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FEC v. NRA POLITICAL VICTORY FUND

November 15, 1991

FEDERAL ELECTION COMMISSION, Plaintiff,
v.
NRA POLITICAL VICTORY FUND, et al., Defendant


Stanley Sporkin, United States District Judge.


The opinion of the court was delivered by: SPORKIN

The plaintiff filed this suit on December 20, 1990 seeking a declaration that defendants had violated the federal campaign finance laws and an assessment of civil penalties against the defendants. Defendants answered and denied that there had been any violation. Cross motions for summary judgment were filed several months later, and oral argument was heard on September 20, 1991. No genuine issue of material fact remains in dispute, therefore this case is appropriate for summary judgment.

 I. The Disputed Transaction

 There are three defendants in this suit: the National Rifle Association - Institute for Legislative Action, the NRA Political Victory Fund, and Grant Wills, Treasurer of the NRA Political Victory Fund. The National Rifle Association - Institute for Legislative Action (hereinafter "ILA") is a component of one overall organization, the National Rifle Associations The ILA is not separately incorporated from the NRA but it does have its own separate bank accounts and its own fund-raising system. The NRA Political Victory Fund (hereinafter "PVF") is a separate corporate entity. It is a segregated fund, meeting the qualifications of 2 U.S.C. § 441b(b)(2)(C).

 The Federal Election Campaign Act ("FECA"), 2 U.S.C. §§ 431-455, prohibits corporations from contributing to campaigns or making campaign-related expenditures. See 2 U.S.C. § 441b(a). This prohibition encompasses contributions made by a corporation to a segregated fund established for the purpose of supporting political campaigns. However, corporations are allowed to pay for the costs of soliciting contributions to a segregated fund either by paying directly or by later reimbursing the fund. 2 U.S.C. § 441b(b)(2)(C); 11 C.F.R. § 114.5(b). If the segregated fund pays the solicitation expenses initially and is later reimbursed by the corporation, reimbursement must occur "no later than thirty calendar days after the expense was paid by the separate segregated fund." 11 C.F.R. § 114.5(b)(3).

 The transaction which gave rise to the dispute in this case went as follows. The ILA dispatched two mailings to raise money for the PVF, one in March of 1988 and one in July of 1988. The ILA spent a total of $ 415,744.72 on these mailings. This payment was entirely legal since corporations may pay for the solicitation expenses of the segregated fund. Then on August 1, 1988, the PVF reimbursed the ILA for its expenditures, remitting to it exactly $ 415,744.72. This payment was also legally permissible since a segregated fund can pay for its own solicitation expenses. Then on October 20, 1988, the ILA gave the exact same amount, $ 415,744.72, back to the PVF. The October 20 payment is the object of the controversy in this case.

 The defendants claim that the October 20 payment was a legally permissible reimbursement of solicitation expenses to the PVF. The FEC disagrees and claims that the October 20 payment is not a reimbursement but a direct corporate contribution. The FEC argues that the payment cannot qualify as a permissible reimbursement because it was made 81 days after the PVF outlay which it was supposedly reimbursing.

  The defendants also argue that if the October 20 payment is deemed a contribution, it was nonetheless legally permissible under the rule of Federal Election Commission v. Massachusetts Citizens for Life, Inc., 479 U.S. 238, 93 L. Ed. 2d 539, 107 S. Ct. 616 (1986) (hereinafter "MCFL"). In MCFL the Supreme Court held that it was an unconstitutional restriction on First Amendment rights to prohibit a nonprofit organization that received no contributions from corporations or labor unions from producing a pre-election newsletter that flagged candidates' views on abortion. The Court noted that restrictions on corporate independent expenditures were intended to prevent the wealth amassed for business purposes in corporate treasuries from being spent contrary to shareholder interests or being used to unduly influence elections. In the Court's view, that risk did not arise in the particular arrangement MCFL had.

 The FEC rejects the application of the MCFL decision to the ILA, claiming that the holding of MCFL is limited to a small class of independent expenditures and does not apply to the contribution made in this case.

 The Court will now proceed to address these arguments.

 II. The Violation

 To begin, the Court finds that the October 20 payment from the ILA to the PVF violated the FECA. First of all, it does not qualify as a reimbursement for solicitation expenses. Although defendants claim that they simply changed their minds and for fiscal reasons wanted to have the ILA bear the cost of the solicitation as it originally had, *fn1" the motivation for making the payment does not render it lawful. There must be a time at which a transaction is closed. Defendants cannot be allowed to keep their books open forever so that they can transfer funds between the two entities at will. The FEC has promulgated regulations through the appropriate notice and comment rulemaking procedure which set a 30-day time limit on reimbursements for solicitation expenses. See 11 C.F.R. § 114.5(b)(3). The regulations provide a reasonable window of time for transferring funds in the event that there has been an accounting error or that the decision is made to shift the burden of solicitation expenses. There is no legal basis for ignoring or overturning this regulation. Hence, as a matter of law, the October 20 payment to the PVF from the ILA cannot qualify as a reimbursement for solicitation expenses under 2 U.S.C. § 441b(b)(2)(C).

 Moving now to defendants' second argument, the Court finds that the October 20 payment was a contribution and was not of the kind permitted under MCFL. MCFL permits some nonprofit corporations to make independent expenditures in connection with federal election campaigns where there is no risk that sizeable corporate treasuries will be used to unduly influence elections. Massachusetts Citizens for Life had a policy of not accepting contributions from business corporations or labor unions. Defendants here say in their pleadings that although the amounts are small, the ILA does receive corporate contributions. Nowhere do defendants state a policy equivalent to that of MCFL. Hence the defendants do not fit in the group of organizations affected by the MCFL holding, a group which the Court acknowledged at the time of its decision would be "small." 479 U.S. at 264.

 Much as defendants struggle to characterize the October 20 payment as actually paying for solicitation material purchased in March and July, that's not where the money went. The ILA made a contribution to the PVF intended to bolster the PVF's accounts for its campaign-related activities in support of particular candidates. By defendants' own account at argument, the October 20 payment returned money to PVF originally taken from PVF to correct for inaccurate financial projections so that PVF would have an adequate budget to pay for its ...


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