Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-07002/USCOURTS-caDC-99-07002-0/pdf.json

Nature of Suit Code: 320
Nature of Suit: Assault, Libel, and Slander
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 5, 1999 Decided October 29, 1999

No. 99-7002

Public Office Corporation, et al.,

Appellants

v.

Clinton for President Committee, et al.,

Appellees

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Appeal from the United States District Court

for the District of Columbia

(No. 95cv01264)

---------

Michael E. Geltner argued the cause and filed the briefs

for appellants.

John C. Keeney, Jr., argued the cause for appellees. With

him on the brief was Kelleen McGinnis Scott.

Before: Edwards, Chief Judge, Wald and Williams,

Circuit Judges.

Opinion for the Court filed by Circuit Judge Wald.

Wald, Circuit Judge: Appellants, the Public Office Corporation ("POC") and its directors, provided computer systems

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services to appellees, the Clinton for President Committee

and its auxiliaries ("Committee"). As part of a routine audit

mandated by federal election campaign law, auditors for the

Federal Election Commission ("FEC" or "the Commission")

issued an interim report in which they identified possible

discrepancies in the Committee's accounts. In response to

this audit report, the Committee attributed these disparities

in part to the actions of an unnamed computer vendor.

Alleging that the Committee had made libelous statements

about them in its response to the report, appellants filed suit.

Appellees moved to dismiss the libel suit under 2 U.S.C.

s 437d(c), which provides statutory immunity against civil

liability for disclosing information "at the request of the

Commission." 2 U.S.C. s 437d(c). This is an appeal from

the district court's order dismissing the suit. Appellants

argue that the allegedly libelous statements made by the

Committee were not immune because they were not made "at

the request of the Commission." Id. We hold in conformity

with the district court that the Commission's audit report did

constitute a request for information. Thus, the Committee's

statements in response to that report were immunized under

s 437d(c).

I. Background

Appellants, POC and its directors, William and Patricia

Anderson, provided data processing services and assistance in

complying with federal election laws to political campaigns.

Appellees, the Clinton for President Committee and the Clinton/Gore '92 General Election Compliance Fund, retained

POC to provide computer systems support during the primary and general election campaigns. As is customary under

federal election campaign law, the FEC conducted an audit of

the Committee's accounts; in their report the auditors found

discrepancies. In response to an interim report issued by the

FEC's auditors, the Committee attributed some of these

disparities to errors made by one of its vendors. Alleging

that their professional reputation had been damaged by three

statements, POC and its directors sued to recover damages

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for libel against the Committee and its attorney.1 This

appeal arises from an order issued by the district court

granting the appellees' motion to dismiss appellants' libel suit

under 2 U.S.C. s 437d(c), which provides statutory immunity

against civil liability for disclosing information "at the request

of the Commission." 2 U.S.C. s 437d(c).

The Committee received federal election campaign funds

under the Presidential Primary Matching Payment Account

Act ("PPMPAA"), 26 U.S.C. s 9031 et seq. As a condition of

receiving such funds, a campaign committee is required to

"agree to an audit and examination by the Commission." 26

U.S.C. s 9033(a)(3). The PPMPAA and implementing regulations set out a mandatory procedural framework for conducting an audit. See 2 U.S.C. s 9038(a); 11 C.F.R. s 9038.1.

The auditing process involves four steps.2 First, the Committee must submit documentation to the FEC's auditors to be

utilized in conducting the audit. Second, the audit staff

releases an interim audit report detailing its preliminary

findings and recommendations. See 11 C.F.R. s 9038.1(c)(1).

These recommendations may include tentative repayment

amounts, if the Committee is found to have received federal

funds in excess of actual eligibility. Third, the Committee

"will have an opportunity to submit, in writing ... legal and

factual materials disputing or commenting on the contents of

the interim report." 11 C.F.R. s 9038.1(c)(2). Fourth, after

consideration of the Committee's responses, the Commission

__________

1 The Clinton/Gore '92 General Election Compliance Fund was

formed by the Committee to ensure compliance with legal and

accounting functions for the 1992 Clinton/Gore election campaign.

For all purposes relevant to this case, the General Election Compliance Fund operated in conjunction with the Committee. Similarly,

Carolyn ("Lyn") Utrecht was an attorney employed by the Committee with responsibility for FEC audit matters. Thus, the term

"Committee" when used in this opinion is inclusive of the General

Election Compliance Fund and Utrecht.

2 This description of the auditing process is based on the 1994

version of section 9038.1. In 1995, section 9038.1 was revised to

replace the interim audit report with an exit conference memorandum. All parties agree, however, that the 1994 version is applicable

to the instant case.

publicly releases its final audit report, which may differ from

its interim audit report. The Commission may publish a

committee's responses in its own final report.

In this case, the interim audit report discussed several

alleged discrepancies in the Committee's accounts, including

excessive redesignations. Contributions made to a primary

campaign may, in certain limited circumstances, be transferred to the general election campaign by written redesignation. See 11 C.F.R. ss 103.3, 110.1, 110.2, and 9003.3. The

audit staff found that in many instances, the "redesignations

pursued by the Committee were not permissible." Joint

Appendix ("J.A.") at 250.

Moreover, according to the report, the excessive redesignation effort caused the Committee to receive matching funds

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in excess of entitlement. By redesignating funds from the

primary election campaign to the general election campaign,

it appeared that the Committee did not have sufficient private

funds in its primary campaign to meet its financial obligations. J.A. at 248-50. Therefore, the primary campaign

remained eligible for matching funds. However, the Commission staff contended that most of the funds were improperly

redesignated and should have been considered available to

the primary campaign to discharge its financial obligations.

Thus, it concluded that "the Candidate had received matching

funds in excess of his entitlement." J.A. at 249. Given this

finding, the report recommended that "the Committee provide evidence to demonstrate that it did not receive matching

funds in excess of entitlement." J.A. at 251.

The issue in this case is whether three statements about

POC that the Committee made in its response to the interim

audit report fall within the statutory grant of immunity for

information given "at the request of the Commission." 2

U.S.C. s 437d(c). The first alleged defamatory statement

involves the Committee's response to the report's finding that

the Committee had received excessive public funds, primarily

due to the volume of improper redesignations. Since the

propriety of this finding depended on whether the Committee

had improperly conducted redesignations, the Committee

sought to explain its redesignation efforts. Agreeing that

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many redesignations were "superfluous," J.A. at 101, the

Committee referred to an unnamed vendor whose "contract

... included an incentive for the vendor to treat contributions

as though additional documentation or affidavit was necessary." J.A. at 100. This statement was later published by

the FEC in its final audit report. Contending that this

statement was libelous, POC asserted that the clear implication was that it had conducted improper redesignations to

augment its profits. POC further argued that although the

vendor was not named, it could easily be identified since a

vendor list was published with the final report.

In the second and third "defamatory" statements, appellants also alleged that the Committee essentially tried to shift

blame for its accounting discrepancies to POC. The second

statement concerned the Committee's assertion that discrepancies in its account balances were "essentially due to errors

by one of the Committee's computer vendors who failed to

reconcile her records." J.A. at 63. POC asserted that while

she was not named, the "her" was an obvious reference to its

director, Patricia Anderson, who performed these functions

and was widely known to have done so. In the third statement, the Committee explained recordkeeping errors by stating that "[d]uring this period, the Committee experienced

significant difficulties with the vendor preparing the Primary

Committee's reports." Id.

In response to the lawsuit, appellees filed a motion arguing

that 2 U.S.C. s 437d(c), the provision that provides statutory

immunity for information disclosed at the FEC's request,

mandated dismissal. The district court granted the defendant's motion to dismiss, finding that the statements made by

the Committee to the FEC were in fact "privileged against

civil liability under s 437d(c)." Memorandum Opinion at 13

(reprinted in J.A. at 18). The court determined that

s 437d(c) set forth a "two-fold test" for immunity: "the

statements must be (1) at the request (2) of the Commission."

Memorandum Opinion at 7 (reprinted in J.A. at 12). The

court determined that the report "contain[ed] unequivocal

requests for information." Memorandum Opinion at 9 (reprinted in J.A. at 14). The court also held that the second

prong of s 437d(c) was satisfied, rejecting the argument that

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the audit staff was a separate entity from the Commission.

However, the court declined to accept appellees' ambitious

contention that all audit submissions necessarily constitute

responses to Commission requests that fall within s 437d(c)'s

scope.

On appeal, appellants assert that the statements do not

meet s 437d(c)'s bifurcated test. Noting that s 437d(c)'s

grant of immunity is contingent on the issuance of a "request," appellants first contend that the statements in the

Commission's interim report were not "requests." Appellants

also assert that because the report was not issued by the

Commission, but by its audit staff, which is an entity distinct

from the Commission, the statements fail to meet the second

prong of s 437d(c)'s test.

II. Discussion

The viability of appellants' libel suit turns on whether the

allegedly defamatory statements fall within the immunity

provision's scope. See 2 U.S.C. s 437d(c). Recalling the

Supreme Court's holding that "in any case of statutory construction, our analysis begins with the language of the statute," we turn to the text of s 437d(c). Hughes Aircraft Co. v.

Jacobson, -- U.S. --, 119 S.Ct. 755, 760 (1999) (internal

quotation marks omitted).

That text is straightforward. Section 437d(c) provides that

"n[o] person shall be subject to civil liability to any person

(other than the Commission or the United States) for disclosing information at the request of the [Federal Election]

Commission." 2 U.S.C. s 437d(c). Thus, the contested statements must be made in response to a request by the Commission.

A. "At the Request" Of

We first determine whether the statements in this case

were made "at the request" of the FEC and in that pursuit,

we begin with a careful reading of the FEC's interim audit

report. If we find there are such requests we will decide

whether the Committee's statements were responsive to

them. The first disputed statement is as follows:

The auditors focused here on whether these contributions were properly redesignated to the Compliance

Fund, but, in fact, in order to have been considered

primary contributions in the first instance, the regulations required that they be designated in writing for the

primary. Very few of them were so designated. The

Committee's vendor who processed these contributions

treated them as "redesignations" even though they were

not. That vendor's contract had been negotiated early in

the campaign by the Committee's original counsel and

included an incentive for the vendor to treat contributions as though additional documentation or affidavit was

necessary. Under the contract, the vendor received an

additional amount per contribution for which additional

documentation or an affidavit was obtained. The Committee staff did not see these contributions until well

after the election, but relied solely on the vendor's expertise to handle the contributions appropriately.

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J.A. at 100 (emphasis in original).

That statement directly responds to that portion of the

interim report in which the audit staff contended that the

Committee was conducting impermissible redesignations. In

a section entitled "Receipt of Matching Funds in Excess of

Entitlement," the interim audit report finds that the Committee received funds in excess of its actual eligibility, primarily

due to the volume of improper redesignations. J.A. at 247-

51.3 In its conclusion to that section, the audit staff issued

the following recommendation:

__________

3 The auditors found that:

[d]uring the period when the redesignations were being sought

for the contributions deposited into the Suspense Account, the

Committee continued to request and receive matching fund

payments based on ... statements that apparently did not

recognize contributions deposited into the suspense account.... Therefore, as of September 2, 1992, the Candidate

had received matching funds in excess of his entitlement.

J.A. at 248-49.

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The Audit staff recommends that within 30 calendar days

of service of this report, the Committee provide evidence

to demonstrate that it did not receive matching funds in

excess of entitlement. Absent such a demonstration, the

Audit staff will recommend ... that the Committee

repay $3,674,353 to the U.S. Treasury.

J.A. at 251 ("Recommendation Ten") (emphasis added).

Appellants' contention that this recommendation is not a

request is hardly credible. Surely a recommendation that the

committee "provide evidence" to demonstrate that it was not

violating the law is a genuine request for more information in

ordinary parlance and especially in the context of a government audit.

Moreover, even if this language were not sufficiently clear,

the transmittal letter accompanying the audit report removes

all doubts that Recommendation Ten was in fact a "request."

Prominently featured in the letter accompanying the report is

the following instruction:

This report is to formally advise you of the findings and

recommendations of the Audit staff resulting from the

audit of the Clinton for President Committee. You are

requested to comply with the recommendations by May 4,

1994.

J.A. at 205 (emphasis added). Recommendation Ten, read in

conjunction with the transmittal letter, clearly confirms that

the report did in fact contain a specific request to which the

Committee was responding in its first disputed statement.4

Appellants accurately point out that the other two disputed

statements were responsive to sections of the report in which

the audit staff recommended that no further action be taken.

See J.A. at 211, 212. From that fact, appellants argue that

__________

4 Appellants also argue that even if Recommendation Ten does

constitute a request, the Committee's response is not material to

the request. We may easily dismiss this contention. To the extent

that the audit staff asserted that the excessive payments were due

to unnecessary redesignations, appellees quite reasonably chose to

address the necessity of such redesignations.

there is no need for any response and no reason to construe

the audit report as calling for one. The second statement in

which the Committee attributed misstatements in its accounting to errors by an unnamed computer vendor, was made in

response to a section of the report entitled "Misstatement of

Financial Activity." J.A. at 210-11. This section delineated

discrepancies in the Committee's accounts and charged the

Committee with failure to maintain supporting documentation

that might have explained away these discrepancies. While

this section of the audit report does not so clearly cry out for

a response as Recommendation Ten, it confirms a clear

implication of past wrongdoing by the Committee.

For example, the audit report notes that although the

Committee claimed to have identified all disbursements in its

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pre-audit inventory, further research by the auditors revealed

"significantly different" disbursements. J.A. at 210-11.

Moreover, the report states that although the Committee

later corrected these misstatements, it failed to maintain the

supporting documentation that would have allowed the audit

staff to "identify the reasons for the misstatements." J.A. at

211. The Committee could quite reasonably construe such a

suggestion of accounting discrepancies and shoddy recordkeeping as a request for explanatory information, in the

absence of which the auditors' tentative conclusion of wrongdoing would remain on the record, even if no remedies were

sought. The Committee's issuance of an explanatory statement in an effort to account for the discrepancies falls within

the scope of a "request."

The third statement in which the Committee referred to

difficulties with an unnamed vendor who prepared its reports,

was made in response to a section entitled "Itemization of

Receipts." J.A. at 211-12. Although this section of the audit

report was admittedly more neutral so far as any implication

of wrongdoing was concerned than the section just described,

it essentially highlighted the Committee's failure to itemize

its records. For example, the report noted that a significant

percentage of the contributions which required itemization

were not correctly itemized. J.A. at 211. Given the inevitably tense atmosphere of an audit, especially one of a CommitUSCA Case #99-7002 Document #473376 Filed: 10/29/1999 Page 9 of 11
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tee which does ongoing business with the agency and whose

members can be expected to be repeat supplicants for federal

money, the auditee will understandably feel it imperative to

provide answers to questions raised by the audit report.

Additionally, it bears noting that the report was an interim

one. Even the recommendation for no further action would

not become final until the Commission acted upon it--hence

the felt need of the subject to provide any exculpatory

information.

Importantly, in this case, there can be little question that

the Committee's statements were relevant and responsive to

the Commission's concerns. There is then no need to even

consider appellees' contention that any information submitted

within the context of an audit is immunized irrespective of

whether it is germane to the Commission's report. The

district court reasonably rejected appellees' assertion of an

immunity so broad that it would include even gratuitous

information that was not responsive to the concerns in the

report.

In sum, we hold that the Commission's report did indeed

constitute a request for information in the three areas discussed and thus, the Committee's statements in response to

these requests are immunized under s 437d(c). Having

found that the statements meet s 437d(c)'s first request

prong, we discuss briefly whether these requests were issued

at the request "of the Commission."

B. "Of the Commission"

Appellants allege that even if the statements were responsive to requests contained in the audit report, this report was

not issued by the Commission itself but by its audit staff,

which under the statute constitutes a distinct entity.5 Thus,

__________

5 Appellants assert that there is a clear distinction between the

Commission and its staff on the face of the statute. They emphasize

that the statutory provision establishing the FEC states that it

consists of "the Secretary of the Senate and the Clerk of the House

of Representatives or their designees, ex officio and without the

right to vote, and six members appointed by the President, by and

with the advice and consent of the Senate." 2 U.S.C. s 437c(a)(1).

On appellants' reading, any person who is not included within this

appellants assert that even if the report did contain requests,

the audit staff had no power to confer immunity under

s 437d(c), since any immunity-conferring requests must be

issued by the Commission itself. Appellants' strained distinction between the FEC and the staff working under its

direction simply does not cut the mustard. We agree with

the district court that "it was the Commission, acting pursuant to its statutory authority, that conducted the interim

audit." Memorandum Opinion at 11 (reprinted in J.A. at 16).6

III. Conclusion

For the foregoing reasons, we hold that the Committee's

statements are immunized under s 437d(c). The decision of

the district court is

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Affirmed.

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definition may not act on behalf of the Commission, so far as

s 437d(c) is concerned. The district court dismissed appellants'

argument noting that "this definition describes the membership of

the Committee and not its duties. By contrast the focus of this case

is the functions of the Commission." Memorandum Opinion at 10

(reprinted in J.A. at 15).

6 See, e.g., 2 U.S.C. s 438(b) ("The Commission may conduct

audits and field investigations ... [p]rior to conducting any audit

... the Commission shall perform an internal review of reports

filed by selected committees."); 26 U.S.C. s 9038(a) ("After each

matching payment period, the Commission shall conduct a thorough

examination and audit."); 26 U.S.C. s 9040(b) ("The Commission is

authorized ... to institute actions ... to seek recovery of any

amounts determined to be payable to the Secretary as a result of an

examination and audit made pursuant to section 9038."); 11 C.F.R.

s 9038.1 (c)(1) (1994) ("The Commission will issue an interim audit

report to the candidate and his or her authorized committee."); 11

C.F.R. s 9038.1(c)(3) ("The Commission will consider any written

legal and factual materials submitted by the candidate or his or her

authorized committee.") (emphasis added in all citations).

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