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McChesney v. Peterson

United States District Court, D. Nebraska

December 22, 2016

ROBERT C. MCCHESNEY, in his official capacity as Treasurer of Bart McLeay for U.S. Senate, Inc.; and BART MCLEAY FOR U.S. SENATE, INC., Plaintiffs,
MATTHEW S. PETERSON, in his official capacity as Chair of the Federal Election Commission; FEDERAL ELECTION COMMISSION; and UNITED STATES OF AMERICA, Defendants.


          Laurie Smith Camp Chief United States District Judge.

         This matter is before the Court on the Motions to Dismiss filed by Defendants Federal Election Commission (the “Commission”) and Matthew S. Peterson (“Peterson”), ECF No. 21, and the United States of America, ECF No. 25. Plaintiffs have moved to dismiss their claims against the United States without prejudice. Accordingly, their Notice of Dismissal, ECF No. 28, will be approved and Defendant United States of America will be dismissed. For the reasons stated below, the Motion filed by the Commission and Peterson will be granted.


         Because this case turns on the Commission's interpretation of federal administrative and election law, a discussion of the statutory and regulatory scheme involved is helpful to an understanding the nature of Plaintiffs' claims. The Court will also summarize the promulgation and administration of the relevant fine program at issue. Finally, the Court will provide background regarding how the statutes, regulations, and fine program were applied to Plaintiffs.

         I. FECA and its Enforcement

         a. The Commission and FECA Enforcement in General

         The Commission is an independent agency of the United States government with exclusive jurisdiction over civil enforcement of the Federal Election Campaign Act of 1971, as amended, 52 U.S.C. § 30101, et seq. (“FECA”). See 52 U.S.C. §§ 30106(b)(1), 30107(a), 30109. The Commission is composed of six Commissioners, including Defendant Petersen, who currently serves as Chairman. Under FECA, if at least four Commissioners find “reason to believe” that a FECA violation has occurred, the Commission's General Counsel may conduct an investigation, leading to a recommendation as to whether there is “probable cause to believe” a violation has occurred. 52 U.S.C. § 30109(a)(1)-(3). If at least four Commissioners then find probable cause exists, the Commission must attempt to resolve the matter by “informal methods of conference, conciliation, and persuasion, and to enter into a conciliation agreement” with the respondent. 52 U.S.C. § 30109(a)(4)(A)(i). If the Commission is unable to resolve the matter through voluntary conciliation, the Commission may file a de novo civil suit to enforce the Act in federal district court. 52 U.S.C. § 30109(a)(6).

         b. Political Committees and “48 Hour” Disclosure Reports

         FECA requires political committees to designate a treasurer to maintain the committee's financial records. See 52 U.S.C. § 30102(a)-(d). The term “political committees” as used in FECA, includes candidate campaigns, political parties, and other political organizations. See 52 U.S.C. § 30101(4)-(6). Under FECA, the treasurer must sign and file periodic reports on behalf of the political committee, including reports regarding the committee's receipts and disbursements. 52 U.S.C. § 30104(a)-(b). These reports must be filed in compliance with the schedule established in FECA and its implementing regulations. See 52 U.S.C. § 3010411(a)(11), (b); 11 C.F.R. § 104.14(d). Reports for the principal campaign committee of a candidate for the office of U.S. Senator must be filed with the Secretary of the Senate. 52 U.S.C. § 30102(g); 11 C.F.R. § 105.2.

         Section 30104(a)(6)(A) requires principal campaign committees to report in writing any contribution of $1, 000 or more received by the committee after the 20th day, but more than 48 hours before, any election. Such notifications “shall be made within 48 hours after the receipt of such contribution and shall include the name of the candidate and the office sought by the candidate, the identification of the contributor, and the date of receipt and amount of the contribution.” 52 U.S.C. § 30104(a)(6)(A).

         c. The Administrative Fines Program

         In 1999, Congress amended FECA to create an enforcement system for violations of the periodic filing requirements. See Treasury Postal Serv. and General Government Appropriations Act, 2000, Pub. L. No. 106-58, § 640, 113 Stat. 430, 476-477 (1999) (codified at 52 U.S.C. § 30109(a)(4)(C)). Congress authorized the Commission to directly assess civil money penalties for violations of 52 U.S.C. § 30104(a), including violations of the deadlines for political committees' disclosure reports. Pursuant to this authority, after the Commission finds reason to believe a political committee and its treasurer have failed to file a report within the established deadlines, the Commission may:

require the person to pay a civil money penalty in an amount determined under a schedule of penalties which is established and published by the Commission and which takes into account the amount of the violation involved, the existence of previous violations by the person, and such other factors as the Commission considers appropriate.

52 U.S.C. § 30109(a)(4)(C)(i)(II). A respondent who objects to the Commission's imposition of an administrative fine may seek judicial review of the Commission's determination in federal district court “by filing in such court . . . a written petition requesting that the determination be modified or set aside.” 52 U.S.C. § 30109(a)(4)(C)(iii).

         In 2000, the Commission promulgated regulations establishing the procedures that apply to administrative fine matters and the schedules of penalties authorized by 52 U.S.C. § 30109(a)(4)(C)(i)(II). See Administrative Fines, 65 Fed. Reg. 31, 787 (May 19, 2000) (“May 2000 Administrative Fines Rule”); 11 C.F.R. §§ 111.43(a)-(c), 111.44. These civil penalty schedules contained factors to consider when assessing a penalty, including whether the untimely report was election sensitive, how late it was filed, the dollar amount of the receipts and disbursements involved, and the number of prior violations by the respondent. See 11 C.F.R. § 111.43(a)-(c). The regulation formulas established specific penalties for 48-hour notices. 11 C.F.R. § 111.44(a)(1). Under § 111.44(a)(1) the current civil penalty for each untimely 48-hour notice is $137 plus ten percent of the “amount of the contribution(s) not timely reported.”

         When the Commission determines that it has “reason to believe” that a respondent has violated 52 U.S.C. § 30104(a), the Commission notifies the respondent of the Commission's finding, including the proposed civil money penalty. 11 C.F.R. § 111.32. Upon receipt of this notification, the respondent may either pay the penalty, 11 C.F.R. §§ 111.33-111.34, or challenge the finding and/or the penalty by filing a written response within 40 days of the date of the Commission's finding. 11 C.F.R. § 111.35(a), (e). The written response must assert one of three possible grounds for such a challenge: (1) factual errors in the Commission's finding; (2) inaccurate calculation of the penalty; or (3) a showing that the respondent used “best efforts” to file in a timely manner but was prevented from doing so by “reasonably unforeseen circumstances . . . beyond the respondent's control, ” and the respondent filed the report no later than 24 hours after such circumstances ended. 11 C.F.R. § 111.35(b)(1)-(3).

         Timely filed responses challenging the Commission's reason-to-believe finding are reviewed by a Commission “Reviewing Officer.” 11 C.F.R. § 111.36(a). The Reviewing Officer submits a written recommendation to the Commission, that is also provided to the respondent. 11 C.F.R. § 111.36(e), (f). The respondent may file a written response to the recommendation within ten days, but generally may not raise new arguments beyond those in the original written response. 11 C.F.R. § 111.35(f).

         After receiving the Reviewing Officer's recommendation and any timely additional response from the respondents, the FEC makes a final determination by an affirmative vote of at least four Commissioners as to whether the respondent violated 52 U.S.C. § 30104(a), and, if so, the amount of the civil penalty. 11 C.F.R. § 111.37. The reasons provided by the Reviewing Officer for the recommendation serve as the reasons for the Commission's action, unless otherwise indicated by the Commission. 11 C.F.R. § 111.37(d).

         The respondent then has 30 days in which to petition for the judicial review authorized by 52 U.S.C. § 30109(a)(4)(C)(iii). Judicial review is limited to the issues and facts raised before the Commission during the administrative proceeding. 11 C.F.R. § 111.38.

         d. Modifications to the Administrative Fines Program

         The amendments to FECA in 1999 that created the Administrative Fines Program initially applied to violations occurring between January 1, 2000, and December 31, 2001. Extension of Administrative Fines Program, 79 Fed. Reg. 3302-01 (Jan. 21, 2014) (to be codified at 11 C.F.R. Part 111). Congress later extended the Commission's statutory authority for the Administrative Fines Program several times, including, most recently, in December 2013. In December 2013, Congress extended the Administrative Fines Program through December 31, 2018. See Act of Dec. 26, 2013, Pub. L. No. 113-72, § 1 (referred to herein as the “2013 Congressional Extension”). Relevant to this case, the civil penalty formula under the Administrative Fines Program for untimely 48-hour notices was first established in May 2000. Administrative Fines, 65 Fed. Reg. 31, 787 (Friday, May 19, 2000). The civil penalty formula has been adjusted once, in 2005, to its current amount. See Inflation Adjustments for Civil Monetary Penalties, 70 Fed. Reg. 34633, 34636 (June 15, 2005) (“June 2005 Inflation Adjustment”) (adjusting civil penalty formula for 48-Hour Notices that are not timely filed as “$110 (.10 x amount of the contribution(s) not timely reported”)).

         Before the 2013 Congressional Extension, the Commission's regulations implementing the Administrative Fines Program, 11 C.F.R. § 111.30, specified the end date of the program. Each time Congress has extended the statute that authorizes the Administrative Fines Program, the Commission revised the end date in § 111.30. However, in response to the 2013 Congressional Extension, the Commission revised § 111.30 to state that the Administrative Fines Program applied to reporting periods that “end on or before the date specified in 2 U.S.C. § 437g(a)(4)(C)(v).” See Extension of Administrative Fines Program, 79 Fed. Reg. 3, 302-01 (January 21, 2014) (referred to herein as the “2014 Regulatory Extension”). The Commission also deleted 11 C.F.R. § 111.41, an administrative provision requiring that fines be paid by check or money order. Id. These were the only changes made to the implementing regulations in the 2014 Regulatory Extension.

         Because the Commission made changes to the regulations without notice or opportunity to comment, it provided an explanation of its reasoning contemporaneous with the changes to the regulations. In its explanation, the Commission first noted that because Congress did not enact the most recent statutory extension until December 2013, “there [was] a short gap between the end date of the Commission's current regulations and the effective date of this final rule on January 21, 2014.” Id. The Commission directed that “[r]eports covering reporting periods that end during this gap are not subject to the [Administrative Fines Program]; they are instead subject to the Commission's enforcement procedures set forth at 11 CFR part 111, subpart A.” Id. (citing 11 CFR 111.31(a)).

         The Commission further explained that it implemented the 2014 Regulatory Extension of the Administrative Fines Program “without advance notice or an opportunity for comment because [the extension] falls under the ‘good cause' exemption of the Administrative Procedure Act.” Id. (citing 5 U.S.C. § 553(b)(B)) (permitting agencies to dispense with the notice and comment period when “impracticable, unnecessary, or contrary to the public interest.”). The Commission concluded that its action fell within the good cause exception because “this final rule merely extends the applicability of the existing [Administrative Fines Program] and deletes one administrative provision; the final rule makes no substantive changes to the [Administrative Fines Program].” Id. The Commission further explained that the 2014 Regulatory Extension “[fell] within the ‘good cause' exception to the delayed effective date provisions of the Administrative Procedure Act and the Congressional Review Act.” Id. Thus, the Commission concluded that the final rule “[would be] effective upon publication in the Federal Register.” Id. (citing 5 U.S.C. §§ 553(d), 808(2)).

         II. Challenge in This Case

         Plaintiff McLeay Committee is the principal campaign committee of Bartholomew L. McLeay, who was a candidate in the United States Senate primary election in Nebraska on May 13, 2014. ECF No. 1, Compl. ¶ 2; Page ID 1. Plaintiff Robert C. McChesney was the Treasurer of the McLeay Committee. Id. ¶¶ 1, 2; Page ID 1-2.

         In connection with that election, Plaintiffs were required to file 48-hour notices for contributions and loans of $1, 000 or more received between April 24 and May 10, 2014. 52 U.S.C. § 30104(a)(6)(A); 11 C.F.R. § 104.5(f). On June 29, 2015, the Commission notified Plaintiffs that the Commission had reason to believe that Plaintiffs violated FECA by failing to file 48-hour reports for several contributions. Compl. ¶ 29, Page ID 11; ECF No. 21-3, Page ID 82. Specifically, the Commission alleged that Plaintiffs did not timely file 48-hour notices for fourteen contributions received between April 24 and May 9, 2014, totaling $112, 425.06. Compl. ¶ 29, Page ID 11; ECF No. 21-3, Page ID 82, 86. In its notification, the Commission made a preliminary determination that a civil penalty of $12, 122 should be assessed for such violations, based on the penalty formula set forth at 11 C.F.R. § 111.44. ECF No. 21-3, Page ID 82. The Commission's notice designated the penalty as an Administrative Fine (“AF”). Compl. ¶ 29, Page ID 11; ECF No. 21-3, Page ID 82.

         On July 31, 2015, Plaintiffs provided written responses to the Commission, asserting that the proposed civil penalty was not based on an authorized schedule of penalties lawfully established by the Commission. Therefore, according to Plaintiffs, the 48-hour notice reporting requirements did not apply to the candidate loans at issue, and an alternative method of calculating the proposed civil ...

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