In a strongly worded decision, a 5-4 majority of the United States Supreme Court has endorsed the free speech rights of corporations (and presumably unions and other groups of individuals engaging in political speech). In Citizens United v. Federal Elections Commission, the Court declared unconstitutional a federal election law prohibiting corporations from using their general funds to expressly advocate for the election or defeat of specific candidates for public office within 30 days of a primary or within 60 days of a general election. At the same time, the Court approved the requirement that such corporate speech must be accompanied by a disclosure of the sources that fund it. Overruling its 1990 decision, Austin v. Michigan Chamber of Commerce (candidate endorsement banned), the Court held that the “government may regulate corporate political speech through disclaimer and disclosure requirements, but it may not suppress that speech altogether.”
Summary of What the Decision Did and Did Not Do
The Facts of the Case
Citizens United (“CU”) is a nonprofit corporation funded mainly by donations from individuals. CU does, however, accept donations from for-profit corporations. In the run-up to the 2008 presidential primary season, CU produced Hillary: The Movie, “a 90-minute documentary about…Hillary Clinton” that “mention[ed] Senator Clinton by name and depict[ed] interviews with political commentators and other persons, most of them quite critical of Senator Clinton.” In December 2007, a cable company offered to make Hillary available on a video-on-demand channel in return for a payment of $1.2 million. CU desired to make the video free to viewers, and it also hoped to promote the video with a 30-second ad and two 10-second ads. In the words of the Court, “each ad include[d] a short…pejorative…statement about Senator Clinton.”
Fearing that its ads and the video-on-demand deal might run afoul of federal election restrictions on “electioneering communications” by corporations, CU filed a lawsuit against the FEC. CU alleged that, as applied to Hillary: The Movie, the federal ban on corporate independent expenditures, codified at 2 U.S.C. § 441b and most recently amended by the Bipartisan Campaign Reform Act of 2002 (“BCRA”), was unconstitutional. CU also alleged that the disclosure and disclaimer requirements of BCRA § § 201 and 311 were unconstitutional as applied to the movie and the ads. Relying primarily on the 1990 Austin decision upholding a ban on independent corporate and union campaign expenditures, the three-judge panel in the United States District Court for the District of Columbia denied CU’s motion for a preliminary injunction and granted the FEC’s motion for summary judgment.
The case was argued in the Supreme Court during the 2008-2009 term. The Court, however, did not make a decision. In June 2009, it ordered the parties to brief the question of whether or not it should overrule Austin. An extraordinary second argument took place in September, and the Court released its decision on January 21, 2010 — soon enough to have a major impact on the mid-term federal elections and the upcoming primaries.
The Court Refused to Decide the Case on Narrow Grounds That Would Have Avoided the Decision to Overrule Austin
In the general run of cases, the Court will avoid invalidating a federal statute on constitutional grounds if it can interpret the statute to avoid the constitutional question. Additionally, in accordance with the doctrine of stare decisis, the Court will ordinarily not reconsider the holdings of prior opinions that bear on a case. In CU v. FEC, however, the Court rejected the full menu of narrow grounds argued by the parties.
The Court rejected CU’s argument that a film distributed through video-on-demand does not constitute an “electioneering communication” that is “publicly distributed.” CU urged the Court to consider the limitations of video-on-demand, but the Court focused instead on the fact that the cable system CU wanted to use had 34.5 million subscribers nationwide. A case-by-case approach requiring market research on the likely number of viewers would have a chilling effect on political speech. In a similar vein, the Court refused to create an extra-statutory video-on-demand exception, holding that the judiciary itself would violate the First Amendment if it dictated “which means of communication are to be preferred for the particular type of message and speaker.”
The Court also rebuffed CU’s contention that its film was merely a documentary. Portraying the film as “a feature-length negative advertisement that urges viewers to vote against Senator Clinton,” the Court held that the movie could be viewed as nothing other than the “functional equivalent of express advocacy.”
The Court also declined the invitation of both CU and the government to expand on an exception for independent expenditures by nonprofit corporations established in a 1986 case, FEC v. Massachusetts Citizens For Life (“MCFL”). (Bingham successfully represented the defendant in that FEC prosecution.) Although it accepted a small number of donations from for-profit corporations, CU suggested that it should be eligible for the nonprofit exception because its donations were “overwhelmingly” from individual persons. The government urged the Court to decide the case on this ground, but drew some harsh chiding from Justice Kennedy for refusing to say if it affirmatively agreed with such a statutory interpretation. The Court decided that it could not resolve the dispute on this or other narrow grounds without chilling core political speech. The majority opinion, in fact, expressed disgust with the mountain of FEC regulations that have accumulated since 1975. Quoting liberally from an amicus brief filed by seven former FEC chairmen, Justice Kennedy bemoaned the accumulation of 568 pages of FEC regulations, 1,278 pages of explanations and justifications, and 1,771 advisory opinions. Alluding to pre-Revolutionary War impositions on a free press, the Court declared that “[t]hese onerous restrictions…function as the equivalent of a prior restraint by giving the FEC power analogous to licensing laws implemented in 16th- and 17th-century England.”
Political Speech Must Prevail Against Laws That Repress It. Speech Restrictions Based on the Identity of the Speaker Are All Too Often a Means to Control Content
Having rejected narrower grounds on which to base a decision, the Court in effect decided that Austin had been wrongly decided. The Court held that Austin could not be reconciled with the 1978 decision in First Nat. Bank of Boston v. Bellotti, in which the Court held that Massachusetts election laws violated the First Amendment by barring for-profit corporations from sponsoring advertisements advocating a specific position in a general election referendum. (Bingham successfully defended the bank in that case.) Bellotti affirmed the principle that the government cannot restrict political speech based on the speaker’s corporate identity.
In Austin, the Michigan Chamber of Commerce attempted to take Bellotti a step further by sponsoring an independent ad endorsing a specific candidate. A state law banned such independent expenditures, and the Supreme Court upheld the restriction on the grounds that use of the amassed wealth of corporations to pay for specific endorsements would unfairly distort the political process. In the supplemental briefs ordered by the Court in CU v. FEC, however, neither CU nor the federal government endorsed the reasoning of Austin. The Court rejected it as well, and also rejected the justifications the government offered to rehabilitate the holding of Austin. Although corporations do receive certain benefits from the state (limited liability, perpetual life, the ability to accumulate assets), the “state cannot exact as the price of those special advantages the forfeiture of First Amendment rights.” In fact, the majority opinion rejects the anti-distortion policy as antithetical to free speech: “Austin’s antidistortion rationale would produce the dangerous and unacceptable consequence that Congress could ban political speech of media corporations.” Alluding to the fact that some congressmen in 1939 had actively discouraged the release and distribution of the Frank Capra movie Mr. Smith Goes to Washington, the opinion notes that “[u]nder Austin…officials could have banned the film. After all, it, like Hillary, was speech funded by a corporation that was critical of members of Congress.”
The Government May Require Disclosures About the Source of Funding and Disclaimers About Candidates and Campaigns
Under BCRA § 311, TV ads funded by non-candidates must identify who “is responsible for the content of this advertisement.” The disclosure must be clearly spoken and it must be clearly readable for at least four seconds. Additionally, the statement must disclaim any connection to a candidate or the candidate’s committee. The name and address of the source of funds must be revealed, and any person spending more than $10,000 per year on political ads must make an annual filing with the FEC.
The Court upheld the mandate in favor of disclosures and disclaimers, and ruled that these statements inform voters and give people the ability to evaluate the arguments to which they are being subjected. Disclaimers avoid confusion “by making clear that the ads are not funded by a candidate or a political party.” The majority opinion reaffirmed earlier decisions holding that the provision of information to the electorate about the sources of funding is a legitimate government interest.
Acknowledging that there is evidence that donors to organizations are sometimes subjected to threats and retaliation, and conceding that this is “cause for concern,” the Court held out the possibility that an organization might have a valid defense to disclosure “if there were a reasonable probability that the group’s members would face threats, harassment, or reprisals if their names were disclosed.” As applied to CU, however, no evidence had been offered to the Court that its members faced such risks. CU had disclosed the identity of its donors for years and identified no instances of any harassment or retaliation. As applied to CU, the disclosure and disclaimer mandates are valid.
The renewed vigor with which the Court has endorsed the First Amendment rights of corporations will have a major impact on the political landscape. While campaign contribution restrictions and donation limits remain firmly in place, new avenues for participation in the political process have been thrown open. Corporations may have a reduced incentive to establish or participate in political action committees (“PACs”). Instead, they may choose to maintain direct control over how their voice is heard in election campaigns, although PACs will still be a vehicle through which money is raised and contributions to candidates are made. Citizens United v. FEC will also have a major impact on state elections since the First Amendment basis for the decision applies to the 26 states that still restrict the independent expenditures of corporations and unions.
Corporations that choose to spend general treasury funds on TV and radio endorsements of candidates will need to be vigilant about maintaining the independence of their expenditures. Ads must disclaim any connection to a candidate or a candidate’s election committee. Any ad infected by communications with candidates and their committees would subvert the truthfulness of the disclaimer and expose the corporation to prosecution. Additionally, state campaign regulations may pose traps for the unwary. While states will no longer be able to ban independent corporate endorsements, states play a significant role in corporate governance rules. States may, for example, vary as to what shareholder approval, if any, is required for the expenditure of corporate funds on political activity.
For more information, please contact any of the lawyers listed below.
This article was originally published by Bingham McCutchen LLP.