Major Campaign Finance Ruling Handed Down by Supreme Court

January 21, 2010

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The U.S. Supreme Court today handed down a historic decision in Citizens United v. FEC that will have a dramatic effect on the level of spending in U.S. political campaigns.   In a 5-4 decision, the court effectively eliminated any limit on independent expenditures by corporations to support or oppose the election of a candidate for public office. (The prohibition on direct corporate contributions to candidates remains in place.)   The decision further erodes the central provisions of the Bipartisan Campaign Reform Act, (“BCRA,” known as McCain-Feingold) which were at issue in the Citizens United case, but the majority chose to address broader First Amendment issues with regard to limitations on political speech by corporations.  
The Decision
In today’s decision, the Supreme Court’s majority struck down BCRA’s prohibition on electioneering communications, but did not stop there. Citizens United v. FEC addressed the constitutionality and applicability of a provision of BCRA which restricted certain “electioneering communications” during the period just before an election. The majority declared that it could not limit its opinion to those narrow issues without “chilling political speech, speech that is central to the First Amendment’s meaning and purpose.”   On that basis, the majority revisited and struck down the central holding in Austin v. Michigan Chamber of Commerce which had stood since 1990 for the proposition that political speech by a corporation may be restricted or even banned. Austin was struck down. The court dismissed Austin’s rationale that corporations gain an “unfair advantage in the political marketplace” by deploying funds “amassed in the economic marketplace.” In so doing, the Court erased a longstanding distinction between political speech by an individual and political speech by a corporation.
The Court declared that restrictions on independent expenditures by corporations amount to a ban on political speech, which cannot be sustained under the strict scrutiny that must be applied to limitations on speech.   Notably, the Court found that this burden on political speech by corporations is not mitigated by the fact that a corporation may form a political action committee (“PAC”), because a PAC, whatever its practical connection to a corporation, is a separate entity.   Today’s decision appears not to affect PACs directly, but dramatically affects the context in which they will operate. This decision will have implications for corporations and others as they decide how to use their resources for political communications and what emphasis they will place upon their PACs. Independent expenditures by corporations still may not be coordinated with campaigns, and will continue to be subject to disclosure and disclaimer requirements.
Likely Practical Consequences
It is expected that today’s decision also will strike down similar prohibitions on political expenditures by corporations under state law.
Some are predicting that thousands of corporations will begin to make independent expenditures in this election year. There are a few factors that may induce corporations to proceed with caution. Advertisements paid for through independent expenditures will still be required to include disclaimers identifying the entity that has funded them. All independent expenditures in federal campaigns will remain subject to disclosure with the Federal Election Commission. In addition, use of corporate treasury funds for overt political purposes may stir controversy among shareholders. Individual companies may choose to avoid grappling with these concerns by funding trade associations that will in turn make their own independent expenditures.
Some members of Congress and President Obama have strongly criticized today’s decision. It is likely that hearings will be held in Congress to examine the likely effect of today’s decision. We expect that campaign finance reform proponents in Congress will offer legislation intended to limit the effect of today’s decision, but their options appear to be limited in the face of this sweeping decision.   The Federal Election Commission may issue new regulations reflecting today’s decision.  
McGuireWoods Consulting Senior Vice President Tom Walls, who is also a partner in McGuireWoods LLP, was quoted by the Wall Street Journal’s Law Blog regarding the Citizens United case. If you would like to read that blog entry, click here. McGuireWoods will continue to monitor developments in the wake of this important Supreme Court decision and will be happy to answer any questions you may have.