Game Changer: Citizens United Alters the Constitutional and Regulatory Landscape

March 25, 2010

On January 21, 2010, in Citizens United vs. FEC, the U.S. Supreme Court changed the Constitutional landscape for campaign finance reform. In a 5-4 decision, the Court overruled two prior decisions in holding unconstitutional under the First Amendment the 63-year-old Taft-Hartley prohibition on independent express advocacy expenditures by corporations in federal elections and the 2002 McCain-Feingold prohibition against broadcast electioneering communications by corporations in the closing days of a federal election. Separately, by an 8-1 majority, the decision upheld disclaimer and disclosure requirements for independent expenditures. The ultimate ramifications may not be seen for years, but the immediate impact is clear: corporations (and, likely, unions) have been freed to spend unlimited sums on independent election advocacy ads in the upcoming 2010 federal elections. The decision does not, however, have an immediate effect on the long-standing ban on corporate contributions in federal elections: currently, corporations may not make contributions in federal elections. Corporations also continue to be free to form voluntary political action committees (“PACs”). The Majority Opinion – Corporations are no Longer Disfavored Speakers For nearly two decades prior to the Citizens United decision, the Supreme Court treated corporations differently from other speakers (and spenders). Their “disfavored” status was upheld as a safeguard against “the corrosive and distorting effects of immense aggregations of [corporate] wealth” on the political process. The Court majority, in an opinion by Justice Kennedy, has now rejected this prior rationale and concluded that “independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption.” Further, because, by definition, an independent expenditure is “political speech presented to the electorate that is not coordinated with a candidate,” there is no basis for stifling that speech based solely on the identity of the speaker. As a result, quid pro quo corruption or its appearance is now the only government interest the Court has identified as sufficient for supporting campaign finance limitations under the First Amendment. Post-Citizens United, corporations may not be denied the right to speak in elections based solely on their identity as corporations. The opinion states: “[t]he First Amendment does not permit Congress to make these categorical distinctions based on the corporate identity of the speaker and the content of the political speech.” The majority further explains that “[t]he First Amendment confirms the freedom to think for ourselves.” Thus, where the government identifies certain preferred speakers, it commits a constitutional wrong “[b]y taking the right to speak from some and giving it to others.” To remain effective, the First Amendment must stand “against attempts to disfavor certain subjects or viewpoints or to distinguish among different speakers, which may be a means to control content.” The Dissent – Corporations are not Members of the Political Community The dissent, authored by Justice Stevens, maintains that the First Amendment did not contemplate that protections for individual speech would extend to corporations. “Although they make enormous contributions to our society, corporations are not actually members of it.” The dissent expresses the fear that a surge in election spending by corporations, “who are not natural persons, much less members of our political community,” will obtain the undue influence over candidates and officeholders that Congress has attempted to curb ever since passage of the Tillman Act in 1907. Looking Forward It remains to be seen whether a corporation’s new right to make independent expenditures will be exercised liberally or sparingly in this election season. Corporations will first need to assess whether the making of such expenditures advances their business interest. Regardless whether they choose to make such expenditures, corporations should also consider whether internal procedures and policies provide sufficient safeguards against inadvertently making corporate expenditures in “coordination” with a candidate – since such actions remain subject to the federal prohibition against corporate contributions. A corporation may also choose to provide financial support for issue advocacy expenditures made by other entities, specifically 501(c)(6) trade associations and 501(c)(4) social welfare organizations. Currently, such donations may be made without disclosure pursuant to Federal Election Commission or Internal Revenue Service requirements. Challenges and changes to state campaign finance restrictions may be on the horizon. For example, the reasoning of the decision may cast doubt on the constitutionality of federal and state bans against campaign contributions by corporations, or more restrictive contribution limits for corporations, such as is the case under New York State law. New Jersey’s ban on political contributions from certain regulated industries, such as banks, insurance companies, phone companies, cable companies, railways, utility companies and casinos, may be similarly vulnerable to challenge. On the other hand, the Court made clear that the holding did not reach current limitations on direct contributions. Legislative proposals to moderate the effect of the Citizens United decision are proliferating. Some proposals are keyed to enhancing the voice of candidates in anticipation that corporate advertising may come to be predominant. These reforms would include liberal public financing for candidates and making broadcast time more readily available for candidate appearances and advertising. Accountability to shareholders, increased public disclosure, and broadened standards for what constitutes “coordination” between corporations and candidates are other themes awaiting development. More attention will likely be given to the “pay-to-play” rationale for imposing additional political activity restrictions on entities that lobby or seek government contracts or other benefits. Pay-to-play-based regulations will be examined both for their vulnerability to a speaker-identity-based challenge under Citizens United and for their viability as an alternative means for imposing expenditure limitations on some speakers. No doubt we cannot anticipate all the consequences of the Citizens United decision. But whether the holding is viewed as liberating, dire, or benign, we should also make room to expect the unexpected. For example, have you heard about the corporation that is now running for U.S. Congress in the State of Maryland? For additional information, please contact Laurence D. Laufer.