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FEC v. NATIONAL REPUBLICAN SENATORIAL COMM.

April 9, 1991

FEDERAL ELECTION COMMISSION, Plaintiff,
v.
NATIONAL REPUBLICAN SENATORIAL COMMITTEE and JAMES L. HAGEN, Defendants


Gerhard A. Gesell, United States District Judge.


The opinion of the court was delivered by: GESELL

GERHARD A. GESELL, UNITED STATES DISTRICT JUDGE

 This is a civil enforcement action brought by the Federal Election Commission ("FEC"). It presents questions of first impression concerning the meaning and effect of the Federal Election Campaign Act ("FECA"), 2 U.S.C. § 431 et seq. and related regulations which govern limitations on campaign donations by political committees, including those affiliated with national political parties. The case concerns a 1986 fund-raising campaign conducted by the National Republican Senatorial Committee ("NRSC") to raise funds for twelve candidates to the United States Senate in which each potential donor was asked to write a check to the NRSC to be passed on in equal proportions to four of the twelve candidates. The parties are before the Court on cross-motions for summary judgment, which have been fully briefed and orally argued. The Court has jurisdiction pursuant to 28 U.S.C. § 1345.

 The Complaint was filed as a result of this Court's decision in a prior case involving the same underlying facts, Common Cause v. Federal Election Commission, 729 F. Supp. 148 (D.D.C. 1990). It is appropriate, therefore, briefly to outline the context in which the present action arises before turning to the facts and issues now before the Court.

 On October 28, 1986, an organization, Common Cause, filed a complaint with the FEC alleging that a 1986 fund-raising solicitation undertaken by NRSC violated FECA. On April 9, 1987, the Commission unanimously indicated it had reason to believe that NRSC had violated various provisions of FECA in connection with the 1986 solicitation, as Common Cause had alleged. After taking briefs from NRSC and further investigation by its General Counsel, on July 26, 1988, the Commission found probable cause as to all but one of the charges raised by Common Cause and adopted by the General Counsel. On December 23, 1988, FEC voted to accept a conciliation agreement with NRSC. The conciliation agreement contained findings as to all of the violations for which the FEC found probable cause and required NRSC to pay a $ 20,000 civil penalty.

 The issue now before this Court is the one charge raised by Common Cause and the FEC General Counsel on which the Commission did not find probable cause in its July 1988 vote. The General Counsel, arguing that NRSC, in its 1986 fund-raising solicitation, exercised "direction or control" over the choice of recipient candidates within the meaning of 11 CFR section 110.6(d)(2), sought a probable cause order alleging that NRSC's failure to report these funds as contributions from itself to the candidates violated both the reporting requirements, 2 U.S.C. § 434(b), and contribution limits, 2 U.S.C. § 441a(h), mandated by statute. The Commission, however, deadlocked 3-3 on its General Counsel's recommendation, and therefore, pursuant to 2 U.S.C. section 437g(a)(4)(A)(i), which requires a majority vote for a probable cause finding, the recommendation was rejected.

 After Common Cause was notified of the dismissal of this remaining claim, it filed suit in this Court on February 27, 1989, Civil Action No. 89-0524, seeking a review of the Commission's action. On consideration of cross-motions for summary judgment, this Court, on January 24, 1990, reversed FEC's partial dismissal of Common Cause's complaint and remanded to FEC with directions "to conform with this declaration and proceed accordingly within 30 days." 729 F. Supp. at 153.

 This Court accepted both of Common Cause's alternative theories as to why there was probable cause to find additional violations: First, the contributions from the NRSC solicitation were not "earmarked" within the meaning of FECA and thus should be considered contributions from NRSC to the candidates, and second, as the FEC General Counsel also had previously urged, even if the contributions had been adequately earmarked, NRSC had exercised "direction or control" over the choice of recipients and, accordingly, should be charged with direct contributions pursuant to 11 CFR § 110.6(d)(2). FEC did not appeal. *fn1"

 Thereafter, on February 15, 1990, FEC, by a vote of 5-0, found probable cause to believe that NRSC and its treasurer (a) violated 2 U.S.C. § 434(b) and 11 CFR § 110.6(d)(2) by failing to report as contributions from itself approximately $ 2,718,813.60 in contributions forwarded in 1986 to twelve authorized committees of candidates for the United States Senate, and (b) violated 2 U.S.C. § 441a(h) by exceeding the $ 17,500 limitation set therein for contributions to individual Senate campaigns by a total of $ 2,676,916. *fn2"

 On August 21, 1990, the Commission voted to initiate the instant action, which was filed three days later. Although the Complaint reaffirmed the allegation that both the contribution and the reporting violations amounted to approximately $ 2.7 million, for summary judgment purposes FEC limits its claim as to each alleged violation to about $ 2.3 million. *fn3"

 II. Facts

 There are no genuine issues of material fact herein.

 NRSC is a political committee registered with the FEC under FECA. It is devoted to the election of Republican candidates to the United States Senate. Defendant James L. Hagen is the present treasurer of the NRSC, although he was not the NRSC treasurer at the time of the 1986 solicitation that is the subject of this suit.

 On or about September 2, 1986, the NRSC mass-mailed a solicitation for contributions utilizing the letterhead and signature of then-Vice President George Bush. The letter generally warned that the Republican Party was at risk of losing majority control of the Senate. The NRSC sent out 24 different versions of the letter, each mentioning four states in which U.S. Senate campaigns were occurring in 1986 and where the Republican candidates were "on the verge of running out of money." The letter did not mention the names of the Republican candidates in those states. In total, twelve different Senate campaigns were mentioned in the 24 versions of the letter, although some campaigns were mentioned in more letters than other campaigns. A copy of a typical letter and the accompanying reply form is attached as Appendix 1 to this Memorandum.

 Each solicitation letter requested that the recipient contribute a specific, generally small amount and make his or her check payable to the NRSC or to entities such as the "Inner Circle" and the "Republican Presidential Task Force," entities that NRSC identifies in its motion papers as "names utilized by the NRSC for fund-raising purposes." NRSC or the named entity, according to the letter, would then "see to it that every penny of your generous contribution is evenly split and immediately delivered to each of these four candidates."

 The different versions of the solicitation letters were sent to different mailing lists and requested different amounts of money, depending on prior donor history. Of the 565,217 letters sent, 289,081 were sent to persons who had never previously contributed to NRSC.

 The states mentioned in the NRSC mailings were Alabama, Arkansas, California, Colorado, Florida, Georgia, Louisiana, Missouri, Nevada, North Carolina, South Dakota and Vermont. *fn4"

 Each of the twelve campaigns mentioned in the letters signed an agreement with the NRSC agreeing to pay part of the cost of mailings mentioning its race. However, the reply card accompanying the letters stated, "PAID FOR AND AUTHORIZED BY THE NATIONAL REPUBLICAN SENATORIAL COMMITTEE," and did not state that the solicitation was authorized or paid for by any of the campaigns mentioned in the letters.

 No candidate participated in the planning, approval, implementation or oversight of the NRSC solicitation program, nor did any candidate authorize or approve the content of the letters sent by the NRSC as part of that program.

 The September 1986 mailings cost approximately $ 672,000. Of this amount, the NRSC billed the campaigns for the $ 62,909 cost of the mailings that did produce a donation, but did not pass on the $ 610,891 cost of the mailings that did not produce a donation.

 About 8.5 percent of those solicited -- 43,371 persons -- sent checks to NRSC in response to the solicitation. The checks totalled $ 2,340,664. The Court has found in the record requests for contributions as small as $ 15 (and as large as $ 1000) and actual returns as small as $ 5 (i.e. $ 1.25 per candidate). The funds received were first deposited in NRSC bank accounts and then disbursed by the NRSC to the various campaigns within 10 days of receipt.

 The NRSC did not report the contributions to the FEC either as contributions to it by the individual donors or as contributions by it to the twelve campaigns. Rather, each of the twelve campaigns reported the individual contribution of each donor as having been made directly by the donor to the campaign. *fn5"

 III. Questions presented

 FEC contends that NRSC must be charged with making the contributions to the twelve campaigns because NRSC exercised "direction or control" over the choice of recipients. NRSC attacks this claim on several grounds. It contends (1) that it did not exercise "direction or control" within the meaning of the regulation; (2) that the "direction or control" regulation is inconsistent with FECA; and (3) that the "direction or control" regulation, at least as applied to it, is inconsistent with the First Amendment of the Constitution. Because, for reasons stated below, the Court sustains FEC's position, it must also determine the appropriate civil penalty.

 IV. Legal analysis

 The NRSC is a political committee within the meaning of 2 U.S.C. § 431(4), and therefore is required by 2 U.S.C. § 434(b) to file accurate periodic reports with the FEC regarding its expenditures and contributions. While FECA limits most multicandidate political committees to $ 5000 in contributions to a political candidate per election, 2 U.S.C. § 441a(a)(2)(A), NRSC, along with its Democratic Party counterpart, are permitted a higher limit -- $ 17,500 per Senate candidate during an election year. 2 U.S.C. § 441a(h). In 1986, the NRSC was the designated agent of the Republican National Committee and therefore under 2 U.S.C. § 441a(d)(3) was also entitled to make a contribution to each U.S. Senate candidate equal to the greater of (a) $ 20,000, or (b) two cents multiplied by the voting age population of the state in which the Senate candidate was running. *fn6"

 A. Direction or control

 FEC rests its summary judgment argument on its claim that NRSC exercised some "direction or control" over the contributions at issue, that NRSC is therefore chargeable with those contributions and that, accordingly, NRSC exceeded the contribution limits and failed to comply with the reporting requirements set out above. FEC refuses to concede its alternative theory, premised on this Court's Common Cause finding, see 729 F. Supp. at 152, that the contributions at issue were not "earmarked," but it argues that this alternative theory is unnecessary and, because of potential disputed issues of fact, problematic on the present summary judgment record. Because FEC has not presented evidence or argument regarding "earmarking," the Court treats that theory as conceded and proceeds to consider the "direction or control" aspect of the case. *fn7"

 Section 110.6(d) of 11 CFR provides that, if a person or entity acts as a conduit for a contribution made by another person and "earmarked" for a specific candidate or candidates, the contribution limits of the conduit are not affected by passing on the contribution to the candidate, except where the conduit exercises "any direction or control over the choice of the recipient candidate," in which case the contribution is charged against the contribution limits of both the original donor and the conduit. *fn8"

 NRSC contends that it was a mere conduit exercising no "direction or control" because potential donors were informed that the individual donations would be divided evenly among the four Senate candidates in the states mentioned in the letter and the donations were in fact distributed in accordance with that formula.

 However, with respect to the contributions at issue in this case, the Court finds that NRSC did exercise some "direction or control over the choice of the recipient candidate" within the meaning of 11 C.F.R. § 110.6(d). Although the September 1986 letter apprised each donor of the formula for distribution, and donors gave voluntarily, NRSC's direction and control over the recipients of the monies is evident.

 "Direction" means "management, supervision, or guidance of some action or operation." American Heritage Dictionary of the English Language 373 (1981). "Control" means "authority or ability to regulate, direct, or dominate." Id. at 290.

 The NRSC, and not the candidates, chose how many letters in which each campaign would be mentioned and which candidates would be bundled in the same letter. The NRSC, and not the candidates, chose which mailing lists, with which donation histories, would be used for each version of the letter.

 Potential donors were given a single donation option if they wished to respond to the Vice President's request for funds: to write checks to NRSC for equal distribution to the four pre-selected candidates. A precise amount was requested. While donors were not told they were required to contribute according to the formula, there was no suggestion that they could do otherwise if they wished to contribute. At the very least, the letters created a default mechanism that established "direction or control" over the identities of candidates who would benefit from unencumbered responses and the formula for division of contributions.

 At the same time, importantly, the identities of the candidates who would benefit were obscured. The September 1986 letters referred only vaguely to candidates in four states without giving potential donors any information about those candidates, including even their names. The letter focused on the dangers -- for President Reagan, Vice President Bush, and the potential donor -- of losing Republican control of the Senate. The contributions were to be made to NRSC or an entity controlled by NRSC, rather than to the candidates, and the disclaimer on the return card indicated, incorrectly, that the mailing was authorized and financed by NRSC only, with no involvement of the campaigns.

 In sum, it is clear from the face of the solicitation package that the fund-raisers hoped to raise funds for candidates for whom donors might have little specific enthusiasm by blurring the specific funding requests in a general pro-party message. While NRSC argues that their appeal was targeted at sophisticated, long-time party regulars, amounts sought were as small as $ 15, actual donations were as small as $ 5, and more than half of those solicited had never before given to NRSC. *fn9"

 Once the checks were received, NRSC deposited them in its own account. Although NRSC apparently considered itself bound by law to pass the checks on to the four named candidates in equal parts within ten days (see 11 CFR § 110.6(b)(2)(iii)), that supposed legal obligation was not made clear in the fund-raising letter, which stated, referring to NRSC, that "they'll see to it" that the contribution would be split evenly among the four candidates. This statement could be interpreted in various ways -- perhaps as a contractual commitment backed by statute but also, alternatively, as a simple promise or even a prediction. It appears that the fund-raisers did not mind attracting donors who did not care at all which candidates would receive the money but simply wanted to help the President and Vice President keep control of the Senate however they could.

 Because NRSC exercised some "direction or control" over the choice of recipients of funds from its September 1986 solicitation in the manner explained above, it would appear that the monies obtained as a result must be deemed contributions from NRSC to the twelve candidates pursuant to 11 C.F.R. § 110.6(d), chargeable against NRSC's statutory contribution limits and subject to the statutory reporting requirements. Defendants, however, have launched a broad attack on the "direction or control" provision on its face and as applied to them.

 B. Defendants' statutory argument

 Defendants' first approach is statutory. They charge that the "direction or control" provision of the regulations is inconsistent with and not authorized by FECA. However, the Court concludes that the regulation is consistent with the language and purpose of the statute. Section 441a(a)(8) of 2 United States Code requires that for purposes of FECA's contribution limits

 The House committee report indicates that, in addition to the limitation directly indicated by this provision, Congress intended that under some circumstances contributions through a conduit would be treated as contributions from the conduit as well as from the original contributor:

 
It is the understanding of the committee that the following rule will apply with respect to the application of the contribution limitations established by [current section 441a]: if a person exercises any direct or indirect control over the making of a contribution, then such contribution shall count toward the limitation imposed with respect to such person under [current section 441a], but it will not count toward such a person's contribution limitation when it is demonstrated that such a person exercised no direct or indirect control over the making of the contribution involved.

 H.R.Rep. No. 93-1239, 93d Cong., 2d Sess. 16 (1974). The House version of the bill was adopted by the conference in relevant part, and the Conference Report repeats the quoted language as constituting the House Committee's understanding. See H.R.Rep. No. 1438, 93d Cong., 2d Sess. 51, 52 (1974); 51 Fed.Reg. 27189. The intent expressed is apparent: An entity must not be permitted to circumvent its statutory contribution limits by means of contributions obtained from others. In implementing that aim, FEC's "direction or control" regulation seeks to define those circumstances under which a contribution through a conduit must be treated as a contribution by the conduit. FEC, in enacting the "direction or control" regulation, adopted the approach suggested by the House ...


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