Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-97-01466/USCOURTS-caDC-97-01466-0/pdf.json

Parties Involved:
Federal Election Commission
Respondent
Lenora B. Fulani
Petitioner

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 21, 1998 Decided June 23, 1998

No. 97-1466

Lenora B. Fulani

For President Committee and

Lenora B. Fulani,

Petitioners

v.

Federal Election Commission,

Respondent

On Petition for Review of an Order of the

Federal Election Commission

Arthur R. Block argued the cause and filed the briefs for

petitioners.

Richard B. Bader, Associate General Counsel, Federal

Election Commission, argued the cause for respondent, with

whom Lawrence M. Noble, General Counsel, and Vivien

Clair, Attorney, were on the brief.

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Before: Silberman, Williams and Randolph, Circuit

Judges.

Opinion for the Court filed by Circuit Judge Silberman.

Silberman, Circuit Judge: Lenora B. Fulani and Fulani for

President Committee (collectively, Fulani) seek review of the

Federal Election Commission's determination that they must

repay approximately $120,000 in matching payments to the

United States Treasury. We deny the petition.

I.

Fulani sought the 1992 presidential nomination of the Democratic party, the New Alliance party, and several other

independent parties. She received approximately $2,000,000

from the United States Treasury pursuant to the Presidential

Primary Matching Payment Account Act, 26 U.S.C. ss 9031-

9042 (1994). Eligible candidates are entitled to receive payments matching individual contributions up to $250, subject to

a ceiling, but they may use matching funds only for "qualified

campaign expenses." See id. ss 9034, 9042(b); see generally

Simon v. FEC, 53 F.3d 356 (D.C. Cir. 1995); Robertson v.

FEC, 45 F.3d 486 (D.C. Cir. 1995).

The Act directs the FEC to audit each matching funds

recipient and the Commission has established detailed examination procedures by regulation. See 11 C.F.R. pt. 9038

(1992).1 Fieldwork--an inspection of the candidate's books

and records--is the first step in that process. After the FEC

completed its fieldwork with respect to Fulani's campaign

records, it prepared and approved an interim audit report.

The Commission's preliminary calculations contained therein

indicated Fulani owed $1,394. Cash contributions to a candidate are not eligible to be matched with federal funds, and

Fulani had purchased money orders, which may be matched,

to be exchanged for cash from contributors who did not have

checks. But she could not account for some of these money

orders. Fulani promptly repaid the $1,394. The Commission

__________

1 We refer throughout to the regulations in effect at the time of

Fulani's campaign.

approved a final audit report containing an "initial repayment

determination," see id. s 9038.1(d)-(e), equal to the already

repaid dollar amount a few months later. If a candidate

chooses to contest the FEC's initial repayment determination,

she is provided the opportunity to submit written materials

(and may also request oral hearing) for the Commission to

consider before it issues a "final repayment determination";

the initial determination otherwise becomes final 30 days

after the candidate is served with written notice. See id.

s 9038.2(c). Fulani--having already repaid the amount in

question--did not contest.

The Commission, however, decided to hold its final determination in abeyance. It received information from a former

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Fulani campaign worker that called into question the accuracy of the documentation that it reviewed during the fieldwork

phase of its audit. The Commission began an investigation

pursuant to part 9039 of its regulations, which authorizes

inquiries on the basis of information received from outside

sources, then issued subpoenas and ordered depositions of

campaign staff and vendors. But Fulani and some of the

vendors she had used either complied incompletely or resisted--Fulani's campaign manager and the Committee's treasurer even asserted the Fifth Amendment privilege against

self-incrimination. The Commission was forced to seek judicial enforcement of its subpoenas, which it obtained from the

district court in the Southern District of New York on several

occasions. On August 3, 1995, before some of those subpoenas were enforced, the FEC issued a second initial repayment

determination, this time in the amount of $612,557.32. Fulani

contested, and in its final repayment determination, the FEC

reduced the amount that she owed to $117,269.54--$18,767.99

in non-qualified disbursements to the National Alliance;

$73,750.55 in unsubstantiated payments to individuals by

check; $1,394 in lost money orders (carried over from the

prior repayment determination), and $22,357 in excess matching funds.2 Fulani sought rehearing, which the Commission

__________

2 Although Fulani does not specifically contest the Commission's excess matching funds determination ($22,357), it is entirely

dependent on the contested disqualified expense findings.

denied. Her petition for review of the Commission's order

followed.

II.

Fulani raises three challenges to the Commission's authority to have issued the second repayment determination and

alternatively argues the Commission's findings that she owes

$18,767.99 in non-qualified disbursements to vendors and

$73,750.55 in unsubstantiated payments to individuals by

check are unreasonable. We consider petitioner's challenges

to the Commission's authority first.

The Matching Payment Act requires that "the Commission

shall conduct a thorough examination and audit of the qualified campaign expenses of every candidate and his authorized

committees who received payments." 26 U.S.C. s 9038(a)

(1994). The FEC is instructed to determine whether matching payments to a candidate exceeded her entitlement, or if

the candidate used matching funds to defray non-qualified

campaign expenses, and must notify the candidate of a repayment obligation no later "than 3 years after the end of [the

matching payment] period." Id. s 9038(c). Fulani claims

that the Act contemplates only one repayment determination

and therefore the Commission had no authority to take a

second bite of the apple. The Commission's regulation, which

allows it to "mak[e] additional repayment determinations ...

after it has made a final determination ... where there exist

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facts not used as the basis for a previous final determination,"

see 11 C.F.R. s 9038.2(f), is therefore ultra vires.3 We agree

with the Commission, however, that the statute is silent on

the point and its regulation represents a permissible construction under Chevron.4

__________

3 The Commission, as we noted, initiated the supplementary

audit pursuant to s 9039, which deals with its general investigation

authority, but that regulation specifically allows it to make a s 9038

determination on the basis of the information obtained--which it

did.

4 Chevron U.S.A. Inc. v. Natural Resources Defense Council,

Inc., 467 U.S. 837 (1984).

Petitioner next argues that the FEC had no authority to

hold in abeyance its first repayment determination because,

by operation of its own regulations, the determination became

final when Fulani did not object to the FEC's first initial

repayment determination within 30 days from the time she

was served with written notice. See 11 C.F.R. s 9038.2(c)(1).

We are puzzled as to why the Commission declared that it

was staying the first repayment determination when, as discussed above, its own regulation explicitly authorizes it to

make additional repayment determinations on the basis of

new facts. It is clear that the Commission treated its first

repayment determination--which Fulani had already settled--as final during its second investigation. It did not

reexamine the facts relating to the lost money orders, and

devoted only one summary paragraph to the matter in its 90-

page statement setting forth the legal and factual basis for its

second final repayment determination. The Commission used

the new information it had received only to investigate other

of Fulani's expenses. Under these circumstances, we agree

with the Commission's counsel that it makes no difference

whether the first repayment determination is viewed as having been suspended until the second initial determination

issued on August 3, 1995, or as becoming final prior to the

supplementary determination.

Finally, petitioner argues that even if the Commission is

entitled to make a second repayment determination, it was

not issued within the three-year period as the statute requires. The parties agree that the Commission had until

August 20, 1995 to notify Fulani of any repayment determination. Fulani claims, however, that the August 3 repayment

determination, which imposed on Fulani an obligation to

repay monies to the United States Treasury, was not the

product of a "thorough examination and audit," and should be

regarded as bogus--a figure drawn up just to meet the

deadline. To be sure, the initial figure considerably exceeded

the final determination. We can certainly imagine circumstances in which it might be successfully argued that the

Commission's initial determination figure is not legitimate,

but that is not this case. In light of the difficulties the

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Commission encountered in investigating Fulani's expenses, it

cannot be blamed for drawing all inferences against Fulani.

When a candidate seeks to frustrate and delay a government

investigation, it can hardly be heard to complain that the

product is insufficiently thorough.

III.

We turn, then, to petitioner's challenges to the disallowed

expenses. Fulani argues that the Commission unreasonably

concluded that her payments to the National Alliance weekly

newspaper were non-qualified expenses. The Commission's

initial repayment determination charged that the entire

$75,062.50 Fulani had paid to the National Alliance failed to

qualify. Fulani's only explanation was that those payments

represented newspaper purchases, but the former campaign

worker who had brought the new evidence to the Commission's attention testified that the newspaper was given to the

public for free. The Commission ruled that Fulani therefore

had not carried her burden of proving that her disbursements

were qualified campaign expenses. See 11 C.F.R.

s 9033.11(a). Fulani contested, and this time submitted an

affidavit of a person familiar with the business of the National Alliance. He indicated that the paper sold for 50 cents,

according to the masthead, and that Fulani purchased at the

bulk rate of 35 cents a copy. The FEC accepted Fulani's

bulk purchase rationale, but noted that according to the

masthead, the bulk rate was actually only 15 cents per copy,

so Fulani had overpaid by 20 cents per paper. The Commission determined that $31,500 (the number of copies purchased

at a 15 cent rate) was a qualified campaign expense, but the

remainder of the $75,062.50 was not. After calculating the

pro rata share of the remainder (candidates must repay only

the portion of an expenditure attributable to public funds),

the Commission determined that Fulani had to repay

$18,767.99.

Fulani sought reconsideration, offering as an explanation

that the extra 20 cents represented a premium payment for

extra coverage and printing costs--as the Commission deUSCA Case #97-1466 Document #361679 Filed: 06/23/1998 Page 5 of 9
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scribes it, a special services contract theory. But the Commission's rules provide that those seeking reconsideration

must "[s]et forth clear and convincing grounds why [new]

questions [of fact or law] were not and could not have been

presented during the earlier determination process." 11

C.F.R. s 9038.5(a)(1)(iii). Relying on its rule, the FEC refused to consider Fulani's new argument, because she had

not shown any reason why this explanation could not have

been provided earlier. The Commission is certainly entitled

to prescribe its own procedures, including the requirement

that candidates raise all arguments is support of their case

before the Commission issues its final repayment determination. Fulani nevertheless argues that in this case the Commission acted unreasonably in not allowing her an exception

to its rules. She purports to have relied on a memorandum

from the FEC's General Counsel to the Commission (dated

January 9, 1996) in preparation for oral hearing on her

challenge to the initial repayment determination (held February 7, 1996), also produced to Fulani and the public, that

indicated her National Alliance payments were qualified

expenditures. The Commission legitimately pointed out, in

denying rehearing, however, that staff memoranda do not

set forth the Commission's position. And reliance on the

General Counsel's memorandum is a particularly poor excuse

here, as the memorandum directly contradicts the FEC's

initial repayment determination. Moreover, even if the

memorandum would have justified Fulani not having raised

her new argument at oral hearing, it was written after she

had submitted her arguments and evidence (October 9,

1995), which indisputably did not advance the "special services contract" theory.5 Fulani's alternative claim, that she

was simply responding to the FEC's shift in rationale between its initial repayment and final repayment determinations is also unpersuasive because the Commission only

__________

5 We have previously upheld the FEC's regulation, 11 C.F.R.

s 9038.2(c)(3), that limits oral hearings to matters raised in timely

written submissions. See Robertson, 45 F.3d at 491. Fulani therefore may have been barred from raising the new theory at oral

hearing in any event.

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shifted theories in response to her bulk purchase explanation, in a way that was favorable to her. Fulani was aware

that her payments to the National Alliance were at issue,

and should have offered all of her explanations at the appropriate time.

Fulani's second substantive objection is directed at the

Commission's determination that payments by check from

Fulani to individuals were unqualified expenditures because

they were unsubstantiated. She claims that the Commission

acted contrary to its own regulations which, properly interpreted, do not require Fulani to show--as the Commission

demanded--a payee's personal endorsement. The checks

endorsed by Fulani's staff, she argues, satisfied the Commission's own standards. Committee members either signed for

the nominal payee along with their own name, or signed their

own name with the notation "ok to cash." The FEC's documentation regulation sets forth four alternative methods for a

candidate to substantiate disbursements in excess of $200. A

receipted bill from the payee stating the purpose of the

disbursement is preferred, id. s 9033.11(b)(i), but if that is

not possible, the candidate may produce a "canceled check

negotiated by the payee" and accompanying documentation

generated by the payee. Id. s 9033.11(b)(ii). If the candidate cannot produce independent documentation generated

by the payee that states the purpose of the disbursement, a

"canceled check negotiated by the payee that states the

purpose of the disbursement" will suffice. Id.

s 9033.11(b)(iii). Otherwise, the candidate may "present a

canceled check and collateral evidence to document the qualified campaign expense." Id. s 9033.11(b)(iv). It is on this

last alternative that Fulani principally relies.

The Commission, however, interpreted subsection (b)(iv) of

its regulation to require that the canceled check be negotiated

by the payee, just as subsections (b)(ii) and (iii) require (in

1995, it amended the regulation to require this explicitly).

Responding to Fulani's textual argument, the Commission

said:

[we] always expect[ ] that a canceled check will be negotiated by the payee. Simply because the Commission in

one instance did not include the phrase 'negotiated by

the payee' when discussing canceled checks, should not

be interpreted to mean that the Commission would accept a check endorsed by another as proof that the

original payee received the funds.

The FEC's reading of its regulation admittedly is not obvious.

The Commission's interpretation--that "canceled check" as

used in subsection (b)(iv) means the same thing as "canceled

check negotiated by the payee," used in the prior two subsections of the documentation regulation--is seemingly inconsistent with the expressio unius est exclusio alterius construction canon, that is, "the mention of one thing implies the

exclusion of another." We have cautioned recently that the

"maxim's force in particular situations depends entirely on

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context." Shook v. District of Columbia Fin. Responsibility

and Management Assistance Auth., 132 F.3d 775, 782 (D.C.

Cir. 1998).

The Commission explained that it interpreted its regulation

as it did because there is otherwise no evidence that the

money reached its intended source, and it cannot even conclude that a campaign expense was actually incurred. The

other three parts of the Commission's documentation regulation each require that the candidate show receipt by the

payee. In addition, each requires collateral evidence showing

the purpose of the disbursement--even when a check is

personally endorsed by a payee, the regulation requires either accompanying documentation generated by the payee, or

that the canceled check state the purpose of the disbursement. What varies among the steps is the form that the

evidence of receipt and purpose take. In that context, it is

not clear that by omitting the words in question, the Commission meant to entirely dispense with the requirement that

there be at least some evidence of receipt by the payee--or to

weaken the evidentiary standard so far as to allow the

candidate to self-document her own disbursements. If we

were interpreting this language de novo it would be one

thing. But the FEC is, of course, entitled to substantial

deference when it interprets its own regulations, see Lyng v.

Payne, 476 U.S. 926, 939 (1986), and we think it reasonable--

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given that the regulation as a whole is concerned with both

ensuring that a payment actually was disbursed and that it

was used for an appropriate purpose--for the Commission to

interpret its regulation to require a personal endorsement on

the canceled check, even though the fourth subpart did not

include the precise words "negotiated by the payee." 6

* * * *

Fulani raises several other claims, including that the section 9039 investigation was a "prosecutorial audit" that violated Fulani's due process and that the FEC was required to

accept the definition of "negotiated" under New York commercial law in construing its documentation regulation, that

we have not addressed, but have nevertheless considered and

reject. The petition is denied.

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6 Even if petitioner's interpretation of the regulation were

correct, the fourth subpart also requires the candidate to present

"collateral evidence" to document the expense. The Commission

never explicitly said that Fulani had failed to carry this burden, but

it did point out that she only submitted affidavits (and no documentation) to show that the funds reached their intended recipients

although her Committee treasurer cashed the checks by the double

endorsement method. In the FEC's view, her "after-the-fact affidavit testimony [was] not sufficient to trace the flow of the cash from

the [candidate] to the [payees]." And, according to the Commission, Fulani did not even submit affidavits to explain who received

payment on some of the disqualified checks. While we cannot

affirm the Commission on a rationale that it did not advance, it is

worth noting that it had an alternate ground for its decision.

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