Appellant s Reply Brief

No. 03-17-00167-CV IN THE THIRD COURT OF APPEALS AT AUSTIN, TEXAS TEXAS HOME SCHOOL COALITION ASSOCIATION, INC., Appellant, v. TEXAS ETHICS COMMISSION, Appellee. On Appeal from the 261st District Court of Travis County Appellant s Reply Brief FARRELL HOCHMUTH State Bar No. 24041107 BAKER & HOSTETLER LLP 811 Main St., Suite 1100 Houston, Texas 77002 (713) 646-1383 fhochmuth@bakerlaw.com ANDREW M. GROSSMAN (pro hac vice) MARK W. DELAQUIL (pro hac vice) BAKER & HOSTETLER LLP 1050 Connecticut Ave., N.W. Suite 1100 Washington, D.C. 20036 (202) 861-1697 Fax: (202) 861-1783 agrossman@bakerlaw.com Attorneys for Appellant Oral Argument Requested

Table of Contents Introduction and Summary of Argument... 1 Argument... 3 I. THSC Has Standing To Challenge a Rule That Regulates Its Conduct... 3 II. A. TEC s Recent Reversal of Its Position on the Regulation of Corporations as Political Committees Does Not Defeat THSC s Standing... 3 B. THSC Also Has Standing Under TEC s View of When a Corporation Ceases To Be Acting Alone... 5 The Court Can and Should Consider the Merits of THSC s Challenge to the Principle Purpose Rule... 9 Prayer... 10 i

Table of Authorities Cases DeNucci v. Matthews, 463 S.W.3d 200 (Tex. App. Austin 2015)... 9 Tsombanidis v. W. Haven Fire Dep t, 352 F.3d 565 (2d Cir. 2003)... 4 Statutes Tex. Elec. Code. 251.001... 8 Tex. Gov t Code 571.094... 4 Tex. Gov t Code 571.097... 4 Rules TEC Rule 20.1(20)... passim ii

Introduction and Summary of Argument Appellee Texas Ethics Commission ( TEC ) maintains that its recent reversal of legal position, to hold that corporations acting alone cannot be political committees, strips a corporation like the Texas Home School Coalition Association ( THSC ) of standing to obtain a binding judicial declaration of the scope of the Election Code s political-committee provisions including a declaration that they do not apply to a corporation acting alone. Having expressed its new legal position only in litigation briefs, TEC is unable to identify any regulation, advisory opinion, or other binding statement of law that protects a party like THSC against enforcement of those provisions as interpreted in TEC s Principal Purpose Rule. The result is to leave social-welfare corporations like THSC with no choice but to comply with the Rule s unlawful limitations on speech and association so as to avoid the risk of enforcement by TEC and by the numerous other government officials and private parties authorized to enforce the law. Suffering that injury, THSC has standing to seek relief. Even if the Court were to credit TEC s new litigation position as defeating THSC s standing despite that it provides THSC no legal comfort whatsoever that would not be the end of the matter. In TEC s view, a corporation ceases to act alone, and thereby exposes itself to political-committee regulation, practically every time it interacts with its donors and political allies. That includes solicit[ing] donations for the purpose of funding political expenditures and engaging in other joint political efforts. TEC Br. at 12. THSC both alleged and 1

presented unrebutted testimony that it solicits donations for political expenditures from its members and that it conduct[s] advocacy in concert with other organizations that share its views and its values, such as through town hall meetings and other coordinated activities. CR-28. Again, these activities expose THSC to the risk of regulation as a political committee and leave it no choice but to comply with the Principle Purpose Rule s unlawful limitations on speech and association so as to avoid that risk. TEC makes no attempt to address this point, simply ignoring THSC s allegations and evidence regarding its fundraising and joint advocacy. In sum, TEC s assertion that a corporation like THSC lacks standing to challenge its regulatory trigger for political-committee status cannot be reconciled with the infinite discretion that TEC reserves to itself and others to apply the Code s political-committee provisions to any corporation that engages in any political advocacy. TEC cannot have it both ways: so long as TEC continues to threaten corporations like THSC with political-committee regulation and punishment, they have standing to challenge the TEC actions that threaten them. Finally, the Court should not allow TEC s tactical decision not to brief the merits to control the Court s own exercise of discretion to do so. This case presents pure issues of law, suitable for review at this stage, and the trial court s denial of THSC s motion for summary judgment allows the Court to reach those issues. To advance judicial and party economy, and to provide timely relief for THSC s speech and associational rights, it should do so. 2

Argument I. THSC Has Standing To Challenge a Rule That Regulates Its Conduct A. TEC s Recent Reversal of Its Position on the Regulation of Corporations as Political Committees Does Not Defeat THSC s Standing TEC s position is that THSC faces no risk of enforcement of the Election Code s political-committee provisions because TEC has recently concluded that those provisions apply only to two or more persons, and not to a corporation acting alone. TEC Br. at 9. THSC agrees on the point of law a corporation is not a group of persons, as the Code requires but seeks a judicial declaration of that point to establish, in a legally binding fashion, what TEC has so far stated only in a few recent litigation briefs. Absent such relief, THSC faces a credible threat of enforcement of the Code s political-committee provisions, as triggered through the Principal Purpose Rule. As shown in THSC s opening brief (at 21 23), before TEC reversed course and adopted this new legal position, TEC s consistent position was that corporations like THSC could be subject to regulation as political committees and punished for engaging in political advocacy without registering with the State and otherwise complying with the Code s political-committee provisions. TEC does not dispute that this was its position or that it ceased asserting that position only in the past year or so. Nor could it, given the historical facts concerning its interpretation and enforcement of the Code, including its stipulated injunction 3

with THSC providing that THSC could avoid regulation as a political committee only by limiting its speech and association. CR-228 30. Instead, TEC contends (at 11) that it cannot flip back to its prior position that corporations are subject to regulation as political committees. That is so, it argues, because its new position is based upon th[e] statutory definition of political committee contained in the Code and has been expressed in litigation briefs in a grand total of three court cases since 2016. TEC Br. at 11 (citing litigation briefs). But the fact that TEC managed to hold the opposite position for years demonstrates that the statutory text is not alone sufficient to stop the agency from reversing course again. Compare Tsombanidis v. W. Haven Fire Dep t, 352 F.3d 565, 574 (2d Cir. 2003) (holding that case was not moot where agency s interpretation of the code might change again for example, upon a change in the State Fire Marshal s administration ). And TEC does not contend that its litigation briefs are binding on itself, let alone on the district attorneys and private parties empowered to enforce the Code. If TEC wanted to safeguard organizations like THSC from the threat of enforcement, it could have promulgated a regulation or issued an advisory opinion to that effect. See Tex. Gov t Code 571.094, 571.097. To date, TEC has refused to do so, leaving social-welfare corporations like THSC with little choice but to comply with the Principal Purpose Rule s limitations on speech and association so as to avoid legal jeopardy. And that is why THSC filed suit seeking a judicial declaration of its rights. In short, TEC is trying to have it both ways. It argues that its new statutory interpretation defeats efforts to clarify the application of the Code s political- 4

committee provisions to corporations, while leaving the law in a sufficiently unsettled state that corporations like THSC must comply with political-committee requirements to avoid the risk of investigation and enforcement by district attorneys, by sore loser political opponents, and by TEC itself. These are the precise circumstances a statutory provision that has been interpreted in multiple ways, the administering agency s refusal to settle the question through regulation, a substantial risk of enforcement by numerous third parties, and severe penalties that chill the exercise of speech rights where declaratory relief is most warranted. And THSC, being a victim of this legal uncertainty, has standing to seek that relief. B. THSC Also Has Standing Under TEC s View of When a Corporation Ceases To Be Acting Alone In addition, THSC has standing under the TEC s view of when a corporation ceases to be acting alone and so becomes subject to the Principal Purpose Rule s trigger for political-committee status. According to TEC, a corporation becomes part of a group of persons, and therefore at risk of enforcement of the Election Code s political-committee provisions, when it solicit[s] donations for the purpose of funding political expenditures or otherwise join[s] with another person to raise money to engage in express advocacy or its equivalent. TEC Br. at 10, 12. This view overlaps substantially, if not entirely, with TEC s previous legal position that corporations are subject to regulation as political committees, given that any corporation that regularly engages in political advocacy surely raises some funds for that purpose or expends some funds on 5

political advocacy conducted jointly with its allies. This view of the law s application thereby provides an additional basis for THSC s standing, separate from whether THSC faces a threat of enforcement as a singular corporation. As THSC pleaded, it raises money with the expectation of spending a certain portion on political advocacy in election years. CR-7. Its main donors are THSC members, who know that THSC regularly expends a portion of the funds it raises on political advocacy. CR-6. Indeed, some of its members volunteer to undertake political advocacy in concert with THSC, such as by making telephone calls to support endorsed candidates. Id. Likewise, THSC conducts some of its political advocacy in concert with other organizations. CR-7. THSC provided evidence in support of these allegations when it moved for summary judgment and opposed TEC s plea to the jurisdiction. See CR-114. Tim Lambert, THSC s president, testified that the organization raises money from its members to spend, in part, on political advocacy in election years. CR- 115, 117, 120. Its members pay dues and are aware of and appreciate its advocacy, of which they are informed through its emails, newsletter, website, voter guide, Facebook and Twitter postings, and other media. CR-115. In fact, the organization s spending on political advocacy has increased in recent years due, in part, to increased interest and support by its dues-paying members. CR-115, 119. That advocacy is directed, in part, to its own members in newsletters and the like, and it conducts other, outward-facing political advocacy in concert with volunteers from among its membership for example, phone banks and town hall meetings. CR-115 16, 121. Some of its town hall meetings are conducted 6

jointly with other organizations, and it has engaged in other political advocacy working together with likeminded organizations. CR-117. TEC contends (at 10 12) that such activities render a corporation subject to regulation as a political committee, or to punishment for failing to comply with political-committee requirements, if it surpasses the Principal Purpose Rule s political-contribution threshold or political-expenditure threshold. To avoid that risk, THSC must observe the Rule s limits on speech and association a classic injury in fact that provides standing for THSC to challenge the Rule. But TEC s litigation arguments in this appeal, if taken at face value, inflict an even greater and more definite injury. If, as TEC contends, contributing or raising funds with the knowledge that they will be used for political advocacy is enough to form a de facto group of persons subject to regulation as a political committee, then it is that de facto group s finances that are measured to determine whether it has triggered political-committee status under the Principal Purpose Rule. 1 The result is that, any time such a contribution is made, the parties necessarily create a de facto group of persons dedicated 100 percent to political advocacy and therefore an unregistered political committee in violation of the 1 TEC states (at 12 13) that, when a corporation solicit[s] donations for the purpose of funding political expenditures, it together with its donors bec[o]me a group of persons and the resulting group can be treated as a political committee for regulatory purposes. See also TEC Br. at 10 (presenting the same analysis); CR-36 37 (triggering political committee status on the contributions and expenditures of the group ). 7

Code. 2 That, in turn, gives TEC, district attorneys, and political opponents a basis to seek to enforce the Code s political-committee requirements against almost any social-welfare corporation that engages in political advocacy. And that is another reason why organizations like THSC reasonably fear legal jeopardy under the Principal Purpose Rule. The reason THSC brought this suit is that it had no way to assure itself under the Principal Purpose Rule that its political advocacy would not subject it to civil and criminal penalties. In attempting to avoid judicial review of its rulemaking, TEC has dramatically increased the confusion surrounding the application of the Election Code s political-committee provisions, increased the enforcement risk to THSC, and increased the injury to THSC s speech and associational rights. Judicial review is necessary to relieve that injury. 2 An illustration: Person P contributes $5 to corporation C, with both parties intending the contribution to be spent on political advocacy, and the money is so spent. Per TEC, the contribution creates a de facto group of persons consisting of P and C, and the Principal Purpose Rule measures that group s contributions and expenditures in determining whether it is a political committee. See TEC Br. at 13; CR-36 37 (regulatory text). In this instance, 100 percent of the contributions to the de facto group of P and C were for political purposes, and so were 100 percent of its expenditures. That always be the case because, as TEC explains it (at 13), only contributions or expenditures made for political purposes create a de facto group, which then includes only the parties involved in those political contributions or expenditures. Put differently, a group that is defined by its political activities necessarily has those activities as its principal purpose, which triggers political-committee status. See Tex. Elec. Code. 251.001(12). 8

II. The Court Can and Should Consider the Merits of THSC s Challenge to the Principle Purpose Rule To advance judicial and party economy, the Court should reach the merits of this dispute, which involve solely questions of law suitable for disposition at this stage. See THSC Br. at x xi (listing questions presented). Contrary to TEC s argumentation (at 15 16), this Court may consider the merits. In its Order and Final Judgment, the trial court stated that it has considered Plaintiff s Motion for Summary Judgment, and it proceeded to deny that motion when it granted the inconsistent relief dismissal sought by TEC. CR-364. See also CR-361 (acknowledging the same and presenting reasoning). This is further reflected in the trial court s taking account of the Affidavit of THSC President Tim Lambert, which THSC offered to provide evidence in support of its motion for summary judgment and in opposition to TEC s. See CR- 362 (discussing evidence presented in affidavit). So while the trial court could not decide the merits of THSC s challenge after finding that it lacked jurisdiction, it did consider and deny THSC s motion, and that denial merged into the final judgment on appeal. See DeNucci v. Matthews, 463 S.W.3d 200, 207 (Tex. App. Austin 2015) (explaining that an order granting summary judgment is reviewable on appeal, where as here, it has been merged into a final judgment disposing of the whole case ). As such, the merits are properly before this Court should it find jurisdiction, and TEC s litigation tactic to avoid or at least delay consideration of the 9

merits by declining to brief them should not be allowed to control the Court s exercise of discretion to address them. Prayer The decision of the district court should be reversed and this cause remanded with instructions to the trial court to enter judgment in favor of the Plaintiff. Respectfully submitted, /s/ Andrew M. Grossman ANDREW M. GROSSMAN (pro hac vice) MARK W. DELAQUIL (pro hac vice) BAKER & HOSTETLER LLP 1050 Connecticut Ave., N.W. Suite 1100 Washington, D.C. 20036 (202) 861-1697 Fax: (202) 861-1783 agrossman@bakerlaw.com FARRELL HOCHMUTH State Bar No. 24041107 BAKER & HOSTETLER LLP 811 Main St., Suite 1100 Houston, Texas 77002 (713) 646-1383 fhochmuth@bakerlaw.com Attorneys for Appellant Texas Home School Association, Inc. 10

Certificate of Compliance Pursuant to Texas Rule of Appellate Procedure 9.4(i)(3), I certify that this document was produced on a computer using 14-point Calisto MT font, and contains 2,450 words, as determined by the computer software s word-count function, excluding the sections of the document listed in Texas Rule of Appellate Procedure 9.4(i)(1). /s/ Andrew M. Grossman Andrew M. Grossman

Certificate of Service I certify that a true and correct copy of the foregoing document was served on this the 28th day of August, 2017, on the following party via eservice. Evan S. Greene Assistant Solicitor General Office of the Attorney General P.O. Box 12548, Capitol Station Austin, Texas 78711 Direct: (512) 936-1845 evan.greene@texasattorneygeneral.gov /s/ Andrew M. Grossman Andrew M. Grossman