Supreme Court Decision Opens New Doors for Associations

As long as I can remember it has been forbidden for nonprofit associations to support any candidates for public office.  However with the historic Citizens United decision, nonprofit associations (other than 501 (c) 3's) can now endorse, promote and even put their favored candidates on the websites, literature, etc.  This is a HUGE sea change.  When Citizens United was first announced there was much discussion about corporate America taking over political campaigns.  My personal opinion, with which you may not agree, is that the chest pounding was a bit silly.  If you have lived for more than five minutes on this planet, you would know that "corporate America" has influenced our political landscape and there is no politician or legislator that is independent of its reach. 

So what makes Citizens United important for nonprofit associations?  I believe it finally levels the playing field for nonprofits when it comes to the electoral soap box.  No longer will nonprofits (again, other than 501 (c) 3's) have to sit idly by or form separate PAC's in order to put their support behind a candidate that cares about their agenda.  And while corporations will give money to associations to conduct candidate endorsements, less endowed associations will finally be able to say to their members "Support Mr. or Ms. X because they support us" in their newsletters, on their websites, in their blogs, etc.  And frankly, for a lot of associations, I think that's a good thing (again, my humble opinion).  Bunnie

Supreme Court Decision Opens New Doors for Associations

by Ronald M. Jacobs, Esq. and Alexandra Megaris, Esq., Venable LLP, Washington, DC

The U.S. Supreme Court has issued its long-awaited decision in Citizens United v. FEC. The Court struck down a federal ban on “independent expenditures” and “electioneering communications” made by nonprofit and for-profit corporations. A number of states have similar bans, and those too will likely fall under the reasoning of Citizens United. A related question is whether a similar ban on expenditures by labor unions will fall.

The decision did not impact direct giving to candidates, political action committees (“PACs”), or parties. Thus, corporations, including associations, may not use their general funds to make contributions to candidates. Accordingly, individuals and PACs will have to continue to make direct contributions.

Although for-profits and nonprofits alike are now free to engage political speech, given the perception that for-profit entities may not be willing to engage in public candidate-advocacy directly, it is likely that much of the work will be done by associations on behalf of their members. This article explains the Citizens United decision and how it may benefit associations.

Brief Legal Background

The laws at issue in Citizens United prohibited two types of corporate expenditures:

(1) Independent Expenditures: any expenditure—at any time, through any medium—that expressly advocated the election or defeat of a clearly identified candidate for federal office. Examples include television advertisements, newspaper advertisements, and postings on corporate blogs, which contain phrases such as “Reelect Congressman Jones” or “Vote Against Smith.”

(2) Electioneering Communications: expenditures by corporations made within 60 days of a general election or 30 days of a primary election if the expenditure is used to fund a communication that is made by broadcast, cable, or satellite, and refers to a clearly identified candidate for federal office. Prior to Citizens United, the Supreme Court had already narrowed this definition to include communications that are the “functional equivalent” of express advocacy and the FEC has adopted a complicated 11-factor test to make such a determination.

Before Citizens United, associations could make these two types of communications only through their PACs. In reality, this was a major limit on funding such expenditures, given the rules restricting how associations solicit for their PACs and the relatively low limits on contributions to a PAC ($5,000 per year). Now, however, associations will be able to fund these expenditures from their general treasury funds.

Conduct Permitted by the Decision

One direct impact of this decision is that for-profits may engage directly in independent expenditures. More important for associations, however, is that for-profit companies may now donate to associations for the specific purpose of having those nonprofits make independent expenditures. In addition, nonprofit corporations—other than 501(c)(3) organizations—may use their general funds, even if those include payments from corporations, to make independent expenditures.

As a result of the Citizens United decision, there are a number of specific activities now permitted, some obvious, some not so obvious:

1.) Paying for print, internet, radio, television, satellite, and cable advertising;

2.) Placing endorsements on association web sites;

3.) Placing advertisements on association web sites;

4.) Using association email lists to support candidates; and

5.) Using association blogs to post messages of support for candidates.

Coordination Not Permitted

Any such activity, however, may not be coordinated with a candidate; coordinating such activity would change the independent expenditure into an in-kind contribution, which is still prohibited. The FEC is currently working on regulations defining what it means to coordinate with a candidate. The definitions are broader and much more complex than what many might consider to be “coordinating” with another entity. The regulatory framework is complicated by the fact that the Court of Appeals for the District of Columbia Circuit has struck down the FEC’s two previous attempts to create such regulations in Shays v. FEC, 414 F.3d 76 (D.C. Cir. 2005) (“Shays I”) and Shays v. FEC, 528 F.3d 914 (D.C. Cir. 2008) (“Shays III”).

Under the original and revised rules, promulgated in 2002 and 2006, respectively, a public communication is coordinated (and thus is a contribution) if:

(1) someone other than the candidate, party, or official campaign pays for it;

(2) the communication itself meets specified “content standards”; and

(3) the payer’s interaction with the candidate/party satisfies specified “conduct standards.”

The FEC has proposed a number of ways to satisfy the content and conduct prongs, several of which have been the subject of court challenges over the years. In October 2009, the FEC issued a Notice of Proposed Rulemaking to revise the content and conduct standards in accordance with Shays III.

Content Standards: The content prong is satisfied if the communication either:

(1) is an electioneering communication;

(2) distributes or republishes campaign materials prepared by a candidate or his authorized committee;

(3) expressly advocates the election or defeat of a clearly identified candidate for federal office; or

(4) if it refers to a political party or clearly identified federal candidate, is publicly distributed 120 or 90 days or fewer before an election (depending on whether the coordination is with a Presidential candidate, congressional candidate, or political party), and is directed to certain voters.

The fourth standard was successfully challenged in Shays I and Shays III. In Shays III, the Court of Appeals expressed concern that more than 90/120 days before an election, candidates may ask wealthy supporters to fund ads on their behalf, so long as those ads contain no “magic words” (such as “vote for” or “vote against” which would qualify them as express advocacy communications).

To address the court’s concerns, the FEC proposes to retain the existing four content standards and adopt one or more of the following: (1) a standard to cover communications that promote, attack, support, or oppose a political party or a clearly identified federal candidate (the “PASO standard”); (2) a standard to cover communications that are the “functional equivalent of express advocacy”; (3) clarification that the existing express advocacy standard includes communications containing more than just “magic words”, such as certain campaign slogans; and (4) a standard that expressly prohibits explicit agreements to establish coordination.

Prior to Citizens United, a corporation’s ability to fund the types of communications covered by the content prong was significantly limited. Because corporations can now make such expenditures from their general treasury funds, it is likely that the use of such communications will increase. As such, corporations and associations will have to be especially mindful that their communications do not meet any of the conduct standards, described below.

Conduct Standards: The conduct prong of the FEC’s test for determining whether a communication is coordinated is comprised of five standards. The first three conduct standards are be satisfied if a communication was created or distributed (1) at the request or suggestion of, (2) after material involvement by, or (3) after substantial discussion with, a candidate, a candidate’s authorized committee, or a political party committee. The remaining two standards are satisfied if a candidate’s former vendor or employee created or distributed a communication using material information about campaign plans, activities, or needs, or shared such information with the person funding the communication, for 120 days.

The FEC proposals presently under consideration retain the five conduct standards, but offer three alternatives for the time periods in the former vendor and employee standards. The FEC aims to tailor the time periods to “the realistic ‘shelf life’ of the types of information that a campaign vendor or former employee is likely to possess.”

Even after Citizens United, associations, in particular those whose members are, or even formerly were, active in federal political campaigns, must ensure that any advertisements that they fund do not fall within one of the five conduct standards. Under both the current or proposed rules, the range of interaction between the candidate/party and the association that may establish impermissible coordination is wide. For example, under the former vendor or employee standards, an association may be “coordinating” with a candidate without ever communicating with that candidate or his campaign.

Disclosures and Disclaimers

While it overturned a number of restrictions, the Supreme Court did, however, uphold certain disclosure obligations that apply to electioneering communications. “Disclaimer and disclosure requirements may burden the ability to speak,” the Court reasoned, “but they ‘impose no ceiling on campaign-related activities,’ . . . and ‘do not prevent anyone from speaking.’”

Therefore, to the extent a corporation spends over $10,000 during any calendar year to fund communications through broadcast, radio, satellite, or cable that refer to clearly identified candidates within 30 days of a primary election or 60 days of a general election, it will have to file disclosures with the FEC revealing the corporation making the communication, the amount spent, and certain contributors.

In addition, each electioneering communication must include certain specified disclaimers. Communications not authorized by the candidate, as would almost certainly be the case for an independent expenditure or electioneering communication not coordinated with the candidate, must provide a name and address (or web address) for the entity making the communication, state that the communication is not authorized by any candidate, and include the following audio statement: “___ is responsible for the content of this advertising.” If transmitted through television, this statement must also appear on screen in accordance with specifications set forth in FEC regulations.

Expenditures for express advocacy must be reported to the FEC when they aggregate more than $250 for an election. This includes information about the amount of the expenditures and information about contributors who gave more then $200 if the contribution “was made for the purpose of furthering the reported independent expenditure.” If the independent expenditures exceed $10,000, then reports must be filed with the FEC within two days of the expenditure (one day for expenditures that exceed $1,000 made within 20 say of the election).

Independent expenditures must include disclaimers that are similar to those required for electioneering communications.

The Broad Impact of the Decision

Although the specific legal impact of the decision is clear, it is not clear exactly how corporations will make use of their new right to make independent expenditures. Consider:

• Will a for-profit corporation be willing to spend money on a television advertisement for or against a candidate and risk alienating customers or employees?

• Will highly-regulated industries (e.g., banks, car manufacturers, government contractors, etc.) be willing to alienate an incumbent office holder?

• Will those highly-regulated companies feel compelled to support an incumbent office-holder, given the influence the government has over their business?

• Will for-profit corporations—in tough economic times—be willing to give larger sums to nonprofits that will then make independent expenditures?

• Will shareholders allow companies to make independent expenditures or give to groups that will do so? Several shareholder’s rights groups have force companies to disclose their political activities in an effort to limit such activities. Indeed, some companies specifically prohibit their trade associations from using their dues payments for political expenditures.

• Will PACs become a less-favored approach to participation in the political process?

The Court’s Reasoning

In 1990, the Court upheld a state ban on independent expenditures by corporations in Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990). The Court has never directly considered the federal ban on corporate expenditures before Citizens United. Following the Bipartisan Campaign Reform Act in 2002, the Court upheld the ban on electioneering communications in McConnell v. FEC, 540 U.S. 93 (2003). That decision relied on Austin.

The majority opinion—authored by Justice Kennedy, and joined by Chief Justice Roberts, and Justices Scalia, Thomas, and Alito—takes the First Amendment at face value: Congress shall make no law . . . abridging the freedom of speech.” The Court succinctly explains that “[t]he Government may regulate corporate political speech through disclaimer and disclosure requirements, but it may not suppress speech altogether.”

One of the key themes in the decision is that the campaign finance laws have become overly convoluted and complicated. “The First Amendment does not permit laws that force speakers to retain a campaign finance attorney, conduct demographic marketing research, or seek declaratory rulings before discussing most salient political issues of our day.” As a result, such laws silence permissible speech because they are so complicated. Unlike prior decisions in this area upholding additional rules and limits to avoid circumventing the rules already in place, the Court decided “informative voices should not have to circumvent onerous restrictions to exercise their First Amendment rights.”

The Court explained that any restriction on speech—including corporate speech—must survive strict scrutiny, which requires a compelling governmental interest. The government advanced three such interests and the Court rejected them all.

Anti-Distortion: Under the Court’s 1990 Austin v. Michigan decision, the Court had found that because corporations have perpetual existence and can amass great wealth, there is a compelling governmental interest in restricting their influence on elections. This theory ran counter to earlier precedents that had held that campaign finance laws cannot be used to balance the scales between the wealthy and less wealthy. In Citizens United, the Court held that “[t]he rule that political speech cannot be limited based on a speaker’s wealth is a necessary consequence of the premise that the First Amendment generally prohibits the suppression of political speech based on the speaker’s identity.”

The Court went even further, recognizing that “[a]ll speakers, including individuals and the media, use money amassed from the economic marketplace to fund their speech. The first Amendment protects the resulting speech, even if it was enabled by economic transactions with persons or entities who disagree with the speaker’s ideas.”

Finally, the Court reasoned that the idea of leveling the playing field actually hurt smaller corporations. For example, when big business communicates with the government directly, “the result is that smaller or nonprofit corporations cannot raise a voice to object when other corporations, including those with vast wealth, are cooperating with Government.”

Anti-Corruption: The Court had previously held that campaign finance laws can legitimately be used to prevent both actual corruption (i.e., quid pro quo bribery) and the more nebulous “appearance of corruption.” The Court made clear, however, that because it was addressing only independent expenditures, there was no threat of actual or perceived corruption. “[I]ndependent expenditures do not lead to, or create the appearance of, quid pro quo corruption. In fact, there is only scant evidence that independent expenditures even ingratiate. Ingratiation and access, in any event, are not corruption.”

Dissenting Shareholders: Finally, the Court considered whether the law was a valid way to protect a shareholder who does not want the corporation to spend money on an election. It found this argument failed for three reasons. First, it would allow a law to limit the speech of any corporation, including a media corporation, solely to protect the shareholders who disagree with the editorial position of the company. Second, because the electioneering communications ban applied only during certain time periods, it was not an effective way to protect shareholders. Third, it applied to all corporations, including nonprofits and for-profits with a single shareholder.

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Mr. Jacobs is a Washington-based partner in Venable’s regulatory group. He heads the political law practice at Venable and counsels numerous associations on campaign finance, tax, lobbying disclosure, and ethics issues.

Ms. Megaris is an associate in Venable’s regulatory group, where she focuses on transactional, regulatory, and policy matters in a broad range of industries, including nonprofit organizations and trade and professional associations.

This article is not intended to provide legal advice or opinion and should not be relied on as such. Legal advice can only be provided in response to specific fact situations.