Fred Wertheimer Weighs In

Democracy 21's Fred Wertheimer weighs on, sort of, on Sen. McCain's dispute with the Federal Election Commission. His full response after the jump.

The shut down of the Federal Election Commission has taken center stage because there is no functioning agency to deal with the issue of whether bank loans taken out by Senator John McCain (R-AZ), and the collateral provided for those bank loans, means that Senator McCain cannot withdraw from the presidential primary public financing system and is bound by its spending limits for the rest of his primary campaign.

The Washington Post has noted in an article (February 27, 2008), "the dispute centers on the most esoteric aspects of campaign finance law." It also involves interpretations of the loan agreement between McCain and the bank, and the question of what constitutes "collateral" for the loan.

The dispute, which could have enormous consequences for the Democratic and Republican presidential nominees, is further complicated by the fact that the complex legal questions involved here are being raised in the intense heat of the battle for the presidency.

The unprecedented legal issues involved in this dispute raise questions of both campaign finance and commercial banking law, and are issues that have to be resolved by the FEC and potentially the federal courts.

Democracy 21 does not have the answers to the legal questions that have been raised. There are novel and close questions.

We do believe, however, that it is essential for the currently inoperative FEC to be reconstituted immediately, so that the FEC and potentially the federal courts can resolve the issues surrounding the McCain loans.

As Democracy 21 President Fred Wertheimer stated in a press release issued on January 2, 2008:

Shutting down the campaign finance enforcement agency at this critical stage of the national elections is an affront to the nation's citizens and worthy of a banana republic -- and in this case the buck stops with Senate Republican Leader Mitch McConnell.

The January 2 press release provided background information on the FEC shutdown and explained how Senator Mitch McConnell (R-KY) was blocking the FEC from being functional.

It is simply not the case, as some claim, that Senator Harry Reid (D-NV) is blocking Senate consideration of the FEC nominees, or that holds that were put on Senate consideration of FEC nominee Hans Von Spakovsky last year by Senators Russ Feingold (D-WI), Barack Obama (D-IL) and other Senators, still exist.

This was demonstrated by the up-or-down majority vote on each FEC nominee that was offered to and rejected by Senator McConnell in December 2007.

The January 2, 2008 Democracy 21 release stated:

On December 19, Senate Majority Leader Harry Reid (D-NV) proposed that the Senate have up-or-down majority votes on each of the four pending FEC nominees.

In so doing, Senator Reid offered Senator McConnell and the Senate Republicans the normal majority vote process for confirmation votes. He also showed that he had eliminated on the Democratic side the holds on voting on Von Spakovsky's nomination and any demands for 60 votes to confirm him.

But a majority up-or-down vote on Von Spakovsky was not enough for Senator McConnell. Apparently concerned that a majority of the Senate was not prepared to vote for Von Spakovsky, McConnell rejected the vote on Von Spakovsky and blocked the Senate from voting on the other three FEC nominees as well.

The January 2, 2008 press release further stated:

As Senator Reid stated on the Senate floor on December 19, ''facing possible defeat for their own nominee, the Republicans would prefer to hold the remaining 3 unobjectionable nominees hostage and render the FEC unable to function in the next election.''

Senator McConnell's position is that all four nominees must be confirmed together or else none will be confirmed.

"In rejecting a straight up-or-down vote on FEC nominee von Spakovsky, Senator McConnell is holding the other three FEC nominees and the country hostage at the direct expense of the integrity of our political system," Wertheimer stated.

''Senator McConnell wants Von Spakovsky carried to the FEC on the backs of the other three nominees, without having to bother with a Senate vote that Von Spakovsky might lose,'' Wertheimer said.

"The legal issues surrounding the McCain loans could not make clearer that it is essential for the FEC to be reconstituted immediately," Wertheimer stated.

"Senator McConnell must stop blocking up-or-down majority votes on each of the four pending FEC nominees or President Bush must withdraw the nomination of Hans Von Spakovsky in order for the process of reconstituting the FEC to move forward quickly," Wertheimer stated.

"All who are interested in resolving the legal issues in the McCain matter should join in calling for immediate action to reconstitute the FEC," Wertheimer said.

Comments

MY has an interesting take on this:

http://matthewyglesias.theatlantic.com/archives/2008/02/ah_reform.php

Posted by Jeff Larson | February 27, 2008 10:39 PM

Wertheimer is ducking the toughest issue. Sure, it takes an FEC ruling to decide whether McCain has irrevocably committed himself to public financing by means of his loan, and it's a complex and esoteric issue. It's fair to say that, in the absence of a ruling to the contrary, he's taking a reasonable position. But there's an entirely separate issue at stake here - whether or not any candidate is entitled to withdraw from the public financing system unilateraly, without seeking the FEC's approval. And whereas the former issue cannot be resolved without convening a quorom (thus benefiting McCain) the default position in the latter is that FEC approval is in fact required, but cannot be granted without a quorom (thus hurting McCain). In other words, McCain needs a ruling to tell him that his loan breaks the rules, but he also needs a ruling to tell him that his withdrawal doesn't break the rules. And he doesn't have one.

It shouldn't come as any surprise that Wertheimer is willing to denounce Washington, politics as usual, and partisan gridlock. He's always been willing to do that. But it also shouldn't come as any surprise that he picks and chooses where he's going to weigh in - taking McCain's side, in essence, in both disputes. If we can't resolve the first issue until the FEC reconvenes, that's to McCain's advantage - the election will be over, and whatever the statutory penalties, the worst he's going to face in this ambiguous situation is a stiff fine. And if we simply ignore the second issue, that's also to McCain's advantage - the FEC can't enforce the law until it gets its quorom, and the less attention paid to McCain's flagrant withdrawal, the better for him.

Wertheimer is a decent man. But the toughest part of his crusade has been finding a handful of Republicans willing to combat moneyed interests, and thus lend a veneer of bipartisanship to an issue that really, at the end of the day, splits along partisan lines. That's why it was McCain-Fiengold and Shays-Meehan; in both cases, the GOP legislator's name came first, even though almost no members of their caucuses voted in favor. He's not about to weigh in against the foremost Republican champion of campaign finance reform, even if he is in the process of forever ruining his own principal legislative accomplishment. Wertheimer knows that, whatever the outcome of the election, he needs to support McCain. If he wins, that will give him a grateful president. And if he loses, other Republicans may venture to support campaign finance laws, particularly if McCain is able to use the issue as a cudgel against Obama. (That's why Wertheimer and his colleagues have been much less reticent to criticize Obama - they know they won't lose his support, or that of his party, but they may well gain support from Republicans who are awed by his million donors.) If Wertheimer raps McCain, however, he and his party are unlikely to ever touch the issue again. They'll conclude that no amount of advocacy can ever secure the support of goo-goos, and that the laws are fundamentally misguided and stacked against them.

So Wertheimer releases his classic cant - a pox on both your houses, the system is corrupt, it's all Congress' fault for failing to confirm commissioners. None of this affects the fundamental issue of whether McCain has twice violated the law, regarding which Wertheimer is well qualified to offer an opinion. The man's never been shy with his opinions in the past. But faced with the choice between sinking his life's work or swallowing his tongue, he's chosen the latter. For shame.

Posted by FlyOnTheWall | February 28, 2008 8:35 AM

Seems Wertheimer is trying to have it both ways.

Since when has he tried to belittle the importance of America's campaign finance laws by saying that a dispute is "esoteric"?

This dispute may seem esoteric, but its implications are anything but. As the Washington Post also "noted" today, if McCain plays by the public-finance rules to which he apparently committed himself, then his campaign will be virtually silent from now until September. See http://www.washingtonpost.com/wp-dyn/content/article/2008/02/27/AR2008022703205.html

Posted by Esoteric? | February 28, 2008 9:56 AM

McCain has loads of lawyers (former FEC chairmen among them) who all believe he has taken a perfectly reasonable course of action. I believe so to.

To be clear, he does not need to withdraw from the public financing system - he was never in it!

He asked that funds be made available to him and agreed to follow spending restrictions last year in case he did decide to join the system but no decision on doing so was made. He did not recieve a single cent.

His loan, which hinged around the ability to raise funds in the future, would have required him to enter the system had he not been able to pay it off otherwise. Since he was able to pay it off he had no need of entering the public system and did not.

He also wrote a letter to the FEC saying that he would not accept and that they should not release any money to his campaign and that he was no longer interested in maintaining the option to join.

Lets be clear - Obama also asked last year that the option be maintained for him to seek public financing in the general. Do not equate asking for the ability to join with actually joining or else Senator Obama would still be in public financing for the general!

Posted by Jesse | February 28, 2008 12:35 PM

This issue has been under discussion on the election law listserv moderated by Prof. Rick Hasen and Prof. Dan Lowenstein. Here is my latest comment (for myself, of course, and not speaking for my law school). The Gephardt Advisory Opinion mentioned in my comment is the advisory opinion given to Rep. Gephardt by the Federal Election Commission in 2003 when he was considering withdrawing his request for public funds.

Election Law List comment:

I think much of the discussion of the requirements for Senator McCain's campaign to withdraw from the public funding system for the primaries is based on a misreading of the Gephardt Advisory Opinion. The focus of the AO is on whether public moneys have been paid to the candidate, with repeated references to the candidate having the right to withdraw at any time before payment of funds. The actual payment of funds is important, as noted in the AO, because, once funds have been paid, the other candidates who have chosen to receive public funds may be prejudiced [harmed] due to the reduction in available funds for them. Until such funds are paid, there is no such prejudice.

Only one mention is made of any other limitation on the right to withdraw from what the AO stresses must be a voluntary program:

"Therefore, in light of the terms of the Matching Payment Act, its judicial construction, its legislative history, and the other policy considerations discussed above, the Commission would withdraw a certification of a candidate’s eligibility to receive Matching Payment Act funds prior to the payment date for any such funds to such candidate or his or her committee upon receipt of a written request signed by the candidate, provided that the certification of funds has not been pledged as security for private financing." (Emphasis supplied.)

If I understand him correctly, Brad Smith interprets that requirement -- that the certification "has not been pledged" -- to prohibit withdrawal where there has been a "constructive receipt" of the funds by way of using them as collateral, because then the candidate would have benefitted from the public funding system in such a way as to make it improper for the candidate to withdraw. But, as someone who has taught contracts and secured transactions, I don't read the AO that way.

I think the FEC's concern was just that if the certification was pledged as collateral, then the FEC would destroy the rights of the secured creditor if it terminated the certification. In effect, if a candidate has pledged the right to the funds, then the candidate no longer has the unencumbered right to the funds, and thus the candidate would not have the right to refuse to allow the funds to be disbursed. But if the right to the funds has not been pledged as collateral, the candidate would retain full control over whether to allow the funds to be disbursed. This is like the Uniform Commercial Code Article 9 rule (in section 9-405) that allows only good faith modifications or replacements of assigned contracts. Once you've assigned contract rights (whether outright or as security) you can't just give away [or give up] your rights under the contract to the detriment of the assignee. Under this approach the fact that the right to public funds is not presently pledged as collateral is all that matters; it does not matter whether at some time in the past there was a pledge or arguably a pledge.

I don't think that in fact there ever was a pledge by the McCain campaign of its certification (representing the right to the public funds). But even if by some stretch it could be argued that there was such a pledge, isn't it clear that at this time no lender has any security interest in the campaign's right to receive public funds?

I'm sure someone will argue that "has not been pledged" refers to what may have happened in the past, and thus withdrawal is improper under the AO if at any time in the past the right to funds was pledged. But we often use such language in a different way. Note my use two paragraphs above of the phrase "has not been pledged." If, for example, a borrower says to a lender that the borrower cannot give the lender a first lien on some securities because a lien on the securities already "has been given" to another lender, the reference is to a past event that continues to have current effect. If the borrower had given such a lien to another lender in the past, but as of the present that lien has been released, then the borrower would not say that a lien on the securities "has been given" to the other lender. Perhaps the borrower would say that a lien on the securities "had been given" or that a lien on the securites "was given," but not that it "has been given."

To sum up, note again the multiple references in the AO to the candidate having the right to withdraw prior to payment of public funds to the candidate. The one mention of a possible pledge does not seem to be central to the FEC's concern. I think it simply responds to the concern that a lender with a security interest in the right to receive public funds would be prejudiced by the candidate's withdrawal from the public funding program. That concern is a conventional concern that is reflected in the law of contract assignments and of secured transactions.

One result of this analysis would be that it would be completely irrelevant that the Senator's campaign used the certification in order to get on the Ohio ballot. Under this analysis the obtaining of a benefit (other than payment of the public funds) as a result of the certification is not relevant to the right to withdraw.

A final point. The AO says that the Gephardt campaign should submit its request to withdraw from public funding to the FEC at least one day before the date on which the funds were to be disbursed, so that the FEC would have time to stop the disbursement. I doubt that it could be assured that a quorum of the FEC could be gathered that same day to approve the Gephardt campaign's request. Instead, it seems the AO contemplates that the staff would act on the request and notify the Secretary of the Treasury not to disburse the funds. At the time the AO was issued, the Gephardt campaign had not yet requested withdrawal, and thus the issuance of the AO was not an approval of that request. (In fact, at that point the FEC was processing an additional request by the Gephardt campaign for an additional certification of the right to more public funds.) In addition, if the pledging of the right to receive the funds is as big a deal as Brad and others have suggested, then there would have to be time for the FEC to consider the campaign's submission and be convinced that no pledge had been made. That could hardly happen in one day. Perhaps in the absence of prior formal notice to the appropriate government agency (FEC? Treasury?) of an assignment, the FEC staff would simply accept the campaign's representation that no lender held a pledge of the right to the funds. (Sometimes there is a govt reg providing for notice of an assignment to be given in a particular way; does anyone know if there is such a reg that cover pledges of public campaign funds?) As a result, I think the AO makes fairly clear that approval of a request for withdrawal is a ministerial act not needing formal action by a quorum of the FEC.

Mark S. Scarberry
Professor of Law
Pepperdine Univ. School of Law

Posted by Mark Scarberry | February 28, 2008 1:27 PM

Jesse,

Take the time to learn the issues prior to posting. Obama asked for an advisory opinion about whether or not he would be foreclosing the option to join the program for the general if he didn't in the primary, and received one. At no point did he indicate that he had, in fact, joined the public financing system for either the primary or the general elections.

McCain, by contrast, filed for candidacy in at least two states using his participation in the system to obtain a waiver of fees and requirements. He also engaged in a complex arrangement to secure a loan using the prospect of public funding as collateral, the legality of which is still in dispute. (He did so on good legal advice, but that's somewhat immaterial - if the FEC ultimately rules against him, then the legal advice will have been wrong, however well intentioned.) But all of that has bearing only on the question of whether or not McCain will now be allowed to withdraw from the system, or whether he is irrevocably committed.

What's not in dispute is this: McCain applied for and joined the public financing system last year. Even his own campaign acknowledges this. Under the rules, a candidate can withdraw from the system, provided that he has not in any way taken advantage of it. That's what McCain says he's done.

But the current chair of the FEC says he can't do that unilaterally! In a letter to the campaign, he wrote that McCain needs the approval of the FEC to withdraw, and can't obtain that approval until the FEC has a quorom. McCain and his lawyers dispute that. And they may be right. But they're making an awfully big wager. This is not a matter of unsettled law. They have a warning in hand from the FEC Chair, telling them that what they've decided to do is illegal. That raises the stakes. Should the FEC decide against McCain, it will also have to find that he was warned and ignored that warning.

Whether or not they might theoretically be able to withdraw is one question - whether or not they need the FEC's permission to do so, even if technically they still can, is the other. The first question is subject to debate by reasonable people, and even if McCain turns out to be wrong, he can make a plausible case to the FEC that he was acting in good faith in the absence of a guiding authority. If he blows off the warning from the FEC Chair about the second question, he won't have a similar defense available.

Posted by FlyOnTheWall | February 28, 2008 1:33 PM

Mark,

Thank you for the subtle and sophisticated analysis. It leaves me, however, with two questions that I'm hoping you may answer:

1) Your suggestion that the worry with collateral is encumberance, not enrichment, is reasonably persuasive. But what of McCain's acceptance of waivers from the ballot-access provisions of two states? The Commission doesn't consider that issue, but I take its concern with the payment of matching funds to center on contractual obligations - that once candidates accept the benefits of the system, they must also accept its limitations. There's also a basic fairness concern here - why wouldn't other candidates stay in the program long enough to gain waivers from the ballot-access provisions, and then drop out?

2) Granting, for the moment, that you're correct about both issues as a matter of law, I wonder about the importance of the letter from FEC Chair David Mason to McCain of Feb. 19. It's not, of course, a binding opinion. But it says very clearly that the FEC "requires an affirmative vote of four commissioners" to withdraw certification. You may be right, as a matter of law. But can McCain really ignore such a letter from the Chair of the FEC without any legal consequences? Does it have any impact on the matter at all, or is this all just smoke and mirrors in the absence of a quorom?

Posted by FlyOnTheWall | February 28, 2008 1:52 PM