United States District Court, D. Columbia.
[Copyrighted Material Omitted]
For CHRISTOPHER VAN HOLLEN, JR., Plaintiff: Roger Michael Witten, LEAD ATTORNEY, WILMER CUTLER PICKERING HALE & DORR LLP, New York, NY; Fiona J. Kaye, PRO HAC VICE, WILMER CUTLER PICKERING HALE & DORR LLP, New York, NY.
For FEDERAL ELECTION COMMISSION, Defendant: Harry Jacobs Summers, Holly Jean Baker, Kevin Deeley, Seth E. Nesin, LEAD ATTORNEYS, FEDERAL ELECTION COMMISSION, Washington, DC.
For HISPANIC LEADERSHIP FUND, Intervenor Defendant: Jason B. Torchinsky, LEAD ATTORNEY, HOLTZMAN VOGEL, PLLC, Warrenton, VA.
For CENTER FOR INDIVIDUAL FREEDOM, Intervenor Defendant: Thomas Wesley Kirby, LEAD ATTORNEY, WILEY REIN LLP, Washington, DC.
AMY BERMAN JACKSON, United States District Judge.
This case originated in 2011 when plaintiff Chris Van Hollen, Jr. -- a member of the U.S. House of Representatives from the 8th Congressional District of the State of Maryland -- filed a complaint challenging the authority of the Federal Election Commission to promulgate 11 C.F.R. § 104.20(c)(9), which narrowed the disclosure requirements set forth in the Bipartisan Campaign Reform Act (" BCRA" ), 52 U.S.C. § 30104(f)(2)(E)-(F) (2012), for corporations and labor organizations that fund electioneering communications. Compl. ¶ ¶ 1, 9 [Dkt. # 1]. Applying the framework set forth in Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), the Court found that the Commission had exceeded its authority, particularly because the problem it was trying to remedy was not -- even as the agency characterized its task -- to interpret an ambiguity in the statute, but rather, to address a problem not contemplated by the statute that was ostensibly created by the Supreme Court's decisions in FEC v. Wisconsin Right to Life, Inc. (" WRTL II " ), 551 U.S. 449, 127 S.Ct. 2652, 168 L.Ed.2d 329 (2007), and Citizens United v. FEC, 558 U.S. 310, 130 S.Ct. 876, 175 L.Ed.2d 753 (2010). The Court struck down 11 C.F.R. § 104.20(c)(9) at the first level of the Chevron analysis, and it did not then proceed to the second level of the Chevron test. See Van Hollen v. FEC, 851 F.Supp.2d 69, 89 (D.D.C.), rev'd sub nom. Ctr. for Individual Freedom v. Van Hollen, 694 F.3d 108, 402 U.S.App.D.C. 345 (D.C. Cir. 2012).
The FEC did not appeal the decision. But the intervenor-defendants, the Center for Individual Freedom (" CFIF" ) and the Hispanic Leadership Fund (" HLF" ) did, and the United States Court of Appeals for the District of Columbia Circuit held that the case should not have been decided at the first Chevron step. The Circuit Court found the BCRA's disclosure provisions to be ambiguous, " especially when viewed in the light of the Supreme Court's decisions" in Citizens United and WRTL II, and it remanded the case for consideration of the regulation at Chevron step two. Van Hollen, 694 F.3d at 110, 112.
The Court now concludes that the promulgation of 11 C.F.R. § 104.20(c)(9) was arbitrary, capricious, and contrary to law and that the regulation is an unreasonable interpretation of the BCRA for several reasons. First, the Commission initiated the rulemaking process for the stated purpose of responding to the decision in WRTL II, but nothing the Supreme Court did in that case provides a basis for narrowing the disclosure rules enacted by Congress. WRTL II dealt solely with the question of whether the statutory ban on corporate and labor organization funding of electioneering communications could withstand an as-applied constitutional challenge.
And in answering that question, the Court did not find any need to address the BCRA's disclosure requirements.
Second, there is little or nothing in the administrative record that would support the Commission's decision to introduce a limitation into the broad disclosure rules in the BCRA. Neither the petition for rulemaking nor the original notice of proposed rulemaking proposed altering the disclosure requirements for corporations and labor unions. None of the commenters asked the agency to amend the disclosure rules to include a purpose requirement, and the Commission did not incorporate the purpose requirement in the new rule until after the notice and comment period and the hearing had been concluded. The only post-hearing comment received in response to the newly incorporated language strongly opposed its inclusion.
Finally, the regulation's purpose requirement is inconsistent with the statutory language and purpose of the BCRA. Congress passed the disclosure provisions of the BCRA to promote transparency and to ensure that members of the public would be aware of who was trying to influence their votes just before an election. The added purpose requirement in section 104.20(c)(9) thwarts that objective by creating an easily exploited loophole that allows the true sponsors of advertisements to hide behind dubious and misleading names. Based on these considerations, the Court will vacate 11 C.F.R. § 104.20(c)(9), and it will grant plaintiff's motion for summary judgment.
Over the course of seven years, the Supreme Court of the United States weakened, and eventually invalidated entirely, the prohibition on the use of corporate and union treasury funds to finance electioneering communications. See Citizens United, 558 U.S. at 365; WRTL II, 551 U.S. at 470-76; McConnell v. FEC, 540 U.S. 93, 93, 124 S.Ct. 619, 157 L.Ed.2d 491 (2003), overruled by Citizens United, 558 U.S. at 310. In the midst of this changing legal environment, the Commission began a rulemaking process and solicited public comment " generally regarding the effect of the [ WRTL II ] decision on the Commission's rules governing corporate and labor organization funding of electioneering communications, the definition of 'electioneering communication,' and the rules governing reporting of electioneering communications."  Electioneering Communications, 72 Fed.Reg. 50261, 50262
(proposed Aug. 31, 2007). As part of that process, the Commission offered two alternative ways to implement the WRTL II decision: " The first alternative would incorporate the new exemption into the rules prohibiting the use of corporate and labor organization funds for electioneering communications in 11 [C.F.R.] part 114. The second alternative would incorporate the new exemption into the definition of 'electioneering communication' in 11 [C.F.R.] § 100.29." Id. Under the first alternative, corporations and labor organizations making the sorts of electioneering communications deemed permissible in WRTL II would be permitted to use general treasury funds for that purpose, but they would be subject to the same reporting requirements as other entities. Id. As part of that alternative, the agency also proposed changes to the rules that would enable those organizations to establish segregated bank accounts for the funding of electioneering communications as certain individuals were already permitted to do. Id. Adopting Alternative II would have exempted the WRTL II ads from the definition of electioneering communication in 11 C.F.R. § 100.29 entirely, thereby eliminating both the disclosure and financing restrictions for those ads. Id. at 50263.
In December 2007, the agency adopted a variant of the first alternative. It promulgated 11 C.F.R. § 104.20(c)(9), which included the following language:
If the disbursements were made by a corporation or labor organization pursuant to 11 [C.F.R.] § 114.15, the name and address of each person who made a donation aggregating $1,000 or more to the corporation or labor organization, aggregating since the first day of the precedent calendar year, which was made for the purpose of furthering electioneering communications.
11 C.F.R. § 104.20(c)(9) (emphasis added).
The Commission provided several explanations for adding this new " purpose" or " intent" requirement to the corporate and labor organization disclosure regulation. First, it noted that those entities' " general treasury funds are often largely comprised of funds received from investors," donors, customers, or members " who may not necessarily support the organization's electioneering communications." Electioneering Communications, Final Rule, 72 Fed.Reg. 72899, 72911 (Dec. 26, 2007). And second, it stated that compliance with the disclosure rules as previously written would impose a heavy burden on corporations and labor organizations: " [W]itnesses at the Commission's hearing testified that the effort necessary to identify those persons who provided funds totaling $1,000 or more . . . would be very costly and require an inordinate amount of effort." Id. The Commission then concluded that " the policy underlying the disclosure provisions of BCRA [was] properly met by requiring corporations and labor organizations to disclose and report only those persons who made donations for the purpose of funding [electioneering communications]." Id.
Plaintiff Chris Van Hollen -- concerned that " corporations have exploited the enormous loophole [the new regulation] created," Compl. ¶ 29 -- filed this case against the FEC under the Administrative Procedure Act (" APA" ). 5 U.S.C. § 706. He argued that the agency exceeded its statutory authority in promulgating that regulation and that the regulation is also arbitrary, capricious, and contrary to law under the APA. Two months after plaintiff filed his complaint, CFIF and HLF filed motions to intervene as defendants
[Dkt. # 14 & 15], and the Court granted those motions pursuant to Federal Rule of Civil Procedure 24(a). Aug. 1, 2011 Minute Entry. Plaintiff, the Commission, and CFIF then filed cross-motions for summary judgment, Pl.'s Mot. for Summ. J. (" Pl.'s Mot." ) [Dkt. # 20]; Def.'s Cross-Mot. for Summ. J. (" Def.'s Mot." ) [Dkt. # 25]; CFIF's Cross-Mot. for Summ. J. [Dkt. # 36], and HLF filed a motion to dismiss for lack of jurisdiction. HLF's Mot. to Dismiss [Dkt. # 30].
On March 30, 2012, the Court entered an order granting plaintiff's motion for summary judgment and denying the other three motions. Order [Dkt. # 47]. After determining that plaintiff had standing to bring his APA challenge, the Court conducted a Chevron analysis and struck down 11 C.F.R. § 104.20(c)(9) as inconsistent with text of the statute. The Commission did not appeal the Court's order, but intervenor-defendants CFIF and HLF did. Van Hollen, 694 F.3d at 110. On September 18, 2012, the U.S. Court of Appeals for the District of Columbia Circuit concluded that since the BCRA was ambiguous, the case should not have been decided at the first step of the Chevron test. Id. at 112.
The D.C. Circuit remanded the case with instructions to the District Court to refer the matter first to the Commission to ascertain whether the agency intended to engage in further rulemaking to clarify the regulatory regime. The judgment further provided: " [i]f the FEC elects instead to defend the current regulation, then the District Court should allow the parties to present arguments on Appellee's claims that the regulation cannot survive review under Chevron step two or [ Motor Vehicle Manufacturers Ass'n of the United States, Inc. v. State Farm Mutual Auto Insurance Co., 463 U.S. 29, 42-43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983)], and then decide these issues in the first instance." Id.
On September 20, 2012, the Court referred the matter to the Commission and directed it to advise the Court on or before October 12, 2012, whether it intended to pursue a new rulemaking or defend the regulation. Order Referring Matter to Def. FEC for Further Consideration [Dkt. # 66]. In a status report filed on October 4, 2012, the Commission stated that it did not intend to pursue a rulemaking and that it would continue to defend 11 C.F.R. § 104.20(c)(9) as written before the Court. FEC Status Report [Dkt. # 67]. But the following day, intervenor-defendant CFIF advised the Court that it had petitioned the FEC to engage in the rulemaking that the agency had just informed the Court that it did not intend to undertake. CFIF Status Report [Dkt. # 68]. The matter was stayed pending the FEC's consideration of CFIF's petition, and on March 12, 2013, the stay was lifted in light of the agency's decision to deny the petition and forego further rulemaking. See Oct. 18, 2012 Minute Order Staying Case; Mar. 12, 2013 Minute Order Lifting Stay. The Court permitted the parties to supplement their original memoranda with additional arguments on the Chevron step two issue, and it heard oral argument.
I. The standard to be applied at Chevron step two
This Court is bound by the Circuit's determination that section 30104(f)(2)(E)-(F) is ambiguous, and therefore, it must now address the question of whether the implementing regulation, 11 C.F.R. § 104.20(c)(9), is " based on a permissible construction of the statute." Chevron, 467 U.S. at 843. At the second step of the Chevron analysis, the reviewing court must give " considerable
weight" to an agency's interpretation of a statutory scheme it has been " entrusted to administer; " the " court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency." Id. at 844. As the D.C. Circuit put it in Serono Laboratories, Inc. v. Shalala, " under Chevron, courts are bound to uphold an agency interpretation [so] long as it is reasonable -- regardless [of] whether there may be other reasonable, or even more reasonable, views." 158 F.3d 1313, 1321, 332 U.S.App.D.C. 407 (D.C. Cir 1998).
Here, the Court of Appeals specifically directed this Court to determine whether the regulation could survive review under the test prescribed in the State Farm opinion. Van Hollen, 694 F.3d at 112. In State Farm, the Supreme Court reiterated that under the arbitrary and capricious standard, " a reviewing court may not set aside an agency rule that is rational, based on consideration of the relevant factors, and within the scope of the authority delegated to the agency by the statute." 463 U.S. at 42. The Supreme Court went on to explain the process in greater detail:
The scope of review under the " arbitrary and capricious" standard is narrow and a court is not to substitute its judgment for that of the agency. Nevertheless, the agency must examine the relevant data and articulate a satisfactory explanation for its action including a " rational connection between the facts found and the choice made." In reviewing that explanation, we must " consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment." Normally, an agency rule would be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.
Id. at 43 (citations omitted). This, then, is the framework that must govern the Court's decision. But as plaintiff points out, that analysis cannot be divorced from the context of the particular statutory scheme involved.
Plaintiff Van Hollen cites Shays v. FEC (" Shays II " ), 414 F.3d 76, 367 U.S.App.D.C. 185 (D.C. Cir. 2005), and Shays v. FEC (" Shays III " ), 528 F.3d 914, 381 U.S.App.D.C. 296 (D.C. Cir. 2008), to the Court. Pl.'s Supplemental Briefing on Remanded Issues (" Pl.'s Supp." ) at 1-2 [Dkt. # 87]. He asserts that a reviewing court's task is to determine whether agency regulations are reasonable " in light of the language, legislative history, and policies of the statute," id. at 2, quoting Shays v. FEC, 337 F.Supp.2d 28, 78 (D.D.C. 2004), and he calls upon the Court to follow the approach " exemplified in Shays " and to reject the regulations here on the grounds that they frustrate the policy behind the BCRA. Id. at 1-2, citing Shays III, 528 F.3d at 919.
The first Shays opinion cited is not helpful because it does not concern a Chevron step two exercise. In Shays II, the court addressed the standing question at length, and then it affirmed the District Court's invalidation of a set of FEC rules as too lax. See 414 F.3d at 83-96. The first two rules failed at the threshold Chevron inquiry, as the court found that they contravened the unambiguously expressed intent of Congress, and the Circuit Court upheld the District Court's invalidation of the other three rules on APA grounds, noting that it did not need to reach the second Chevron question of whether the rules were reasonable because the agency had
failed to advance any justification for them. Id. at 96-97.
But in Shays III, the Court of Appeals did directly address the second step of the Chevron analysis when it approved the District Court's " thorough" rejection of a set of FEC rules based on the finding that they were " either contrary to BCRA's purpose or arbitrary and capricious." 528 F.3d at 919. The Court stated: " [i]n applying Chevron 's second step and the APA, we must reject administrative constructions of [a] statute . . . that frustrate the policy that Congress sought to implement." Id. (alterations in original) (internal quotation marks omitted).
So, under the precedent that this Court is bound to follow, the challenged rule must also be tested against the policy that BCRA was intended to advance.
II. The challenged regulation is not supported by the agency's explanation for the regulation.
The starting point of the second step of the Chevron analysis must be the stated reason behind the regulation, which is illuminated by both the Notice of Proposed Rulemaking (" NPRM" ) and the Explanation and Justification that accompanied the announcement of the final rule. The rulemaking was supposed to be about one narrow subject: what to do to implement the Supreme Court's decision in WRTL II. See 72 Fed.Reg. at 50261 (" These proposed rules would implement the Supreme Court's decision in FEC v. Wisconsin Right to Life, Inc., which held that the prohibition on the use of corporate and labor organization funds for electioneering communications is unconstitutional as applied to certain types of electioneering communications." ); see also id. at 50262 (" The Commission is initiating this rulemaking to implement the Supreme Court's decision in WRTL II. . . . The Commission is seeking public comment on two proposed alternative ways to implement the WRTL II decision in the rules governing electioneering communications." ). To assess the reasonableness of the regulations, then, one must first ascertain what the Supreme Court decided in that case that required implementation.
WRTL II dealt with the constitutionality of section 203 of the BCRA, 2 U.S.C. § 441b(b)(2), as applied to particular advertisements that the Wisconsin advocacy organization planned to broadcast. 551 U.S. at 449. At that time, section 203 made it a crime for a corporation or labor union to use its general treasury funds to pay for any " electioneering communication," 2 U.S.C. § 441b(b)(2), that is, a broadcast, cable, or satellite communication that refers to a candidate for federal office and is aired within a prescribed time period before an election. 52 U.S.C. § 30104(f)(3)(A).
WRTL II was not the first time the Supreme Court addressed section 203: the opinion followed McConnell, in which the Court considered a series of facial challenges to multiple provisions of the statute. 540 U.S. at 114. As part of that exercise, the McConnell Court found the regulation of corporate and labor union expenditures in section 203 to be constitutional on its face. Id. at 203-09. The plaintiffs claimed that section 203 was overbroad and that it violated the First Amendment because it covered not only campaign speech, or " express advocacy," but also more general " issue advocacy" that might mention a candidate for federal office. Id. at 205-07. The Court disagreed and found that the compelling governmental interests that justified the imposition of restrictions on express campaign speech would also apply to advertisements that are the " functional equivalent" of express campaign speech. Id. at 204-06. Thus, it
concluded that even if one assumed that section 203 would " inhibit some constitutionally protected corporate and union speech," plaintiffs had not met their heavy burden of establishing that the provision was overbroad and that it could never be constitutionally enforced. Id. at 207; see also WRTL II, 551 U.S. at 457 (" The [ McConnell ] Court concluded that there was no overbreadth concern to the extent the speech in question was the 'functional equivalent' of express campaign speech." ). The McConnell opinion did not further define " functional equivalent" or undertake to resolve any future as-applied challenges to the law.
It was WRTL II that directly presented an as-applied challenge to section 203. The non-profit issue advocacy corporation sought to broadcast radio advertisements that clearly identified a particular Senator running for re-election during the period when " electioneering communications" would be illegal under section 203. 551 U.S. at 458-61. The Supreme Court reviewed its decision in McConnell and explained that resolving an as-applied challenge required it to determine at the outset " whether the speech at issue is the 'functional equivalent' of speech expressly advocating the election or defeat of a candidate for federal office, or instead a 'genuine issue a[d].'" Id. at 457 (alteration in original), quoting McConnell, 540 U.S. at 206. The Court observed that McConnell did not adopt any test to be used as the standard for future as-applied challenges, and so, it found it necessary to do so. Id. at 464.
The Court determined that in order to safeguard First Amendment rights, it was necessary that the standard be an objective one, " focusing on the substance of the communication rather than amorphous considerations of intent and effect." Id. at 469.
It must entail minimal if any discovery, to allow parties to resolve disputes quickly without chilling speech through the threat of burdensome litigation. And it must eschew the open-ended rough-and-tumble of factors, which invites complex argument in a trial court and a virtually inevitable appeal. In short, it must give the benefit of any doubt to protecting rather than stifling speech.
In light of these considerations, a court should find that an ad is the functional equivalent of express advocacy only if the ad is susceptible of no reasonable interpretation other than as an ...