Your web browser is not supported You're using Internet Explorer, some features might not work. Please switch to another browser like Chrome, Firefox, or Edge for a better experience.


An official website of the United States government Here's how you know
 **Official websites use .gov**
            
            A **.gov** website belongs to an official government organization in the United States.
 **Secure .gov websites use HTTPS**
            
            A **lock** ( A locked padlock ) or **https://** means you've safely connected to the .gov website. Share sensitive information only on official, secure websites.


Federal Election Commission | United States of America Calendar
           Glossary
          Search
              Search


Menu
      Home
      Campaign finance data
        All data
            Raising
            Spending
            Loans and debts
            Filings and reports
            Candidates
            Committees
            Bulk data
            Campaign finance statistics
        Find elections. Search by state or ZIP code
          Look up contributions from specific individuals
      Help for candidates and committees
        All compliance resources
            Guides
            Forms
            Dates and deadlines
            Trainings
        Learn about electronic filing
          Find and contact your committee's analyst
      Legal resources
        All legal resources
            Advisory opinions
            Enforcement
            Statutes
            Legislation
            Regulations
            Court cases
            Policy and other guidance
        Search across all legal resources
          Search guidance documents
      About
        All about the FEC
            News and announcements
            Commission meetings
            Mission and history
            Leadership and structure
            Reports about the FEC
            Careers
            Working with the FEC
            Contact
        Introduction to campaign finance and elections


- Home
- ›
        Legal resources
- ›
        Court cases
- ›
      STERN v. GENERAL ELECTRIC CO.

STERN v. GENERAL ELECTRIC CO. 
 STERN v. GENERAL ELECTRIC CO.
 On January 28, 1991, the U.S. Court of Appeals for the Second Circuit ruled     that the Federal Election Campaign Act (the Act) does not preempt state law     doctrine on corporate waste. Philip M. Stern, a General Electric (GE) stockholder,     filed suit alleging that GE's funding of its separate segregated fund (GE/PAC)   constituted a waste of corporate assets under state law.The district court had dismissed the allegations, ruling that they were preempted     by the Act. Reversing the district court decision on this issue, the appeals     court held that the Act did not preempt Mr. Stern's allegations of corporate     waste. The court, however, dismissed the allegations on other grounds but     granted Mr. Stern leave to replead. With respect to Mr. Stern's allegations     that GE violated federal lobbying and anti-bribery statutes, the appeals court   affirmed the district court's dismissal of the claims.Allegations of Corporate WasteMr. Stern alleged that GE's payment of GE/PAC's administrative and solicitation     expenses constituted a waste of corporate assets under state law because:GE did not realize any benefit from GE/PAC's contributions to incumbent       candidates since they were made without regard to the candidates' positions     on issues of concern to GE; and    GE's payments for administrative and solicitation expenses were excessive     in relation to the amount of contributions the PAC collected.In response, GE argued that the allegations should be dismissed because they     fell within the FEC's exclusive jurisdiction under 2 U.S.C. §437c(b)(1).     (Under that provision, the FEC has exclusive jurisdiction over civil enforcement     of the Act.) The appeals court rejected this argument because Mr. Stern's     allegations focused on GE's waste of corporate assets under state law rather   than on whether GE's activities violated the Act.In reversing the district court holding that the allegations of corporate     waste were preempted by the Act, the appeals court pointed out the "narrow     wording" of statute's preemption clause: the Act preempts "any provision of     state law with respect to election to Federal office." 2 U.S.C. §453.     The court said that Congress did not intend the Act to preempt the entire     field of corporate political spending. That would result in a total absence     of regulation on the appropriate amounts that corporations may spend on their   PACs, since the Act is silent on this issue.The court found that state regulation of corporate waste did not conflict     with federal law in this case. The Act's provision allowing a corporation     to pay for the costs of administering and soliciting contributions to a PAC     (2 U.S.C. §441b(b)(2)(C)) was designed to limit, rather than encourage,     corporate political spending "in order to preserve the integrity of the political     process....Thus, state-law regulations that tend to reduce a corporation's     support of its political action committee do not impede the FECA's goals."The court, however, dismissed Mr. Stern's allegations of corporate waste     because he failed to allege fraud or "bad faith" on the part of the company's     directors. The court, however, granted Mr. Stern leave to replead these allegations.Other AllegationsThe court of appeals upheld the district court's dismissal of Mr. Stern's     allegation that GE's administrative and solicitation payments for GE/PAC were     actually lobbying expenditures that should have been reported pursuant to     the Federal Regulation of Lobbying Act. Mr. Stern had alleged that the failure     on the part of GE directors to comply with this statute exposed GE to prosecution     under 2 U.S.C. §269 and therefore constituted a breach of fiduciary duty.     The appeals court disagreed, finding that GE's spending did not constitute     "direct communication" with government officials and therefore was not subject   to the lobbying statute.Similarly, the court of appeals upheld the district court's dismissal of     Mr. Stern's allegation that GE directors exposed GE to liability by acquiescing     in GE/PAC's violation of the federal anti-bribery statute. Mr. Stern had claimed     that certain GE/PAC contributions violated the statute because they were given     to "grandfathered" Members of Congress with the knowledge that the contributions     might be converted to the candidate's personal use under 2 U.S.C. §439a.     The appeals court said that because such use is lawful under the Act, the     contributions did not violate the anti-bribery statute (18 U.S.C. §203).     Moreover, "[c]riminal intent under section 203 turns not on what the contributor     expects the recipient to do with the money, but rather on what the contributor   expects to receive for that money."**Source:**  FEC *Record --* July 1991, p. 6.   *Stern v. General Electric Co.*, 924 F.2d 472 (2d Cir. 1991).


This information is not intended to replace the law or to change its meaning, nor does this information create or confer any rights for or on any person or bind the Federal Election Commission or the public. The reader is encouraged also to consult the Federal Election Campaign Act of 1971, as amended (52 U.S.C. 30101 et seq.), Commission regulations (Title 11 of the Code of Federal Regulations), Commission advisory opinions and applicable court decisions.


About
          Careers
          Press
          Contact
   Privacy and security policy
          Plain language
          No FEAR Act
          Strategy, budget and performance
 Open government
          Protected Voices
          USA.gov
          Inspector General
          FOIA
 OpenFEC API
          GitHub repository
          Release notes
          FEC.gov status


Federal Election Commission
 The FEC's Twitter page
            The FEC's YouTube page Sign up for FECMail


Hide glossary Glossary Search terms