07.09.2014Since the Supreme Court found in Citizens United that “the absence of prearrangement and coordination . . .alleviates the danger that expenditures will be given as a quid pro quo for improper commitments from the candidate” – a premise that many would disagree with – commentators have bemoaned the lack of enforcement of coordination standards on the federal level. The Court’s reasoning implicitly requires enforcement of coordination rules and without that, SuperPACs are having their cake and eating it too. But perhaps not on the state level. A couple of days before Independence Day the Second Circuit issued a decision under Vermont law that may put some brakes on activity by Hybrid PACs – a combination of an independent expenditure-only committee (SuperPAC) and a political action committee (PAC). Hybrid PACs stem from Carey v. FEC, which found that a committee could establish separate accounts to: 1) solicit and spend unlimited funds for independent expenditures; and 2) solicit and spend permissible funds on direct contributions to political candidates and/or political parties. As a result, the independent committee could receive unlimited contributions. The VRTL case involves three affiliated organizations – VRCL, a 501(c)(4), VRLC-FIPE, a SuperPAC and VRLC-PC, a PAC. While the SuperPAC and the PAC had separate bank accounts, the 2d Circuit found that because the two were “enmeshed financially and organizationally” contribution limits applied to the SuperPAC. Specifically, the court found that:
- It was insufficient to merely state in organizational documents that a group is an independent expenditure-only group – some “actual organizational separation” must exist; and
- Whether a group is functionally distinct may depend on factors such as the “overlap of staff and resources, the lack of financial independence, coordination of activities and the flow of information between the entities”.