Fourth Circuit Victory Recognizes Free Speech Rights

By James Bopp, Jr. & Richard E. Coleson

On January 25, the James Madison Center for Free Speech won an important victory against the Federal Election Commission (FEC). In Beaumont v. FEC, the United States Court of Appeals for the Fourth Circuit held that a federal ban on corporate contributions to candidates was unconstitutional as applied to not-for-profit issue-oriented corporations, such as the plaintiff, North Carolina Right to Life.

In Beaumont, the Fourth Circuit extended a finding first made by the United States Supreme Court in the 1986 case of FEC v. Massachusetts Citizens for Life ("MCFL"). There, the High Court held that not-for-profit issue-oriented corporations such as MCFL posed no threat of the corruption of the electoral system that justified limits on independent expenditures by business corporations. (Independent expenditures advocate the election or defeat of a candidate and are made without coordination with the candidate.)

Thus, the justices held, they must be exempted from a federal corporate independent expenditure ban.

In Beaumont, the Circuit Court applied that rationale to contributions to candidates. Because not-for-profit issue oriented corporations pose no corruption threat, then nothing justified prohibiting them from also making contributions to candidates themselves, the Circuit Court held.

Requiring them to do so through political action committees (PACs) "could effectively cripple small, nonprofit advocacy groups that may have few or no ties to the world inhabited by for-profit corporations." The court concluded that any " congressional interest in minimizing corruption" was adequately addressed by the $1,000 per election limitation on contributions to a candidate.

James Bopp, Jr., general counsel for the James Madison Center (and for the National Right to Life Committee), who represented the plaintiffs, declared the case "a significant expansion of the ability of not-for-profit corporations to engage in political activity." He noted, "The ability of such corporations to do independent expenditures has long been recognized, but now it is clear that they can also make direct political contributions, subject to the $1,000 contribution limit."

However, to qualify for the MCFL exception to the FEC's ban on corporate independent expenditures and contributions, the not-for-profit ideological corporation must meet four criteria. It must (1) not engage in profit-making activity; (2) have no shareholders or other persons who might have a claim on its assets and earnings; (3) be exempt from federal income taxation; and (4) either not accept business corporation donations or be funded overwhelmingly by private, individual donations.

Moreover, to retain tax-exempt status, not-for-profit issue-oriented corporations must not allow making contributions to candidates and independent expenditures to become the corporation's major purpose. Any contributions to the corporation that have been earmarked for a particular candidate must be reported to the candidate as a contribution from both the corporation and the person earmarking the contribution. Of course, the $1,000 per election per candidate contribution limit must be observed.

The Beaumont decision held the challenged provisions unconstitutional only as applied to North Carolina Right to Life. The Fourth Circuit only covers Maryland, North Carolina, South Carolina, Virginia, and West Virginia.
However, the rationale of the decision extends to other non- profit issue-oriented corporations that meet the aforementioned criteria.

(One exception would be the states in the Sixth Circuit: Kentucky, Michigan, Ohio, and Tennessee. In its 1997 decision in Kentucky Right to Life v. Terry, the Circuit Court there reached a different conclusion with respect to a state statute barring corporate contributions.)

Qualifying corporations desiring to make contributions to candidates are encouraged to seek specific legal counsel as to the activity they plan.
The opinion is available online at http://laws.lp.findlaw.com/4th/011348p.html.