ORAL ARGUMENT NOT YET SCHEDULED

No. 14-5297

__________________________________________________________________

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

__________________________________________________________________

FEDERAL ELECTION COMMISSION,

Plaintiff-Appellee

v.

CRAIG FOR U.S. SENATE, LARRY E. CRAIG, INDIVIDUALLY, AND IN HIS

OFFICIAL CAPACITY AS TREASURER OF CRAIG FOR U.S. SENATE,

Defendants-Appellants

___________________________________________________

On Appeal from the United States District Court

for the District of Columbia (Judge Amy Berman Jackson)

___________________________________________________

REPLY BRIEF OF APPELLANTS

Stanley M. Brand

BRAND LAW GROUP, PC

923 Fifteenth St. NW

Washington, DC 20005

Telephone: (202) 662-9700

Facsimile: (202) 737-7565

Email: sbrand@brandlawgroup.com

April 23, 2015

Andrew D. Herman

Counsel of Record

Aiysha S. Hussain

MILLER & CHEVALIER CHARTERED

655 Fifteenth St., NW, Suite 900

Washington, DC 20005

Telephone: (202) 626-5800

Facsimile: (202) 626-5801

Email: aherman@milchev.com

Email: ahussain@milchev.com

Counsel for Appellants

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TABLE OF CONTENTS

Page

SUMMARY OF ARGUMENT .................................................................................1

ARGUMENT .............................................................................................................2

I. APPELLANTS’ ARGUMENTS ARE PROPERLY BEFORE

THIS COURT..................................................................................................2

II. THE DISTRICT COURT’S APPLICATION OF THE

PERSONAL USE STANDARD TO THIS CASE IS

ERRONEOUS AND CONTRARY TO THE FEC’S

REASONABLENESS ANALYSIS ................................................................6

A. The District Court Misapplied the Personal Use Statute ......................6

B. The FEC’s Brief Misstates the Commission’s Own

Application of the Personal Use Standard ............................................9

C. The FEC Has Consistently Applied a Reasonableness

Standard When Evaluating Legal and Media Expenses .....................12

III. THE DISTRICT COURT ABUSED ITS DISCRETION BY

ORDERING SENATOR CRAIG TO DISGORGE HIS

CAMPAIGN FUNDS TO THE U.S. TREASURY ......................................18

A. Disgorgement to the Craig Committee Will Restore The

Status Quo While Respecting Donor Intent Consistent

With the First Amendment..................................................................19

B. Disgorgement to the Craig Committee Is Consistent With

Long-Standing FEC Policy .................................................................22

C. Disgorgement Cannot Be Punitive......................................................26

IV. THE DISTRICT COURT’S IMPOSITION OF A CIVIL

PENALTY IS INAPPROPRIATE IN THIS MATTER................................26

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CONCLUSION........................................................................................................28

CERTIFICATE OF COMPLIANCE.................................................................... post

CERTIFICATE OF SERVICE ............................................................................. post

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TABLE OF AUTHORITIES

Page(s)

Cases

Citizens United v. FEC,

558 U.S. 310 (2010)............................................................................................27

Empagran S.A. v. F. Hoffman-Laroche, Ltd.,

388 F.3d 337 (D.C. Cir. 2004)..............................................................................2

FEC v. NRA,

254 F.3d 173 (D.C. Cir. 2001)............................................................................13

FTC v. Febre,

128 F.3d 530 (7th Cir. 1997) ..................................................................19, 21, 26

McConnell v. FEC,

540 U.S. 93 (2003)..............................................................................................21

Official Comm. of Unsecured Creditors of WorldCom, Inc. v. SEC,

467 F.3d 73 (2d Cir. 2006) .................................................................................19

SEC v. Blavin,

760 F.2d 706 (6th Cir. 1985) ..............................................................................19

SEC v. Cavanagh,

445 F.3d 105 (2d Cir. 2006) ...............................................................................19

SEC v. First City Fin. Corp.,

890 F.2d 1215 (D.C. Cir. 1989)..........................................................................26

SEC v. Fischbach Corp.,

133 F.3d 170 (2d Cir. 1997) ...............................................................................21

United States v. Sussman,

709 F.3d 155 (3d Cir. 2013) ...............................................................................19

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Statutes

52 U.S.C. § 30114..............................................................................3, 4, 6, 9, 14, 17

Federal Election Commission Materials

* FEC AO 1997-12 (Costello), 1997 WL 529598 (Aug. 15, 1997)...........................12

* FEC AO 2001-09 (Kerrey), 2001 WL 844352 (July 17, 2001) ........................12, 14

FEC AO 2006-35 (Kolbe), 2007 WL 419188 (Jan. 26, 2007) ................................10

* FEC AO 2008-07 (Vitter), 2008 WL 4265321 (Sept. 9, 2008)...........................7, 15

* FEC AO 2013-11 (Miller), 2013 WL 6022101 (Oct. 31, 2013) .............4, 11, 12, 14

Federal Election Commission, Committee Treasurers,

http://www.fec.gov/pages/brochures/treas.shtml#fn1 (Feb. 2005) ..............23, 24

Federal Election Commission, Winding Down Your Federal

Campaign, http://www.fec.gov/info/articles/windingdown09.pdf

(last visited Apr. 23, 2015) .................................................................................26

Other Authorities

11 C.F.R. § 102.9 .....................................................................................................23

11 C.F.R. § 112.1 .......................................................................................................9

11 C.F.R. § 113.1 .................................................................. 6, 7, 8, 9, 11, 13, 14, 18

11 C.F.R. § 113.2 .....................................................................................................25

148 Cong. Rec. S2096 (daily ed. Mar. 20, 2002) ....................................................14

Expenditures; Reports by Political Committees; Personal Use of

Campaign Funds, 60 Fed. Reg. 7,862 (Feb. 9, 1995) ........................................14

James M. Fischer, Understanding Remedies (3d ed. 2014) ..............................20, 22

Webster’s II New College Dictionary (3d ed. 2005)...............................................20

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The Censure Case of Thomas J. Dodd of Connecticut (1967),

http://www.senate.gov/artandhistory/history/common/censure_case

s/135ThomasDodd.htm (last visited Apr. 23, 2015) ............................................9

*Authorities upon which we chiefly rely are marked with an asterisk.

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SUMMARY OF ARGUMENT

In this important matter of first impression, the Federal Election

Commission (“FEC”) or (Commission”) elects to prioritize its paltry claim that this

Court is precluded from considering Appellants’ claims. FEC Opp’n Br. (FEC

Opp. Br.) at 22-25, 34-35. Contrary to the FEC’s assertions, Appellants’ claims

are squarely before this Court.

This Court should reverse the district court’s ruling ordering disgorgement

and imposing a civil penalty. The district court erred because rather than applying

the comprehensive fact-specific analysis mandated by law, it adopted the illusory

ban on the use of committee funds for legal expenditures offered by the FEC. A

plain reading of the statute and regulations, in conjunction with the FEC’s own

advisory opinions, establishes that no bright-line ban exists. Rather, the FEC has

repeatedly sanctioned expenditures similar to Senator Craig’s by applying a caseby-case analysis of a candidate’s or official’s rationale for campaign committee

expenditures.

Even if the district court’s decision regarding personal use were correct, the

order requiring Senator Craig to disgorge campaign funds to the U.S. Treasury is

not supported by precedent, contrary to FEC policy, and improperly punitive. In

support of disgorgement to the U.S. Treasury, the FEC relies on inapplicable

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precedent. Both the Federal Election Campaign Act (“FECA”) and long-standing

FEC policy support disgorgement to the Craig Committee.

If this Court does uphold the district court’s disgorgement order, it should

eliminate the $45,000 penalty. Given the lack of consistency and ambiguity in the

FEC’s application of the personal use statute, it is inappropriate to penalize

Appellants’ expenditures.

ARGUMENT

I. APPELLANT’S ARGUMENTS ARE PROPERLY BEFORE THIS

COURT

The FEC claims that Appellants have waived their arguments relating to the

“personal use” standard and to the appropriate outlet for disgorgement. Appellants

repeatedly raised both these claims during the proceedings relating to the district

court proceedings. See Empagran S.A. v. F. Hoffman-Laroche, Ltd., 388 F.3d 337,

339 (D.C. Cir. 2004) (plaintiffs preserve claims by raising them in their briefs or at

oral argument before a district court). As such, there is no basis for the FEC’s

assertions regarding waiver of either meritorious claim.

In its opposition, the FEC first addresses Appellants’ supposed “meritless

new argument regarding the applicable legal standard that this court should not

consider.” FEC Opp. Br. at 22-25. Incredibly, the FEC has elected to make this

claim despite the copious evidence in the record directly contradicting its assertion

that this question was not previously at issue.

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The FEC apparently maintains that Appellants have waived their argument

that Senator Craig’s legal expenses were permissible because they were “ordinary

and necessary expenses incurred in connection with official duties” and would not

exist “irrespective” of his duties. FEC Opp. Br. at 21-22. These, however are

separate arguments. While Appellants’ brief does not focus on the former claim,

relating to “ordinary and necessary expenses” sanctioned by 52 U.S.C.

§ 30114(a)(2), it squarely addresses the latter, relating to the “irrespective”

standard for personal use set forth in § 30114(a)(6), (b)(1) and (b)(2). Appellants’

opening brief (Apps. Br.), at pages 2-5, fully addresses the application of § 30114

to this matter.

The FEC’s claim that Appellants have forfeited this argument is contradicted

throughout the record. First, the district court noted the following in its

memorandum opinion denying the motion to dismiss:

the Court is being asked to determine whether these legal

expenses can properly be characterized as ‘ordinary and

necessary expenses incurred in connection with the

Senator’s duties’ – that is were they ‘permitted’ under

subsection (a)(2) of the statute? And, if they were not a

‘permitted’ use of campaign funds under that provision

but the legal expenses were ‘lawful’ under subsection

(a)(6), the court must also decide whether the

expenses were “personal”: would they have existed

irrespective of Senator Craig’s duties as a holder of

fedreal office. If so, the use of campaign funds for that

purpose was prohibited under subsections b(1)-(2).

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JA133-34 (emphasis added).1 And, indeed, the district court’s order expressly

denied defendants’ claims on the “irrespective” question. JA138.

After the FEC filed its motion for summary judgment, Appellants – while

acknowledging that the district court appeared to have already decided this issue –

reiterated that Senator Craig’s expenditures would not have existed irrespective of

his duties as a federal officeholder. ECF No. 19 at 15-16 (citing FEC AO 2013-11

(Miller) and arguing “[that] plea would not have leaked nor been publicized were it

not for [Craig’s] position.”). At oral argument, the FEC’s counsel engaged in an

extended discussion with the district court regarding whether “the lawyers’

interaction with media and public relations issues would not have existed

irrespective of [Senator Craig’s] campaign or officeholder status.” JA265. In

dismissing this claim and reiterating its holding that Senator Craig’s expenditures

violated the personal use ban, the district court rejected both Appellants’ factual

claims and its citation to the Miller advisory opinion. JA19. (holding that

“defendants violated section 30114(b) [the “irrespective” provision])”.

1 In the Memorandum Order, the district court expressly ratified Appellants’

reading of the personal use statute over the FEC’s position: “The Court agrees with

defendants’ assertion that the prohibition on expenditures for ‘personal use’ under

section 439a(b) does not apply to sections 439a(a)(1)-5 and does not act as a limit

on expenditures expressly permitted under those provisions.” JA133 n.2. The

FEC’s current claim represents an about-face from its opposition to the motion to

dismiss where it claimed that the irrespective standard set forth in “[30114(b)]

contains the only relevant statutory standard in this case.” ECF No. 5 at 8-9 n.3.

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This appeal focuses on Appellants’ argument that Senator Craig would not

have incurred legal expenses irrespective of his status and duties as an

officeholder. As Appellants maintained before the district court, these legal

expenses are not personal because the publication and subsequent media scrutiny

of the arrest and plea, and the attendant political consequences, arose solely

because of Senator Craig’s status. ECF No. 19 at 6. Indeed, as the FEC

acknowledged in its summary judgment brief, the district court was presented with

this exact argument. See JA20; ECF No. 19 at 25. Senator Craig’s primary

argument on appeal was presented to the district court and therefore is

appropriately preserved for appeal.

The FEC’s assertion that Appellants have forfeited their argument regarding

disgorgement is also belied by extensive record materials. The FEC states that

Senator Craig “untimely . . . asserts that the court was . . . required to direct . . .

funds to the Craig Committee.” FEC Opp. Br. at 34. Yet, Senator Craig has

consistently maintained throughout this litigation that disgorgement of campaign

funds, if ordered, should be made to the Craig Committee. The FEC argued at

summary judgment that the appropriate disposition for misspent funds would be

disgorgement to the Craig Committee: “[T]he FEC recommends that Craig instead

be ordered to refund the converted funds to the Craig Committee.” ECF No. 16 at

17 n.12. Contrary to the FEC’s assertion on appeal, Appellants echoed the FEC’s

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position that any disgorgement order should direct funds to the Craig Committee.

See ECF No. 19 at 24 n.19 (citing FEC Mot. Summ. J. at 17 n.12). At oral

argument on summary judgment, Appellants reiterated that, if necessary, funds

should be disgorged to the Craig Committee. JA311-13. Indeed, the FEC agreed

with this position. JA271-74. (“I think it also would be a just result if it went to the

Committee, and then the Committee spent it consistent with what FECA allows it

to spend its money on.”). The FEC’s argument that Senator Craig waived his

disgorgement argument ignores the record; the issue was adequately preserved.

II. THE DISTRICT COURT’S APPLICATION OF THE PERSONAL

USE STANDARD TO THIS CASE IS ERRONEOUS AND

CONTRARY TO THE FEC’S REASONABLENESS ANALYSIS

This Court should reverse the district court’s finding that Senator Craig’s

legal expenditures constituted personal use. The FEC’s interpretation of the

personal use standard, adopted by the district court, is not supported by either the

plain language of the statute or the FEC’s advisory opinions. Because Senator

Craig has reasonably established that his expenses were related to his duties as an

officeholder they do not constitute personal use under 52 U.S.C. § 30114.

A. The District Court Misapplied the Personal Use Statute

Under applicable regulations, legal expenses are not deemed per se personal

use under the FECA; a court must engage in a searching and careful, case-by-case

review of the use of campaign funds for legal expenses. See 11 C.F.R.

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§ 113.1(g)(1)(ii)(A) (application of “irrespective” standard to legal expenses is

determined “on a case-by-case basis”).

In lieu of conducting this comprehensive analysis, the district court – at the

FEC’s urging – applied bright-line rules that simply do not exist. The court’s error

stems from the FEC’s confusion about its own standard governing the use of media

and legal fees. As Appellants detailed in their opening brief, the FEC permits a

campaign committee to pay expenditures relating to media expenses stemming

from any type of conduct, including media-related legal fees. Apps. Br. at 9-11.2

This determination does not derive from any specific statutory or regulatory

directive. Instead, it stems from the FEC’s assumption that all media-related

expenditures – whether addressing official or personal conduct – arise by dint of an

officeholder’s or federal candidate’s status. See FEC AO 2008-07 (Vitter), 2008

WL 4265321, at *4 (Sept. 9, 2008) (“The Commission has recognized that the

activities of candidates and officeholders may receive heightened scrutiny and

attention in the news media because of their status . . . .”) (internal quotation marks

and citation omitted). In essence, the FEC has determined that media-related

expenses are per se permissible under the “irrespective” standard.

2 Notably, unlike legal expenses, the FEC has adopted a blanket approval for

media-related expenditures even though the regulations do not expressly sanction

such expenditures. See 11 C.F.R. § 113.1(g)(1)(ii).

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Appellants do not question the FEC’s blanket approval of media-related

expenditures stemming from conduct unrelated to official duties. However, the

district court erred in holding that this application of the irrespective standard to

media-related expenditures forecloses a similar analysis for legal costs that are

created by a similar “heightened scrutiny” of officeholders. See JA18-19

(declining to assess the rationale for Senator Craig’s expenditures). Simply stated,

the FEC is required to conduct an identical analysis for legal expenses in similar

circumstances. See 11 C.F.R. § 113.1(g)(1)(ii)(A) (mandating “case-by-case”

assessment of legal expenditures).

The district court eschewed the requisite fact-specific analysis. Instead, it

accepted the FEC’s artificial, bright-line ban on the use of committee funds for

legal expenditures. See JA18 (rejecting defendants’ request to consider facts

relevant to legal expenditures because “the facts may illuminate why Senator Craig

did what he did, but they do not change what he did”) (emphasis in original).

Historically, however, the FEC commissioners have broadly determined that a

variety of media and legal expenses related to non-official conduct constituted

permissible campaign expenses. Apps. Br. at 9-11. Contrary to the FEC’s and

district court’s interpretation, proper application of the law, as set forth in the

FEC’s advisory opinions, see infra at 12-18, permit Senator Craig to use campaign

funds for all of the expenses at issues in this matter.

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B. The FEC’s Brief Misstates the Commission’s Own Application of

the Personal Use Standard

At the outset of its brief, the FEC traces the legal history of the “personal

use” provision at issue in this matter. FEC Opp. Br. at 2-5. While the parties are

largely in accord regarding which statute and regulations apply to expenditures

from a campaign committee, they, of course, diverge substantially in the

application of that law to the specific facts at issue.3

Because this case presents a question of first impression for a United States

court of appeals, the “numerous advisory opinions” issued by the FEC provide the

only practical applications of the “irrespective” test established by 52 U.S.C.

§ 30114; see also 11 C.F.R. § 113.1(g). By regulation, an advisory opinion request

must not pose “a hypothetical situation” and must include “a complete description

of all facts relevant.” 11 C.F.R. § 112.1(b), (c). The FEC places great weight on

its opinions and, indeed, utilizes Appellant’s knowledge of them to criticize his

3 For example, the FEC’s emphasis on the 1967 Senate Ethics Committee action

against Senator Thomas Dodd is inapt. FEC Opp. Br. at 2. According to the

source cited by the FEC, Senator Dodd’s case involved, inter alia, seven

fundraisers which provided funds to Senator Dodd’s personal bank account.

Senator Dodd subsequently used these funds to pay for “income taxes, home

improvements, and payments to family members.” He also “received $8,000 in

cash . . . allegedly in exchange for an ambassadorship.” Id. at 2 n.1; The Censure

Case of Thomas J. Dodd of Connecticut (1967) http://www.senate.gov/

artandhistory/history/common/censure_cases/135ThomasDodd.htm (last visited

Apr. 23, 2015). In contrast, this matter concerns a dispute over the disposition of

funds that were properly raised and reported to the FEC.

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decision to expend committee funds in this matter. See, e.g., FEC Opp. Br. at 10

(“Craig was aware of the FEC’s Kolbe advisory opinion”).

Listing nine decisions, the FEC emphasizes that these “opinions have

consistently and repeatedly said that whether campaign funds may be spent on

legal expenses depends on the allegations of the legal proceeding . . . .” Id. at 5.

While the FEC may endeavor to achieve consistency in rendering advice, the first

two opinions it lists belie the FEC’s assertion of regularity in application of the law

to specific factual circumstances.

As it has done throughout this matter, the FEC cites its Kolbe opinion as the

touchstone for the principal that “campaign funds may not be used for legal

expenses incurred in an ‘inquiry regarding other allegations, if any, that do not

concern . . . [one’s] duties as a Federal officeholder.’” Id. (quoting FEC Advisory

Opinion (“AO”) 2006-35 (Kolbe), 2007 WL 419188, at *3 (Jan. 26, 2007)). Yet,

neither the FEC nor the district court has ever been able to articulate the specific

allegations justifying the FEC’s sanction of committee funds in that matter. As the

district court noted, “the FEC went out of its way to hedge its opinion given the

uncertainties and confidentiality involved.” JA146. Given Kolbe’s amorphous

holding – issued in violation of the requirement that such opinions provide a

complete description of all relevant facts – the FEC simply cannot maintain that

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Kolbe establishes a consistent interpretation of the law or that Appellants should be

penalized because they failed to decipher it when making their own assessment.

Similarly, the FEC’s Miller advisory opinion, FEC AO 2013-11, 2013 WL

6022101, at *3 (Oct. 31, 2013) – cited by the FEC as a primary example of its

personal use policy – contradicts the FEC’s assertion that in a “20-year-long line of

advisory opinions . . . the [FEC] has explained that campaign funds may not be

spent on legal expenses when the ‘allegations’ of the legal proceedings are ‘not

related’ to officeholder duties.” FEC Opp. Br. at 21. Although the allegations of

the legal proceeding in Miller were decidedly personal and occurred prior to his

candidacy, the FEC authorized campaign committee expenditures without

hesitation. See Apps. Br. at 12 (detailing facts and holding in Miller opinion).

As these two opinions demonstrate, the FEC’s application of the personal

use standard is far from clear and consistent. This is not an entirely unexpected

result for a regulation which instructs a changing, partisan roster of evenly-divided

commissioners to make “irrespective” determinations on a “case-by-case basis”

where personal use concerns arise. 11 C.F.R. § 113.1(g)(1)(ii).

And herein lies the FEC’s fatal error: in derogation of its own regulations

and policy the FEC has steadfastly refused to weigh the factual circumstances

prompting Senator Craig’s expenditures. In its opposition brief, the FEC cites the

district court’s holding: “because the allegations of Minnesota v. Craig related to

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Craig’s personal misconduct,” Senator Craig’s motivations relating to the

publication of that plea and the political repercussions are “immaterial.” FEC Opp.

Br. at 25 (citing JA18, 20, 138). This position, adopted by the district court at the

urging of the FEC, is simply incorrect.

In previous opinions sanctioning committee expenditures similar to Senator

Craig’s, the FEC has willingly assessed an individual’s motivation for such

committee expenditures. See, e.g., FEC AO 1997-12 (Costello), 1997 WL 529598,

at * 4 (Aug. 15, 1997) (sanctioning legal expenditures due to the “obvious need for

a candidate to respond to allegations [about ‘private business ventures’] carried in

the news media which result from . . . elevated scrutiny would not exist

irrespective of the candidate’s campaign or officeholder status”); FEC AO 2013-11

(Miller) (same); FEC AO 2001-09 (Kerrey), 2001 WL 844352 (July 17, 2001)

(same; sanctioning media expenditures).

Indeed, as Appellants detailed in their opening brief, in a draft advisory

opinion responding to a Senator’s request to use campaign committee funds to

address a personal matter relating to a criminal case, three FEC commissioners

voted to sanction the requested legal expenditures. See Apps. Br. at 10-12. The

FEC’s response wholly misses Appellants’ point. Rather than addressing the

substance and implication of the draft opinion sanctioning Senator David Vitter’s

expenditures, the FEC contends that Senator Craig could not have relied on the

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three commissioners’ rationale because it occurred after his expenditures. FEC

Opp. Br. at 48. Appellants’ reliance on this and other FEC materials is immaterial.

Instead, these citations illuminate the FEC’s own legal analyses and must inform

any principled analysis of the correct application of the statute and regulations to

the question of personal use. See FEC v. NRA, 254 F.3d 173 (D.C. Cir. 2001)

(FEC advisory opinions entitled to Chevron deference). Although the FEC is loath

to acknowledge this fact, its commissioners have repeatedly voted to authorize the

type of expenditures that the FEC so strenuously seeks to block in this matter.

C. The FEC Has Consistently Applied a Reasonableness Standard

When Evaluating Legal and Media Expenses

In its opposition brief, the FEC is unwilling to articulate a clear standard for

assessing personal use or demonstrate how Senator Craig’s expenditures violate

the standard. This demurral demonstrates, as persuasively as any argument offered

by appellant, the FEC’s confusion surrounding application of the irrespective

standard to legal expenditures.

In 2002, Congress codified portions of the FEC’s personal use regulation. In

its opposition the FEC implies that Congress rubber-stamped the FEC’s standard

and interpretation on personal use. See FEC Opp. Br. at 4, 26. Instead of

approving the FEC’s regulations wholesale, however, Congress codified only

certain items as per se personal use. See generally 11 C.F.R. § 113.1. The

codified examples classify two categories of expenses as per se personal use: 1)

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costs attendant to daily life (e.g. residential costs and clothing) and 2) costs for

luxury or discretionary personal items (e.g., country club membership and

vacations). See 52 U.S.C. § 30114(b). Beyond this list of categories and the

irrespective standard, Congress did not codify any other parts of the FEC’s

regulations. See 148 Cong. Rec. S2096, S2143 (daily ed. Mar. 20, 2002)

(clarifying that Congress did not “intend to codify any advisory opinion or other

current interpretation of [the] regulations”). Compare 52 U.S.C. § 30114(b) with

11 C.F.R. § 113.1(g)(1)(ii).

Because Congress purposely did not create a list that anticipates every

situation, the FEC reviews items that are not per se personal use on a case-by-case

basis. Under this analysis, where an officeholder can “reasonably” show that his

expenses were related to his duties as an officeholder, the FEC will not consider

the use to be personal use. Explanation and Justification, Expenditures; Reports by

Political Committees; Personal Use of Campaign Funds, 60 Fed. Reg. 7862, 7867

(Feb. 9, 1995) (in Addendum Tab A); see, e.g., FEC AO 2013-11 (Miller), 2013

WL 6022101 (Oct. 31, 2013) (“The Commission has long provided that if a

candidate ‘can reasonably show that the expenses at issue resulted from campaign

or officeholder activities, the Commission will not consider the use to be personal

use.’”) (citation omitted); FEC AO 2001-09 (Kerrey), 2001 WL 844352, at *3

(July 17, 2001) (explaining that the FEC’s case-by-case approach under the

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irrespective standard gives candidates wide discretion over campaign funds as long

as the candidate can reasonably show that the expenses resulted from campaign or

officeholder activities); FEC AO 2008-07 (Vitter), 2008 WL 4265321 (Sept. 9,

2008) (same). In its opposition, the FEC puzzlingly describes this standard as

“newly invented” by Appellants. FEC Opp. Br. at 24.

Senator Craig’s expenses mirror the expenses at issue in Kerrey, Costello,

Miller, and the Vitter Draft Opinion. (See Apps. Br. at 8-12; see also supra at 11-

13). Like the circumstances addressed by Kerrey, Miller, and Vitter, the

underlying allegations in this matter did not directly involve Senator Craig’s

official duties, but the heightened media scrutiny and the resulting political

ramifications compelled Senator Craig to make expenditures challenging his plea.

But for Senator Craig’s position as a Senator, his plea would not have been leaked

and publicized by national print and television media. Nor would the MinneapolisSt. Paul Airport Police Department have released an audiotape of the interview to

national news outlets. See JA225. Nor would Senator Craig’s professional and

political viability have been affected. See JA228-30; see also JA232-33.

Indeed, Senator Craig has stated that he considered the terms of his plea to

include the interviewing officer’s promise not to leak the plea to the media.

JA187; see also JA200-01. Contrary to the FEC’s characterization that he was

attempting to hide the plea, Senator Craig simply hoped that, like nearly any

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private citizen charged with a misdemeanor, his guilty plea would be unremarkable

and unnoticed. In fact, Senator Craig utilized no campaign committee funds before

the publication of his plea and resulting political repercussions.

Senator Craig ultimately suffered an onslaught of political ramifications,

including national media scrutiny, a congressional ethics investigation, and the loss

of professional stature and authority. See JA232-33; see also JA228-30. In an

effort to remain in office and make his reelection viable, Senator Craig eventually

decided to challenge the plea. JA223 (“Every decision that we made, and every

cost that was incurred by Senator Craig, was done with the sole purpose of

defending the Senator’s reputation and vindicating him personally and

professionally.”).4 The FEC describes Senator Craig’s intentions for appealing his

plea, stating that he did it to clear his name and “‘vindicate him[self] personally

and professionally.’” FEC Opp. Br. at 29 (quoting JA223). Yet, this claim

undermines the FEC’s position that Senator Craig’s expenditures were strictly

personal in nature.

Senator Craig appealed his misdemeanor plea hoping that he could “seek

election in Idaho for an additional six-year term in the United States Senate.”

4 These statements were made by Michael O. Ware, Senator Craig’s Chief of Staff,

who served as Senator Craig’s principal political advisor and who was also

involved with Senator Craig’s legal defense in Minnesota. See JA41-43; JA221.

Mr. Ware is certainly entitled to speak about his own view of Senator Craig’s

political status.

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JA223. Although he continued to serve in the Senate until the conclusion of his

term, because of the resulting political ramifications, Senator Craig ultimately

chose not to run for reelection and retired from the Senate in January 2009. See

JA11.

The FEC argues that considering whether an official’s status as an

officeholder served as the catalyst for certain expenditures could lead to members

of Congress “using campaign funds to buy homes in Washington, D.C. because

they wanted to live near work.” See FEC Opp. at 29. This argument is untenable.

First, by law, home mortgage payments are per se personal use and are not

examined on a case-by-case basis under the reasonableness standard. See 52

U.S.C. § 30114(b)(2)(a). Nor is this case one in which Senator Craig simply opted

to spend campaign funds on legal fees. Like Kerrey and Miller – where the FEC

held that media scrutiny of the personal conduct of a former member and a former

candidate, respectively, resulted in political consequences that justified

discretionary campaign committee expenditures – the publication of Senator

Craig’s plea and the resulting political ramifications served as the sole impetus for

Senator Craig’s legal expenditures. Under the reasonableness standard applied in

the FEC’s advisory opinions, Senator Craig’s expenses are permissible campaign

expenditures.

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The FEC further contends that if Senator Craig is allowed to use campaign

funds for his legal expenses “such a broad standard would permit an officeholder

to use campaign funds to defend against any criminal allegation of personal

wrongdoing – no matter how serious – so long it was discovered . . . .” FEC Opp.

Br. at 27 (emphasis in original). The FEC’s position ignores the regulatory

directive to assess legal fees on a “case-by-case basis.” 11 C.F.R.

§ 113.1(g)(1)(ii)(A). Cases, like this matter, will arise where an elected official’s

status prompts increased legal costs for what would normally be a personal matter.

No impediment prevents the FEC from determining that an elected official’s status

has increased the costs relating to a personal matter in a manner that justifies

paying for those increased costs with campaign committee funds. Indeed, the

FEC’s advisory opinions already acknowledge that such increased scrutiny will

necessitate campaign committee expenditures. See supra at 12-18 (discussing

applicable advisory opinions).

III. THE DISTRICT COURT ABUSED ITS DISCRETION BY

ORDERING SENATOR CRAIG TO DISGORGE HIS CAMPAIGN

FUNDS TO THE U.S. TREASURY

The district court erroneously ordered Senator Craig to disgorge funds to the

U.S. Treasury. This decision, endorsed by the FEC, is not supported by precedent,

ignores the FEC’s own policies relating to the return of funds to a campaign

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committee, and improperly transforms an equitable remedy into a punitive

measure.

A. Disgorgement to the Craig Committee Will Restore the Status

Quo While Respecting Donor Intent Consistent With the First

Amendment

Citing to cases involving securities fraud, criminal fraud, theft, and

deceptive practices, the FEC endorses the district court’s order that Senator Craig’s

campaign funds should be disgorged to the U.S. Treasury. FEC Opp. Br. at 33.

Unlike the cases cited by the FEC, here, 1) the campaign funds are not ill-gotten

gains; 2) the goals of FECA differ from statutes governing commercial conduct;

and 3) contrary to the commercial cases, restoring the status quo in this case is

easily achievable.5

5 United States v. Sussman, 709 F.3d 155 (3d Cir. 2013) (defendant engaged in

abusive debt collection activities and FTC obtained a civil judgment of

$10,204,445 against him; defendant was found guilty for theft of government

property and obstruction of justice); SEC v. Cavanagh, 445 F.3d 105 (2d Cir.

2006) (“These . . . cases concern a ‘pump-and-dump’ securities fraud scheme

whereby certain defendants artificially inflated a company’s stock price, sold high,

and left investors holding nearly worthless shares when the price plummeted to a

realistic value.”); Official Comm. of Unsecured Creditors of WorldCom, Inc. v.

SEC, 467 F.3d 73 (2d Cir. 2006) (SEC sued WorldCom for violating securities

laws because it overstated its income by $9 billion); FTC v. Febre, 128 F.3d 530,

537 (7th Cir. 1997) (FTC sued defendants for using unfair and deceptive practices

in advertising, promoting, and selling work-at-home opportunities and financial

services and obtained a $16,096,345 judgment); SEC v. Blavin, 760 F.2d 706, 711

(6th Cir. 1985) (defendant violated anti-fraud provisions of the Securities

Exchange Act of 1934).

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The funds at issue here cannot be described as “ill-gotten” or wrongfully

acquired. “Ill-gotten” describes funds “obtained in an evil or dishonest way.”6

Here, donors legally contributed money as a constitutionally-sanctioned expression

of support for Senator Craig. Senator Craig believed that he was permitted to use

his funds for legal expenses. JA154; JA222-23 (“At every instance of the process

we believed that the use of campaign committee funds for these legal expenses was

legal and customary. . . . The Craig Committee would not have made the

expenditures if we had not believed that they were legal and proper.”). After

making the expenditures, Appellants complied with all applicable reporting

requirements and disclosed Senator Craig’s expenses to the FEC. See ECF Nos.

16-1, -2, and -3. The record reflects that no donor has requested a refund of her

contribution. If this Court were to determine that a violation has occurred, the

funds at issue would be more accurately described as unknowingly “misspent.”

Because no theft, criminal fraud, or deceptive practices occurred in this matter, any

comparison to securities fraud cases or similar cases involving deceptive practices

is misplaced.

When deciding whether to order disgorgement to the U.S. Treasury, courts

have examined the objectives of the underlying statute involved. Cf. James M.

Fischer, Understanding Remedies § 51 at 362 (3d ed. 2014) (“the court must be

6 Webster’s II New College Dictionary 564 (3d ed. 2005).

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satisfied that the remedy is consistent with the goals and purpose of the statute”);

Febre, 128 F.3d at 536 (considering that the “purpose of the Federal Trade

Commission Act is to protect consumers from economic injuries” when fashioning

an equitable remedy). FECA aims to facilitate the collection of funds to use for

political purposes. “[C]ontributions [to campaign committees] serve ‘to affiliate a

person with a candidate’ and ‘enabl[e] like-minded persons to pool their

resources.” McConnell v. FEC, 540 U.S. 93, 135-36 (2003) (citation omitted);

ECF No. 16 at 1 (FEC’s motion for summary judgment stating that by contributing

funds to the Craig Committee donors exercised their First Amendment right to

support Craig’s candidacy). Here, donors who contributed to the Craig Committee

intended to support Senator Craig’s political efforts. The record reflects that no

donor has asked for a refund of his contribution. In such circumstances, disgorging

the money to the Craig Committee protects all parties’ interests in a manner

consistent with FECA.

Certainly, in cases that truly involve deceptive practices funds are often

disgorged to the U.S. Treasury because restoring the status quo is impossible. See,

e.g., SEC v. Fischbach Corp., 133 F.3d 170 (2d Cir. 1997) (affirming district

court’s order disgorging to the U.S. Treasury because no party before the court was

entitled to the funds); Febre, 128 F.3d at 537 (“To ensure that defendants are not

unjustly enriched by retaining some of their unlawful proceeds by virtue of the fact

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that they cannot identify all the consumers entitled to restitution and cannot

distribute all the equitable relief ordered to be paid, the FTC often requests orders

directing equitable disgorgement of the excess money to the United States

Treasury.”); Fischer, Understanding Remedies § 51 at 361 (“When restoration is

too costly . . . it is proper to remit the disgorged funds to the public treasury.”).

Significantly, even the FEC has acknowledged that returning the funds to the

Craig Committee would restore the status quo. See JA271, JA274 (“[T]he case law

is clear that the purpose of the disgorgement is just to get back to the pre-violation

status quo.” . . . “I think it also would be a just result if it went to the Committee,

and then the Committee spent it consistent with what FECA allows it to spend its

money on. In other words, not Mr. Craig’s personal use. That would still be

consistent with the expectations of the donors to the Craig Committee.”). Because

the status quo is easily attainable, disgorging to the U.S. Treasury is unnecessary

and improper.

B. Disgorgement to the Craig Committee Is Consistent With LongStanding FEC Policy

The FEC has consistently authorized candidates and officeholders who have

violated the personal use statute to return funds to the committee for future use. In

an about-face, the FEC now suggests, without citation to statutory or regulatory

authority and contrary to its own administrative policy, that the district court

possessed authority to order disgorgement to the U.S. Treasury. In its brief, the

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FEC argues that this Court should overlook its practice of allowing disgorgement

to the campaign committee because the underlying facts of Senator Craig’s

circumstances are somehow unique. The FEC argues that Senator Craig should

disgorge funds to the U.S. Treasury because 1) Senator Craig is the treasurer of the

Craig Committee; 2) disgorgement to the Craig committee is an “empty gesture,”

3) the Craig Committee is “essentially defunct” because Senator Craig is not

currently in office; and 4) Senator Craig cannot spend refunded amounts. FEC

Opp. Br. at 37-39. As the FEC’s own policy and guidance demonstrate, these

distinctions are inaccurate or irrelevant.

The FEC indicates that because Senator Craig is the treasurer of the Craig

Committee he will be in a position to misuse funds if they are disgorged to his

Committee. This baseless assertion ignores the FEC’s own guidance relating to the

operations of a campaign committee; a treasurer has no independent authority to

designate the use of funds.7 A treasurer’s role is merely ministerial and limited to

filing, recordkeeping, and signing FEC forms and other documents. See 11 C.F.R.

§ 102.9. Designating the use of funds is always the officeholder’s responsibility.

In this way an officeholder is always the “alter-ego” of the committee. Nothing in

the FEC’s regulations prevents Senator Craig from serving as treasurer of the

7 See also Committee Treasurers,

http://www.fec.gov/pages/brochures/treas.shtml#fn1 (Feb. 2005).

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campaign committee.8 Further, the committee is subject to the same expenditure

and reporting requirements that it would be if Senator Craig were not the treasurer.

Senator Craig’s position as treasurer has no bearing on the question of

disgorgement.

The FEC contends that “disgorgement to the Craig Committee would have

been nothing but an ‘empty gesture,’ because the district court could have then

ordered the Craig Committee to pay those funds as a civil penalty to the Treasury

anyway.” FEC Opp. Br. at 38. Even if the court could properly have ordered this

result, it did not do so. Contrary to the FEC’s previous position, the FEC now

endorses the district court’s erroneous finding that disgorgement to the Craig

Committee would be “just a pass through.” Read in context, however, the district

court’s comment does not support this claim. During the summary judgment

hearing, the FEC challenged the district court’s assessment that disgorgement to

the Craig Committee would serve no purpose:

MR. HANCOCK: . . . It would come close to restoring the pre-violation

status quo if the Craig Committee had the $216,000 back and then spent it

consistent with FECA, with the permitted uses listed in FECA. That would

come closest, I think, to being consistent --

THE COURT: What are they going to spend it on now that’s permitted,

really?

8 In fact, volunteers are permitted to perform many of the duties of the treasurer.

See Committee Treasurers, http://www.fec.gov/pages/brochures/treas.shtml#fn1

(Feb. 2005).

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MR. HANCOCK: Well, the Act permits a number of proper uses, including

the money can be given to charity, it can be transferred to other political

parties, it can be given to other candidates. Let’s say some of that money --

THE COURT: Well, if the money goes to charities or goes to their

candidates, doesn’t it then start to become indistinguishable from a penalty?

. . . At that point it’s just a pass through, isn’t it? What’s the point? Why

not just have a penalty?

JA272-73.

The only reasonable interpretation of the district court’s comments is that it was

dissatisfied with the FEC’s practice of directing disgorgement back to a committee

and instead, chose to use the equitable remedy of disgorgement punitively.

As for the purportedly “defunct” nature of the Craig Committee, as the FEC

has repeatedly stated, the Craig Committee is “free to raise contributions” and

continue functioning as a campaign committee. In order for the Committee to be

truly defunct, Senator Craig would be required to file a termination report with the

FEC. Of course, disgorgement to the Craig Committee would provide it with

significant funds to continue operating. Although the FEC asserts that Senator

Craig does not have a campaign to spend the money on if the money is disgorged

to the Craig Committee, 11 C.F.R. § 113.2 authorizes a former official to provide

monetary support to other political organizations, state or local political parties,

state and local candidates, or to use the money for other lawful purposes consistent

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with FECA.9 Applicable regulations do not require Senator Craig to spend

committee funds on his own campaign; his committee is no different from the

many other committees currently maintained by former federal candidates.10

C. Disgorgement Cannot Be Punitive

The FEC claims that FECA permits the district court to use disgorgement as

a punitive remedy. (FEC Opp. at 41-42) (“[E]ven if the disgorgement order had

been punitive, it would not have violated FECA”). To that end, by ordering

disgorgement to the U.S. Treasury, the district court’s purpose was to punish

Senator Craig and deprive him from using his donor’s funds. Disgorgement cannot

be punitive. SEC v. First City Fin. Corp., 890 F.2d 1215, 1231 (D.C. Cir. 1989)

(“disgorgement may not be used punitively”); FTC v. Febre, 128 F.3d 530, 537

(7th Cir. 1997) (“This court has held that disgorgement is designed to be remedial

and not punitive.”). Nothing in FECA changes the definition of disgorgement as

an equitable remedy.

IV. THE DISTRICT COURT’S IMPOSITION OF A CIVIL PENALTY IS

INAPPROPRIATE IN THIS MATTER

The FEC endorses the district court’s imposition of a civil penalty because it

maintains that “there should have been no question in [Senator Craig’s] mind that

9 See Federal Election Commission, Winding Down Your Federal Campaign,

http://www.fec.gov/info/articles/windingdown09.pdf (last visited Apr. 23, 2015).

10 Id.

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his spending would be illegal.” (FEC Opp. Br. at 47) (emphasis in original). The

FEC assails Senator Craig as deliberately ignoring FEC guidance and asks the

Court to punish Senator Craig for failing to not only discern the FEC’s ambiguous

standards but also for not entering into a conciliation agreement or requesting an

advisory opinion. However, as detailed above, supra at 9-12, the FEC’s personal

use standards are inconsistent and ambiguous at best. While the FEC may

endeavor to achieve consistency in rendering advice, the FEC’s personal use

advisory opinions fail to show regularity in application of the law to specific

factual circumstances. To impose a civil penalty where Senator Craig was not on

adequate notice of the FEC’s standard is unwarranted.

With regard to entering into a conciliation agreement or requesting an

advisory opinion, as demonstrated by the Vitter draft opinion, the FEC is unable to

reach consensus on this issue. (Addendum Tab B). Under such circumstances,

Senator Craig is entitled to have this matter of first impression decided by a court.

Because Senator Craig reasonably interpreted the FEC’s personal use standards as

allowing him to use his campaign funds to pay his legal fees the Court should

reverse the district court’s decision as to the $45,000 civil penalty. Cf. Citizens

United v. FEC, 558 U.S. 310, 336 (2010) (“Yet, the FEC has created a regime that

allows it to select what political speech is safe for public consumption by applying

ambiguous tests. If parties want to avoid litigation and the possibility of civil and

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criminal penalties, they must either refrain from speaking or ask the FEC to issue

an advisory opinion approving of the political speech in question.”).

CONCLUSION

For the reasons stated above, the Court should set aside the district court’s

order requiring Senator Craig to both disgorge $197,535 and pay a $45,000 penalty

to the U.S. Treasury.

Dated: April 23, 2015 Respectfully submitted,

/s/ Andrew D. Herman

Andrew D. Herman

Aiysha S. Hussain

MILLER & CHEVALIER CHARTERED

655 Fifteenth St., NW, Suite 900

Washington, DC 20005

Telephone: (202) 626-5800

Facsimile: (202) 626-5801

Email: aherman@milchev.com

Email: ahussain@milchev.com

Stanley M. Brand

BRAND LAW GROUP, PC

923 Fifteenth St. NW

Washington, DC 20005

Telephone: (202) 662-9700

Facsimile: (202) 737-7565

Email: sbrand@brandlawgroup.com

Counsel for Appellants

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CERTIFICATE OF COMPLIANCE WITH RULE 32(a)

Certificate of Compliance With Type-Volume Limitation, Typeface

Requirements, and Type Style Requirements

1. This brief complies with the type-volume limitation of Fed. R. App. P.

32(a)(7)(B) because:

XX this brief contains 6,485 words, excluding the parts of the brief exempted by

Fed. R. App. P. 32(a)(7)(B)(iii), or

___ this brief uses a monospaced typeface and contains [state the number of lines]

of text, excluding the parts of the brief exempted by Fed. R. App. P.

32(a)(7)(B)(iii).

2. This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5)

and the typestyle requirements of Fed. R. App. P. 32(a)(6) because:

XX this brief has been prepared in a proportionally spaced typeface using

Microsoft Word 2010 in 14 point font in Times New Roman, or

___ this brief has been prepared in a monospaced typeface using [state name and

version of word processing program] with [state number of characters per inch

and name of type style].

April 23, 2015 /s/ Andrew D. Herman

Date Andrew D. Herman

USCA Case #14-5297 Document #1548970 Filed: 04/23/2015 Page 35 of 36
CERTIFICATE OF SERVICE

I hereby certify that on April 23, 2015, I electronically filed the foregoing

REPLY BRIEF OF APPELLANTS with the Clerk of Court using the CM/ECF

System, which will send notice of such filing to the following registered CM/ECF

users:

Kevin P. Hancock Email: khancock@fec.gov

Lisa J. Stevenson Email: lstevenson@fec.gov

Kevin A. Deeley Email: kdeeley@fec.gov

Harry J. Summers Email: hsummers@fec.gov

Robert W. Bonham, III Email: rbonham@fec.gov

FEDERAL ELECTION COMMISSION

999 E Street, NW

Washington, DC 20463

I also certify that, on April 23, 2015, I will dispatch, within two business

days, by hand-delivery, the requisite EIGHT (8) copies of the REPLY BRIEF OF

APPELLANTS to the Clerk of the United States Court of Appeals for the D.C.

Circuit.

/s/ Andrew D. Herman

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