p 

776 K STREET NW 

/ASHINGTON. DC 20006 

HONE 202.719.7000 

AX 202.719.7049 

-925 JONES BRANCH DRIVE 

4CLEAN. VA 22102 

>HONE 703.905.2800 

=AX 703.905.2820 

www.wileyrein.com 

Michael E. Toner 

202.719.7545 

mtoner@wlleyrein.com 

December 12,2011 

Tom Hintermister 

Assistant Staff Director, Audit Division 

Federal Election Commission 

999 E Street, NW 

Wasfaington, D.C. 20463 

Re: Submission of Political Call Center, LLC in Response to the 

Interim Audit Report Concerning Rightmarcli.com PAC, Inc. 

Dear Mr. Hintermister: 

On October 25,2011, the Audit Division ofthe Federal Election 

Commission ("FEC" or "Commission") issued an Interim Audit Report ("lAR") 

conceming Rigfatmarch.com PAC, Inc. C'RightmaFch"). In fhe lAR, tfae Audit 

Division contends tfaat an August 20,2007 fimdraising contract between 

Rigfatmarcfa and our client Political Call Center, LLC (d.b.a. 'Tolitical Advertising") 

resulted-in an impermissible extension of credit and an excessive in-kind 

contribution by Political Advertising to Rig|htmarch. The Audit Division expressed 

concem that Political Advertising "allow[ed] invoices to remain outstanding for a 

considerable lengtfa of time" and "did mpt appear to make commercially reasonable 

attempts to collect $1,655,327 for services rendered, thereby making an apparent 

excessive in-kind contribution of $1,653,027." lAR at 6. 

In issuing tfae lAR and m related documents, however, the Audit Division 

and the Ofiice of General Counsel acknowledged that then: initial assessment was 

based on *Very little infonnation" about Political Advertising's busmess and tfae 

fimdraising contract between Political Advertising and Rigihtmardi. See 

Memorandum finom Cfaristopher Hughey, Acting General Counsel to the 

Commission, Request for Early Commission Consideration of Legal Questions 

Arising in the Audit of Rightmarch.com PAC, Inc. (LRA 842) 5 & n.5 (Mar. 14, 

2011) ("Atddit Division Memorandum"). In fact, the Audit Division noted tfaat it 

would welcome "a record by Political Advertising or similar companies of tfae 

implementation of a program of similar structure and size in the ordinary course of 

business" as that contained in Political Advertising's August 20,2007 fimdraising 
Wiley 

rCeiii 

Tom Hintermister 

December 12,2011 

Page 2 

contract witfa Rig^tmarcfa. Id.; see also lAR at 6,9. Tfais submission provides just 

sucfa a record to tfae Audit Division. 

As we detail below, Political Advertising's August 20,2007 fimdraising 

contract witfa Rigihtmarcfa is a percentage and performance-based agreement tfaat, in 

accordance with the principles underlying many state fimdraising laws, caps the 

amount of compensation that Political Advertising may receive for its services. The 

Rigfatmarcfa. contract is consistent not only witfa Political Advertising's past 

practices and establisfaed norms in tfae fimdraising industry, but also with prior 

Commission precedent permitting such contractual arrangements. 

Furthermore, unlike other similar contracts previously scrotinized by the 

Commission, Political Advertising has actually made a profit on its contract with 

Rigfatmarcfa to date, witfa over $57,000 in profit coming fix)m direct revenues and 

over $30,000 in estimated profit derived fixnn tfae intellectual property acquired by 

Political Advertising in connection witfa tfae contract 

In addition, attached to this submission are 32 separate telemarketing 

fundraising contracts fipom many different vendors for both politica] and nonpolitical clients. Wfaile tfae language and processes for calculating vendor 

compensation vary from contract to contract, eacfa of tfaese 32 agreements ultimately 

establisfaes a fee cap and contractually guarantees tfaat vendor compensation will not 

exceed tfae proceeds tfaat are generated by tfae telemarketing fundraising program. 

These 32 fundraising contracts clearly demonstrate tfaat Political Advertising's 

contract witfa Rightmarch conformed ;(o the usual and normal practice m Political 

Advertising's industry. 

As is detailed below, contrary to the Audit Division's prelunioary 

determination. Political Advertising did not impermissibly extend credit to 

Ri^tmardi during the course of the contract or allow invoices to remain 

outstanding for a commercially unreasonable lengtfa of time. Accordingly, the 

Audit Division should revise the lAR to remove its prelunmary fmding that Political 

Advertising made an impermissible extension of credit and excessive in-kind 

contribution to Rigfatmarcfa. 

FACTUAL BACKGROUND 

Establisfaed in September 2001, Political Advertising is an Arizona limited 

liability company tfaat elects to be treated as a disregarded entity for federal tax 

purposes. See Ex. A (August 16,2011 letter firom Political Advertising's statutory 
Wilev 

Tom Hintermister 

December 12,2011 

Page 3 

agent, Micfaael H. Bate). Political Advertising provides telemarketing and followup direct mail services to faelp conservative organizations acquire new donors and 

raise funds to support their activities. At tfae same time. Political Advertising's 

fundraising programs enable organizations to cultivate lists of like-minded 

individuals and supporters who can be targeted for future voter education and 

outreacfa activities. 

Consistent witfa its past and current practices, Political Advertising offered 

its telemarketing fundraising services to Rigifatmarcfa pursuant to tfae same general 

contract terms tfaat tfae company faas offered to each of its political and nonpolitical 

customers since Political Advertising's founding ten years ago. See Ex. B f 3 

(affidavit of Margaret DeMello, President of Political Call Center, LLC). On 

August 20,2007, Rightmarch and Political Advertising entered into a contract for 

the provision of telemarketing and fimdraising services; a copy of the contract 

between the parties is attached hereto as Exhibit C. 

The contract specified tfaat Political Advertising would send a weekly 

statement to Rightmarch for its services. Ex. C15.2. On each statement. Political 

Advertising multiplied the number of completed calls by $2.50 to establish a total 

dollar figure for the covered period. Id. This amount was known as the 

"contingency fee cap" or the "fee cap provision."* Id 15.2. Apart from this 

' The contract described this figure as a '*flat contingency fee rate." Ex. C ^ S.2. Regardless 

of tfae specific terminology used, tfae S2.50 figure was a fee cap. The actual amount owed by 

Rightmarch was a percentage-based aniount The contract stipulated that Political Advertising was 

to be paid 95% of die funds generated by the telemaiketing program, iqi to tfae fee cap figure of 

$2.50 per call. 

This $2.50 fee cap served as an important contractual safeguard for botfa Political 

Advertising and RigfatmarcL On tfae one band, flie $2.50 figure functioned as a "cost-phis-phis" 

mechanism to protect Political Advertising. In tfae event fhat flie client prematurely temiinated flie 

fundraising program, tfae contract stipulated tfaat Rigfatmarcfa would owe an amount equal to flie full 

fee cap, regardless of faow mucfa money tfae telemarketing program raised. On tfae otfaer faand, tfae 

$2.50 figure protected Rigfatmarcfa by establisfaing a maximum ceiling tfaat Rigfatmarcfa could be 

charged for fimdraising services - i.e., a fee cap. If the fimdraising program faad been especially 

successful, Rigfatmarcfa would faave reaped more financial benefits fix)m tfaat success tfaan if tfae 

agreement called for Political Advertising to receive a flat, uncapped percentage of all revenues 

raised. 

Hereinafter, tfais submission will refer to tbe value calculated using tfae $2.50 figure and 

disclosed on the weekly statements as the "fee cap." 
Arent Fox LLP / Wasliington, D C / New York, NY / Los Angeles, C A 

Arent Fox 

December 13,2011 

BY HAND DELIVERY 

Tom Hintermister 

Assistant Staff Director, Audit Division 

Federal Election Commission 

999 EStreet, N.W. 

Washington, D.C. 20463 

Re: Response to Interim Audit Report of the Audit Division on 

Rightmarch.com PAC. Inc. 

Dear Mr. Hintermister: 

Craig Engle 

Partner 

202.77S.S791 DIRECT 

202.8S7.639S PAX 

engle.craig@afentfox.coin 

Brett G. Kappel 

Counsel 

202.8S7.6494DIRECT 

202.8S7.639S FAX 

lcappel.brett@arentfbx.Goni 

Reference Number 

032567.00001 

On October 25,2011, the Audit Division of tfae Federal Election Commission C'FEC" or 

"Commission") issued an Interim Audit Report ("LAR") on Rightmarcfa.com PAC, Inc. 

("Rightmarch") covering the period fix>m January 1,2007 tfarougfa December 31,2008. The 

Commission requested that Rightmarch respond to the LAR by November 28,2011. On 

November 10,2011, Rigfatmarcfa requested and tfae Commission granted a fifteen-day extension 

until December 13,2011 so Rigfatmarcfa could consult witfa tfae committee's vendors in order to 

prepare a comprefaensive response to tfae findings and recommendations of tfae lAR. 

Tfae Audit Division made tfaree findings and recommendations with regard to 

Rigfatmarcfa. First, tfae Audit Division found tfaat Rigfatmarcfa misstated its financial activity m 

botfa 2007 and 2008. IARat4-5. Second, tfae Audit Division questioned whether a campaign 

vendor had extended credit to Rigfatmarcfa outside tfae normal course of business by allowing 

invoices to remam outstanding for a considerable period of time. Tfae Audit Division 

recommended tfaat Rigifatmarcfa provide documentation fix)m tfae vendor to demonstrate that tfae 

credit was extended in tfae normal course of tfae vendor's business. The Audit Division also 

recommended that Rigfatmarcfa amend its disclosure reports to refiect all debt owed to the 

vendor. lAR at 6-9. Finally, the Audit Division found that Righttnarch did not properly disclose 

independent expenditures during the audit period. lAR at 9-12. 

Rigfatmarcfa concurs with the Audit Division's finding that Rigfatmarcfa misstated its 

financial activity in 2007 and 2008 and will comply witfa the Audit Division's recommendation 

to amend its disclosure reports to correct the misstatements. 

SMART IN YOUR WORLD' 

1050 Connecticut Avenue, NW 

Washington, DG 20036-5339 

T 202.857.6000 F 202.857.6395 

1675 Broadway 

New Yorit, NY 10019-5820 

T 212.484.3900 F 212.484.3900 

555 West Rfth Street, 48th Roor 

Los Angeles, CA 90013-1065 

T 213.629.7400 F 213.629.7401 
I Tom Hintermister 

I December 13,2011 

I Page 2 

Arent Fox 

Rightmarcfa's principal vendor. Political Call Center, LLC ("PCC"), faas filed a separate 

response to tfae LAR demonstrating conclusively that it did not extend credit to Rightmarch 

outside the normal course of business by allowing invoices to remain outstanding for an 

unreasonable length of time. The PCC response demonstrates that tfae Audit Division seriously 

misconstrued both the contract between Rigfatmarcfa and PPC and tfae weekly statements fix>m 

PCC to Rigfatmarcfa. In fact, Rigfatmarcfa never incurred any debt to PCC. Rigfatmarcfa paid PCC 

Ul full and on time for all of tfae services provided to Rightmarch. Accordingly, Rigfatmarcfa 

requests that tfae lAR be revised to delete tfae findings tfaat PCC made an impermissible extension 

of credit to Rigfatmarcfa and tfaat Rigfatmarcfa failed to report debt owed to PCC. 

Finally, Rigfatmarcfa continues to dispute the Audit Division's findmg that it did not 

properly disclose independent expenditures during the audit period. Tfae Audit Division's 

finding is dependent entirely on tfae legal question of whether or not telemarketing calls made by 

PCC to raise funds for Rigfatmarcfa constituted independent expenditures. As tfae Audit Division 

noted, tfais issue was tfae basis of a request by Rigfatmarcfa for early Commission consideration of 

a legal question. lAR at 11-12. Tfae Commission, however, was unable to reach a conclusion 

with regard to tfais legal issue by the requisite four votes. Accordingly, Rigfatmarcfa requests tfaat 

tfae lAR be revised to delete the finduig tfaat Rigfatmarcfa fiuled to adequately report mdependent 

expenditures during tfae audit period. Instead, in accordance witfa Durective 70, the discussion 

regarding Rightmarcfa's alleged failure to report independent expenditures should be moved to an 

Additional Issues section at the end of tfae lAR. 

Rigfatmarcfa's response to eacfa of tfae Audit Division's findings and recommendations 

appears in greater detail below. 

Finding 1 - Misstatement of Financial Activity 

The Audit Division reconciled Rightmarcfa's disclosure reports witfa bank records for 

calendar years 2007 and 2008. Tfae Audit Division found tfaat m calendar year 2007 Rigfatmarcfa 

understated receipts by $23,940. The failure to disclose these receipts also caused Rightmarch to 

understate its year-end casfa-on-faand by $16,750. Tfae Audit Division also found tfaat in 2008 

Rigfatmarcfa understated disbursements by $9,889, wfaich also caused Rigfatmarcfa to understate 

its year-end casfa-on-faand by $6,625. lAR at 4-5. 

Tfae Audit Division recommended tfaat Rigfatmarcfa amend its reports to correct tfaese 

misstatements and amend its most recentiy filed report to correct tfae casfa-on-faand balance witfa 

an explanation tfaat tfae cfaange resulted fix)m a prior period audit adjustment lAR at 5. 

Rigfatmarcfa concurs witfa tfae Audit Division's findings arid will comply with the Audit 

Division's recommendations. 
I Tom Hintermister 

I December 13,2011 

i Page 3 

I 

Arent Fox 

! Finding 2 - Extension of Credit by a Commercial Vendor 

' The Audit Division included m tfae lAR a preliminary finding tfaat PCC may have 

extended credit to Rigfatmarcfa outside tfae normal course of busmess by allowing invoices to 

remain outstanding for a considerable period of tune resulting in an alleged excessive in-kind 

contribution of $1,655,327. IARat6. Tfais preliminary finding appears to be based entirely on 

the Audit Division's misunderstanding of the fundraising contract between Rightmarch and PCC 

and the weekly statements provided to Rigfatmarcfa by PCC. lAR at 7. 

Rigfatmarcfa disputed tfae Audit Division's interpretation of tfae contract and tfae weekly 

, statements v^th Audit Division staff during audit fieldwork and at the exit conference. 

Following the exit conference, Rigfatmarcfa filed a Request for Early Consideration of Legal 

Questions pursuant to tfae Commission's Policy Statement Establishing a Pilot Program for 

Requesting Consideration of Legal Questions by the Commission, 75 Fed. Reg. 42088 (July 20, 

i 2010). Rigfatmarcfa asked tfae Commission to detennine wfaetfaer tfae weekly contingency fee 

I reflected on weekly statements sent by PCC to Rigfatmarcfa constituted a debt subject to tfae 

reporting requirements of 11 C.F.R. § 104.11. Rigfatmarcfa also asked wfaetfaer the contract 

constituted an extension of credit imder 11 C.F.R. § 116.3 or an in-kind contribution by PCC to 

Rigfatmarcfa under 11 C.F.R. § 100.52. Unfortunately, after considering tfae recommendations of 

tfae Office of General Counsel, tfae Commission was unable to reacfa a conclusion witfa regard to 

any pf tfaese questions by tfae requisite four votes. 

In ligfat of tfae failure of the Commission to resolve tfaese outstanding legal questions, tfae 

. Audit Division recommended that Rigfatmarcfa provide documentation from PCC demonstrating 

tfaat no credit was extended otfaer than in the normal course of PCC's business and did not 

represent an excessive in-kind contribution by PCC to Rigfatmarcfa. IARat9. Rigfatmarcfa did 

request such documentation and PCC has filed a twenty-page response to Fmding 2, supported 

by an affidavit fiiom Margaret DeMello, President of PCC, and thirty-four additional esdtibits. 

See Submission of Political Call Center, LLC in Response to the Interim Audit Report 

Conceming Rightinarcfa.com PAC, Inc. (December 12,2011)C*PCC Submission"). 

Tfae PCC Submission makes it abundantly clear tfaat PCC never extended any credit to 

Rigfatmarcfa. PCC Submission at 8-9. Tfae Audit Division's preliminary finding appears to be 

based on a misreading of tfae weekly statements sent by PCC to Rigfatmarcfa. The weekly 

I statements were prepared by a third-party escrow company. Canyon State Servicing Co., LLC, 

! using a standard format designed for real estate transactions. The $1,655,327 figure identified by 

I tfae Audit Division as a possible excessive contribution fix)m PCC to Rightmarch is, in fact, tfae 

maximum possible amount tfaat PCC could faave received fix)m Rigfatmarcfa if tfae fimdraising 

' program faad exceeded expectations. Unfortunately, tfais figure appears on tfae escrow company 

form under tfae headmg "Principal Balance." Tfae Audit Division apparentiy considered tfaese 
Tom Hintennister 

December 13,2011 

Page 4 

Arent Fox 

weekly statements to be invoices and misinterpreted the "Principle Balance" faeading to mean 

tfaat tfais figure constituted a debt owed to PCC by Rigfatmarcfa. 'Tfae weekly statements fiiom 

Political Advertising to Rigfatmarcfa were not 'invoices' because tfaey did not represent a debt 

tfaat was due and owing. Ratfaer, these statements specified the maximum possible amount that 

Political Advertising could receive fix>m Rigfatmarcfa for its services if tfae fundraising program 

was particularly successful. Under its agreement witfa Rigfatmarcfa, Political Advertising was 

entitied to be paid 95% of tfae fimds generated by tfae telemarketing program, up to tfae fee cap 

figure of $2.50 per call. In accordance witfa tfae terms of tfae contract, tfais is exactiy wfaat 

happened Political Advertising was paid in-full, on-time, every time for all of its services, in 

accordance with tfae contract." PCC Submission at 9. 

In ligfat of the PCC Submission, Rigfatmarcfa respectfully requests tfaat the lAR be revised 

to delete the findings tfaat PCC made an impermissible extension of credit to Rigfatmarcfa and that 

Rigfatmarcfa failed to report debt owed to PCC. 

Finding 3 - Failure to File Notices and Properly Disclose Independent Expenditures 

The Audit Division found that Rigfatmarcfa did not file 24- or 48-faour notices for 

independent expenditures totaling up to $139,067 and did not properly disclose independent 

expenditures totaling $2,172,135 on Scfaedule E. lAR at 9-11. The Audit Division's fiinding 

appears to be based on tfae Audit Division's detennination tfaat tfae scripts used in telemarketing 

calls to raise funds for Rigfatmarcfa constituted independent expenditures because tfaey contained 

tfae words "defeat" and "oppose" and referred to one or more federal officeholders by name. LAR 

at 10. 

Rigfatmarcfa disputed tfae Audit Division's interpretation of tfae fundraising scripts with 

Audit Division staff during audit fieldwork and at tfae exit conference. Following tfae exit 

conference, Rigfatmarcfa filed a Request for Early Consideration of Legal Questions pursuant to 

tfae Coinmission's Policy Statement Establishing a Pilot Program for Requesting Consideration 

of Legal C^estions by the Commission, 75 Fed. Reg. 42088 (July 20,2010). Rightmarcfa asked 

tfae Conmiission to determine whetfaer tiie fundraising scripts tfaat are primarily related to 

opposing the officeholders' positions on particular issues, such as immigration, in order to raise 

money for Rigfatmarcfa were required to be reported as independent expenditures under 2 U.S.C. 

§ 431 (17). Unfortunately, after considering tfae recommendations of the Office of General 

Counsel, the Commission was unable to reach a conclusion witfa regard to tfais question by tfae 

requisite four votes. 

Given tfaat tfae Commission appears to be deadlocked on tfais issue and tfaere faas been no 

cfaange in the law since the Commission responded to Rightmarch's request for early 

consideration of legal questions on April 5,2011, Rigifatmarcfa objects to this issue being included 

in tfae Audit Report as a finding of tfae Commission. Du:ective 70 states tfaat for "any 
Tom Hintermister 

December 13,2011 

Page 5 

Arent Fox 

recommended finding tfaat does not receive four or more votes eitfaer approving or rejecting tfae 

recommendation, the Audit Division will move the discussion to an 'Additional Issues' section. 

Each 'Additional Issue' will contain a brief summary ofthe facts, any applicable legal standards, 

a brief recitation of the Audit Division's recommendation, and a recitation of the vote on tfae 

recommended finding." FEC Directive on Processing Audit Reports at 4 (April 26,2011). See, 

e.g.. Final Audit Report of tiie Coinmission on SEIU COPE at 4-5 (October 31,201 l)(discussing 

the Commission's fhilure to adopt a recommendation regarding the reportuig of independent 

expenditures in tfae form of payments to individuals for door-to-door voter ID and get-out-tfaevote efforts). 

Accordingly, Rigfatmarcfa requests tfaat tfae lAR be revised to delete tfae finding tfaat 

Rigfatmarcfa failed to adequately report independent expenditures during tfae audit period. 

Instead, tfae discussion regarding Rigfatmarcfa's alleged failure to report uidependent expenditures 

should be moved to an Additional Issues section at the end of tfae lAR. 

Sincerely, 

Craig EiyM ^ Brett G. Kappel