Published: 2012-11-02

CA Campaign Disclosure Laws Allow Audit of $11M PAC Donation

There has certainly been no shortage of funds in the 2012 campaign, and no shortage of ads, robo phone calls, flyers, you name it. Some of the groups sponsoring these ads, calls, and flyers are Super PACs with ambiguously patriotic sounding names. The average voter has the unenviable task of trying to discern who is delivering the message and what their motivations are.

Some of the amounts being donated by corporations and groups to super PACs are astonishing. Thank you, Citizens United.

According to the Center for Responsive Politics, Super PACs have spent $604,685,110 in the 2012 election to date.

The issue recently reared its ugly head in California. The group Americans for Responsible Leadership (ARL), a non-profit corporation based out of Arizona, donated $11 million to the Small Business Action Committee PAC in California on October 15, 2012. According to court documents, ARL made the contribution to defeat Proposition 30 and support Proposition 32.

Needless to say, this raised a few eyebrows in the Golden State.

Citizens United, let me introduce you to CA Campaign Disclosure laws.

The California Fair Political Practices Commission (FPPC) initiated an audit of ARL but ARL did not produce records as requested. The FPPC then filed a petition in the Sacramento County Court seeking an injunction to compel ARL to produce all records related to the contribution within 24 hours of the court's ruling in order to obtain the information needed prior to the election on November 6, 2012.

Court Review

In evaluating the injunction request from FPPC, Judge Shelleyanne Chang noted "[a] mandatory injunction such as the one requested here (i.e. compelling Respondent to perform an act or surrender property), 'is rarely granted.'" Citing Davenport v. Blue Cross of California (1997) 52 Cal. App. 4th 435, 446, she stated "such an injunction is not permitted except in 'extreme cases where the right thereto is clearly established and it appears that irreparable harm will flow from its refusal.'"

Weighing two factors: 1) the likelihood that FPPC would prevail on the merits at trial, and 2) the harm suffered if the injunction were denied, as compared to the harm defendant is likely to suffer if the injunction issued, Judge Chang found that FPPC had met its burden.

Reasonable Probability of Prevailing on the Merits

The FPPC made the following arguments:

1. It had authority to conduct an audit under Govt. Code 90003 with regard to any reports or statements required by the Political Reform Act of 1974;
2. If ARL solicited funds and received contributions totaling $1,000 or more, the group became a committee pursuant to Govt. Code s. 82103(a);
3. In the event ARL is a committee pursuant to Govt. Code s. 82013(a)and contributes ten thousand dollars ($10,000) or more in connection with an election, ARL must file a supplemental pre-election statement no later than 12 days before the election. (Govt. Code s. 84202.5)
4. Moreover, if ARL earmarked the contribution for a specific committee, the organization was required to inform the Small Business Action Committee PAC (SBAC) of the earmarking and the SBAC is required to disclose the donor(s) prior to the election. (Govt. Code s. 84302)
5. FPPC further contends that the ARL is a "major donor" pursuant to Gov't Code §82013(c).

Essentially, the argument boils down to the claim that the identities of the donors must be disclosed.

ARL did not dispute the authority of FPPC to perform an audit, but did argue that the request was premature and the audit should take place after the election pursuant to Govt. Code s. 90002.

Judge Chang disposed of this argument at the outset, noting that the statute relied upon by ARL did not apply to ARL because it was not a candidate, controlled committee, or committee primarily supporting or opposing a candidate or a measure under the statute.

"The FPPC has the authority to audit ARL's records to determine whether ARL's donors earmarked their donations or whether ARL solicited any donations, thereby triggering the disclosure requirements of 2 CCR s. 18412 pursuant to its authority under Govt. Code s. 90003 without waiting for the General Election to occur."

ARL also made several procedural arguments that the court rejected:

First, contrary to ARL's assertion, the action taken by FPPC was not a final determination by an Executive Director, which would have required the passage of 14 days from the date the complaint was received under 2 CCR s. 18360(f)(3). The court concluded that the complaint was currently under review for potential investigation and no final determination had been made. The regulation cited by ARL did not prohibit an audit prior to the expiration of the 14-day time period.

Second, the Court found that the FPPC had not initiated "civil litigation" as defined by 2 CCR s. 18361.2, which requires specific procedural steps be taken. Instead, the Court found that the FPPC was merely seeking an audit, and there had not been any decision to seek penalties against ARL.

As such, the Court concluded that the FPPC had satisfied its burden to demonstrate a probability of prevailing on the merits of their Petition.

Balancing of Harms

The Court rather easily concluded that the balancing of the harms clearly favored FPPC.

ARL argued that producing the requested documents would violate the First Amendment Rights of ARL and of its donors. Recognizing that non-profit corporations have constitutional rights and that citizens may associate together in non-profit corporations to exercise their constitutional rights under Citizens United v. FEC (2010) 130 S.Ct. 876, 900, the Court held that FPPC was not seeking to restrict, nor was the Court limiting, expenditures by ARL.

"The Court is simply concluding that the FPPC, under its statutory authority can conduct an audit to determine whether it has complied with applicable California law and regulations and whether, under applicable California regulations, the FPPC can determine whether the donors' identities must be disclosed. Nothing in Citizens United prohibits this state-mandated disclosure."

Moreover, the Court stated that in Citizens United, the U.S. Supreme Court found that there was no constitutional impediment to the application of the Bipartisan Campaign Reform Act of 2002's disclaimer and disclosure requirement. In Citizens United, the U.S. Supreme Court stated "the First Amendment protects political speech; and disclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way."

The Court rejected ARL's argument that the requirements would impose a chill on speech or expression, and distinguished cases cited by ARL in support of its argument, Perry v. Schwarzenegger 591 F.3d 1147, 1164 and NAACP v. Alabama (1958) 357 U.S. 449, 462. Judge Chang opined that ARL had made no showing that disclosure would be a restraint on their members' constitutional rights, as had been done in the cited cases, and in the absence of such a showing, she could find no violation of First Amendment Rights.

On the other hand, the court found that the People of the State of California would suffer irreparable harm should the injunction not issue. "Without the FPPC's audit and review of appropriate records, potential disclosure of information prior to the General Election critical to the public in deciding how to vote for Propositions 30 and 32 may not be made."

Judge Chang continued: "[I]rreparable harm has occurred and continues to occur as each day passes and voters continue to cast their votes without information that may influence their votes (if the FPPC determines that ARL has violated its disclosure requirements.)"

Thus, the Court granted the mandatory injunction requiring ARL to produce the requested records. It remains to be seen just what those records will show, and whether information will be disclosed before Election Day.

ARL has appealed the order and the Attorney General for California filed a petition for immediate enforcement of the order, according to the Associated Press.

The case is Fair Political Practices Commission v. Americans for Responsible Leadership, Sacramento County Court Case No. 34-2012-00131550-CU-PT-GDS.

Anne O'Donnell is a recovering litigator who is now currently a Senior Writer for legal professional content at Findlaw.com. She practiced for 10 years in civil litigation in San Francisco.