Lawyer Article

Reproduced with permission from Money & Politics Report, (Apr. 9, 2009). Copyright 2009 http://www.bna.com/moneyandpolitics/ by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com

FEC Enforcement
Increasing Prevalence of Split FEC Votes On Key Issues Could Shape Next Campaigns

Was Kieran Michael Lalor serious when he suggested he might not run for Congress if there was a "second coming of Ronald Reagan?"

Lalor's statement as the 2008 campaign season was heating up may have been just a joke or it might have been a humorous but sincere attempt to hedge his bets and be able to change his mind before making an official announcement of his candidacy.

A political novice and Iraq war veteran, Lalor did end up running in last year's campaign and secured the Republican nomination for a U.S. House seat from upstate New York. In November, however, he lost in the general election by nearly 20 percentage points to Rep. John Hall (D-N.Y.).

The precise moment when an ultimately unsuccessful candidate, like Lalor, actually decided to run for office might seem unlikely to matter to anyone else, especially at this point, months after the election. That is unless you are one of the six commissioners on the Federal Election Commission.

Split Down the Middle

When the FEC commissioner did try in a closed meeting in February to reach consensus on how to resolve an enforcement complaint against Lalor, it turned out that they were split down the middle. The commission's three Democrats said the FEC should pursue the Lalor matter—known as Matter Under Review (MUR) 5945—as a possible violation of campaign finance law. The three FEC Republicans voted to drop the matter.

The result of the Lalor case and others dealing with similar issues were announced by the FEC in a press release earlier this month. Such 3-3 splits among the FEC commissioners appear to be happening increasingly frequently in recent months, experts outside the agency told BNA, though deadlocks remain relatively rare overall, occurring in less than a tenth of all closed cases over the last year. The recent deadlocks, which all have been along party lines, have left the FEC commissioners sniping at each other in written "statements of reasons" explaining their votes in these matters.

Perhaps more importantly, the deadlocks also have left some in the regulated political community wondering more than they usually do about whether the campaign finance rules going into the next congressional election in 2010 and the presidential race of 2012 will be significantly different from the rules in recent elections.

For example, will future candidates look at the Lalor case and decide they have more leeway to raise substantial sums before disclosing their finances? Or, because of other recent FEC cases, will independent groups or wealthy individuals feel they have a greater ability to impact the course of a future campaign?

'Testing the Waters'

The Lalor case involved the FEC's rules governing the pre-candidacy phase of a campaign—known as "testing the waters"—when a candidate assesses his or her chances to win and decides whether to run. The FEC rules allow spending on things like travel, polls, and fund-raising before the potential contender has to officially declare candidacy and start filing periodic financial reports.

These rules come into play for many congressional and presidential campaigns. In fact, in addition to an enforcement matter involving Lalor, the FEC also recently closed out other cases involving application of the testing-the-waters rules to the 2008 presidential campaign of former Sen. Fred Thompson (R-Tenn.).

In the Thompson case (MUR 5934), a complaint pointed out that the former senator had raised over $3.4 million for an "exploratory" committee in 2007 and dropped many broad hints about his intention to run for president before officially declaring his candidacy and registering with the FEC. Yet, four FEC commissioners—including the panel's three Republicans and Democrat Ellen Weintraub—voted to drop the case, while acknowledging it was "a close call" whether Thompson should have registered earlier.

The Lalor case, though it involved a less well-known candidate than Thompson, was significant not only because of the testing-the-waters issue but also because it was among the latest of a string of cases in recent months in which the FEC commissioners have deadlocked 3-3 along party lines in votes about what their rules mean or how they should be enforced in specific instances.

Other Issues Too

In addition to the testing-the-waters rules, FEC regulations on other key legal issues have been at the center of recent deadlocks. These include:

• rules on contributions to independent political groups, such as so-called Section 527 or 501(c) groups;
• limits on expenditures by campaign supporters;
• requirements for detailed identification of contributors to campaigns;
• definition of personal funds used by a candidate to finance a campaign; and even
• restrictions on embezzling money from campaign funds.

The recent deadlocked votes all have been along party lines, with the three FEC Democrats—Weintraub, along with FEC Chairman Seven Walther and Commissioner Cynthia Bauerly—voting to proceed with investigations, settlements, or other enforcement action, while the three Republican commissioners voted to dismiss cases. But, the effect of the votes has been to let both Democrats and Republicans off the hook, indicating that the differences among the commissioners have been more ideological than partisan.

Ideological Differences

The Republicans have voted to drop cases against Republicans, like Lalor or 2008 presidential contender and former Massachusetts Gov. Mitt Romney, who was accused of accepting an illegal contribution when a wealthy supporter chartered an airliner to fly other Romney supporters to a fund-raising event (MUR 5937).

But, the FEC Republicans have also dismissed cases against Democratic candidates, contributors, and party committees, arguing against an overly strict interpretation of the law in those cases. For example, the GOP commissioners voted to drop a lawsuit against financier George Soros for his activities, including a book tour and speeches during the 2004 presidential campaign attacking former President Bush and boosting Democratic nominee Sen. John Kerry (D-Mass.) (MUR 5642).

The FEC Republicans also voted to dismiss a complaint by the Arizona Republican Party that the state Democratic Party illegally laundered more than $1 million in the 2006 campaign season by taking "soft money" from millionaire Democratic Senate candidate Jim Pederson (MUR 5878). The complaint in the Arizona case charged that the Arizona Democratic Party sent Pederson's soft money to other state Democratic committees in return for transfers of lesser amounts of federally regulated "hard money." The hard money could, in turn, be used to help elect Pederson in Arizona.

Interpreting Candidate Statements

The kinds of machinations that the FEC commissioners have been going through in the closed meetings where they discuss these cases are reflected in the written statements explaining their votes. For example, in the recent testing-the-waters cases, Weintraub joined the FEC Republicans in voting to drop two matters, including the one involving Thompson and another involving congressional candidate Kirk Schuring (MUR 5930). She voted, however, to pursue enforcement action against Lalor, though saying she would not insist on heavy punishment.

While finding Thompson's early comments about his candidacy "ambiguous," Weintraub explained in her statement that Lalor's intentions, on the other hand, were just too clear for the FEC to ignore. She cited Lalor's quip about the second coming of Reagan and other public statements as obvious references to his decision to get into the race.

Weintraub's GOP colleagues—FEC Vice Chairman Matthew Petersen and Commissioners Caroline Hunter and Donald McGahn—cited the same statements about Reagan and other comments but called them "political rhetoric" and concluded they could not be used to determine when Lalor had clearly decided to run. The Republican commissioners also cited the fact that Lalor was a first-time candidate who raised relatively little campaign money. They said the FEC should exercise its "prosecutorial discretion" to dismiss the matter.

Half of Cases Dismissed, 8 Deadlocked

All of the deadlocked cases resulted in the FEC dropping enforcement matters that the commission's staff attorneys in the office of FEC General Counsel Thomasenia Duncan had recommended to pursue. These cases were among nearly 50 major FEC enforcement matters that have been dismissed since the current group of commissioners came to the agency in the middle of last year. That number represents about half of the total number of closed MURs that the FEC has put on the public record since last July.

Since the middle of last year when the commission was reconstituted with largely new membership, the FEC has deadlocked on eight of the roughly 100 major enforcement cases closed and released to the public through the FEC website as of April 7.

The votes in seven cases were 3-3. One was ended on a 3-2 vote with one Republican commissioner, McGahn, recused. That case (MUR 5724) involved charges that congressional candidate Jim Feldkamp illegally used his mother's money to finance his campaign. McGahn had represented Feldkamp as an attorney before coming to the FEC as a commissioner.

Some FEC observers have noted that the commission—by its very structure of equally divided partisan membership—has always been prone to deadlock on some controversial issues. Most observers indicated that this result has been more common in recent months, especially compared to a recent period from 2005 through 2007. In the previous period, the FEC announced a number of high-profile settlements, including fines of major Section 527 groups active in the 2004 presidential campaign. Those FEC actions, some observers believe, helped significantly to shape the conduct of the 2008 presidential race, which saw relatively less activity by independent groups. The joint comments of the three current Republican commissioners in the most recent 527 case—a matter (MUR 5541) involving a U.S. Chamber of Commerce-funded group called the November Fund—suggest a purposeful effort to break from previous FEC precedents, however. The settlements in previous cases—some of which had been unanimously supported by previous FEC commissioners—stretched campaign finance law beyond what was permitted by constitutional free-speech principles, Republican Commissioners, McGahn, Hunter, and Petersen suggested.

November Fund Case

The GOP commissioners said in a written statement on the November Fund case that they did not view the court decisions reining in campaign finance regulation, such as the landmark Supreme Court ruling in Buckley v. Valeo, as "inconveniences to be overcome, nor do we view the First Amendment as a 'loophole' to be sewn shut by stricter regulation of our participatory democracy." Instead, they said that an analysis of restrictions on Section 527 groups and any other area of the campaign finance law "both begins and ends with the First Amendment."

Democratic Commissioners Weintraub and Bauerly were just as forceful in a statement explaining their position on the November Fund case. Walther, the FEC chairman, did not join their statement or issue one of his own.

In their statement, Weintraub and Bauerly noted that the FEC general counsel's office had already negotiated a settlement—or "conciliation agreement"—with representatives of the November Fund and the Chamber by the time the matter came before the FEC commissioners for a vote last fall.

"Our colleagues' refusal to accept the signed conciliation agreement with the November Fund amounts to a refusal to enforce the law," Weintraub and Bauerly said.

The discussion during an Oct. 21, 2008, FEC meeting, in which the commissioners voted on the November Fund matter, was closed to the public, as all FEC enforcement matters are handled in strict secrecy. From the tone of the written statements issued afterwards, however, it is not hard to imagine how the meeting went.

Do Deadlocks Matter?

Despite the vagaries of each particular case, deadlocked votes like the one that occurred in Lalor's case and other recent matters should be of concern generally to all members of the regulated political community, according to some campaign finance experts who spoke with BNA through e-mail messages and phone interviews.

Others said that such cases are simply the result of the ongoing conflict over where to draw the legal lines on campaign finance regulation—a conflict which inevitably is reflected at the FEC.

"Deadlocks on key issues can leave the regulated community adrift," said Lawrence Norton, a former FEC general counsel now in private law practice with the firm Womble Carlyle Sandridge & Rice "Inevitably, some activity will be chilled because of uncertainty about how the law will be applied. Others will be emboldened to flout the law because they expect there will be little consequence. Neither result is desirable."

Another former FEC General Counsel, Lawrence Noble, said deadlocked FEC votes "make life very difficult" for those who want to support a political candidate or cause "but have a low tolerance for risk and no interest in trying to blaze new legal trails."

Some See Green Light

On the other hand, Noble added, "some political parties and ideological groups, who feel comfortable playing on the edge and in the gray areas, ... look at a 3-3 split as a green light. That then puts pressure on those who want to stay well within the lines but are concerned about being at a disadvantage, when it comes to supporting candidates, compared to those who are more aggressive." Noble, who is now in private practice with the law firm Skadden Arps Slate Meagher & Flom, also cautioned that even those who view a 3-3 FEC split as a green light could face enforcement problems down the road if the underlying law and rules remain the same and the enforcement philosophy of the FEC changes again, perhaps due to the potential arrival of another new set of commissioners.

"There's always danger in getting to close to the FEC's fault line that splits the agency, since you never know when the ground will again shift," Noble said.

Other observers, suggested, however, that some uncertainty about the state of the law is an unavoidable—and not necessarily unhealthy—result of the structure of the FEC and the continuing legal battles over the constitutionality of campaign finance rules. They also questioned a focus on cases decided by split votes as opposed to any other type of vote to dismiss an enforcement case, noting that the immediate practical result is the same.

Smith: Split Votes Resolve Cases

Bradley Smith, a former Republican FEC commissioner now a law professor at Capital University in Cleveland, Ohio, said that, under FEC procedures, a 3-3 vote is a "definitive resolution" of an enforcement case because it means "a violation has not been found."

More broadly, Smith said, the FEC's critics, especially among campaign reform supporters, blame the agency and its commissioners for inaction or uncertainty because the critics cannot accept the idea that campaign finance law "is not so obviously what they would like it to be" and that "they don't get carte blanche to run the agency."

The main cause of uncertainty in this area is not the FEC but shifting court decisions, Smith suggested. These include the Supreme Court's 2003 ruling in McConnell v. FEC, which upheld restrictions in the 2002 Bipartisan Campaign Reform Act, and high Court rulings since then—in cases like Wisconsin Right to Life Inc. (WRTL) v. FEC in 2007—which have been more sympathetic to First Amendment challenges of campaign finance law.

Back in the Trenches

The McConnell decision broke an "uneasy truce" that prevailed since the landmark 1976 Supreme Court ruling in Buckley, Smith explained in an e-mail.

The Buckley ruling allowed regulation of campaign financing to prevent corruption or its appearance but safeguarded political communications lacking specific words of "express advocacy" for or against a candidate, Smith said. McConnell subsequently indicated that regulators could go further than looking for specific "magic words" to prevent "circumvention" of campaign finance rules by those who used cleverly worded messages to skirt the limits.

Yet, the anti-circumvention rationale adopted by the Supreme Court in McConnell "has been shown to have no stopping point," Smith said. This has led to the more recent Court rulings pulling back from regulation due to First Amendment concerns.

The McConnell ruling launched "a new era of warfare" pitting campaign finance restrictions against free-speech principles, Smith said. Campaign reform supporters were sure they would "win this new era of war, and scored impressive early victories, but now [are] back on the defensive and we may be settling soon back into the trenches."

In Smith's view, such legal warfare "has naturally spread to the FEC, and it would be there—will be there—at any agency charged with enforcement. The problem is not a 'dysfunctional' agency or commissioners who will not 'enforce the law.' It is a statutory and constitutional regime that tries to balance two largely incompatible goals."

By Kenneth P. Doyle