be on everyone’s radar screen if Congress takes up the issue of campaign finance reform in the next Congress.

© 2016 Covington & Burling LLP

Legislature Tries Again To Put Citizens United On California Ballot

Nearly two years ago, I wrote that the California Supreme Court had blocked an effort to include an advisory vote in the statewide ballot. Proposition 49 asked whether the United States Congress and California Legislature should approve an amendment to the U.S. Constitution overturning the United States Supreme Court decision in Citizens United v. Federal Election Commission, 130 S. Ct. 876 (2010).  Just after New Year’s Day, the California Supreme Court issued an opinion addressing the merits of the argument.  The Court concluded:

  • As a matter of state law, the Legislature has authority to conduct investigations by reasonable means to inform the exercise of its other powers;

  • Among those other powers are the power to petition for national constitutional conventions, ratify federal constitutional amendments, and call on Congress and other states to exercise their own federal article V powers (U.S. Const., art. 5);

  • Although neither constitutional text nor judicial precedent provide definitive answers to the question, long-standing historical practice among the states demonstrates a common understanding that legislatures may formally consult with and  seek nonbinding input from their constituents on matters relevant to the federal constitutional amendment process;

  • Nothing in the state Constitution prohibits the use of advisory questions to inform the Legislature’s exercise of its article V-related powers; and

  •  Applying deferential review, Proposition 49 is reasonably related to the exercise of those powers and thus constitutional.

Howard Jarvis Taxpayers Assn. v. Padilla, 62 Cal. 4th 486, 494 (2016).

Earlier this month, Senators Benjamin Allen and Mark Leno decided to take another run at putting an advisory vote on the ballot. They gutted SB 254, a bill amending the Streets and Highways Code, and inserted legislation calling a special statewide election to be consolidated with the November 8, 2016 general election.  At this special election, the voters will be asked to vote on the following “advisory” question:

Shall the Congress of the United States propose, and the California Legislature ratify, an amendment or amendments to the United States Constitution to overturn Citizens United v. Federal Election Commission (2010) 558 U.S. 310, and other applicable judicial precedents, to allow the full regulation or limitation of campaign contributions and spending, to ensure that all citizens, regardless of wealth, may express their views to one another, and to make clear that the rights protected by the United States Constitution are the rights of natural persons only?

When Governor Brown allowed Proposition 49 (SB 1272) to become law without his signature, he observed “we should not make it a habit to clutter our ballots with nonbinding measures as citizens rightfully assume that their votes are meant to have legal effect.”  (Letter to Members of Cal. State Senate, July 15, 2014.). Perhaps the same could be said of proxy statements.

© 2010-2016 Allen Matkins Leck Gamble Mallory & Natsis LLP

California Political Contribution Case That 19 Law Professors Missed

Earlier this week, I wrote about an amicus curiae brief submitted by 19 law school professors Friedrichs v. Cal. Teachers Ass’n, a case now pending before the United States Supreme Court.  In particular, I questioned whether these academics properly described the holding Finley v. Superior Court, 80 Cal. App. 4th 1152 (2000).  The professors claimed that the case represented a “rare example” of a court holding that the business judgment rule is a defense to an attack on a corporate contribution.  In fact, the reported holding in the case was that the business judgment rule was a defense to the decision of a special litigation committee.

The 19 law professors also incorrectly described the holding in another California case, Barnes v. State Farm Mut. Auto. Ins. Co., 16 Cal. App. 4th 365 (1993) (“claim by policyholder of mutual insurance company seeking to stop insurer from engaging in political activities dismissed because the decision was protected by the business judgment rule . . .”).  Although the Court of Appeal did invoke the business judgment rule in Barnes, it did so in the context of the policyholder’s separate claim that the company was maintaining too large a surplus.  The policyholder’s challenge to political expenditures was made on constitutional grounds and the Court of Appeal’s analysis of that claim did not involve the business judgment rule.

Even though the law professors erroneously cited Finley and Barnes, I do believe that courts should, and do, apply the business judgment rule to director decisions to make political and other contributions.  In fact, the professors overlooked one California case in which the court expressly deferred to the business judgment of the directors. Marsili v. Pacific Gas & Elec. Co., 51 Cal. App. 3d 313 (1975) was a derivative suit challenging the propriety of a political contribution.  Here’s what the Court of Appeal had to say:

Neither the court nor minority shareholders can substitute their judgment for that of the corporation “where its board has acted in good faith and used its best business judgment in behalf of the corporation.”

Quoting Olson v. Basin Oil Co., (1955) 136 Cal.App.2d 543, 559-560 (1955).

© 2010-2015 Allen Matkins Leck Gamble Mallory & Natsis LLP

Staying Above The Political Fray – The RIA (Registered Investment Adviser) Political Contribution Rule

Sheppard Mullin Law Firm

It is entirely understandable if after the recent hotly contested “mid-term” elections the general public would like to put political campaigns behind them– at least for the few months before the hype around the 2016 U.S. Presidential elections kicks into gear.  For many folks in the U.S. financial services industry, however, political campaigns have to be kept in mind all year round, every year.  This is thanks, foremost, to the U.S. Securities and Exchange Commission’s “pay-to-play” rules promulgated under the Investment Advisers Act of 1940 (the “Advisers Act”).  The so-called “pay-to-play” rules can be found in Advisers Act Rule 206(4)-5 (the “Political Contribution Rules”) (which can be found on page 194 of this PDF).  The Political Contribution Rule was first proposed in 2009, in the wake of the scintillating tales arising out of the unquestioned abuse of position by certain politicians at the pension plans for New York, California, Illinois and New Mexico, to name a few.  The Political Contribution Rule was adopted in 2010 (and went effective in 2011) and has found its place into the compliance programs of RIAs across the US.

In brief (and the Political Contribution Rule should not be thought of in brief, as it is a very complicated rule, and far reaching), the Political Contribution Rule provides that it constitutes fraudulent activity for an SEC registered investment adviser to accept compensation for the provision of advisory services to a US public pension plan (other than a federal pension plan) if within the prior two years certain folks at the firm (or their family members) made non-de minimisdonations (roughly, in excess of $350 or $150 per campaign, depending) to any government official or candidate whose governmental position puts (or would put) them in a position to influence the decisions of a public pension plan.  The express prohibition on “doing indirectly that which you are prohibited from doing directly” (see Rule 206(4)-5(d)) and coverage of political activity committees (PACs) make clear that the Political Contribution Rule is intended to capture a broad range of political giving.  For this reason, an RIA compliance policy designed to avoid any issues with the Political Contribution Rule will pick up RIA staff (regardless of title – to avoid any inference of firm directed giving by senior staff), their immediate family members (including children) and, most conservatively, prohibit all political giving, entirely.  Another reasonable response to the Political Contribution Rule is to simply not manage any money for or accept investments from public pension plans.

As invasive and hard to read as the Political Contribution Rule is, the SEC staff stand ready to enforce the rule.  In the first administrative proceeding brought under the rule, TL Ventures Inc. agreed to pay $295,000 to settle claims made by the SEC under the Political Contribution Rule.  The SEC action against TL Ventures arose out of a pair of political contributions made in 2011 (the year the Political Contribution Rule went into effect) by a “covered associate” of TL Ventures, who donated $2,000 to the governor of the State of Pennsylvania and another $2,500 to a Philadelphia mayoral candidate.  These donations resulted in a violation of the Political Contribution Rule when matched with the fact that TL Ventures had accepted investments by the Pennsylvania State Employees’ Retirement System in two TL Ventures venture funds formed in 1999 and 2000, as well as an investment by the Philadelphia Retirement Board in the TL Ventures venture fund formed in 2000. Although these fund investments were fairly dated by 2011, they were still generating fees to TL Ventures during their run off phase.  The dates involved might suggest to a more sympathetic observer that the violation was an oversight, but (as is often the case) other issues that arose during the SEC exam of TL Ventures likely exhausted any willingness on the part of the staff to give TL Ventures the benefit of the doubt.  The order describing and resolving the TL Ventures case presents an interesting set of facts, generally; you can read more about the TL Ventures settlement here.

However, and not without irony, political developments may draw the Political Contribution Rule out of the shadows of regulatory compliance and plop it squarely onto the political stump.  The reason is that in the upcoming 2016 presidential campaign certain candidates for higher office might find themselves at a disadvantage with deep pocketed would-be campaign contributors (i.e., owners and employees of financial services firms) due to the Political Contribution Rule.  A prime example would be New Jersey Governor Christopher Christie, who is widely expected to throw his hat into the ring for nomination as the presidential candidate for the Republican Party.  As the sitting Governor of New Jersey, Chris Christie is an “official” under the Political Contribution Rule, and as governor of New Jersey holds sway over the approximately $81 billion New Jersey’s Public Employees’ Retirement System, through the Governor’s ability to make appointments to the New Jersey State Investment Council.  The Political Contribution Rule does not apply to U.S. federal officials, but, as a sitting governor, any political contributions to Gov. Chris Christy’s presidential campaign would be picked up by the Political Contribution Rule.  Thus, any contribution to a Christie presidential campaign by an owner or employee of a hedge or private equity fund (or other asset manager) would side line her or his advisory firm from managing investments for New Jersey state pension plans.   And, of course, Governor Christie’s proximity to Wall Street and its deep pocketed financial services firms will make the issue that much more acute for him.

There may be no need to wait for the political fireworks to start popping on this issue.  The New York and Tennessee state Republican parties have already brought a legal action against the SEC to invalidate the Political Contribution Rule.  In that case, the plaintiffs allege that the SEC overstepped its authority because the Political Contribution Rule illegally attempts to regulate activity that is exclusively the responsibility of the Federal Election Commission.  (Copy of the complaint). This is similar to the claims of the law suit that lead to the “Goldstein” decision, which saw the SEC’s initial attempt at forcing hedge fund managers to register with the SEC as investment advisers invalidated in 2006.  However, on September 30, 2014, U.S. District Judge Beryl Howell dismissed the plaintiff’s challenge to the Political Contribution Rule, finding that the court lacked jurisdiction and that only the U.S. Court of Appeals for the District of Columbia Circuit had authority to hear the case. Presently, it remains to be seen whether the New York and Tennessee state Republican parties (or anyone else) will renew the complaint with the U.S. Court of Appeals for the District of Columbia.

The political winds seem to be blowing in such a way that the Political Contribution Rule may get blown out of RIA compliance programs.  The SEC staff’s rationale for wanting to address the pay-to-play scandals of the recent and not so recent past are entirely understandable.  But the breadth of the Political Contribution Rule does suggest that the behavior being targeted is best addressed by public pension plans, many of whom have already taken affirmative steps to address the SEC staff’s concerns about the temptations they present to fund manager (many or which are notably doing).  The Political Contribution Rule is hard to implement, cuts too close to the right to political speech, and, ultimately, may hit too close to home for many politicians.

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Wisconsin Right to Life v. Barland (7th Cir. May 14, 2014)

Godfrey Kahn

On May 14, 2014 the Seventh Circuit U.S. Court of Appeals released its long-awaited decision in Wisconsin Right to Life v. Barland. Click here to read a copy of the court’s decision.

The opinion is authored by Judge Diane Sykes who was a member of the Wisconsin Supreme Court before being nominated by President Bush and then appointed to the federal Court of Appeals in 2004. The matter had been fully briefed, argued and pending since January 2013.

In 2010, the Government Accountability Board (the G.A.B.) adopted an administrative rule, GAB 1.28. In short, this rule greatly expanded the scope of communications subject to regulation as independent expenditures. As a result, issue advocacy communications in the 30/60 days before an election that identified a candidate would be presumed to be independent expenditures and subject to full PAC regulation under state campaign finance law, including donor disclosure.

In response to the G.A.B.’s adoption of this highly controversial rule, three lawsuits were filed almost immediately after the rule took effect. One of those lawsuits was filed in federal court in the Eastern District of Wisconsin by attorney James Bopp on behalf of Wisconsin Right to Life (WRTL). However, WRTL not only sued the G.A.B. about administrative rule GAB 1.28, it also challenged a multitude of other Wisconsin campaign finance laws. Today’s decision is essentially a resolution of WRTL’s lawsuit and all of those legal challenges.

WRTL prevailed in virtually all of its arguments, including:

  • Wisconsin’s ban on corporate political spending is unconstitutional under Citizens United;
  • GAB 1.28 which treats issue advocacy during the 30/60 day preelection period as fully regulable express advocacy/independent expenditures is unconstitutional; and,
  • GAB 1.91 which imposes PAC-like registration and reporting requirements on all organizations that sponsor independent expenditures is unconstitutional as applied to sponsors who are not superPACs (such as 501(c)(4) organizations and other non-committee sponsors).

The Court of Appeals reached its conclusions using very strong and clear language on government’s limited ability to regulate political speech:

  • “The effect of [Buckley] was to place issue advocacy—political ads and other communications that do not expressly advocate the election or defeat of a clearly identified candidate—beyond the reach of the regulatory scheme.” (p. 20)
  • “As applied to political speakers other than candidates, their committees, and political parties, the statutory definition of ‘political purposes’ in section 11.01(16) and the regulatory definition of ‘political committee’ in GAB 1.28(1)(a) are limited to express advocacy and its functional equivalent as those terms were explained in Buckley and Wisconsin Right to Life II.” (p. 62)
  • The G.A.B.’s administrative rule “sweeps a far wider universe of political speech into [state campaign finance laws], introducing confusion for ordinary political speakers who lack the background or assistance of a campaign finance lawyer.” (p. 64)
  • “Regulations on speech, however, must meet a higher standard of clarity and precision. In the First Amendment context, ‘rigorous adherence to [these] requirements is necessary to ensure that ambiguity does not chill protected speech.’ Vague or overbroad speech regulations carry an unacceptable risk that speakers will self-censor, so the First Amendment requires more vigorous judicial scrutiny.” (p. 65)

The WRTL decision also highlights the confusing nature of Wisconsin’s campaign finance statutes and the burdens these laws place on those organizations desiring to participate in the process:

Like other campaign-finance systems, Wisconsin’s is labyrinthian and difficult to decipher without a background in this area of the law; in certain critical respects, it violates the constitutional limits on the government’s power to regulate independent political speech. Part of the problem is that the state’s basic campaign-finance law—Chapter 11 of the Wisconsin Statutes—has not been updated to keep pace with the evolution in Supreme Court doctrine marking the boundaries on the government’s authority to regulate election-related speech. In addition, key administrative rules do not cohere well with the statutes, introducing a patchwork of new and different terms, definitions, and burdens on independent political speakers, the intent and cumulative effect of which is to enlarge the reach of the statutory scheme. Finally, the state elections agency has given conflicting signals about its intent to enforce some aspects of the regulatory mélange. (pp. 3-4)

The WRTL decision also is an excellent summary of the history of campaign finance regulation and litigation in Wisconsin during the last 20 years. It covers in detail successful legal challenges brought against the Elections Board / Government Accountability Board (the G.A.B) by our law firm on behalf of Wisconsin Manufacturers & Commerce (Wis. Supreme Court 1999); Wisconsin Realtors Association (W.D. Wis. 2002); and, Wisconsin Club for Growth / One Wisconsin Now (W.D. Wis. 2010). And, it discusses how despite losing in each of these instances, the G.A.B. continued to push for greater regulation—not less—of political speech.

Bottom line, the WRTL decision makes clear that the government’s authority to regulate political speech extends only to money raised and spent for speech that is express advocacy and that “ordinary political speech about issues, policy, and public officials must remain unencumbered.” (p. 9) Hopefully, with the strong language in this opinion, the G.A.B. will now understand the statutory and First Amendment limitations on its ability to regulate political speech. And, hopefully, the State Legislature will now understand that “Wisconsin’s foundational campaign finance law is in serious need of legislative attention to account for developments in the Supreme Court’s jurisprudence protecting political speech.” (p. 80)

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New York Federal Judge Finally Tosses Aside Limits on Contributions to New York Super PACs (Political Action Committees)

COV_cmyk_C

Super PACs in the Empire State and in the Big Apple are about to become more “super.”  On April 24th, a New York federal court finally (albeit begrudgingly) struck down a state law that effectively capped contributions to state Super PACs at no more than $150,000.  Prior to today’s ruling, New York had been one of a few holdout states refusing to recognize the application of Citizens United to state laws limiting contributions to independent political groups.  Indeed, the New York Attorney General defended the limit even after the Second Circuit concluded that it was likely unconstitutional as applied to the Super PAC that challenged it.  It is not clear whether the state will appeal the decision and face a near-certain loss.  If the decision stands—as we expect it will—donors may now contribute unlimited sums to independent political committees that run ads for or against New York state or city candidates.

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U.S. Supreme Court Finds Aggregate Limits on Federal Campaign Contribution are Unconstitutional

Bracewell & Giuliani Logo

On April 2, 2014, the United States Supreme Court held in a 5-4 decision that aggregate contribution limits, those limits placed on an individual’s overall direct contributions during a two-year election cycle, were unconstitutional as a violation of the First Amendment. The case, McCutcheon v. Federal Election Commission, No. 12-536 (U.S. April 2, 2014), is the latest case in which the Supreme Court has loosened federal regulation of campaign contributions.

In a fractured decision, Chief Justice John Roberts authored a plurality opinion that struck down the aggregate limit as a “mismatch” between the government’s goal of curbing corruption and its chosen means of imposing an aggregate limit. Although the government has a valid interest in limiting quid pro quo corruption between contributors and elected officials, the Court explained, an aggregate limit imposed across all candidates does not limit the risk of corruption enough to justify the way it significantly limits the right to support candidates in an election. In the face of core First Amendment guarantees, the aggregate limit could not survive because it was not “closely drawn to avoid unnecessary abridgment of associational freedoms.” Slip opinion at 30 (citation omitted).

The Chief Justice was joined by three of his colleagues: Justices Antonin Scalia, Anthony Kennedy, and Samuel Alito. Justice Clarence Thomas wrote separately to say that he would both strike down aggregate limits and overturn key Supreme Court precedent sanctioning a wide array of campaign finance restrictions.

The Dissent

Writing for the four Justices in dissent, Justice Stephen Breyer argued that aggregate campaign contribution limits had been previously held to be constitutional and that the reversal of existing precedent will come at a grave cost to the U.S. political system. In his view, the decision of the plurality “undermines, perhaps devastates, what remains of campaign finance reform.” Slip opinion at 30 (Breyer, J., dissenting). Justice Breyer was joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan.

Unchanged Rules

Prior to today’s decision in McCutcheon, campaign contributions were subject to two key limitations. The first limit, which remains intact, is the base limit on individual contributions to a single campaign, party committee, or political action committee. That limit remains unchanged, thus there is still a limit of $2,600 that an individual may contribute to a candidate for each election in the two year election cycle. As a result, one may contribute $2,600 for a primary election, $2,600 for a general election, and an additional $2,600 if there is a runoff election. Limits on contributions to other committees may be seen on the below chart.

In addition, the decision has no impact on the operation of a Super PAC, otherwise known as an “independent expenditure-only committee.” Nor does the decision permit corporations to make contributions to federal candidate committees.

New Rule

The limit that was struck down today restricted the overall amount individuals can contribute to election campaigns during a given two-year election cycle. Those aggregate limits were most recently set at $48,600 for federal candidates and $74,600 for other political committees, including national and state party committees, for an overall limit of $123,200 per two-year cycle. As such, prior to this decision a person could give the maximum base contribution of $5,200, for both a primary and a general election, to a maximum of nine federal candidates, whereas now a person can contribute to all federal candidates if she so desires. Similarly, an individual may now contribute to as many PACs as desired, including state and federal committees, such as the Democratic National Committee and the Republican National Committee, as long as each contribution is within the base limit currently set at $32,400 for the national party committees.

In viewing the below chart from the Federal Election Commission, the box in the upper right corner, under Special Limits, has been eliminated. All the other listed limits continue to be the federal legal limits.

Kedar Bhatia contributed to this article.

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Treasury and IRS Provide Thanksgiving Surprise: Proposed 501(c)(4) Political Activity Rules

Womble Carlyle

As most of America travelled over the river and through the woods to Grandma’s house before the Thanksgiving holiday, the Treasury Department and the IRS delivered their own holiday gift.  On Tuesday, November 26, they released proposed guidance aimed at clarifying which conduct by tax-exempt social welfare organizations – 501(c)(4) entities – qualifies as political campaign activity.

Under existing IRS regulations, the promotion of social welfare does not include direct or indirect participation in political campaigns on behalf of or in opposition to any candidate.  Over the years, the IRS has used a wide-ranging facts and circumstances test to determine whether an organization is engaged in an impermissible level of political campaign activity.  In the aftermath of the recent IRS scandal regarding the review of 501(c)(4) applications, Treasury and the IRS believe that more definitive political activity rules would reduce the need to conduct fact-intensive inquiries when applying the rules for qualification as a social welfare organization.

To accomplish this objective, Treasury and the IRS have coined a new term, “candidate-related political activity.”  This term encompasses existing definitions of political campaign activity from federal tax and campaign finance laws, and includes the following:

  • Express advocacy communications;
  • Public communications made within 60 days before a general election or 30 days before a primary election that clearly identify a candidate for public office, as well as any other communications that have to be reported to the FEC (including independent expenditures and electioneering communications);
  • Monetary and in-kind contributions to or the solicitation of contributions on behalf of campaign, party and other political committees, and other tax-exempt organizations that engage in political activity; and
  • Other election related activities such as voter registration and get-out-the-vote drives, distribution of candidate or political committee materials, and the preparation and distribution of voter guides.

The proposed rules raise many serious concerns.  For example, candidate-related political activity could include conducting nonpartisan voter registration drives and distributing nonpartisan voter guides.  Moreover, the proposed rules attribute to 501(c)(4) organizations, among other things, political activities conducted by their officers, directors or employees acting in that capacity.

Unfortunately, the draft rules do not elaborate on the possible differences between conduct taken in an official capacity and personal political conduct by an officer, director or employee.  Finally, many contributions from a 501(c)(4) to another tax-exempt organization would appear to qualify as candidate-related activity unless the contributor receives a written confirmation that the recipient does not engage in such activity and the contributor restricts the use of the contribution.

The proposed political activity rules also leave many important issues unaddressed.  Under existing rules, 501(c)(4) entities must be “primarily” engaged in activities that promote the common good or social welfare.  The proposed rules provide no guidance on what proportion of an organization’s activities must be dedicated to this purpose to qualify under section 501(c)(4).   The proposed regulations also do not apply to entities that qualify under Section 501(c)(3) (charitable organizations),  Section 501(c)(5) (labor unions),  Section 501(c)(6) (trade associations), or Section 527 (political organizations).  Treasury and the IRS are, however, accepting comments on the advisability of making changes in each of these areas.  Interested persons may submit comments to the IRS by February 27, 2014.

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Womble Carlyle Sandridge & Rice, PLLC