Political odd fellows score major legal win

Hackstaff, Grueskin attorneys on same side

This story has been updated. Please see clarification at end of story.

So-called “527 political organizations” in Colorado scored a major victory on Feb. 21 when the Colorado Supreme Court unanimously ruled that the organizations can spend unlimited money in support of state candidates and operate free of some state campaign governance laws so long as the organizations steer clear of “magic [electioneering] words” that would trigger those laws.

The ruling in Colorado Ethics Watch v. Senate Majority Fund, LLC offers a comfort level to political organizations in Colorado raising funds for “issue ads,” and clarifies so-called “bright-line” rules defining state campaign finance regulations, specifically around the 2002 voter-approved campaign finance laws enacted by Amendment 27. While the ruling essentially preserves the status quo in Colorado, it is significant in that it clearly defines campaign governance rules of political organizations.

“It’s really about having bright lines that separate states that might fall within the ambit of campaign regulations from speech that clearly is outside of those regulations, and the brighter that line is the more robust and uninhibited political debate can be,” said Steven A. Klenda, an attorney with Republican Secretary of State Scott Gessler’s former law firm Hackstaff Law Group, which represented the Senate Majority Fund, a Senate Republicans leadership advocacy group.

The case began in 2008 when Ethics Watch, a self-described nonpartisan government watchdog group, accused the Senate Majority Fund and Colorado Leadership Fund, a House Republicans advocacy group, of violating rules that govern so-called “political committees” in Colorado, including accepting contributions of more than $500 per person or organization. Both groups are federally registered so-called “527” tax-exempt “political organizations,” and so they are registered with the secretary of state and list contributions and expenditures. But the groups reject acting as “political committees,” which must adhere to campaign finance governance laws.
Jason Dunn, a high-profile attorney with renowned Denver-based law firm Brownstein Hyatt Farber Schreck, made similar arguments on behalf of the Colorado Leadership Fund over the course of the case.

The controversy surrounded eight printed political ads and one television ad by the Senate Majority Fund and eight print ads by the Colorado Leadership Fund in November 2008 that identified Republican candidates by name, picture and the office for which they were running. The ads also summarized qualifications, key issues and platforms.

Ethics Watch argued before Administrative-Law Judge Robert Spencer at the time that the ads constituted so-called “express advocacy” for or against a candidate and that expenditures of more than $200 were made, which elevated the status of the two groups from “political organizations” to “political committees.” Expenditures must be on “express advocacy” to be considered a political committee in Colorado, and campaign finance rules and regulations governing political committees are triggered by an expenditure of $200.

Ethics Watch then argued that because of the alleged expenditures on express advocacy, the Senate Majority Fund and Colorado Leadership Fund were political committees required to register as such in Colorado and bound by the state’s $500 contribution limit.

The two Republican organizations fought back, arguing that the ads did not amount to “express advocacy” because they did not directly advocate for the election or defeat of a candidate and therefore did not meet the legal definition of “expenditure.” They contended that they were not subject to state regulations of political committees.

The administrative law judge agreed with the argument presented by the Republican organizations, ruling that neither group had placed ads that constituted “express advocacy” because the ads did not contain so-called “magic words” that would define them as being a “political committee.” Those words — defined by the 1976 U.S. Supreme Court case Buckley v. Valeo — include “vote for,” “elect,” “support” and “cast your ballot for,” to name a few.

Ethics Watch appealed the decision, but the Court of Appeals in March 2010 sided with the administrative law judge, agreeing that express advocacy is defined by the “magic words” set forth in Buckley v. Valeo. Additional similar synonyms are set forth in the 2001 Colorado Court of Appeals case League of Women Voters v. Davidson.

Still frustrated by the rulings, Ethics Watch asked the Colorado Supreme Court to hear the case, which it did. But the high court ruled, “We hold that the court of appeals correctly interpreted ‘express advocacy’ as limited to speech that explicitly advocates for the election or defeat of a candidate through the use of the ‘magic words’ set out in Buckley or substantially similar synonyms.”

The ruling by the state’s high court was still unsatisfactory to Ethics Watch, which spent years on the case in the name of protecting the laws of Amendment 27 and limiting the influence wealthy individuals, corporations and special interest groups can have over the electoral process.

“It’s about 527s and the use or abuse of that form… and in our view of the case, these groups were clearly supporting candidates in an election and behaving like PACs,” said Luis Toro, executive director of Colorado Ethics Watch. “Under state law, they should be subject to the regulations of PACs.”

The scope of the debate dates back to 2002 with passage of the federal Bipartisan Campaign Reform Act, known as the McCain-Feingold Act for its sponsors, U.S. Sens. John McCain, R-Ariz., and Russ Feingold, D-Wis. Major provisions of that law were struck down in the U.S. Supreme Court’s 2010 landmark ruling in Citizens United v. Federal Election Commission, erasing corporate and union funding limits for political ads.

But part of the McCain-Feingold law attempted to address concerns over political issue advertising, creating a new category called “electioneering communications,” or ads that name a candidate within 30 days of a primary or caucus or 60 days of a general election. Klenda says the theory behind creating the electioneering communications category was to address a notion that political issue ads are the “functional equivalent” of express advocacy. The U.S. Supreme Court, however, in a couple of rulings intended for the equivalency test of express advocacy to be narrow and restrictive, despite attempts to broaden its scope, said Klenda.

“Placed in the hands of judges that aren’t so attuned to details, the most narrow and restrictive test can become an excuse or a vehicle to sweep within the ambit of regulation much more political speech than the Supreme Court intended,” he said. “That’s exactly what Colorado Ethics Watch tried to do here.”

“It’s all about trying to expand the scope and reach of what can be regulated so that you can make more trouble for your opposition,” Klenda continued.

Free speech issue?

For attorneys representing the political organizations, the issue comes down to free speech, arguing that contribution limits inhibit the right to political speech, especially when not directly advocating for a specific candidate through use of “magic words” and when operating simply as a political organization advocating for issues.

“The First Amendment always wins, and that’s what this comes down to,” said Mario Nicolais, a well-known Republican attorney with the Hackstaff Law Group who also argued for the Senate Majority Fund. “There are two fundamental rights that are necessary for democracy: No. 1, the right to vote, and No. 2, the right to engage in free political speech.”

Nicolais took a jab at Toro, stating, “Luis would probably sue James Madison, Alexander Hamilton and John Jay because they published the Federalist Papers that argued for a ballot issue that, by the way, was the U.S. Constitution, and they did it anonymously, but they paid for it themselves.”

Nicolais points out that a diverse group of interests came together to support the two Republican political organizations, including Colorado Common Cause, the Colorado Education Association, the Colorado Bar Association and the Center for Competitive Politics.

Mark Grueskin, a prominent attorney for Democrats in the Denver area, represented the Colorado Education Association. Grueskin and Nicolais rarely see eye-to-eye on many issues, but they came together in the name of political speech.

“I’m actually looking for a support group to join to help me through this,” joked Grueskin, pointing out that he rarely works with Nicolais and Republicans on issues. “But seriously, it was a pleasure doing a case with them and being on the same side of them because we were all standing up for our clients, but we were also standing up for the right of political expression.”

But the issue wasn’t completely perceived as bipartisan. Klenda and Nicolais both believe that Ethics Watch had ulterior political motivations in bringing the case, suggesting that the organization has a liberal bias and purposely chose to target Republican organizations rather than also consider Democratic political organizations such as the House Majority Project and the Democratic Senate Campaign Fund.

“They target conservative groups,” said Nicolais. “I don’t hold it against them. That’s their job, that’s what they do. But linguistics matter, words matter, and when you describe yourself as a nonpartisan watchdog group, it misleads voters.”

Toro denied the charge, arguing that the two Republican groups were chosen because the ads they demonstrated were a clear example of stepping over the line into the world of political committees.

“That statement is absolutely false,” Toro responded. “We had examples in the record of ads from other groups. But those groups were not operating under the same set of rules; they weren’t pushing it as far as these two groups.”

He added that the motivation for Ethics Watch was not political, but to address equality in campaign financing.

“Spending and speaking are two different things. We never said it should be illegal to advocate for these candidates. Go ahead and do it, but be subject to the same rules as everyone else,” said Toro. “It’s really about spending.”

Clarification: The Colorado Statesman would like to correct a March 9 story that states that Colorado Common Cause filed an amicus curiae in support of two political organizations who argued before the Colorado Supreme Court that they are not political committees and therefore not subject to the same campaign finance rules as political committees. Colorado Common Cause actually filed an amicus in support of Colorado Ethics Watch, who brought the lawsuit against the Senate Majority Fund and the Colorado Leadership Fund. The amicus from Colorado Common Cause is listed in the Supreme Court opinion as being filed by the law firm Heizer Paul Grueskin LLP. That same firm filed an amicus on behalf of the Colorado Education Association, which filed in support of the two political organizations. The Statesman regrets the confusion.

— Peter@coloradostatesman.com

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