Court rebukes FEC for failing to investigate 'extreme example' of coordination

A federal appeals court last week kicked a years-long case back to the government's campaign finance agency regarding its failure to investigate an unusual arrangement between Hillary Clinton’s presidential campaign and a liberal group, Correct the Record, during the 2016 election. 

The decision is a big deal, campaign finance experts told The Hill, although it largely flew under the radar in a Washington roiled by speculation about President Biden's political future and then the attempted assassination of former President Trump. 

The U.S. Court of Appeals for the District of Columbia ultimately rebuked the Federal Election Commission (FEC) for dismissing a 2016 complaint by the nonprofit watchdog Campaign Legal Center (CLC), saying its original interpretation of an “internet exemption” to campaign finance laws “stretches it beyond lawful limits.” 

In the complaint, CLC alleged Correct the Record violated federal contribution limits and disclosure requirements when it very publicly coordinated millions of dollars in online messaging with the Clinton campaign including polling, fact-checkers and media coordination and to “push back against” users attacking her. 

While super PACs are legally prohibited from coordinating their activities with campaigns, Correct the Record leaned heavily on an internet exemption dating back to the mid-2000s. 

The Federal Election Campaign Act places limits and disclosure requirements on individuals and organizations that spend “anything of value” to influence a federal election in coordination with a campaign. 

But in 2006, the FEC carved out an exception for unpaid internet communications and the “input costs” associated with them, relieving them from the same limits and disclosure requirements as paid internet communications such as digital ads.  

“The nature of internet exemption really was supposed to protect individuals who were engaged in almost costless internet communications from being captured by the campaign finance laws,” Tara Malloy, senior director for appellate litigation and strategy at CLC and lead counsel on the case, told The Hill. 

Correct the Record characterized expenses including staff salaries, travel expenses, office rentals and the cost of commissioning polls as input costs for their unpaid internet communications, according to the CLC complaint, "plausible allegations" the court found the FEC has dismissed "contrary to law." 

Marc Elias, who was a Clinton campaign lawyer and whose former firm also worked with Correct the Record, appears to have laid out the legal argument in a 2015 memo to Clinton publicly released by WikiLeaks in 2016. 

Elias wrote in the memo to Clinton that because Correct the Record “will not pay for digital communications and it will not pay for broadcast advertisements, phone banks, mass mailings, or canvassing programs,” it “may disseminate these communications in coordination with the campaign without making an impermissible in-kind contribution.” 

Elias did not return The Hill’s request for comment. 

The court decision also cites a 2015 Time magazine interview with Correct the Record founder David Brock, who also founded the media watchdog group Media Matters for America, about the group’s legal strategy. 

Because Correct the Record "does not pay for advertising advocating [Clinton’s] election, [Brock] says he can continue under current rules to talk to her, and her campaign staff about strategy, while deploying the unregulated money he raises to advocating her election online, through the press, or through other means of non-paid communications,” the article explains. 

The Hill spoke with several campaign finance experts who described the legal strategy as an aggressive move that raised eyebrows around town. 

“A lot of observers, even those who are not necessarily that sympathetic to campaign finance law, might have thought they were really aiming for the rafters in terms of attempting to exempt an entire $9 million coordinate operation,” Malloy said. 

Although the FEC general counsel recommended the agency investigate the allegations, the commission deadlocked and dismissed the complaint in 2019, prompting CLC to sue the agency. 

Lee Goodman, a former Republican FEC chair and commissioner who left before the commission voted to dismiss the complaint, told The Hill that "the case probably needed a surgical approach" to sort out what did and did not fall under the internet exception.

“It was almost like a whole bunch of political activity got thrown in a dump truck and somebody painted an internet exemption on the dump truck, and then they backed the dump truck up to the FEC and just dumped the whole pile of political activity right there at the FEC’s doorstep,” Goodman, who is now a partner at Wiley Rein LLP, said. 

The U.S. District Court of the District of Columbia in 2022 found the FEC acted “contrary to law” when it dismissed the case and gave the agency 30 days to act. 

The FEC ultimately appealed the decision. But the appeals court last week affirmed the decision and found that the FEC’s dismissal was “arbitrary and capricious and thus contrary to law.” 

“We hold that the Commission acted contrary to law in dismissing the complaint. Because we conclude that the internet exemption cannot be read to exempt from disclosure those expenditures that are only tangentially related to an eventual internet message or post, the Commission’s reading of the internet exemption stretches it beyond lawful limits,” the court said. 

Republican FEC Chair Sean Cooksey said he would continue to fight for a “robust” internet exemption in the wake of the decision. 

“Following the D.C. Circuit’s decision today, my colleagues and I will carefully review the court’s opinion and consider next steps, including whether to seek review in the Supreme Court. Regardless, I will continue to fight for internet freedom at the FEC and a robust regulatory exemption for political activities online, consistent with the law,” he said. 

Goodman said Cooksey’s comment provided a “strong signal that he’ll do what he can to preserve a robust internet exemption.” 

"What I hope is that, first, on remand, the FEC declares the internet exemption alive and well and robust, and secondly, that they very carefully include in the internet exemption those input costs, production costs, dissemination, staff time, software, copyright, all of those parts of an internet communication, to be exempt from regulation,” Goodman said. 

Malloy said that in an ideal world the FEC “would conduct a quick investigation of Correct the Record and the Clinton campaign, but really drive towards enforcement of the law and a conciliation agreement that would involve full disclosure of what exactly happened between the super PAC and the campaign so that we can really learn what was coordinated, how [it] was coordinated, what was the value, what were the purposes, what donor involvement may have occurred,” she said.

Dan Weiner, director of the Brennan Center for Justice's elections and government program at New York University Law School, told The Hill that the case was a “somewhat extreme example” of a group pushing the envelope on the contours of federal campaign finance law. 

But he also said that “inaction in cases like this breeds a kind of a culture of impunity and has contributed in no small part to a sense of lawlessness among at least some parts of the political elite."

Malloy noted the commission’s action on the carve-out remains to be seen after the court ruled it had gone too far.

“If an exemption is not going to be the exception that follows the rule, they're going to have to draw a much more meaningful, tighter line around what is exempt from not just title contribution limits, but also full disclosure,” Malloy said.