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Citizens for Responsibility and Ethics in Washington v. Federal Election Commission

United States District Court, District of Columbia

March 22, 2017



          BERYL A. HOWELL Chief Judge

         The plaintiffs, Citizens for Responsibility and Ethics in Washington (“CREW”) and Nicholas Mezlak, a registered voter in Ohio, bring this action against the Federal Election Commission (“FEC”), challenging the FEC's dismissal of the plaintiffs' administrative complaint, which alleged that Crossroads Grassroots Policy Strategies (“Crossroads GPS”) had failed properly to disclose the identities of donors whose contributions were used to fund independent expenditures in various 2012 U.S. Senate races. The plaintiffs claim that the dismissal was arbitrary, capricious, an abuse of discretion, and contrary to law, in violation of the Administrative Procedure Act (“APA”), 5 U.S.C. § 706, and the Federal Election Campaign Act of 1971 (“FECA”), 52 U.S.C. § 30109(a)(8)(C). Pending before the Court is the FEC's Partial Motion to Dismiss (“FEC's MTD”), ECF No. 12, as well as a Notice of Joinder and Supplementation of Federal Election Commission's Partial Motion to Dismiss and Memorandum in Support Thereof by Crossroads GPS (“Crossroads GPS's Supplemental MTD”), ECF No. 17, whose motion to intervene was previously granted, see Minute Order (dated Apr. 26, 2016). For the reasons set out below, the FEC's Partial Motion to Dismiss, pursuant to Federal Rule of Civil Procedure 12(b)(1), is denied, and Crossroads GPS's Supplemental Motion to Dismiss, pursuant to Federal Rule of Civil Procedure 12(b)(6), is granted in part and denied in part.

         I. BACKGROUND

         The plaintiffs challenge the FEC's dismissal of their administrative complaint against Crossroads GPS for failing to apply properly the applicable statute or regulation, which regulation they further contend is invalid because it conflicts with the governing statute. The FECA's relevant statutory and regulatory scheme is described before discussing the administrative proceedings underlying the plaintiffs' instant complaint.

         A. Disclosure Requirements for Independent Expenditures

         Under the FECA and applicable FEC regulations, organizations that make independent expenditures must comply with certain disclosure requirements.[1] Relevant here, the FECA provides that an organization “mak[ing] independent expenditures in an aggregate amount or value in excess of $250 during a calendar year shall file a statement” detailing the contributions it receives. 52 U.S.C. § 30104(c)(1). Such statements must include, inter alia, “the identification of each person who made a contribution in excess of $200 to the person filing such statement which was made for the purpose of furthering an independent expenditure.” Id. § 30104(c)(2)(C) (emphasis added). The FEC regulation, in effect since 1980, implementing 52 U.S.C. § 30104(c) uses similar but not identical language, requiring that a donor's identity be disclosed if the donation was “made for the purpose of furthering the reported independent expenditure.” 11 C.F.R. § 109.10(e)(1)(vi) (emphasis added); see FEC, Amendments to Federal Election Campaign Act of 1971, 45 Fed. Reg. 15080, 15087 (Mar. 7, 1980).

         B. Events Giving Rise to the Plaintiffs' FEC Complaint

         CREW is a watchdog organization “committed to protecting the rights of citizens to be informed about the activities of government officials, ensuring the integrity of government officials, protecting our political system against corruption, and reducing the influence of money in politics.” Compl. ¶¶ 8, ECF No. 1.[2] Nicholas Mezlak is a U.S. citizen registered to vote in Ohio. Id. ¶ 17. Crossroads GPS funds independent expenditures. See Id. ¶¶ 35, 40, 44. The plaintiffs' FEC complaint alleged that Crossroads GPS failed to make the requisite disclosures for certain of its independent expenditures arising out of an anonymous matching challenge and a fundraiser in Tampa, Florida. Id. ¶¶ 35-54.

         1. Anonymous Matching Challenge for the Ohio Senate Race

         In the spring of 2012, Karl Rove, an “uncompensated advisor to Crossroads GPS, ” see Compl., Ex. I, Affidavit of Karl Rove (“Rove Aff.”) ¶ 1, ECF No. 1-9, received a phone call from an unnamed donor regarding the Ohio Senate race between incumbent Sherrod Brown and his challenger, Josh Mandel, Compl. ¶ 43. According to news reports, the donor stated, “I really like Josh Mandel, ” and “I'll give ya $3 million, matching challenge.” Id. (internal quotation marks omitted). Before the FEC, Mr. Rove acknowledged that the news reports' description of the conversation was “‘substantially accurate, '” id. ¶ 56 (quoting Rove Aff. ¶ 3), that the anonymous donor ultimately “contributed more than $3 million to Crossroads GPS, ” id. (emphasis omitted), and that the matching challenge generated an additional $1.3 million, id. ¶ 58. Although “the conversation did not discuss the details of any particular independent expenditure, ” id. ¶ 56, Mr. Rove stated that he understood the contribution to be intended for “‘aid[ing] the election of Josh Mandel, '” id. ¶ 57 (quoting Rove Aff. ¶ 10).

         Crossroads GPS spent over $10 million on television advertising that mentioned at least one of the candidates in the Ohio Senate race, including $6, 363, 711 on independent expenditures opposing Senator Brown's reelection. Id. ¶¶ 44, 59. Crossroads GPS did not disclose the identity of the donor who pledged $3 million in contributions for the Ohio Senate race or the names of other donors who donated to match that contribution. Id. ¶ 45.

         2. The Tampa Fundraiser

         On August 30, 2012, Crossroads GPS held a fundraiser in Tampa, Florida, “in conjunction with American Crossroads, an independent expenditure-only political committee closely associated with Crossroads GPS.” Id. ¶ 40. “Approximately 70 high-earning and powerful donors, including hedge fund billionaires and investors, ” were in attendance. Id. ¶ 41. During the fundraiser, Mr. Rove briefed the attendees on 15 active Senate races, id. ¶ 42, and played 14 television ads targeting Democratic Senate candidates in 6 states: Virginia, Ohio, Montana, Florida, Massachusetts, and Nevada, id. ¶ 47. After the ads were shown, Crossroads GPS and American Crossroads “solicited the attendees for additional contributions, noting that additional sums were needed because advertising rates were increasing, making it more costly for Crossroads GPS to broadcast advertisements like those the attendees had just watched.” Id. ¶ 49. Former Governor of Mississippi, Haley Barbour, “made the final pitch for money.” Id. ¶ 50. Crossroads GPS subsequently “made independent expenditures in five of the six races for which ads were shown” during the fundraiser, and “many” of those advertisements “mirrored the ads shown.” Id. ¶¶ 51-52. In addition to its Ohio independent expenditures, Crossroads GPS reported spending “upwards of $17 million” on ads in the Virginia, Montana, and Nevada Senate races after the fundraiser had occurred. Id. ¶ 53. Crossroads GPS did not disclose in its FEC filings the names of the donors who funded these ads. Id.

         C. The FEC's Dismissal of the Plaintiffs' Complaint

         Under the FECA, “[a]ny person who believes a violation of [the FECA] has occurred, may file a complaint with the Commission.” 52 U.S.C. § 30109(a)(1). If, after affording the alleged violator an opportunity to respond, four of the six FEC Commissioners find “reason to believe” that a violation has occurred, the Commission undertakes an investigation of the alleged violation. Id. § 30109(a)(2).

         On November 14, 2012, CREW filed a complaint with the FEC alleging that Crossroads GPS had (1) “failed disclose the contributor who pledged to contribute $3 million to Crossroads GPS to aid in the election of Josh Mandel by funding Crossroads GPS's independent expenditures in Ohio, ” (2) “failed to disclose the contributors who made matching donations for the same purpose, ” and (3) “failed to disclose the contributors at the August 30 meeting who contributed to Crossroads GPS, including those who contributed to further its independent expenditures in the Ohio, Virginia, Montana, and Nevada Senate races.” Compl. ¶ 55. The FEC respondents, including Crossroads GPS and various individuals affiliated with the organization, responded explaining that the phone conversation with the anonymous donor occurred “months before the August 30 meeting[, ] which would also be months before many of the ads shown at the August 30 meeting were . . . paid for and aired.” Id. ¶ 56 (internal quotation marks omitted). The FEC respondents further maintained that Mr. Rove did not discuss any particular independent expenditure with the anonymous donor. Id. Regarding the Tampa fundraiser, the FEC respondents argued that any solicitations were made on behalf of American Crossroads rather than Crossroads GPS, id. ¶ 61, and, in any event, the attendees were not asked to contribute to any particular ad, noting that most of the ads shown during the fundraiser “had already been paid for and aired, ” id. ¶ 60 (internal quotation marks omitted).

         The FEC's Office of the General Counsel (“OGC”) issued an initial report on March 7, 2014, recommending that the FEC Commissioners find no “reason to believe, ” 52 U.S.C. § 30109(a)(2), that Crossroads GPS had violated the FECA's disclosure requirements or the FEC's implementing regulations and dismiss the plaintiffs' complaint. See Compl. ¶ 64. The OGC report largely adopted the arguments set out in the respondents' filing, finding that the evidence did not suggest that any of the contested donations were earmarked for particular independent expenditures. See Id. The OGC acknowledged that 52 U.S.C. § 30104(c)(2) of the FECA “‘may reasonably be construed to require disclosure of the identity of certain contributors regardless of whether the contributor made a contribution to further a specific independent expenditure, '” id. ¶ 65 (quoting Decl. of Steven Law, President, Crossroads GPS, Ex. B (“OGC Report”) at 10, ECF No. 8-6), but nevertheless adhered to “‘the Commission's controlling interpretation of the statutory provision, '” as stated in 11 C.F.R. § 109.10(e)(1)(vi), id. ¶ 66 (quoting OGC Report at 12 n.57). The OGC also observed that 52 U.S.C. § 30104(c)(1) might impose additional reporting obligations for certain contributions made for the purpose of influencing a federal election generally but that the implementing regulations were silent as to any such requirement. See Compl. ¶ 67. Accordingly, the OGC recommended that the FEC decline to exercise its prosecutorial discretion to investigate a claim under § 30104(c)(1) given “‘equitable concerns about whether a filer has fair notice of the requisite level of disclosure required by law.'” Id. (quoting OGC Report at 13).

         The FEC Commissioners deadlocked three-to-three as to whether there was “reason to believe” that Crossroads GPS violated 52 U.S.C. §§ 30104(c)(1) or (2) or 11 C.F.R. § 109.10(e)(1)(vi). Id. ¶ 70. Consequently, on December 17, 2015, the FEC voted six-to-zero to dismiss the plaintiffs' complaint. Id. ΒΆ 71. The three Commissioners who voted ...

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