COLORADO COURT OF APPEALS 2 East 14th Avenue Denver, CO 80203 District Court, City and County of Denver Honorable

J. Eric Elliff, Judge Case No. 2012 CV 2133 (consolidated with 2012 CV 2153) Defendant/Appellant/Cross-Appellee: SCOTT GESSLER, in his official capacity as Secretary of State for the State of Colorado, v. Plaintiffs/Appellees/Cross-Appellants: COLORADO ETHICS WATCH and COLORADO COMMON CAUSE and Plaintiffs/Appellees: DAVID PALADINO; MICHAEL CERBO; PRO-CHOICE COLORADO PAC; PPRM BALLOT ISSUE COMMITTEE; and CITIZENS FOR INTEGRITY, INC. JOHN W. SUTHERS, Attorney General LEEANN MORRILL, First Assistant Attorney General FREDERICK R. YARGER, Assistant Solicitor General, Reg. No. 39479* MATTHEW D. GROVE, Assistant Attorney General, Reg. No. 34269* 1300 Broadway, 10th Floor Denver, Colorado 80203 Telephone: (720) 508-6551 E-Mail: fred.yarger@state.co.us; matt.grove@state.co.us *Counsel of Record

COURT USE ONLY Case No. 12 CA 1712

Opening Brief of Appellant / Cross-Appellee Colorado Secretary of State

Certificate of Compliance This brief complies with the requirements of C.A.R. 28 and C.A.R. 32, including all formatting requirements. Specifically, I certify the following: The brief complies with C.A.R. 28(g) because  It contains 9,144 words. o It does not exceed 30 pages. o The brief does not comply with CAR 28(g) because it exceeds the word and/or page limit. A motion to accept the over length brief has been filed contemporaneously with the brief. The brief complies with C.A.R. 28(k) because,  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. /s/ Frederick R. Yarger Frederick R. Yarger

TABLE OF CONTENTS PAGE Introduction ................................................................................................ 1  Issues on Appeal ......................................................................................... 2  Statement of the Case and Facts ............................................................... 3  A.  The Secretary’s rulemaking effort. ..................................................3  B.  Plaintiffs’ lawsuit...............................................................................6  C.  The decision below.............................................................................7  D.  The Secretary’s request for a stay and the parties’ appeals. .........9  Summary of Argument ............................................................................... 9  Argument .................................................................................................. 11  I.  Standard of Review. ........................................................................ 11  A.  In enacting administrative rules, the Secretary must follow the law, including binding judicial interpretations of the law.....................................................................................................13  B.  The Court must defer to the Secretary’s Rules, asking only whether the Rules are based on a “permissible” interpretation of the law. ................................................................19  II.  The five rules at issue in this appeal are all within the Secretary’s authority and discretion to promulgate. ..................... 23  A.  As the district court observed, the “major purpose” test of Rule 1.18.2 is “undeniably required” by Colorado case law.........23  1.  The Supreme Court’s “major purpose” test refines the scope of political committee regulation. ................................ 24  2.  Rule 1.18.2 acknowledges the major purpose test and explains how it applies........................................................... 25  3.  The district court improperly held that the Secretary’s rules must ignore the existence of the major purpose test. ......................................................................................... 26  i

TABLE OF CONTENTS PAGE B.  Rule 1.12 clarifies the definition of “issue committee” based on criteria the General Assembly specified...................................29  1.  Rule 1.12 fills a gap left by the General Assembly. .............. 31  2.  The Secretary’s decision to use a 30% threshold is reasonable in light of governing law. .................................... 34  3.  The district court’s flawed analysis of Rule 1.12 must be overturned. ........................................................................ 36  C.  Rules 7.2 and 1.10 use existing law to clarify the definition of “political organization.” ...............................................................41  1.  Rule 7.2’s “major purpose” requirement is based on 26 U.S.C. § 527. ........................................................................... 42  2.  Rule 1.10 uses longstanding case law to clarify the meaning of “influencing or attempting to influence.” .......... 44  D.  Rule 18.1.8(a) implements the Secretary’s authority to waive penalties for failure to file major contributor reports. ......48  Conclusion ................................................................................................. 52 

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TABLE OF AUTHORITIES PAGE CASES  Alliance for Colo.’s Families v. Gilbert, 172 P.3d 964 (Colo. App. 2007) ............................................................................................... passim Buckley v. Valeo, 424 U.S. 1 (1976) ................................................. passim Cerbo v. Protect Colorado Jobs, Inc., 240 P.3d 495, 502 (Colo. App. 2010) ............................................................................... 31, 33, 36, 37, 38 Holliday v. Reg’l Transp. Dist., 43 P.3d 676 (Colo. App. 2001) .............. 16 Citizens for Free Enter. v. Dep’t of Revenue, 649 P.2d 1054 (Colo. 1982) ........................................................................................... 20, 23, 39 Citizens United v. Federal Election Commission, 130 S. Ct. 876 (2010)................................................................................................ 16, 39 Colo. Citizens for Ethics in Gov’t v. Comm. for the Am. Dream, 187 P.3d 1207 (Colo. App. 2008) ............................................... 12, 23, 50 Colo. Common Cause v. Gessler, 2012 COA 147 ¶ (2012) ................ 18, 22 Colo. Ethics Watch v. Senate Majority Fund, 269 P.3d 1248 (Colo. 2012) ........................................................................................... 27, 29, 47 Colo. Ground Water Comm’n v. Eagle Peak Farms, 919 P.2d 212 (Colo. 1996) ............................................................................................ 12 Colo. Right to Life Comm. v. Coffman, 498 F.3d 1137 (10th Cir. 2007) ............................................................................................... passim Fed. Election Comm'n v. Massachusetts Citizens for Life, 479 U.S. 238 (1986)....................................................................... 16, 17, 24, 26, 35 Fed. Election Comm’n v. Wis. Right to Life, Inc., 551 U.S. 449 (2007)................................................................................................ 34, 36 Hyatt v. Heckler, 807 F.2d 376 (4th Cir. 1986) ....................................... 15 Independence Institute v. Coffman, 209 P.3d 1130 (Colo. App. 2008) ............................................................................................... passim iii

TABLE OF AUTHORITIES PAGE Ithaca Coll. v. Nat’l Labor Relations Bd., 623 F.2d 224 (2d Cir. 1980) ....................................................................................................... 15 Janssen v. Indus. Claim Appeals Office, 40 P.3d 1 (Colo. App. 2001) ................................................................................................. 22, 39 Lopez v. Heckler, 572 F. Supp. 26 (1983), aff’d, 725 F.2d 1489 (9th Cir. 1984) vacated on other grounds, 469 U.S. 1082 (1984) ................ 15 Minn. Citizens Concerned for Life, Inc. v. Swanson, 692 F.3d 864 (8th Cir. 2012) ............................................................................ 19, 24, 43 N.C. Right to Life, Inc. v. Leake, 525 F.3d 274 (4th Cir. 2008) .............. 13 Nat’l Org. for Marriage v. McKee, 649 F.3d 34 (1st Cir. 2011) .............. 46 NLRB v. Ashkenazy Prop. Mgmt. Corp., 817 F.2d 74 (9th Cir. 1987) ....................................................................................................... 15 People v. Lowrie, 761 P.2d 778 (Colo. 1988)............................................ 20 Sampson v. Buescher, 625 F.3d 1247 (10th Cir. 2010) ..................... 22, 34 Sanger v. Dennis, 148 P.3d 404 (Colo. App. 2006) .................................. 21 Swanson v. Town of Mountain View, 577 F.3d 1196 (10th Cir. 2009) ....................................................................................................... 15 Vaughan v. McMinn, 945 P.2d 404 (Colo. 1997) ..................................... 45 Vt. Right to Life Comm., Inc. v. Sorrell, 875 F. Supp. 2d 376 (D. Vt. 2012) ................................................................................................. 47 Wine & Spirits Wholesalers v. Colo. Dep’t of Revenue, 919 P.2d 984 (Colo. App. 1996)........................................................... 19, 22, 30, 39

CONSTITUTIONS  Colo. Const., Art. XXVIII.................................................................... 27, 28 Colo. Const., Art. XXVIII, § 2(10)(a)(I) .............................................. 17, 29 Colo. Const., Art. XXVIII, § 2(12)(a) .................................................. 23, 27 iv

TABLE OF AUTHORITIES PAGE Colo. Const., Art. XXVIII, § 3(5) .............................................................. 24 Colo. Const., Art. XXVIII, § 3(9) .............................................................. 24 Colo. Const., Art. XXVIII, § 3(10) ............................................................ 24 Colo. Const., Art. XXVIII, § 3(12) ............................................................ 24 Colo. Const., Art. XXVIII, § 9(1)(b) .................................................... 11, 16 Colo. Const., Art. XXVIII, § 10 ............................................................. 3, 48 Colo. Const., Art. XXVIII, § 10(2)(c) .................................................. 48, 50

STATUTES  § 1-45-103(12), C.R.S. (2012) .................................................................... 33 § 1-45-103(12)(b), C.R.S. (2012) ............................................. 26, 30, 31, 38 § 1-45-103(12)(c), C.R.S. (2012) .......................................................... 30, 33 § 1-45-103(14.5), C.R.S. (2012) ................................................................. 41 § 1-45-108(1), C.R.S. (2012) ...................................................................... 29 § 1-45-108(1)(a), C.R.S. (2012) ................................................................. 24 § 1-45-108(2.5), C.R.S. (2012) ................................................................... 48 § 1-45-111.5(1), C.R.S. (2012) ................................................................... 11 § 1-45-111.5(1.5)(c), C.R.S. (2012) ...................................................... 48, 51 26 U.S.C. § 527.......................................................................................... 43 26 U.S.C. § 527(e)(1) ................................................................................. 42 26 U.S.C. § 527(e)(2) ................................................................................. 42

OTHER AUTHORITIES  Am. Heritage Coll. Dictionary 1106 (4th ed. 2002) ................................. 42 v

Introduction In an effort to clarify the increasingly confusing field of campaign finance law, the Secretary of State promulgated rules in early 2012 that answered specific questions not directly addressed by Colorado’s Constitution or the campaign finance statutes. Some of the rules adopted controlling legal standards announced in federal and state court decisions. Plaintiffs challenged those rules (as well as a rule implementing the Secretary’s authority to waive campaign finance penalties for good cause), arguing that the Secretary cannot enact campaign finance rules based on case law. The new rules, however, did not deviate from past practice. Several of the Secretary’s predecessors had previously enacted rules in direct response to federal and state court case law. Rules like these diminish the need for ordinary citizens to research and read hundreds of pages of judicial opinions (in addition to dense pages of constitutional provisions and statutes) before engaging in protected First Amendment activity. 1

Despite this precedent, and although none of the Secretary’s rules contravene statutory or constitutional provisions, the district court struck down five of the Secretary’s new rules. The district court “respected” the Secretary’s “pragmatism” in attempting to harmonize Colorado campaign finance laws with judicial decisions. But the court believed the Secretary lacked the authority to do so. The district court’s reasoning is flawed. Nothing prevents public officials from heeding the judiciary in enacting administrative rules. In fact, public officials are required to adhere to case law. If upheld, the court’s order will require Colorado agencies to ignore binding judicial decisions in promulgating their rules. This will serve only to confuse areas of law that administrative rules are meant to clarify, and it will mean that the public cannot trust the regulations they are obligated to understand and follow. Issues on Appeal 1. Can an administrative agency promulgate rules based on controlling and authoritative case law? 2

2.

If constitutional or statutory provisions fail to directly answer specific regulatory questions, can a public official use case law to arrive at reasonable interpretations of those provisions?

3.

Can the Secretary, who is constitutionally empowered under Article XXVIII, Section 10 to set aside campaign finance penalties for good cause, enact rules to explain specific circumstances in which fines will be waived? Statement of the Case and Facts A. The Secretary’s rulemaking effort.

Seeking to “improve [the] organization and readability” of existing campaign finance rules, to “clarify existing laws,” and to “achieve the uniform and proper administration and enforcement of Colorado campaign and political finance laws,” the Secretary initiated a rulemaking proceeding on November 15, 2011. (Admin. R. Vol. 1, Tab 1

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at 1.)1 As part of the rulemaking effort, the Secretary held a hearing on December 15, 2011 (see Tr.) and solicited extensive written comments (see R. Vol. 2). Many of the Plaintiffs in this case, and some of their counsel, participated in those proceedings. (See R. Vol. 2, Tabs 2, 20, 32, 35, 41, and 42.) The record included testimony from several members of the public who described the difficulty of determining when their advocacy groups might trigger Colorado’s campaign finance regulations. One commenter noted, “I myself have spent many hours reading about the rules, and yet I feel totally incapable of obeying them. . . . For a small-scale project, a political activist easily could spend far more hours navigating the assorted campaign finance rules than the activist actually spends

1

“Admin. R. Vol. 1” refers to the eight documents in the official rulemaking record. “Admin. R. Vol. 2” refers to written comments submitted by the public as part of the rulemaking hearing in December 2011. “Tr.” refers to pages of the transcript of the rulemaking hearing. “E-File R.” refers to documents compiled in the compact disk e-filed by the district court clerk (for these citations, page numbers refer to PDF pages 1–508). 4

speaking out.” (Admin. R. Vol. 2, Tab 4 at 1.) Another commenter noted that [C]itizens, especially those who work for underfunded organizations or toward unpopular ends[,] must often seek legal advice before engaging in political activity in Colorado. The complexity of state regulations, and the fact they often do not reflect established constitutional law, makes it difficult for a layperson to obtain accurate guidance in the area of campaign finance. (Admin. R. Vol. 2, Tab 14 at 1.) Supporters of the Secretary’s rulemaking effort favored “bright-line rules in the place of general or intent-based guidelines” and a “one-stop location for private citizens (that is, those without representation) to learn what is required of them under Colorado law.” (Admin. R. Vol. 2, Tab 14 at 1.) They supported the Secretary’s effort to adopt rules to explain the legal requirements imposed by various court decisions. Other commenters believed the Secretary lacked authority for some of the revised rules. With respect to Rule 1.12, which includes a 30% spending threshold to trigger a group’s classification as an issue committee, one group argued that “[t]he Colorado Constitution is silent 5

on this matter, as are the statutes dealing with campaign finance.” (Admin. R. Vol. 2, Tab 2 at 1.) As for the “major purpose” requirement for political committees, which Rule 1.18.2 codifies, some commenters stated that the Colorado Constitution “does not impose a major purpose test.” (Admin. R. Vol. 2, Tab. 41 at 3.) These comments, however, did not cite decisions by the Colorado Courts, the Tenth Circuit Court of Appeals, or the United States Supreme Court. After considering the full rulemaking record, the Secretary issued a Notice of Temporary and Permanent Adoption setting forth the revised rules, as well as a comprehensive Statement of Basis, Purpose, and Specific Statutory Authority, which explained the reason for each new rule or revision and included references to governing law. (Admin. R. Vol. 1, Tab 1 at 8.) Because some of the rules were promulgated to incorporate judicial interpretations of existing law, the Statement of Basis, Purpose, and Specific Statutory Authority included case citations. B. Plaintiffs’ lawsuit.

On April 6, 2012, two groups of plaintiffs filed complaints challenging some of the Secretary’s new rules under the Administrative 6

Procedure Act. For convenience, this brief refers to all plaintiffs together as “Plaintiffs.” The Secretary answered the complaints on May 4, 2012. (E-File R. at 177–86.) Soon afterward, the Court set a briefing schedule and reserved a half-day hearing for oral argument. (E-File R. at 500.) Although the allegations in Plaintiffs’ complaints appeared to challenge eleven of the Secretary’s rules, Plaintiffs’ briefs sought a court ruling on only eight: Rules 1.7, 1.10, 1.12, 1.18.2, 7.2, 18.1.8, 4.1, and 15.6. Plaintiffs asserted that the Secretary had exceeded his authority in passing the rules because in their view, “[d]eterminations of the impact, if any, of past federal court cases on Colorado law are properly within the power of the judicial branch.” (E-File R. at 200.) According to Plaintiffs, the Secretary is required to ignore case law in drafting campaign finance regulations. C. The decision below.

After considering the briefs, the administrative record, and the parties’ arguments at the hearing, the district court issued a decision on 7

August 10, 2012. (E-File R. at 420 (attached to this brief as Addendum B).) The court’s order upheld one of the Secretary’s rules (Rule 1.7), invalidated five of them (Rules 1.10, 1.12, 1.18.2, 7.2, and 18.1.8),2 and dismissed as unripe Plaintiffs’ challenges to the two remaining rules (Rules 4.1 and 15.6). The court, like Plaintiffs, believed that the Secretary cannot codify legal standards announced in court decisions, even when they are “undeniably required” by federal and state jurisprudence. (Adden. B at 7.) At the same time, the court upheld Rule 1.7 because it is based on case law. According to the court, Rule 1.7 “adds no substantive additional terms and imposes no additional restrictions” except those found in decisions by the United States Supreme Court and Colorado Court of Appeals. (Adden. B at 5.) The court did not explain why Rule 1.7’s explicit reliance on case law was appropriate, while the Secretary’s other rules, also based on case law, automatically exceeded his administrative authority. The text of these six rules is set forth in Addendum A to this brief. For the complete campaign finance rules, see 8 CCR 1505-6.
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D.

The Secretary’s request for a stay and the parties’ appeals.

Because the 2012 elections were only months away, the Secretary sought a stay in the district court and simultaneously filed a notice of appeal. (E-File R. at 397.) The Secretary also requested that this Court enter a temporary stay while the district court considered a permanent one. When these requests were denied (see E-File R. at 452, 486), the Secretary announced publicly that he would “not enforce rules 1.10, 1.12.3, 1.18.2, 7.2.1, and 18.1.8 unless or until the Colorado appellate courts reverse the District Court’s decision.” Plaintiffs later filed a joint notice of cross-appeal, seeking to overturn the district court’s decision as to Rule 1.7. (See E-File R. at 491.) The Secretary will respond to Plaintiffs’ arguments about Rule 1.7 in an answer-reply brief. Summary of Argument The district court believed that an administrative agency exceeds its authority by codifying unambiguous requirements of judicial precedent into concise rules. But no tenet of Colorado case law 9

precludes an agency from doing so. Indeed, careful rulemakers will stay abreast of relevant court decisions, ensuring a full understanding of the area of law they administer. By harmonizing administrative regulations with case law, rulemakers enhance the clarity and legal accuracy of their rules. Four of the rules at issue here—Rules 1.18.2, 1.12, 7.2, and 1.10— embody longstanding requirements of case law. In doing so, these rules explain how the law applies in practice; answering specific questions that Colorado’s Constitution and campaign finance statutes fail to directly answer. The district court should have deferred to the Secretary’s discretion to enact these rules, asking only whether his interpretation of the law was “permissible.” It must be “permissible” for an administrative agency to rely on the judiciary for interpretations of the law. The rules are therefore valid. The final rule at issue here, Rule 18.1.8, implements the Secretary’s constitutional authority to waive campaign finance penalties for good cause. But rather than deferring to the Secretary, the court engaged in an analysis of whether, in its view, the rule reflected 10

sound policy. This inquiry exceeded the court’s role. Moreover, the court’s decision to invalidate the rule was based on a mistaken and incomplete understanding of the record and the regulatory framework. When reviewed in the proper setting, Rule 18.1.8 was a routine exercise of the Secretary’s rulemaking power. Argument I. Standard of Review. Both the Colorado Constitution and the campaign finance statutes expressly delegate rulemaking authority to the Secretary. Colo. Const. art. XXVIII, § 9(1)(b) (“The secretary of state shall . . . [p]romulgate such rules . . . as may be necessary to administer and enforce any provision of this article . . . .”); C.R.S. § 1-45-111.5(1) (“The secretary of state shall promulgate such rules . . . as may be necessary to enforce and administer any provision of this article.”). Thus, in adjudicating Plaintiffs’ challenge to the Secretary’s rules, the Court must presume the rules are valid. Plaintiffs bear a “heavy burden” in rebutting this presumption: they must “establish [the] invalidity of [each] rule by demonstrating that the [Secretary] violated constitutional or statutory 11

law, exceeded [his] authority, or lacked a basis in the record for the rule.” Colo. Ground Water Comm’n v. Eagle Peak Farms, 919 P.2d 212, 217 (Colo. 1996). And they must prove the invalidity of each rule beyond a reasonable doubt. Colo. Citizens for Ethics in Gov’t v. Comm. for the Am. Dream, 187 P.3d 1207, 1217 (Colo. App. 2008). The district court cited these general standards but made two errors related to the standard of review. First, the court assumed that an administrative agency automatically “exceed[s] [its] delegated authority” when it bases a rule on judicial precedent. (See Adden. B at 8.) Second, although it purported to defer to the precise content of the Secretary’s rules, the court opined on whether, in the court’s view, the rules “work[e]d . . . mischief” or were “income neutral.” (Adden. B at 6.) These errors were critical. This Court should make clear that administrative agencies are empowered to incorporate binding case law into their rules, as the Secretary’s predecessors have repeatedly done. If, as the district court assumed, regulators must close their eyes to judicial precedent, a large number of administrative rules in Colorado will be inaccurate and potentially misleading. 12

The Court should also reaffirm that administrative agencies with delegated rulemaking authority are the appropriate entities to determine whether a particular rule is wise or will “work mischief.” Courts must maintain their limited role of asking only whether a challenged rule is permissible under governing standards, maintaining the vital rulemaking discretion that allows administrative agencies to hone their rules to ensure they work well in practice under evolving conditions. A. In enacting administrative rules, the Secretary must follow the law, including binding judicial interpretations of the law.

Campaign finance law has become “a maze of rules, sub-rules, and cross-references,” all of which an individual or organization must navigate “to do nothing more than project a basic political message.” N.C. Right to Life, Inc. v. Leake, 525 F.3d 274, 296 (4th Cir. 2008). Colorado law is no exception. As one commenter observed during the rulemaking proceeding, Before an activist can even begin to speak out for or against any ballot measure or candidate with the intention of spending even small amounts of 13

resources, the activist must learn the rules (broadly defined). The assorted Constitutional provisions, statutes, bureaucratic rules, and surrounding court cases constitute many scores of pages of dense legalese. Even learning whether certain forms of speech fall under these rules requires substantial effort . . . . (Admin. R. Vol. 2 Tab 4.) To fully understand when they will trigger the laws of campaign finance, regulated entities cannot rely solely on the language of Colorado’s constitutional and statutory provisions. Judicial precedent informs the meaning of these laws and, more importantly, the way in which the laws may be constitutionally applied. For example, both this Court and the Tenth Circuit have held that an organization cannot be regulated as a political committee under Colorado law, and therefore cannot be subject to reporting and disclosure requirements, unless the organization meets the “major purpose” test announced in Buckley v. Valeo, 424 U.S. 1 (1976). See Alliance for Colo.’s Families v. Gilbert, 172 P.3d 964 (Colo. App. 2007); Colo. Right to Life Comm. v. Coffman, 498 F.3d 1137 (10th Cir. 2007). The district court itself acknowledged the impact of cases like these on Colorado’s scheme of campaign finance 14

regulation, observing that the Supreme Court’s First Amendment jurisprudence “undeniably” applies in Colorado. (Adden. B at 7.) The Secretary must abide by this jurisprudence. “[G]overnmental agencies, like all individuals and other entities, are obliged to follow and apply the law as interpreted by the courts.” Lopez v. Heckler, 572 F. Supp. 26, 29 (1983), aff’d, 725 F.2d 1489, 1497, 1503 (9th Cir. 1984) vacated on other grounds, 469 U.S. 1082 (1984); see also Hyatt v. Heckler, 807 F.2d 376, 379 (4th Cir. 1986); Ithaca Coll. v. Nat’l Labor Relations Bd., 623 F.2d 224, 228 (2d Cir. 1980). Public officials are not free to ignore case law within their jurisdiction. See NLRB v. Ashkenazy Prop. Mgmt. Corp., 817 F.2d 74, 75 (9th Cir. 1987); see also Swanson v. Town of Mountain View, 577 F.3d 1196, 1200 (10th Cir. 2009). If, for example, the Secretary attempted to regulate, as political committees, a class of organizations that do not meet the major purpose requirement of Buckley, this Court would prevent him from doing so. See Alliance for Colo.’s Families, 172 P.3d at 972–73 (vacating penalties imposed on an organization because the administrative law judge failed to determine whether the organization met the major purpose test). 15

Because the Secretary has a mandatory duty to “[p]romulgate such rules . . . as may be necessary to administer and enforce” the campaign finance laws, Colo. Const. art. XXVIII, § 9(1)(b), he must ensure that his rules comport with judicial precedent. Cf. Holliday v. Reg’l Transp. Dist., 43 P.3d 676, 681 (Colo. App. 2001) (permitting a challenge to the RTD’s policies because, in light of “federal constitutional jurisprudence” they may have amounted to “an impermissible intrusion upon First Amendment protections”). The Secretary’s predecessors held this view. They used rulemaking to ensure compliance with judicial precedent, even when their rules contravened the plain language of Colorado’s constitution and statutes. Former Rule 4.13, for example, exempted certain entities from Colorado’s ban on corporate electioneering communications before Citizens United v. Federal Election Commission, 130 S. Ct. 876 (2010), established that all corporations have a right to engage in protected speech. Rule 4.13 was based upon another Supreme Court case, Federal Election Commission v. Massachusetts Citizens for Life, 479 U.S. 238 (1986), which held that “Some [small nonprofit] corporations . . . should 16

not have to bear burdens on independent spending solely because of their incorporated status.” Id. at 263. This contradicted the Colorado Constitution’s absolute ban on corporate electioneering, but the rule was necessary to comport with the First Amendment. See Colo. Right to Life, 498 F.3d at 1140 (noting that the Secretary passed former Rule 4.13 to “follow[] the United States Supreme Court’s teachings in MCFL”). The Secretary’s predecessors have even used rulemaking to change the meaning of a specific word in the Colorado Constitution. In defining the term “issue committee,” Article XXVIII § 2(10)(a)(I) uses the disjunctive “or” to explain how the definitional criteria (a dollar limit and a “major purpose” test) apply. One of the Secretary’s predecessors, however, interpreted this provision in the conjunctive, replacing “or” with the word “and,” see Rule 1.12.2 (former Rule 1.7(b)), because the First Amendment compels this linguistic change. See Colo. Right to Life, 498 F.3d at 1154 (“[T]he $200 trigger, standing alone, cannot serve as a proxy for the ‘major purpose’ test . . . .”). As a result, an organization is an “issue committee” only if it (1) has spent or 17

collected more than $200 to support or oppose a ballot question and (2) has “a major purpose” of ballot-issue advocacy. See Colo. Common Cause v. Gessler, 2012 COA 147 ¶ 4 n.2 (2012) (“Although the Amendment uses the disjunctive ‘or,’ the Secretary’s rules interpret it to require both conditions before a group is considered an issue committee.”). Unlike these examples, none of the rules Plaintiffs have challenged here actually contravenes any specific constitutional or statutory provision. Nonetheless, the district court believed the Secretary is required to ignore case law in promulgating campaign finance rules. According to the district court, even when binding judicial precedent requires a certain interpretation of the law, the Secretary must wait for the legislature or the citizens to act before he can acknowledge case law through rulemaking. (Adden. B at 7.) This approach would require the public to wade through pages of case law to understand whether their speech will be regulated. And it would require the Secretary to shun formal pronouncements in favor of informal promises that he will not violate the First Amendment. 18

Those who seek to engage in “protected political speech,” however, are entitled to more than “informal assurance[s].” Minn. Citizens Concerned for Life, Inc. v. Swanson, 692 F.3d 864, 873–74 & n.8 (8th Cir. 2012). They are entitled to clear guidance. The Secretary must have the discretion to acknowledge through rulemaking what the case law unambiguously requires. B. The Court must defer to the Secretary’s Rules, asking only whether the Rules are based on a “permissible” interpretation of the law.

The district court cited the proper standard for reviewing the substance of an administrative rule: “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 the statute . . . . [A] court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency.” (Adden. B at 3 (quoting Wine & Spirits Wholesalers v. Colo. Dep’t of Revenue, 919 P.2d 984, 897 (Colo. App. 1996) (emphasis added)).) Yet the court failed to defer to the Secretary’s interpretation of the law, and it ignored his policy judgment that bright19

line rules are more effective for triggering disclosure and reporting requirements than are potentially ambiguous intent-based standards. (Adden. B at 6.) Judicial deference to agency rulemaking precludes “secondguessing” the wisdom of a rule or whether, in the court’s view, a different rule might be more effective or more desirable. See Citizens for Free Enter. v. Dep’t of Revenue, 649 P.2d 1054, 1063 (Colo. 1982). Agencies must have flexibility to adapt the law to changing circumstances—“it will often be impracticable for the General Assembly to fix rigid standards to guide agency action.” People v. Lowrie, 761 P.2d 778, 781 (Colo. 1988). This is especially true in a regulatory area like campaign finance, where the “[t]he law . . . is in a state of flux as the courts attempt to balance the desire of Congress and the states to enact legislation that will reduce the potential for corruption . . . against contributors’ First and Fourteenth Amendments’ guarantees of freedom of speech and association.” Alliance for Colo.’s Families, 172 P.3d at 969.

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Agency discretion is not unlimited, however. In Sanger v. Dennis, this Court stated that an administrative rule cannot “add, [] modify, and [] conflict with the [governing] constitutional provision.” 148 P.3d 404, 413 (Colo. App. 2006). In Sanger, the Secretary passed a rule that violated the United States Supreme Court’s First Amendment jurisprudence by imposing barriers to collective speech and consequently “restrict[ing] the overall quantum of speech available to the election process.” Id. at 414 (internal quotation marks omitted). Here, in contrast, the Secretary is seeking to use rulemaking to make Colorado law consistent with the First Amendment. In doing so, he has not added “new” legal requirements that conflict with existing ones. Id. at 413. Sanger, while relevant to this case, presented a different situation. This Court recently applied Sanger to invalidate a campaign finance rule that directly modified a specific constitutional provision. Case law from the Tenth Circuit had held that the $200 threshold for triggering issue committee status is far too low, and the Secretary consequently increased the threshold to $5,000, ensuring that the 21

“financial burden of state regulation” would not “approach[] or exceed[] the value of [a group’s] financial contributions to their political effort.” Sampson v. Buescher, 625 F.3d 1247, 1261 (10th Cir. 2010). This Court held that the Secretary’s rule “exceed[ed] the holding” of the governing case law. Colo. Common Cause, 2012 COA 147 ¶ 24. Colorado Common Cause, like Sanger, is inapposite to the rules challenged in this case.3 Here, the question is more nuanced. The rules at issue do not contradict specific constitutional or statutory provisions. They simply seek to answer “precise questions” that the constitution and campaign finance statutes do not “directly address[].” Wine & Spirits Wholesalers, 919 P.2d at 897. The Court must therefore ask only whether the rules reflect “permissible” interpretations of governing law. Janssen v. Indus. Claim Appeals Office, 40 P.3d 1, 4 (Colo. App. 2001).

The Secretary disagrees with the holding of Colorado Common Cause and has filed a petition for writ of certiorari to seek review of that decision. That decision, however, is irrelevant to the issues presented here.
3

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II.

The five rules at issue in this appeal are all within the Secretary’s authority and discretion to promulgate. Plaintiffs bear the burden of establishing that each of the

Secretary’s rules is invalid beyond a reasonable doubt. Colo. Citizens for Ethics in Gov’t v. v. Comm. For the Am. Dream, 187 P.3d 1207, 1217 (Colo. App. 2008). The Court must separately ask whether each rule reflects a permissible construction of the law. See, e.g., Citizens For Free Enter. v. Colo. Dep’t of Revenue, 649 P.2d 1054, 1069–70 (Colo. 1982) (reviewing two rules separately; upholding one rule and invalidating the other). When viewed with proper deference and in light of the full legal landscape—which includes relevant constitutional and statutory provisions as well as judicial precedent—each rule at issue in this case was well within the Secretary’s authority. A. As the district court observed, the “major purpose” test of Rule 1.18.2 is “undeniably required” by Colorado case law.

In Colorado, an organization that meets the definition of “political committee” in Article XXVIII, Section 2(12)(a) of the Colorado Constitution must satisfy various reporting and disclosure 23

requirements. See C.R.S. § 1-45-108(1)(a); Colo. Const., art. XXVIII, §§ 3(5), (9), (10), and (12). Rule 1.18.2 clarifies when an entity is subject to these regulations. It does so by codifying the “major purpose” test, a longstanding fixture of First Amendment jurisprudence. 1. The Supreme Court’s “major purpose” test refines the scope of political committee regulation.

Years ago, decades before Colorado’s current regime of campaign finance regulation was put in place, the United States Supreme Court held that an entity may be regulated as a “political committee” only if it meets an important constitutional requirement: its “major purpose” must be to support or oppose the nomination or election of political candidates. Buckley, 424 U.S. at 79; see also Fed. Election Comm’n v. Mass. Citizens for Life, Inc., 479 U.S. 238, 252 n.6 (1986). The test ensures that the regulation of political committees is not “impermissibly broad.” Minn. Citizens Concerned for Life, 692 F.3d at 872 (quoting Buckley, 424 U.S. at 79–80). Two courts have held that the major purpose test applies to political committees in Colorado. In Colorado Right to Life Committee, 24

the Tenth Circuit held that Colorado cannot regulate as a political committee an entity that fails the “major purpose” test. 498 F.3d at 1153. The same year, this Court echoed that holding, recognizing that the test is “required by Buckley” although it does not appear in the text of the Colorado Constitution. Alliance for Colorado’s Families, 172 P.3d at 972. The Court overturned the ruling of an administrative law judge who had imposed retroactive penalties on an advocacy group without considering the major purpose test. The Court remanded the case with explicit instructions for the ALJ to apply the test; the group could be subject to regulation as a political committee only if its “major purpose” was supporting or opposing a political candidate. Id. 2. Rule 1.18.2 acknowledges the major purpose test and explains how it applies.

Rule 1.18.2 formally acknowledges that Buckley’s “major purpose” test is a required element of Colorado’s definition of “political committee.” The rule should be uncontroversial. Below, Plaintiffs conceded that “[a]s a matter of constitutional law, a political committee must have ‘the major purpose to support or oppose candidates.’” (E-File 25

R. at 303 (emphasis added) (quoting Buckley, 424 U.S. at 79).) And the district court observed that Alliance for Colorado’s Families and Colorado Right to Life “undeniably required application of the Buckley test.” (Adden. B at 7.) The rule also explains precisely how the test applies, using two criteria drawn from case law: (1) the objectives of the entity set forth in its organizing documents and (2) whether “[a]nnual expenditures made to support or oppose [a] nomination or election . . . are a majority of the organization’s total spending.” As the Tenth Circuit recognizes, the Supreme Court endorses this very same two-pronged approach. Colo. Right to Life Comm., 498 F.3d at 1152 (citing Mass. Citizens for Life, Inc., 479 U.S. at 252 n.6, 262). So does the General Assembly: it used similar criteria to define the “a major purpose” requirement for issue committees. See C.R.S. § 1-45-103(12)(b). 3. The district court improperly held that the Secretary’s rules must ignore the existence of the major purpose test.

The district court, while acknowledging the validity of the “major purpose” test, struck down Rule 1.18.2 for two reasons. First, the court 26

believed that the major purpose test is “contrary to the ‘political committee’ definition in [Article] XXVIII” and would add a “new, strict limitation” to the definition. (Adden. B at 7.) Second, the court believed that the major purpose test is “contrary to the intent of Art. XXVIII § 2(12)(a) as passed by the citizens of Colorado.” (Adden. B at 7.) This reasoning, however, violates recent guidance from the Colorado Supreme Court. In Colorado Ethics Watch v. Senate Majority Fund, the Colorado Supreme Court interpreted another term in the Colorado Constitution: “express advocacy,” which is used to define the activities of political committees. 269 P.3d 1248 (Colo. 2012). The plaintiff in Colorado Ethics Watch—who is also a plaintiff here—argued that “express advocacy” should be interpreted to encompass a broad range of political speech, thereby expanding the definition of the term “political committee” and exposing more advocacy groups in Colorado to campaign finance regulation. The Colorado Supreme Court disagreed with this approach, relying explicitly on Buckley for guidance in how to construe the Colorado Constitution. The Court noted that the plaintiff’s 27

interpretation would “require us to ignore the settled definition of ‘express advocacy’ that existed at the time that Amendment 27 [the Campaign Finance Amendment] was adopted by the voters.” Id. at 1256. According to the Court, when Colorado voters used “term[s] of art” in Amendment 27, they incorporated the “decades of campaign finance jurisprudence” that has attempted to “balance the public concerns related to the impact of independent financing in elections and the constitutional concerns outlined in Buckley.” Id. Under this reasoning, Rule 1.18.2 simply codifies a legal requirement that Colorado voters adopted when they enacted Amendment 27. The rule does not, as the district court assumed, contradict the language or intent of the Colorado Constitution. Nothing in the language of Article XXVIII suggests an intent to preclude the major purpose test, and two courts have explicitly recognized that to comport with Buckley, the term “political committee” must include a “major purpose” requirement. Colo. Right to Life, 498 F.3d at 1153; Alliance for Colo.’s Families, 172 P.3d at 972. Courts must “presume that the electorate was aware of the legal significance” of the 28

terminology they chose to use in Colorado’s campaign finance laws. Colorado Ethics Watch, 269 P.3d 1256. This includes the decades-old major purpose test. Plaintiffs themselves have not attempted to argue that the “major purpose” test is invalid or should not apply within the state; they simply seek to prevent the Secretary from formally acknowledging it. This serves no purpose other than to increase the chance that citizens might fail to realize that the protections of the test might apply to them. Rule 18.1.2 must be upheld. B. Rule 1.12 clarifies the definition of “issue committee” based on criteria the General Assembly specified.

Entities that advocate for or against ballot measures in Colorado—issue committees—are regulated much like political committees. See C.R.S. § 1-45-108(1). The Colorado Constitution defines issue committees as groups that take in or spend at least $200 on ballot issue advocacy and have “a major purpose of supporting or opposing any ballot issue or ballot question.” Colo. Const., art. XXVIII, § 2(10)(a)(I).

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But the “a major purpose” requirement has been challenged as unconstitutionally vague and overbroad, Independence Institute v. Coffman, 209 P.3d 1130, 1136–40 (Colo. App. 2008), and the General Assembly enacted a multi-factor test to confine its application in light of this case law. Under the statute, whether an entity has “a major purpose” of advocating ballot issues is informed by (1) “specifically identified objectives in . . . organizational documents” or (2) a “demonstrated pattern of conduct,” which in turn is informed by the entity’s (a) “annual expenditures in support of or opposition to a ballot issue or ballot question” or (b) “[p]roduction or funding, or both, of written or broadcast communications.” C.R.S. § 1-45-103(12)(b); see also id. § 1-45-103(12)(c) (citing Independence Institute). This statutory methodology, however, does not “directly answer” a “specific question” relevant to the “a major purpose” requirement. Wine & Spirits Wholesalers, 919 P.2d at 897. It fails to explain how an entity must weigh its “expenditures” and “production or funding . . . of written 30

or broadcast communications.” To clarify how this definition operates in practice, the Secretary enacted Rule 1.12. Under the rule, if either prong of the statutory methodology— “expenditures” or “production or funding . . . of written or broadcast communications”—exceeds 30% of an entity’s total budget, the entity has “a major purpose of supporting or opposing any ballot issue or ballot question.” The rule was meant to take the guesswork out of applying § 1-45-103(12)(b). It “create[s] a bright line test for issue committees”— an easily-measurable 30% threshold—“making it easier for any person or group of persons to understand when campaign finance law applies.” (Admin. R. Vol. 1, Tab 1 at 2.) 1. Rule 1.12 fills a gap left by the General Assembly.

Absent the guidance provided by Rule 1.12, the “a major purpose” requirement has proven difficult to apply in practice. In Cerbo v. Protect Colorado Jobs, Inc., for example, this Court overturned the decision of an administrative law judge who had “erred in her analysis” of the test. 240 P.3d 495, 502 (Colo. App. 2010). 31

Although the ALJ articulated the proper factors, she “placed undue weight” on one of them, “gave too much weight” to another, and “failed to give weight to other facts relevant to the inquiry.” Id. The Court conducted its own fact-specific analysis, considering the “interrelationships of [the entity’s] officers and agents,” the amount of time spent “promoting the ballot issue,” and the portion of funds the entity “expended promoting th[e] ballot issue.” Id. at 502–04. Based on this revised analysis, the Court concluded that the entity was, in fact, an issue committee and was potentially subject to sanctions for nondisclosure of its expressive activity. Id. at 504. In another case, this Court considered a collateral First Amendment challenge to a decision of the same ALJ. This time, however, the Court upheld the ALJ’s ruling. The Court noted that the ALJ properly conducted a “fact-specific inquiry” into the organization’s “original purpose,” its “organizational structure,” the “various issues with which it had been involved,” and the amount of money it spent on advocacy “in proportion to its annual budget.” Independence Institute,

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209 P.3d at 1139. This multi-factor inquiry, the Court held, was not unconstitutionally vague. But while they are not unconstitutionally vague, these multifactor inquiries—which rely purely on hindsight and do not explain how each factor applies—fail to provide adequate guidance to the public before litigation ensues. Those who wish to know whether their speech will be subject to the disclosure requirements issue committees are obligated to follow must resort to a best guess. And this best guess, no matter how well-intentioned, might be overturned in litigation. An ALJ (or this Court) could hold that the advocacy group “placed undue weight” on one factor or gave “too little weight” to another. Cerbo, 240 P.3d at 502. Moreover, the statutory methodology of § 1-45-103(12) does not resolve the ambiguity. The statute explicitly states that it makes no “substantive change” to the definition of “a major purpose” and is intended only to reflect the holding of Independence Institute. See § 145-103(12)(c). The statute merely reiterates the factors cited in the case law without explaining how to apply them. 33

Rule 1.12 fills the gap. It uses the statutory methodology to create an easy-to-apply standard, one that “entail[s] minimal if any discovery” and allows “parties to resolve disputes quickly without chilling speech through the threat of burdensome litigation.” Fed. Election Comm’n v. Wis. Right to Life, Inc., 551 U.S. 449, 469 (2007). The Rule minimizes the risk that a group seeking to engage in protected speech will guess wrong and be forced to spend the “time, energy, and money” required to defend against litigation. See Sampson, 625 F.3d at 1260. As one member of the public testified at the rulemaking hearing, “I do like the idea that there’s a clear rule here. There hasn’t been a test at all. . . . And so . . . [if you decide to engage in ballot-issue advocacy,] you’re running the risk that you’re going to be dragged into court . . . .” (Tr. at 114:4–13.) 2. The Secretary’s decision to use a 30% threshold is reasonable in light of governing law.

As the Secretary explained at the rulemaking hearing, the 30% threshold of Rule 1.12 honors the “difference between a major purpose and the major purpose.” (Tr. at 122:8–9 (emphasis added).) Unlike issue 34

committees, political committees must have “the major purpose” of supporting or opposing a candidate. Buckley, 424 U.S. at 79. The Supreme Court and the Tenth Circuit have interpreted this to mean that a political committee must spend the majority, or the “preponderance,” of its budget on political advocacy. Colo. Right to Life Comm., 498 F.3d at 1152 (citing Mass. Citizens for Life, Inc., 479 U.S. at 252 n.6, 262). Issue committees, meanwhile, must meet the “a major purpose” test. The 30% threshold of Rule 1.12 recognizes the distinction. It uses a lower benchmark than the 50% threshold for political committees while ensuring that a meaningful portion of an issue committee’s budget is spent on ballot-issue advocacy. The percentage-based approach is also rooted in case law. Colorado court decisions addressing the “a major purpose” requirement focus on the proportion of spending, not an absolute amount. For example, in 2010 this Court held that “an organization has ‘a major purpose’ of supporting a ballot issue if such support ‘constitutes a considerable or principal portion of the organization’s total activities.’” 35

Cerbo, 240 P.3d at 501 (internal quotation marks omitted) (emphasis added). The Court found this requirement to be satisfied where an entity “spen[t] three-fourths of all of the funds it has ever expended promoting that ballot issue.” Id. at 504. The United States Supreme Court forbids “amorphous” campaign finance regulations. WRTL II, 551 U.S. at 469. Rule 1.12 avoids this problem. Instead of using an “open-ended rough-and-tumble of factors, which invit[es] complex argument in a trial court and a virtually inevitable appeal,” id. (internal quotation marks omitted), Rule 1.12 uses a bright-line threshold. As demonstrated by cases applying the “a major purpose” requirement—cases that depend on “fact-specific,” multi-prong inquiries, see Cerbo, 240 P.3d at 503–04; Independence Institute, 209 P.3d at 1139—Rule 1.12 is necessary to avoid the burdensome litigation that the First Amendment forbids. 3. The district court’s flawed analysis of Rule 1.12 must be overturned.

In striking down Rule 1.12, the district court made three errors.

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First, the court implied that unless a statute is unconstitutionally vague, it leaves no room for rulemaking. The court observed that “two cases . . . held that the term ‘major purpose’ . . . [is] not ambiguous.” (Adden. B at 6.) By implication, then, the Secretary was precluded from enacting Rule 1.12 to clarify the “not ambiguous” phrase “a major purpose.” Neither of the cases the district court cited, however, suggests that the phrase “a major purpose” is so unambiguous that it cannot be clarified. The first case, Independence Institute, analyzed only whether the phrase is unconstitutionally vague or overbroad. 209 P.3d at 1136. In denying the plaintiff’s constitutional challenge, the Court identified three factual considerations advocacy groups could consider in applying the “a major purpose” test. Id. at 1139. Using these factual considerations—and not merely the bare phrase “a major purpose”—a group could “make an informed decision before undertaking ballot advocacy.” Id. The second case, Cerbo, also involved a vagueness and overbreadth challenge to “a major purpose.” 40 P.3d at 500. And 37

although Cerbo “perceive[d] no ambiguity in the phrase” it explicitly relied on the “three nonexclusive factors” from Independence Institute to guide its application of the phrase—factors the Court had used to ensure the phrase could be constitutionally applied. Id. at 501. Cerbo’s reliance on these factors illustrates that even though the phrase “a major purpose” is not so ambiguous that it is unconstitutional, it must be clarified to be applied in practice. Both cases illustrate that the phrase is amenable to rulemaking. The district court’s second error was to assume that an administrative agency cannot enact regulations to clarify how a statute should be applied in practice. The court noted that “the legislature . . . codif[ied] the holding” of Cerbo and Independence Institute in § 1-45103(12)(b) “without the use of” Rule 1.12’s 30% requirement. (See Adden. B at 6.) In the district court’s view, the statute’s silence was dispositive. This reasoning misapplied the standard of review. Because § 1-45103(12)(b) “is silent . . . with respect to the specific issue” of how to apply the statutory factors, the only question the district court should 38

have asked “is whether the agency’s answer is based on a permissible construction of the statute.” Wine & Spirits Wholesalers, 919 P.2d at 897 (emphasis added). Indeed, if administrative regulations were valid only if they parroted existing statutory provisions, there would be no need for rulemaking. Finally, the court improperly relied on its own policy judgments to evaluate the rule. The court believed the rule “works further mischief in that it appears not to be income neutral.” (Adden. B at 6.) This “secondguessing” the wisdom of Rule 1.12 exceeded the bounds of judicial review. See Citizens for Free Enter., 649 P.2d at 1063. The district court was not empowered to “substitute its judgment for that of [the Secretary]”; it could only determine whether the rule is “reasonable.” Janssen, 40 P.3d at 4. In any event, the district court’s evaluation of the wisdom of Rule 1.12 was misinformed. The rule is, in fact, “income neutral.” The 30% threshold applies regardless of a speaker’s wealth or income. This complies with First Amendment jurisprudence, which forbids regulating “political speech . . . based on a speaker’s wealth.” Citizens United, 130 39

S. Ct. at 904. The United States Supreme Court has “rejected the premise that the Government has an interest ‘in equalizing the relative ability of individuals and groups to influence the outcome of elections.’” Id. (quoting Buckley v. Valeo, 424 U.S. 1, 48 (1976)). To regulate based on the impermissible criterion of wealth would allow “suppression of political speech based on the speaker’s identity,” something the First Amendment generally forbids—especially in the context of political speech. Id. Contrary to the district court’s appraisal, Rule 1.12’s 30% threshold provides a clear guideline while staying wealth-neutral (and therefore identity-neutral), as the First Amendment requires. Moreover, the 30% threshold actually promotes the interests of organizations with modest resources. One public commenter noted that “[t]he grassroots activist, with limited time and funds, suffers the most from having complicated, time-consuming regulations and draconian penalties over his or her head.” (Admin. R. Vol. 2, Tab 26 at 1.) The 30% rule allows grassroots organizations to easily determine, without having to pay for hours of attorney time, when they will trigger the reporting and disclosure obligations of Colorado’s campaign finance laws. 40

C.

Rules 7.2 and 1.10 use existing law to clarify the definition of “political organization.”

In 2007, the General Assembly enacted legislation that imposed disclosure and reporting obligations on “political organizations,” groups organized as tax-exempt under Section 527 of the Internal Revenue Code. Under § 1-45-103(14.5), a “political organization” is an entity that (1) meets the definition “in section 527(e)(1) of the federal ‘Internal Revenue Code of 1986’,” and (2) “is engaged in influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any state or local public office.” Rules 7.2 and 1.10 clarify the two elements of the definition of “political organization.” Contrary to the district court’s view, the rules do not “add” new requirements to § 1-45-103(14.5) or “narrow” the statutory definition. (See Adden. B at 9.) They use existing federal statutory requirements and longstanding case law to provide guidance to the public.

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1.

Rule 7.2’s “major purpose” requirement is based on 26 U.S.C. § 527.

Section 527 of the Internal Revenue Code imposes a “primary purpose” requirement on political organizations. Only if an entity is “organized and operated primarily for the purpose of . . . influencing or attempting to influence” an election can the entity be a “political organization.” 26 U.S.C. § 527(e)(1)–(2) (emphasis added). Rule 7.2, in requiring a political organization to have “as its major purpose influencing or attempting to influence elections,” codifies § 527’s “primary purpose” requirement. The rule recognizes that the terms “primary” and “major” are functionally identical. As an adjective, “primary” means “[f]irst or highest in rank, quality, or importance.” Am. Heritage Coll. Dictionary 1106 (4th ed. 2002). And “major” means “[g]reater than others in importance or rank.” Id. at 834. Given the words’ linguistic equivalence, it was within the Secretary’s rulemaking discretion to use the more common word “major,” while codifying the “primary purpose” requirement of Section 527. 42

This requirement is not just a matter of federal statutory policy. It is also based on the First Amendment. In Buckley, the U.S. Supreme Court adopted a “major purpose” test to trigger reporting and disclosure requirements for advocacy groups, thereby ensuring that only “campaign related” organizations would be subject to comprehensive regulation. 424 U.S. at 79. The test ensures that government regulation does not “discourage[] associations, particularly small associations with limited resources, from engaging in protected political speech.” Minn. Citizens Concerned for Life, 692 F.3d at 874. The district court believed that the “major purpose” requirement “narrow[s] the definition of ‘political organization.’” (Adden. B at 9.) Rule 7.2, however, makes no additions to the law; it merely makes explicit one requirement of 26 U.S.C. § 527, the federal statute on which Colorado’s definition of “political organization” is based. Through Rule 7.2, the Secretary sought to provide Colorado citizens with information about existing legal requirements relevant to the definition of “political organization.” Rather than being forced to flip back and forth between judicial precedent, federal and state statutes, and administrative 43

regulations, the public could consult a single resource—the Secretary’s rules—to understand how the definition works. As one commenter suggested, this creates a “one-stop location for private citizens (that is, those without representation) to learn what is required of them under Colorado law.” (Admin. R. Vol. 2, Tab 14 at 1.) 2. Rule 1.10 uses longstanding case law to clarify the meaning of “influencing or attempting to influence.”

The words “influencing or attempting to influence”—another element of the statutory definition of “political organization”—have acquired a specific meaning in the area of campaign finance law. Nearly forty years ago in Buckley, the United States Supreme Court analyzed a nearly identical phrase: “for the purpose of . . . influencing.” 424 U.S. at 74–82. The phrase, used to trigger disclosure and reporting obligations, “pose[d] constitutional problems” because of its potential to include “both issue discussion [which the First Amendment broadly protects] and advocacy of a political result [which may be regulated more stringently].” Id. at 77, 79.

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To remedy these “constitutional problems,” the Court adopted a narrowing construction, holding that the phrase must only reach activity “that expressly advocate[s] the election or defeat of a clearly identified candidate.” Id. at 80. Rule 1.10 makes explicit what the First Amendment has long required. The rule incorporates the “express advocacy” standard into the ambiguous phrase “influencing or attempting to influence,” using language from Buckley to avoid the phrase’s constitutional problems. The General Assembly “is presumed to adopt the construction which prior judicial decisions have placed on particular language.” Vaughan v. McMinn, 945 P.2d 404, 407 (Colo. 1997). Rule 1.10 is not, therefore, “contrary to the clear terms of the statute and the intent of the legislature,” as the district court believed. (Adden. B at 9.) The rule simply clarifies a term of art the General Assembly chose to adopt. Recent case law affirms that Rule 1.10’s construction of the term “influencing” is constitutionally compelled. The First Circuit, for example, held that “the term influencing’” presents “vagueness problems.” Nat’l Org. for Marriage v. McKee, 649 F.3d 34, 65 (1st Cir. 45

2011). In the court’s view, the term could be read to include various types of speech, including “advocacy for or against a candidate’s election; championing an issue for inclusion in a candidate’s platform; and encouraging all candidates to embrace public funding.” Id. “Without more context,” the term is “uncertain enough that a person of average intelligence would be forced to guess at its meaning and modes of application.” Id. (internal quotation marks omitted). The defendants in that case—state public officials responsible for administering Maine’s campaign finance laws—acknowledged that “influencing” is “insufficiently clear on its face to satisfy due process standards.” Id. at 66. They therefore officially adopted a “narrowing construction,” as Rule 1.10 does, which interpreted “influencing” to mean “communications and activities that expressly advocate for or against [a candidate] or that clearly identify a candidate by apparent and unambiguous reference and are susceptible of no reasonable interpretation other than to promote or oppose the candidate.” Id. at 66–67. This “narrowed formulation,” the court held, was “considerably

46

more precise than the original.” Id. at 67. And “so limited,” the term “influencing” was “not so vague as to offend due process.” Id. Another federal court adopted a similar “limiting construction” to ensure the phrase “influencing an election” was not unconstitutionally vague. Vt. Right to Life Comm., Inc. v. Sorrell, 875 F. Supp. 2d 376 (D. Vt. 2012). Indeed, the court held that “it would have reached the same conclusion in interpreting otherwise expansive language like ‘influencing’.” Id. The Colorado Supreme Court recently observed that Colorado campaign finance law must be construed to avoid the “vagueness and over-breadth concerns from Buckley that are the bedrock of all campaign finance political speech jurisprudence.” Colo. Ethics Watch, 269 P.3d at 1258. By codifying a longstanding interpretation of the term “influencing” that the General Assembly is presumed to have adopted, this is precisely what Rule 1.10 accomplishes.

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D.

Rule 18.1.8(a) implements the Secretary’s authority to waive penalties for failure to file major contributor reports.

“Major Contributor Reports” are disclosures that must be filed by candidate committees, political committees, issue committees, and political parties within thirty days of an election. C.R.S. § 1-45-108(2.5). In these reports, entities must list “any contribution of one thousand dollars or more” they received within the thirty-day time period. Id. The reports must be filed “no later than twenty-four hours after receipt of said contribution.” Id. Under C.R.S. § 1-45-111.5(1.5)(c), an entity that fails to file any report—including a Major Contributor Report—is subject to a sanction of up to $50 “per day for each day that [the report] . . . is not filed by the close of business on the day due.” The Secretary may, upon receiving an appeal of a sanctions order, “set aside or reduce the penalty [for failure to file a report] upon a showing of good cause.” Colo. Const., art. XXVIII, § 10(2)(c). To implement the appeal provisions of Article XXVIII, § 10, the Secretary has created a system of uniform “requests for waiver” that a 48

person or entity may file with the Secretary (or an administrative law judge) after receiving a penalty for violation of the campaign finance laws. See Rule 18.1. The Secretary’s request-for-waiver rules explicitly define the circumstances under which various penalties will be waived. In doing so, the rules create clarity and predictability for those seeking to engage in public debate but fearing that simple mistakes will lead to large, unpredictable penalties. As the record illustrates, these fears are legitimate. During rulemaking, one commenter noted, “I have been a volunteer treasurer on a few campaigns and had the experience of making a mistake and costing my candidate nearly $1,000 in a race that raised in the neighborhood of $34,000.” (Admin. R. Vol. 2, Tab 17 at 1.) The “rookie mistake” this commenter described was failing to file a Major Contributor Report. In the commenter’s view, the “mistake was unintentional and did not harm my candidate’s opponent or the public.” (Id.) She believes that those “who should know better and [are] willful violators of campaign finance laws should be punished with fines.” (Id.)

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But where fines only serve to punish those who try to act in good faith, they “d[o] not benefit the public or the process.” (Id.) Rule 18.1.8(a) addresses these concerns by defining when a failure to file a Major Contributor Report will be excused for “good cause” under Article XXVIII, § 10(2)(c). Rule 18.1.8(a) states that “[p]enalties assessed for failure to timely file a Major Contributor Report . . . stop accruing on the date that the contribution is first disclosed, either on the Major Contributor Report or the regularly-scheduled Report of Contributions and Expenditures . . . . Penalties will not accrue beyond the date of the general election.” This rule recognizes that, once a regularly-scheduled report is filed, or when an election is over, any harm flowing from a failure to file a Major Contributor Report is diminished. A previous Secretary enacted a similar rule, former Rule 9.5.1, which excused political committees from filing separate electioneering reports “so long as any expenditure for electioneering communications [was] disclosed” in a regularly filed disclosure report. See Colo. Citizens for Ethics in Gov’t, 187 P.3d at 1213. In CCEG, this Court observed that 50

a $1,000 penalty would not have accrued had Rule 9.5.1 been promulgated before the offending conduct occurred. But “because Rule 9.5.1 [had] only prospective application,” the Court was required to analyze “whether the $1000 penalty . . . was erroneous.” Id. Despite the constitutional underpinnings of Rule 18.1.8—and despite this Court’s recognition in CCEG that a similar rule is valid and enforceable—the district court believed that Rule 18.1.8 “substantially denudes the statutory penalty” and would improperly allow bad actors to intentionally refuse to file a Major Contributor Report “knowing that the fine amount will be fixed on Election Day.” But this scenario was possible before the enactment of Rule 18.1.8(a): If a sophisticated entity desired to hide its major contributions, it could do so if it were willing to accrue penalties under Section 1-45-111.5(1.5)(c) until it filed a Major Contributor Report the day after the election. Of course, to do so, the entity would also have to delay filing a regularly-scheduled report, and would therefore incur additional penalties, just as it would under Rule 18.1.8(a).

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Rule 18.1.8(a) therefore does not excuse bad behavior any more than Section 1-45-111.5(1.5)(c) does; the Rule merely clarifies when penalties will be set aside for “good cause,” protecting entities that inadvertently fail to file a Major Contributor Report. This clarification of the constitutional “good cause” standard is within the Secretary’s rulemaking authority and should be upheld. Conclusion The Secretary respectfully requests that the Court reverse the district court’s order as to Rules 1.18.2, 1.12, 7.2, 1.10, and 18.1.8(a) and conclude that each of these rules is valid and enforceable.

52

Respectfully submitted on February 1, 2013. JOHN W. SUTHERS Attorney General /s/ Frederick R. Yarger LEEANN MORRILL First Assistant Attorney General Public Officials Unit State Services Section FREDERICK YARGER, 39479* Assistant Solicitor General MATTHEW GROVE, 34269* Assistant Attorney General Public Officials Unit State Services Section Attorneys for Secretary Gessler *Counsel of Record

53

CERTIFICATE OF SERVICE This is to certify that I have served this OPENING BRIEF OF APPELLANT / CROSS-APPELLEE COLORADO SECRETARY OF STATE on all parties by LexisNexis File & Serve at Denver, Colorado, on February 1, 2013, addressed as follows: Mark Grueskin Heizer Paul Grueskin LLP 2401 15th Street, Suite 300 Denver, Colorado 80202 Luis Toro Margaret Perl 1630 Welton Street Denver, Colorado 80202 Jennifer H. Hunt Hill & Robbins, P.C. 1441 18th Street, Suite 100 Denver, Colorado 80202-1256

/s/ Frederick Yarger

54

Paladino v. Gessler, 12 CA 1712 Addendum A to the Secretary’s Opening Brief: Campaign Finance Rules at Issue in this Appeal

Rule 1.7 “Electioneering communication” is any communication that (1) meets the definition of electioneering communication in Article XXVIII, Section 2(7), and (2) is the functional equivalent of express advocacy. When determining whether a communication is the functional equivalent of express advocacy: 1.7.1 A communication is the functional equivalent of express advocacy only if it is subject to no reasonable interpretation other than an appeal to vote for or against a specific candidate. 1.7.2 In determining whether a communication is the functional equivalent of express advocacy, it shall be judged by its plain language, not by an “intent and effect” test, or other contextual factors. 1.7.3 A communication is not the functional equivalent of express advocacy if it: (a) Does not mention any election, candidacy, political party, opposing candidate, or voting by the general public, (b) Does not take a position on any candidate's or officeholder's character, qualifications, or fitness for office, and (c) Merely urges a candidate to take a position with respect to an issue or urges the public to adopt a position and contact a candidate with respect to an issue. [Federal Election Commission v. Wisconsin Right to Life, 551 U.S. 449 (2007)] Former Rule 9.4 (predecessor to Rule 1.7) Pursuant to the decisions of the Colorado Court of Appeals in the case of Harwood v. Senate Majority Fund, LLC, 141 P.3d 962 (2006), and of the United States Supreme Court in the case of FEC v. Wisconsin Right to Life, 127 S. Ct. 2652 (2007), a communication shall be deemed an electioneering communication only if it is susceptible to no reasonable interpretation other than as an appeal to vote for or against a specific candidate. In making this determination, (1) there can be no freeranging intent-and-effect test; (2) there generally should be no discovery or inquiry into contextual factors; (3) discussion of issues cannot be banned merely because the issues might be relevant to an election; (4) in a debatable case, the tie is resolved in favor of not deeming a matter to be an electioneering communication.

A-1

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. [Buckley v. Valeo, 424 U.S. 1 (1976)] Rule 1.12 “Issue committee” * * * 1.12.3 For purposes of determining whether an issue committee has “a major purpose” under Article XXVIII, Section 2(10)(a)(I) and section 1-45103(12)(b)(II)(A), C.R.S., a demonstrated pattern of conduct is established by: (a) 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. Rule 1.18 “Political committee” * * * 1.18.2 “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 made to support or oppose the nomination or election of one or more candidates for state or local public office are a majority of the organization’s total spending during the same period. [Alliance for Colorado’s Families v. Gilbert, 172 P.3d 964, 970 (Colo. App. 2007)]

A-2

Rule 7.2 Political organizations. In the case of political organizations as defined in section 145-103(14.5), C.R.S.: 7.2.1 For purposes of section 1-45-108.5, C.R.S., an entity is considered a political organization only if: (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. [I.R.C. § 527(i)(5)(B) (2010)] * * *

Rule 18.1.8 18.1 Requests for waiver or reduction of campaign finance penalties 18.1.1 A request for waiver or reduction of campaign finance penalties imposed under Article XXVIII, Section 10(2) must state the reason for the delinquency. The filer should provide an explanation that includes all relevant factors relating to the delinquency and any mitigating circumstances, including measures taken to avoid future delinquencies. Before the Secretary of State will consider a request, the report must be filed, and a request including the information required by this paragraph must be submitted * 18.1.8 Major Contributor Reports (a) Penalties assessed for failure to timely file a Major Contributor Report under section 1-45-108(2.5), C.R.S., stop accruing on the date that the contribution is first disclosed, either on the Major Contributor Report or the regularly-scheduled Report of Contributions and Expenditures. Penalties will not accrue beyond the date of the general election. [Section 1-45-108(2.5) C.R.S.] * * * * *

A-3

Paladino v. Gessler, 12 CA 1712 Addendum B to the Secretary’s Opening Brief: The District Court’s August 10, 2012 Order

DISTRICT COURT, CITY AND COUNTY OF  DENVER, STATE OF COLORADO  1437 Bannock Street, Room 256  Denver, Colorado  80202  COLORADO ETHICS WATCH; COLORADO  COMMON CAUSE; DAVID PALADINO, et al.,  Plaintiffs,    v.    SCOTT GESSLER, as Secretary of State for the State  of Colorado,  Defendant.   

▲ COURT USE ONLY ▲  Case No.:  2012CV2133  (consolidated with 2012CV2153)    Courtroom:  280 

ORDER    THIS MATTER comes before the Court on Plaintiffs’ consolidated Complaints  challenging a number of rules promulgated by the Defendant in his capacity as Colorado’s  Secretary of State (“Secretary” or “Defendant”).      I.  Introduction    In 2002, the people of the state of Colorado passed Amendment 27, declaring    that . . . the interests of the public are best served by limiting campaign  contributions, encouraging voluntary campaign spending limits, providing for full  and timely disclosure of campaign contributions, independent expenditures, and  funding of electioneering communications, and strong enforcement of campaign  finance requirements.    Colo. Const. Art. XXVIII § 1.      In November, 2011, the Secretary instituted a rulemaking process to promulgate new  rules to administer and enforce Colorado’s campaign finance and election laws.  The new rules  became permanently effective on April 12, 2012.      Plaintiffs consist of numerous public interest groups, watchdog organizations, and  individuals, all of whom have an interest in the new rules.  Plaintiffs filed two separate 

complaints, which were consolidated in this action, challenging the following rules implemented  by the Secretary pursuant to the rulemaking process:  1.7; 1.10; 1.12; 1.18; 4.1; 4.2; 6.1; 6.2; 7.2;  14; and 18.1.8.  The parties agree that in light of subsequent changes implemented by the  Secretary, the challenges to Rules 6.1; 6.2 and 14 are moot.  Defendant does not challenge  Plaintiffs’ standing to bring this action.      II.  Standard of Review    Under the Colorado Administrative Procedure Act, C.R.S. § 24­4­101,  et seq., a  challenged agency action must be held unlawful if the reviewing court finds:    that 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 . . . .      C.R.S. § 24­4­106(7).  Upon such a finding, the court must “set aside the agency action and shall  restrain enforcement of the order or rule under review . . . and afford such other relief as may be  appropriate.”  Id.      An adopted agency rule is presumed to be valid, and the burden to establish its invalidity  rests on the party challenging the rule.   Colorado Ground Water Comm’n v. Eagle Peak Farms ,  919 P.2d 212, 217 (Colo. 1996).  An agency is presumed to have expertise in the substantive  arena in which it operates, and a court may give certain deference to the agency that adopts a rule  pursuant to its authorizing statute.   Tivolino Teller House v. Fagan, 926 P.2d 1208, 1215 (Colo.  1996).      The actual level of deference varies based upon the circumstances surrounding the  enacted rule.  Where rules are based on “judgmental or predictive facts,” “some deference to  administrative expertise is appropriate.”   U.S. West Commc’ns, Inc. v. Colorado Public Util.  Comm’n, 978 P.2d 671, 675 (Colo. 1999).  If a rule seeks to address the precise issue that the  legislature – or the people acting pursuant to their reserved legislative power as specified in  Article V, section 1 of the Colorado Constitution – has already addressed, the courts will  “‘construe the statute accordingly and afford no deference to the agency’s interpretation.’”   City  of Boulder v. Colorado Public Util. Comm’n , 996 P.2d 1270, 1277 (Colo. 2000) (citation  omitted).      Legal interpretations of a rule, a statute, or a constitutional amendment are reviewed on a  de novo basis.  Cerbo v. Protect Colo. Jobs, Inc., 240 P.3d 495, 500 (Colo. App. 2010) (citations  omitted).  Where an agency misconstrues or misapplies the law in executing in its regulatory    2 

function, the courts have no cause to defer to the agency’s approach.   See Sclavenitis v. Cherry  Hills Village Bd. Of Adjustment & Appeals , 751 P.2d 661, 664 (Colo. App. 1988).  “An agency  rule may not modify or contravene an existing statute, and any rule that is inconsistent with or  contrary to a statute is void.”  Independence Institute v. Gessler, __ F. Supp. 3d __, 2012 WL  1439167 at *8 (D. Colo. April 26, 2012) (citing  Suetrack USA v. Indus. Claim Appeals Office ,  902 P.2d 854 (Colo. App. 1995)) (brackets omitted).  Likewise, where an agency official  reinterprets a statute in a way that is contrary to that of his predecessor, the new construction is  owed no deference.  Common Cause v. Meyer, 758 P.2d 153, 159 (Colo. 1988).      In promulgating rules, the Secretary cannot redefine a term already defined in the  Constitution or statutes or in such a way that the definition imposes additional restrictions on a  statute or constitutional provision.   Sanger v. Dennis, 148 P.3d 404, 412 (Colo. App. 2006).  Any  rule must be reasonable and consistent with purposes of Article XXVIII.   Id. at 412 – 13.  In  summary:    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].  If, however, the court determines [the legislature] has not directly  addressed the precise question at issue, the court does not simply impose its own  construction on the statute, as would be necessary in the absence of an  administrative interpretation.  Rather, 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 the statute . . . .  If [the  legislature] has explicitly left a gap for the agency to fill, there is an express  delegation of authority to the agency to elucidate a specific provision of the  statute by regulation.  Such legislative regulations are given controlling weight  unless they are arbitrary, capricious, or manifestly contrary to the statute.   Sometimes the legislative delegation to an agency on a particular question is  implicit rather than explicit.  In such a case, a court may not substitute its own  construction of a statutory provision for a reasonable interpretation made by the  administrator of an agency.    Wine & Spirits Wholesalers v. Colo. Dep’t of Revenue , 919 P2d 894, 897 (Colo. App. 1996)  (quoting Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. , 467 U.S. 837, 842­43  (1984)) (emphasis added).      III.  Analysis    A.  Rule 1.7, Definition of “Electioneering Communications.”      Challenged Rule 1.7 provides as follows:    3 

  “Electioneering communication” is any communication that (1) meets the  definition of electioneering communication in Article XXVIII, Section 2(7), and  (2) is the functional equivalent of express advocacy. When determining whether a  communication is the functional equivalent of express advocacy:   1.7.1 A communication is the functional equivalent of express advocacy only if  it is subject to no reasonable interpretation other than an appeal to vote for or  against a specific candidate.   1.7.2 In determining whether a communication is the functional equivalent of  express advocacy, it shall be judged by its plain language, not by an “intent  and effect” test, or other contextual factors.   1.7.3 A communication is not the functional equivalent of express advocacy if  it:   (a) Does not mention any election, candidacy, political party, opposing  candidate, or voting by the general public,   (b) Does not take a position on any candidate's or officeholder’s character,  qualifications, or fitness for office, and   (c) Merely urges a candidate to take a position with respect to an issue or  urges the public to adopt a position and contact a candidate with respect to  an issue.     Plaintiffs complain that this new rule adds a “functional equivalence” test that  substantially narrows the definition of “electioneering communication” contained in Article  XXVIII § 2(7), and therefore improperly restricts the universe of those who must make the  required disclosures.  Further, Plaintiffs argue that the cases upon which the rule is based  (primarily F.E.C. v. Wisconsin Right to Life , 551 U.S. 449 (2007)) were rendered obsolete by  Citizens United v. F.E.C., 558 U.S. __, 130 S. Ct, 876 (2010).  In essence, Plaintiffs argue that  Citizen’s United placed few, if any, First Amendment restrictions on contribution disclosure  requirements, and that therefore the application of  Wisconsin Right to Life to disclosure  requirements is unwarranted.      However, new Rule 1.7 is similar in most respects to the rule it replaces, former Rule 9.4.   Former Rule 9.4 stated:    Pursuant to the decisions of the Colorado Court of Appeals in the case of  Harwood v. Senate Majority Fund, LLC , 141 P.3d 962 (2006), and of the United  States Supreme Court in the case of  F.E.C. v. Wisconsin Right to Life , 127 S. Ct.  2652 (2007), a communication shall be deemed an electioneering communication  only if it is susceptible to no reasonable interpretation other than as an appeal to  vote for or against a specific candidate.  In making this determination, (1) there  can be no free­ranging intent­and­effect test; (2) there generally should be no 

 

discovery or inquiry into contextual factors; (3) discussion of issues cannot be  banned merely because the issues might be relevant to an election; (4) in a  debatable case, the tie is resolved in favor of not deeming a matter to be an  electioneering communication.      The new rule adds no substantive additional terms and imposes no additional restrictions  over the old rule.  While it may be that  Citizens United renders both new and old rules obsolete,  prior Rule 9.4 was in effect and unchallenged until it was superseded by Rule 1.7.      Plaintiffs rely on In re Interrogatories Propounded by Governor Ritter, Jr., Concerning  the Effect of Citizens United v. Federal Election Comm’n, 558 U.S. __ (2010) on Certain  Provisions of Article XXVIII of The Constitution of the State of Colorado , 227 P.3d 892 (2010)  (“Interrogatories”).  There, the Colorado Supreme Court ruled that  Citizens United invalidated  Colorado Constitution Article XXVIII §§ 3(4) and 6(2); these sections made it unlawful for a  corporation or labor organization to fund electioneering communications.  Plaintiffs point out  that Interrogatories left the disclosure requirements of Article XXVIII undisturbed.  But  Plaintiffs read too much into that decision.  The Colorado Supreme Court was not asked about  the disclosure requirements of Article XXVIII and therefore did not render a decision about  corporate or union disclosures.  Moreover, I agree with Defendant that  Colorado Ethics Watch v.  Senate Majority Fund, 269 P.3d 1248 (Colo. 2012) reaffirms Wisconsin Right to Life’s  applicability to the Colorado Constitution’s definition of “Electioneering Communication.”   E.g.,  Colorado Ethics Watch v. Senate Majority Fund, 269 P.3d at 1257­58 and 1258 n.8.      Here, it appears that the Secretary did not modify or contravene an existing statute.   Independence Institute v. Gessler, __ F. Supp. 3d __, 2012 WL 1439167 at *8 (D. Colo. April  26, 2012); Sanger v. Dennis, 148 P.3d 404, 412 (Colo. App. 2006).  Further, the challenged rule  is similar to the rule enacted by Defendant’s predecessor, and it therefore is entitled to deference.   Ingram v. Cooper, 698 P.2d 1314 (Colo.1985).  Accordingly, I conclude that the Secretary has  acted within his authority under C.R.S. § 24­4­101 in promulgating Rule 1.7.      B.  Rule 1.12, Reporting Threshold for Issue Committees       Among other things, Art. XXVIII § 2(10)(1)(I) defines an “issue committee” as a group  that “has a major purpose of supporting or opposing any ballot issue or ballot question.”      Challenged Rule 1.12.3 relates to the phrase “major purpose,” and states as follows:  For purposes of determining whether an issue committee has “a major purpose”  under Article XXVIII, Section 2(10)(a)(I) and section 1­45­103(12)(b)(II)(A),  C.R.S., a demonstrated pattern of conduct is established by:   (a) 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.     Plaintiffs challenge this rule arguing that the addition of a revenue percentage  requirement (30%) is arbitrary, and that such a limitation is not provided for in C.R.S. § 1­45­ 103­12(b)(I)­(III) which already defines the term “major purpose” without resorting to an annual  revenue percentage of any kind.  The Defendant responds that he is providing a clear, bright line  test that brings certainty to those groups which may qualify as issue committees.    C.R.S. § 1­45­103­12(b)(I)­(III) defines “major purpose.”  Plaintiffs are correct that the  statute does not include an annual income percentage in its definition.  Prior to the enactment of  the statute, two cases had already held that the term “major purpose” as used in Article XXVIII  was not ambiguous.  Cerbo v. Protect Colo. Jobs, Inc., 240 P.3d 495 (Colo. App. 2010);  Independence Institute v. Coffman, 209 P.3d 1130 (Colo. App. 2008).  Subsequent to these cases,  the legislature passed a statute essentially codifying the holding of these two cases.  C.R.S. § 1­ 45­103(12)(b).      The additional 30% requirement adds a restriction not found in the statute and not  supported by the record.  The revenue requirement works further mischief in that it appears not  to be income neutral.  In other words, issue committees with very little income, which  presumably spend most of that income on election­related matters, will be required to report.   But large corporations or wealthy individuals could spend substantial sums of money on issues  and yet not have to report because they are spending less than 30% of their revenue on these  activities.  Certainly this is contrary to the intent of the electorate, which has expressed an  interest in compelling more disclosure, not less.  Colo. Const. Art. XXVIII § 1.      Regardless of the consequences of the 30 percent requirement, its addition to the major  purpose definition inappropriately modifies and contravenes an existing statute, C.R.S. § 1­45­ 103(12)(b).   Independence Institute v. Gessler , __ F. Supp. 3d __, 2012 WL 1439167 at *8 (D.  Colo. April 26, 2012).  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.  For these reasons, Rule  1.12.3 is invalid as it exceeds the Secretary’s delegated authority under C.R.S. § 24­4­103(8)(a).   Wine & Spirits Wholesalers v. Colo. Dep’t of Revenue , 919 P.2d 894, 897 (Colo. App. 1996);  Sanger v. Dennis, 148 P.3d 404, 412 (Colo. App. 2006).      C.  Rule 1.18.2, Expenditure Threshold for “Political Committee”     Challenged Rule 1.18.2 defines “political committee” as follows:    “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 made to support or oppose the nomination or election of one  or more candidates for state or local public office are a majority of the organization’s  total spending during the same period.     Plaintiffs object to this rule because it adds the further limitation that a “majority of the  organization’s total spending” be directed towards supporting or opposing candidates.  Plaintiffs  point out that this definition radically narrows the definition of “political committee” set forth in  Art. XXVIII § 2(12)(a).  There, “political committee” is defined as any group that spends or  receives more than $200 to support or oppose candidates.  Defendant argues that the rule’s  “major purpose” test is clearly required in light of  Alliance for Colorado’s Families v. Gilbert ,  172 P.3d 964 (Colo. App. 2007) and Colorado Right to Life Comm., Inc. v. Coffman , 498 F.3d  1137, 1154­55 (10th Cir. 2007).  Both of these cases held that, as applied to the parties in those  two cases, the “political committee” test now articulated in Rule 1.18.2 was required by  Buckley  v. Valeo, 424 U.S. 1 (1976).      Both Alliance for Colorado’s Families v. Gilbert  and Colorado Right to Life Comm., Inc.  v. Coffman undeniably required application of the  Buckley test to determine whether the  plaintiffs in these cases were subject to regulation as political committees.  Nevertheless, the  Secretary’s proposed definition is clearly contrary to the “political committee” definition in  Amendment XXVIII.  Courts “cannot re­write state laws to conform [to] constitutional  requirements where doing so would be inconsistent with legislative, or here, the state citizenry’s  intent. . . .” Alliance for Colorado’s Families v. Gilbert , 172 P.3d 964, 972 (Colo. App. 2007)  (quoting Colorado Right to Life Comm., Inc. v. Coffman , 498 F.3d 1137, 1154­55 (10th Cir.  2007)).      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).  Both Alliance for Colorado’s Families v. Gilbert  and Colorado Right to Life Comm.,  Inc. v. Coffman hold that such a narrowing is impermissible (though, paradoxically, also required  to pass constitutional muster as applied in those cases).  But Section 2(12)(a) has never been  declared facially unconstitutional, so there still may be circumstances where it can apply as  written.      Ultimately, it comes down to this:  Can the Secretary add a “major purpose” limitation to  Section 2(12)(a) to save the provision, or is it a matter for a the legislature or the citizens,  through referendum, to fix it?  While the Secretary’s pragmatism is to be respected, removing a  critical element of 2(12)(a) by rule goes beyond the Secretary’s powers.   Sanger v. Dennis, 148  P.3d 404 (Colo. App. 2006); Wine & Spirits Wholesalers v. Colo. Dep’t of Revenue , 919 P.2d  894, 897 (Colo. App. 1996).  He assumes a solution without legislative or voter input, and 

 

thereby exceeds his delegated authority.  C.R.S. § 24­4­103(8)(a).  For these reasons, Rule 1.18.2  is invalid.      D.  Rule 1.10 and 7.2.1, Definition of “political organization”     Challenged Rule 7.2.1 states:    Political organizations.  In the case of political organizations as defined in section  1­45­103(14.5), C.R.S.:   7.2.1 For purposes of section 1­45­108.5, C.R.S., an entity is considered a  political organization only if [it]:   (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.    (Punctuation in the original.)    Challenged Rule 1.10 states:    “Influencing or attempting to influence”, for purposes of political organizations as  defined in section 1­45­103(14.5), C.R.S., means making expenditures for  communications that expressly advocate the election or defeat of a clearly  identified candidate or candidates.     (Punctuation in the original.)    Plaintiffs maintain that these two rules impermissibly narrow the definition of “political  organization” which already is defined in C.R.S. § 1­45­103(14.5).  The result, according to  Plaintiffs, is that that “political organization” as defined by these rules becomes indistinguishable  from “political committee” which in turn results in a loophole that allows organizations to avoid  reporting at all.  The Secretary responds that Rule 7.2.1 merely echoes the definition of Section  527 of the Internal Revenue Code, and that Rule 1.10 is supported by “forty years of First  Amendment Jurisprudence.”    C.R.S. § 1­45­103(14.5) defines “political organization” as    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.      8 

  To this, the Secretary’s rule adds a “major purpose” requirement and further narrows the  phrase “influence or attempting to influence” to “express advocacy.”  Thus, under the challenged  rules, “an entity is considered a political organization only if [it] . . . has as its major purpose  influencing or attempting to influence elections as defined in Rule 1.10.”  Rule 1.10 in turn  defines “influencing or attempting to influence” as “making expenditures for communications  that expressly advocate the election or defeat of a clearly identified candidate or candidates.”   Read in combination, as intended, the two rules define a “political organization” as an entity  which has as its major purpose making expenditures for communications that expressly advocate  the election or defeat of a clearly identified candidate or candidates.      Thus, the 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 restriction under the challenged rules.  Such a result is contrary to  the clear terms of the statute and the intent of the legislature.   See Letter from State Senator  Morgan Carroll to Secretary of State Scott Gessler (Dec. 14, 2011) (Record at Tab 5.11).   Removing or limiting critical elements of C.R.S. § 1­45­103(14.5) by rule goes beyond the  Secretary’s powers.  Sanger v. Dennis, 148 P.3d 404 (Colo. App. 2006); Wine & Spirits  Wholesalers v. Colo. Dep’t of Revenue , 919 P.2d 894, 897 (Colo. App. 1996).  He thus has  exceeded his delegated authority under C.R.S. § 24­4­103(8)(a).  For these reasons, Rules 1.10  and 7.2 are invalid.      E.  18.1.8(a), Major Contributor Reporting Penalties     Challenged Rule 1.18.1 provides as follows:    18.1 Requests for waiver or reduction of campaign finance penalties   18.1.1 A request for waiver or reduction of campaign finance penalties  imposed under Article XXVIII, Section 10(2) must state the reason for the  delinquency. The filer should provide an explanation that includes all relevant  factors relating to the delinquency and any mitigating circumstances, including  measures taken to avoid future delinquencies.  Before the Secretary of State  will consider a request, the report must be filed, and a request including the  information required by this paragraph must be submitted   * * *  18.1.8 Major Contributor Reports  

 

(a) Penalties assessed for failure to timely file a Major Contributor Report under  section 1­45­108(2.5), C.R.S., stop accruing on the date that the contribution is  first disclosed, either on the Major Contributor Report or the regularly­scheduled  Report of Contributions and Expenditures.  Penalties will not accrue beyond the  date of the general election.      Plaintiffs challenge this rule claiming that it sets a definite cut off for the accrual of fines  for failure to file required reports.  Plaintiffs maintain that certain wealthy organizations simply  will decline to file knowing that the fine for failing to do so will be fixed on Election Day.   Defendant maintains that he simply is setting forth what constitutes good cause for failing to file  a report.      C.R.S. § 1­45­108(2.5) specifies when a major donor report must filed.  C.R.S. § 1­45­ 111.5(c) sets the penalty for failing to do so:  “fifty dollars per day for each day that a report  [required to be filed] is not filed.”  There is no limit, and no cutoff date.  Rule 18.1.8 abrogates  the fifty dollar per day penalty once a contributor is identified in any report, either the Major  Contributor Report or the regularly­scheduled Report of Contribution and Expenditures.  But the  rule goes too far and cuts off all penalties as of the date of the general election.      This substantially denudes the statutory penalty and raises the possibility that those  subject to the penalty simply will not report knowing that the fine amount will be fixed on  Election Day.  The Secretary does not address the effect of the cutoff date in his brief.  Stopping  accrual of the fine on Election Day is contrary to the stated interests of “strong enforcement of  campaign finance requirements” as stated in Art. XVIII § 1.  Furthermore, the rule removes an  enforcement element from C.R.S. § 1­45­111.5(c) by setting an ultimate limit on fines for lack of  reporting.  As such, this rule is beyond the Secretary’s powers under  Sanger v. Dennis, 148 P.3d  404 (Colo. App. 2006); Wine & Spirits Wholesalers v. Colo. Dep’t of Revenue , 919 P.2d 894,  897 (Colo. App. 1996).  He thus has exceeded his delegated authority under C.R.S. § 24­4­ 103(8)(a).  For these reasons, Rule 18.1.8 is invalid.      F.  Rules 4.1 and 15.6    Rules 4.1 and 15.6 increase the reporting limits for issue committees to $5,000.  Both  rules contain a disclaimer indicating that they will not be enforced unless  Colorado Common  Cause v. Gessler, No. 2011CV4164 (Denver Dist. Ct. Nov. 17, 2011) is overturned by a higher  court.  Colorado Common Cause held that the $5,000 limit in Rule 4.1’s predecessor, Rule 4.27,  was invalid.  The Secretary has indicated in Rules 4.1 and 15.6 that they will not be enforced in  light of the trial court’s ruling in Colorado Common Cause.      Under the doctrine of ripeness, a claim must be real and immediate.  With this  requirement in mind, we must refuse to consider uncertain or contingent future  matters that suppose speculative injury that may never occur.  We determine 

 

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ripeness on the basis of the situation at the time of review, not the situation  existing when the trial court acted.    Developmental Pathways v. Ritter , 178 P.3d 524, 534 (Colo. 2008) (citations and internal quotes  omitted).  Here, the Secretary has expressly stated that Rules 4.1 and 15.6 will not be enforced  pending a ruling in Colorado Common Cause.  Because there is no real and immediate threat of  enforcement, I conclude that Plaintiffs’ claims with respect to these two rules are not ripe for  decision.      IV.  Conclusion    For the reasons set forth above, Rule 1.7 is valid.  Rules 1.10; 1.12; 1.18; 7.2; and 18.1.8  are invalid.  Rules 4.1 and 15.6 are not yet ripe for determination.      ENTERED this 10th day of August, 2012.    BY THE COURT:   

J. Eric Elliff  District Court Judge       

 

 

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