FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463 SENSITIVE

BEFORE THE FEDERAL ELECTION COMMISSION

In the Matter of

Sumter Electrical Cooperative, Inc.; ) MUR 5931 /ADR 480

James P. Duncan )

Statement of Reasons

Commissioner Cynthia L. Bauerly

Commissioner Ellen L. Weintraub

This matter concerns allegations of improper solicitations and coercion. The complaint

alleged that Respondents Sumter Electric Cooperative, Inc. ("SECO") and James P. Duncan,

CEO and General Manager of SECO, violated the Federal Election Campaign Act of 1971, as

amended ("the Act") by improperly soliciting employees to make contributions to the Action

Committee for Rural Electrification ("ACRE"), a separate segregated fund ("SSF") established

for certain employees of SECO.1 Most troubling in our view, the complaint alleged that coercion

had been employed in SECO's solicitations.

Specifically, the complaint alleged that certain written communications distributed by

SECO management and ACRE constituted improper solicitations that failed to inform employees

of the political purpose of the separate segregated fund, that all contributions to the fund should

be voluntary, and that the employees have a right to refuse to contribute without reprisal. See 2

U.S.C. § 441b(b)(3) and 11 C.F.R. § 114.5(a). Furthermore, the complaint alleged that managers

of SECO held one-on-one meetings, which were inherently coercive, with employees who had

withdrawn their support of ACRE. Finally, the complaint alleged that SECO has been soliciting

employees to contribute to ACRE during annual employee meetings that were mandatory and

thus, solicited individuals outside of its restricted class in violation of 2 U.S.C. § 441b(b)(4).

Respondents denied that the written communications at issue in the complaint constituted

solicitations. While respondents admitted that they did hold individual meetings with employees

who ceased making contributions to ACRE, they denied that any solicitations or coercion

1

 The Complainant was International Brotherhood of Electrical Workers, Local 108 ("Local 108"), which represents

some of the employees whom SECO allegedly solicited.
Statement of Reasons of Commissioners Bauerly and Weintraub

MUR5931/ADR480

Page 2

occurred during these meetings.2 Respondents admitted that SECO may have "unwittingly"

solicited employees outside of its restricted class but contended that it took corrective action after

discovering this fact.3

The Office of General Counsel O'OGC") recommended that the Commission: 1) find

reason to believe that SECO and Duncan violated 2 U.S.C. § 441b(b)(3) and 11 C.F.R. §

114.5(a) by using coercion when soliciting contributions and failing to inform solicitees of the

political purpose of the separate segregated fund and their right to refuse to so contribute without

any reprisal; 2) find reason to believe that SECO and Duncan violated 2 U.S.C. § 441b(b)(4) and

11 C.F.R. § 114.7(a) by soliciting employees who were outside of the restricted class; and 3)

authorize an investigation and the use of compulsory process. On December 2, 2008, the

Commission failed by a vote of 3-3 to approve OGC's recommendations.4 We voted in favor of

the recommendations because we believe these serious allegations warranted investigation.

After the motion to find reason to believe and open an investigation failed, we reluctantly

voted with all four of our colleagues to refer the matter to the Alternative Dispute Resolution

("ADR**) Office. This was probably a mistake, born of the forlorn hope (on our part) that even

without an investigation (which the Office of ADR does not have the capacity to conduct), a

meaningful settlement might result. The Negotiated Settlement (••Settlement") presented to the

Commission on March 11, 2009, however, was entirely unsatisfactory because without resolving

the factual dispute raised by the Complaint and Response, it absolved all liability with no

remedial measures. The Settlement merely requires the respondents to comply with the law -

something they are required to do regardless of whether they sign an agreement to do so. They

cannot be doubly obliged to follow the law. No penalty was included, and we still do not know

whether or not the allegations of coercion were well-founded. Accordingly, Commissioner

Weintraub moved to reject the ADR settlement and return this matter to OGC to undertake an

investigation.5 Unfortunately this motion was only supported by Commissioner Bauerly and the

facts will remain unknown.6 We write this statement to explain why we thought an investigation

was warranted and why we could not support the Settlement.

2

 At the reason to believe stage, the only information before the Commission is the complaint and the response.

Interviews with the employees who took part in the allegedly coercive meetings would have been conducted after

the Commission voted to authorize an investigation. Because there were not four votes to authorize such an

investigation, we do not know whether the meetings were, in fact, coercive.

3

 Response at 9.

4

 Chairman Walther, Commissioners Bauerly and Weintraub voted to approve OGC's recommendations to find

reason to believe that a violation had occurred and authorize an investigation; Vice-Chairman Petersen.

Commissioners Hunter and McGahn voted against the motion.

9

 As discussed in further detail below, the ADR program plays an important role in the Commission's enforcement

efforts. Its inherent limits, however, including the inability to conduct investigations, makes it an inappropriate

venue for some matters, as starkly demonstrated here.

6

 Commissioners Bauerly and Weintraub voted to reject the negotiated settlement and return the matter to OGC for

investigation. Chairman Walther, Vice-Chairman Petersen, and Commissioners Hunter and McGahn opposed this

motion and subsequently voted to approve the settlement agreement (which Commissioners Bauerly and Weintraub

opposed).
Statement of Reasons of Commissioners Bauerly and Weintraub

MUR 5931 /ADR 480

PageS

Background

SECO is an electric cooperative with 379 employees. At the time of this matter, 200

employees were cooperative members and 171 were represented by the International

Brotherhood of Electrical Workers ("IBEW").7 SECO is a member of the National Rural

Electric Cooperative Association ("NRECA"). NRECA established ACRE, a political action

committee ("PAC" or "SSF") registered with the Commission, for its affiliated cooperatives'

employees. As a member and affiliate of NRECA, SECO has been acting as a collecting agent

for ACRE and soliciting contributions for ACRE from certain SECO employees, including

bargaining unit employees. SECO enabled all employees to make contributions to ACRE

through automatic payroll deductions. From May through June 2007, approximately 65

bargaining unit employees (in connection with a labor dispute) discontinued their deductions to

ACRE. In response, Duncan and ACRE representatives sent two written communications to, and

held individual meetings with, those SECO employees who had withdrawn their support for the

PAC and sent an additional communication to all SECO employees.

The Written Communications

According to the complaint, on or about June 5, 2007, the CEO of SECO, James Duncan,

sent a letter to only those employees who had discontinued their payroll deductions to ACRE.8

In the letter, Duncan expressed his "personal disappointment" in the employees for

"withdrawing] support'* and noting the employees were "apparently never committed to ACRE

in the first place."

Two days later, in a June 7, 2007 memo to all employees, Duncan stated, "Frankly, I am

still struggling to understand how withdrawing financial support from needy individuals within

the community and withdrawing support from an organization that lobbies daily to assure that

cooperatives and their employees are protected, has anything to do with the Union contract."10

He also wrote "I hope those of you who have withdrawn your support for both the United Way

and ACRE will reconsider your decision. I hope the vast majority of you will continue to

support both because it is the right thing to do."1'

Finally, also on June 7, 2007, the "elected representatives of the ACRE Committee'* also

sent out a letter on SECO letterhead to only the group of employees that had discontinued their

deductions. This letter acknowledged that while employees had a right to terminate their

contributions to ACRE, the ACRE Committee was "very disappointed" with the employees'

7

 See Response at 1.

8

 Complaint Ex. 1.

"Id.

10

 Complaint Ex. 2. The bargaining unit employees had also discontinued their deductions to United Way as part of

the labor dispute.

11

 Id.
Statement of Reasons of Commissioners Bauerly and Weintraub

MUR 5931/ADR 480

Page 4

decision and asked "that you rethink the recent action you took/* closing with "we hope that you

will have a change of heart."12

The complaint alleged that these communications were solicitations that should have

included notices concerning the voluntariness of contributions as specified in 2 U.S.C. §

441b(b)(3) and 11 C.F.R. § 114.5(a). The response denied that these communications were

solicitations at all, and some of our colleagues agreed. We confess we are mystified as to how

they could have reached that conclusion.

When a CEO expresses his "personal disappointment** that employees have exercised

their constitutional right to choose not to contribute and then attempts to persuade them to

"reconsider** and "support" the PAC "because it is the right thing to do," it is hard to imagine

how these words could be construed as anything but a solicitation. This was not a mere

supervisor but the CEO of the company, who explicitly said: "I hope those of you who have

withdrawn your support for both the United Way and ACRE will reconsider your decision."13

The only way they could reconsider would be to reinstate their support and contribute to the

PAC. He was asking them to do so. Asking for a contribution is a solicitation. The Act and the

Commission's regulations and precedents on this are clear.

Under the Act and Commission regulations, an incorporated cooperative, such as SECO,

may solicit contributions to its separate segregated fund from members and executive and

administrative personnel, and the families thereof.14 In relevant advisory opinions, the

Commission has explained that a communication regarding SSF activity is a solicitation under 2

U.S.C. § 441 b where the communication encourages or facilitates contributions to the SSF or

praises employees for contributing.15 If the communication merely mentions the SSF or only

engenders inquiry but does not encourage contributions, the communication is not a solicitation.

See. e.g., AO 2000-07 (Alcatel USA) (statement on corporate intranet generally describing

functions of SSF not a solicitation); AO 1983-38 (DuPont) (article in company publication

announcing formation of SSF and discussing general factual information not a solicitation).

The Act also requires that all contributions to an SSF must be voluntary and without

coercion. See 2 U.S.C. § 441b(b)(3) and 11 C.F.R. § 114.5(a); see also AO 2003-14 (Home

Depot). In order to ensure that contributions solicited for a separate segregated fund are

voluntary, a solicitation for contributions, whether written or oral, must inform the employee or

member being solicited at the time of the solicitation of the political purposes of the separate

segregated fund and of his or her right to refuse to so contribute without any reprisal. See 2

U.S.C. §441b(b)(3)(B)-(C); 11 C.F.R. § 114.5(a)(3}-(5); see also MUR 5681 (High Point);

MUR 5337 (First Consumers National Bank); MUR 5208 (Amboy National Bank).

12

 Complaint Ex. 3.

11

 Complaint Ex. 2.

14

 See 1 U.S.C. § 44lb(bX4)(C); 11 C.F.R. § I I4.7(a); see also AO 1999-40 (NRECA), AO 2006-17 (Berkeley

Electric Cooperative PAC).

15

 See, e.g., AO 2003-14 (Home Depot), AO 2000-07 (Alcatel USA).
Statement of Reasons of Commissioners Bauerly and Weintraub

MUR 5931/ADR 480

PageS

These precedents establish that the three written communications from Duncan and

ACRE constituted solicitations. By expressing his "personal disappointment" in those

employees who chose to discontinue their contributions to ACRE, Duncan was chastising such

individuals and attempting to persuade them to reverse their decisions.16 In the June 7, 2007

memorandum, Duncan again voiced his displeasure at employees' decision to terminate support

for ACRE and solicited contributions by asking employees to "reconsider" their decisions.17

Finally, in the June 7, 2007 letter from the ACRE Committee, the Committee repeated Duncan's

sentiments by writing, "we are very disappointed with your decisions" and encouraged support

for ACRE by describing "the value of this program."18 The ACRE Committee letter also asked

employees to reconsider their decision to terminate support for ACRE by stating, "we

respectfully ask that you rethink the recent action you took." The letter concluded, "[w]e hope

that you will have a change of heart."20 Contrary to the respondents' assertions, these

communications did more than merely reference the SSF or engender inquiry. Rather, the

communications encouraged support of ACRE by touting ACRE'S benefits to SECO, criticizing

the withdrawal of support, and actively requesting that employees change course and renew their

contributions to ACRE.

Because SECO's communications constituted solicitations, they were required to notify

solicitees of the purpose of the SSF and the right to refuse to contribute without reprisal as

specified in 2 U.S.C. §441b(b)(3) and 11 C.F.R. § 114.5(a). They failed to do so. While the

letter from the ACRE Committee acknowledged that contributions were voluntary and that

employees had a right to terminate their participation in the payroll deduction program, none of

the communications contained all of the required notices. Furthermore, including the term

"voluntary" docs not cure a solicitation that does not otherwise satisfy all of the requirements of

11 C.F.R. § 114.5(a).21 Thus, the Commission should have found reason to believe that SECO

and Duncan violated 2 U.S.C. § 441b(b)(3) and 11 C.F.R. § 114.5(a)(3)-(5) by failing to notify

solicitees of the purpose of the SSF and the right to refuse to contribute without reprisal in

communications soliciting contributions to ACRE.

The Individual Meetings

In addition to the written communications, the complaint asserted that in June 2007,

SECO managers called those employees who had withdrawn their support for ACRE into oneon-one meetings and encouraged them to contribute to ACRE. The complaint alleged that these

16

 Complaint Ex. I.

17

 Complaint Ex. 2, at 2.

"Complaint Ex. 3.

n

ld

*ld.

21

 The Commission has concluded that even if a solicitation asks for "voluntary contributions, merely including the

word [voluntary] once does not diminish the coercive nature of the solicitations or satisfy the requirements of 11

C.F.R. § I l4.5(a)(2)-(4)." MUR 5337, Conciliation Agreement atU 13.
Statement of Reasons of Commissioners Bauerly and Weintraub

MUR 5931/ADR 480

Page 6

meetings with subordinate employees were "inherently coercive and constituted threats of job

discrimination and/or reprisal for failure to contribute to ACRE."22

The response did not dispute that the meetings occurred but contended that the

management neither solicited nor coerced employees during the meetings. The response claimed

that the communications and meetings were intended to address misinformation the union was

disseminating regarding a labor dispute.

The mere fact that SECO held meetings with these employees suggests that it monitored

who contributed and who did not. Indeed, monitoring of employee contributions is indicative of

coercion. See MUR 5379 (Penelas) (finding that monitoring of who did and who did not

contribute to be coercive); MUR 4780 (Harris) (finding no reason to believe facilitation took

place and no coercion, in part because the employer kept no records and no inquiries regarding

who contributed). Although the response claimed that employees are told that SECO "does not

review who contributes and who does not contribute to ACRE,"23 SECO apparently did review

employee contributions. It knew exactly who had stopped contributing and targeted these

meetings and communications to those individuals.

In an attempt to rebut the allegations, the response provided affidavits from three SECO

managers who stated that the managers who met with individual employees neither solicited nor

coerced the employees. However, only two of the affiants, Carl Cole and Charles Castle,

personally held any of the meetings at issue, and they only held 9 out of the 65 meetings with

employees who requested that their contributions to ACRE be terminated.24 The affidavits thus

leave open questions as to what was said to the other 56 employees by other SECO managers

and whether any of those conversations might have been coercive.

More significantly, the Commission cannot adequately address a charge of coercion by

reviewing only the version of events provided by those alleged to have been doing the coercing.

It must also hear from those in the less powerful position; those alleged to have been coerced.

This is why the need for an investigation was so critical in this case. It is undisputed that those

with more economic power met one-on-one with those with less economic power and that

employees were selected for these meetings based on their failure to continue to support the

PAC. These meetings with managers took place in conjunction with two separate

communications by the CEO expressing in no uncertain terms his view that these employees

should renew their support for the PAC. It is not surprising that the complainant viewed these

meetings as "inherently coercive." By declining to even inquire into whether these colorable

allegations could be substantiated, the Commission was derelict in its duty to ensure that

contributions to SSFs do not result from coercion. The Commission should have found reason to

~ Complaint at M 12.23.

23

 Response at 8.

24

 Cole held separate one-on-one meetings with five employees, and Castle held separate one-on-one meetings with

four employees. See Affidavits of Carl Cole and Charles Castle.
Statement of Reasons of Commissioners Bauerly and Weintraub

MUR5931/ADR480

Page?

believe that SECO violated 2 U.S.C. § 441b(b)(3) and 11 C.F.R. § 114.5(a) by using coercion to

solicit contributions and should have opened an investigation.

To be clear: It may well be that nothing untoward took place during these meetings.

What is frustrating is that we will never know because the Commission failed to authorize an

investigation.

The Annual Meetings

Finally, the complaint alleged that, at least once a year, SECO requires all employees to

attend "mandatory" meetings at its corporate headquarters during which SECO solicits

employees to contribute to ACRE, thereby constituting impermissible solicitations outside of the

restricted class. During the meetings, employees allegedly are required to complete and return

forms indicating whether they will contribute or not. The complaint contended that at some of

these meetings, employees arc given pins or other gifts based on the amount of their

contributions.

In their response, respondents stated that the annual meetings are not mandatory. They

explained that the main purpose of the annual meetings is to discuss employee benefits. After

such discussion, there is a fifteen minute break, and an ACRE presentation begins after that.

They asserted that not all Sumter employees stay for the ACRE presentation, and those who do

attend are verbally told that contributions are voluntary.25

With respect to the annual meetings, there is no dispute that SECO solicited

contributions. Respondents have provided a sample solicitation form that was distributed at the

2006 meeting during the ACRE presentation.26 The form constitutes a solicitation by facilitating

contributions to the SSF. See, e.g., AO 2000-07, at 4. While the form states that solicitees have

*^ ^_ I1?

a right to refuse to contribute, the form does not state the purpose of ACRE. Respondents

have submitted an affidavit stating that solicitees were informed of the purpose at the meeting,

presumably orally, but 11 C.F.R. § 114.5(a)(5) states that all "written solicitations" must contain

all required disclosures. Further, although the form contains suggested guidelines for

contributions, it fails to state that an individual was free to contribute more or less than the

guidelines suggested. See 11 C.F.R. § 114.5(a)(2); AO 2006-17 (Berkeley Electrical

Cooperative). Thus, the Commission should have found reason to believe that SECO violated 11

C.F.R. §114.5(a)(2).

Moreover, respondents admitted that SECO may have "unwittingly" solicited beyond the

restricted class,28 in violation of 2 U.S.C. § 441b(b)(4) and 11 C.F.R. § 114.7(a). The response

did not explain how SECO actually solicited these individuals, although it did note that SECO

25

 See Response, Affidavit of Barry Bowman.

26

 See Response, unlettered Attachment, "ACRE 2007 Membership Drive."

*ld.

21

 Response at 9.
Statement of Reasons of Commissioners Bauerly and Weintraub

MUR 5931 /ADR 480

PageS

had taken corrective action. Of the 322 current employees who have made contributions to

ACRE through SECO, the response estimated that 108 of those contributors were outside of

SECO's restricted class.29 That is not an insignificant proportion of "unwitting" violations.

Thus, the Commission should have found reason to believe that SECO and Duncan violated 2

U.S.C. § 441b(b)(4) and 11 C.F.R. § 114.7(a) by soliciting individuals outside of its restricted

class.

The ADR Settlement Agreement

The ADR program is designed to "encourage[] parties to engage in negotiations that

promptly lead to the resolution of their dispute/'30 which is a worthy goal. However, not all

matters can be resolved through negotiation, particularly matters where key facts need to be

established, as in this matter. The ADR Settlement approved by the Commission acknowledges

that respondents have violated the law but exacts no penalty. It requires nothing of the

Respondents that they were not legally required to do already.31 In some respects, it appears to

require less: To avoid future violations, Respondents commit to various steps, including

reviewing the employment status of new employees "to determine whether they are eligible to be

solicited*' and sending "written notification to current employees/ACRE contributors on an

annual basis reminding them of the eligibility requirements and the employee's responsibility to

notify SECO of any changes in their eligibility. Thus, once SECO has checked the status of a

new hire, the Settlement appears to put the onus on employees whose eligibility status changes

affirmatively to ward off improper solicitations, rather than placing responsibility to avoid

improper solicitations where it rightly belongs, with the respondents. See 2 U.S.C. § 441b(b)(4)

and 11 C.F.R. § 114.7(a). It is not clear why the Commission would approve such a provision,

particularly with respect to a respondent that has admitted it has improperly solicited outside the

restricted class before.

The Settlement entered into with the Respondent does not address via confirmation or

refutation the serious allegations of coercion made against SECO. The reason that the

Settlement does not address these allegations is because the ADR Office is not designed to, and

does not have the capacity to, conduct investigations. Our ADR Office was asked to reach an

agreement with the Respondents - and it did. We could not support the resulting Settlement

because it leaves unaddressed the most serious allegations in the complaint.

The Courts have addressed the concept of voluntary contributions - and have consistently

sided with the right of the employee to refuse to contribute. When invalidating a union's

involuntary check-off process for funding its PAC from its membership, the D.C. Circuit wrote:

"The same interest advanced by Buckley [prevention of corruption and the appearance of

29

 id.

30

 FEC Website, available at: http://www.fec.gov/pages/brochures/adr.shtml.

3

J See ADR 480 (MUR 5931).

32

 See Settlement H 9, (emphasis added).

" And while we may disagree with the concessions in this Settlement, it is hard to fault the ADR Office for not

securing greater concessions when there was no support for a tough negotiating stance from the Commission.
Statement of Reasons of Commissioners Bauerly and Weintraub

MUR 5931 /ADR 480

Page 9

corruption] is also served by ensuring that every dollar in that political action fund is knowingly

and intentionally given. To achieve that, the burden must be on the solicitor and not the

dissenter." FEC v. NEA, 457 F.Supp. 1102, 1109 (D.D.C. 1978). When discussing what would

become § 441b(b)(3) in a floor debate, Congressman Thompson referred to "the coercion

inherent in the solicitation of employees by employers/04 While Congress has allowed

employers to solicit from their employees, it has done so within strict limits. Only certain

employees may be solicited. Moreover, every solicitation must be accompanied by a disclaimer

that such a solicitation is voluntary and refusal to contribute will not result in reprisals,

specifically because the possibility of such coercion is inherent in the process.

Conclusion

The outcome of this matter should satisfy no one. Serious allegations go unaddressed

and uninvestigated and a cloud remains. Our colleagues' refusal to authorize even a limited

investigation means we will never either confirm the complainant's allegations or clear

respondents' names. Both the complainant and the respondents deserve better.

One of our jobs as Commissioners is to protect the ability of all citizens to contribute, if

they wish, to the political causes of their choice. But an equally important duty is to protect

with equal vigor the right of every citizen to choose to decline to make such a contribution. It is

for these reasons that we originally voted to find reason to believe there was a violation in MUR

5931 and why we voted to reject the ADR Settlement Agreement reached in this matter.

Ellen L. Weintraub Date

Commissioner

1

Cyntbid L. BaueitT f ) Date

Commissioner

34122 Cong. Rec. 8881 (1976) (remarks of Rep. Thompson).