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Parties Involved:
Federal Election Commission
Respondent
Paul Simon for President, Inc.
Petitioner
Paul Simon
Petitioner

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 6, 1995 Decided May 5, 1995

No. 93-1252

PAUL SIMON, ET AL.,

PETITIONERS

v.

FEDERAL ELECTION COMMISSION,

RESPONDENT

Petition for Review of an Order of the

Federal Election Commission

Leslie J. Kerman argued the cause for petitioners. With her on the briefs was Stuart M. Gerson.

Richard B. Bader, Associate General Counsel, Federal Election Commission, argued the cause for

respondent. With him on the brief were Lawrence P. Noble, General Counsel, and Vivien Clair,

Attorney, Federal Election Commission.

Before SENTELLE, HENDERSON and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge: This is a petition for review of a Federal Election Commission final

repayment determination ordering petitioners PaulSimon and PaulSimon for President,Inc., to repay

$412,162.87 in matching funds to the United States Treasury. Petitioners argue, inter alia, that the

Commission wastime-barred, pursuant to the Presidential Primary Matching Payment Account Act,

26 U.S.C. § 9038 (1988), from imposing this repayment obligation because the Commission did not

notify petitioners oftheir repayment claims within three years asrequired by the statute. Because we

agree that repayment determinationsmust be issued within the three-yearstatutoryperiod, we reverse

the Commission's ruling.

I. BACKGROUND

The Presidential Primary Matching Payment Account Act ("the Matching Payment Act" or

"the Act"), 26 U.S.C. §§ 9031-9042 (1988), was enacted in 1974 to provide partialfederalfinancing

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for the campaigns of qualifying presidential primary candidates. Once a candidate's eligibility is

established under the Act, he is entitled to receive paymentsfrom the Presidential Primary Matching

Payment Account to match individual contributions up to $250. 26 U.S.C. §§ 9034(a) & 9037.

Candidates may only use these funds to defray "qualified campaign expenses," defined as expenses

incurred in connection with the campaign for the presidential nomination that do not violate federal

or state law. 26 U.S.C. § 9032(9); 11 C.F.R. § 9034.4(a) (1995). The Act places limits on each

candidate's expenditures. Expenditures in excess of these limits are not "qualified campaign

expenses" for which candidates may use their matching funds. 11 C.F.R. § 9038.2(b) (1995).

The Act requiresthe Federal Election Commission ("the Commission" or "FEC") to conduct

a thorough examination and audit of the campaign finances of every publicly funded candidate after

the campaign for the nomination ends. 26 U.S.C. § 9038(a); 11 C.F.R. § 9038.1 (1995). If the

Commission determines that "any portion of the payments made to a candidate from the matching

payment account was in excess of the aggregate amount of payments to which [the] candidate was

entitled under section 9034, it shall notify the candidate, and the candidate shall pay to the Secretary

an amount equal to the amount of excess payments." 26 U.S.C. § 9038(b)(1). Similarly, if the

Commission determinesthat any portion of the payments was used for a purpose other than to defray

qualified campaign expenses, the Commission shall "notify the candidate of the amount so used, and

the candidate shall pay to the Secretary an amount equal to such amount." 26 U.S.C. § 9038(b)(2).

In 1987, Senator PaulSimon became a candidate for the Democratic nomination for President

of the United States. Pursuant to the Matching Payment Act, Senator Simon qualified for and

received a totalof $3,774,344.77 infederalmatching fund payments. These payments were deposited

into the account of Paul Simon for President, Inc. ("the Committee"), Senator Simon's principal

campaign committee for the 1988 campaign. On April 7, 1988, Simon suspended his candidacy. The

Commission subsequently conducted an audit of the Committee's records to determine whether

Simon would have to repay any of the matching funds he received, pursuant to § 9038(b). The

Commission's Audit Division initiated its investigation on July 25, 1988, and issued an interim audit

report to the Committee on July 10, 1990, containing preliminary calculations regarding possible

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future repayment to the United States Treasury.

Pursuant to the Commission's regulations, 11 C.F.R. § 9038.1(c)(v)(2), the Committee filed

its written responses to the preliminary calculations on January 11 and 31, 1991. The Commission

had previously granted the Committee several extensions of time to file these responses. In a letter

dated January 16, 1991, the Audit Division, however, notified the Committee that the Commission

had denied in part the Committee'srequest for a further extension oftime, asserting "the Commission

is mindful that the statute of limitations contained in 26 U.S.C. § 9038(c) expires on July 20, 1991."

26 U.S.C. § 9038(c) provides that "[n]o notification shall be made by the Commission under

subsection (b) with respect to a matching period more than 3 years after the end ofsuch period." The

period ends on the date the national convention of the party whose nomination a candidate seeks

nominates its candidate for President. 26 U.S.C. § 9032(6). In this case, the matching payment

period ended on July 20, 1988, the date the Democratic National Convention nominated Michael

Dukakisfor President. Thus, the three-year statutorynotification period terminated on July 20, 1991.

On July 17, 1991, three days prior to the expiration of the period, the Commission delivered the

Committee a letter asserting that the Committee's receipt of the interim audit report one year earlier

satisfied the three-year notification period under § 9038(c).

On October 22, 1991, the Commission approved the final audit report containing its initial

repayment determination, required by 11 C.F.R. § 9038.1(d). The report concluded the Committee

must repay $430,465.03. On November 20, 1991, the Committee requested an oral hearing to

respond to the Commission's initialrepayment determination, pursuant to 11 C.F.R. § 9038.2(c)(3).

The Committee also sought a sixty-day extension in which to file a written response. The

Commission granted the extension, and informed the Committee it would consider the request for an

oral presentation after the Committee submitted its written response to the final audit report. The

Committee filed its written response on January 31, 1992, raising challenges to the repayment

determination. The Commission held an oral presentation on August 5, 1992. On August 14, 1992,

the Committee submitted additional documentation to support its contentions.

The Commission issued a finalrepayment determination to the Committee on March 4, 1993,

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requiring it to repay $412,162.87 to the U.S. Treasury, based on the Commission's finding that the

Committee had used public funds for nonqualified campaign expenses as well as having received

matching funds in excess of its entitlement. 26 U.S.C. § 9038(b)(1)-(2). The Commission made a

demand for repayment on March 12, 1993. In an accompanying statement of reasons the

Commission rejected the Committee's position that the Commission's demand for repayment was

time-barred, ruling that, while its initial and final repayment determinations were issued after the

expiration of the statutory deadline, the interim audit report satisfied the three-year notification

requirement in both the Act and FEC regulations. This petition for review followed.

II. DISCUSSION

Petitioners argue that the FEC cannot require themto repay $412,162.87 to the United States

Treasury because the Commission issued its final repayment determination to petitioners in March

1993, more than nineteen months after the expiration of the statutory notification period, 26 U.S.C.

§ 9038(c), contained in the Matching Payment Act. Specifically, they argue that § 9038(c) prohibits

the Commission from issuing any repayment notifications later than July 20, 1991, three years after

the end of the matching payment period. They further contend that the Commission's reliance on the

issuance of the interim audit report as constituting sufficient compliance with the notification

requirement is contrary to the clear structure and plain language of the Act.

We agree with petitioners, at least to the extent that notification of the initial repayment

determination must be made within the three-year period. Section 9038, entitled "Examinations and

audits; repayments," governs the determination and remediation of the candidate's repayment

obligations. Subsection 9038(a), entitled "Examinations and audits," directs the Commission to

conduct a thorough examination and audit ofthe qualified campaign expenses of every candidate and

his committee(s) who received payments under the Act. In subsection 9038(b), "Repayments," the

statute mandates that when the Commission has determined that a candidate has either received an

excess of public funds (§ 9038(b)(1)), or improperly spent any of the funds (§ 9038(b)(2)), the

Commission "shall notify the candidate," and requires that "the candidate shall pay to the Secretary

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1While we recognize the notification provision in § 9038(b)(2) is worded slightly differently,

both notification provisions carry the same meaning. Section 9038(b)(2) states the Commission

"shall notify such candidate of the amount so used, and the candidate shall pay to the Secretary an

amount equal to such amount." 

an amount equal to the amount of excess payment."126 U.S.C. § 9038(b)(1). In the case of Simon,

the Commission determined that its audit revealed non-qualified expenditures recoupable under §

9038(b) in the amount of $430,465.03, later reduced to $412,162.87 after oralhearing. The difficulty

is that the Commission did not notify the candidate of the amount it contended he was obligated to

repay (that isthe original$430,465.03) untilOctober 22, 1991, over three months after the expiration

of the three-year period after the end of the matching-payment period.

Subsection 9038(c) provides, "No notification shall be made by the Commission under

subsection (b) with respect to a matching payment period more than 3 years after the end of such

period." The FEC argues that under its interpretation of the statute, its furnishing the candidate with

a copy of the interim audit report constitutes compliance with the notification requirement of § 9038.

As the FEC provided the audit report within the three-year period, the Commission asserts that the

repayment demand is not time-barred.

In support of this assertion, the FEC reminds usthat we must defer to an agency'sreasonable

interpretation of the statute it administers. However, we only defer to such an interpretation if the

statute is ambiguous on the issue in dispute. Chevron U.S.A. Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837, 843 (1984). If the text of the statute is clear, we "must give effect to

the unambiguously expressed intent of Congress." Id. In § 9038 there is no ambiguity in the

notification requirement. Subsection 9038(b) requires that the Commission notify the candidate of

the amount which he is to pay to the Secretary. The interim audit report does not even purport to

notify the candidate of any such amount. No obligation arises on the part of the candidate until he

has received notice of the amount which the Commission determines is due as repayment. The

interim audit report is no more than its name implies, a progress report of the continuing audit.

Even if we accepted the Commission's position that there is a sufficient ambiguity in the

statute to warrant the application of Chevron analysis, the Commission's own authoritative

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interpretations are by no means strong support for its position in this litigation. Under the

Commission's own rule, interim audit reports may include preliminary calculations regarding future

payments to the U.S. Treasury, but are not required to do so. 11 C.F.R. § 9038.1(c)(1)(v). In a

separate section entitled "Repayments," 11 C.F.R. § 9038.2, the Commission established binding

procedures for the repayment determinations, which must include an actual monetary figure owed

by the candidate. In 1983, the Commission added a provision in its regulations making the interim

audit report a mandatory step in the audit process. In the "Explanation and Justification" issued when

the Commission promulgated this rule, the Commission noted that the "preliminary calculations will

not, however, be considered as the Commission's initial repayment determination...." 48 Fed. Reg.

5,224, 5,232 (Feb. 4, 1983). Furthermore, 11 C.F.R. § 9038.2(a)(2) (1988), mandates that the

"Commission will notify the candidate of any repayment determinations made under this section as

soon as possible, but not later than 3 years after the end of the matching payment period." Thus the

Commission's own interpretations have generally followed the logic of the statute: that is, an interim

audit report does not constitute notification under 26 U.S.C. § 9038 of a repayment obligation which

the FEC, itself, has at that point not yet determined.

The Commission countersthat it amended 11C.F.R. § 9038.2(a)(2) in 1991 to add a sentence

explicitly stating that "[t]he Commission's issuance of an interim audit report to the candidate under

11 CFR 9038.1(c) will constitute notification for purposes of the 3 year period." Petitioners assert

that this amendment, if it has any force, can apply only prospectively; the FEC argues that it should

apply retroactively. We need not resolve the retroactivity issue. For the reasons we have already

stated, this regulation is inconsistent with the statute. We do not dispute the broad delegation of

authority to the Commission to "formulate policy with respect to [The Matching Payment Act]," 2

U.S.C. § 437c(b)(1) or "to make, amend, and repeal such rules ... as are necessary to carry out the

provisions of [the Act]." 2 U.S.C. § 437d(a)(8). But, under Chevron, and general principles of law,

no such administrative action by the Commission can override the plain mandate of the legislation.

The Commission argues that a consequence of our holding is that candidates will take

advantage ofthe opportunitiesto respond solelyto prolong the repayment determination process, and

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thus avoid repaying any amount to the U.S. Treasury altogether. This argument is a red herring. The

Commission is not required to grant candidates' requests for extensions of time. In this case, for

instance, the Commission granted petitionersseveral extensions, totaling 170 days. Under 11 C.F.R.

§ 9038.4, the Commission has discretion to deny these requests. As a result, a candidate can only

prolong the repayment determination process beyond the three-year statutory period with the

Commission's assistance.

The parties advance other arguments which we have not discussed as they are not necessary

to the disposition of the controversy under our rationale as set forth above. We do think one

argument worthy of mention, that is the contention of the petitioners that all the relevant actions by

the Commission in the conduct of the audit and repayment demand were unlawful asthe Commission

itself was unconstitutionally comprised during that period under Federal Election Commission v.

NRA Political Victory Fund, 6 F.3d 821 (D.C. Cir. 1993), aff'd. on other grounds, --- U.S. ---

(1994). Between the filing of briefs in this case and the issuance of this opinion, we disposed of this

argument in Robertson v. Federal Election Commission, 45 F.3d 486 (D.C. Cir. 1995).

III. CONCLUSION

For the foregoing reasons, we find the Commission time-barred from requiring petitioners to

return $412,162.87 to the U.S. Treasury. We thus reverse the Commission's decision.

It is so ordered.

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