The US Court of Appeals, D.C. Circuit, recently made a significant ruling regarding § 527 organizations – those nonprofits existing primarily to influence the election or defeat of candidates for federal public office.  In the case of Emily’s List v. Federal Election Commission (FEC), decided September 18, 2009, the court majority wrote a 44 page opinion striking down recent (2004) FEC campaign spending limitations applied to these groups.

After the 2004 elections there was significant pressure on the FEC to reform the campaign spending of certain nonprofit groups who had reportedly spent several hundred million dollars in election-related advertising and programming.  There was a push to place restrictions on these groups similar to those on political parties.

This case dealt largely with the difference between hard and soft money.  A § 527 organization must keep two separate accounts.  Contributions in direct support of candidates and political parties is termed “hard money”, and such contributions may consist of no more than $5,000 from any one donor in any given year.  “Soft money” may not be contributed directly but may go towards political expenditures the form of cause or candidate supporting efforts such as advertising, get-out-the-vote campaigns, etc.; a donor may give as much as desired for such support.  Until this past Friday, FEC regulations restricted nonprofits in their activities by requiring that 50% (sometimes more) of certain expenditures come from the hard money account, rather than from the soft money account.  Since hard money is more difficult to accumulate than soft, the activities of these organizations were being inhibited.

The court in Emily’s List traced a history lesson, examining the evolving campaign finance laws as apposed to the freedoms provided under the First Amendment.  The Circuit court noted that the Supreme Court has generally approved statutory limitations on contributions to candidates and political parties – including contributions made by for-profit corporations.  On the other hand it has rejected expenditure limits on individuals, groups, candidates, and parties.

The Emily’s List court, while affirming that an organization’s direct contributions to candidates and parties may be limited, further ruled that such contributions should not prevent the organization from also engaging in supporting expenditures.  The court said, “A non-profit that makes expenditures to support federal candidates does not suddenly forfeit its First Amendment rights when it decides also to make direct contributions to parties or candidates.”  The organization in question – Emily’s List – is a pro-choice organization that makes supporting expenditures as well as direct contributions in furtherance of its causes and endorsed candidates.

The court ultimately boiled the issue down to whether these independent nonprofit organizations should be treated like individual citizens (which are entitled to expend unlimited amounts to express their views through supporting expenditures), or like political parties (which may be restricted).

Through lengthy discourse the court explained that § 527 organizations like Emily’s List, being neither for-profit nor closely connected with a particular candidate or political party, do not represent a situation ripe for corruption, which was the situation of concern behind campaign finance restrictions in the first place.  The court said, “Donations to and spending by a non-profit cannot corrupt a candidate or officeholder, at least in the absence of some [evidence] establishing such corruption or the appearance thereof.”  The court concluded that these organizations should be treated as individuals for political expenditures purposes, and therefore are entitled to have 100% of such expenditures come from their soft money accounts – the accounts that do not limit donations by individuals.

While § 527 organizations should be aware of the new rules, it remains to be seen whether this ruling will hold fast.

The full text of this case can be found at http://pacer.cadc.uscourts.gov/common/opinions/200909/08-5422-1206889.pdf.