Source: https://verdict.justia.com/2019/01/04/trump-hush-payment-to-stormy-daniels-likely-does-not-violate-election-law
Timestamp: 2019-09-17 05:53:41
Document Index: 587090771

Matched Legal Cases: ['§ 110', '§ 30101', '§ 30118', '§ 114', '§ 114', '§ 100', '§ 30101', '§ 100', '§ 116', '§ 116', '§ 104', '§ 104', '§ 104', '§ 30109', '§ 30101', '§ 109', '§ 100']

Trump “Hush” Payment to Stormy Daniels Likely Does Not Violate Election Law | Samuel Estreicher | Verdict | Legal Analysis and Commentary from Justia
With the December 2018 sentencing of Michael Cohen—President Trump’s long-time personal lawyer and “fixer”—has come a renewed interest in the president’s exposure to liability for campaign finance violations. Some commentators have suggested that these violations of the Federal Election Campaign Act (FECA) could form the predicate for a bill of impeachment against the president. It may be too soon, however, to pop the champagne corks, for at least with respect to the $130,000 “hush” payment of adult film star Stormy Daniels, it is far from clear that the president has violated federal election law.
Reading the Justice Department (DOJ)’s sentencing memorandum for Cohen, we learn that while remaining formally employed by “Manhattan-based real estate company” (presumably, The Trump Organization), Cohen advised the Trump campaign and, acting at Trump’s direction, entered into a “confidential settlement agreement” with “Woman-2,” whom we now know to be Daniels. He did so, the government alleges, “with the intent to influence the 2016 presidential election” by preventing Daniels from making embarrassing statements about an alleged affair she had with the candidate. After making the payment, Cohen sought “reimbursement payments” which he received in the form of twelve payments of $35,000 over the course of the next year. The government believes that Cohen violated the law by making a campaign contribution in excess of the $2,700 cap permitted by law (11 C.F.R. § 110.1(b)(1)). However, notwithstanding Cohen’s pleas and sentence, the president’s liability under FECA is not clearly established.
As the debate has taken shape, there are two principal lines of argument for Trump—one focusing on the purpose of the expenditure and the second on the source of the money. As to the first, the argument is essentially that the payment to Daniels was a personal expense and thus did not constitute an expenditure or a contribution at all. Because expenditures and contributions alike must be made “for the purpose of influencing any election for Federal office,” 52 U.S.C. § 30101(8)-(9), monies paid for a different purpose—say, to avoid personal embarrassment or family hardship—would not fall within the ambit of the campaign finance laws. This is ultimately a factual issue, turning on whether Trump’s dominant purpose was to avoid embarrassment or to influence voters, and perhaps a legal issue (discussed below) as to whether actions undertaken with mixed motives—one personal and one to influence the campaign—can be actionable.
As to the second line of argument, which is the subject of our column, we focus on the fact that that the Daniels payment ultimately involved the president’s own money, which makes it doubtful that a campaign contribution or expenditure within the meaning of federal campaign law occurred in this case.
Personal Funds or Corporate Funds?
A threshold question is whether the funds paid to Cohen by the Trump Organization constituted Trump’s personal funds or whether they were corporate funds subject to the statutory prohibition on corporate contributions. The relevant provision, 52 U.S.C. § 30118, states that “[i]t is unlawful for . . . any corporation whatever . . . to make a contribution or expenditure in connection with any [federal] election.” The same prohibition is stated in the regulations at 11 C.F.R. § 114.2(b). Another provision, 11 CF.R. § 114.2(f)(1), prohibits corporations from “facilitating the making of contributions to candidates or political committees, other than to the separate segregated funds of the corporations. . . .” As Trump’s tax counsel has characterized it, The Trump Organization is a body of some 500 entities of which Trump is the “sole or principal owner” and which do business collectively as The Trump Organization (TO). While most of the businesses under the TO umbrella are “sole proprietorships and/or closely-held partnerships,” the organization itself is a limited liability corporation (LLC). If Trump is the sole or primary owner of the LLC, as he appears to be, then the funds of TO could be considered personal funds under the regulations of the Federal Election Commission (FEC), the independent agency tasked with administering the campaign finance law. A candidate’s “personal funds” are defined in 11 C.F.R. § 100.33 (a) to include income derived from “any asset that . . . at the time the individual became a candidate, the candidate had legal right of access to or control over” and with respect to which the candidate had either “legal and rightful title” or “an equitable interest.”
The reason that Trump’s reimbursement of Cohen’s payment to Daniels involved his personal funds is important is because a candidate can make unlimited contributions to and expenditures for his own campaign. This is in keeping with the central purpose of federal campaign finance law, as the US Supreme Court put it in Buckley v. Valeo, “to limit the actuality and appearance of corruption resulting from large individual financial contributions” from third parties to candidates for federal office. Thus, while a third party’s making a contribution to a federal candidate’s campaign is subject to a strict monetary cap, the candidate himself is subject to no such limitation. In addition, excluding instances where the candidate is a recipient of matching funds, candidates may make unlimited expenditures from personal funds.
The Significance of Using an Intermediary?
Given that a payment by Trump himself from his personal funds would unquestionably be legal, what then is the significance of his use of an intermediary (Cohen) who fronts the expense associated with the payment only to be reimbursed at some later point? Consider a scenario where a candidate for federal office directs one of his employees to enter into negotiations and reach an agreement with a third party in which money will be paid to the third party from the candidate’s personal funds in exchange for some service. Imagine further that, after the deal is struck, the candidate wires funds to the employee who then deposits them into the third party’s bank account. While the employee may have made a “purchase” or “payment” in some literal sense (and thus technically an expenditure), it would more accurately be characterized as an expenditure made by the candidate himself, albeit through an intermediary.
What makes the Cohen case different from our hypothetical situation is that, rather than using the candidate’s own funds in the initial transaction, the employee-agent uses his own funds subject to an understanding that those funds will be reimbursed by the candidate. As we read the government’s argument and that of most of the commentators on the issue, Cohen’s use of his own funds to pay Daniels could have constituted an unlawful contribution or expenditure in either of two respects. First, it could have been a contribution as that term is defined in the statute. Second, it could be an “in-kind” expenditure which is made in coordination with a candidate or campaign (in effect, a form of contribution). We address both lines of argument, which the campaign finance watchdog Common Cause, among others, has advanced in submissions to the FEC.
Was Cohen’s Payment to Daniels a “Contribution” to the Trump Campaign?
52 U.S.C. § 30101(8)(A)(i) defines a “contribution” as “any gift, subscription, loan, advance, or deposit of money or anything of value made by any person for the purpose of influencing any election for Federal office.” From the get-go, a few of these terms seem inapplicable. Cohen’s payment to Daniels would not constitute a “deposit” or an “advance” under the natural meaning of those terms; a “deposit” would connote a direct provision of money to the candidate while an “advance” would suggest a gratuitous provision of money from a sum that ordinarily would be received later. Nor could the payment be described as a “subscription.” Similarly, we think “gift” is out on the grounds that a gift suggests something given without expectation of repayment; under the alleged reimbursement agreement between the president and Cohen, the payment was not a gift.
Some have suggested that the payment might be considered a “loan” by Cohen to Trump. While a more plausible possibility, even this tack has some difficulties. First, the natural meaning of the word “loan” suggests a transaction in which the candidate directly receives funds in exchange for some future promise of repayment. The Cohen-Trump transaction is of a different structure in which the candidate never receives any funds from the purported loan. Second, even if the payment were a loan, it might still not constitute a contribution under the FEC’s exception for loans which are derived from a “line of credit available to [a] candidate” and which are offered on “commercially reasonable terms.” 11 C.F.R. § 100.83(a). The point is that the line of credit cannot be functioning as a disguised contribution to the candidate, but here the reimbursement agreement with Cohen indicates that no subsidy was flowing from Cohen to Trump.
Another possibly applicable exception is that stated by 11 C.F.R. § 116.3., which provides that “[a]n extension of credit [by a commercial vendor] will not be considered a contribution to the candidate or political committee provided that the credit is extended in the ordinary course of the commercial vendor’s business and the terms are substantially similar to extensions of credit to nonpolitical debtors that are of similar risk and size of obligation.” While the term “commercial vendor” may in colloquial use mean an institution like a bank or a credit agency, the regulation makes clear that the term “commercial vendor” “means any persons providing goods or services to a candidate or political committee whose usual and normal business involves the sale, rental, lease or provision of those goods or services.” 11 C.F.R. § 116.1. Although one can question the quality of his lawyering, Cohen certainly was a person providing legal and related services to a candidate and his “usual and normal” business involved providing such services.
FEC reporting obligations remain a problem for the Trump campaign. If the Daniels payment is best thought of as a loan, 11 C.F.R. § 104.3(a)(2)(vi) makes plain that the payment must be reported by the campaign irrespective of whether the loan is a contribution or not; “all loans” must be reported. Similarly, all “outstanding debts and obligations” owed by the campaign must be reported under 11 C.F.R. § 104.3(d); so too must all payments made upon such debts or obligations, as such payments are disbursements under 11 C.F.R. § 104.3(b). In either case, the Trump campaign was obliged to report the indebtedness to Cohen except, of course, if the transaction was not campaign-related. For any of these reporting violations, civil liability is quite possible, but criminal liability (putting aside the issue of presidential immunity) is rare and (should be) unlikely. As DOJ has noted, the finding of criminal liability under the campaign laws (52 U.S.C. § 30109(d))—that a violation was committed “knowingly and willfully” requires, “at the very least, that application of the law to the facts in question be fairly clear.”
Was Cohen’s Payment to Daniels a Coordinated “Expenditure” for the Trump Campaign?
The argument that the Daniels payment was a coordinated expenditure also faces difficulties. An “expenditure” is the “purchase, payment, distribution, loan, advance, deposit, or gift of money or anything of value, made by any person for the purpose of influencing any election for Federal office.” 52 U.S.C. § 30101(9). When an expenditure is made in coordination with a candidate, that expenditure “is either an in-kind contribution to, or a coordinated party expenditure with respect to, the candidate . . . with whom or with which it was coordinated” unless it is exempted from being considered a contribution. 11 C.F.R. § 109.20. An expenditure is “coordinated’ where it is “made in cooperation, consultation or concert with, or at the request or suggestion of, a candidate, a candidate’s authorized committee, or a political party committee.”
Cohen undoubtedly made a “purchase” or a “payment” in the ordinary sense of those terms and he certainly “coordinated” that payment with the president. But while the statutory text does not explicitly distinguish between payments made using a candidate’s own monies versus a third party’s funds, reading such a distinction into the statute is necessary to prevent overbreadth and a frustration of congressional purpose. Under a literal construction of “purchase” and “payment,” even when an intermediary merely transmits the candidate’s own monies to a third party, there would at least a “payment” to that party. And while the case of an intermediary merely transferring candidate money differs from a reimbursement arrangement in some respects, the same reason for construing the statutory terms narrowly so as to not encompass the former apply similarly to the latter. In both instances, too broad a construction reaches conduct that has little risk of corrupting anyone. The FEC itself appears to recognize that an overly broad construction of an “expenditure” is problematic. The agency’s regulations (specifically 11 C.F.R. §§ 100.110–100.114) defining the term “expenditure” do not include transactions in which a person acts merely as an intermediary without also providing some additional, uncompensated financial benefit to the candidate. Instead, the Commission seems concerned solely with expenditures that, while made in coordination with the candidate, are paid for by a third party. By noting that “the provision of any goods or services without charge or at a charge that is less than the usual and normal charge for the goods or services is an expenditure,” the Commission makes clear that goods and services that are paid for at their usual and normal price—like Cohen’s services seemingly were—are not coordinated expenditures or in-kind contributions to the candidate.
In all of these instances, a key issue is the meaning of the phrase “for the purpose of influencing any election for federal office.” The phrase is not itself defined in the statute or in the regulations, and it is thus unclear what mental state suffices. If the law requires but-for causation—that the payment would not have been made were it not for the election—the government faces an uphill battle. While it is more likely than not that electoral concerns motivated the payment, Trump has a colorable argument, particularly in light of his past practice to pay off those accusing him of misconduct, that another reason (like avoiding personal embarrassment) would have led him to make the payment in any event, if at a later time. It is not clear at this stage whether the FECA imposes liability in mixed-motive cases, and if so, whether the electoral motive has to be the predominant one.
Although the Buckley v. Valeo Court did not purport to define the word “expenditure” for all purposes, the Court’s method of analyzing and narrowing problematic statutory text due to First Amendment concerns has implications for how all the terms of FECA ought to be construed. Because the theory that Cohen’s payment to Daniels constituted a coordinated expenditure or an in-kind contribution requires interpretation of terms like “payment” or “purchase”—terms which, on their face, do not address issues of reimbursement by the candidate or the ultimate source of funds—those terms must be given a construction that both accords with the purpose of the campaign finance laws and does not extend further than is necessary. Accordingly, the only payments or purchases that should be considered covered expenditures are those where the payor does not receive reimbursement or compensation from the candidate or his campaign.
At a minimum, it is simply not clear that President Trump violated election laws in using his money to pay off an individual who otherwise might have revealed a previous sexual affair with him. FEC regulations make clear that a candidate may make unlimited contributions and unlimited expenditures from his own funds.
The fact that Trump used Cohen as an intermediary does not change the outcome. FECA is not an all-purpose “truth in federal campaign” law; rather, Cohen’s payment to Daniels has to be a contribution or coordinated expenditure to or on behalf of the Trump campaign to be actionable. Cohen’s payment did not constitute a contribution by him to the campaign because the understanding with Trump was that Cohen would be reimbursed by the president, and he was. Nor can Cohen’s payment be treated as a coordinated expenditure on behalf of the Trump campaign. In light of the Trump-Cohen reimbursement agreement, the payment to Daniels seems to materially differ from the kinds of gratuitous payments from payors benefiting a campaign without prospect of reimbursement that are contemplated by the expenditure provisions of the FEC regulations. While undoubtedly unsavory, the Trump-Cohen agreement and the payment made to Daniels pursuant to it more closely resemble the permissible expenditures by a candidate from his own funds rather than a contribution from a third party. Here, the person ultimately paying for the received benefit is the candidate himself, and thus the transaction does not pose the risk of corruption that the campaign finance laws are designed to address.
David Moosmann is a member of the 2019 J.D. Class at NYU School of Law.
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