Background. 21 August Practice Group: Public Policy and Law. By Raymond P. Pepe

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1 21 August 2014 Practice Group: Public Policy and Law Permanent Injunction of Pennsylvania s Prohibition against Establishment of Political Committees to Receive Contributions of Corporate and Labor Union Contributions for Independent Campaign By Raymond P. Pepe On August 13, 2014, an order was issued by the U.S. District Court for the Middle District of Pennsylvania in the matter of General Majority PAC v. Carol Aichele permanently enjoining implementation and enforcement of provisions of the Pennsylvania Election Code, which prohibit political committees from accepting or receiving contributions from corporations or unincorporated associations as applied to committees that do not make contributions to, or coordinate expenditures on behalf of, candidates or political committees. As a result, it is now the position of the Pennsylvania Department of State that political committees may accept unlimited contributions from corporations, unincorporated associations, and labor unions, and that corporations, unincorporated associations, and labor unions may make unlimited contributions to such committees, provided that political committees register with the Pennsylvania Department of State, file periodic reports regarding their receipts and expenditures, and limit their activities to making independent expenditures to influence state and local elections in Pennsylvania. The court s order continues in effect without changing a preliminary injunction previously issued on March 10, Background Any committee, club, association or other group of persons that receives contributions for the purpose of influencing Pennsylvania state or local election in an aggregate amount of $250 or more must within 20 days file a registration statement as a political committee with either the Pennsylvania Department of State or with the county board of elections. Pennsylvania law refers to political committees not formed on behalf of or authorized by specific candidates as political action committees, and committees formed on behalf of or authorized by specific candidates as candidate committees. Candidate committees must register with the office in which the candidate is required to file nomination papers. Political action committees must register with the Pennsylvania Department of State. Pennsylvania law imposes no limitations on the amounts that may be contributed or spent to support candidates, an authorized candidate committee, or other PACs, except to prohibit cash contributions in excess of $100 and anonymous contributions. It is unlawful, however, for domestic and foreign corporations and unincorporated associations, except corporations organized as political committees, to make any contributions or expenditures on behalf of any candidate or for any political purpose whatever, except in connection with ballot questions. Partnerships and limited liability companies treated as partnerships for federal tax

2 purposes, however, may make contributions and expenditures, provided that no contributions are made by or using the funds of a partner or member that is a corporation. Persons making contributions to candidates, candidate committees, or political action committees generally are not required file reports or register with the Pennsylvania Department of State. Any lobbyist who makes contributions in any amount, however, is subject to the same registration and reporting requirements as a political committees. These requirements are in addition to separate lobbyist registration and reporting requirements. In addition, any business awarded non-bid contracts by the state or any political subdivision during each calendar year must file a report with the Pennsylvania Department of State by February 15 of the following year containing an itemized list of all political contributions known to the business entity by virtue of the knowledge of each officer, director, associate, partner, limited partner, or individual owner to have been made by any officer, director, associate, partner, limited partner, individual owner, employee, or members of the immediate families, when contributions exceed $1,000 by any such individual (or their immediate family members) during the calendar year. Notwithstanding the prohibition on the use of corporate and unincorporated association funds to support candidates, candidate committees, and other PACs, corporate and unincorporated association funds may be used to establish and maintain political committees, provided that (1) no administrative expenses are used for activities directly involved in influencing elections; (2) no administrative expenses are used to pay debts incurred by candidates or committees; (3) no payments are made to compensate an agent for services rendered to a committee or to a candidate; (4) all contributions made to the political committee are made voluntarily; and (5) the funds of the political committee are separate and segregated from any other account of the corporation or unincorporated association. The treasurer of a political committee that receives contributions, makes expenditures, or incurs liabilities in excess of $250 since the date of its organization or the closing date of its most recently filed report must file a campaign finance report with the Pennsylvania Department of State or county election boards. If a registered committee does not receive contributions.,make expenditures, or incur liabilities during a reporting exceeding $250, the treasurer may file a sworn statement to that effect with the department. Candidate committees must file reports with the office at which the candidate was required to file nomination papers and in the county in which the candidate resides. Political action committees must file reports with the Pennsylvania Department of State. Contribution and expenditure reports must be filed on the following schedule: If a committee makes expenditure to influence the election of a candidate for statewide office (i.e., governor, attorney general, treasurer, auditor general, supreme court, superior court, or commonwealth court), a report must be filed not later than the sixth Tuesday before any primary or general election. The report must be complete, i.e., it must include all contributions received, money expended, and liabilities incurred, as of 50 days prior to the election. A committee that has received contributions or made expenditures to influence an election must file a pre-election report not later than the second Friday prior to the election. The report must be complete as of 15 days prior to the election. 2

3 Any committee otherwise required to file reports must file a post-election report not later than days 30 days after an election. The report shall be complete as of 20 days after the election, but in the case of a special election, the post-election report must be complete as of 10 days after the election. Any committee otherwise required to file a report must file an annual report not later than January 31 of each year for the prior calendar year. The same reporting requirements apply to any person making independent expenditures in excess of $100 to influence state and local elections. Independent expenditures are those made for the purpose of influencing an election without cooperation or consultation with any candidate or any political committee authorized by that candidate and which are not made in concert with or at the request or suggestion of any candidate or political committee. In addition, persons making independent expenditures of $500 or more after final pre-election reports are filed must report the expenditures within 24 hours. Following the U.S. Supreme Court s 2010 decision in Citizens United v. Federal Election Commission, the Pennsylvania Department of State published an announcement that: Provisions of the Election Code that prohibit domestic corporations and unincorporated associations from making independent expenditures cannot be administered constitutionally. Provisions of the Election Code prohibiting corporations and incorporated associations from making expenditures other than independent expenditures remain in full force and effect. Provisions of the Election Code prohibiting any expenditures (including independent expenditures) by a corporation organized under the laws of a foreign country remain in full force and effect. Provisions of the Election Code prohibiting banks, corporations, and unincorporated associations from making contributions to candidates, candidate committees, and other political committees remain in full force and effect. Provisions of the Election Code requiring the reporting of independent political expenditures in excess of $100 remain in full force and effect. As a result of the department s interpretation of the Citizens United decision as not affecting the validity the Election Code s prohibition against banks, corporations, and unincorporated associations making contributions to all types of political committees; it took the position that, while corporations, unincorporated associations, and labor unions may use their funds to directly make unlimited independent expenditures to influence elections, corporations, unincorporated associations, or labor unions, they continue to be prohibited from making any contributions to political committees, including political committees organized exclusively for the purpose of making independent expenditures. This position appears to have been based in part on the lack of any distinction made in Pennsylvania law between political action committees making contributions to candidates, candidate committees, and other political action committees that make such contributions, versus committees dedicated solely to making independent expenditures. 3

4 General Majority PAC v. Carol Aichele The General Majority PAC is a political organization based in Washington, D.C. established for the sole purpose of influencing state elections by making independent expenditures in support of Democratic candidates. After the General Majority PAC was advised by the Pennsylvania Department of State that the Citizens United decision did not invalidate provisions of Pennsylvania law that prohibited political committees from receiving contributions from corporations, unincorporated associations, and labor unions and using these contributions to make independent expenditures, it filed suit in the Middle District of Pennsylvania challenging the department s interpretation of the Supreme Court s ruling. Notwithstanding its earlier restrictive interpretation of the implications of Citizens United, the Commonwealth of Pennsylvania elected not to contest the merits of the General Majority PAC s challenge to the constitutionality of its interpretation of the Election Code, but did not agree to the terms of a draft preliminary injunction as recommended by the General Majority PAC. The General Majority PAC requested an injunction declaring unconstitutional the prohibition contained in the Pennsylvania Election Code against political committees accepting or receiving contributions from corporations or unincorporated associations, and against corporations and unincorporated associations making such contributions, as applied to political committees that do not make contributions to, or coordinate expenditures on behalf of, candidates or political party committees. In response, the Pennsylvania Department of State requested an order that also (1) defines what constitutes an independent expenditure committee to which the order applies; (2) makes it clear that independent expenditure committees are still required to comply with the registration and reporting requirements governing political committees; (3) expressly prohibits independent political committees from making contributions to, and coordinating activities with, political committees that are not independent political committees; and (4) directs the department to establish forms through which independent political committees may certify that, if they accept contributions from corporations, unincorporated associations, or labor unions, they will not make or coordinate contributions to candidates, candidate committees, political party committees, or political committees that are not independent political committees. The Pennsylvania Department of State argued that the order requested by the General Majority PAC failed to clearly inform independent political committees that they still most comply with the general registration and reporting requirements of the Pennsylvania Election Code. As a result, the department claimed that an independent political committee could easily infer that the court s order relieves it of general registration and reporting requirements. The department also alleged that the proposed order was deficient because it would on its face appear to allow an independent political committee to make contributions to, and coordinate expenditures with, any political committee that is not formally affiliated with a candidate or a political party and would, therefore, open a back door to improper coordinated spending. In response, the General Majority PAC did not argue that its proposed order absolved independent expenditure organizations from registration or reporting requirements, or allowed independent expenditure committees to make contributions to political committees that make contributions to or coordinate activities with candidates or candidate committees. 4

5 Instead, the General Majority PAC simply noted that these issues were not presented for resolution to the District Court, and that the Pennsylvania Department of State in response to the court s preliminary injunction had already issued policies requiring independent political committees to register and file periodic expenditure and contribution reports, which prohibited independent political committees from making contributions to any political committees that do not limit their activities to making independent expenditures. The General Majority PAC also observed that the department in response to the court s preliminary injunction had previously issued forms for independent political committees to register with the department and certify that they limit their activities only to making and raising funds for independent expenditures. The District Court issued its injunction in the form requested by the General Majority PAC and concluded that there is no need for our order to discuss issues that were not raised in this litigation. The court observed that, Much as a written reminder that murder remains illegal in this Commonwealth is unnecessary to resolve this case, so too is the reminder that individuals and organizations must comply with the various provisions of the Election Code that were not addressed here. The court also concluded that to establish a new category of independent political committees would usurp the role of the democratically elected General Assembly by substantively rewriting the Election Code. In light of the court s conclusion that the order suggested by the Pennsylvania Department of State would substantively rewrite the Election Code, and the refusal of the General Majority PAC to agree to the terms of the injunction recommended by the department, it is possible that the department s policies adopted in response to the court s injunction may be subject to future challenge. Authors: Raymond P. Pepe raymond.pepe@klgates.com Anchorage Austin Beijing Berlin Boston Brisbane Brussels Charleston Charlotte Chicago Dallas Doha Dubai Fort Worth Frankfurt Harrisburg Hong Kong Houston London Los Angeles Melbourne Miami Milan Moscow Newark New York Orange County Palo Alto Paris Perth Pittsburgh Portland Raleigh Research Triangle Park San Diego San Francisco São Paulo Seattle Seoul Shanghai Singapore Spokane Sydney Taipei Tokyo Warsaw Washington, D.C. Wilmington K&L Gates comprises more than 2,000 lawyers globally who practice in fully integrated offices located on five continents. The firm represents leading multinational corporations, growth and middle-market companies, capital markets participants and entrepreneurs in every major industry group as well as public sector entities, educational institutions, philanthropic organizations and individuals. For more information about K&L Gates or its locations, practices and registrations, visit This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer K&L Gates LLP. All Rights Reserved. 5