COURT OF APPEALS, STATE OF COLORADO 2 East 14th Avenue Denver, Colorado 80203 Appeal from the District Court

, City and County of Denver, Colorado The Honorable J. Eric Elliff Case No. 2012CV2133 (consolidated with 2012CV2153) Plaintiffs-Appellees/Cross-Appellants: COLORADO ETHICS WATCH COLORADO COMMON CAUSE, Plaintiffs-Appellees: DAVID PALADINO; MICHAEL CERBO; PROCHOICE COLORADO PAC; PPRM BALLOT ISSUE COMMITTEE; and CITIZENS FOR INTEGRITY, INC., v. Defendant-Appellant/Cross-Appellee: ▲COURT USE ONLY▲ and

SCOTT GESSLER, in his capacity as Colorado Secretary of State Attorneys for Paladino Plaintiffs-Appellees: Case No.: 12CA1712 Mark G. Grueskin, No. 14621 Heizer Paul Grueskin LLP 2401 15th Street, Suite 300 Denver, Colorado 80202 Phone Number: (303) 376-3703 FAX Number: (303) 595-4750 E-mail: mgrueskin@hpgfirm.com PALADINO PLAINTIFFS-APPELLEES’ ANSWER BRIEF

CERTIFICATE OF COMPLIANCE I hereby certify that this brief complies with all requirements of C.A.R. 28 and C.A.R. 32, including all formatting requirements set forth in these rules. Specifically, the undersigned certifies that the brief complies with C.A.R. 28(g). It contains 9,404 words. Further, the undersigned certifies that the brief complies with C.A.R. 28(k). For the party raising the issue: It contains under a separate heading (1) a concise statement of the applicable standard of appellate review with citation to authority; and (2) a citation to the precise location in the record (R.__, p.__), not to an entire document, where the issue was raised and ruled on. For the party responding to the issue: It contains, under a separate heading, a statement of whether such party agrees with the opponent’s statements concerning the standard of review and preservation for appeal, and if not, why not. I acknowledge that my brief may be stricken if it fails to comply with any of the requirements of C.A.R. 28 and C.AR. 32. s/Mark G. Grueskin

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TABLE OF CONTENTS Page STATEMENT OF ISSUES PRESENTED................................................................1  STATEMENT OF THE FACTS ...............................................................................1  STATEMENT OF THE CASE ..................................................................................2  SUMMARY OF ARGUMENT..................................................................................3  LEGAL ARGUMENT ...............................................................................................3  A.  Rule 28(k): Standard of review and preservation for appeal ..........................4  1.  The Secretary failed to comply with C.A.R. 28(k) .....................................4  2.  The Secretary’s overarching standard of review is only partially correct ...5  3.  The Secretary incorrectly omitted any reference to the full Chevron standard for judicial review of administrative actions ................................6  4.  The Secretary incorrectly omitted any reference to the judicial review provisions in the Administrative Procedure Act .........................................7  5.  The Secretary must prove that existing statutory and constitutional definitions are unconstitutional beyond a reasonable doubt ......................9  6.  The Secretary is incorrect that his rules or legal interpretations are owed deference ..................................................................................................10  B.  The Secretary erred in adopting Rule 1.12.3 which created a 30% expenditure threshold before an issue committee has “a major purpose” of affecting ballot issue elections.....................................................................11  1.       Rule 28(k) certification: standard of review and citation to the record ...11  2.  Rule 1.12.3 ...............................................................................................12  3.  The District Court properly found that Rule 1.12.3 is invalid .................13  4.  The General Assembly has directly addressed the meaning of “a major purpose.” ..................................................................................................14  5.  A major purpose” is not ambiguous and thus the Secretary exceeded his lawful authority ........................................................................................16  6.  The 30% test is arbitrary and capricious and not based on substantial evidence in the record ..............................................................................18  iii

7.  The 30% test is inconsistent with the rights and privileges accorded to plaintiffs under the Constitution...............................................................20  C.  The Secretary erred in adopting Rule 1.18.2 which imposed “the major purpose” test for political committees that support or oppose the election of state and local candidates and limits the way “the major purpose” can be established......................................................................................................21  1.  Rule 28(k) certification: standard of review and citation to the record ...21  2.  Rule 1.18.2 ...............................................................................................22  3.  The District Court properly found that Rule 1.18.2 is invalid .................24  4.  The voters and the General Assembly have directly addressed the meaning of “political committee.” ...........................................................25  5.  Rule 1.18.2 exceeds the Secretary’s delegated authority .........................27  6.  Rule 1.18.2 is arbitrary and capricious ....................................................28  7.  Limiting the considerations by which an entity’s purpose could be established was arbitrary and capricious ..................................................29  a.  The “organizational statement” test is arbitrary and capricious ...........31  b.  The “majority of expenditures” test is arbitrary and capricious ...........31  D.  The Secretary erred in creating the “major purpose” test for entities known as “political organizations” and further erred in subjecting those entities to registration and reporting requirements only if that engage in “express advocacy.” .....................................................................................................32  1.  Rule 28(k) certification: standard of review and citation to the record ...33  2.  Rules 1.10 and 7.2.1 .................................................................................34  3.  The district court properly invalidated Rules 1.10 and 7.2 ......................35  4.  The General Assembly specifically defined “political organization.” ....36  5.  Rule 7.2.1 exceeds the Secretary’s delegated authority and is arbitrary and capricious, as the statute does not require that political organizations have the “major purpose” of influencing elections ..................................37  6.  Rule 1.10’s requirement that entities dedicated to “influencing or attempting to influence” engage in express advocacy exceeds the Secretary’s delegated authority and is arbitrary and capricious ..............38 

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a.  Disclosure by political organizations is not dependent on their use of “express advocacy" ...............................................................................38  b.  The “functional equivalent of express advocacy” is a sufficient narrowing construction to preserve the current level of disclosure of spending on electioneering communications by political organizations ...............................................................................................................40  c.  Under these rules, Citizens United would not apply in Colorado.........41  d.  Rules 1.10 and 7.2.1 contravene voter intent ........................................42  CONCLUSION ........................................................................................................44 

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TABLE OF AUTHORITIES Page(s) Cases  A & A Auto Wrecking, Inc. v. Department of Revenue, 602 P.2d 10 (Colo.Ct.App. 1979) .........................................................................15 Alliance for Colorado’s Families v. Gilbert, 172 P.3d 964 (Colo.Ct.App. 2007) ................................................................ 27, 28 Buckley v. Chilcutt, 968 P.2d 112 (Colo. 1998) ........................................................................... passim C.P. Bedrock, LLC v. Denver County Bd. of Equalization, 259 P.3d 514 (Colo.Ct.App. 2011) .......................................................................34 Carter v. Brighton Ford, Inc., 251 P.3d 1179 (Colo.Ct.App. 2010).....................................................................28 Cerbo v. Protect Colo. Jobs, Inc., 240 P.3d 495 (Colo.Ct.App. 2010)............................................................. 5, 12, 17 Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) ............................................................................. 6, 11, 21, 33 Citizens for Free Enterprise v. Dept. of Revenue, 649 P.2d 1054 (Colo. 1982) .................................................................................12 Citizens United v. FEC, 130 S.Ct. 876 (2010) .................................................................................... passim Colo. Citizens for Ethics in Gov't v. Comm. for the Am. Dream, 187 P.3d 1207 (Colo.Ct.App. 2008).....................................................................27 Colo. Common Cause & Colo. Ethics Watch v. Gessler, 2012 COA 147, P15 (Colo.Ct.App. 2012) ...................................................... 8, 10 Colo. Common Cause v. Meyer, 758 P.2d 153 (Colo. 1988) ...................................................................................18 vi

Colo. Ethics Watch v. Clear the Bench Colo., 2012 COA 42, P29 (Colo.Ct.App. 2012) .............................................................27 Colo. Ethics Watch v. Senate Majority Fund, LLC, 2012 CO 12, P25 (Colo. 2012) .............................................................................35 Colo. Right to Life Comm., Inc. v. Coffman, 498 F.3d 1137 (10th Cir. Colo. 2007) .......................................................... passim Colorado Ground Water Comm'n v. Eagle Peak Farms, 919 P.2d 212 (Colo. 1996) ......................................................................................5 Common Sense Alliance v. Davidson, 995 P.2d 748 (Colo. 2000) ...................................................................................26 Ctr. for Individual Freedom v. Madigan, 2012 U.S. App. LEXIS 18956, 53 (7th Cir. Ill. Sept. 10, 2012) ................... 26, 41 Dallman v. Ritter, 225 P.3d 610 (Colo. 2010) ...................................................................... 24, 25, 42 Draper v. DeFrenchi-Gordineer, 282 P.3d 489 (Colo.Ct.App. 2011) .........................................................................4 FEC v. Wis. Right to Life, Inc., 551 U.S. 449 (2007) .............................................................................................40 Fed. Election Comm’n. v. Mass. Citizens for Life, Inc., 479 U.S. 238 (1986) ...................................................................................... 30, 32 Human Life of Wash. Inc. v. Brumsickle, 624 F.3d 990 (9th Cir. 2010) ................................................................................26 Independence Institute v. Coffman, 209 P.3d, 1130 (Colo.App. 2008) ................................................................ passim Jachetta v. Milano, 362 P.2d 1065 (Colo. 1961) .................................................................................32 League of Women Voters of State v. Davidson, 23 P.3d 1266 (Colo.Ct.App. 2001) .......................................................................31 vii

McConnell v. Fed. Election Comm’n, 540 U.S. 93 (2003) ........................................................................................ 41, 43 Mesa County Bd. of County Comm'rs v. State, 203 P.3d 519 (Colo. 2009) .....................................................................................9 Nat’l Org. for Marriage v. McKee, 649 F.3d 34 (1st Cir. 2011) ........................................................................... passim People v. Durapau, 2012 COA 67, P44 (Colo.Ct.App. 2011) ...............................................................5 Regular Route Common Carrier Conference of Colorado Motor Carriers Ass’n. v. Public Utilities Comm’n, 761 P.2d 737 (Colo. 1988) ...................................................................................19 Sanger v. Dennis, 148 P.3d 404 (Colo.Ct.App. 2006) ............................................................... passim Shays v. Fed. Election Comm’n, 414 F.3d 76 (D.C. Cir. 2005) ...............................................................................16 Taxpayers for Pub. Educ. v. Douglas County Sch. Dist., 2013 COA 20, P73 (Colo.Ct.App. 2013) .............................................................28 The Real Truth About Abortion, Inc. v. Fed. Election Comm’n, 2012 U.S. App. LEXIS 11890 (4th Cir. 2012) .............................................. 30, 40 Vt. Right to Life Comm., Inc. v. Sorrell, 875 F. Supp. 2d 376 (D. Vt. 2012) .......................................................................29 Wine & Spirits Wholesalers v. Colorado Dep't of Revenue, Liquor Enforcement Div., 919 P.2d 894 (Colo.Ct.App. 1996)....................................................... 6, 11, 22, 33 Zamarripa v. Q & T Food Stores, 929 P.2d 1332 (Colo. 1997) .................................................................... 11, 22, 33 Statutes  C.R.S. § 1-45-103(12)(b) .........................................................................................14 viii

C.R.S. § 1-45-103(12)(c) .........................................................................................15 C.R.S. § 1-45-103(14) ....................................................................................... 22, 25 C.R.S. § 1-45-103(14.5) .................................................................................... 34, 36 C.R.S. § 1-45-111.5(1) ...............................................................................................4 C.R.S. § 24-4-103(8)(a) ............................................................................ 7, 8, 18, 36 C.R.S. § 24-4-106(7) ..................................................................................................8 Other Authorities  Black’s Law Dictionary 1220 (8th ed. 2004) ............................................................32 Rules  8 CCR 1505-6 ............................................................................................................3 C.A.R. 28(k) ...........................................................................................................4, 5 Constitutional Provisions  Colorado Constitution, art. XXVIII ................................................................. passim Colorado Constitution, art. XXVIII, sec. 1 ................................................. 20, 29, 33 Colorado Constitution, art. XXVIII, sec. 1, 2(7)(a) ..................................................32 Colorado Constitution, art. XXVIII, sec. 2(10)(a)(I)...............................................12 Colorado Constitution, art. XXVIII, sec. 2(12)(a)...................................... 22, 24, 25 Colorado Constitution, art. XXVIII, sec. 2(7) ..........................................................34 Colorado Constitution, art. XXVIII, sec. 6(a)...........................................................33 Colorado Constitution, art. XXVIII, sec. 9(1)(b) ..................................................4, 7

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STATEMENT OF ISSUES PRESENTED Did the Secretary of State’s Opening Brief fail to comply with C.A.R. 28(k)? Did the trial court correctly determine the Secretary’s redefinition of campaign finance terms and his creation of thresholds for certain committee registration and reporting – none of which are found in the Constitution or state statute – were unlawful? STATEMENT OF THE FACTS The Secretary issued a "Notice of Proposed Rulemaking" to amend certain campaign finance rules in November 2011. A rule making hearing occurred on December 15, 2011, based on a revised draft rules published on December 9. On February 22, 2012, Defendant issued temporary rules, effective March 7, 2012. Because of a failure to timely publish the rules, the date on which the rules became permanent was April 12, 2012. Among other changes, these rules: (1) redefined the thresholds that trigger registration and reporting requirements for certain types of political entities – “issue committees,” “political committees,” and “political organizations;” and (2) added “express advocacy” to the requirements of a “political organization” which typically pays for “electioneering communications.” Electioneering communications are

political messages that do not expressly advocate a candidacy but instead addresses issues or matters that reflect political speech. The adopted rules are included in the sections below that address each of the District Court’s rulings. STATEMENT OF THE CASE The Paladino plaintiffs (“Paladino”) challenged these rules in Denver District Court. These plaintiffs had interests (whether as voter, taxpayer, candidate, contributor, political committee, ballot issue committee, or activist interested in transparency) in preserving Colorado’s system of registration and reporting by entities attempting to alter the outcome of elections among candidates and on ballot issues. Each plaintiff has no other means of obtaining such campaign finance information except through public reports mandated by the Constitution, the Colorado Revised Statutes, and regulations of prior secretaries of state. The Paladino lawsuit was consolidated with another challenge to the Secretary’s rules filed by Colorado Ethics Watch and Colorado Common Cause, although those groups challenged additional rules not addressed by Paladino. Based solely upon responsive briefing and oral argument, the trial court found that each rule challenged by Paladino was invalid as a matter of law. This appeal followed, and although the Secretary sought to stay the decision of the lower court, that motion was denied. 2

SUMMARY OF ARGUMENT The Secretary fundamentally disagrees with much of what is currently in the state’s campaign finance laws. He made that clear by means of publicly reported statements during the pendency of this litigation. See Paladino Plaintiffs’ Reply Brief, CD page 334, n.2. The Secretary erred by redefining terms that the voters and the General Assembly had specifically addressed. Those key terms relate to the required public disclosure in ballot issue campaigns, candidate campaigns, and independent group spending that addresses candidates. His amended agency rules, see generally 8 CCR 1505-6, would unquestionably limit the amount of public disclosure about campaign contributions and expenditures. That determination is at odds with the clear import of Article XXVIII to the Colorado Constitution which places a priority on public disclosure, an objective that has been embraced by the Colorado and United State Supreme Courts. These policy judgments are beyond the Secretary’s reach; he has authority to superintend – not make – campaign finance law. LEGAL ARGUMENT A campaign finance rule may only be adopted by the Secretary if it is “necessary to administer and enforce” the campaign finance provisions of the 3

Constitution and in statute. Colo. Const., art. XXVIII, § 9(1)(b); see C.R.S. § 145-111.5(1). Not every rule enacted by the Secretary meets this standard. Specifically, rules fail to meet this standard if they depart from the specific provisions of Article XXVIII or the discernible intent of the voters in adopting those provisions. Sanger v. Dennis, 148 P.3d 404, 412-13 (Colo.Ct.App. 2006). A. Rule 28(k): Standard of review and preservation for appeal Paladino disagrees with the Secretary’s statement of the applicable standard of review in that it is incomplete and thus would lead to an unwarranted decision on appeal. 1. The Secretary failed to comply with C.A.R. 28(k). The Opening Brief contains a lengthy discussion about the applicable standard of review. Opening Brief at 11-23. Not one of the five rules addressed in the brief contains the requisite “separate heading placed before discussion of the issue” setting forth “a concise statement of the applicable standard of appellate review with citation to authority” and “a citation to the precise location in the record where the issue was raised and ruled on.” C.A.R. 28(k). These rules are not mere technicalities; they are structured to facilitate meaningful discourse in the parties’ briefs. Draper v. DeFrenchi-Gordineer, 282 P.3d 489, 499 (Colo.Ct.App. 2011). Compliance with Rule 28(k) is no less 4

important because the issues presented revolve around legal interpretation by a lower court. Id. (in review of summary judgment, appellant must “set out, under a separate heading for each issue, a citation to the precise location in the record where the issue was raised and ruled on” as well as “authority establishing the proper standard of review for this issue”). Given this failure, arguments relating to this portion of the brief can be stricken or the appeal dismissed. See People v. Durapau, 2012 COA 67, P44 (Colo.Ct.App. 2011). The Paladino Plaintiffs request this relief. Assuming the Court may not strike the Opening Brief or dismiss the appeal, however, the Paladino Plaintiffs address the Secretary’s standards of review below. 2. The Secretary’s overarching standard of review is only partially correct. As asserted by the Secretary, an adopted agency rule is presumed to be valid, and a party challenging the rule must prove it to be unconstitutional beyond a reasonable doubt. Colorado Ground Water Comm'n v. Eagle Peak Farms, 919 P.2d 212, 217 (Colo. 1996). A court will evaluate the legal issue of interpretation of a rule, a statute, or a constitutional amendment on a de novo basis. Cerbo v. Protect Colo. Jobs, Inc., 240 P.3d 495, 500 (Colo.Ct.App. 2010) (citations omitted). And “if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of 5

the statute.” Opening Brief at 19, quoting Wine & Spirits Wholesalers v. Colorado Dep't of Revenue, Liquor Enforcement Div., 919 P.2d 894, 897 (Colo.Ct.App. 1996), which cites Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984). 3. The Secretary incorrectly omitted any reference to the full Chevron standard for judicial review of administrative actions. Nevertheless, in quoting Wine & Spirits Wholesalers, supra, the Secretary omitted important language, which sets forth the first test contained in the wellknown Chevron standard for judicial review of agency actions. When a court reviews an agency's construction of the statute which it administers, it is confronted with two questions. First, always, is the question whether [the legislature] has directly spoken to the precise question at issue. If the intent of [the legislature] is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of [the legislature]. Id. The trial court specifically took note of and applied the complete Chevron/Wine & Spirits Wholesalers standard, and it was correct to do so. Order, CD page 387. The second test applies where the statute is silent or ambiguous about a given topic. This standard was the only portion of the Chevron test the Secretary raised for this Court. Opening Brief at 19. The failure to point to the first Chevron standard is error. If the legislature has spoken to the issue on which the Secretary now attempts to craft regulations, his 6

exercise of authority is unwarranted and unlawful. This inquiry must be the first issue this Court addresses as to each of the rules in question. 4. The Secretary incorrectly omitted any reference to the judicial review provisions in the Administrative Procedure Act. Campaign finance rules must comply with the Administrative Procedure Act (“APA”), as the Constitution requires that these rules be adopted “in accordance with article 4 of title 24, C.R.S.” Colo. Const., art. XXVIII, § 9(1)(b). As such, these rules cannot exceed the scope of, or conflict with, the agency’s organic source of authority. “Every rule must be within the power delegated to the agency and as authorized by law…. Any rule or amendment to an existing rule issued by any agency which conflicts with a statute shall be void.” C.R.S. § 24-4-103(8)(a). The Secretary’s discussion of the applicable standard of review fails to even note the applicability of the Administrative Procedure Act and the judicial review provisions contained therein. The APA sets forth grounds for invalidating an agency rule: the agency action is arbitrary or capricious, a denial of statutory right, contrary to constitutional right, power, privilege, or immunity, in excess of statutory jurisdiction, authority, purposes, or limitations, not in accord with the procedures or procedural limitations of this article or as otherwise required by law, an abuse or clearly unwarranted exercise of discretion, based upon findings of fact that are clearly erroneous on the whole record, unsupported by substantial evidence when the record is considered as a whole, or otherwise contrary to law. 7

C.R.S. § 24-4-106(7). In the campaign finance arena, an applicable standard of review is whether “the agency exceeded its constitutional or statutory authority or made an erroneous interpretation of law.” Colo. Common Cause & Colo. Ethics Watch v. Gessler, 2012 COA 147, P15 (Colo.Ct.App. 2012). An agency exceeds its authority when it “promulgate[s] rules that modify or contravene statutory or constitutional provisions.” Id. at P18. There, this Secretary changed the statutory definition of “issue committee” because he felt that there was a “gap” in the law because of a 10th Circuit decision. Id. at P23. He was wrong in interpreting the law to think that a gap existed and thus exceeded his authority. Id. at P27. He must be held to the same, specific, APA-based standards in this matter. The Secretary sees openings for rulemaking where the legislature has not specifically prohibited him from adopting the standards he now advocates. Under the APA, a rule is not necessarily authorized by law just because it is not expressly prohibited. “[A] rule shall not be deemed to be within the statutory authority and jurisdiction of any agency merely because such rule is not contrary to the specific provisions of a statute.” C.R.S. § 24-4-103(8)(a). After all, it is not the legislature’s job in passing a statute to provide litanies of what the Secretary may not address in his rulemaking endeavors. 8

5. The Secretary must prove that existing statutory and constitutional definitions are unconstitutional beyond a reasonable doubt. The state’s principal elections officer is arguing that validly enacted statutes and validly adopted constitutional amendments are unconstitutional. He is doing so without having met the burden imposed on anyone who makes such an assertion. Statutes are presumed to be constitutional. Mesa County Bd. of County Comm'rs v. State, 203 P.3d 519, 527 (Colo. 2009). The presumption of constitutionality disappears only if persons challenging the statute prove, beyond a reasonable doubt, the statute is unconstitutional. Id. This burden is great because invalidating the act of the elected legislature is “one of the gravest duties impressed upon the courts.” Id. The presumption of constitutionality “flows from the deference the court affords the legislature in its law making functions.” Id. (citations and internal quotation marks omitted). If a statute can be given two constructions – one that results in the statute being deemed constitutional and the other that results in the statute being deemed unconstitutional – a court must opt for the former. Buckley v. Chilcutt, 968 P.2d 112, 116 (Colo. 1998). Yet, the Secretary unilaterally found certain campaign finance provisions cannot survive without his regulatory changes – despite the fact that these statutes are presumed constitutional, the Secretary has not been sued 9

over their meaning, and there are accepted ways of construing the statutes so that they are fully compliant with the First Amendment. Unless this Court finds the Secretary established that constitutional and statutory definitions were unconstitutional beyond a reasonable doubt, it must affirm the District Court’s holding. 6. The Secretary is incorrect that his rules or legal interpretations are owed deference. The questions presented to this Court are purely matters of law, including review the Secretary’s view of various court holdings. The Secretary couches his justification for these rules as a non-discretionary mandate based on judicial precedent. The Secretary has misinterpreted various judicial holdings dealing with campaign finance matters. This Court need not defer to his legal opinions dealing with those cases. “[N]o deference is required where, as here, the underlying facts are undisputed and the issue is a matter of law…. Similarly, we are not bound by an agency's interpretation of judicial precedent.” Colo. Common Cause & Colo. Ethics Watch, supra, 2012 COA 147 at P22.

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B.

The Secretary erred in adopting Rule 1.12.3 which created a 30% expenditure threshold before an issue committee has “a major purpose” of affecting ballot issue elections. 1. Rule 28(k) certification: standard of review and citation to the record The Paladino Plaintiffs disagree with the Secretary’s statement of the

standard of review as to this issue. In addition to the general propositions addressed relating to appellate review on p. 4-10, supra, this Court should apply the complete Chevron standard, including the first test of whether the legislature has directly addressed the definition of the phrase, “a major purpose.” APA standards for review applicable to allegations concerning Rule 1.12.3 are:  An agency action is beyond delegated authority where the legislature has directly addressed the issue and the administrative rule purports to alter the legislative will. Wine & Spirits Wholesalers, supra, 919 P.2d at 897.  An agency action is arbitrary and capricious where it misapplies the governing statute. Zamarripa v. Q & T Food Stores, 929 P.2d 1332, 1337, 1343 (Colo. 1997).  An agency rule must be based upon substantial evidence presented to the rulemaking official, or stated differently, “the factual component of administrative rulemaking must be supported by the administrative 11

record.” Citizens for Free Enterprise v. Dept. of Revenue, 649 P.2d 1054, 1063 (Colo. 1982).  An agency rule cannot impinge upon the exercise of constitutional rights and privileges. Sanger, 148 P.3d at 414-18. This issue is raised in the record below at Paladino Plaintiffs’ First Amended Complaint, CD pages 149-59; Paladino Plaintiffs’ Opening Brief, CD page 236-39; Paladino Plaintiffs’ Reply Brief, CD pages 386-90. 2. Rule 1.12.3 Organizations are issue committees if they have “a major purpose” of supporting or opposing ballot issues and ballot questions. Colo. Const., art. XXVIII, § 2(10)(a)(I). In two separate cases, the Court of Appeals found “a major purpose” was not unconstitutionally vague. Cerbo, supra, 240 P.3d at 502-03; Independence Institute v. Coffman, 209 P.3d, 1130, 1139 (Colo.App. 2008). Despite a statutory definition of “a major purpose,” the Secretary's Rule 1.12 redefined “a major purpose.” Under that rule, in order to demonstrate “a pattern of conduct” that reflects “a major purpose,” an organization must spend 30% of its annual expenditures on supporting or opposing ballot measures or 30% of annual expenditures on broadcast or written communications that support or oppose ballot measures. Rule 1.12.3. The Secretary’s rule reads: 12

Rule 1.12.3 (issue committees) FOR PURPOSES OF DETERMINING WHETHER AN ISSUE COMMITTEE HAS “A MAJOR PURPOSE” UNDER ARTICLE XXVIII, SECTION 2(10)(A)(I) AND SECTION 1-45-103(12)(B)(II)(A), A DEMONSTRATED PATTERN OF CONDUCT IS ESTABLISHED BY: ANNUAL EXPENDITURES IN SUPPORT OF OR OPPOSITION TO BALLOT ISSUES OR BALLOT QUESTIONS THAT EXCEED 30% OF THE ORGANIZATION’S TOTAL SPENDING DURING THE SAME PERIOD; OR (b) PRODUCTION OR FUNDING OF WRITTEN OR BROADCAST
COMMUNICATIONS IN SUPPORT OF OR OPPOSITION TO A BALLOT ISSUE OR BALLOT QUESTION, WHERE THE PRODUCTION OR FUNDING COMPRISES MORE THAN 30% OF THE ORGANIZATION’S TOTAL SPENDING DURING A CALENDAR YEAR.

(a)

(Emphasis added.) 3. The District Court properly found that Rule 1.12.3 is invalid.

The trial court considered Plaintiffs’ arguments about why the Secretary’s redefinition of “a major purpose” was invalid. The court also considered the Secretary’s defense of this rule but found Rule 1.12 lacking in terms of the Secretary’s legal authority and the rule making record. The additional 30% requirement adds a restriction not found in the statute and not supported by the record…. Regardless of the consequences of the 30 percent requirement, its addition to the major purpose definition inappropriately modifies and contravenes an existing statute…. Moreover the revenue test clearly is at odds with the express intent of the legislature, which has enacted a definition without use of such a test. Order, CD pages 390-91 (citations omitted). 13

The Secretary questions the trial court’s analysis because it evaluated whether the rule was consistent with the voters’ intentions in adopting Article XXVIII. Opening Brief at 13, 39. The Secretary’s concerns are misplaced and are discussed at greater length below, but even if they had merit, the trial court made its legal judgment “[r]egardless of the consequences of the 30 percent requirement.” Thus, the trial court’s observations about the goals of the voters who adopted it cannot rise to the level of reversible error. 4. The General Assembly has directly addressed the meaning of “a major purpose.”

The General Assembly has defined this specific phrase. It did not, however, use the 30% figure adopted by the Secretary. As a result, this attempt to substantively add to or change the legislatively adopted test is contrary to law. The legislature codified the holdings on the meaning of “a major purpose” provided by this Court in 2008 and 2010. “A major purpose” of supporting or opposing ballot measures is established by: (a) statements in the entity's organizational documents; (b) general expenditures in support or opposition of a ballot measure; or (c) money spent to distribute communications to support or oppose a ballot measure. C.R.S. § 1-45-103(12)(b). If there had ever been any public uncertainty about the parameters of “a major purpose,” the legislature specifically clarified the law by codifying this definition. In doing so, the 14

legislature did “not… make a substantive change” to it, in light of the Independence Institute holding. C.R.S. § 1-45-103(12)(c). The Secretary's rule that carved a 30% exception to this standard was unwarranted. “[A]gency rules and regulations are invalid if inconsistent with the statute under which they are promulgated.” A & A Auto Wrecking, Inc. v. Department of Revenue, 602 P.2d 10, 11-12 (Colo.Ct.App. 1979) (striking down administrative rule that department adopted to prevent certain abuses, stating “the General Assembly has the authority to amend the statute” but department of revenue “may not do so by administrative rule or regulation”). The legislature left no room for the Secretary’s 30% idea. As the legislature enacted this statute for the purpose of formalizing the law after the appellate decisions cited above, there is no basis to assume that it also anticipated that the Secretary would add substantive elements it saw no reason to incorporate. There was no need for the 30% exception to the existing registration and reporting requirements. The legislature certainly could not have foreseen the Secretary would add any percentage threshold, much less 30%. In this way, this rule is very much like the rules at issue in Sanger v. Dennis which added to the substantive law rather than simply clarified it. 148 P.3d at 412.

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Finally, the Secretary extols clarity – the proverbial “bright line” test – as the basis for this rule and others at issue in this litigation. Opening Brief at 31; Admin. Rec., Tr. 16:25-17:2. It is equally true, however, that “a bright line can be drawn in the wrong place.” Shays v. Fed. Election Comm’n, 414 F.3d 76, 110 (D.C. Cir. 2005). Where bright lines foster non-disclosure of contributions and expenditures, as they do here, such guidelines have been drawn in the wrong place. They are directly contrary to the priorities and definitional provisions established by the voters and the Colorado General Assembly. 5. “A major purpose” is not ambiguous and thus the Secretary exceeded his lawful authority.

The Secretary maintains that “a major purpose” of an issue committee is an ambiguous phrase and thus his rule was a permissible construction of the statute. Opening Brief at 33, 36. Yet, the two Colorado appellate opinions that directly address this topic hold to the contrary. In Independence Institute, the Court found that a multi-faceted entity that spent its money on a variety of policy objectives did not have “a major purpose” of affecting ballot measures and thus was not an issue committee. 209 P.3d at 1139. In contrast, in Cerbo, a 501(c)(4) organization that was used to channel funds to a reporting issue committee (and thus hide the identity of contributors and the amounts they had contributed) and was run by the same two individuals who were 16

behind the reporting issue committee did have “a major purpose” of affecting ballot measures. As such, it was an issue committee that violated the law by refusing to disclose this information to the public. 240 P.3d at 501. In both instances, the entities alleged to be issue committees argued to this Court that “a major purpose” was ambiguous. And in both instances, this Court rejected that argument. Id.; 209 P.3d at 1139. The Secretary argues that because the two cases had different results (the Cerbo court overturned the ALJ whereas the Independence Institute court endorsed her findings), the “major purpose” requirement is “difficult to apply in practice.” Opening Brief at 31. Further, he insists that the tests developed by this Court “fail to provide adequate guidance to the public,” and the legislature's codification of that test “does not resolve the ambiguity.” Id. at 33. But the Secretary simply cannot preempt this Court and the General Assembly, which is what his formulation of the 30% standard attempts to do. He has no authority to displace two other branches of government. There are limits on the ability of a secretary of state to mold campaign finance law in his own manner. Sanger, supra, 148 P.3d at 412. Even before this test was developed by this Court and embraced by the legislature, at least one of his predecessors expressly came to the opposite 17

conclusion and argued as much to this Court. In Independence Institute, supra, “[Secretary of State] Coffman argues, and we agree, that the phrase ‘a major purpose,’ is not inherently vague.” 209 P.3d at 1139 (emphasis added). This about-face in the policy of that office is meaningful: as a result of it, Secretary Gessler's construction is owed no deference whatsoever. Non-uniform interpretations of law by successive secretaries of state make the general principle of deferring “to [the secretary's] administrative interpretations of a statutory scheme… simply inapplicable.” Colo. Common Cause v. Meyer, 758 P.2d 153, 159 (Colo. 1988). As such, the Secretary’s position in this appeal carries no weight, particularly given that it flies in the face of the agreed-upon position arrived at by the judicial and legislative branches of government. 6. The 30% test is arbitrary and capricious and not based on substantial evidence in the record.

This 30% threshold is found nowhere in the Constitution or the campaign finance statutes and thus violates the APA prohibition on rulemaking in excess of an agency’s delegated authority. C.R.S. § 24-4-103(8)(a). The Secretary justifies that percentage because it is lower than the 50% threshold for political committees. Opening Brief at 35. Of course, the same could be said for forty-nine other percentages. Why 30%? Why not 15%? Or 45%?

18

Picking a number out of the air is the very essence of arbitrariness. A rule making official’s choice of a percentage figure is justifiable only if it reflects an agency’s long-standing practice, its express statutory authority, or specific testimony at the rule making proceeding. Regular Route Common Carrier Conference of Colorado Motor Carriers Ass’n. v. Public Utilities Comm’n, 761 P.2d 737, 752 (Colo. 1988) (PUC capped rates charged by certain contract carriers of commodities at no more than 20% greater than the rate charged by common carriers). In light of these factors, an agency regulation cannot be the function of the rulemaking official’s whim. The 30% figure certainly does not reflect the secretary of state’s longstanding practice. The Secretary does not and cannot argue that 30% is reflected in the express statutory authority relating to issue committees. And there is an absence of substantial evidence in the record to document why 30%, as opposed to any other percentage, would represent a well-considered policy decision. See Admin. Rec., Tr. 62:12-63:3 (30% is problematic for small, grassroots organizations); 114:18-19 (50% better than 30%); see Admin. Rec. at Tabs 11 and 24 (30% test allows for concealment of reportable expenditures). The trial court correctly determined that the Secretary's enactment of Rule 1.12.3 violated the APA. 19

7.

The 30% test is inconsistent with the rights and privileges accorded to plaintiffs under the Constitution.

Article XXVIII is explicit about the purposes of campaign finance regulation. Committee registration and reporting of contribution and expenditure information was intended to ensure timely disclosure about campaign funding sources. Colo. Const., art. XXVIII, sec. 1. The Paladino Plaintiffs’ need for that information was addressed at length below, Paladino Plaintiffs’ Opening Brief, CD pages 221-24, and is unquestioned by the Secretary. That disclosure is frustrated if entities operating as issue committees have no reporting obligation at all in connection with the first 30% of their expenditures that urge voters to support or oppose ballot measures or if certain entities advocate for the passage or defeat of a ballot measure but keep their expenditures at 29.99% of annual revenue. The Secretary states that the District Court exceeded its authority by assessing voter intent in evaluating these rules. The lower court looked to the objectives to be achieved or the mischief to be avoided by the enactment of the ballot measure resulting in the adoption of Article XXVIII. Order, CD page 390. Yet, that is precisely the methodology used by the Court of Appeals in evaluating another campaign finance rule. In 2006, the then-secretary of state adopted a rule defining “member” as it applied to organizations that were permitted by law to contribute to political entities. That regulation imposed a 20

requirement that was not provided by law in order for a person to qualify as a member. In part, this Court looked to the representations made to the voters when they enacted Article XXVIII (dealing with campaign finance) in the Colorado Constitution. Sanger, supra, 148 P.3d at 413. Thus, courts can and do review the analysis that is sent to voters prior to an election – the so-called “Blue Book” – to determine what considerations were before the voters. While not binding, this document provides useful legislative history behind initiated provisions of law. Id. Therefore, the adoption of Rule 1.12 was in violation of the rights and privileges granted by the Constitution – here, to disclosure of information about campaigns that seek to change our Constitution or statutes. As such, it violated the APA. C. The Secretary erred in adopting Rule 1.18.2 which imposed “the major purpose” test for political committees that support or oppose the election of state and local candidates and limits the way “the major purpose” can be established. 1. Rule 28(k) certification: standard of review and citation to the record The Paladino Plaintiffs disagree with the Secretary’s statement of the standard of review as to this issue. In addition to the general propositions addressed relating to appellate review on p. 4-10, supra, this Court should apply the complete Chevron standard, including the first test of whether the legislature

21

has addressed the definition of the phrase, “political committee.” APA standards for review applicable to allegations concerning Rule 1.18.2 are:  An agency action is beyond delegated authority where the legislature has directly addressed the issue and the administrative rule purports to alter the legislative will. Wine & Spirits Wholesalers, supra, 919 P.2d at 897.  An agency action is arbitrary and capricious where it misapplies the governing statute. Zamarripa, supra, 929 P.2d at 1337 and 1343. This issue was raised in the record below at Paladino Plaintiffs’ First Amended Complaint, CD pages 148, 153-59; Paladino Plaintiffs’ Opening Brief, CD pages 240-41; Paladino Plaintiffs’ Reply Brief, CD pages 342-46. 2. Rule 1.18.2 A “political committee” is defined by law as any person (other than a natural person) or any group of persons “that accept or make contributions or expenditures in excess of $200 to support or oppose the nomination or election of one or more candidates.” Colo. Const., art. XXVIII, sec. 2(12)(a); adopted by C.R.S. § 1-45103(14). In one instance, this definition was determined to be unconstitutional on an as-applied basis. Colo. Right to Life Comm., Inc. v. Coffman, 498 F.3d 1137, 1152 (10th Cir. Colo. 2007) (hereafter “CRLC”). In no other instance has any 22

court, state or federal, held that this definition is facially unconstitutional. In fact, the CRLC court was presented with that question and refused to hold it unconstitutional on a facial basis. Id. at 1156 (“we cannot say that in every application § 2(12) will be unconstitutional”). The Secretary enacted Rule 1.18.2 that: (1) added “the major purpose” requirement to the constitutional and statutory definitions of political committee; and (2) restricted the means for determining “the major purpose” of an entity to either statements in its organizational documents about supporting or opposing candidates or a showing that the entity dedicated “a majority of the organization’s total spending” – calculated as a function of its “annual expenditures” – to supporting or opposing candidates. The Secretary’s rule reads: Rule 1.18.2 (political committees) “POLITICAL COMMITTEE” INCLUDES ONLY A PERSON OR GROUP OF
PERSONS THAT SUPPORT OR OPPOSE THE NOMINATION OR ELECTION OF ONE OR MORE CANDIDATES AS ITS MAJOR PURPOSE. FOR PURPOSES OF THIS RULE, [“]MAJOR PURPOSE[”] MEANS:

(a) THE ORGANIZATION SPECIFICALLY IDENTIFIES SUPPORTING OR
OPPOSING THE NOMINATION OF ONE OR MORE CANDIDATES FOR STATE OR LOCAL PUBLIC OFFICE AS A PRIMARY OBJECTIVE IN ITS ORGANIZING DOCUMENTS; OR

(b) ANNUAL EXPENDITURES TO SUPPORT OR OPPOSE THE NOMINATION OR
ELECTION OF ONE OR MORE CANDIDATES FOR STATE OR LOCAL PUBLIC

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OFFICE ARE A MAJORITY OF THE ORGANIZATION’S TOTAL SPENDING DURING THE SAME PERIOD.

(Emphasis added.) 3. The District Court properly found that Rule 1.18.2 is invalid.

No Colorado court has ruled Article XXVIII is facially deficient because it did not include “the major purpose” in the definition of “political committee.” The trial court was correct when it decided the question of whether to include such language in the definition of “political committee” is one for the legislature or the voters. “Because the Rule 1.18.2’s limitation is contrary to the intent of Art. XXVIII § 2(12)(a) as passed by the citizens of Colorado, the Secretary cannot read the ‘major purpose’ limitation into the definition. Doing so would result in the addition of a new, strict, limitation into Section 2(12)(a).” Order, CD pages 39091. Similarly, there is no basis in law to restrict the ways in which “the major purpose” to an organization’s statement of purpose or a tracking of expenditure patterns. As addressed below, there are certainly circumstances where the definition, as written, will be constitutional. A facial challenge under First Amendment must show that law is unconstitutional in all of its applications. See Dallman v. Ritter, 225 P.3d 610, 625 (Colo. 2010). As such, the Secretary “exceed[ed] his delegated authority,” and Rule 1.18.2 was void. Order, CD pages 391-92. 24

4.

The voters and the General Assembly have directly addressed the meaning of “political committee.”

As noted above, the Constitution specifically defines “political committee,” and the statutes embrace this definition exactly as it appears in Article XXVIII. Colo. Const., art. XXVIII, sec. 2(12)(a); adopted by C.R.S. § 1-45-103(14). Ten legislative sessions have passed since Article XXVIII was adopted at the 2002 election. At no point has the General Assembly seen fit to engraft “the major purpose” onto the constitutional/statutory definition of “political committee.” See id. Likewise, five general elections have passed since Article XXVIII was adopted by the voters. Ballot measures addressing campaign finance were before the voters in 2008 (Amendment 54, prohibiting contributions by defined “sole source government contractors”) and 2012 (Amendment 65, seeking Congressional approval of constitutional amendment to reverse Citizens United v. FEC, 130 S.Ct. 876 (2010)). Neither measure changed the definition of “political committee.” Amendment 54 restricted the operation of certain political committees associated with “sole source government contractors.” Dallman, supra, 225 P.3d at 634 (addressing unconstitutional limits on labor organizations’ political committees). But voters did not change the definition of “political committee” while they were addressing the workings of those committees. See id. at 636-38. This is critical. 25

Voters, like legislators, are presumed to know the law they are amending and are presumed to have omitted key phrases deliberately. Common Sense Alliance v. Davidson, 995 P.2d 748, 754 (Colo. 2000). One reason for this reluctance by the legislature and the electorate may be found in a close reading of the Secretary’s Opening Brief and case law cited therein. On page 46 of that brief, the Secretary cites Nat’l Org. for Marriage v. McKee, 649 F.3d 34 (1st Cir. 2011.) That opinion expressly approved regulation of political committees that did not have “the major purpose” of supporting or opposing candidates. In fact, the entities required to disclose their contributions and expenditures were referred to in statute as “non-major purpose political committees.” Id. at 52 (emphasis added). The trial court in this matter knew of that case and its holding. Paladino Plaintiffs’ Reply Brief, CD pages 343, n.2.1 Given the Secretary’s concession that McKee is important for the Court’s consideration of this appeal, this Court should consider this aspect of the First Circuit’s decision as well.

Other circuits are in sync with the decision cited by the Secretary to this Court. See Ctr. for Individual Freedom v. Madigan, 2012 U.S. App. LEXIS 18956, 53-67 (7th Cir. Ill. Sept. 10, 2012); Human Life of Wash. Inc. v. Brumsickle, 624 F.3d 990, 1009-10 (9th Cir. 2010).
1

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5.

Rule 1.18.2 exceeds the Secretary’s delegated authority.

As the lower court found, this rule goes far beyond what the voters and the legislature intended for the political committee definition to address. There are numerous instances of application of the existing definition that have not violated the First Amendment. See, e.g., Colo. Ethics Watch v. Clear the Bench Colo., 2012 COA 42, P29 (Colo.Ct.App. 2012) (respondent committee “accepted contributions and made expenditures of over $200 to oppose the retention of three justices of the Colorado Supreme Court. It is, therefore, a political committee.”); Colo. Citizens for Ethics in Gov't v. Comm. for the Am. Dream, 187 P.3d 1207, 1217 (Colo.Ct.App. 2008) (expanding disclosure responsibilities of political committees whose ads expressly advocated the election of candidates for state legislature). The Secretary has failed to establish that the existing political committee definition is unconstitutional beyond a reasonable doubt. There is no question that it can be applied in many situations without triggering his concerns. The decision of Alliance for Colorado’s Families v. Gilbert, 172 P.3d 964 (Colo.Ct.App. 2007) does not alter this conclusion. There, the ALJ failed to make any factual findings that would allow an appellate court to determine whether an entity was committed to “express advocacy” of candidates, given a single brochure that used such language at the end of the campaign. In essence, the question before 27

the Court was whether a single instance of such direct candidate advocacy – 2% of its entire budget – meant that ACF had violated the law. Id. at 966. That decision did not provide mandatory precedent for Rule 1.18.2 as suggested by the Secretary.2 Actually, this Court noted the impact of Gilbert. The presumption stemming from it is not that this provision of the Colorado Constitution violates the First Amendment. The issue is how the “political committee” definition is applied without violating the Constitution. See Taxpayers for Pub. Educ. v. Douglas County Sch. Dist., 2013 COA 20, P73 n.17 (Colo.Ct.App. 2013), citing Gilbert. Thus, the Secretary’s law-making was unwarranted and beyond his legal capacity to act. 6. Rule 1.18.2 is arbitrary and capricious.

As the McKee decision points out, a “major purpose” test for political committees of the sort advocated here in the form of Rule 1.18.2 would “yield perverse results.” 649 F.3d at 59. [A] small group with the major purpose of re-electing a Maine state representative that spends $1,500 for ads could be required to register as a PAC. But a mega-group that spends $1,500,000 [out of a larger The Secretary relies on the Tenth Circuit’s decision in CRLC for this same purpose. Of course, no Colorado state court is bound by decisions of any federal court, other than the U.S. Supreme Court. Carter v. Brighton Ford, Inc., 251 P.3d 1179, 1182 (Colo.Ct.App. 2010).
2

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budget] to defeat the same candidate would not have to register because the defeat of that candidate could not be considered the corporation's major purpose. Id. (citing district court decision). Similarly, “a national organization might have the major purpose of advancing candidates for state office in every state, but could avoid registering as a PAC in any particular state” because it did not have “the major purpose” of affecting elections in any one of them. Vt. Right to Life Comm., Inc. v. Sorrell, 875 F. Supp. 2d 376, 395 (D. Vt. 2012) (upholding state statute that omitted “the major purpose” from its definition of political committee; disclosure of “contributions” and “expenditures” was defined, as they are in Colorado, to apply solely to campaign related funds). In that vein, Colorado voters prioritized “full and timely disclosure of campaign contributions” and “strong enforcement of campaign finance requirements” when they enacted Article XXVIII. Disparate treatment of large and small entities involved in the same election is inherently inconsistent with that goal. Colo. Const., art. XXVIII, sec. 1. 7. Limiting the considerations by which an entity’s purpose could be established was arbitrary and capricious. The Secretary adopted a two-prong test for political committees in adopting Rule 1.18.2. Under that rule, an entity could become a political committee based only on:

29

(1) examination of the organization’s central organizational purpose; or (2) comparison of the organization’s independent spending with overall spending to determinate whether the preponderance of expenditures are for express advocacy or contributions to candidates. Opening Brief at 26, citing CRLC, supra, 498 F.3d at 1152, and Fed. Election Comm’n. v. Mass. Citizens for Life, Inc., 479 U.S. 238, 252 n.6 (1986) (hereafter “MCFL”). MCFL’s discussion about when entities might become political committees is dicta. MCFL was not a political action committee; the question of what threshold must be passed by an entity that accepts contributions and makes expenditures in order to donate to other candidates was not before the Court. The Real Truth About Abortion, Inc. v. Fed. Election Comm’n, 2012 U.S. App. LEXIS 11890 at 35 (4th Cir. 2012). The MCFL holding “does not… make consideration of any other factors improper,” and neither MCFL nor its progeny “foreclose the (Secretary) from using a more comprehensive methodology.” Id. at 36, 37. Thus, the Secretary’s concern that the First Amendment tied his hands and required the approach taken in Rule 1.18.2 is incorrect as a matter of law. In truth, these two tests in Rule 1.18.2 are anything but constitutionally mandated. As the Tenth Circuit observed, “In MCFL, the Court suggested two methods to determine an organization’s ‘major purpose.’” CRLC, supra, 498 F.3d at 1152 (emphasis added). Contrary to the Secretary’s contention, this two-fold 30

approach is not the constitutionally required method of assessing whether “the major purpose” test was met. a. The “organizational statement” test is arbitrary and capricious.

Statements by a group in documents filed with the Secretary can be untrustworthy if used to determine whether such entities are subject to campaign finance limits and disclosure laws. To rely on such representations “would permit regulable conduct to escape regulation merely because the stated purposes were misleading, ambiguous, fraudulent, or all three. In addition, such a holding would exalt form over substance and would almost entirely eviscerate the Act and make a mockery of a legitimate attempt at campaign finance reform.” League of Women Voters of State v. Davidson, 23 P.3d 1266, 1277 (Colo.Ct.App. 2001). An entity that wants to avoid regulation will simply make its statement of purpose so obsequious as to be uninformative altogether. b. The “majority of expenditures” test is arbitrary and capricious.

Of course, MCFL did not actually hold that an entity had to expend the majority of its funds in order to have “the major purpose” of affecting election outcomes. The Supreme Court’s observation in this regard was fairly limited: “should MCFL's independent spending become so extensive that the organization's major purpose may be regarded as campaign activity, the corporation would be 31

classified as a political committee.” Id. at 262 (emphasis added). “So extensive” is a relative term; it is certainly not synonymous with “a majority.” Even if the quoted language from CRLC applies here, “preponderance of expenditures” does not necessarily mean 51% of the dollars spent, as the Secretary assumes. “Preponderance” goes to the impact of the activity and is defined to mean, “Superiority in weight, importance, or influence.” Black’s Law Dictionary 1220 (8th ed. 2004); cf. Jachetta v. Milano, 362 P.2d 1065, 1006 (Colo. 1961) (“preponderance” of the evidence is not a matter of which party presents a majority of witnesses but of the weight given to admitted testimony). “The major purpose” is thus an evaluation of the organization’s candidate-related spending in terms of its overall mission, and that relative importance will not revolve around whether candidate-related expenditures reflect 49.99% of an annual budget or 50.01%. Thus, neither prong of “the major purpose” test was warranted as a matter of law. D. The Secretary erred in creating the “major purpose” test for entities known as “political organizations” and further erred in subjecting those entities to registration and reporting requirements only if that engage in “express advocacy.” “Electioneering communications” seek to influence elections without calling for voters to vote for or against a named candidate. See Colo. Const., art. XXVIII, sec. 1, 2(7)(a). Under Article XXVIII, the voters have called for “fully and timely 32

disclosure of… funding of electioneering communications.” Id., sec. 1. Groups paying for these ads, including “political organizations,” have specific disclosure responsibilities, including the reporting of the group’s spending and the name of anyone who contributes $250 or more, his address, his occupation, and his employer. Id., sec. 6(a). 1. Rule 28(k) certification: standard of review and citation to the record The Paladino Plaintiffs disagree with the Secretary’s statement of the standard of review as to this issue. In addition to the general propositions addressed relating to appellate review on p. 4-10, supra, this Court should apply the complete Chevron standard, including the first test of whether the legislature has addressed the definition of the phrases, “political organization.” Similarly, standards for appellate review contained in the APA are applicable here as well.  An agency action is beyond delegated authority where the legislature has directly addressed the issue and the administrative rule purports to alter the legislative will. Wine & Spirits Wholesalers, supra, 919 P.2d at 897.  An agency action is arbitrary and capricious where it misapplies the governing statute. Zamarripa, supra, 929 P.2d at 1337 and 1343.

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 An agency action is contrary to statute or the constitution “where the agency interpretation is inconsistent with the clear language… or with legislative intent.” C.P. Bedrock, LLC v. Denver County Bd. of Equalization, 259 P.3d 514, 517 (Colo.Ct.App. 2011). This issue was raised in the record below at Paladino Plaintiffs’ First Amended Complaint, CD pages 148-49, 153-59; Paladino Plaintiffs’ Opening Brief, CD page 241-48; Paladino Plaintiffs’ Reply Brief, CD pages 347-54. 2. Rules 1.10 and 7.2.1 The Secretary’s rule amendments address organizations that seek to influence elections by distributing political materials known as “electioneering communications.” Colo. Const., art. XXVIII, sec. 2(7). The entities that transmit these ads are “political organizations,” a term that has been defined by the legislature. C.R.S. § 1-45-103(14.5). Notwithstanding that definition, the Secretary imposed a “major purpose” test on such entities and also limited their susceptibility to disclosure requirements by requiring that they engage in “express advocacy” of candidates. Rule 7.2.1 (political organizations) FOR PURPOSES OF SECTION 1-45-108.5, C.R.S., AN ENTITY IS CONSIDERED A POLITICAL ORGANIZATION ONLY IF [IT]: 34

(A) HAS AS ITS MAJOR PURPOSE INFLUENCING OR ATTEMPTING TO INFLUENCE ELECTIONS AS DEFINED IN RULE 1.10; AND (B) IS EXEMPT, OR INTENDS TO SEEK EXEMPTION, FROM TAXATION BY THE INTERNAL REVENUE SERVICE. Rule 1.10 “INFLUENCING OR ATTEMPTING TO INFLUENCE”, FOR PURPOSES OF POLITICAL ORGANIZATIONS AS DEFINED IN SECTION 1-45-103(14.5), C.R.S. MEANS MAKING EXPENDITURES FOR COMMUNICATIONS THAT
EXPRESSLY ADVOCATE THE ELECTION OR DEFEAT OF A CLEARLY IDENTIFIED CANDIDATE OR CANDIDATES.

(Emphasis added.) “Express advocacy” is often referred to certain “magic words”: “vote for,” “elect,” “support,” “cast your ballot for,” “Smith for Congress,” “vote against,” “defeat,” and “reject.” In Colorado, express advocacy also includes any word or phrase that is substantially synonymous to the listed magic words. Colo. Ethics Watch v. Senate Majority Fund, LLC, 2012 CO 12, P25 (Colo. 2012). 3. The district court properly invalidated Rules 1.10 and 7.2. The district found that the Secretary exceeded his legal authority, transforming “political organizations” into “political committees.” [T]he Secretary’s rules improperly narrow the definition of “political organization.” Under the statute, it is an organization that “is engaged in” influencing elections or appointments of individuals to public office. Under Rule 7.2.1, this is narrowed to organizations with a “major purpose” in influencing elections. Rule 1.10 further narrows the definition to groups which “expressly advocate” for or against candidates. These narrowing rules effectively eliminate distinctions between “political organization” and “political committee.” Political committees, subject to a constitutional contribution reporting limit of $200, could switch to a “political organization” and avoid this 35

restriction under the challenged rules. Such a result is contrary to the clear terms of the statute and the intent of the legislature…. He thus has exceeded his delegated authority under C.R.S. § 24-4-103(8)(a). Order, CD pages 392-93. These rule changes would have insulated large amounts of spending in candidate campaigns from any disclosure to voters if either of two conditions was met: (1) the entities could assert that their major purpose was not to influence elections; or (2) they did not tell voters how to cast their ballots (i.e., use “express advocacy”) but still discussed candidates, their qualifications, their backgrounds, or their election-related viewpoints. 4. The General Assembly specifically defined “political organization.”

After the proliferation of electioneering communications, the General Assembly defined the entities that were required to report such spending and specifically defined them: “Political organization” means a political organization defined in section 527 (e) (1) of the federal “Internal Revenue Code of 1986”, as amended, that is engaged in influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any state or local public office in the state and that is exempt, or intends to seek any exemption, from taxation pursuant to section 527 of the internal revenue code. C.R.S. § 1-45-103(14.5). This definition, adopted in the wake of the 2006 election, has been applied in the 2008, 2010, and 2012 election cycles without being challenged. Only the Secretary seems to find it lacking. 36

5.

Rule 7.2.1 exceeds the Secretary’s delegated authority and is arbitrary and capricious, as the statute does not require that political organizations have the “major purpose” of influencing elections.

Rule 7.2.1 provides that an entity is a “political organization” only if “its major purpose” is influencing or attempting to influence a state or local election. The Secretary attempts to justify this addition to the existing regulation by suggesting that the Internal Revenue Code requires that an entity organized under Section 527 be “organized and operated primarily for the purpose of” influencing elections. Opening Brief at 42. According to the Secretary, “Rule 7.2, in requiring a political organization to have ‘as its major purpose influencing or attempting to influence elections,’ does nothing more than incorporate the ‘primary purpose’ requirement of § 527.” Id. As the District Court pointed out, though, the statutory definition of “political organization” does not look to the purpose of the entity; it looks to the actual activities of the entity. The question under the statute is whether an entity “is engaged in influencing elections or appointments of individuals to public office.” Order, CD page 393 (emphasis added). The legislature decided that it was more important to look at what an organization was actually doing than what it claimed it would do in the future. And interestingly, while the Secretary has gone to great length to specify what “major purpose” means for issue committees and 37

political committees (referencing organizational documents and expenditure patterns), he provided no such yardsticks of establishing the major purpose of political organizations. Thus, the Secretary was arbitrary and capricious in adopting Rule 7.2.1. 6. Rule 1.10’s requirement that entities dedicated to “influencing or attempting to influence” engage in express advocacy exceeds the Secretary’s delegated authority and is arbitrary and capricious.

The Secretary argues that Colorado’s statute requiring disclosure by political organizations, because it refers to the purpose of such organizations as “influencing or attempting to influence” elections, is unconstitutional. He states this phrase, under Buckley, is impermissibly vague and requires a narrowing construction. Opening Brief at 45-47. That construction resulted in his adoption of Rule 1.10, which states that “influencing or attempting to influence” an election occurs only where there is “express advocacy” of candidates. a. Disclosure by political organizations is not dependent on their use of “express advocacy.”

The Secretary argues that “influencing or attempting to influence” is constitutional because only express advocacy provides a narrowing construction to save this phrase as a matter of constitutional law. Rule 1.10 “incorporates the ‘express advocacy’ standard into the ambiguous phrase ‘influencing or attempting

38

to influence,’ using language from Buckley to avoid the phrase’s constitutional problems.” Opening Brief at 45. However, Colorado only requires political organizations to disclose where their money comes from and how they spend it. It does not, for instance, limit the amount of contributions a political organization can receive. As to disclosure responsibilities, the Secretary’s concerns fall flat. Eight justices agreed, in the context of Citizens United, that “disclosure is a less restrictive alternative to more comprehensive regulations of speech…. [W]e reject Citizens United's contention that the disclosure requirements must be limited to speech that is the functional equivalent of express advocacy.” Citizens United, 130 S.Ct. at 915. This priority on disclosure was in high relief in that case. The nonprofit corporation, Citizens United, was not only contesting the disclosure requirements as applied to its movie; it also challenged disclosure as to the advertisements that sought to convince viewers to watch the movie. “Even if the ads only pertain to a commercial transaction, the public has an interest in knowing who is speaking about a candidate shortly before an election.” Id. As such, the informational interest justified both disclaimers and disclosure as to both the movies and the ads. Reportable expenditures on electioneering communications clearly did not have to contain express advocacy. In fact, disclosure requirements have been upheld “for 39

all electioneering communications – including those that are not the functional equivalent of express advocacy.” The Real Truth About Abortion, supra, at 18 (emphasis in original). b. The “functional equivalent of express advocacy” is a sufficient narrowing construction to preserve the current level of disclosure of spending on electioneering communications by political organizations.

The Secretary’s reliance on Buckley is absolute, which is part of the problem. As he points out, that opinion was issued “nearly forty years ago.” Opening Brief at 44. The courts have moved away from the need to use “express advocacy” as the only curative narrowing construction under the First Amendment. Instead, appropriate narrowing constructions for “influence” can either be “express advocacy” or the “functional equivalent of express advocacy,” which is defined as being “susceptible of no reasonable interpretation other than to promote or oppose” a candidate. FEC v. Wis. Right to Life, Inc., 551 U.S. 449, 470 (2007); Nat'l Org. for Marriage, supra, 649 F.3d at 66-67. After Citizens United, it is not credible to argue that “the functional equivalent of express advocacy” cannot insulate a disclosure provision from constitutional attack. “[T]he Supreme Court has explicitly rejected an attempt to ‘import [the] distinction’ between issue and express advocacy into the consideration of disclosure requirements.” Id. at 54 (citation omitted). 40

Thus, there is no constitutional basis for looking solely to Buckley as the polestar for analyzing these issues. “Buckley's narrowing interpretation of the phrase ‘for the purpose of influencing’ ‘was the product of statutory interpretation rather than a constitutional command.’” Nat'l Org. for Marriage, supra, 649 F.3d at 73, citing McConnell v. Fed. Election Comm’n, 540 U.S. 93, 102 (2003); accord, Ctr. for Individual Freedom, supra, 697 F.3d at 487. c. Under these rules, Citizens United would not apply in Colorado.

The ultimate irony in the Secretary’s position is that the very spending that was at the heart of Citizens United would not be disclosed under Rules 7.2.1 and 1.10. Hillary: The Movie, was an electioneering communication. So, too, were the ads, which included “pejorative” references to then-former Senator Hillary Clinton, that promoted the movie. 130 S.Ct. at 887, 889-90, 914-15. Neither the movie nor the ads used the “magic words” or any terms or phrases that were substantially synonymous. Nevertheless, because money is spent on this manner of politically influential speech, disclosure is an entirely appropriate requirement. “The Government may regulate corporate political speech through disclaimer and disclosure requirements, but it may not suppress that speech altogether.” Id. at 887.

41

In contrast, under Rule 1.10, there would be no disclosure at all if the movie were shown in Colorado, addressing a candidate for state or local office, because it did not use words of express advocacy. Put differently, the First Amendment as applied by the United States Supreme Court is lenient enough to allow both the showing of Hillary as well as disclosure of the funding behind it. But as applied by the Secretary, the First Amendment only allows an electioneering communication to be broadcast; it is not elastic enough to permit the public to know who is behind it. The Secretary tilts toward non-disclosure when the United States Supreme Court has expressly approved it. See Dallman, supra, 225 P.3d at 622 (acknowledging that Citizens United addressed both expenditure limits and disclosure requirements and applies in Colorado). There is no justification for applying Citizens United in all federal elections and the elections of all states – except Colorado. The departure of Rules 7.2.1 and 1.10 depart from Citizens United is plainly irrational. d. Rules 1.10 and 7.2.1 contravene voter intent.

The Secretary argues that his rule will not have a significant impact on the amount of political spending that is disclosed. SOS Ans.Br. at 33, 35. He disagrees with Plaintiffs that a great deal of political spending by political organizations will go unreported because of Rules 7.2.1 and 1.10. 42

There is no question that, prior to the enactment of Article XXVIII and its federal counterpart, the greatest part of political advertising fell in the non-express advocacy realm. “It is undisputed that very few ads – whether run by candidates, parties, or interest groups – used words of express advocacy…. In the 1998 election cycle, just 4% of candidate advertisements used magic words; in 2000, that number was a mere 5%.” McConnell, supra, 540 U.S. at 128 n.18. This statistical dichotomy was attributable to two facts: (1) ads that avoided the use of express advocacy were deemed more effective; and (2) disclosure of donors and amounts expended could, at that time, be avoided for ads that omitted express advocacy. Id. at 127-28 (“campaign professionals testified that the most effective campaign ads… should, and did, avoid the use of the magic words” and such ads “were attractive to organizations and candidates precisely because they were beyond FECA (Federal Election Campaign Act's reach”). It is simply not credible for the Secretary to suggest that his revised Rules 7.2.1 and 1.10 will have no effect on the amount of public reporting. A return to the pre-Article XXVIII era of non-reporting of electioneering communications could mean that 95% of political spending – ads that make their points without expressly advocating the election or defeat of a candidate – would be unreported. This result is flatly inconsistent with the goal of maximizing disclosure and is an 43

unauthorized use of the Secretary’s rule making power to undermine the operation of Article XXVIII. CONCLUSION The District Court correctly assessed and invalidated these rules. The Secretary’s departure from his predecessors and from judicial precedent was unwarranted. This Court should affirm that decision.

44

Respectfully submitted this 8th day of March, 2013.

HEIZER PAUL GRUESKIN LLP

By: s/Mark G. Grueskin Attorneys for Paladino Plaintiffs-Appellees

CERTIFICATE OF SERVICE The undersigned hereby certifies that on the 8th day of March, 2013, a true and correct copy of PALADINO PLAINTIFFS-APPELLEES’ ANSWER BRIEF was filed and served via LexisNexis File & Serve to the following: Luis Toro Margaret Perl Colorado Ethics Watch 1630 Welton Street, Suite 415 Denver, CO 80202 Email: ltoro@coloradoforethics.org pperl@coloradoforethics.org Attorneys for Plaintiff-Appellee/Cross-Appellant Colorado Ethics Watch Jennifer H. Hunt Hill & Robbins, P.C. 1441 18th Street, Suite 100 Denver, CO 80202-1256 Email: jhunt@hillandrobbins.com Attorney for Plaintiff-Appellee/Cross-Appellant Colorado Common Cause Leeann Morrill, First Assistant Attorney General Frederick R. Yarger, Assistant Solicitor General Matt D. Grove, Assistant Attorney General Office of the Colorado Attorney General 1300 Broadway, 10th Floor Denver, CO 80203 Email: leeann.morrill@state.co.us; fred.yarger@state.co.us; matt.grove@state.co.us Attorneys for Defendant-Appellant/Cross-Appellee Scott Gessler s/Amy Knight
In accordance with C.A.R. 30(f), a printed copy of this document with original signatures is being maintained by the filing party and will be made available for inspection by other parties or the Court upon request.

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