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Shays v. Federal Election Commission

March 29, 2006


The opinion of the court was delivered by: Emmet G. Sullivan United States District Judge


Plaintiffs, Representatives Christopher Shays and Martin Meehan, and Bush-Cheney '04, filed this action pursuant to the Administrative Procedure Act ("APA"), 5 U.S.C. § 706(2)(A),(C)-(D), claiming that the Federal Election Commission's ("FEC") failure to issue a rule governing when section 527 groups must register as political committees is arbitrary and capricious.

Plaintiffs ask the Court to remand the case to the FEC to promulgate necessary and appropriate regulations defining the term "political committee" and defining when a 527 group must register as a political committee.

Pending before the Court are the parties' cross Motions for Summary Judgment, defendant's Motion to Strike Plaintiff's Exhibits and Arguments, and defendant's Motion to Strike Amici. A hearing on the motion was held on December 13, 2005. Supplemental briefing was filed on December 19 and 23. Upon careful consideration of the parties' motions, the responses and replies thereto, oral arguments, the governing statutory and case law, and the entire record, the Court concludes that defendant failed to consider the relevant factors and its decision does not reflect reasoned decisionmaking. Prof'l Drivers Council v. Bureau of Motor Carrier Safety, 706 F.2d 1216, 1220 (D.C. Cir. 1983). The Court is not persuaded, however, that the compelling circumstances are present to require defendant to promulgate a rule. WWHT, Inc. v. FCC, 656 F.2d 807, 818 (D.C. Cir. 1981). Rather, this case is remanded to the FEC either to articulate its reasoning for its decision to proceed by case-by-case adjudication or to promulgate a rule if necessary. Accordingly, plaintiff's motion is GRANTED IN PART AND DENIED IN PART, defendant's motion is DENIED, and the case is REMANDED to the FEC for further proceedings consistent with this Memorandum Opinion.


At issue in this case are groups registered as "527 political organizations" ("527 groups"). These groups receive various tax exemptions from that status, but they do not register as "political committees" under the Federal Election Campaign Act of 1971 ("FECA"), 86 Stat. 11, as amended, 2 U.S.C. § 431 et seq. and Buckley v. Valeo, 424 U.S. 1 (1976), thereby avoiding various FECA requirements. Plaintiffs argue that 527 groups have emerged as a new vehicle for raising vast amounts of soft money for the purpose of influencing federal elections. Plaintiffs contend that the FEC acted arbitrarily and capriciously when it decided, after initiating rule-making, not to issue a rule addressing when a 527 group is captured by the definition of "political committee." The FEC responds that after considering proposed final rules and the public's comments, it concluded that adopting a rule on this issue was inadvisable and, instead, it would evaluate the status of a 527 group on a case-by-case basis.

A. The Parties

Plaintiff Christopher Shays is a member of the United States House of Representatives from the 4th Congressional District of the State of Connecticut. April 27, 2005, Declaration of Christopher Shays ¶ 1("Shays Decl."). Representative Shays was first elected in 1987, re-elected in 1988, and every two years thereafter, and next faces re-election in November of 2006. Id. Plaintiff Martin Meehan is a member of the United States House of Representatives from the 5th Congressional District of the Commonwealth of Massachusetts. April 27, 2005 Declaration of Martin Meehan ¶ 1 ("Meehan Decl."). Representative Meehan was first elected in 1992, re-elected every two years thereafter, and next faces re-election in November of 2006. Id. Both representatives were principal House sponsors of the Bipartisan Campaign Reform Act ("BCRA"). First Amended Complaint ("Shays FAC") at ¶¶ 14-15.

Plaintiffs Shays and Meehan are both citizens of the United States, members of Congress, candidates, voters, recipients of campaign contributions, fundraisers, and political party members. Shays Decl. ¶ 3; Meehan Decl. ¶ 3. In those capacities, each plaintiff is subject to regulation under FECA, BCRA, and the Commission's implementing rules, and their activities are also directly affected by the fact that others, including their potential contributors and supporters, their potential election opponents, contributors to and supporters of their opponents, and contributors to and supporters of both political parties are subject to the same regulation under FECA, BCRA, and the Commission's implementing rules. Id.

If any of the campaign finance laws embodied in FECA and BCRA are subverted, eroded, or circumvented by the FEC's implementing regulations, including its regulation defining the term "political committee," plaintiffs Shays and Meehan believe they will be forced once again to raise money, campaign, and attempt to discharge their important public responsibilities in a system that is widely perceived to be, and they believe in many respects will be, significantly corrupted by the influence of special- interest money. Shays Decl. ¶ 4; Meehan Decl. ¶ 4.

Plaintiff Bush-Cheney '04, Inc. ("BC '04") was the principal campaign committee of George W. Bush and Richard B. Cheney for the 2004 general election campaign for President and Vice President of the United States. See Def. Mot. for Sum. Jmt., Ex. A and B. President Bush and Vice President Cheney accepted public funding to finance their 2004 general election campaign. See Press Release, "FEC Certifies Public Funds For Bush-Cheney Ticket" (Sept. 2, 2004). As a precondition for that funding, they agreed, inter alia, to accept no contributions, limit their expenditures, and consent to the Commission's conducting a detailed post-election examination and audit of BC '04's finances. See Presidential Election Campaign Fund Act ("Fund Act"), 26 U.S.C. 9001, 9003. See also 11 C.F.R. 9002.11(a)(1), 9004.11, 9007.2(b)(3). Under the Fund Act, the Commission has until November 2007 - a year after the November 2006 elections - to complete the audit and notify President Bush and BC '04 of any repayments they must make. See 26 U.S.C. § 9007(c) (three-year deadline). At least until that process is completed, BC '04 remains a publicly financed principal campaign committee for the 2004 general election and cannot convert into a multicandidate political committee. See 2 U.S.C. 432(e)(3); 11 C.F.R. 102.13(c) (multicandidate committee cannot serve as a candidate's principal campaign committee). President Bush and Vice-President Cheney are not parties to this litigation, nor are Mr. Bush's other political committees, Bush-Cheney '04 (Primary), Inc. and Bush-Cheney '04 Compliance Committee. Defendant's Statement of Material Facts Not in Dispute ("Def. Statement") at ¶ 9.

Defendant is an agency of the United States with exclusive jurisdiction over the administration, interpretation, and civil enforcement of the Federal Election Campaign Act of 1971 ("FECA"). Def. Statement at ¶ 10. The FEC is authorized to institute investigations of possible violations of FECA, and has exclusive jurisdiction to initiate civil actions in the United States district courts to obtain judicial enforcement of FECA. 2 U.S.C. §§ 437 g(a)(1)-(2), 437c(b)(1), 437d(e).

B. Section 527 Political Organizations ("527 groups")

Section 527 of the Internal Revenue Code permits income tax exemptions for a "political organization." 26 I.R.C. § 527 (a) ("A political organization shall be considered an organization exempt from income taxes for the purpose of any law which refers to organizations exempt from income taxes."). A political organization is defined as a "party, committee, association, fund, or other organization (whether or not incorporated) organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function." Id. at § 527 (e)(1). An "exempt function" is "the function or influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office or office in a political organization, or the election of Presidential or Vice Presidential electors." Id. at § 527 (e)(2). In McConnell v. FEC, the Supreme Court construed Section 527 organizations, unlike 501(c) groups, as "organized for the express purpose of engaging in partisan political activity." 540 U.S. 93, 174 n.67 (2003).

C. Political Committees

As distinguished from "political organizations," FECA and related campaign finance laws regulate "political committees." 2 U.S.C. § 431(4)(defining "political committee" as "any committee, club, association, or other group of person which receives contributions aggregating in excess of $1,000 during a calendar year or which makes expenditures aggregating in excess of $1,000 during a calendar year."). Once an organization is defined as a political committee, it is subject to a host of regulations: it must file a "statement of organization" with the FEC, 2 U.S.C. § 433; file periodic disclosure reports of its receipts and disbursements, id. at § 434; and adhere to contribution limits, id. at § 441a-1(a)(1)-(2). A political committee is subject to these regulations even if it is engaged only in spending independent from a particular political party or candidate. 11 C.F.R. § 110.1(n).

The Supreme Court has construed "political committee" only to "encompass organizations that are under the control of a candidate or the major purpose of which is the nomination or election of a candidate." Buckley v. Valeo, 424 U.S. 1, 79 (1976) (emphasis added). A decade later, the Court held that a group becomes a political committee when its "independent spending become[s] so extensive that the organization's major purpose may be regarded as campaign activity. . . As such, it would automatically be subject to the obligations and restrictions applicable to those groups whose primary objective is to influence political campaigns." FEC v. Massachusetts Citizens for Life, Inc., 479 U.S. 238, 262 (1986).

The Buckley test is commonly referred to as the "major purpose" test, and the FEC has never codified it in a regulation. Instead, the FEC has adopted a "case by case" approach or a "gloss" on the regulations. In other words, the FEC includes the test when it interprets and enforces the statute vis-a-vis individual organizations. See, e.g., FEC v. Malenick, 310 F. Supp. 2d 230, 234-35 (D.D.C. 2004) amended on reconsideration, 2005 WL 588222 (D.D.C. Mar. 7, 2005); FEC v. GOPAC, Inc., 917 F. Supp. 851, 851-62 (D.D.C. 1996).

Since the 1970s, Congress has not amended the definition of "political committee" or addressed the application of FECA to section 527 organizations. Def. Statement at ¶ 12. Presently, at least two different bills are pending in Congress that would amend the Act to address, for the first time, the circumstances under which section 527 organizations are to be treated as "political committees" under the FECA. Id. at 16. In the House of Representatives, plaintiffs Shays and Meehan introduced H.R. 513, the "527 Reform Act of 2005," which would amend FECA's definition of "political committee" to include "any applicable 527 organization," which is defined to include a "committee, club, association, or group of persons that . . . is an organization described in section 527." Id. Plaintiffs' bill would exempt organizations "whose election or nomination activities relate exclusively to . . . elections where no candidate for Federal office appears on the ballot." See H.R. 513 (as introduced in the House on Feb. 2, 2005). An identical bill, S. 271, was introduced in the Senate by John McCain and Russ Feingold. See S. 271 (introduced Feb. 2, 2005). Neither of these proposals has reached the floor of the House or Senate. Def. Statement at ¶ 16.

D. FEC's Rulemaking Proceeding

On March 11, 2004, the FEC published a Notice of Proposed Rulemaking ("NPRM"), seeking public comment on a variety of issues involving the definitions of "political committee," "contribution," and "expenditure." Political Committee Status; Proposed Rule, 69 Fed. Reg. 11,736-60 (March 11, 2004).*fn1

According to the NPRM, the Commission undertook the rulemaking "to revisit the issue of whether the current definition of 'political committee' adequately encompasses all organizations that should be considered political committees subject to the limitations, prohibitions, and reporting requirements of FECA." Id. at 11,736. The NPRM also requested comments on possible "tests" to determine the "major purpose" of an entity. NPRM at 11,745-49.

The FEC received more than 100,000 comments from political committees, political parties, non-profit organizations, individuals, campaign finance organizations, and members of Congress. 69 Fed. Reg. 68,056 (Nov. 23, 2005). Thirty-one witnesses who had submitted written comments testified at public hearings held on April 14 and 15, 2004. Def. Statement at ¶ 24. Commenters expressed a variety of viewpoints about the definitions of "political committee" and "expenditure," the impact of the proposed tests on political issue advocacy, and the necessity and practicability of a proposed rule. Id.

On August 12, 2004, the FEC considered two separate draft Final Rules that revised the definition of "political committee." Def. Statement at ¶ 34. Commissioners Thomas and Toner reintroduced their proposed standards governing when a 527 organization was required to register as a political committee (the "Thomas-Toner proposal").*fn2 Def. Statement at ¶ 36, FEC Agenda Document 04-75-A at 2-3. General Counsel had also proposed a regulation which would have applied to all groups, including 527 groups.*fn3 Def. Statement at ΒΆ 35. General Counsel recommended that FEC adopt final rules that would set forth a new regulatory definition of "major purpose" as part of the definition of "political committee" and detailed when 527 groups needed to register. FEC Agenda Document 04-75 at 37-41. The proposal contained a multitude of aspirations regarding the regulation of 527 groups. General Counsel observed, "an organization's decision to avail itself of 527 status is inherently indicative of its choice to engage principally in electoral activity." Id. at 14. The purpose of ...

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