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Charles M. English and Jacqueline A. Henson

USA January 27 2010

No immediate impact on PACs or Direct Campaign Contribution Prohibition by Corporations

Last week, in a divided 5-4 decision, the Supreme Court issued a ground-breaking decision in Citizens United v. Federal Election Commission. The Court's decision overturns almost 20 years of federal campaign finance law that previously barred corporations and unions from using their general funds to produce their own advertisements in political elections. This decision not only will have an immediate impact on the 2010 mid-term elections, but also will alter the political and regulatory landscape for years to come.

The Citizens United decision does not immediately impact the activities of PACs; nor overturn the prohibition on direct contributions to candidates from corporations or labor unions. Corporations and labor unions seeking to provide direct support for candidates are still limited to voluntary employee contributions through PACs. Moreover, the decision apparently does not change the restrictions regarding the use of corporate resources for direct campaign purposes (such as the use of corporate facilities, equipment, supplies and other resources). However, while it will take some time for the full ramifications of Citizens United v. Federal Election Commission to be recognized, this decision is a landmark development in political campaign finance, and will likely alter the landscape for the 2010 mid-term elections and thereafter.

The Case

During the 2008 Democratic primary campaign, a non-profit group, Citizens United, produced a 90-minute documentary highly critical of then-Senator Hillary Clinton, a candidate for the Democratic Presidential nomination. Citizens United wanted to distribute the film through video on-demand services on cable television, and to air ads for the film on broadcast and cable TV in January 2008 — the same month as major Democratic primaries — without running any disclaimers or disclosing the names of donors who paid for the ads or the film.

Federal election law barred the documentary and ads from running during the election season; it also required the incorporation of disclaimers and disclosures regarding donors. Citizens United then sought declaratory and injunctive relief against the FEC on First Amendment grounds. It also claimed that the film was commercial speech similar to a documentary, rather than a campaign ad in opposition to Senator Clinton.

Lower courts decided that the film was a campaign ad, fell under the McCain-Feingold Act and Federal Election Commission regulations governing independent expenditures and thus, barred the ads and film from running. The Supreme Court heard oral arguments in March 2009, and held a rare, second round of arguments in September 2009 on the broader issue of the constitutionality of limiting corporate political speech.

The Decision

Justice Kennedy wrote the majority opinion, while Justice Stevens drafted the primary dissent. Overturning two previous Supreme Court decisions, Austin v. Michigan Chamber of Commerce and McConnell v. Federal Election Commission, the majority ruled that the First Amendment permits corporations and unions to use their general funds to produce their own, independent political campaign advertisements. While finding that the Citizens United film was a campaign ad, the Supreme Court held that corporations may use their general funds, and will no longer have to rely on PAC or individual funds, to create and air political ads that are not coordinated with a candidate’s campaign.

The Decision thus

• Struck down part of the McCain-Feingold Act that prohibited union- and corporate-sponsored issue advertisements in the days shortly before an election; and

• Upheld the disclaimer and disclosure requirements in the McCain-Feingold Act requiring those who produce political advertisements to disclose the names of contributors.

The Aftermath

The sweeping First-Amendment breadth of Justice Kennedy’s majority opinion is evident: "There is no basis for the proposition that, in the political speech context, the government may impose restrictions on certain disfavored speakers". He further concludes: "The government may regulate corporate speech through disclaimer and disclosure requirements, but it may not suppress that speech altogether." Based on the Court’s reasoning, corporations are “persons” and entitled to the same First Amendment rights as any other “person”. Many predict a marked increase in corporate independent expenditures, particularly by nonprofit organizations and trade associations, as a result of Citizens United. Moreover, many states currently have similar independent expenditure limitations, which will be similarly affected by Citizens United.

Although Democrats vowed to try and enact legislation to reverse the decision, any such legislation remains uncertain. As Justice Stevens suggests in a footnote in his dissenting opinion, an option might be to require shareholder approval prior to the use of corporate funds for independent expenditures on behalf of a political candidate. A quick legislative reversal of the Citizens United decision is unlikely, especially after the Republican Senate victory in Massachusetts and the sweeping First Amendment justification in Justice Kennedy's opinion.