Petition — Federal Election Commission v. American Federation of Labor & Congress of Industrial Organizations

Supreme Court, J. 3.

C FILE D

80 “368 SEP8 1980

MICHAEL RODAK, JR., CLERK

Yu the Supreme Court of the United States

OCTOBER TERM, 1980

FEDERAL ELECTION COMMISSION, Petitioner,

Vv.

AMERICAN FEDERATION OF LABOR AND CONGRESS

OF INDUSTRIAL ORGANIZATIONS, Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT

CHARLES N. STEELE

General Counsel

KATHLEEN IMIG PERKINS

Assistant General Counsel

JEFFREY H. BOWMAN

Attorney

Attorneys for

FEDERAL ELECTION COMMISSION,

MAX L. FRIEDERSDORF,

JOHN W. McGARRy,

JOAN D. AIKENS,

THOMAS E. HARRIS,

FRANK P. REICHE,

ROBERT O. TIERNAN,

EDMUND L. HENSHAW, JR.,

J. STANLEY KIMMITT

13825 k Street, N.W.

Washington, D.C. 20463

(202) 523-4060

SEPTEMBER 8, 1980

ASE PSEC ESSE SSP sas SSPE

I

QUESTION PRESENTED

Whether the decision of the United States Court of

Appeals for the District of Columbia Circuit, estab-

lishing a standard for “knowing and willful” violations

of the Federal Election Campaign Act (“FECA”) was

clearly erroneous where the standard adopted has

been rejected by seven other circuits, is inconsistent

with applicable decisions of this Court and with a prior

decision of the District of Columbia Circuit, and is not

supported by FECA’s legislative history.

II

TABLE OF CONTENTS

Sg re re err rer rey

gS nt Pe Crary Se ey Peery mire peer

nel APRs Pr enn ee erg ee

eee rere errr reer

SE Mr SOU I oo see's cr dne cea va open vgn

Reasons Why The Writ Should Be Granted .......

I. THE DECISION OF THE COURT OF

APPEALS IS IN CONFLICT WITH DE-

CISIONS OF THE UNITED STATES

COURTS OF APPEALS FOR’ THE

FIRST, FOURTH, FIFTH, SIXTH,

EIGHTH, NINTH AND TENTH CIR-

| ee a Aree ae Se ee ne

Il. THE DECISION OF THE COURT OF

APPEALS CONFLICTS WITH APPLI-

CABLE DECISIONS OF THIS COURT ..

Ill. THE INTENT OF CONGRESS IN EN-

ACTING 2 U.S.C. § 487g(a)(7) IS FRUS-

TRATED BY THE HOLDING OF THE

ee i gg Pee ee

Tay ERSTE A ete rte Fae A ene EO Dn

TABLE OF AUTHORITIES

Cases

Babcock and Wilcox v. OSHRC, 622 F.2d 1160

oe eae kpotned

Cedar Construction Co. v. OSHRC, 587 F.2d

cc cue whid db bas bake ens

Coleman v. Jiffy June Farms, 458 F.2d 1139

(5th Cir. 1971), cert. denied, 409 U.S. 948

Re a MINS ore ar eae She ae ae?

Empire-Detroit Steel Division v. OSHRC, 579

oe 8 Le a a ee

II]

Cases—Continued: Page

Fin and Feather Sport Shop, Inc. v. Bureau of

Alcohol, Tobacco and Firearms, 481 F.

Sune. GOOD. Mem. TRIG) .c.cccccccceevecss 7

Georgia Electric Company v. Marshall, 595

pe A ee ere ee Pe 6

Intercounty Construction Co. v. OSHRC, 522

F.2d 777 (4th Cir. 1975), cert. denied, 423

Se Eo os n.0 59 Sn ra ¥b oho cae eeaee de 6

Frank Trey, Jr. v. Occupational Safety and

Health Review Cow:mission, 519 F.2d 1200

(38d Cir. 1974), aff'd en bane on other

grounds, 519 F.2d 1215 (8d Cir. 1976) aff'd

on other grounds, sub. nom. Atlas Roofing

Co. v. Occupational Safety and Health Re-

view Commission, 430 U.S. 442 (1977).... 5, 6, 10

Jones v. Unknown Agents of the Federal Elec-

tion Commission, Fed. Elec. Camp. Fin.

Guide (CCH) 4 9092 (D.C. Cir. Aug. 23,

Bc eae eck cea Rak eis ae eke 9

Lewis v. Blumenthal, 590 F.2d 268 (8th Cir.

MN Loe et aa he wud ce Ro ee de beens ia 7

F.X. Messina Construction Co. v. OSHRC,

ee bee ee | erro 7

National Steel and Shipbuilding v. OSHRC,

GOT F068 S11 (th Cir. IBTB) nn ccc cccvvsnes 6

Kent Nowlin Construction Co. v. OSHRC, 593

PP Fy ee oe | ee ere 7

Prino v. Simon, 606 F.2d 449 (4th Cir. 1979) . 7

Shyda vy. Director, Bureau of Alcohol, Tobacco

and Firearms, 448 F. Supp. 409 (M.D. Pa.

Py Pre rere rrr ee per re yee 7

Todd Shipyards Corp. v. Secretary of Labor,

586 F.2d 683 (9th Cir. 1978) .............5. 7

United States v. Bishop, 412 U.S. 346 (1978) .. 8

United States v. Consolidation Coal Co., 504

eB fs ee | ree )

IV

Cases—Continued: Page

United States v. Dye Construction Co., 510

ee ee a | ee eo re 7

United States v. Illinois Central Railroad Co..,

oe ER rrr ee 8

United States v. Park, 421 U.S. 658 (1975) ... 8

United States v. Pomponio, 429 U.S. 10 (1976) . 8

Western Waterproofing Co. v. Marshall, 576

ye gf Ls ee errr rr yr rT 7

Statutes and Regulations

SES ie BN Gc ha ck ede vewscccaenne 3

ot ee 2,12

DP NE oon ce ctpencsseesinwes 5, 9

Fr re 2

PIE, Sess ycees tap ecuenns 2,3

Pe oso vinse sss Gs 08 2, 3, 9, 10

DCT AV ees bene tan hak dere ewan 3

Legislative History

ee Come. Moe. 15,190 (IGT)... oc cee civcces 5, 11

H.R. Rep. No. 94-917, 94th Cong., 2d Sess.

Derry ag ac pate as hala psd GN a a 11

In the Suprene Court of the Hnited States

OCTOBER TERM, 1980

FEDERAL ELECTION COMMISSION, Petitioner,

Uv.

AMERICAN FEDERATION OF LABOR AND CONGRESS

OF INDUSTRIAL ORGANIZATIONS, Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT

Petitioner Federal Election Commission (‘‘the

Commission”) respectfully prays that a writ of cer-

tiorari issue to review the judgment rendered in this

case by the United States Court of Appeals for the

District of Columbia Circuit.

OPINIONS BELOW

On Ap: 1 1, 1980, the United States Court of Ap-

peals for the District of Columbia Circuit reversed an

order of the United States District Court for the Dis-

trict of Columbia imposing a $10,000 civil penalty

against respondent. The order of the district court and

the opinion of the court of appeals are included in the

]

yA

—

Commission Appendix at la, 3a (“Comm. App. at

Pies 3

The Commission’s petition for rehearing and petition

for rehearing en banc were denied by the court of ap-

peals on May 27, 1980, and July 9, 1980, respectively.

The court’s order denying the petition for rehearing

appears at Comm. App. at 14a and the denial of the

petition for rehearing en banc at Comm. App. at lda.

JURISDICTION

The jurisdiction of this Court is invoked under 28

U.S.C. § 1254(1) (1980).

STATUTES INVOLVED

2 U.S.C. § 437g(a)(5)(C)! provides in pertinent part:

In any civil action instituted by the Commission

... the court may grant a permanent or tempor-

ary injunction, restraining order, or other order,

including a civil penalty which does not exceed the

greater of $5,000 or an amount equal to the

amount of any contribution or expenditure in-

volved in such violation, upon a proper showing

that the person involved has engaged or is about

to engage in a violation of this Act or of chapter 95

or chapter 96 of the Internal Revenue Code of

1954.

1In an attempt to minimize confusion over citations to FECA

herein, citations will be to the FECA prior to the 1979 Amend-

ments, 2 U.S.C. § 487g(a)(5)(C) (authority for a district court to

impose a civil penalty for a violation of FECA), 2 U.S.C.

§ 437g(a)(7) (authority for a district court to impose a civil pen-

alty for a “knowing and willful” violation of FECA). The 1979

Amendments renumbered these provisions so that proper cita-

tion is now 2 U.S.C. § 437g(a)(6)(B), and 2 U.S.C.

§ 437g(a)(6)(C) respectively.

3

2 U.S.C. § 487g(a)(7) provides in pertinent part:

In any civil action for relief instituted by the

Commission ... if the court determines that the

Commission has established through clear and

convineing proof that the person involved in such

action has committed a knowing and willful viola-

tion of this Act... the court may impose a civil

penalty of not more than the greater of (A)

$10,000; or (B) an amount equal to 200 percent of

the contribution or expenditure involved in such

violatio:.?

STATEMENT OF THE CASE

On December 16, 1977, the Commission filed a com-

plaint in the United States District Court for the Dis-

trict of Columbia charging that the AFL-CIO had vio-

lated 2 U.S.C. § 441b by transferring monies (totalling

$750,000 at various times over a period of seven years)

from the AFL-CIO general treasury to the AFL-CIO

Committee on Political Education Political Contribu-

tions Committee (“COPE-PCC”’). See 2 U.S.C.

§ 437g(a)(5)(B) (1976).

The district court found that the transfers violated 2

U.S.C. § 441b and prohibited future transfers from the

general treasury to COPE-PCC. However the court

denied the Commission’s request that AFL-CIO be

barred from re-transferring the balance of $312,000

from the general treasury to the COPE-PCC, impos-

ing instead a civil penalty in the amount of $10,000.

2Section 437g(a)(7) was amended by the Federal Election

Campaign Act Amendments of 1979 to exclude the requirement

of “clear and convincing proof.” See 2 U.S.C. § 487g(a)(6)(C)

(1980).

4

Respondents appealed only that portion of the dis-

trict court’s order which imposed the $10,000 penalty

to the United States Court of Appeals for the District

of Columbia Circuit. On April 1, 1980, the court of ap-

peals reversed the imposition of the penalty on the

ground that:

the facts of this case do not support a finding that

the violations were “knowing and willful” as re-

quired by 2 U.S.C. § 487g(a)(7), the provision

upon which the district court based the imposition

of the c’vil penalty.

Slip op. at 8; Comm. App. at 12a. Petitions for re-

hearing and rehearing ev banc were denied by the

court of appeals.

REASONS WHY THE WRIT SHOULD BE GRANTED

I. THE DECISION OF THE COURT OF AP-

PEALS IS IN CONFLICT WITH DECI-

SIONS OF THE UNITED STATES COURTS

OF APPEALS FOR THE FIRST, FOURTH,

FIFTH, SIXTH, EIGHTH, NINTH AND

TENTH CIRCUITS.

The standard established by the court of appeals in

this case for proving “knowing and willful” violations

of FECA conflicts with the knowing and willful stand-

ard applied by courts of appeals in seven other cir-

cuits.* Finding that “the facts of this case do not sup-

port ... that the violations were ‘knowing and will-

ful,’” slip opinion at 9, the court of appeals held that a

violation of FECA is willful only if there is evidence of

3See also discussion of Babcock and Wilcox Co. v. OSHRC,

622 F.2d 1160 (8rd Cir. 1980), infra at 10.

5

‘defiance’ or ‘knowing, conscious, and deliberate

flaunting’ of the Act.” Slip opinion at 6.

In adopting this standard, the court relied on the

third cireuit’s ruling in Frank Trey, Jr., Inc. v. Occu-

pational Safety and Health Review Commission, 519

F.2d 1200, 1207 (8d Cir. 1974), aff'd en bane on other

grounds, 519 F.2d 1215 (8d Cir. 1975), aff'd on other

grounds, sub nom. Atlas Roofing Co. v. Occupational

Safety and Health Review Commission, 430 U.S. 442

(1977), that:

|wjillfulness connotes defiance or such reckless

disregard of consequences to be equivalent to a

knowing, conscious, and deliberate flaunting of

the Act. Willful means more than merely volun-

tary action or omission—it involves an element of

obstinate refusal to comply.

Id. at 1207. “To hold otherwise,” the court noted,

“would fail to distinguish between a ‘serious’ offense

and a ‘willful’ one and would ‘disrupt the gradations of

penalties’ established by Congress in [FECA].” Slip

opinion at 6 quoting Frank Irey, Jr., Inc. v. OSHRC,

supra at 1207.4 Such reliance on Jrey, however, stands

4FECA provides penalties for violations of the Act, and more

severe penalties for “knowing and willful” violations, but does

not include a separate category for “serious” violations. Thus,

the court’s rationale that “willful” must be defined restrictively

lest it overlap with the definition of a “serious violation” is not

well taken. Slip opinion at 6. In addition, under 2 U.S.C.

§ 437g¢(a)(5)(D) (1976) the Commission may refer alleged

“knowing and willful” violations to the Department of Justice.

Since Congress provided for both civil and criminal prosecution

of “knowing and willful” violations of FECA, it must have in-

tended a lesser standard of proof for successful civil enforce-

ment. 122 Cong. Rec. 12,199 (May 3, 1976) (Remarks of Rep.

Hays) (FECA’s civil sanctions apply to all violations “except for

6

squarely at odds with the decisions of the courts of ap-

peals in seven other circuits® which have rejected the

Trey standard. See e.g., Iutercounty Construction Co.

v. OSHRC, 522 F.2d 777, 779-80 (4th Cir. 1975), cert.

denied, 423 U.S. 1072 (1976), (fourth circuit refused to

require that knowing and willful violations of OSHA

include a deliberate intent to defy the Act); National

Steel and Shipbuilding Co. v. OSHRC, 607 F.2d 3811,

314 (9th Cir. 1979) (“We believe that the majority

rule—which does not require a bad motive for

willfulness—better serves the congressional objectives

in enacting OSHA and better reflects the statute.”);

Georgia Electric Company v. Marshall, 595 F.2d 309,

319 (5th Cir. 1979) (“[Wle define a willful violation as

one involving voluntary action, done either with an in-

tentional disregard of, or plain indifference to, the re-

quirements of the statute.”); Empire-Detroit Steel Di-

vision Vv. OSHRC, 579 F.2d 378, 385 (6th Cir. 1978)

(“We agree with the. . . opinions of the First, Fourth,

and Tenth Circuits that a showing of evil or malicious

substantial violations committed with a specific wrongful in-

tent”).

5 Moreover, the language used in /rey was dicta. The case in-

volved a foreman’s good faith mistake regarding soil composition

of a trench in which employees were working. If his mistaken

assumption had been correct, the trench would not have re-

quired shoring against collapse. 519 F.2d at 1206-1207. The

third circuit was not considering a case of intentional disobedi-

ence to a known standard. Additionally, in /rey itself, the court

did not hold that the violation was not willful as a matter of law;

it remanded the case to OSHRC for reconsideration.

intent is not necessary to establish willfulness. .. .”)

Western Waterproofing Co. v. Marshall, 576 F.2d 139,

142-43 (8th Cir. 1978) (court rejected application of Jrey

standard); United States v. Dye Construction Co., 510

F.2d 78, 81 (10th Cir. 1975) (act is willful “if done know-

ingly and purposefully by an employer who, having a

free will or choice, either intentionally disregards the

standard or is plainly indifferent to its requirement.”);

F.X. Messina Construction Co. v. OSHRC, 505 F.2d

701, 702 (1st Cir. 1974) (“A conscious, intentional, delib-

erate, voluntary decision, . .. properly is described as

willful.”). See also Prino v. Simon, 606 F.2d 449 (4th

Cir. 1979); Kent Nowlin Construction Co. v. OSHRC,

593 F.2d 368, (10th Cir. 1979); and Todd Shipyards

Corp. v. Secretary of Labor, 586 F.2d 6838 (9th Cir.

1978).

In addition, courts have not required a showing of

“bad purpose” or “evil motive” for willful violations of

other statutes imposing civil penalties. See Coleman

v. Jiffy June Farms, 458 F.2d 1189, 1142 (5th Cir.

1971), cert. denied, 409 U.S. 948 (1972) (“wilful” viola-

tion [of the Fair Labor Standards Act] occurs where

the employer knows, or has reason to know, that his

conduct is governed by the Act.); Lewin v. Blumen-

thal, 590 F.2d 268 (8th Cir. 1979) (plain indifference to

recordkeeping requirements sufficient to establish a

willful violation). See also Fin and Feather Sport

Shop, Inc. v. Bureau of Alcohol, Tobacco and Fire-

arms, 481 F. Supp. 800, 804 (D. Neb. 1979); Shyda v.

Director, Bureau of Alcohol, Tobacco and Firearms,

448 F.. Supp. 409, 411 (M.D. Pa. 1977).

8

II. THE DECISION OF THE COURT OF AP-

PEALS CONFLICTS WITH APPLICABLE

DECISIONS OF THIS COURT.

The court of appeals’ construction of willfulness, as

required to demonstrate a knowing and willful viola-

tion of FECA, does not comport with the usual mean-

ing of “knowing and willful” or “willful” found in reg-

ulatory statutes that impose civil penalties. This Court

has held that it is generally adequate to show inten-

tional disregard of or indifference to the regulatory re-

quirement, and that it is not necessary to establish evil

intent in order to prove a knowing and willful violation

of a civil statute. United States v. Park, 421 U.S. 658,

670-71 (1975); United States v. Bishop, 412 U.S. 346,

361 (1973); and United States v. Illinois Central

Railroad Co., 303 U.S. 239, 243 (1938).

In United States v. Pomponio, 429 U.S. 10 (1976)

this Court held that willfulness, even in a criminal

case, means only “an intentional violation of a known

legal duty” and does not include any element of baa

purpose or evil motive. United States v. Pomponio,

supra at 12. The showing of willfulness in a civil case

has been held to an even lower standard. UL’ wited

States v. Illinois Central Railroad Co., supra. Any

other interpretation of “knowing and willful” as it

applies to violations of FECA would seriously impair

the Commission’s enforcement of the Act. If the court

of appeals were correct, the significant penalties re-

served by the Act for “knowing and willful” violations

would rarely if ever be imposed, since the Commission

would be forced to find evidence of “defiance” and

“flaunting” on the part of a respondent to a Commis-

9

sion action.® In addition, if the Commission is required

to meet this high standard before it can successfully

prosecute a civil action for a serious knowing and

willful violation of FECA, it cannot be determined

what standard would be required before the Commis-

sion could refer a matter to the Department of Justice

for criminal investigation and possible prosecution.

See note 4 supra; c.f. 2 U.S.C. § 487g(a)(7) with

§ 437g(a)(5)(D) (1976). Such a standard would require

the Commission to discover the motives and intent of

persons engaged in political activities—a requirement

which this Court should hesitate to compel. See e.g.,

Jones v. Unknown Agents of the Federal Election

Commission, Fed. Elec. Camp. Fin. Guide (CCH)

§ 9092, 50,706 (D.C. Cir. Aug. 23, 1979).

Additionally, the decision of the court in this case

misconstrues and misapplies the willfulness standard

as enunciated by the District of Columbia Circuit.

Cedar Construction Co. v. OSHRC, 587 F.2d 1303

(D.C. Cir. 1978). There, in an attempt to reconcile the

apparent differences among the circuits, the court con-

cluded that “intentional disregard of, or plain indiffer-

ence to, OSHA regulations could well be considered” a

willful violation. Jd. (emphasis added).

6 As the sixth circu’t has said:

We do not consider the phrases “bad purpose” and “an evil

motive” to be appropriate in this action. [The Federal Coal

Mine Health and Safety Act of 1969, 30 U.S.C.A. § 801 ef

seq.] is a Safety Act and it would be virtually impossible to

establish violations if this rule were followed.

United States v. Consolidation Coal Co., 504 F.2d 1330, 1385

(6th Cir. 1974), quoted in Empire-Detroit Steel Division v.

OSHRC, 579 F.2d at 385.

10

The third circuit, having recently reconsidered the

question, adopted the conclusion of the District of Co-

lumbia Circuit in Cedar Construction, supra. The

court, after noting that its opinion in Jrey “has not

been followed in some circuits,” observed:

...the Court of Appeals for the District of Co-

lumbia Circuit, an ever-available forum under the

statute, has concluded that there is little, if any,

difference between our approach and that taken

by the other courts. Jd. at 1805. We agree.

Babcock & Wilcox Co. v. OSHRC, 622 F.2d at 1167

(8d Cir. 1980). Thus, even the third circuit now inter-

prets its /rey standard as encompassing “plain indif-

ference,” not requiring a showing of “bad purpose.”

Yet, without mentioning Cedar Construction and

notwithstanding the “plain indifference” standard for

willfulness established therein, the court of appeals in

this case held that a “knowing and willful violation

must be something more.” Slip opinion at 5. This rul-

ing misconstrues and misapplies a prior ruling of the

District of Columbia Circuit which should not be per-

mitted to obtain in the absence of consideration by this

Court.

III. THE INTENT OF CONGRESS IN ENACT-

ING 2 U.S.C. § 437g(a)(7) IS FRUS-

TRATED BY THE HOLDING OF THE

COURT OF APPEALS.

FECA’s legislative history indicates that Congress

intended no higher standard for “knowing and willful”

than that applied by the courts, supra. The Chairman

of the House Administration Committee summarized 2

U.S.C. § 487¢(a)(7):

11

Perhaps the most important phrase used in the

enforcement section is “knowing and willful.” As

explained in House Report No. 94-917, that

phrase refers to actions taken with full knowledge

of all the facts and a recognition that the action is

prohibited by law.

122 Cong. Rec. 12,199 (May 3, 1976) (remarks of Rep.

Hays) In its report accompanying H.R. 12406, the

Committee on House Administration explained the

purpose of the section:

H.R. 12406 places its reliance on civil enforce-

ment, except as to substantial violations com-

mitted with a specific wrongful intent. The bill

distinguishes between violations of the law as to

which there is not a specific wrongful intent which

are subject to injunctive relief and civil penalties

of up to $5,000 or the amount in question,

whichever is greater, and violations as to which

the Commission has clear and convincing proof

that the acts were committed with a knowledge of

all the relevant facts and a recognition that the

action is prohibited by law, which are subject to

injunctive relief and a civil penalty of up to

$10,000 or twice the amount in question.

H.R. Rep. No. 94-917, 94th Cong., 2d Sess. 4 (1976)

(emphasis added). Thus it is clear that Congress in-

tended that knowing and willful FECA violations could

be found absent bad purpose or motive.

The adoption by the court in this case of a much

higher standard for “knowing and willful” violations

stands in direct conflict with congressional intent in

enacting FECA.’ To require the Commission to meet

7In any event, the district court’s imposition of a civil penalty

in the amount of $10,000 in this case was not based upon a find-

12

this higher standard in its actions would place a severe

restriction on the statutory authority of the FEC to

apply stronger sanctions in enforcing the law; a result

the Commission urges was not intended by Congress.

ing that the violation of the Act was “knowing and willful.”

Neither the district court’s order, nor the transcript of the

hearing in the district court, indicates that the court considered

the violation “knowing and willful.” The court’s imposition of a

civil penalty in the amount of $10,000 is well within the discre-

tionary range of civil penalties which 2 U.S.C. § 487g(a)(5)(C)

provides for a violation totalling over $800,000, Indeed, the fact

that “knowing and willful” was neither addressed as present in

the case nor briefed as an issue in the case is supported by re-

sponses and papers filed by all parties. See Comm. App. at 16a;

18a; 20a. See also Commission’s complaint filed in the United

States District Court for the District of Columbia; the Commis-

sion’s Motion for summary judgment; AFL-CIO’s brief to the

United States Court of Appeals for the District of Columbia

Circuit and the Commission’s brief to the court of appeals.

13

CONCLUSION

For the reasons stated above, a writ of certiorari

should issue to review the judgment and opinion of the

District of Columbia Circuit.

Respectfully submitted,

CHARLES N. STEELE

General Counsel

KATHLEEN IMIG PERKINS

Assistant General Counsel

JEFFREY H. BOWMAN .

Attorneys

Altorneys for

FEDERAL ELECTION COMMISSION,

MAX L, FRIEDERSDORF,

JOHN W. MCGARRY,

JOAN D. AIKENS,

THOMAS E, HARRIS,

FRANK P. REICHE,

ROBERT QO. TIERNAN,

EDMUND L. HENSHAW, JR.,

J. STANLEY KIMMITT

1325 K Street, N.W.

Washington, D.C. 20468

(202) 523-4060

SEPTEMBER 8&, 1980

Appendix

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

CIVIL ACTION 77-2147

FEDERAL ELECTION COMMISSION, PLAINTIFF,

v~.

AMERICAN FEDERATION OF LABOR AND CONGRESS OF

INDUSTRIAL ORGANIZATIONS (AF L-C10), DEFENDANT.

ORDER

This matter having come before the Court on Cross

Motions for Summary Judgment pursuant to Rule 56 of

the Federal Rules of Civil Procedure and the Court

having found that there are no genuine issues as to any

material facts and that the plaintiff, Federal Election

Commission, is entitled to judgment as a matter of

law, it is this 16th day of June, 1978, hereby

ORDERED that defendant’s Motion for Summary

Judgment is hereby DENIED, and it is

FURTHER ORDERED that plaintiff's Motion for

Summary Judgment is hereby GRANTED, and judg-

ment for plaintiff shall be entered as follows:

1. Defendant’s transfers of money from the AFL-

CIO COPE Education Fund to the AFL-CIO COPE

Political Contributions Committee, a separate segre-

gated fund, violated 2 U.S.C. § 441b.

la

2a

2. Defendant is hereinafter enjoined at any time in

the future from transferring any money from general

treasury funds or from the AFL-CIO COPE Education

Fund to the separated segregated fund of the AFL-

CIO COPE Political Contributions Committee except

as set forth in the single transfer ordered below.

3. Defendant shall pay a civil penalty in the amount

of $10,000 pursuant to 2 U.S.C. § 487g(a)(1)(7); and it

1S

FURTHER ORDERED that the AFL-CIO COPE

Education Fund shall transfer $312,000 to the AFL-

CIO COPE Political Contributions Committee forth-

with

/g/ GEORGE L. HART, JR.

United States District Judge

3a

In the Mnited States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 78-1937

AMERICAN FEDERATION OF LABOR AND CONGRESS OF

INDUSTRIAL ORGANIZATIONS (AFL-CIO),

APPELLANTS

v.

FEDERAL ELECTION COMMISSION, APPELLEES

Appeal from the United States District Court

for the District of Columbia

(D.C. Civil Aetion No. 77-2147)

Argued October 16, 1979

Decided April 1, 1980

Laurence Gold with whom J. Albert Wall was on

the brief, for Appellant.

Kathleen I. Perkins, Attorney, Federal Election

Commission with whom William C. Oldaker, General

Counsel, Charles N. Steele, Associate General Counsel

and Barbara Van Gelder, Attorney, Federal Election

Commission were on the brief, for appellees.

4a

Before: ROBB and WALD, Circuit Judges, and

NICHOLS*, Judge, United States Court of

Claims

Opinion for the Court filed by Judge NICHOLS.

NICHOLS, Judge: This is an appeal by the American

Federation of Labor and Council of Industrial Organi-

zations (AFL-CIO) from an unreported order of the

United States District Court for the District of Co-

lumbia issued on June 16, 1978. The AFL-CIO takes

exception only to that portion of the order which as-

sessed a civil penalty of $10,000 for violation of the

Federal Election Campaign Act of 1971, as amended,

2 U.S.C. § 431 et seg. (Act). The alleged violation in-

volved the transferring of funds between the Commit-

tee on Political Education-Political Contributions

Committee (COPE-PCC) and the COPE Education

Fund. The case was taken on a joint stipulation of

facts.

The COPE Education Fund is financed by AFL-CIO

general treasury monies derived from union dues and

assessments. It is used for non-partisan voter registra-

tion, get-out-the-vote drives and communications with

union members. COPE-PCC, on the other hand, is a

separate segregated fund within the meaning of 2

U.S.C. § 441b and is permitted to make direct contri-

butions to candidates for federal elective office. Its

monies may not be derived from any source but wholly

voluntary political contributions from AFL-CIO union

members. 2 U.S.C. § 441b allows corporations and

labor unions to have such “segregated” funds sup-

*Sitting by designation pursuant to 28 U.S.C. § 293(a).

5a

ported, in the case of unions, in no part by the re-

quired dues of members.

As had been a long-standing practice of the AFL-

CIO, between 1970 and 1977 several times COPE-PCC

transferred money to the COPE Education Fund for

use by that fund. It was explained that COPE-PCC

funds were idle and useless between elections. On de-

mand of COPE-PCC, funds would be transferred from

the Education Fund back to COPE-PCC for its use. At

no time did COPE-PCC owe money to the Education

Fund: the assistance was entirely one-way. These

transfers were designated as loans but were interest-

free. Complete records were kept, and, with one rela-

tively minor exception, the transactions were duly re-

ported to the Office of Federal Elections of the Gen-

eral Accounting Office (GAO) and later to Federal

Elections Commission (FEC or Commission) to which

jurisdiction was transferred. The FEC concedes that

there was no intentional wrongdoing.

On November 7, 1974, the GAO issued a report of its

Office of Federal Elections on the results of an audit of

the AFL-CIO. The purpose of the audit was to review

AFL-CIO compliance with the Act. The report noted

that there had been a failure to report a transfer of

$1,500 from COPE-PCC to the COPE Education

Fund. The report went on to say that an amended re-

port had been filed to correct the discrepancy and that

no further action was recommended. Any reader

aware that the transfer referred to was one of several

would, we think, have concluded that if reported the

transfers were not objectionable.

6a

On August 28, 1977, the Federal Elections Commis-

sion, which had succeeded to the GAO’s authority,

notified the AFL-CIO that it was taking the position

that while § 441b of the Act permits transfers of funds

from COPE-PCC to the COPE Education Fund, no

transfers back into COPE-PCC were permissible.

Following an FEC reaffirmance of its position, there

was a period of attempted reconciliation as required by

section 437g(a)(5)(A) of the Act. During this period the

Commission rejected a proposed settlement which

would have allowed a single transfer of $312,000 from

the Education Fund to COPE-PCC for the purpose of

clearing the balance between the two funds; the Edu-

eation Fund holding at that time that sum of COPE-

PCC funds.

The FEC brought an enforcement action in the Dis-

trict Court seeking a prohibition against any future

transfers from the COPE Education Fund to the

COPE-PCC and the imposition of a civil penalty under

section 437g(a)(7) of the Act. During the hearing on

June 12, 1978, it was conceded by counsel for the

Commission that “* * * we are not attributing a direct

mal-feasance [sic] on the part of the AFL-CIO.” No

express provision violated by the transiers was

pointed out and the transcribed remarks of the District

Judge show he thought the wrong was principally to

the political contributors, not the regular dues payers,

and was in the nature of a breach of trust. We agree

with the District Judge that under the law no part of

the monies of a union’s segregated political fund should

be co-mingled with regular dues money, even tem-

porarily, but the statute is not specific as to what is to

7a

be segregated from what. The conclusion is a matter of

reading the statute in light of the common law rather

than direct statement, but it is not challenged here, as

it was below. The class the statute was written to pro-

tect clearly was the regular dues payers, not the

political contributors, and in view of the obviousness of

this, the error of the appellant, though an error, still is

understandable.

At the close of the hearing, the District Court stated

the terms of its order from the bench. The order was

filed in final written form on June 16, 1978. It declared

the transfers to be in violation of 2 U.S.C. § 441b and

prohibited future transfers from the general treasury

or the Education Fund to COPE-PCC with a single ex-

ception; a clearing of the $312,000 balance of COPE-

PCC monies back to COPE-PCC ‘from the Education

Fund was ordered. Finally, the District Court ordered

the imposition of a civil penalty of $10,000 against the

AFL-CIO. As previously noted, only the imposition of

the civil penalty is now at issue. We reverse.

While the transcript of the hearing reflects the civil

penalty was assessed pursuant to 2 U.S.C.

§ 437g(a)(7), the final order cited 2 U.S.C,

§ 487g(a)(1)(7) which would not accurately refer to any

section of the Act. We therefore take the citation in

the transcript as correct.

While we agree with appellee that the District Court

is vested with discretionary authority in the imposition

of civil penalties, the exercise of that discretion is

subject to appellate review. Such discretionary exer-

cises must be “guided by sound legal principles.” Al-

8a

ben arle Paper Co., v. Moody, 422 U.S. 405, 416

(1975).

We turn to the question of whether the imposition of

a $10,000 civil penalty under 2 U.S.C. § 437g(a)(7) is

supported by the facts of this case. Under that section

it must be found that there was “clear and convincing”

evidence that the violation was “knowing and willful.”

Where such a finding is made, a civil penalty of not

more than the greater $10,000 or 200 percent of the

amount of money involved in the violation may be im-

posed. In the context of this case and the statutory

framework, it is clear that a “knowing and willful”

violation must be something more than is present

here. As will appear, another section deals with penal-

ties for violations not specified to be willful. The dis-

tinction is a real one the trier of fact must contend

with, we think, if he means to find willfulness. The

order should have addressed the question, but we do

not dispose of the case on that ground as it was not

briefed.

In the case of Frank Trey, Jr., Inc. v. Occupational

Safety and Health Review Commission, 519 F.2d 1200

(1975),! the Third Circuit faced a similar issue where

the Occupational Safety and Health Act provided for

three levels of civil penalties for “non-serious,” “seri-

ous,” and “willful” violations. The penalty for a “non-

serious” violation was a discretionary fine of up to

‘'reh. en banc, 519 F.2d 1215, cert. granted, Atlas Roofing

Co. v. Occupational Safety and Health Review Commission, 96

S.Ct. 1458, 424 U.S. 964, 47 L.Ed.2d 731, aff'd, 97 S.Ct. 1261,

430 U.S. 422, 51 L.Ed.2d 464 (1977).

9a

$1,000. For a “serious” violation a mandatory fine of

up to $1,000 was provided. A “willfull’ or repeated

violation could bring a fine of up to $10,000. The hear-

ing officer had found a “willful” violation in the em-

ployer’s failure to adequately assess a certain safety

risk. On appeal from the Commission's affirmance of

the hearing officer’s decision, the court decided that

the hearing officer had found facts sufficient orly to

support a finding of a “serious” violation. Given the

statutory context, a “willful” violation must necessar-

ily connote “defiance or such reckless disregard of the

consequences as to be equivalent to a knowing, con-

scious, and deliberate flaunting of the Act.” To hold

otherwise would fail to distinguish between a “serious”

offense and a “willful” one and would “disrupt the gra-

dations of penalties” established by Congress. Frank

Trey Jr., Ine. at 1207.

In our case there is not only no finding but also no

evidence of such “defiance” or “knowing, conscious,

and deliberate flaunting” of the Act. In fact, every in-

(lication is that the AFL-CIO considered itself to be in

compliance with the Act. It learned nothing to the con-

trary from the GAO upon the occasion of the latter's

audit. The fact that the AFL-CIO was routinely re-

porting the inter-fund transfers to the very agency

charged with enforcement of the Act is persuasive evi-

dence of a lack of intent to violate the Act’s prohibi-

tions. The Commission would seem to have conceded

this point in stating at the District Court hearing that

“the Gommission must reiterate we are not attributing

a direct mal-feasance [sic] on the part of the AFL-

CIO.” Appendix at 68a.

10a

In addition to a lack of evidence that the AFL-CIO

acted otherwise than in good faith, we can not say that

their belief in the legitimacy of the inter-fund transfers

was unreasonable. Neither the Act nor any court deci-

sion had addressed the immediate issue. Most telling is

ihe fact that the audit by the Office of Federal Elec-

tions of the GAO, two years after the decision in

Pipefitters Local No. 562 v. United States, 407 U.S.

385 (1972) had noted the transfers and did not indicate

disapproval in any way. It is clear that uncertainty as

to the meaning of the law can be considered in assess-

ing the element of willfulness in a violation of the law.

See James v. United States, 366 U.S. 213 (1961),

United States v. Garber, 607 F.2d 92 (5th Cir. 1979)

(41 U.S.L.W. 2425).

The Garber case was a criminal tax prosecution

where, as here, willfulness was, by express command

of the statute, an element of the offense. The holding

(en banc, with four dissents) was that it was reversible

error to exclude testimony by experts tending to show

that the rightness or wrongness of defendant’s re-

porting of the involved income was uncertain. The

court said that no one should be convicted on the basis

of an interpretation of law that is so written as to be of

uncertain meaning to the mind of the accused. We do

not have before us the question whether an uncer-

tainty of law can be shown by witnesses. We think it is

obvious that in construction of any penal statute of

which willfulness is an element, it is possible for the

meaning of the statute to be clear to the mind of a

trained judge, and still be less than clear enough to

support a finding of willful violation. This is certainly

lla

so where, as here, the question whether the conduct of

the AFL-CIO was unlawful, was hitherto untested by

any sort of tribunal, and there was no regulation or

even press release by the Commission, so far as cited

to us.

Contrary to the Commission’s assertions, we do not

regard the Supreme Court’s decision in Pipefitters as

providing specific notice that the inter-fund transfers

involved herein were prohibited by the Act. In that

case, the appeal of a conviction for campaign violations

under the law as it was before the Federal Election

Campaign Act of 1971, the central issue was whether

union control of political action committee (PAC) funds

was prohibited. The Supreme Court rejected the

prosecution’s contention that PAC’s must be inde-

pendent of control by union officials. By way of limit-

ing the scope of its holding, the Court stated that “a

fund must be separate from the sponsoring union only

in the sense that there must be strict segregation of its

monies from union dues and assessments.” Pipefitters

at 414. At 422 the Court states that “ ‘separate’ is

synonymous with ‘segregated.’” At 428-432 there is

extensive material on the meaning of “segregated,”

but it deals with whether the term bars union officials

paid by union dues, and using union financed offices,

from managing political funds. The holding is that it

does not. Some readers of Pipefitters might have ad-

vised caution in doing what was done here, but others

might have said that, if carefully accounted for, loans

by the political fund to the regular fund financed by

dues were not inconsistent with the funds being “sepa-

rate” and therefore not in conflict with the require-

ment of “segregation.” The truth is that the Court did

12a

not have before it the issue we must decide here, and

the issues it did decide are not here raised.

In all events the facts of this case do not support a

finding that the violations were “knowing and willful”

as required by 2 U.S.C. § 437g(a)(7), the provision

upon which the District Court based the imposition of

the civil penalty.

As noted above, the Act also provides for the impo-

sition of a civil penalty under section 437g(a)(5)(C).

That section provides for « lesser penalty upon a find-

ing of a violation of the Act and does not expressly

require that the violation be “knowing and willful.” We

do not reach the question of whether a penalty could

have been imposed in this case under that section. The

complaint did not seek a penalty thereunder, the par-

ties did not brief the issue, and the District Court did

not consider it.

As a matter of fact, the penalty was imposed with-

out any discussion at all; the entire oral argument be-

fore the District Judge dealing with the attempt of the

Commission to remove the $312,000 permanently from

the uses for which it had been donated. There was no

attempt at conciliation on the Commission’s part ex-

cept on the inadmissible premise that the breach of

trust it had discovered should not be corrected. We

believe the refund of $312,000 ordered by the court

was properly to be characterized as the correction of a

mistake. That is what we have here, a breach of law by

mistake, not by willful wrong.

Had the AFL-CIO been intransigent after learning

of the Commission’s position on the transfers, we

might have reached a different result. In fact, the

———

l3a

AFL-CIO was willing during the conciliation period to

acecde to the Commission’s position prospectively. It

was the Commission’s insistence on prohibiting the

clearing of the balance between the funds that stymied

the conciliation efforts.

Accordingly, the order of the District Court is mod-

ified by vacating the portion that assesses a penalty of

$10,000. The remainder of the order is not appealed

from and disposes of the case.

l4a

In the Wnited States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

September Term, 1979

Civil Action No. 77-2147

No. 78-1937

AMERICAN FEDERATION OF LABOR AND CONGRESS OF

INDUSTRIAL ORGANIZATIONS (AFL-CIO),

APPELLANTS

,

FEDERAL ELECTION COMMISSION, APPELLEES

BEFORE: RosB and WALD, Circuit Judges; and

NICHOLS“, Judge, United States Court

of Claims

ORDER

Upon consideration of appellee’s (federal) petition

for rehearing, it is

ORDERED, by the Court, that appellee’s aforesaid

petition for rehearing is denied.

Per Curiam

For THE COURT:

/s/) GEORGE A, FISHER

Clerk

* Sitting by designation pursuant to Title 28 U.S.C. § 293(a).

~~ f

l5a

In the Mnited States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

September Term, 1979

Civil Action No. 77-2147

No. 78-1937

AMERICAN FEDERATION OF LABOR AND CONGRESS OF

INDUSTRIAL ORGANIZATIONS (AFL-CIO),

APPELLANTS

ig

FEDERAL ELECTION COMMISSION, APPELLEES

BEFORE: WRIGHT, Chief Judge; MCGOWAN,

TAMM, ROBINSON, MACKINNON, ROBB,

WILKEY, WALD, MIKVA, and EDWARDS,

Circuit Judges

ORDER

The suggestion for rehearing ev banc filed by ap-

pellee (Federal Election Commission) having been

transmitted to the full Court and no judge in regular

active service having requested a vote with respect

thereto, it is

ORDERED, by the Court, ev banc, that appellee’s

aforesaid suggestion for rehearing ey bac is denied.

Per Curiam

FoR THE COURT:

/s/ GEORGE A, FISHER

Clerk

l6a

UNITED STATES COURT OF APPEALS

DISTRICT OF COLUMBIA CIRCUIT

WASHINGTON, D.C. 20001

October 3, 1978

Charles N. Steele, Esquire

Lester N. Scall, Esquire

Barbara Van Gelder

Federal Election Commission

1325 K St., N.W.

Washington, D.C. 20463

J. Albert Woll, Esquire

Laurence Gold, Esquire

815 16th St., N.W.

Washington, D.C. 20005

RE: No. 78-1987—Awmerican Federation of Labor

and Congress of Industrial Or-

ganizations v. Federal Election

Commission

Dear Counsel:

One objective of the Court’s civil appeals manage-

ment plan is to identify, early in the appellate process,

cases which should be remanded for further proceed-

ings. I am authorized to make inquiries of the parties,

although, of course, only the court can decide whether

a remand is in order.

The appeal is limited to the imposition of a civil pen-

alty. My concern is with the adequacy of the record for

appellate review of this judgment.

The district court’s order is not accompanied by a

memorandum with findings and conclusions. The sole

17a

conclusion in the order is that the transfers violated 2

U.S.C. § 441b. There is no explicit determination that,

as a predicate for a civil penalty, “the Commission has

established through clear and convincing proof that

the person involved in such civil action has committed

a knowing and willful violation of this Act ....” 2

U.S.C. § 437g(a)(7) (emphasis added). Further it is

not clear whether the papers moving for summary

judgment were intended to address the penalty ques-

tion, particularly, whether a “knowing and willful”

violation of the Act had occurred.

In light, of this, my inquiry is whether this appeal

should go forward on the present record or whether

there should be further consideration of the matter in

the district court. This might include further develop-

ment of the record or, at least, findings and conclu-

sions on the question of willfulness. I should stress

that the question has not been presented to this court,

and I am raising it initially with the parties.

If you decide there is a problem of going forward on

this record, then I suggest that an appropriate motion

be filed. In any event, I would appreciate being in-

formed how you propose to proceed.

Sincerely,

/s/ MICHAEL DAVIDSON

Chief Staff Counsel

18a

AMERICAN FEDERATION OF LABOR AND CONGRESS

OF INDUSTRIAL ORGANIZATIONS

815 SIXTEENTH STREET, N.W.

WASHINGTON, D.C. 20006

(202) 637-5000

October 19, 1978

Mr. Michael Davidson, Chief Staff Counsel

United States Court of Appeals for the

District of Columbia Circuit

United States Courthouse

Constitution Avenue & John Marshall Place

Washington, D.C. 20001

Re: American Federation of Labor and Congress of

Industrial Organizations v. Federal Election

Commission

Dear Mr. Davidson:

After careful consideration of the points made in

your letter to counsel in the above-noted case, I re-

main of the view that this matter is appropriate for

appellate review and should not be remanded for fur-

ther proceedings.

Unfortunately for defendants, the Federal Election

Campaign Act not only provides for certain civil penal-

ties when the Commission can establish through “clear

and convincing proof that the person involved in [a]

civil action has committed a knowing and willful viola-

tion” (2 U.S.C. Section 437g(a)(7)), but also for lesser

penalties for violations that are not knowing and will-

ful. See 2 U.S.C. Section 437g(a)(5)(B)&(C). This is

such a case and the papers moving for summary judg-

ment were intended to address the penalty question it

raises.

19a

As you point out, the District Court did not make

formal findings of fact and conclusions of law. Judge

Hart did however state from the bench the basis for

his decision before entering judgment. We are there-

fore ordering that portion of the transcript of the pro-

ceedings so that it may be included in the record ap-

pendix for the benefit of the Court of Appeals.

Very truly yours,

LAURENCE GOLD

Special Counsel

20a

FEDERAL ELECTION COMMISSION

1325 K STREET N.W.

WASHINGTON, D.C, 20463

November 6, 1978

Mr. Michael Davidson, Chief Staff Counsel

United States Court of Appeals for the

District of Columbia Circuit

United States Courthouse

Constitution Avenue & John Marshall Place

Washington, D.C. 20001

Re: American Federation of Labor and Congress of

Industrial Organizations v. Federal Election

Commission

Dear Mr. Davidson:

This is to acknowledge your letter of October 3,

1978. Initially, the Commission agrees with counsel for

the appellant that while the Court below did not enter

formal findings of facts and conclusions of law, the

Court did state from the bench the basis for its conclu-

sions,

Moreover, while counsel for the Commission does

not know what penalty questions appellant believes

this case raises, the fine imposed by the Court is

within the statutory limits set by 2 U.S.C.

§ 487g(a)(5)(B), (C) and (a)(7).

In short, it seems that there is an adequate record

to sustain the Court’s order of June 16, 1978. Both

parties agreed that there was no genuine dispute of

material fact. The facts before the lower Court estab-

lish the length and duration of the AFL-CIO’s practice

with regard to the matters at issue, i.e., that the

2la

transfers of money from the Education Fund to the

separate segregated fund was a “longstanding” prac-

tice and that the total amount of the violation extant

was $312,000.

If you have any further questions concerning this

matter, please contact, Barbara Van Gelder, (tele-

phone # 523-4060), the attorney assigned to this case.

Thank you for your interest in this matter.

Sincerely yours,

/s/ WILLIAM C, OLDAKER

General Counsel

ec: Laurence Gold

* US GOVERNMENT PRINTING OFFICE. 1980 327557 65