65.

66.

67.

68.

69.

70.

71.

The APA permits reviewing courts to set aside agency action if that action is
"arbitrary, capricious, an abuse of discretion, or otherwise not in accordance
with law." 5.U.S.C. § 706(2)(A).

The solicitation regulation arbitrarily requires that all funds received in
response to a communication that "indicates" support or opposition to a
federal candidate be considered contributions, regardless of the actual content
of the communication. It also imposes an arbitrary fifty-percent federal funds
requirement for solicitation communications that "refer to" both federal and
nonfederal candidates, regardless of the content of the communication or how
many federal or nonfederal candidates are referred to.

The allocation regulations arbitrarily attach fifty-percent thresholds to the

payment of administrative and generic voter drive expenses, regardless of the

actual ratio of federal to nonfederal disbursements or the size of the allocating
committee.

The Commission has provided no rational explanation why fifty percent was
chosen as the appropriate threshold in either case, and the FEC did not base
that threshold on any rulemaking record or agency experience.

The FEC did not take into account the comments of the regulated community,
and instead predicated the final rules on ease of administration for the FEC
and supposed simplicity of comprehension by the regulated community.

The FEC failed to attribute to the solicitation and allocation regulations any
purpose to deter corruption or the appearance of corruption, and they serve no
such purpose.

The FEC's. promulgation of these regulations was arbitrary, capricious and an
abuse of discretion, in violation of 5 U.S.C. § 706(2)(A).

[13376-0001/DA050030.010] -14- 112/05



The Notice of Proposed Rulemaking
15: On March 11, 2004, the Commission issued a notice of proposed rulemaking
("NPRM") entitled "Political Committee Status." Political Committee Status,
69 Fed. Reg. 11,736 (Mar. 11, 2004). The NPRM was motivated by widely
publicized reports about the political activities of independent groups
organized under section 527 of the Internal Revenue Code, that were alleged
to be outside of the FEC's purview.

16. The NPRM included a wide range of proposed regulatory changes on a variety
of topics, principally including a definition of the FECA term "political
committee" and the addition of an allocation formula for voter drives and
public communications that “promote, support, attack, or oppose” a clearly
identified federal candidate.

17. The NPRM proposed to expand the definition of the FECA term
"contribution" to include all funds received in response to a communication
that expressly advocated the election or defeat of a clearly identified federal
candidate.

18. The NPRM briefly mentioned potential alternative standards for defining
“contribution.” Each of these encompassed only funds received in response to ©
a communication that “promotes, supports, attacks, or opposes” a clearly
identified federal candidate.

19. The NPRM did not mention any proposed standard for defining “contribution”
that included all funds received in response to a communication that
"indicates" that any portion of funds received would be used to "support or
oppose" a federal candidate.

(13376-0001/DA050030.010] -5- 112/05


44. The final regulation requires that nonconnected committees pay for public
communications and voter drives that "refer to" clearly identified federal and
nonfederal candidates on an allocated basis, based on the "proportion of space
or time devoted to each" candidate.

45, The FEC's Explanation and Justification of the final rules did not mention the
prevention of circumvention of FECA as a goal of the allocation regulations.
The Explanation and Justification instead described the reason for the new
allocation régulations as an attempt to "simplify . . . the allocation system."

COUNTI
Violation of the APA: Exceeding Statutory Authority ;

46. Plaintiff incorporates by reference paragraphs 1 through 45 as if fully set
forth here.

47. The APA forbids federal agencies from promulgating regulations "in excess
of statutory jurisdiction, authority, or limitations, or short of statutory right."
5 US.C. § 706(2)(C).

48. The FEC's solicitation and allocation regulations purport to enforce FECA, as
amended. But FECA regulates only moneys spent by nonconnected
committees "for the purpose of influencing any election for Federal office." 2
U.S.C. § 431(8), (9). Both the solicitation and allocation regulations exceed
the FEC’s statutory authority under FECA and the APA.

49. The solicitation regulations exceed the FEC’s statutory authority by limiting
the amount and source of funds used for nonfederal elections, and for other
nonfederal purposes. By requiring that funds received be considered
contributions even if a communication states that the funds will also be used

for non-federai elections or for other, non-electoral purposes, the regulation

{13376-0001/DA050030:010] -10- 11205



27. The NPRM did not mention any proposed standard requiring that
communications that "refer to" clearly identified federal candidates be paid for
with entirely federal funds if they did not also refer to clearly identified
nonfederal candidates.

28. The NPRM did not mention any proposed standard requiring that
communications or voter drives that "refer to" a political party but no clearly
identified candidates be paid for with at least fifty percent federal funds,
regardless of the nature of the committee's overall activities and
disbursements.

The Rulemaking

29. The NPRM invited public comments to be filed by April 9, 2004, fewer than
thirty days after the NPRM was published.

30. On May 13, the FEC voted not to adopt several proposed final rules. The
FEC instead unanimously approved the FEC General Counsel’s
recommendation “[t]hat within 90 days, the Commission should either issue
final rules, issue a second NPRM that would offer commenters a more
focused proposal, or decide — at least for now — to defer the issuance of new
rules and instead look for guidance from Congress.”

31. On August 12, the General Counsel submitted new draft final rules to the
FEC.

32. On August 18, the General Counsel submitted amendments to these draft final
tules to the FEC.

33. At an FEC public ("open") meeting on August 19, the FEC defeated by a 3-3
vote a motion to conduct a sixty-day comment period on the General

Counsel’s draft final rules.

[13376-0001/DA050030:010] -7- 1/42/05


20. The NPRM did not mention any proposed standard for treating moneys
received as nonfederal on the basis that the communication "refer[s] to"a
‘nonfederal candidate.

21. The NPRM also included various alternative proposals for revising the
allocation system for nonconnected committees.

22. The NPRM included proposals to require that a minimum amount of federal
funds be used to pay for the administrative and generic voter drive expenses
of nonconnected committees.

23. The NPRM also stated that the Commission was considering other federal-
funds minimum percentages. The NPRM included no proposed regulatory
language for these options.

24. The NPRM did not mention any proposed standard for allocating
administrative expenses using a uniform fifty-percent minimum federal-funds
requirement for all allocating committees choosing to allocate disbursements,
regardless of the nature of the actual activities and disbursements supported
by the administrative activities.

25. The NPRM also proposed a range of communications that would have to be
paid for with entirely federal funds. All of the targeted communications were
those that "promote, support, attack, or oppose" a clearly identified federal
candidate or political party.

26. The NPRM also proposed a rule governing communications that promoted,
supported, attacked, or opposed one or more clearly identified federal
candidates and a political party. The rule would have required that federal
funds be used for the time or space used for federal candidates, but permitted
allocation between federal and nonfederal funds for the time or space used for

the political party.

{13376-0001/DA050030.010) -6- 12S



40.

The FEC admitted in the Explanation and Justification of the final rules that
"Tijn the NPRM, the proposed regulation text . . . took a different approach"
than did the final regulation. 69 Fed. Reg. at 69,057.

The Allocation Regulations

41.

42.

43.

The final rules also revised 11°C.F.R. § 106.6 regarding allocation of
disbursements by nonconnected committees (as well as separate segregated
funds of corporations and labor organizations) between federal and nonfederal
funds. The revised regulation requires that all nonconnected committees pay
for their administrative and voter drive expenses, and the costs of
communications for public communications that refer to a political party but
not to any clearly identified federal or nonfederal candidates, with a minimum
of fifty percent federal funds. This minimum amount applies to all
nonconnected committees with federal and nonfederal accounts, no matter
their scope or their actual respective shares of federal and nonfederal
disbursements.

The final regulation also requires that nonconnected committees pay for voter
drives and communications that "refer to" a clearly identified federal
candidate, but.not to a clearly identified nonfederal candidate, with entirely
federal funds, no matter the context in which the candidate is mentioned. This
regulation does not incorporate any "promote, support, attack, or oppose" or
other content standard other than a mere "refer[ence]."

The final regulation specifies that for communications that refer to aclearly
identified federal candidate but no clearly identified nonfederal candidate,
even the time or space used to refer to a political party must be paid for with

entirely federal funds.

{13376-0001/DA050030.010] -9- 1/12/05



a
JAN 12 2005
UNITED STATES DISTRICT COURT eit ORK

FOR THE DISTRICT OF COLUMBIA

EMILY'S LIST
1120 Connecticut Avenue NW
Suite 1100
Washington, DC 20036,
’ Plaintiff,

Vv.

FEDERAL ELECTION COMMISSION
999 E Street NW - 7 ~
Washington, DC 20463, ,

Defendant.

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
Plaintiff EMILY's List brings this Complaint for Declaratory and Injunctive Relief.

1. This action challenges regulations promulgated by the Federal Election
Commission (“FEC” or “the Commission”) to implement the provisions of the
Federal Election Campaign Act of 1971 ("FECA"), as amended, including the
Bipartisan Campaign Reform Act of 2002 ("BCRA").

2. In FECA, Congress established a detailed legal structure governing particular
aspects of federal election campaign finance, and each amendment to that
scheme has been both carefully weighed and vigorously negotiated. Congress
created the FEC in part to promulgate rules to implement this carefully
wrought statutory structure, but it has not authorized the FEC to regulate
activity beyond the reach of FECA.

[13376-0001/DA050030.010] 1205 Su


55.

56.

37.

38.

359.

on;

The APA requires that notice of a proposed rule be published in the Federal
Register‘ and that interested persons have a fair and meaningful opportunity to
comment. 5 U.S.C. § 553(b). Notice of the solicitation and allocation
regulations violated this requirement.

The proposed solicitation rule concerned only communications “expressly
advocating” the election or defeat of a clearly identified federal candidate.
While it briefly mentioned potential alternative standards, each alternative
concerned communications that “promote, supports attack, or oppose” a
clearly identified federal candidate. The NPRM did not mention any proposed
standard for treating funds received in response to a communication as federal
or nonfederal based on a mere "refer[ence]" to a nonfederal candidate. Yet
that is the standard in the final regulation.

The NPRM did not mention any proposed standard for defining “contribution”
requiring that all funds received in response to a solicitation be funds from
sources and in amounts restricted by federal campaign law, if the solicitation
merely "indicates" that any portion of funds received would be used to support
or oppose a federal candidate. Yet that is the standard adopted in the final
regulation.

The NPRM did not mention any proposed standard for allocating
administrative and voter drive expenses that involved a blanket fifty-percent
minimum federal-funds requirement for ali nonconnected committees that
have federal and nonfederal accounts. Yet that is the standard adopted in the
final regulation.

The NPRM did not mention any proposed standard that public
communications or voter drives that simply referred to clearly identified

federal candidates be paid for with entirely federal funds or be allocated.

{13376-0001/DA050030.010] -12- 1/12/05


[3
|

50.

31.

unlawfully restricts far more funds than those given for the purpose of
influencing federal elections.

The allocation regulations also.exceed the FEC’s statutory authority. The
requirement that administrative expenses, generic voter drives and political
party communications be paid with at least fifty percent federal funds
unlawfully restricts the amount and source of funds used for non-federal
elections. A committee is required to pay for its administrative expenses
using fifty percent federal funds, no matter the nature of the committee's
activities or how small a percentage of its disbursements are spent on federal
elections.. The result isa mandatory subsidization of nonfederal electoral
expenses with federal funds.

The allocation regulation's requirement that voter drives and public
communications that refer to a clearly identified federal candidate but not to a
clearly identified nonfederal candidate be paid for with one hundred percent

federal funds restricts activities that do not have the purpose of influencing

"federal elections.

52.

33

54.

The allocation regulation's requirement that committees allocate federal funds
to pay for communications that refer to both clearly identified federal and
nonfederal candidates also restricts activities that do not have the purpose of
influencing federal elections.
. These regulations are not authorized by FECA, and thus they violate 5 U.S.C.
§ 706(2)(C).

COUNT I

Violation of APA: Lack of Proper Notice of Final Regulations

.. Plaintiff incorporates by reference paragraphs 1 through 53 as if fully set forth

here.

[13376-0001/DA050030.010} -il- V12/0S


34.

35.

Instead, at this meeting the FEC approved new draft final rules, and instructed
the General Counsel to make certain technical corrections and prepare the
"Explanation and Justification" to accompany the rule when published in the
Federal Register. On October 28, 2004, the FEC approved the final rules, and
the connected Explanation and Justification.

On November 23, the FEC published these final rules and the Explanation and
Justification. Political Committee Status, Definition of Contribution, and
Allocation for Separate Segregated Funds and Nonconnected Committees, 69
Fed. Reg. 68,056 (Nov. 23, 2004). The effective date of the rules was January
1, 2005.

The Solicitation Regulations

36.

37.

38.

39.

The final regulations include a new section 11 C.F.R. § 100.57, entitled
“Funds. Received in Response to Solicitations.”

The rule includes in the definition of “contribution” all funds received in
response to a communication that "indicates that any portion of the funds
received will be used to support or oppose the election of a clearly identified
Federal candidate."

The rule also provides that if such a communication "refer[s] to" both federal
and nonfederal candidates, at least fifty percent of the funds received are
defined as contributions, no matter how many federal or nonfederal candidates
are mentioned, to what extent or in what context they are mentioned, or
whether the communication describes.another ratio by which the funds will be
divided between federal and nonfederal purposes.

This regulation, unlike the proposed rule, does not.depend on the use of

"express advocacy."

[13376-0001/DA050030.010) -8- 1/12/08



account, registered with the FEC, accepts only "federal funds," that is, "hard"
money from sources and in amounts permissible under FECA. The
nonfederal account, registered with the IRS, accepts only nonfederal funds,

- that is, "soft" money from sources and in amounts that would not be
permissible under FECA for federal elections.

12. Because EMILY’s List disburses funds for federal and nonfederal activities,
FEC regulations at 11 C.F.R. Part 106 require that it allocate certain expenses
between its federal and nonfederal accounts.

13. Under long-standing FEC regulations in effect until January 1, 2005,
EMILY's List's administrative expenses and the costs of its generic voter
drives have been allocated between its federal and nonfederal accounts using
the "funds expended" method. 11 C.F.R. § 106.6(c). Under this method,
EMILY’s List would pay these costs with a mix of federal and nonfederal
funds, such that the percentage of federal funds was equal to the ratio of
federal expenditures to the total amount of federal and nonfederal
disbursements. The funds expended method was designed to ensure that
expenses that benefited an organization's overall activities, both federal and
nonfederal, ‘were paid in a manner that reflected that committeé's engagement
in federal elections.

14. Under the Commission's long-standing regulations, EMILY's List's
fundraising expenses have been paid for under the "funds received” method.
11 C.F.R. § 106.6(d). Under this method, EMILY’s List would pay the
expenses of a particular fundraising effort with a mix of federal and
nonfederal funds, such that the percentage of federal funds was equal to the
ratio of federal receipts to the total federal and nonfederal funds raised.

{13376-0001/DA050030.010) 4 V/i2/05


COUNT IV
Violations of First Amendment

72. Plaintiff incorporates by reference paragraphs 1 through 71 as if fully set forth
here.

73. Under Buckley v. Valeo, 424 U.S. 1 (1976), and McConnell v. FEC, 540 U.S.
93 (2003), the First Amendment to the United States Constitution prohibits the
FEC from restricting the types and amounts of funds used to influence federal
elections unless the restrictions are narrowly tailored to prevent corruption or
the appearance of corruption in the electoral process.

74. The challenged regulations do not purport to prevent corruption or the
appearance of corruption in the electoral process, and they serve no such
purpose.

75. The solicitation regulation that requires that at least fifty percent of funds
received in response to such communications be treated as contributions when
the communications "refer to" at least one federal and one nonfederal
candidate unconstitutionally interferes with protected speech.

76. The solicitation regulation that requires that one hundred percent of funds
received in response to a communication that “indicates” that funds received
will be used to support or oppose the election of a clearly identified federal
candidate be treated as contributions is unconstitutionally vague and
overbroad.

77. The allocation regulation that requires that only federal funds be spent on.
public communications that "refer to" clearly identified federal candidates,
and not to clearly identified nonfederal candidates, unconstitutionally

interferes with protected speech.

[13376-0001/D.A050030.010} -15- 1/12/05



[13376-0001/DA050030.010]

Respectfully submitted,

MC

Robert F. Bauer (D.C. Bar No. 938902)
PERKINS COIE LLP

607 Fourteenth Street, N.W.
Washington, D.C. 20005-2011

(202) 628-6600

_ Attorney for EMILY's List

-17-

1/12/05



10.

11.

List faces personal, particularized and concrete injury in the event the
challenged regulations are allowed to stand. Plaintiff's injuries stem directly
from the FEC's promulgation of new regulations; were those regulations
vacated, the injuries would be eliminated.
Defendant FEC is the federal administrative agency responsible for the
enforcement of FECA. The Commission's offices are located in the District of
Columbia.
JURISDICTION AND VENUE
This action arises under the United States Constitution; the Federal Election
Campaign Act of 1971, 2 US.C. §§ 431 et seq., as amended by the Bipartisan
Campaign Reform Act of 2002, Pub. L. No. 107-155; the Administrative
Procedure Act ("APA"), 5 U.S.C. §§ 551-706; and the Declaratory Judgment
Act, 28 U.S.C. §§ 2201-2202. This Court has jurisdiction pursuant to 28
U.S.C. § 1331.
Venue is proper in this District pursuant to 28 U.S.C. § 1391(e) because the
Defendant is a United States agency headquartered in this District, and
because a substantial part of the events giving rise to Plaintiff's claim occurred
in this District.
FACTUAL ALLEGATIONS
Background
EMILY 's List is a nonconnected committee within the meaning of 11 C.F.R:
§ 106.6(a) and is not a party committee or an authorized committee of a
candidate. EMILY’s List disburses funds in support of, and in opposition to,
candidates for federal, state and local offices.
Since EMILY's List engages in both federal and nonfederal election activity,

it maintains two bank accounts, pursuant to 11 C.F.R. § 102.5. The federal

{13376-0001/DA.050030.010] -3- 1/1205



om

3. In early 2004, the FEC abruptly embarked on a hurried and broad-sweeping
regulatory effort to address the activities of nonfederal political organizations
registered with the Internal Revenue Service ("IRS") under section 527 of the
Internal Revenue Code. Following a rushed and chaotic rulemaking process,
the FEC issued new final rules on November 23, 2004. These rules are
unrelated to the Commission’s stated regulatory objectives, and they are
statutorily and constitutionally infirm.

4. As described below, the Court should invalidate these final tules, because they
are “in excess of [the FEC’s] statutory jurisdiction, authority or limitations,”
adopted “without observance of procedure required by law,” are “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law,”
5 U.S.C. §§ 553(b), 706(2)(A), (C), (D), and because they violate the First
Amendment to the United States Constitution.

PARTIES ;

5. Plaintiff EMILY's List is a political organization and maintains its offices in
the District of Columbia. EMILY's List makes disbursements in connection
with federal and nonfederal elections. The organizational purposes of
EMILY's List are to recruit and-fund viable pro-choice women candidates; to
help them build and run effective campaign organizations; and to mobilize
women voters to help elect progressive candidates across the nation. During
the 2003-04 election cyclé, EMILY's List was active in connection with
hundreds of federal, state and local election races.

6. EMILY's List has standing to challenge the regulations at issue. EMILY’s”
List’s fundraising, communications, voter outreach, administration, and
reporting efforts are directly affected by the promulgated regulations, which

impair its operations and interfere with its core political speech. EMILY’s

{13376-0001/DA050030.010] -2- Vvi2/05


60.

61.

62.

63.

between federal and nonfederal funds. Yet that is the standard adopted in the
final regulation.

The NPRM did not mention any proposed standard that public
communications that reference a political party and a clearly identified federal
candidate, but no clearly identified nonfederal candidate, must be paid for
with entirely federal funds. Yet that is the standard adopted in the final
regulation.

The NPRM did not disclose that the FEC was relying on evidence of
committees allocation practices from the past ten years, and conclusions
based on that evidence. Yet that evidence was relied upon for the final rules.
Overall, the NPRM gave inadequate notice as to the final regulations. It
focused primarily on two major substantive departures from the existing
regulatory scheme: the definition of a "political committee" and the
imposition of a “promote, support, attack, or oppose” standard. But neither
the “political committee” definition nor the “promote, support, attack, or
oppose” standard were included in any fashion in the final regulations. This
framework of the original NPRM did not give reasonable notice of the scope
or character of the final regulations, which also were not a logical outgrowth
of the proposed rules.

The FEC failed to give adequate notice of the rules it adopted, in violation of
5US.C. § 553(b).

COUNT II

Violation of APA: Regulations That Are Arbitrary, Capricious And An

64,

Abuse of Discretion
Plaintiff incorporates by reference paragraphs 1 through 63 as if fully set forth

here.

{13376-0001/DA050030.010] -13- V120S



78.

79.

The allocation regulation that requires that fifty percent federal funds be spent
on administrative expenses, and on voter drives and communications that refer
to a political party but not to any clearly identified federal or nonfederal
candidate, unconstitutionally interferes with protected speech.

Because the solicitation and allocation restrictions are not narrowly tailored to
prevent corruption or the appearance of corruption, or to serve any other
compelling government interest, and because the challenged regulations are

vague and overbroad, they violate the First Amendment to the United States

Constitution.

PRAYER FOR RELIEF

WHEREFORE, pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202,

and 5 U.S.C. §§ 702-704, 706(2), Plaintiff EMILY’s List seeks a judgment:

a.

Declaring that the FEC's solicitation and allocation regulations violate the

- APA because they are beyond the scope of the FEC's authority;

Declaring that the FEC's solicitation and allocation regulations violate the
APA because they were not promulgated with required notice;

Declaring that the FEC's solicitation and allocation regulations violate the
APA because they are arbitrary, capricious, and an abuse of discretion;
Declaring that the FEC's solicitation and allocation regulations violate the
First. Amendment to the United States Constitution;

Enjoining the FEC from undertaking any action to administer and enforce the
unlawful regulations; and

Granting such other and further relief as the Court deems proper.

{13376-0001/DA050030.010] -16- wi2i0s