Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 1 of 57 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA.

Transcription

1 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 1 of 57 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA Representative Christopher Shays and Representative Martin Meehan, Plaintiffs, v. Civil Action No (EGS) Federal Election Commission, Defendant. Bush-Cheney 04, Inc. Plaintiff, v. Civil Action No (EGS) Federal Election Commission, Defendant. PLAINTIFFS MOTION FOR SUMMARY JUDGMENT Plaintiffs Christopher Shays and Martin Meehan, and plaintiff Bush-Cheney 04, Inc., by their respective undersigned counsel, and pursuant to Fed. R. Civ. P. 56 and 10(e) of the Administrative Procedure Act, 5 U.S.C. 706(2)(A), (C)-(D), respectfully move this Court for a summary judgment holding unlawful the Federal Election Commission s decision not to promulgate rules that regulate groups organized under section 527 of the Internal Revenue Code. Support for this motion is set forth in the accompanying Memorandum in Support of Plaintiffs Motion for Summary Judgment, the supporting Plaintiffs Exhibits, the supporting Declarations and Affidavits, the complete administrative record to be filed by the Federal Election Commission, and the Statement of Material Facts as To Which Plaintiffs Contend There

2 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 2 of 57 Is No Genuine Issue. Plaintiffs requested relief is set forth in the accompanying Proposed Order. Dated this 29th day of April, Respectfully submitted, Donald J. Simon (Bar No ) SONOSKY, CHAMBERS, SACHSE, ENDRESON & PERRY, LLP 1425 K Street, N.W. Suite 600 Washington, D.C ( Charles G. Curtis, Jr. David L. Anstaett HELLER EHRMAN WHITE & MCAULIFFE LLP One East Main Street Suite 201 Madison, WI (608) /s/ Roger Witten Roger Witten (Bar No ) Verity Winship WILMER CUTLER PICKERING HALE & DORR LLP 399 Park Avenue New York, NY (212) Adam Raviv WILMER CUTLER PICKERING HALE & DORR LLP 1801 Pennsylvania Avenue, NW Washington, D.C (202) Fred Wertheimer (Bar No ) DEMOCRACY I Street, N.W. Suite 400 Washington, D.C (202) Attorneys for Plaintiffs Christopher Shays and Martin Meehan /s/ Jay P. Lefkowitz Jay P. Lefkowitz (Bar No ) Steven A. Engel (Bar No ) KIRKLAND & ELLIS LLP 655 Fifteenth Street, N.W. Washington, D.C (202) Attorneys for Plaintiff Bush-Cheney 04, Inc. 2

3 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 3 of 57 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA Representative Christopher Shays and Representative Martin Meehan, Plaintiffs, v. Civil Action No (EGS) Federal Election Commission, Defendant. Bush-Cheney 04, Inc. Plaintiff, v. Civil Action No (EGS) Federal Election Commission, Defendant. PLAINTIFFS MEMORANDUM IN SUPPORT OF PLAINTIFFS MOTION FOR SUMMARY JUDGMENT Donald J. Simon (Bar No ) SONOSKY, CHAMBERS, SACHSE, ENDRESON & PERRY LLP 1425 K Street, N.W., Suite 600 Washington, D.C (202) Charles G. Curtis, Jr. David L. Anstaett HELLER EHRMAN WHITE & MCAULIFFE LLP One East Main Street, Suite 201 Madison, WI (608) Fred Wertheimer (Bar No ) DEMOCRACY I Street, N.W., Suite 400 Washington, D.C (202) Roger Witten (Bar No ) Verity Winship WILMER CUTLER PICKERING HALE & DORR LLP 399 Park Avenue New York, NY (212) Adam Raviv WILMER CUTLER PICKERING HALE & DORR LLP 1801 Pennsylvania Avenue, NW Washington, D.C (202) Attorneys for Plaintiffs Christopher Shays and Martin Meehan Jay P. Lefkowitz (Bar No ) Steven A. Engel (Bar No ) KIRKLAND & ELLIS LLP 655 Fifteenth Street, N.W. Washington, D.C (202) Attorneys for Plaintiff Bush-Cheney 04, Inc.

4 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 4 of 57 TABLE OF CONTENTS TABLE OF AUTHORITIES...iii INTRODUCTION...1 BACKGROUND...2 A. Political Organizations and Political Committees Section 527 Political Organizations FECA Political Committees...3 B. What 527 Groups Did During the 2004 Campaign...5 C. The FEC s Response, or Lack Thereof...7 ARGUMENT...13 I. All Plaintiffs Have Standing To Bring These Actions...13 A. Plaintiffs Shays and Meehan Satisfy Constitutional Standing Requirements as Participants in Federal Elections...14 B. Plaintiff Bush-Cheney 04, Inc. Satisfies Constitutional Standing Requirements...17 C. All Plaintiffs Satisfy the Requirements for Informational Standing Under Akins and Kean...21 II. The FEC s Failure To Act Violates FECA and the APA...25 A. The FEC s Failure To Promulgate Regulations Addressing When 527 Groups Must Register as Political Committees Is Contrary To FECA and Cannot Withstand Chevron Review...26 B. The APA Grants the Court Authority To Order the Commission To Promulgate Appropriate 527 Regulations...29 C. The FEC s Failure To Regulate Was Arbitrary and Capricious Because It Is Self-Evident That Section 527 Groups Operate as Political Committees When They Spend Money in Federal Elections and, by Escaping Regulation, Undermine the Ban on Soft Money...34 i

5 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 5 of 57 D. The FEC s Refusal To Promulgate 527 Regulations Was Also Arbitrary and Capricious Because the FEC Did Not State a Reasoned Basis for Its Decision...37 CONCLUSION...41 APPENDIX A...43 ii

6 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 6 of 57 TABLE OF AUTHORITIES CASES Ad Hoc Metals Coalition v. Whitman, 227 F. Supp. 2d 134 (D.D.C. 2002)...33 Am. Horse Prot. Ass n v. Lyng, 812 F.2d 1 (D.C. Cir. 1987)...32 Am. Wildlands v. Norton, 193 F. Supp. 2d 244 (D. D.C. 2002)...25, 37 American Rivers v. U.S. Army Corps of Eng rs, 271 F. Supp. 2d 230 (D.D.C. 2003)...33 Amgen, Inc. v. Smith, 357 F.3d 103 (D.C. Cir. 2004)...17 Becker v. FEC, 230 F.3d 381 (1st Cir. 2000)...15, 16, 17, 19 Buckley v. Valeo, 424 U.S. 1 (1976)...4, 27, 28 Carlton v. Babbitt, 26 F. Supp. 2d 102 (D.D.C. 1998)...33 Celotex Corp. v. Catrett, 477 U.S. 317 (1986)...13 Center for Law & Educ. v. Dep t of Educ., 396 F.3d 1152 (D.C. Cir. 2005)...16 Chamber of Commerce v. FEC, 69 F.3d 600 (D.C. Cir. 1995)...38 Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984)...25, 26, 27, 28 Common Cause v. FEC, 692 F. Supp (D.D.C. 1987)...25, 26, 31, 32, 36 Competitive Enter. Inst. v. Nat l Highway Traffic Safety Admin., 956 F.2d 321 (D.C. Cir. 1992)...37 Consumer Fed n v. Consumer Prod. Safety Comm n, 990 F.2d 1298 (D.C. Cir. 1993)...26, 30 Electric Power Supply Ass n v. FERC, 391 F.3d 1255 (D.C. Cir. 2004)...16 Engine Mfrs. Ass n v. EPA, 88 F.3d 1075 (D.C. Cir. 1996)...27 Envtl. Def. Fund v. EPA, 852 F.2d 1316 (D.C. Cir. 1988)...26 Esch v. Yeutter, 876 F.2d 976 (D.C. Cir. 1989)...33 FEC v. Akins, 524 U.S. 11 (1998)...21, 22, 23, 25 FEC v. GOPAC, 917 F. Supp. 851 (D.D.C. 1996)...36 iii

7 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 7 of 57 FEC v. Massachusetts Citizens for Life, Inc., 479 U.S. 238 (1986)...4, 27 Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167 (2000)...19 Fulani v. League of Women Voters Educ. Fund, 882 F.2d 621 (2d Cir. 1989)...19 Johnson v. FCC, 829 F.2d 157 (D.C. Cir. 1987)...19 Kean for Cong. Comm. v. FEC, No (JDB)...passim LeBoeuf, Lamb, Greene & MacRae, LLP v. Abraham, 215 F. Supp. 2d 73 (D.D.C. 2002), vacated on other grounds,347 F.3d 315 (D.C. Cir. 2003)...33 Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992)...13, 17, 19 McConnell v. FEC, 251 F. Supp. 2d 176 (D.D.C. 2003)...passim McConnell v. FEC, 540 U.S. 93 (2003)...passim McConnell v. FEC, No (D.D.C. 2002)...passim Montana v. Clark, 749 F.2d 740 (D.C. Cir. 1984)...26 Motor Vehicle Mfrs. Ass n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983)...38 Nat l Credit Union Admin. v. First Nat l Bank & Trust Co., 522 U.S. 479 (1998)...17, 19, 30, 38 Nat l Mining Ass n v. Chao, 160 F. Supp. 2d 47 (D.D.C. 2001), rev d in part on other grounds, 292 F.3d 849 (D.C. Cir. 2002)...29 Nat l Treasury Employees Union v. Hove, 840 F. Supp. 165 (D.D.C. 1994)...33 Nat l Trust For Historic Pres. v. Blanck, 938 F. Supp. 908 (D.D.C.1996), aff d, 203 F.3d 53 (D.C. Cir. 1999)...33 Natural Res. Def. Council v. SEC ( NRDC ), 606 F.2d 1031 (D.C. Cir. 1979)...29, 30, 31 Orloski v. FEC, 795 F.2d 156 (D.C. Cir. 1986)...28, 29 Prof l Drivers Council v. Bureau of Motor Carrier Safety, 706 F.2d 1216 (D.C. Cir. 1983)...25, 38 SEC v. Chenery Corp., 332 U.S. 194 (1947)...38 Shays v. FEC, 337 F. Supp. 2d 28 (D.D.C. 2004)...passim iv

8 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 8 of 57 Shays v. FEC, 340 F. Supp. 2d 39 (D.D.C. 2004)...13, 15, 41 Southwest Ctr. For Biological Diversity v. Norton, Civ. Action No (RMU/JMF), 2002 WL (D.D.C. July 29, 2002)...33 Williams Natural Gas Co. v. FERC, 872 F.2d 438 (D.C. Cir. 1989)...passim STATUTES AND REGULATIONS 11 C.F.R , C.F.R C.F.R C.F.R I.R.C passim Fed. R. Civ. P Federal Election Campaign Act of 1971, 86 Stat. 11, as amended, 2 U.S.C. 431 et seq U.S.C , 23, 27 2 U.S.C U.S.C , 23 2 U.S.C , 23, 24 2 U.S.C. 441a...3, 17 2 U.S.C. 441b U.S.C U.S.C Treas. Reg (c)(4)-(1)...38 FEDERAL REGISTER Definition of Political Committee, 66 Fed. Reg. 13,681 (Mar. 7, 2001)...7 Political Committee Status, 69 Fed. Reg. 11,736 (Mar. 11, 2004)...7, 8, 37 v

9 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 9 of 57 Political Committee Status, Definition of Contribution, and Allocation for Separate Segregated Funds and Nonconnected Committees, 69 Fed. Reg. 68,056 (Nov. 23, 2004)...passim MISCELLANEOUS Adv. Op (Feb. 19, 2004)...30, 37 Bush-Cheney 04 v. Media Fund, Inc. (F.E.C. Mar. 10, 2004)...30 Bush-Cheney 04 v. Media Fund, Inc. (F.E.C. Mar. 31, 2004)...30 Center for Responsive Politics, Withheld 527 Receipts, 2004 Cycle (May 25, 2004) Cong. Rec. S2696 (daily ed. Mar. 22, 2001) (statement of Sen. Feingold) Cong. Rec. S2139 (daily ed. Mar. 20, 2002) (statement of Sen. McCain) Cong. Rec. S4471 (Apr. 28, 2004)...5 Democracy 21 v. America Coming Together et al. (F.E.C. Jan. 2004) (MUR 5403)...30 Democracy 21 v. Progress for America Voter Fund (F.E.C. Jul. 20, 2004) (MUR 5487)...31 Democracy 21 v. Swift Boat Veterans for Truth (F.E.C. Aug. 10, 2004) (MUR 5511)...31 Kenneth P. Doyle, Electioneering Communications: New FEC Reports Show 527 Groups Active in Ads for Congressional Races, BNA Money & Politics Report (Aug. 3, 2004)...6 FEC Agenda Document FEC Agenda Document No FEC Agenda Document , 36, 39 FEC Agenda Document A...11 FEC Agenda Document B...11 Internal Revenue Service, Instructions for Form 8872: Political Organization Report of Contributions and Expenditures...24 Amy Keller, FEC Restricts Certain 527s Ability to Spend Soft Money, Roll Call vi

10 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 10 of 57 (Feb. 18, 2004)...7 Statement of John McCain before the Senate Committee on Rules, Mar. 10, Peter H. Stone, Republican 527s: Full Steam Ahead, Nat l J. (May 29, 2004)...12, 35 Testimony of FEC Chairman Scott E. Thomas, Senate Committee on Rules and Administration, March 8, , 7 Testimony of Michael J. Malbin, Senate Committee on Rules and Administration, March 8, vii

11 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 11 of 57 INTRODUCTION Plaintiffs have brought this suit in an effort to force the Federal Election Commission ( FEC or Commission ) to comply with its obligations to enforce the campaign finance reforms enacted by Congress and signed into law by the President. This action challenges the unlawful, arbitrary and capricious refusal of the FEC, after conducting rulemaking proceedings extending over four years, to promulgate regulations to close a loophole that political organizations operating under section 527 of the tax law, I.R.C. 527, have used to raise and spend vast amounts of soft money for the purpose of influencing federal elections. This memorandum of law is submitted, pursuant to the Court s Order of February 22, 2005, in support of summary judgment motions filed by plaintiffs Shays and Meehan in Civil Action No and by plaintiff Bush-Cheney 04, Inc. ( BC 04 ) in Civil Action No In McConnell v. FEC, 540 U.S. 93 (2003), the Supreme Court sweepingly upheld the reform measures Congress had enacted in the Bipartisan Campaign Reform Act of 2002 ( BCRA ) to rid federal elections of the influence of soft money. In that decision, the Court emphasized that the FEC s earlier failure to regulate soft money, then flowing through political parties, had subverted the law, id. at 142, and invited widespread circumvention, id. at 145. Notwithstanding BCRA s reforms, the 2004 presidential election saw the escalating use of so-called 527 groups as a new vehicle for the improper spending of hundreds of millions of dollars of soft money to influence federal elections. These groups registered with the Internal Revenue Service as political organizations under section 527 of the tax law, but did not register with the FEC as political committees under the Federal Election Campaign Act of 1971 ( FECA ), 86 Stat. 11, as amended, 2 U.S.C. 431 et seq. They thereby evaded FECA s contribution limits, source prohibitions, and reporting requirements, even though, by definition, 1

12 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 12 of 57 they are organized and operated primarily to influence candidate elections, I.R.C. 527(e)(1), and they spent money to influence federal elections. In the 2004 federal elections, almost $400 million of soft money was spent through this loophole by 527 groups primarily or substantially involved in federal elections. The Commission s arbitrary and capricious failure to issue any rules addressing when 527 groups must register as political committees has permitted this massive circumvention of the federal campaign finance laws. BACKGROUND A. Political Organizations and Political Committees 1. Section 527 Political Organizations Section 527 of the Internal Revenue Code provides tax-exempt treatment for exempt function income received by any political organization. See 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. ). The Code defines political organization 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. 527(e)(1). The Code further defines exempt function as the function of 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. 527(e)(2). Thus, 527 political organizations are operated primarily to influence candidate elections, either federal or non-federal. In McConnell v. FEC, the Supreme Court pertinently observed that Section 527 political organizations are, unlike 501(c) groups, organized for 2

13 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 13 of 57 the express purpose of engaging in partisan political activity. 540 U.S. at 174 n.67. The Court noted that 527 groups by definition engage in partisan political activity. Id. at FECA Political Committees The campaign finance laws regulate groups designated as political committees. FECA defines the term political committee to mean any committee, club, association or other group of persons which receives contributions 1 aggregating in excess of $1,000 during a calendar year or which makes expenditures 2 aggregating in excess of $1,000 during a calendar year. 2 U.S.C. 431(4). FECA requires any entity that meets the definition of a political committee to file a statement of organization with the FEC, 2 U.S.C. 433, and to file periodic disclosure reports of its receipts and disbursements, id In addition, a political committee is subject to contribution limits, id. 441a(a)(1)-(2), and source prohibitions, id. 441b(a), on the contributions it may receive and make. A political committee may receive a contribution of no 1 The term contribution is defined as including: (i) any gift, subscription, loan, advance, or deposit of money or anything of value made by any person for the purpose of influencing any election for Federal office; or (ii) the payment by any person of compensation for the personal services of another person which are rendered to a political committee without charge for any purpose. 2 U.S.C. 431(8)(A). 2 The term expenditure is defined as including: (i) any purchase, payment, distribution, loan, advance, deposit, or gift of money or anything of value, made by any person for the purpose of influencing any election for Federal office; and (ii) a written contract, promise, or agreement to make an expenditure. 2 U.S.C. 431(9)(A). 3

14 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 14 of 57 more than $5,000 per year from an individual; it may accept no corporate or union treasury funds at all. These rules apply whether or not the political committee is engaged only in spending independent from any political party or candidate, or is connected with such a party or candidate. 11 C.F.R (n). In Buckley v. Valeo, 424 U.S. 1 (1976), the Supreme Court construed the statutory term 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. Id. at 79 (emphasis added). Later, in FEC v. Massachusetts Citizens for Life, Inc., 479 U.S. 238 (1986), the Court said that a group becomes a political committee under FECA 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. Id. at 262 (emphasis added). The FEC has never issued a regulation implementing or defining Buckley s major purpose standard for political committees. Rather, FEC regulations define political committee simply by repeating without elaboration the statutory definition. 11 C.F.R (a). In particular, the FEC has not promulgated any regulation addressing whether or when 527 groups must register as political committees even when such groups, which are organized and operated primarily for the purpose of influencing candidate elections, engage primarily in federal campaign activities and spend large sums of money promoting or attacking federal candidates. 527 organizations that do not register as political committees do not file the detailed campaign finance disclosure reports that are required of such committees. They also raise and 4

15 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 15 of 57 spend soft money funds that do not comply with the contribution limits and source prohibitions of federal law to influence federal campaigns. B. What 527 Groups Did During the 2004 Campaign In the 2004 federal election cycle, numerous 527 organizations that had not registered as political committees raised and spent hundreds of millions of dollars on federal campaign activities. Despite refusing to register as political committees, many of these groups made perfectly clear in their public statements and their fundraising endeavors that their purpose was to influence federal elections. But because they purport to operate outside the federal campaign finance laws, the large amounts of money that 527 groups raised and spent consisted of soft money that did not comply with FECA s contribution limits, source prohibitions, and reporting requirements. As Senator John McCain observed on the floor of the Senate, in comments that were later submitted to the Commission in the rulemaking at issue here, so-called 527 groups... are raising and spending millions of dollars in soft money in the current presidential election. These groups readily admit that their intended purpose is to influence the outcome of Federal elections. 150 Cong. Rec. S4471, S4472 (Apr. 28, 2004) (statement of Sen. McCain), attached to FEC Agenda Document 04-47, Exhibit ( Ex. ) 1. These groups were busy soliciting and spending millions for the avowed purpose of influencing Federal elections. Id. In testimony before a congressional committee that was later submitted to the FEC, Senator McCain said that [n]ow that the parties have been taken out of the soft money business, there are efforts by political operators to redirect some of that money to groups that operate as political organizations under Section 527 of the IRS Code. Comment submitted to the FEC by Democracy 21, Campaign Legal Center & Center for Responsive Politics, Apr. 5, 2004 (hereafter Democracy 5

16 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 16 of Comments ), attachment of Statement of John McCain before the Senate Committee on Rules, (Mar. 10, 2004), Ex. 2. In all, 527 groups that were primarily or substantially involved in the 2004 federal elections raised more than $405 million in soft money, and spent more than $398 million. See Testimony of FEC Chairman Scott E. Thomas, Senate Committee on Rules and Administration, March 8, 2005 ( Thomas Testimony ), Ex. 3, at 3; Testimony of Michael J. Malbin, Senate Committee on Rules and Administration, March 8, 2005 ( Malbin Testimony ), Ex. 4, at 1. 3 In 2004, just 25 individual donors gave a total of $142 million in contributions to 527 groups, which was more than half of all of the money raised by 527 groups from individuals. Thomas Testimony at 3. One donor, George Soros, gave $24 million to 527 groups; another one, Peter Lewis, gave $22.5 million. Steve Weissmann & Ruth Hasan, Campaign Finance Institute, BCRA and the 527 Groups at 14 (2005), submitted to the Senate Committee on Rules and Administration as appendix to Malbin Testimony, Ex. 4. In total, fifty-two individual donors each gave $1 million or more to 527 groups, Malbin Testimony at 2; and 265 individuals gave $100,000 or more to 527 groups, Thomas Testimony at 3. The ads these groups aired impacted both the presidential and congressional elections. See Kenneth P. Doyle, Electioneering Communications: New FEC Reports Show 527 Groups Active in Ads for Congressional Races, BNA Money & Politics Report (Aug. 3, 2004), Ex. 5 (reporting that 527 groups were active in congressional campaigns). Plaintiffs Shays and Meehan, on behalf of themselves only, provide illustrative examples of two of the most prominent and well-known 527 groups at Appendix A. FEC Commissioner Thomas recently testified that There is little doubt that 527 organizations not registered with the FEC had a major impact on the 2004 federal elections The Court may consider this testimony. See pages 32-34, infra. 6

17 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 17 of 57 Left unchanged, the current state of affairs will breed constant inquiry about who the big donors are, what special interests they have, and what efforts they have undertaken to get help from elected leaders in Washington. Thomas Testimony, Ex. 3, at 3. A study of 527 group activities concluded that [i]f 527s become fully accepted and institutionalized, they could play even larger financial roles in the future, including the presidential election of Id. (quoting Weissmann & Hasan, supra). C. The FEC s Response, or Lack Thereof Although it first began formally to consider the matter in 2001, the FEC has taken no action to require 527 groups that spend money for the purpose of influencing federal elections to register as political committees. It had this matter on its agenda over a period of almost four years, and in the end resolved to do nothing at all. In 2001, the Commission began a rulemaking to define the term political committee, issuing an Advance Notice of Proposed Rulemaking seeking comment on several proposed alternative definitions for the term, including comment on the scope and meaning of the major purpose test for political committees. See Definition of Political Committee, 66 Fed. Reg. 13,681, 13,682 (Mar. 7, 2001). It noted that concern remains that Commission action is needed to clarify when an organization becomes a political committee under the FECA, and that the number of 527 organizations is thought to have increased substantially, with a concomitant increase in their spending on federal elections. Id. at 13,687. In September 2001, however, the FEC suspended the rulemaking, choosing to hold the matter in abeyance pending changes in legislation, future judicial decisions, or other action. See Political Committee Status, 69 Fed. Reg. 11,736, 11,737 n.3 (Mar. 11, 2004). Having decided to wait, the Commission then eschewed the opportunity to address the 527 group question in the context of an advisory opinion. See Adv. Op (Feb. 19, 7

18 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 18 of ), Ex. 6. In early 2004, Vice Chair Ellen Weintraub justified the Commission s inaction by saying that the FEC would be leaving the status quo in place until it could get to the rulemaking. Amy Keller, FEC Restricts Certain 527s Ability to Spend Soft Money, Roll Call (Feb. 18, 2004), Ex. 7. On March 11, 2004, pushed by the Supreme Court s decision in the McConnell case, and by mounting press reports that 527 groups planned to spend large amounts of soft money in the 2004 presidential campaign, the FEC published a Notice of Proposed Rulemaking ( NPRM ) that set forth another proposal for defining the term political committee. See Political Committee Status, 69 Fed. Reg. 11,736 (March 11, 2004). The NPRM stated that the Commission is undertaking this 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 included specific proposals to address when 527 groups meet the major purpose test that requires them to register as political committees. See id. at 11, (11 C.F.R (proposed) (Alternatives 2-A and 2-B)). Plaintiffs Shays and Meehan, along with Senators McCain and Feingold, the four principal sponsors of BCRA, filed joint comments, stating that the Commission s responsibility to clarify and properly enforce the federal election laws with respect to 527 organizations is clear.... To do nothing would be to bless a loophole that will have grave consequences for the efficacy of both BCRA and FECA and again leave the public with the impression that the election laws can be treated with disdain without any consequence. Letter of April 9, 2004 from Senator John McCain et al. re: Notice , Ex. 8, at 3-4, submitted to the FEC for its 527 Rulemaking. 8

19 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 19 of 57 In joint comments, Democracy 21, the Campaign Legal Center, and the Center for Responsive Politics warned that self-declared political organizations those entities registered under section 527 of the tax code as organized and operated primarily for the purpose of influencing candidate elections... are spending millions of dollars on broadcast ads attacking or supporting the presidential candidates, but claiming that they do not have to register as political committees and comply with federal campaign finance laws. Democracy 21 Comments, Ex. 2, at 3-4. On April 14 and 15, 2004, the Commission held public hearings, and heard testimony from more than two dozen witnesses. On May 11, 2004, the General Counsel of the Commission released a report that noted that the rulemaking had been proposed on an expedited schedule to respond to concerns about the activities of some organizations that, according to press reports, are raising and spending (or planning to raise and spend) millions of dollars in corporate and union funds and unlimited donations from individuals for the purpose of influencing the 2004 Presidential election. FEC Agenda Document 04-48, Ex. 9, at 4-5. Nonetheless, the General Counsel recommended that the Commission adjourn the matter for up to 90 days; he did aptly warn that [i]t is just as important not to drop the issue as it is to get it right. Id. at 11. At its meeting two days later on May 13, 2004, the Commission rejected a rule Commissioners Thomas and Toner proposed that would have, inter alia, set forth standards effective for the 2004 elections for when 527 groups are required to register as political committees and comply with federal campaign finance laws. FEC Agenda Document 04-44, Ex. 9

20 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 20 of Instead, the Commission adopted the General Counsel s recommendation to adjourn the rulemaking for 90 days during the heat of the 2004 election season. Three months later, on August 12, 2004, the General Counsel recommended that the Commission adopt final rules that would set forth a new regulatory definition of major purpose as part of the definition of political committee, and that included specific rules for when 527 groups must register. FEC Agenda Document 04-75, Ex. 11. As the 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 draft rules aimed to establish practical bright lines to ensure that organizations can predict with a high level of certainty how the 4 The Thomas-Toner proposal stated: For purposes of [the major purpose test], a committee, club, association or group of persons that is organized under Section has the nomination or election of one or more Federal or non-federal candidates as its major purpose, unless it is a type of organization described as follows: (i) (ii) (iii) (iv) (v) The campaign organization of an individual seeking nomination, election, appointment or selection to a non-federal office; A committee, club, association or group of persons that is organized solely for the purpose of promoting the nomination or election of candidates to one or more non-federal office; A committee, club, association or group of persons whose nomination or election activities relate solely to elections where no candidate for Federal office appears on the ballot; A committee, club, association or group of persons that is organized solely for the purpose of influencing state ballot initiatives or referenda; or A committee, club, association or group of persons that is organized solely for the purpose of influencing the nomination or appointment of individuals to one or more non-elected offices, or the nomination, election, or selection of individuals to leadership positions within a political party. FEC Agenda Document at

21 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 21 of 57 Commission will view their various activities, while still providing for a measure of flexibility in appropriate circumstances. Id. at 3. The General Counsel advised the Commission to promulgate a major purpose rule to address certain issues regarding the scope and application of this judicial construct, including which types of campaign activity counts toward a group s major purpose, and how major purpose may be demonstrated through an examination of the group s fundraising and/or spending... [and] a group s public statements. Id. at 4-5. The General Counsel reasoned that it is eminently fair to impute the purpose of an organization, and therefore the purpose for which it gathers and uses funds, from how the organization describes itself to the public. Id. at 7. Commissioners Thomas and Toner re-introduced their earlier proposal, directed specifically at applying political committee status to 527 groups only. FEC Agenda Document A, Ex. 12, at 1-3. On August 19, 2004, the Commission rejected both its General Counsel s proposed regulation, which would have applied to all groups including 527 groups, and the Thomas-Toner proposal, which targeted 527 groups. 5 It took no action on the definition of political committee. In late November 2004, the Commission published an Explanation and Justification as to why the Commission decided not to adopt any of the foregoing proposals to revise the definition of political committee. See Political Committee Status, Definition of Contribution, and Allocation for Separate Segregated Funds and Nonconnected Committees, 69 Fed. Reg. 68,056, 68,065 (Nov. 23, 2004). In its entirety, the Commission s explanation for its decision not to act said: 5 The Commission adopted two provisions of the General Counsel s recommendation that did not address the major purpose issue or the section 527 issue. FEC Agenda Document B, Ex

22 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 22 of 57 The comments raise valid concerns that lead the Commission to conclude that incorporating a major purpose test into the definition of political committee may be inadvisable. Thus, the Commission has decided not to adopt any of the foregoing proposals to revise the definition of political committee. As a number of commenters noted, the proposed rules might have affected hundreds or thousands of groups engaged in non-profit activity in ways that were both far-reaching and difficult to predict, and would have entailed a degree of regulation that Congress did not elect to undertake itself when it increased the reporting obligations of 527 groups in 2000 and 2002 and when it substantially transformed campaign finance laws through BCRA. Furthermore, no change through regulation of the definition of political committee is mandated by BCRA or the Supreme Court's decision in McConnell. The major purpose test is a judicial construct that limits the reach of the statutory triggers in FECA for political committee status. The Commission has been applying this construct for many years without additional regulatory definitions, and it will continue to do so in the future. Id. Thus, after beginning a rulemaking in 2001, which it abandoned without action to await future legislation and judicial decisions; and after seeing Congress enact BCRA which sought to eliminate the role of soft money in federal elections; and after seeing the Supreme Court sustain BCRA while criticizing the FEC s past failures to issue regulations to address the soft money problem; and after initiating a new rulemaking in 2004 in the face of clear evidence of abuse by 527 groups, the FEC ultimately decided to do nothing at all. The result emboldened 527 groups to continue their fundraising and electioneering efforts. As a joint press release from the RNC Chair and the Bush-Cheney campaign put it shortly after the FEC s rejection of all attempts to regulate the groups, the FEC s inaction gave a green light to 527 groups to forge full-steam ahead in their efforts to affect the outcome of this year s federal elections, and, in particular, the presidential race. Peter H. Stone, Republican 527s: Full Steam Ahead, Nat l J., at 2 (May 29, 2004) (Exhibit D to Complaint, Democracy 21 v. Progress for America Voter Fund (F.E.C. Jul. 20, 2004) (MUR 5487), Ex. 14). The ultimate result, as Commissioner Thomas noted in his 12

23 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 23 of 57 Senate testimony, was that 527 groups spent almost $400 million and had a major impact on the 2004 federal elections. Thomas Testimony, Ex. 3, at 3. ARGUMENT The APA imposes obligations on administrative agencies, not only when they act, but also when they fail to discharge their statutory responsibilities. Despite Congress s efforts that culminated in 2002 to eliminate the soft-money loophole in the campaign-finance laws, the FEC openly dithered for more than three years while 527 groups spent hundreds of millions of dollars in an effort to influence the 2004 election. The FEC s failure to act, and its continuing refusal to provide a rational and legitimate explanation for its failure to do so, constitutes arbitrary and capricious action that this Court should reverse. Because the parties to these cases agree that there is no genuine issue of material fact in dispute, the case can be resolved by summary judgment. Fed. R. Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, (1986). I. All Plaintiffs Have Standing To Bring These Actions The FEC is not immune from APA suits seeking to require it to comply with its statutory obligations. Nonetheless, the FEC routinely challenges the standing of elected officials, campaign committees, and others seeking to obtain relief under the APA. This Court, however, has properly rejected these objections as fundamentally meritless. Shays v. FEC, 340 F. Supp. 2d 39, 45 (D.D.C. 2004) (emphasis added); see also Kean for Cong. Comm. v. FEC, No (JDB), Ex. 15, slip op. at 13 (D.D.C. Jan. 25, 2005). The same result is required here. All of the plaintiffs have a concrete and particularized interest in the enforcement of the campaign finance laws and in the receipt of information required to be disclosed under FECA. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). 13

24 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 24 of 57 A. Plaintiffs Shays and Meehan Satisfy Constitutional Standing Requirements as Participants in Federal Elections. This Court has expressly held that plaintiffs Shays and Meehan have Article III standing as candidates and participants in the political process. Plaintiffs are elected Members of Congress, candidates for re-election to Congress, recipients of campaign contributions, fundraisers, and members of national and state political parties. Both face re-election in November Complaint 14-17; Declaration of Rep. Christopher Shays ( Shays Decl. ) 1; Declaration of Rep. Martin Meehan ( Meehan Decl. ) 1. Two well-reasoned decisions in this District have sustained these plaintiffs standing in equivalent circumstances. In McConnell v. FEC, a three-judge panel of this Court held that plaintiffs Shays and Meehan (among others) had standing to intervene to defend BCRA s constitutionality. No , Ex. 16, slip op. at 6 (D.D.C. May 3, 2002). The panel unanimously found that, as opposed to members of the general public, the movants have a concrete, direct, and personal stake as candidates and potential candidates in the outcome of a constitutional challenge to a law regulating the processes by which they may attain office. Id. at 7 (citing Buchanan v. FEC, 112 F. Supp. 2d 58, 65 (D.D.C. 2000); Vote Choice, Inc. v. DiStefano, 4 F.3d 26, 37 (1st Cir. 1993)). Last year, in Shays v. FEC, 337 F. Supp. 2d 28 (D.D.C. 2004) ( Shays I ), Judge Kollar- Kotelly relied on McConnell in holding that these plaintiffs had standing to challenge FEC regulations implementing BCRA. There, Judge Kollar-Kotelly recognized again that Shays and Meehan have a strong personal stake in correcting FEC decisions that threaten to subvert, erode, and circumvent the reforms enacted by BCRA. Id. at 40 (internal quotation marks omitted). The Court rejected the FEC s argument that plaintiffs lack standing because they do not challenge the regulations as they affect their own actions, but rather allege that the 14

25 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 25 of 57 regulations fail to regulate the activities of other people more strictly. Id. at 41 (quoting Def. s Mem. at 4 (emphasis in original)). The Court cogently elaborated: Plaintiffs are undisputedly participants in the federal campaign finance system. They attest that their activities are affected not only by the manner in which they respond to the campaign finance rules, but also by the way in which other participants, both allies and adversaries, respond to the rules. Whether or not they have alleged that some entity has in fact taken advantage of an alleged FEC-created loophole in BCRA, the fact that such a loophole exists affects the way these politicians, who face election in a matter of months, will run their campaigns. If the FEC has promulgated regulations unfaithful to BCRA, then Plaintiffs are at the very least harmed by having to anticipate other actors taking advantage of the regulations to engage in activities that otherwise would be barred. Id. at (citations omitted). The district court in Shays I did not find the standing issue to be close or difficult; in denying a stay pending appeal, the Court described the FEC s position as fundamentally meritless. See Shays, 340 F. Supp. 2d at The Shays I Court s words apply here in full force. Plaintiffs face periodic reelection, and the political activities of unregulated 527 groups impact the manner in which they plan and run their campaigns. Shays Decl. 1, 4, 5; Meehan Decl. 1, 4, 5. The 527 loophole the FEC has left open forces plaintiffs to anticipate other actors taking advantage of the [lack of] 6 The Shays I court rejected two additional FEC arguments. The FEC claimed that plaintiffs have not even made the showing, made in Becker, of specific impending actions that could arguably affect their campaigns. Shays I, 337 F. Supp. 2d at 43 n.10 (internal quotation marks omitted). But the Court found that the FEC has misunderstood the alleged harm alleged [sic]. It is not specific actions that are certain to befall Plaintiffs, but rather the fact that the regime as it has been established by the FEC requires Plaintiffs to account for such possibilities which they believe BCRA outlaws. Id. In addition, the Shays I court rejected the FEC s attempt to rely on the Supreme Court s rejection in McConnell of the standing of the Adams plaintiffs, a diffuse group of voters, candidates, and organizations who challenged Congress s decision in BCRA to raise contribution limits. See McConnell, 540 U.S. at 227. The district court found that, in contrast to the Adams plaintiffs, Shays and Meehan contend that they are harmed by the FEC s regulations failure to faithfully adhere to the terms Congress mandated in BCRA. Accordingly the rights they seek to vindicate in essence, to campaign in a regime that reflects Congress s mandate as articulated in BCRA are legally cognizable. Shays I, 337 F. Supp. 2d at 45. That is precisely the case here as well. 15

26 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 26 of 57 regulations to engage in activities that otherwise would be barred. Shays I, 337 F. Supp. 2d at Certainly, Shays and Meehan have a strong personal stake in correcting FEC decisions that threaten to subvert, erode, and circumvent the reforms enacted by BCRA. See also Becker v. FEC, 230 F.3d 381, 386 (1st Cir. 2000) (observing that an impact on the strategy and conduct of an office-seeker s political campaign constitutes an injury of a kind sufficient to confer standing (quoting Vote Choice, Inc. v. DiStefano, 4 F.3d 26, 37 (1st Cir. 1993))). 7 In particular, as federal officeholders and as actual and potential future candidates for federal office, plaintiffs and their campaign opponents are and will be regulated by FECA. Plaintiffs are among those whom [FECA] seeks to insulate from the actual and apparent corrupting influence of special interest money. McConnell, No , Ex. 16, slip op. at 6. If the Commission s decision not to close the 527 loophole stands and thereby undermines FECA, plaintiffs will be forced to discharge their public responsibilities, raise money, and campaign in a system that Congress has determined is, and appears to be, corrupted by the use of soft money by unregulated groups, including 527 groups, that operate in federal elections outside FECA s registration requirements, contribution limits, source prohibitions, and reporting obligations. 7 This case is also plainly in line with this Circuit s procedural rights standing cases. In Electric Power Supply Association v. FERC, 391 F.3d 1255, (D.C. Cir. 2004), the Court held that plaintiffs who were regular participants in FERC hearings had Article III standing to challenge rules allowing certain ex parte communications in violation of the Sunshine Act, because the Sunshine Act s prohibition on ex parte communications protected the concrete interest of these participants in fair decisionmaking, and thus they had standing to challenge a violation of this law. Id. at Just as the Circuit in Electric Power Supply Ass n held that the Sunshine Act was violated by the attempt to sidestep FERC s ex parte rules, thus undermining that Act s objective of establishing a fair regulatory process and damaging the plaintiffs substantive rights, the FEC s decision not to issue any 527 rules undermined FECA s and BCRA s attempt to avoid the appearance and reality of corruption in the federal elections process, and in doing so damaged the plaintiffs substantive rights. See also Center for Law & Education. v. Dep t of Education, 396 F.3d 1152, 1161 n.3 (D.C. Cir. 2005) (describing Electric Power Supply Ass n as implicating both procedural and substantive rights). 16

27 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 27 of 57 Further, by thwarting and undermining FECA, the challenged rules will also adversely affect the public s perception of plaintiffs and their fellow office-holders as candidates, public officials, and party members. Shays Decl. 4; Meehan Decl B. Plaintiff Bush-Cheney 04, Inc. Satisfies Constitutional Standing Requirements. For similar reasons, BC 04 can demonstrate standing. As the sole political campaign committee for the President and the Vice-President, BC 04 has a concrete and particularized interest in the FEC s failure to take meaningful action against the 527 groups who spent, and continue to spend, vast sums of money to defeat its candidates and their supporters. Even though BC 04 has raised and spent money as a political committee subject to FECA, these 527 groups refuse to play by these same rules. BC 04 thus has a concrete, particularized, and continuing interest in closing the soft-money loophole. The Supreme Court has made clear that a plaintiff can demonstrate standing where it alleges an injury that is concrete and particularized and not conjectural or hypothetical. Lujan, 504 U.S. at 560. BC 04 is a political committee organized to support the election of the President and Vice-President in U.S.C. 432(e)(1); Declaration of Thomas J. Josefiak ( Josefiak Decl. ) 1. The committee, no less than the President and Vice-President themselves, is an entity that participates and is regulated under the federal election laws. 9 See Becker, Plaintiffs Shays and Meehan plainly satisfy prudential standing requirements under Section 10(a) of the APA. To establish prudential standing under the APA, the interest sought to be protected by the complainant [must be] arguably within the zone of interests to be protected or regulated by the statute... in question. Nat l Credit Union Admin. v. First Nat l Bank & Trust Co., 522 U.S. 479, 488 (1998) (citations and quotation marks omitted); see also Amgen, Inc. v. Smith, 357 F.3d 103, 108 (D.C. Cir. 2004). The Shays I court recognized that it was selfevident that Shays and Meehan met the zone of interest test, and the FEC did not even dispute this conclusion. Shays I, 337 F. Supp. 2d at FECA requires that candidates participating in the campaign finance system authorize a political committee to act on behalf of their campaign. 2 U.S.C. 432(e)(1). Contributions to 17

28 Case 1:04-cv EGS Document 16-1 Filed 04/28/2005 Page 28 of 57 F.3d at 389 n.10 (recognizing that presidential candidate Ralph Nader s standing interest is identical to that of his campaign committee because together, they represent the Nader candidacy that has been injured by the FEC regulations at issue). [A]s opposed to members of the general public, BC 04 has a concrete, direct, and personal stake in the FEC s failure to regulate the 527 groups, because BC 04 is among those whose conduct the Act regulates, and among those whom the Act seeks to insulate from the actual and apparent corrupting influence of special interest money. McConnell, Civ. No slip op., Ex. 16, at 6, 7 (internal quotation marks omitted); see also Josefiak Decl. 3. Furthermore, as a registered political committee subject to the contribution limits of FECA, BC 04 has a particular interest in ensuring that competing 527 organizations play by the same rules. As in Shays I, BC 04 and the candidates whose interests it represents are undisputedly participants in the federal campaign finance system whose activities will be affected not only by the manner in which they respond to the campaign finance rules, but also by the way in which other participants, both allies and adversaries, respond to their rules. Shays I, 337 F. Supp. 2d at 42; see also Josefiak Decl. 3. Thus, BC 04 is directly regulated by the rules they challenge in that the regulations and the failure of the FEC to issue regulations shape the environment in which Plaintiffs must operate. Id. at 44. There can be little dispute then that BC 04 had standing to challenge the FEC s failure to act against the 527 groups at the time of the filing of the complaint prior to the 2004 election. the candidate are treated identically to contributions to the political committee, 2 U.S.C. 441a(a)(1)(A), and indeed, for purposes of fund-raising, it is the candidate who is deemed to act as the agent of the political committee. 2 U.S.C. 432(e)(2). Thus, political committees have standing because of their critical role in the political process of accumulating and disseminating information to their supporters and to voters in general. Kean for Cong., Ex. 15, slip op. at