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FEDERAL ELECTION COMMISSION v. SPECTER

July 26, 2001

FEDERAL ELECTION COMMISSION, PLAINTIFF,
v.
ARLEN SPECTER '96, ET AL. DEFENDANTS.



The opinion of the court was delivered by: J. Curtis Joyner, J.

  MEMORANDUM

This is a federal election law case brought by the Federal Election Commission ("FEC" or "Commission") against Defendants Arlen Specter '96, the campaign committee of United States Senator Arlen Specter during his unsuccessful 1996 presidential campaign; Paul S. Diamond, Treasurer of Arlen Specter '96 (collectively, "Specter '96"); and Koro Aviation, Inc. ("Koro"). In its Complaint, the FEC alleges that Specter '96 violated certain sections of the Federal Election Campaign Act of 1971, 2 U.S.C. § 431, et seq. ("FECA") by accepting an unlawful in-kind contribution from Koro in the form of the unreimbursed value of charter air travel. Before the Court are (1) Specter '96's Motions to Dismiss and for Summary Judgment; (2) Koro's Motion to Dismiss; and (3) the FEC's Cross-Motion for Partial Summary Judgment and Motion to Strike. For the reasons that follow, we will deny all of the Motions.

BACKGROUND

Arlen Specter currently is the senior United States Senator from Pennsylvania. In March 1995, Senator Specter announced his candidacy for the Presidency of the United States. Shortly thereafter, he formed Specter '96, which served as his authorized campaign committee for the duration of his presidential campaign. Senator Specter remained an active presidential candidate until November 22, 1995, when he announced his withdrawal from the race.

Koro is a commercial air charter service based in Hazelton, Pennsylvania. Prior to 1990, Koro was known as KAMA Plastics Company ("KAMA"), a private company engaged in the manufacture of plastic products. In 1990, KAMA sold its plastics manufacturing operations and converted its air fleet into a commercial charter business, renaming the new company Koro. The newly formed Koro obtained an Air Carrier Certificate from the Federal Aviation Administration ("FAA") in June 1990. (See FEC Resp. Mem. at 3 & Ex. 3).*fn1

Beginning in 1986, Senator Specter traveled for both official and campaign-related purposes on aircraft owned by KAMA. After KAMA became Koro in 1990, Senator Specter continued to use Koro aircraft for official and campaign purposes, including during the 1996 presidential campaign, just as he had before the corporate change. Throughout his relationship with the company, Senator Specter paid KAMA/Koro first-class airfare for flights between cities with regularly scheduled commercial service, a practice he believed to be in accord with applicable Senate and FEC rules. During the 1996 presidential campaign, the FEC, pursuant to its statutory obligation, audited all presidential campaigns that received federal matching funds. Because Specter '96 received matching funds in excess of $1 million, it was subject to a normal FEC audit, which occurred in May 1996. As a result of the May 1996 audit, the FEC Audit Division ("Audit Division") determined that Specter '96 had committed three election code violations, only one of which is at issue in this case.*fn2 According to the Audit Division's findings, "Koro made and [Specter '96] received a prohibited in-kind contribution of at least $155,251." (See Exit Conf. Mem. of the Audit Div. at Specter '96 App. A, p. 14A).*fn3 The Audit Division reached this conclusion based on its determination that the applicable regulations required Specter '96 to pay a full charter fare — not a first-class fare — for travel on Koro planes. Because Specter '96 only paid a first-class fare, the Audit Division found the difference in value between Koro's charter rate and a first-class rate to represent an in-kind contribution to Specter '96. (See id. at 12A-18A). Specter '96 contested these initial findings, claiming that it had followed the applicable regulations and that the Audit Division's construction of those regulations amounted to rewriting them. (See Diamond 2/11/97 letter at 25A-30A; Specter 2/11/97 letter at 31A).

After completing its investigation and findings, the Audit Division submitted its audit report of Specter '96 to the FEC for approval at the FEC Commissioners' June 12, 1997 meeting. (Audit Div. 5/29/97 Mem. at 34A). The Commissioners in turn approved the audit report at that meeting. (See Minutes of 6/12/97 FEC meeting at 61A-75A). Next, on November 12, 1997, the Commission voted to open an official Matter Under Review ("MUR") and, based on the accompanying Factual and Legal Analysis, found that there was reason to believe that Specter '96 violated FECA. (See FEC 11/20/97 letter & attch. at 109A-116A). The Commission then informed Specter '96 that it had the opportunity to respond to the Factual and Legal Analysis and to enter into a pre-probable cause conciliation agreement. (Id.) On July 29, 1999, the Commission forwarded Specter '96 a proposed pre-probable cause conciliation agreement. (Kay 7/29/99 letter & attch. at 133A-138A). Specter '96 rejected that agreement, and advised the Commission to proceed with its probable cause brief. (Diamond 8/5/99 letter at 139A-140A).

The FEC General Counsel's Office, Specter '96, and Koro submitted to the Commission their respective briefs in favor of and in opposition to finding probable cause in October 1999. (See Gen. Counsel Brief at 144A-154A; Specter '96 Brief at 155A-174A; Koro Brief at 197A-229A; see also Specter Supp. Brief at 188A-196A). After consideration of the briefs, the Commission found on December 14, 1999, that there was probable cause to believe that Specter '96 and Koro violated FECA. Pursuant to that determination, the Commission sent Specter '96 a post-probable cause conciliation agreement. (See FEC 1/5/00 letter at 230A-234A). Specter '96 rejected this second conciliation agreement, restating its view that the claims against it were without merit. (Diamond 2/9/00 letter at 235.1A). Because of its inability to settle the case through conciliation, the FEC filed the instant civil action on June 22, 2000. (See FEC 6/15/00 letter at 236A).

DISCUSSION

I. Regulations At Issue

FECA prohibits political campaigns from receiving contributions from corporations. 2 U.S.C. § 441b(a); see also 2 U.S.C. § 431(8)(A)(i) (defining "contribution"). The heart of the dispute in this case is the proper interpretation, and consequent application or non-application, of two regulations issued by the Commission pursuant to this statutory prohibition. Specter '96 argues that 11 C.F.R. § 114.9(e) governs the issues before the Court. Section 114.9 addresses generally the use of corporate or labor organization facilities and means of transportation. Subsection (e) of that section states, in pertinent part:

Use of airplanes and other means of transportation

(1) A candidate, candidate's agent, or person traveling on behalf of a candidate who uses an airplane which is owned or leased by a corporation or labor organization other than a corporation or labor organization licensed to offer commercial services for travel in connection with a Federal election must, in advance, reimburse the corporation or labor organization —
(i) In the case of travel to a city served by regularly scheduled commercial service, the first class air fare;
(ii) In the case of travel to a city not served by a regularly scheduled commercial service, the usual charter rate.

Based on its reading of § 114.9(e), Specter '96 maintains that it was only required to pay first-class airfare for Koro flights that were to cities served by regularly scheduled commercial service.*fn4 The Commission, however, claims that § 114.9(e) is inapplicable to this case because that section deals only with campaign travel on aircraft owned by corporations or unions that are not engaged in the commercial air transportation business, whereas Koro was a corporation that was engaged in the commercial air transportation business. Instead, the Commission argues that 11 C.F.R. § 100.7 applies. That regulation derives from 2 U.S.C. § 431(8), which 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 an election for Federal office." Building upon the statutory definition, 11 C.F.R. § 100.7(a)(1)(iii)(A) provides that:

[T]he term "anything of value" includes all in-kind contributions. Unless specifically exempted under 11 C.F.R. § 100.7(b), the provision of any goods or services without charge or at a charge which is less than the usual and normal charge for such goods or services is a contribution. . . . If goods or services are provided at less than the usual and normal charge, the amount of the in-kind contribution is the difference between the usual and normal charge for the goods or services at the time of the contribution and the amount charged the political committee.

Based on § 100.7(a)(1)(iii)(A), the Commission asserts that Specter '96, by only paying first-class fares instead of full charter fares on Koro, received an unlawful corporate in-kind contribution.

Thus, the fundamental issue is whether § 114.9(e) applies to this case. That issue turns on the proper interpretation of the exclusionary clause contained within the text § 114.9(e), to wit, "other than a corporation or labor organization licensed to offer commercial services in connection with a Federal election. . . ." (emphasis added). If the exclusionary clause is properly understood as applying to only those corporations that have a special license to offer commercial services specifically connected with a federal election, then the clause would not exclude Koro from the purview of § 114.9(e). As a result, the valuation formula set out in § 114.9(e)(1)(i) would govern the flights at issue in this case, thereby confirming that Specter '96 correctly paid first-class fares for those flights. Conversely, if the exclusionary clause is properly understood to apply to all corporations that simply are licensed to provide commercial travel services, then the clause would exclude Koro from § 114.9(e)'s coverage. As a result, the more general valuation formula described in § 100.7(a)(iii)(A) would govern the flights at issue, and Specter '96 would be liable for the full charter fare for those flights.

II. Motion to Dismiss

A. Legal Standard

When considering a motion to dismiss under Rule 12(b)(6), a court must "accept as true the factual allegations in the complaint and all reasonable inferences that can be drawn therefrom." Allah v. Seiverling, 229 F.3d 220, 223 (3d Cir. 2000) (internal quotations omitted). A motion to dismiss may only be granted where the allegations fail to state any claim upon which relief can be granted. See Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997). Dismissal is warranted "if it is certain that no relief can be granted under any set of facts which could be proved." Klein v. General Nutrition Cos., Inc., 186 F.3d 338, 342 (3d Cir. 1999) (internal quotations omitted). Although generally courts may not look beyond the complaint in deciding a motion to dismiss under Rule 12(b)(6), they may consider "an undisputedly authentic document that a defendant attaches to a motion to dismiss if the plaintiff's claims are based on that document." Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993) (internal quotations omitted). In this case, there are numerous documents from the administrative proceedings below and other materials of public record that are undisputably authentic. (See Specter '96 Mem. at 4-6 (listing materials)). To the extent we undertake consideration of these materials, that consideration does not convert Specter '96 or Koro's Motion to Dismiss into a summary judgment motion. See id.; Halstead v. Motorcycle Safety Found., 71 F. Supp.2d 464, 467 (E.D.Pa. 1999).*fn5

In its Motion to Dismiss,*fn6 Specter '96 makes two basic arguments in the alternative: (1) § 114.9(e), by its terms, applies to this case and directs that Specter '96 needed to pay only first class airfare; or, if § 114.9(e) does not apply, (2) the appropriate regulations exceed the statutory authority given by Congress under FECA. We address these arguments in seriatim.

B. Applicability of § 114.9(e)

In general, courts give "substantial deference to an agency's interpretation of its own regulations." Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994) (citations omitted). Our job is not to determine which among several competing interpretations is best; rather, an agency's interpretation must be given controlling weight unless it is either plainly erroneous or inconsistent with the regulation. Id. In other words, we will defer to the agency's interpretation of its regulation unless an "alternate reading is compelled by the regulation's plain language or by other indications of the [agency's] intent at the time of the regulation's promulgation." Id.; Trinity Broad. of Fla., Inc. v. FCC, 211 F.3d 618, 624-25 (D.C. Cir. 2000) (citing Thomas Jefferson Univ.); Connecticut Gen. Life Ins. Co. v. CIR, 177 F.3d 136, 144 (3d Cir. 1999) (same).

Following the outlines set forth by the Supreme Court, Specter '96 argues that the FEC's alternative interpretation of § 114.9(e): (1) violates the plain language of the regulation; and (2) violates prior, binding FEC precedent on this precise issue. In addition, Specter '96 forwards a third argument, namely, that even if the FEC's interpretation of § 114.9(e) is permissible, enforcement based on that interpretation would violate Specter '96's due process rights because of insufficient notice.

(1) Plain Language of § 114.9(e)

As always, our interpretation of a statute or regulation begins with the statute or regulation's language itself. See Bread Political Action Comm. v. FEC, 455 U.S. 577, 580, 102 S.Ct. 1235, 71 L.Ed.2d 432 (1982); In re United Healthcare Sys., Inc., 200 F.3d 170, 176 (3d Cir. 2000). Extracting the language inapplicable to the instant case, § 114.9(e) states that: "A candidate who uses an airplane which is owned by a corporation other than a corporation licensed to offer commercial services for travel in connection with a Federal election must, in advance, reimburse the corporation." Specter '96 argues that the clause "for travel in connection with a Federal election" modifies the preceding term "services." Based on that construction, Specter '96 notes that Koro is not a "corporation licensed to offer commercial services for travel in connection with a Federal election" and, therefore, the exclusionary clause within § 114.9(e) does not apply. It follows then, in Specter '96's view, that § 114.9(e) governs the reimbursement process in this case. Because Specter '96 acted in accordance with § 114.9(e), it concludes that it did not commit a violation of FECA.

The Commission, not surprisingly, reads the quoted passage differently. In its view, "for travel in connection with a Federal election" does not modify "services," but rather describes the type of travel involved. Put another way, under the FEC's construction, "for travel in connection with a Federal election" modifies the verb "uses," which appears in the regulation several lines above the exclusionary clause. Under this construction, the exclusionary clause consists only of the phrase "other than a corporation licensed to offer commercial services." Because Koro is admittedly a corporation licensed to offer commercial services, the Commission argues that § 114.9(e) is inapplicable by virtue of the exclusionary clause, and the more general prohibition against corporate, in-kind donations applies, see § 100.7.

We agree that Specter '96's reading of § 114.9(e) may be the more natural of the two. However, § 114.9(e)'s lack of punctuation and less-than-artful drafting make it difficult, if not impossible, to divine the true meaning of the regulation by cursorily reading it. Perhaps recognizing that fact, both parties point to various ...


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