Federal Judge Remands FEC Rules on Broadcast Ads, Internet

The FEC ignored Congress’s will in exempting from regulation broadcast ads from nonprofit charitable organizations, ads aired without payment, and Internet communications, a judge ruled Sat. In Shays v. FEC, U.S. Dist. Judge, D.C., Colleen Kollar-Kotelly remanded 15 of 19 FEC rulemakings carrying out the Bipartisan Campaign Reform Act (BCRA). It was a significant victory for BCRA’s authors, Reps. Shays (R-Conn.) and Meehan (D- Mass.), who had filed the challenge.

FEC Chmn. Bradley Smith told us he and his colleagues would decide “within a few days” whether they'll seek a stay or take the decision to the U.S. Appeals Court, D.C. He said the decision “leaves us very strong grounds for appeal.” FEC Comr. Michael Toner told us the rulemakings were forged by “a very strong bipartisan coalition” at the FEC intent on protecting free speech, and the court ruling jeopardizes that. Four of the 6 FEC commissioners would need to agree to appeal the decision.

Three elements of the ruling are of interest to the communications industry. Kollar-Kotelly overruled 3 exemptions to speech regulation imposed in the final days of an election. The FEC exempted all Internet communications, ads aired without payment, and broadcast ads by 501(c)(3) groups, which under the IRS code are forbidden from participating in political campaigns. Kollar-Kotelly said those and other exemptions ran “completely afoul” of settled law and undercut the agency’s “statutory purpose of regulating campaign finance and preventing circumvention of the campaign finance rules.”

The FEC is essentially trusting the IRS to police the 501(c)(3) groups, Kollar-Kotelly wrote. But she said that “is troubling” given the fact “that the IRS in the past has not viewed Section 501(c)(3)’s ban on political activities to encompass activities” defined in the FEC rulemaking. Because it’s not clear whether the IRS will regulate a 501(c)(3) according to the definition used in the FEC exemption, she wrote, the rulemaking can’t be allowed to stand. But Toner said that decision punishes legitimate charitable organizations that aren’t violating the law. “The FEC made it crystal clear” that as long as an organization operates consistent with its tax status, it will be fine, but if a 501(c)(3) were found to abuse that classification “then they are subject” to FEC regulation.

Kollar-Kotelly also took issue with the exemption for any ad aired not “for a fee,” as the rule reads. She said the FEC’s exemption of “all communications, regardless of their content,” as long as no fee is paid for their broadcast, “cannot be squared with the plain meaning of BCRA’s text.” Smith said this was another area where the judge was restricting speech.

As to the Internet exemption, Kollar-Kotelly said the rulemaking defined coordinated electioneering communications to include broadcast, cable or satellites, as well as print media, but said it “shall not include communications over the Internet,” and found this was because Congress didn’t include the Internet in its BCRA definition of communications. But the exclusion made no sense to Kollar-Kotelly, as she said “Internet communications, no matter how closely they are coordinated with political parties or a candidate’s campaign, cannot be considered ‘coordinated’ under the FEC’s regulations.” Shays and Meehan argued in their filing that political ads are rife online, and Kollar-Kotelly noted that Congress used the phrase “any other form of general public political advertising.” Thus, she concluded, it’s consistent with Congress and BCRA’s intent to include the Internet in restricted communications.

“There is no evidence whatsoever that Congress sought to regulate the Internet,” Toner said. That medium is exploding as a tool for grassroots communication, he said. Smith said if BCRA had included the Internet “it would not have passed Congress.” He believed BCRA’s sponsors did a “bait-and-switch” in proposing Internet restrictions at the regulatory stage, adding “obviously we didn’t fall for that.” Restricting speech online “could have a major impact on blogging” and other activities, Smith said, adding, “I think folks who like to use the Internet should be concerned.” The idea of scanning the Web for FEC violations “sounds like a nightmare to me,” he said.

Shays and Meehan were elated with the ruling. “This is a great decision,” Shays said in a statement, “which provides further evidence the FEC had no intention of enforcing campaign finance law as it was intended to be enforced.” Meehan called the FEC “a dysfunctional agency that does more to subvert the law than to enforce it.” Both congressmen last week filed a separate suit against the FEC for what they claim is the agency’s failure to regulate so-called 527 groups that can spend soft money on political ads as long as they're not coordinated with a political party or candidate. They also have a bill in Congress to replace the FEC with what Meehan called “an effective, nonpartisan election body.”

The 2 Senate sponsors of BCRA, Senate Commerce Committee Chmn. McCain (R-Ariz.) and Sen. Feingold (D- Wis.), had filed an amicus brief supporting Shays and Meehan. They praised the decision in statements Mon. “This decision reaffirms my belief that the FEC consistently misinterprets the law,” McCain said. “We cannot, and will not, allow this incompetent and destructive agency to continually undermine the law and shamefully neglect their duties. The time has come to end the FEC’s stranglehold on our nation’s campaign finance laws and replace it with a real enforcement agency.” Feingold said the court ruling echoed his and McCain’s belief that “the FEC is refusing to properly interpret and enforce the federal election laws… It is now up to the FEC to redo these rules and follow congressional intent.”

Democracy 21 Pres. Fred Wertheimer, part of the legal team working with Shays and Meehan, said in a statement that “the FEC must be replaced with a real enforcement agency.” The decision “represents a massive and stinging repudiation of the [FEC] and its repeated failures to properly interpret and implement the new campaign finance law,” he said.

Smith said he would gather his colleagues the next few days to decide whether to appeal or seek a stay. Toner told us he will urge his colleagues to appeal the ruling, which left him “very disturbed.” While Kollar- Kotelly repeatedly cited the U.S. Supreme Court’s McConnell v. FEC decision that largely upheld BCRA, Toner said the high court had cited favorably many of the rulemakings Kollar-Kotelly overturned. Smith said “the judge kind of passes right over” areas where the rulemakings were held in favor by the Supreme Court, saying that gives the FEC further grounds for appeal.

Vice Chmn. Ellen Weintraub took comfort in the fact that the court didn’t listen to Shays and Meehan and stop enforcement of existing regulations. “I'd hate for people to think there is a free-for-all” and no campaign finance regulations are in effect, she said. “I do think that the timing of this is a bit unfortunate” since it’s only 6 weeks until the Nov. election. Asked whether she supported a stay of the decision, she said “Oh, sure,” in order to avoid “confusion” among regulated entities. She also said she'd vote for an appeal, if only to “get the input of the appeals court” in what likely will be some sort of rewriting of the rules at the agency. Weintraub said she wasn’t at the FEC in 2002 when the rules were written, but she would be “happy to participate” in any court-ordered rewrites.