22 January 20108 minute read

Supreme court frees corporations to directly influence elections

On January 21, 2010, the Supreme Court issued an eagerly anticipated decision on campaign finance law that opens the door to a potentially dramatic influx of corporate money into federal, state and local elections. 

In Citizens United, a divided Court rejected a provision of law barring corporate expenditures for election advertising and overturned decades of judicial precedent.  The Court concluded, in short, that “the Government may not suppress political speech on the basis of the speaker’s corporate identity.”

Campaign reform advocates called the decision “a disaster for the American people” and “the most radical and destructive campaign finance decision in Supreme Court history.”  Critics of the existing law described the Court’s action as “a victory for those who truly value the freedoms outlined in the First Amendment.”  And President Barack Obama predicted “a new stampede of special interest money in our politics.”

While the impact of the Court’s action will be long debated, it seems certain that Citizens United marks a decisive shift in the role of corporate money in campaign finance.  The immediate result, which will be evident in the 2010 elections, will be greater freedom for corporations to intervene in campaigns, either directly or by funding political activities by associations and other groups.  In addition, the Court’s decision thrusts campaign finance reform back into the spotlight and possibly onto the legislative agenda for Congress in the year ahead.

The road to Citizens United

The case before the Court involved a film entitled Hillary: The Movie that cast then-presidential candidate Hillary Clinton in a negative light.  Citizens United, the group behind the movie, sought to show the film and run broadcast ads about it during the 2008 election season using corporate and other funds.  That year, a federal district court ruled that the use of corporate funds for the advertising violated provisions of the Bipartisan Campaign Reform Act (BCRA) of 2002.

The Supreme Court first held oral arguments on Citizens United in early 2009 but then took the unusual step of ordering the parties to reargue the case in September.  Following the Court’s second hearing, it was clear that a major campaign ruling was in the offing.  Critics of BCRA and other limits on corporate political activity were encouraged by the Court’s clear willingness to reconsider past cases that had upheld restrictions on corporate political spending.

The decision handed down on January 21, 2010 might appear, on the surface, to be a fairly typical compromise by a Court split five to four.  The decision affirmed the lower court in part, reversed its decision in part and remanded the matter for further proceedings.  However, from the call for a re-argument to the decision to overturn cases decided as recently as 1990, 2003 and 2007, the case was anything but typical.  In dissent, four Justices offer the particularly biting argument that the other five Justices “were unhappy with the limited nature of the case before us, so they changed the case to give themselves an opportunity to change the law.”

Independent expenditures by corporations now permissible

The central result of Citizens United is that companies may now use corporate funds for independent expenditures in political campaigns, including “express advocacy” that advocates for and against particular candidates.  In the past, corporations were largely limited to funding ads that focused on policy issues, and which would typically close with a request to viewers to contact a given office holder in support or opposition to an issue.  In the wake of the new case, a company may be more direct, urging voters to support or oppose a candidate.

The majority of the Court concluded that prohibiting corporations from making their specific views known on political matters represented a “classic example of censorship” for “certain disfavored speakers.”  The five Justices saw the case as an opportunity to reconcile conflicting lines of precedent and overturned Austin v. Michigan Chamber of Commerce, a 1990 case that upheld a state law that prohibited corporate expenditures in campaigns.  The Court also struck down a provision of BCRA prohibiting the use of corporate and union funds for broadcast advertising interpreted to be in support or opposition to a candidate aired in the period just before an election.

The dissenting Justices bristled at the majority’s treatment of corporations as the equivalent of persons deserving of full protection under the First Amendment.  “The distinction between corporate and human speakers is significant,” the dissent noted.  “Although they make enormous contributions to our society, corporations are not actually members of it.”

The Court’s decision in Citizens United impacts not only federal laws but also similar state laws.  Nearly half of the states restrict independent expenditures by corporations in elections; these prohibitions will likely fall in the months and years ahead, either through litigation or legislative action by the states.

Disclosure requirements and contribution bans remain

The Supreme Court did not vacate all provisions of law affecting corporate political activities.  BCRA’s disclaimer and disclosure requirements were upheld in Citizens United.  Corporations, like candidates and other groups, must be identified when they sponsor advertising and disclosed when they contribute funds to an advertising effort.

The decision also leaves intact the long-standing ban on corporate contributions to candidates.  While a corporation will now be able to undertake independent political expenditures, a corporation may not contribute funds to a federal candidate or political committee.  Similarly, BCRA’s ban on corporate and union “soft money” contributions to the political parties remains in force.

Questions in the wake of Citizens United

Like any complicated, landmark ruling, the Citizens United decision raises as many questions as it answers:

Will corporations take advantage of their new freedom to sponsor independent political advertising?  Businesses are sometimes hesitant to weigh in directly on controversial or political matters, and few companies currently take advantage of their longstanding right to engage in express political advocacy directed at their own employees.  Rather than sponsor their own advertising, corporations may be tempted to support political activities by third parties, such as trade associations and other interest groups, which will likely become more significant and better funded players in the political arena.

Do corporations face any restrictions when considering political expenditures?  While the Court struck down certain legal obstacles to such activities, companies may face both internal rules and growing outside pressure to abstain from such activities.  The Citizens United decision will likely boost efforts by shareholder groups and advocacy organizations such as the Center for Political Accountability to force corporations to adopt disclosure and oversight rules.  Nearly half of the Standard & Poor’s top 100 companies in recent years have adopted new corporate governance standards with respect to political spending, and “shareholder rights” may become a rallying cry for those opposed to increased corporate political activity.

What are the legal pitfalls about which corporations should be aware when sponsoring political advertising?  With respect to federal elections, the Federal Election Commission will need to revise its regulations, but a key area will concern the independence of such advertising.  Corporate political activities may not be coordinated with candidates – they must be truly independent – and the various factors that suggest coordination must be examined carefully when considering corporate political expenditures.

How does the Citizens United decision impact various players in the political process?  Unions, while not the subject of the Citizens United case, are nonetheless a beneficiary, as they, like corporations, are now freed to make unlimited independent expenditures.  As noted above, trade associations and interest groups are likely to become the most popular vehicles for corporate expenditures, particularly for companies reluctant to be very publicly associated with express political advocacy.  This gain in influence will come at the expense of political parties and candidates.  Parties, already barred from receiving corporate soft money, may become even less relevant as corporations and unions increase their spending.  Finally, candidates, who face strict legal limits on the size of the contributions they can receive, may feel increasingly outgunned by corporations and others that face no such limits.

Will Congress seek to enact new restrictions on corporate political expenditures during 2010?  Even before the decision was handed down, Democratic congressional leaders were preparing for possible legislation to respond to the Court’s action.  However, Congress would need to act quickly to put in place any new rules before the fall elections.  At least one advocacy group, Public Citizen, immediately called instead for a constitutional amendment, an even longer process.

DLA Piper will monitor reaction to the Citizens United decision and will provide updates to clients on subsequent developments, including legislative and regulatory actions.

For more information on the impact of this decision, please contact the author.