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Archives
November 2001
A Tug-Of-War On the Meaning of Express Advocacy: Recent Court Cases Highlight Circuit Split
Two court cases-a federal appellate decision in the Fourth Circuit and a California district court decision-illustrate the twenty-five year old debate over which electoral messages can be regulated as express advocacy.
Virginia Society for Human Life v. FEC
In a recent decision, the Court of Appeals for the Fourth Circuit upheld a Virginia federal district court's ruling that the Federal Election Commission's "reasonable interpretation" standard for express advocacy is unconstitutional. The court, however, overturned the district court's nationwide injunction on application of the rule.
With few exceptions, corporations and unions are barred from making communications that expressly advocate the election or defeat of a federal candidate. This regulated "express advocacy" unquestionably includes certain "magic words." For example, a communication that said "Vote for Joe Bloggs" or "Re-elect Your Senator" would be express advocacy under the magic words test. In 1987 the Ninth Circuit's ruling in the FEC v. Furgatch case outlined an additional, broader standard, which the FEC incorporated into the regulations in 1995. The new regulation states that a communication contains express advocacy if it can "only be interpreted by a reasonable person" as advocating the election or defeat of a candidate.
The "reasonable interpretation" standard immediately came under fire by organizations, including the Virginia Society for Human Life (VSHL), that viewed it as a violation of the First Amendment. VSHL argued that the rule goes beyond express advocacy to regulate "issue advocacy," referring to issue-based political speech that may not constitutionally be restricted. The FEC has consistently argued that the "magic words" test is too narrow and easy to circumvent, thereby not preventing unions, corporations, and other wealthy special interests from directly influencing federal elections.
When the Virginia district court found in favor of VSHL and barred the FEC from enforcing the reasonable interpretation standard anywhere in the country, the FEC appealed to the Fourth Circuit. The Court of Appeals upheld the district court's ruling on the issue, noting that the regulation "shifts the focus of the express advocacy determination away from the words themselves" to the impression the words might have on the listener. But the Court of Appeals also found that the district court had overstepped its authority by issuing the nationwide injunction against enforcement of the standard. It struck down the injunction, reasoning that other circuits should be allowed to consider the regulation's constitutionality.
The Governor Gray Davis Committee v. American Taxpayers Alliance
The same day that the VSHL case was decided, a state district court in California ordered a conservative, D.C.-based nonprofit organization called the American Taxpayers Alliance (ATA) to register in the state as a political committee after it sponsored advertisements criticizing Democratic Governor Gray Davis. Though the California case deals with state, rather than federal election law, the court's ruling in the decision is consistent with the Ninth Circuit's reasoning in FEC v. Furgatch with regard to the permissible reach of express advocacy standards.
The Governor Gray Davis Committee sued ATA for noncompliance with the state's PAC reporting requirements. Its argument rested on ATA's sponsorship of a series of "issue ads" attacking Davis for his handling of the state's energy crisis. Governor Davis' committee argued that the ads constituted an independent expenditure (containing express advocacy) under the California Political Reform Act because "reasonable minds" could only interpret the ads as urging Davis' defeat in the 2002 gubernatorial election. ATA therefore qualified as a political committee and an independent expenditure committee, and should have filed a statement of organization as well as semiannual campaign statements. Significantly, the campaign statements would have required the heretofore secretive organization to disclose the identity, occupation, employer, and address of contributors of $100 or more.
While not identical, the California statute's definition of express advocacy contains language similar to the federal "reasonable interpretation" standard and is similarly based on the Furgatch case. The district court's decision in favor of the Gray Davis committee thus upheld the Ninth Circuit's standard, while dismissing ATA's argument that the lawsuit was aimed at chilling free speech. (Not coincidentally, California is located in the Ninth Circuit). ATA's counsel indicated that the organization will appeal the decision.
Which Circuit Do I Follow?
These two cases highlight the split between the federal circuit courts regarding the permissible regulation of electoral communications. The Ninth Circuit developed the more expansive "reasonable interpretation" standard to prevent special interests from influencing federal elections, while the Fourth Circuit views the new standard as unconstitutionally burdening free speech. To its credit, the Fourth Circuit ruling allows other circuits to consider the controversial regulation, but it seems likely that the regulation will encounter more opposition than supporters. In addition to the Fourth Circuit, the First Circuit struck down the regulation in 1998, as did a New York district court the same year (the FEC chose not to appeal to the Second Circuit).
Nonprofits that engage in issue advocacy activities should pay close attention to this debate. As of September 17 the FEC is free to apply the "reasonable interpretation" standard to an enforcement action outside of the First and Fourth Circuits (and presumably outside of the Southern District of New York) but whether it will choose to do so remains to be seen.
By Mark Sawchuk
Statistics Show Increase in (c)(3) Lobbying, But Non-Electing (c)(3)s Gain Ground on Electing Charities
Statistics released by the National Center for Charitable Statistics indicate a modest increase in the amount of lobbying performed by section 501(c)(3) public charities between 1996 and 1999.
Unlike section 501(c)(4) "social welfare" organizations, the amount of lobbying that a 501(c)(3) can engage in is limited by the Internal Revenue Code, which states that "no substantial part" of a (c)(3)'s activities may be for the purpose of influencing legislation. Because the IRS has never clearly defined what "substantial" means in the lobbying context, many 501(c)(3)s elect under section 501(h) of the Code to follow certain dollar limitations on their yearly lobbying expenditures. Section 501(h) provides a formula that a charity can use to determine the amount of lobbying expenditures it may make annually, with a cap of $1 million. Historically, the IRS has vigorously encouraged charities to choose the 501(h) election to govern their lobbying expenditures.
Between 1996 and 1999, the total number of (c)(3)s that reported lobbying expenditures on Form 990 increased from 2,980 to 3,997, and total legislative expenses by these charities rose from $117,992,827 in 1996 to $167,584,865 in 1999. Despite IRS encouragement to elect, the statistics show that the number of non-electing (c)(3)s is rapidly overtaking the number of electing (c)(3)s: in 1999, for example, there were 2,303 non-electors compared to only 1,694 electors. Non-electors are also spending more money on lobbying. Total legislative expenses by non-electors rose more than total legislative expenses by electors, accounting for almost half of total legislative expenses in 1999. More significantly, non-electors account for a majority of the increase in the median dollar amount spent by lobbying charities annually (from $7,963 in 1996 to $9,579 in 1999).
The rise in the number of non-electing (c)(3)s and the median amounts spent by non-electors may indicate that charities with large budgets are increasingly bumping up against the statutory $1 million cap imposed by the 501(h) election. While this limit was considered quite high when it first appeared in the 1970s, today many charities are finding that they will be able to spend more money on lobbying by revoking their election and measuring their lobbying expenditures under the looser "no substantial part" standard.
Despite the modest increase in lobbying, the statistics also serve as a reminder that only a small fraction of all charities actually perform lobbying. In 1996, only 1.5% of charities that filed Form 990 reported lobbying expenditures, and this percentage only nudged up to 1.6% by 1999.
By Mark Sawchuk
What's in a Name? Recent Court Cases Offer Insight into Trademarks
An organization's name is often its most valuable piece of property. Two recent court decisions illustrate the ability of organizations to protect their identity under the law and provide a lesson on the danger of infringing on the identities of other similar programs.
Name Protection under Trademark Law
Organizations that want to protect this identity generally can register their name or an acronym of their name as a trademark. A trademark is defined as any word, name, symbol or device used by a person to identify and distinguish his or her product or services from those sold by others. Because of the value to an organization of its identity before the general public, disputes over trademarked names are often hotly contested.
In PETA v. Doughney, a federal Court of Appeals recently upheld a ruling preventing an internet entrepreneur from using the mark "PETA," owned by the nonprofit organization People for the Ethical Treatment of Animals, in the domain name of a parody web site. The defendant, Doughney, secured the domain name peta.org in 1995, asserting that it did "not interfere with or infringe upon the rights of any third party." Doughney then created the site "People Eating Tasty Animals" as a parody of PETA. The court found that Doughney used the PETA mark, which the organization registered with the Patent and Trademark Office in 1992, illegally because it was used "in connection with goods and services" and prevented internet users from obtaining or accessing information about the plaintiff and its services.
Trademark Protection in Domain Names
PETA v. Doughney also illustrates how an organization may be protected from trademark infringement in a domain name, a practice commonly referred to as "cybersquatting." The Anticybersquatting Consumer Protection Act (ACPA), which went into effect in 1999 [NN 7-8/00], was applied in the dispute between PETA and Doughney. To establish an ACPA violation, an organization is required to prove bad faith intent to profit from the use of a domain name and that the domain name is identical or confusingly similar to a mark. By misrepresenting his connection with a non-existent corporation when he secured the domain name as well as engaging in other suspect behavior, Doughney had acted in "bad faith" with an intent to profit from using peta.org.
Trademark Protection Without Registration
Even if a name or acronym has not been registered, it is still protected under trademark law. In Deborah Heart and Lung Center v. Children of the World Foundation, a federal district court in New Jersey heard a dispute between two organizations operating a similar medical assistance program under the same unregistered name. In 1972, the Deborah Heart and Lung Center began the "Children of the World" program, which promotes quality health care for children throughout the world and provides free medical care for children with severe problems at its New Jersey hospital. The Forum Club's Children of the World Foundation was created two years ago to provide pediatric medical services to children from developing countries. The Forum Club promoted the organization using the Children of the World mark.
The court found that while the Deborah Center had not registered the mark, it is still entitled to protection because of its longstanding use of the mark and the mark's distinctiveness to the Deborah Center and its services. The court granted a preliminary injunction against the Forum Club's future use of the Children of the World mark. The dispute between these organizations exemplifies the fact that an organization's name or program does not have to be registered in order to be protected under trademark law. However, it is important to point out that while it is not required by law, registering a trademark may help prevent costly legal disputes in the future.
Infringement on the Trademarks of Other Organizations
Deborah Heart and Lung Center v. Children of the World Foundation also serves as a reminder that organizations should be careful not to infringe upon the trademark rights of other organizations. The use of the Children of the World mark for the Forum Club's program, which provided nearly identical services to those provided by the Deborah Center, was likely to promote confusion among donors and competition for fundraising dollars, thus infringing upon the Deborah Center's rights. To avoid infringing on the trademarks of others, an organization should take steps when choosing a name to ensure the one it selects is not already in use and identified with a similar organization or program.
By Anne Cornelison
Fraternal Organization Wins Case Against Postal Service
Aid Association for Lutherans, a tax-exempt section 501(c)(8) fraternal benefit organization, recently won a case in the U.S. District Court for the District of Columbia concerning which materials may be mailed at the low-cost nonprofit third class postal rate.
Aid Association for Lutherans sued the United States Postal Service (USPS) after the USPS refused to allow it to mail information relating to its insurance programs for members and prospective members using the nonprofit rate. While the statute governing the nonprofit rate generally prohibits mailings involving insurance policies, it contains an exception if the policy is designed for and primarily promoted to an organization's members or supporters and if the insurance coverage is "not generally otherwise commercially available." Aid Association for Lutherans argued that the USPS regulation defining "not generally otherwise commercially available" was so narrow that virtually no insurance policy would be able to qualify for the exemption.
The court agreed, noting that Aid Association for Lutherans' provision of insurance to its members was central to its exempt purpose and that the insurance policy was unique to the organization. It struck down the narrow USPS regulation and ordered the USPS to refund Aid Association for Lutherans several millions of dollars for mail that had been posted at the higher rate.
This case is an initial victory for fraternal organizations and other nonprofits that are interested in promoting special insurance programs for their members or supporters. It seems somewhat likely, however, that the cash-strapped USPS may appeal the decision.
By Mark Sawchuk
Joined at the Hip: Defining Integrated and Joint Employment Relationships
If your organization shares employees, facilities or administrative resources with another organization, you should be aware that the two organizations could be considered integrated or joint employers for the purposes of various employment laws. A joint or integrated employment relationship could affect the responsibilities and potential liabilities of your organization in several ways.
Many employment laws only apply to employers with more than a specific number of employees. For example, only employers that have 20 or more employees must provide benefits under the District of Columbia Family and Medical Leave Act (DC FMLA). Other laws that contain numerical thresholds include the federal FMLA, the Fair Labor Standards Act, and Title VII anti-discrimination laws.
While these numerical thresholds may appear simple, their application may be less than obvious when two or more organizations share employees, facilities, or management. Such organizations are likely to be considered joint or integrated employers and may be obligated to comply with these laws, even though neither would, standing alone, have enough employees to meet the applicable thresholds. Although tests for determining whether a joint or integrated employment relationship exists differ somewhat depending on the law, the following discussion should give you an idea of how these rules work.
An integrated employer often exists when organizations that are separately incorporated, but are housed under the same roof, as is often the case with related nonprofit organizations. Integrated employers are generally defined as two or more organizations that have common management, a degree of common ownership or financial control, centralized control of labor relations, and/or interrelation between operations. When these factors exist, the separate organizations may be counted as a single employer for the purposes of labor laws containing numerical thresholds. Thus, employees of integrated employers would qualify for benefits under the DC FMLA if the total number of employees of the organizations is 20 or more, even if none of the organizations has 20 or more employees on its separate payroll.
Two or more organizations that exercise some control over a single employee's work may be joint employers with respect to that employee. Joint employment status exists when the employee's work simultaneously benefits the separate employers, or two organizations have an arrangement to share employees. In these cases, the organization with the authority to hire and fire, make payroll, and assign benefits is considered the primary employer. In a joint relationship, the primary employer must count the shared employees for the purposes of determining whether it meets relevant numerical thresholds.
Determining whether a joint employment relationship exists is important for other reasons as well. For example, under the Fair Labor Standards Act, an employee's time spent working for each part of a joint employer is aggregated to determine whether the employee is entitled to overtime pay. In addition, where two companies or organizations are considered a joint employer for a single employee, both employers run the risk of being held liable in employment discrimination or harassment disputes.
By Anne Cornelison
This publication is designed to provide accurate and authoritative information about the subject matter covered. It is not distributed with the intent to render legal, accounting, or other professional advice. The services of a competent professional should be sought if legal advice or other expert assistance is required.
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