Legal Library

No. 98-36256

IN THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

____________________________________

Montana Chamber of Commerce, et. al.

Plaintiffs-Appellees,

v.

Ed Argenbright, in his official capacity as Commissioner of Political Practices,

Defendant,

League of Women Voters of Montana, Montana Common Cause, MontPirg 2030 Fund and Citizens for I-125,

Defendant-Intervenor-Appellant.
____________________________________

Brief of Defendant-Intervenor-Appellant, League of Women Voters of Montana, Montana Common Cause, MontPirg 2030 Fund and Citizens for I-125 (Challenging the District Court Ruling on I-125)
____________________________________

BRENDA WRIGHT
JOHN C. BONIFAZ
GREGORY LUKE
National Voting Rights Institute
294 Washington Street, Suite 713
Boston, Massachusetts 02108
(617) 368-9100

JONATHAN MOTL
Reynolds, Motl and Shewood, P.L.L.P.
401 Last Chance Gulch
Helena, Montana 59601
(406) 442-3261

STATEMENT OF JURISDICTION

(a) The district court had jurisdiction under 28 U.S.C. § 1331.

(b) The final judgments appealed from were entered pursuant to Fed. R. Civ. P. 58. This Court has jurisdiction under 28 U.S.C. § 1291.

(c) The district court entered its final judgments on November 20, 1998. CR 187; CRMMA 43.[fn1] Defendant-Intervenor-Appellant’s notices of appeal were filed on December 17, 1998. CR 188; CRMMA 45. The appeal is timely under Fed. R. App. P. 4(a)(1)(A).

STATEMENT OF THE ISSUE

Whether the district court erred in ruling that Montana’s Initiative 125, which bars corporations from using corporate general treasury funds in ballot measure campaigns but permits unlimited corporate spending on such measures from segregated funds raised from officers, employees, members or shareholders of the corporation, violates the First Amendment. CR 77 at 1,7-12.

STATEMENT OF THE CASE

Defendant-Intervenor-Appellant I-125 Proponents’ Committee ("Intervenor") joins the Statement of the Case set forth in the brief of Appellant Ed Argenbright, Commissioner of Political Practices, and provides the following supplemental information pertinent to Intervenor.

Intervenor I-125 Proponents’ Committee, formed by the League of Women Voters of Montana, Montana Common Cause, MontPIRG 2030 Fund, and Citizens for I-125, was the principal proponent of I-125. Intervenor’s motion to intervene as defendant in Montana Chamber of Commerce, et al. v. Argenbright, No. CV 97-6-H-CCL (D. Mont.) (hereafter, the "Chamber case"), was granted on September 29, 1997. CR 55. Intervenor was also granted leave to intervene as defendant in the later-filed case of Montana Mining Association et al. v. Argenbright, No. CV 98-37-H-CCL (D. Mont.) (hereafter, the "MMA case"), on September 18, 1998. CRMMA 20. Intervenor’s appeals of the judgments entered by the district court in each of those cases are before this Court as Nos. 98-36256 and 98-36257.

Intervenor participated fully in the trials of both cases, which were conducted consecutively, starting with the trial of the Chamber case on October 13, 14, 15, 19, 20 and 21, 1998, and followed immediately by the trial of the MMA case on October 21 & 22, 1998. By agreement of the parties, the entire record of the Chamber case was admitted as part of the record in the MMA case.

CRMMA 35.

STATEMENT OF FACTS

Intervenor joins in the statement of facts presented in the brief of Appellant Argenbright.

STANDARD OF REVIEW

This case involves the constitutionality of a state statute, and the district court’s ruling is therefore reviewed de novo. California First Amendment Coalition v. Calderon, 150 F.3d 976, 980 (9th Cir. 1998). The district court’s conclusions also present mixed questions of fact and law that are subject to de novo review by this Court. See National Association of Radiation Survivors v. Derwinski, 994 F.2d 583 (9th Cir. 1993) (en banc), cert. denied, 510 U.S. 1023 (1993); Bay Area Peace Navy v. U.S., 914 F.2d 1224, 1226-1227 & n.1 (9th Cir. 1990).

SUMMARY OF ARGUMENT

Montana’s I-125 is designed to assure that corporate participation in ballot initiative campaigns reflects actual public support for the corporation’s political views, rather than the sheer economic power that corporations derive from the state-created advantages of the corporate form. To that end, I-125 prohibits the use of corporate general treasury funds in ballot initiative campaigns, while permitting corporations to participate in such campaigns through the use of segregated funds collected from employees, members and shareholders who wish to support the corporation’s political activities. Mont. Code Ann. § 13-35-227.[fn 2]

I-125 is carefully tailored to adhere to the Supreme Court’s rulings in Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990), and FEC v. Massachusetts Citizens for Life, Inc., 479 U.S. 238 (1986), which recognize that states have a compelling interest in preventing corporations from using the state-created advantages of the corporate form to secure an artificial advantage in the electoral arena. Austin, 494 U.S. at 659-660; MCFL, 479 U.S. at 258. The district court’s decision striking down I-125 misapprehends the principles established by those decisions in several critical ways and requires reversal.

First, the district court failed to recognize the compelling state interests supporting I-125 because it employed the wrong definition of "corruption." The district court mistakenly believed that the only type of corruption that would justify I-125’s limits on the use of corporate general treasury funds in campaigns is financial quid pro quo corruption — the trading of political favors for campaign contributions. In Austin, however, the Supreme Court specifically declined to rely on that traditional anti-corruption rationale in upholding a Michigan statute that prohibited the use of corporate general treasury funds to make independent expenditures in political campaigns. The ban on using corporate general treasury funds, the Court held, was instead supported by Michigan’s interest in preventing

a different type of corruption in the political arena: the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public’s support for the corporation’s political ideas.

Austin, 494 U.S. at 660; see also MCFL, 479 U.S. at 258. As explained in Point I.B. of this Brief, Montana’s I-125 serves precisely the same interest. The district court’s failure to apply the proper definition of corruption constitutes clear legal error.[fn 3]

Next, the district court erred in holding that I-125 could be justified only by evidence that "money [or] media advertising is the sole or . . . single most important variable controlling election outcomes" in Montana. CR 186 at 21. Again, this holding misapprehends Austin, whose record contained no evidence that spending was the sole or single most important variable in Michigan elections. Instead, the Supreme Court held that it was appropriate to defer to the legislative judgment that the special benefits conferred by the corporate form "present the potential for distorting the political process." 494 U.S. at 661 (emphasis added). See Point I.C.1, infra. Indeed, the evidence in this case demonstrating the impact of corporate spending in ballot initiative campaigns goes far beyond any showing made in Austin regarding the impact of independent expenditures on elections, and thus is more than sufficient to support the constitutionality of I-125. See Point I.C.2, infra.

The district court further erred in concluding that I-125 was unconstitutional because voter turnout in Montana is higher than the national average. Montana is not required to wait until voter turnout and participation decline to a disastrously low level before it may take action to enhance citizen confidence in the electoral process. Montana’s voter turnout has, in fact, been declining over the past 20 years, and survey research among Montana voters confirms that massive corporate spending in Montana initiative campaigns harms voters’ confidence in the integrity of the political process. Again, nothing in Austin or MCFL suggests that a state’s voter turnout must first drop below the national average before it may enact the type of regulation embodied in I-125. See Point I.D., infra.

The district court’s holding that I-125 improperly "silences" corporations also constitutes clear legal error. Just like the Michigan statute upheld in Austin, I-125 permits corporations to express their views in the electoral arena so long as they use segregated funds raised from employees, officers, members and shareholders. In holding that I-125 improperly circumscribes corporate free speech rights, the district court erroneously relied upon First National Bank of Boston v. Bellotti, 435 U.S. 765 (1978), which involved a complete ban on corporate spending in initiative elections and did not address a statute that specifically permitted corporate expenditures from segregated funds. See Point I.E., infra.

Finally, even if the Supreme Court’s decisions in Austin and MCFL were disregarded, Montana’s I-125 would be constitutional under Bellotti. Justice Powell’s opinion in Bellotti made clear that even a total ban on corporate spending in ballot campaigns could be upheld based on a proper factual showing that corporate expenditures have been significant or overwhelming in influencing initiative elections, or that such expenditures threatened citizens’ confidence in the electoral process. The record in this case contains precisely such evidence, as detailed in Point II, infra.

For all these reasons, Intervenor respectfully requests that the district court’s judgment be reversed.

ARGUMENT

I. THE DISTRICT COURT’S JUDGMENT STRIKING DOWN MONTANA’S I-125 CONFLICTS WITH THE SUPREME COURT’S DECISIONS IN AUSTIN AND MCFL AND MUST BE REVERSED.

The Supreme Court’s decisions in Austin and MCFL establish that states have a compelling interest in assuring that the wealth amassed by corporations in the economic marketplace through the state-created advantages of the corporate form does not distort the "marketplace of ideas" in the electoral arena. Austin, 494 U.S. at 659-660; MCFL, 479 U.S. at 257. Montana’s I-125 is narrowly tailored to serve that compelling interest and is fully constitutional.

A. Austin and MCFL

In Austin, the Supreme Court addressed the Michigan Chamber of Commerce’s challenge to a Michigan statute prohibiting corporations from using general treasury funds to make independent expenditures in political campaigns. While recognizing that independent campaign expenditures "constitute political expression at the core of our electoral process and of the First Amendment freedoms," 494 U.S. at 657 (citations and internal quotations omitted), the Court ruled that Michigan’s regulation was narrowly tailored to serve a compelling state interest and thus did not unconstitutionally burden the Chamber of Commerce’s First Amendment rights.

Of great importance to this case, the Supreme Court in Austin expressly declined to decide whether the compelling interests served by the Michigan statute included the state’s interest in preventing actual or apparent quid pro quo corruption — that is, the trading of political favors for campaign support. 494 U.S. at 659-660. The Court instead held that the statute

aims at a different type of corruption in the political arena: the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public’s support for the corporation’s political ideas.

494 U.S. at 660. Michigan’s interest in forestalling this "different" type of corruption, the Court held, justified the state’s ban on the use of corporate general treasury funds, despite the heightened First Amendment protection accorded to independent expenditures.[fn 4] Corporations’ continued ability to express their views by using segregated funds for political expenditures rendered the law sufficiently narrowly tailored to withstand constitutional scrutiny. 494 U.S. at 660-661.

The Supreme Court’s 1986 decision in FEC v. Massachusetts Citizens for Life ["MCFL"] foreshadowed the ruling in Austin. There, a non-profit corporation, Massachusetts Citizens for Life, argued that a federal statute requiring the use of segregated funds rather than general treasury funds for corporate independent expenditures was unconstitutional as applied to it, because MCFL was formed for the precise purpose of engaging in political activity despite its corporate form. While agreeing that the law was unconstitutional as applied to MCFL, the Court recognized that corporate spending, as a general matter, could improperly distort the political marketplace because

[t]he resources in the treasury of a business corporation . . . are not an indication of popular support for the corporation’s political ideas. They reflect instead the politically motivated decisions of investors and customers. The availability of these resources may make a corporation a formidable political presence, even though the power of the corporation may be no reflection of the power of its ideas.

479 U.S. at 258.

The Court ruled that Massachusetts Citizens for Life must be exempted from the statute’s ban on using general treasury funds for independent expenditures because it possessed three essential attributes that distinguished it from traditional business corporations: (1) MCFL "was formed for the express purpose of promoting political ideas, and [could] not engage in business activities," MCFL, 479 U.S. at 264; (2) MCFL had no "shareholders or other persons affiliated so as to have a claim on its assets or earnings," id.; and (3) MCFL was not established by and did not accept contributions from business corporations. Id. The Supreme Court’s subsequent decision in Austin, however, declined to extend this same exemption to the Michigan Chamber of Commerce. The Austin Court observed that the Chamber of Commerce, despite being a non-profit advocacy organization, had business and economic purposes as well as political purposes, and that most of its members were business corporations. Extending the MCFL exemption to the Chamber, the Court ruled, would enable business corporations to use the Chamber as a conduit for political spending. Austin, 494 U.S. at 661-664.

As commentators have widely recognized, the rationale of Austin and MCFL also logically permits states to require the use of such segregated funds for corporate expenditures in ballot initiative campaigns, notwithstanding the Court’s 1978 decision in First National Bank of Boston v. Bellotti, 435 U.S. 765 (1978), which struck down an absolute ban on corporate expenditures in initiative campaigns. As Professor Daniel Hays Lowenstein has written:

In MCFL, Bellotti was distinguished because it involved the "complete foreclosure of any opportunity for political speech." Federal Election Comm’n (FEC) v. Massachusetts Citizens for Life (MCFL), 479 U.S. 238 at 259 n.12 (1986). Presumably, what was meant was that the Massachusetts statute in Bellotti, unlike the federal statute in MCFL and the Michigan statute in Austin, made no provision for corporations to create political action committees (PACs). If so, then a ban on corporate expenditures ought to be constitutional, so long as corporations are permitted to create PACs that may spend money in ballot measure campaigns.

Daniel Hays Lowenstein, A Patternless Mosaic: Campaign Finance and the First Amendment After Austin, 21 Cap. U. L. Rev. 381, 403 n.88 (1992).[fn 5]

Montana’s I-125 is carefully tailored to adhere to the Supreme Court’s rulings in Austin and MCFL. Like the Michigan statute upheld in Austin, I-125 bars corporate spending from general treasury funds but leaves open another avenue for corporate expression by permitting corporations to use segregated funds raised from employees, members and shareholders. Mont. Code Ann. § 13-35-227(3). Consistent with the requirements of MCFL, I-125 includes an exemption for non-profit corporations that do not engage in business activities, have no for-profit corporate members and no shareholders or other affiliated persons with a claim on the corporation’s assets or earnings, and do not accept more than 5% of their annual revenue from for-profit corporations. Mont. Code Ann. § 13-35-227(4)(a)-(d). I-125 is a fully constitutional regulatory measure that should be upheld by this Court.

B. The District Court failed to recognize the compelling state interest behind I-125 because it employed the wrong definition of "corruption."

The central premise of the district court’s ruling is that, based on the testimony of plaintiff’s expert, Professor Lopach, "there is no corruption or appearance of corruption in Montana ballot issue elections." CR 186 at 21; see also id. at 14 ("Not only is Dr. Lopach unaware of any actual corruption in Montana politics, but also he is unaware of any issue giving rise to the appearance of corruption in the eyes of the voters.")

Both Professor Lopach and the district court, however, were laboring under a misunderstanding of the concept of corruption recognized by the Supreme Court in Austin and MCFL. The definition advanced by Professor Lopach in his opinion testimony had nothing to do with the definition set forth in those cases.

Q. [by Mr. Kaleczyc] For purposes of your opinion, would you define for the court what you understand and mean to be corruption?

A. Corruption means that there is a perversion at the core of something. It means that something is rotten. Something has become decayed. I think in terms of politics, it would be something that goes to the essence of democracy. It would be loss of integrity. So it’s a — it’s a very serious challenge. [RT 317 (ER 18)][fn 6]

* * *

A. Because corruption occurs, for example, when a voter is bribed or when an election official is bribed or when a legislator is bought off so that person no longer represents the public trust. There’s a betrayal of trust. Something that would rise to that level. [RT 318 (ER 19)]

Dr. Lopach repeatedly confirmed his view of corruption in the electoral sphere as traditional quid pro quo financial corruption of candidates and elected officials, declaring that his definition was based on the Supreme Court’s decision Buckley v. Valeo, which addressed precisely that type of corruption. See, e.g., RT 359-360 (ER 20-21); cf. Buckley, 424 U.S. at 26-27.

Clearly, Austin’s definition of the type of corruption that provides a compelling state interest for a ban on corporate general treasury spending differs substantially from the limited definition employed by Dr. Lopach and the district court. Indeed, in Austin the Supreme Court specifically held that it was unnecessary to address whether the prevention of quid pro quo financial corruption supported Michigan’s ban on using corporate general treasury funds. 494 U.S. at 659-660. The ban, instead, was justified by the compelling state interest in preventing "a different type of corruption in the political arena: the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public’s support for the corporation’s political ideas." Id. (emphasis added). See also MCFL, 479 U.S. at 258.[fn 7]

The district court’s opinion entirely fails to address Austin’s crucial definition of corruption. The district court relied instead on Dr. Lopach’s limited and legally inapposite definition. CR 186 at 21; see also id. at 15 (relying on testimony of another witness that "there is no evidence of corruption in Montana politics in the form of buying or selling votes or tampering with election results") (emphasis added); id. at 25 ("the State must demonstrate the existence or appearance of corruption, which the court defines to include real harm to the integrity of Montana’s ballot initiative process").

The district court’s definitional confusion constitutes serious legal error. In addressing the constitutionality of I-125, the district court simply failed to ask the right question. The right question is not whether I-125 serves to prevent bribery or other financial quid pro quo corruption. The right question is whether I-125 serves Montana’s compelling interest in preventing "the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public’s support for the corporation’s political ideas." Austin, 494 U.S. at 660.[fn 8] As explained further below, I-125 unquestionably serves that compelling state interest and should be sustained.

1. Montana has a compelling interest in requiring that expenditures reflect actual political support for the corporation’s political views.

Montana’s I-125 makes a constitutionally sound distinction between election spending that uses funds raised from persons who support an organization’s political viewpoint, on the one hand, and spending from funds that have been accumulated primarily for non-political purposes. As the Supreme Court recognized in FEC v. MCFL:

The resources in the treasury of a business corporation

. . . are not an indication of popular support for the corporation’s political ideas. They reflect instead the economically motivated decisions of investors and customers. The availability of these resources may make a corporation a formidable political presence, even though the power of the corporation may be no reflection of the power of its ideas.

MCFL, 479 U.S. at 258. Austin quoted this same passage in upholding Michigan’s ban on the use of corporate general treasury funds for independent expenditures, and added: "We therefore have recognized that ‘the compelling governmental interest in preventing corruption support[s] the restriction of the influence of political war chests funneled through the corporate form.’" 494 U.S. at 659 (quoting NCPAC, 470 U.S. at 500-501). See also FEC v. National Right to Work Committee, 459 U.S. 197, 207-08 (1982) (noting that regulation of corporate solicitations for PAC fund served goal of protecting shareholders whose investments were not made for political purposes).

Montana is no less entitled than Michigan to ensure that corporate spending in the electoral arena reflects actual support for the corporation’s views. Indeed, the record contains specific testimony by corporate shareholders that their own political beliefs were violated by the corporation’s spending on initiative campaigns in Montana. Testimony of Tony Jewett, RT 645-646 (ER 55-56); Deposition of Joseph M. McNulty, Ex. 736 at 30-31.[fn 9] Further, a professional survey of Montana residents showed that owners of corporate shares or mutual funds overwhelmingly believe that corporate spending on initiative campaigns reflects only the views of a few corporate officers rather than the views of shareholders. Ex. 580A at 5. As Austin and MCFL recognize, it is no answer to say that shareholders who disagree with a corporation’s political expenditures may simply liquidate their holdings, because they may face serious economic disadvantages for doing so — such as unfavorable market conditions, tax consequences, or other economic disincentives. MCFL, 479 U.S. at 264; Austin, 494 U.S. at 663.

Without limiting a corporation’s right to raise and spend as much as it wishes from investors, employees and officers who support the election-oriented activity of the corporation, Montana’s I-125 simply prevents the misuse of corporate general treasury funds that were never accumulated for that purpose. In this manner, I-125 helps "ensure that competition among actors in the political arena is truly competition among ideas." MCFL, 479 U.S. at 259. The district court erred in failing to recognize this compelling interest supporting I-125.

2. Montana has a compelling interest in preventing use of the state-created advantages of the corporate form to distort the marketplace of ideas.

Corporations, unlike individuals and non-incorporated entities, enjoy state-created rights that enhance their profit-making ability. Austin explains this as follows: "State law grants corporations special advantages — such as limited liability, perpetual life, and favorable treatment of the accumulation and distribution of assets — that enhance their ability to attract capital and to deploy their resources in ways that maximize the return on their shareholders’ investments." 494 U.S. at 658-659; see also MCFL, 479 U.S. at 258 n.11 (corporations are "by far the most prominent example of entities that enjoy legal advantages enhancing their ability to accumulate wealth.") Austin and MCFL recognize that states have a compelling interest in assuring that these state-created advantages do not provide corporations with unfair leverage in the electoral arena. Austin, 494 U.S. at 659-660; MCFL, 479 U.S. at 258.[fn 10]

A business corporation seeking to control the outcome of a ballot initiative election in Montana enjoys precisely the same state-created advantages that the Court described in Austin and MCFL. There exists no inherent right to the state’s assistance in securing an artificial advantage over other speakers in the marketplace of ideas. Montana thus has a compelling interest in requiring corporate spending in initiative campaigns to be conducted through segregated PAC funds raised specifically for use in the electoral arena.

C. The evidence documenting the impact of corporate spending in Montana elections is more than sufficient to support the constitutionality of I-125.

1. The district court erred in requiring proof that money is the only significant factor determining election outcomes.

 

The district court held that I-125 should be struck down because many factors influence the outcome of ballot elections in Montana and "neither money nor media advertising is the sole or even the single most important variable controlling election outcomes." CR 186 at 21. Again, this reasoning reflects legal error. There was no evidence before the Court in Austin that independent expenditures by corporations had been the sole or even the single most important variable in determining the outcome of Michigan elections.[fn 11] Indeed, the Supreme Court’s jurisprudence takes it as a given that independent expenditures of the type at issue in Austin often may not control the outcome of elections. See Buckley v. Valeo, 424 U.S. at 47: "[u]nlike contributions, such independent expenditures may well provide little assistance to the candidate’s campaign and indeed may prove counterproductive." Thus, requiring proof that independent expenditures were the sole or single most important factor in Michigan elections would clearly have resulted in invalidation of the Michigan regulation at issue in Austin.

Instead of requiring such proof, the Supreme Court in Austin focused on "the potential for distortion" presented by the use of the corporate structure, Austin, 494 U.S. at 661 (emphasis added), and held that this potential justified special restrictions on the use of corporate general treasury funds. This is particularly clear from the Supreme Court’s holding that the Michigan ban could constitutionally be applied to closely held corporations that may not have accumulated significant amounts of wealth, as well as to large publicly held corporations with substantial resources. The Austin Court held that it was appropriate to defer to the legislative judgment that the special benefits conferred by the corporate form "present the potential for distorting the political process", noting that the Court’s past cases had afforded similar deference to Congress’ judgment concerning the potential for undue influence presented by the use of the corporate structure. 494 U.S. at 661 (emphasis added) (citing FEC v. National Right to Work Committee, 459 U.S. at 209-210); see also MCFL, 479 U.S. at 257 (noting that traditional corporations raise "the prospect that resources amassed in the economic marketplace may be used to provide an unfair advantage in the political marketplace" (emphasis added). Cf. Turner Broadcasting System v. FCC, 512 U.S. 662, 665 (1994) ("courts must accord substantial deference to the predictive judgments of Congress"); Munro v. Socialist Workers Party, 479 U.S. 189, 195-96 (1986) ("Legislatures, we think, should be permitted to respond to potential deficiencies in the electoral process with foresight rather than reactively, provided that the response is reasonable and does not significantly impinge on constitutionally protected rights.")

The sole reference to Austin that appears in the district court’s opinion clearly reflects the district court’s confusion as to the type of factual showing necessary to support a ban on corporate general treasury spending. The district court stated:

While it may be conceivable that corporations could overwhelm the political speech of individual citizens in a particular case to such a degree that the integrity of the ballot initiative process itself is damaged, see Austin v. Michigan Chamber of Commerce, 494 U.S. 652, 661 (1990), the meager anecdotal evidence presented by the Defendants wholly fails to prove that such has occurred in Montana.

Again, the district court was simply mistaken in believing that Austin involved proof that corporate independent expenditures had overwhelmed the political speech of individual citizens in particular elections. Indeed, the portion of Austin cited by the district court is precisely where the Supreme Court discusses the need for deference to the legislature’s conclusion that even small, closely held corporations "present the potential for distorting the political process." Austin, 652 U.S. at 661 (emphasis added). Nothing in that passage, or anywhere else in the Austin decision, remotely suggests that Montana was required to meet the onerous factual burden imposed by the district court.

2. The record in this case fully demonstrates the potential of corporate spending to dominate ballot measure elections.

Although not required to do so under Austin, defendants and defendant-intervenor went the extra mile in the case at bar and presented substantial proof of the importance of spending in ballot measure elections in Montana and the role of corporate spending in particular. This record evidence underscores the compelling interests supporting I-125.

At the most basic level, corporations themselves have demonstrated their belief in the importance of money in determining election outcomes by pouring huge amounts of it into Montana initiative campaigns. As notable examples, corporate interests spent $2,300,000 to defeat a water-quality initiative in 1996, over $1,500,000 to defeat an initiative to reduce smoking and improve public health through a 25-cent tobacco tax, and approximately $500,000 to defeat each of two different "bottle bill" initiatives in 1988 and 1980. Ex. 506, 801. These expenditures funded sophisticated, professional campaigns run by advertising and political consultants and employing massive television, radio, newspaper and direct mail advertising. Quite simply, if money were not an important factor in initiative campaigns in Montana, corporations would not spend it.

Between 1982 and 1994, nearly three out of every four dollars spent on initiative campaigns in Montana came from corporations and their allied trade associations. C.B. Pearson & Hilary Doyscher, Big Money and Montana’s Ballot Campaigns: A Study of Campaign Contributions to Montana’s Ballot Elections from 1982 to 1994, Ex. 602 at 1, 7. During that period, the largest five corporate contributions combined with the largest five trade association contributions accounted for nearly $2,000,000 in spending on ballot measures, a little less than half of all dollars raised for all ballot measures during that period. Id. at 12-13.[fn 12] All of these latter contributions were spent to oppose various initiatives, and all of those initiatives failed. Id.

In several initiative campaigns, the contributions of the corporate side have amounted to more than 90% -- sometimes more than 95% -- of all contributions from both sides of the initiative debate.[fn 13] In fact, the total amount spent by 16 corporations or corporate trade associations on just one Montana initiative in 1990 nearly equaled the total amount of campaign contributions made by 17,000 contributors to all candidates for statewide or state legislative office in Montana that year. RT 904 (ER 69) (testimony of Samantha Sanchez). The overwhelming impact of this spending is not surprising in light of the staggering economic power of many of the corporate contributors to Montana ballot campaigns, whose operating revenues may be in the billions of dollars. See Ex. 518, 534.

The evidence showed that spending in opposition to initiatives proposed by citizens’ groups has been particularly overwhelming in assuring the defeat of such initiatives. The defeat of such initiatives is of particular concern in view of Montana’s original purpose for adopting the initiative and referendum process: to provide a means for the people to legislate directly when the legislature is resistant to important reforms desired by citizens.[fn 14] An analysis of all initiative campaigns since 1982 in which two-thirds or more of the total spending was done on the "no" side (the side opposing enactment of the initiative) showed that such initiatives were defeated seven out of nine times. Ex. 742. Overall, from 1982 through 1994, opponents of ballot issues raised over $3.3 million, more than 70% of all money raised in initiative campaigns during that period. Ex. 602 at 15.

Testimony of citizens such as Dr. Robert Shepard, a physician who personally participated in the campaign to enact I-115, an anti-smoking initiative, also demonstrated how one-sided spending funded by the corporate checkbook has distorted the "marketplace of ideas" contemplated by Austin and MCFL.

Dr. Shepard volunteered to support I-115, because he had witnessed the devastating impact of tobacco on the health of his patients during his 20 years of practicing family medicine in Helena. Taking unpaid leave from his practice, he ultimately became the treasurer and chief spokesperson for the initiative. RT 513-520 (ER 37-44). I-115 started with substantial public support as indicated by polls showing 62% of voters favoring the initiative. Ex. 529; see RT 523 (ER 45). Tobacco companies, however, poured over $1.5 million into the effort to defeat the initiative, raising this entire amount from just 16 contributions by tobacco companies and their allied trade associations. Not a single individual contributed to the tobacco companies’ opposition campaign. See Ex. 532.

The massive campaign plan developed by the tobacco companies shows how this economic power was used to suppress rather than further any real debate about the merits of I-115. Ex. 525. In The plan, created by an ad agency that runs many initiative campaigns for corporate interests in Montana, boasts of the agency’s economic clout with Montana media and details exactly how this clout would be used during the I-115 campaign to suppress "fairness doctrine" television ad time that might otherwise be available to the proponents of I-115:

If one side of an issue pleads "poverty" and it is recognized as the major influence group on that side of the issue, then it’s possible to obtain commercials at no cost from television or radio stations.

During the past 10 years, Montana TV stations have treated the "Fairness Doctrine" on ballot initiatives quite differently regarding station access.

Some TV stations might be rather liberal and provide one free spot in the same time period as three spots purchased by the other side. Other stations might give one spot for every five purchased.

Other TV stations might not make available any free spots with the attitude that adequate public affairs and news exposures is made available to that side of the issue to meet station obligations.

Care would be taken in buying certain television stations based on their "Fairness Doctrine" policies. The two biggest cities in the state have three television stations, the four next largest size cities have two television stations, so it is possible to work effectively around the problem.

The agency has an excellent rapport with the stations regarding the "Fairness Doctrine" issue due to heavy television purchases throughout the year from agency clients.

Ex. 525 at 14-1 (emphasis added); see also id. at 19-1 (boasting that the agency "probably places more television advertising on Montana stations than any other Montana ad agency" which "gives [the agency] extra clout with the media that could help in the [I-115] campaign"). Thus, while corporate funds fueled a massive television purchase of 2,500 gross ratings points, meaning that 98% of Montana households saw the tobacco companies’ anti-I-115 ads at least 25 times, the proponents of I-115 were unable to secure a single free "fairness doctrine" ad during the entire campaign. Testimony of Dr. Shepard, RT 534-536 (ER 49-51). Their total campaign funds of under $44,000 allowed the purchase of only two paid ads in each community during the entire campaign (corresponding to 2 gross ratings points). RT 527 (ER 46); Ex. 602 Appendix C.[fn 15]

The media clout purchased by the tobacco companies’ contributions was even used to suppress standard public service announcements ("P.S.A. spots") that normally aired in Montana as part of the state’s public health efforts to discourage smoking. Although these P.S.A. spots had nothing to do with I-115, Montana television stations — and even Montana’s governor — acceded to industry pressure to halt such spots during the I-115 campaign. As the opponents’ campaign plan bragged:

Bob Henkel and Jerome Anderson were also successful in (1) persuading Montana television stations not to air public service announcements regarding smoking, reasoning that any such activity could influence voters at the polls in the fall, and (2) successfully seeking assurances from the governor’s chief of staff that the governor would avoid any further participation in P.S.A. spots for radio and TV on behalf of anti-smoking campaigns[.]

Ex. 525 at 2-3.

Thus, plaintiffs’ own campaign documents make clear that the corporate checkbook is used not only to provide corporations an enormous advantage in the electoral arena, but also to suppress the free flow of information about the merits of ballot issues and to prevent the public from gaining a clear understanding of the merits of the issue. As a later memorandum by the responsible ad agency candidly acknowledged:

In the successful 1990 Montana Cigarette Tax Initiative, we chose to direct the message away from the health issue of tobacco and used instead "PUT THE AX TO MORE BUREAUCRACY AND TAXES — VOTE AGAINST I-115." Most voters didn’t really know what I-115 was all about, but they certainly didn’t want to vote for more bureaucracy and taxes.

Ex. 531 (emphasis added).

The record in this case documents similar instances of the dominance of corporate funds in other Montana initiative campaigns. Tony Jewett, currently the Executive Director of Montana Wildlife Federation, testified as follows about working to overcome the corporate spending advantage on a 1980 recycling initiative, I-87:

In my view, our[] [voice] was a peep compared to their roar. I mean, they spent over 20 times the amount of money that we spent. We had absolutely no opportunity whatsoever to engage in any level of paid media that was significant whatsoever. . . . The fact of the matter is that in the last 30 days of the election, we virtually had no voice in comparison to the amount of noise that was coming out of the opponents of [I-87]. It was frankly, in my view, overwhelming; it was disconcerting; it was discouraging. I was new to the process, and you felt almost powerless.

RT 638 (ER 54). See also Testimony of C.B. Pearson, RT 1019 (ER 84) (with close to ten to one disparity in spending, "we didn’t have a debate about the policy issues" on I-113, the 1988 bottle bill); Testimony of Stan Frasier, RT 689 (ER 58) ("citizens really didn’t have a voice as long as this kind of . . . corporate money could be spent against them" (referring to effort to enact I-122, the 1996 clean water initiative, in the face of corporate spending of $2.3 million)).

The evidence also includes the results of survey research conducted among a representative sample of 400 Montana registered voters by two nationally known and respected polling firms, Deardourff/The Media Company and Lake, Snell, Perry & Associates. Ex. 580A, 580B. This research confirmed that corporate spending on initiative campaigns has been harmful to citizens’ confidence in the integrity of the political process. Two-thirds of voters believed that such spending "undermines voters’ sense of faith in the honesty and integrity of initiative campaigns." Ex. 580B at 6, Question 23. Montana voters do not shy away from the word "corruption" to describe the impact of corporate spending on initiative campaigns, with three-quarters of voters agreeing that such spending "is one of the major causes of corruption in politics today." Ex. 580A at 4; Ex. 580B at 6, Question 20.

Even the testimony of plaintiffs’ witnesses confirmed the importance of money in Montana initiative campaigns; indeed, the witnesses’ desire to spend large amounts on such campaigns was their very reason for arguing that they should have access to the corporate checkbook.[fn 16] See Testimony of Jill Andrews, Executive Director of Montana Mining Association, RTMMA 64 (ERMMA 5) (stating, with unintended irony, that absent I-125 she would "build the best grass-roots coalition money could buy" to defeat a 1998 environmental initiative);[fn 17] Testimony of Senator Bob Brown, director of campaign to pass six-mill levy for support of state university system, RT 27 (ER 3) (asserting that referendum campaign needed "dollars" to "educate the public on the importance of renewing the six mill levy"); Testimony of Eric

Feaver, President of Montana Education Association, RT 187 (ER 13) (expressing concern about having enough funds to spend on ballot issues because "[t]here’s no way to know how many dollars you need to win a ballot issue campaign").[fn 18]

In light of such testimony and documentary evidence from the plaintiffs themselves, it is disingenuous for plaintiffs to argue that access to the large funds available in the corporate general treasury do not provide any particular advantage in ballot measure elections. Plaintiffs’ position boils down to Groucho Marx’s query: "Who you gonna believe, me or your own two eyes?" Clearly, corporations’ past actions in pouring huge amounts of money into initiative campaigns speak much more loudly than their present-day words denying that corporate spending makes any difference.[fn 19]

Of course, not all initiative campaigns involve huge expenditures, and the high-spending side does not always win, but that cannot negate the fact that large war chests, when available, play an important and potentially decisive role in Montana initiative campaigns. To argue that I-125 is invalid because money does not always determine the outcome of ballot contests is like arguing that limits on candidate contributions are invalid because not all legislators trade access and political favors for campaign contributions. Montana is entitled to regulate the corporation’s use of state-created advantages in the electoral arena without awaiting proof that the corporate advantage can never be overcome. The evidence demonstrating the importance of money in ballot initiatives in this case went far beyond any showing made in Austin regarding the impact of independent expenditures on elections, and thus is more than sufficient to support the constitutionality of I-125.

 

D. Voter turnout data provide no basis for striking down I-125.

In striking down I-125, the district court placed heavy reliance on its conclusion that "Montana’s political process is very healthy." CR 186 at 14; see also id. at 21. As evidence of the health of the political process, the district court cited Dr. Lopach’s testimony that "there is a proper degree of party competition, high voter turnouts, and low voter fall-off on the ballot." Id. The district court’s reasoning reflects clear error.

First, the existence of "a proper degree of party competition" in Montana elections does nothing to suggest that I-125 is unconstitutional. I-125 does not regulate elections for partisan office in Montana. Whether political parties in Montana are competitive has nothing to do with whether Montana may regulate the use of corporate general treasury funds in ballot measure elections. Indeed, even though the Michigan statute upheld in Austin barred the use of corporate funds for independent expenditures in candidate elections, the Supreme Court did not premise its holding on any demonstration that the degree of "party competition" in Michigan was unsatisfactory.

The district court’s reasoning is similarly flawed with respect to "high voter turnouts" and "low voter fall-off" as a basis for invalidating I-125. CR 186 at 14. Again, neither the Supreme Court’s decision in Austin, nor either of the lower court decisions in that case, made the slightest reference to any evidence that voter turnout or fall-off in Michigan had been affected by corporate expenditures.

Even if, contrary to fact, an analysis of turnout were necessary to sustain I-125, the district court’s findings are deeply flawed. The court declared Montana’s political process to be "healthy" based on Dr. Lopach’s testimony that overall voter turnout in Montana is 15% higher than the national average and that there is limited "fall-off" in voting for ballot measures (here, voter "fall-off" refers to voters who come to the polls on election day but fail to vote on a particular ballot measure). CR 186 at 14. To the extent voter turnout were important, however, it would be much more significant to examine whether voter turnout has been declining in Montana than to compare Montana’s current turnout to the national average.[fn 20] The evidence was undisputed that voter turnout in Montana has been on a downward trend for the last 20 years. Plaintiffs’ own exhibit showed that by 1996, the last presidential election year, Montana’s voter turnout had dropped to its lowest level in any presidential election year since 1976, whether measured as a percentage of registered voters who turned out, or as a percentage of eligible (voting age population) voters. Ex. 32 at 2. See also, e.g., Ex. 596, Bob Anez, "Official election turnout lowest since 1920," The Independent Record, Nov. 27, 1996 at 5A. The federal courts should not require that voter turnout and participation decline to a disastrously low level before a state may take action to assure citizen confidence in the electoral process. Cf. Munro v. Socialist Workers’ Party, 479 U.S. at 195-96 (rejecting requirement that "a State’s political system sustain some level of damage before the legislature could take corrective action" in regulating ballot access).

Further, the fact that there is often little "voter fall-off" on ballot measures establishes nothing of significance. Plaintiffs placed great emphasis on exhibits purporting to show, for example, that close to 98% of voters voted on a particular ballot initiative. See Ex. 40. What this and other similar tables (Ex. 33-43) actually show, however, is not the overall percentage of eligible voters who participated in the initiative election, but only the percentage of those voters who had already appeared at the voting precinct that day who went ahead and marked their ballots for or against the initiative (instead of just ignoring that line on the ballot). The substantial number of eligible voters who stayed home entirely on election day is not reflected in plaintiffs’ tables. See Testimony of Secretary of State Mike Cooney, RT 865, 887-888 (ER 62, 65-66).

Although voter turnout in elections has been steadily declining in Montana, that is not the only dimension of citizen participation worthy of examination. At least as important is whether citizens believe it is worthwhile to devote their personal energies to initiative campaigns in Montana. To address that question, defendant-intervenors presented testimony from several Montana citizens who had been intensely involved in efforts to enact a variety of initiatives in the face of corporate opposition fueled by overwhelming spending from the corporate checkbook. The testimony of Dr. Robert Shepard on his experiences in the I-115 tobacco initiative was typical:

I haven’t been on another initiative since then, even though there have been a few that I’ve supported with dollars and a few that I’ve supported intellectually, at least. I came away from that initiative with a really sour taste in my mouth. The process clearly doesn’t work. One immensely wealthy corporation has the opportunity to come in and pay as much money as it needs to pay to influence the voters the way it wants to influence the voters.

RT 540 (ER 52). C.B. Pearson, who testified as both an expert and fact witness based on his experience in Montana initiative campaigns, also stated:

It is my opinion from discussing with a variety of citizen activists in the State of Montana . . . that the overwhelming amount of money that a corporation can bring to a policy debate that’s on the ballot initiative, actually prevents citizens from proposing ballot issues. They do not want to go through the experience of being — of having their voice drowned out, even though there are major issues, major policy issues that impact our society, like tobacco, they are just unwilling to propose an issue like that because they know that their chances of actual success are pretty minimal. They don’t want to suffer the agony, like Bob Shepard has.

RT 1013 (ER 83).

This direct testimony about citizen disillusionment concerning the initiative process was buttressed by the survey research described earlier, which also documented the beneficial impact on citizen confidence in the initiative process that would flow from banning direct contributions from corporate funds. See supra at 33-34; Ex. 580A, 580B. The survey showed that more than three quarters of Montana voters believe that, if such spending is banned, ordinary people will have more of a voice in the political process, with a similar percentage believing that voters will be more likely to participate and vote on initiatives. Ex. 580B at 5 (Questions 13, 18). Over three-quarters of voters also say that they, themselves, will have more faith in the integrity of the initiative process in Montana as a result. Ex. 580B at 5 (Question 17).

In sum, the record in this case is more than sufficient to satisfy any evidentiary burden that could conceivably be required to demonstrate the compelling interests behind I-125.

E. The district court ignored Austin and MCFL in holding that I-125 "silences" corporations.

The district court further erred in holding that I-125 violated the First Amendment because it amounts to a total ban on direct corporate communication of the corporation’s political ideas:

Requiring corporations to fund ballot issue campaign speech through separate, segregated funds (consisting of voluntary contributions from employees, officers, directors and shareholders), as is required by Initiative 125, deprives corporations of their ability to communicate political ideas directly to the electorate. The corporate voice is silenced. . . . Requiring shareholders to fight the corporation’s battles is an ineffective and illegal substitution for corporate speech rights.

CR 186 at 24.

This reasoning is impossible to square with the Supreme Court’s decisions in Austin and MCFL. Austin specifically recognized that a corporation’s ability to use segregated funds for political expenditures means that the corporation’s voice was not being silenced. As the Supreme Court explained, Michigan’s statute "does not impose an absolute ban on all forms of corporate political spending but permits corporations to make independent political expenditures through separate segregated funds." 494 U.S. at 660. Similarly, in MCFL, the Court noted that a requirement of using segregated funds "is of course distinguishable from the complete foreclosure of any opportunity for political speech that we invalidated in the state referendum context in First National Bank of Boston v. Bellotti." 479 U.S. at 259 n.12.[fn 21] Again, the district court never discussed Austin’s or MCFL’s holdings on this point.

Apart from its legal error, the district court ignored crucial facts concerning the nature of the segregated PAC funds permitted under I-125. It is undisputed, for example, that corporations can use general treasury funds to pay for solicitations to their members, shareholders, officers and employees seeking donations to the corporate PAC and to communicate their views on an initiative to those same individuals. Testimony of Ed Argenbright, RT 465 (ER 33). Corporate officers are free to participate in the management of the PAC. Id. at 485 (ER 34). Further, corporate officers can continue to advocate the corporation’s position on an initiative so long as any work done on behalf of the corporation is paid for out of PAC funds. Testimony of C.B. Pearson, RT 1002 (ER 82). It is thus inaccurate to contend that a corporation’s PAC does not give the corporation a voice in initiative campaigns.

The district court also accepted plaintiffs’ erroneous argument that I-125 was unfair because corporate spending should not be treated differently from spending by other entities and individuals:

Like individuals, unions, and associations, corporations are entitled to attempt to shift public opinion and voting behavior to favor the corporate point of view, and in fact this is the primary purpose of all political speech, see Bellotti, 435 U.S. at 790.

CR 186 at 26. But the Supreme Court’s decision in Austin specifically rejected the argument that corporations may not be treated differently from other entities with respect to expenditures from general treasury funds. 494 U.S. at 665.

Further, the Supreme Court’s decision in MCFL spells out precisely what types of entities should be exempt from a ban on general treasury spending, and I-125 follows those requirements to the letter. See supra at 11.

The district court further erred in holding that I-125 was overbroad because it catches "little fish" like the Montana Chamber of Commerce as well as big corporations. CR 186 at 23. Again, that ignores the holding of Austin, in which the Michigan Chamber of Commerce made precisely the same argument. The Supreme Court held that the Chamber of Commerce was appropriately subject to the same regulations as for-profit corporations because its membership included numerous corporations, because it was not formed exclusively for political or ideological purposes, and because it was likely to be used as a conduit for spending by corporations if it were exempted from the statute. 494 U.S. at 661-665. The Chamber, and the other plaintiffs in these cases, simply fail to meet the requirements that led to an exemption for true political organizations in MCFL.

Plaintiffs also complained that I-125 prevented individual corporate officers from speaking out on ballot issues because their individual expression might be construed as a prohibited in-kind contribution by the corporation. But corporate officers were already required to distinguish between their activities as individuals and their activities on behalf of the corporation prior to the adoption of I-125. Montana disclosure and reporting requirements, quite apart from I-125, require the reporting of any in-kind contributions to a ballot measure campaign, whether made by individuals, corporations, or other entities. See Ex. 81 at 74-78 (findings of Commissioner of Political Practice). Witnesses such as David Owen, president of the Montana Chamber of Commerce, claimed that he had previously been active in ballot initiative campaigns on behalf of the Chamber prior to I-125, but was forced to admit that he had engaged in all of this activity without complying with Montana’s reporting requirements for in-kind contributions.[fn 22] Mr. Owen, and plaintiffs’ other witnesses, now seem to understand that henceforth they must distinguish between their corporate and individual activities for purposes of complying with Montana’s disclosure requirements. RT at 132-133 (ER 8-9). If so, they can also distinguish between their corporate and individual activities for purposes of complying with I-125. Further, as noted above, a corporate officer may even continue to advocate on behalf of the corporation as long as the PAC compensates the corporation for any time so expended.

Finally, several of the plaintiffs or their witnesses complained that their corporations were disadvantaged by I-125 because it would be more difficult to raise money through a segregated PAC fund. Of course, these complaints contradict the plaintiffs’ simultaneous argument that money is not an important factor in ballot measure campaigns in Montana. In any event, plaintiffs’ complaints about the difficulty of raising funds through a segregated account or PAC cannot be taken at face value. Very few of the plaintiffs made any meaningful effort to establish a segregated fund during the short time between I-125’s enactment and the time the case was set for trial. Plaintiffs preferred, instead, to concentrate their efforts on seeking to overturn I-125. Those few witnesses who did make an effort to raise funds within the constraints of I-125 had a remarkable degree of success, considering that 1998 was the first election season governed by I-125.

For example, Senator Bob Brown, one of plaintiffs’ witnesses, acknowledged that at the time of trial he had already succeeded in raising $73,000 to promote the six-mill levy, despite I-125’s limits on corporate general treasury spending. RT 27 (ER 3). While this was not as high as the total of $133,000 raised for the previous renewal effort in 1988, RT 26 (ER 2), this was of course the very first renewal effort taking place under the new provisions of I-125, and the campaign was not over at the time of trial. Senator Brown confirmed that funds were being raised successfully from individual officers of corporations that had previously used general treasury funds to make contributions; for example, the campaign had solicited contributions from officers of Montana Power Company "and we’ve done pretty well from them as individuals." RT 39 (ER 6); see also RT 190 (ER 14) (plaintiff Montana Education Association established a ballot issue PAC which contributed $5,000 to six-mill levy campaign). Indeed, because of I-125, the number of individuals contributing to the six-mill levy campaign in 1998 was 20 times higher than 1988, when the six-mill levy was last renewed: 600 individuals contributed in 1998 as compared to only 30 in 1988. RT 37 (ER 4); see also Testimony of C.B. Pearson, RT 1078 (ER 86).

Similarly, the president of the Montana Education Association, Eric Feaver, testified that MEA established a ballot issue PAC that in 1998 gave $5000 to the six-mill levy campaign and $27,000 to the campaign to defeat another 1998 initiative, CI-75. RT 190, 192 (ER 14-15). This may be compared to MEA’s expenditures on ballot measure campaigns from 1990 through 1996, before I-125 was enacted: in all but one of those years, MEA’s ballot campaign spending was less.[fn 23] Another plaintiff organization that made the effort to establish a segregated fund, the Montana Mining Association, raised almost exactly as much as it had spent from general treasury funds on initiatives prior to I-125.[fn 24]

Other plaintiffs simply admitted that they had made no effort to take advantage of options open to them under I-125. While contending that a 1998 initiative to ban new open pit cyanide mines, I-137, would put his company out of business, Ray Lazuk admitted that his company never so much as wrote a letter to its employees informing them about I-137 or asking for their support in opposing it, all of which is perfectly permissible under I-125. RTMMA 29 (ERMMA 2). See also testimony of Secretary of State Mike Cooney, RT 884-885 (ER 63-64) (observing that corporations appeared to be deliberately avoiding lawful means of participating in 1998 ballot campaigns to improve their litigation position in I-125 lawsuit).

At bottom, plaintiffs’ complaints boil down to the contention that their First Amendment rights are violated whenever they are unable to outspend their opponents on a ballot measure campaign. That, of course, is not the law.

Under I-125, corporations may spend as much as they wish as long as the funds are collected from individuals who support the electoral goals of the corporation. The only limit on their spending is the persuasive power of their ideas in inspiring individuals to contribute. That same limitation, of course, applies to organizations such as the League of Women Voters, Montana Common Cause, and Montana PIRG which have no access to campaign funds save for the contributions of members who agree with the organizations’ political views. Montana’s I-125 is fully constitutional under the Supreme Court’s decisions in Austin and MCFL.

 

II. EVEN IF AUSTIN AND MCFL WERE DISREGARDED, I-125 WOULD BE CONSTITUTIONAL UNDER BELLOTTI.

Plaintiffs’ principal contention is that Montana’s I-125 is unconstitutional under the Supreme Court’s 1978 decision in First National Bank of Boston v. Bellotti. Bellotti struck down a Massachusetts law that prohibited any corporate expenditures on a particular class of ballot measures: those not "materially affecting any of the property, business or assets of the corporation." 435 U.S. at 768 (quoting statute). The statute further provided that no ballot measure affecting taxation of the income, property or transactions of individuals could be deemed materially to affect a corporation for purposes of the ban. Id.

Two important factors distinguish Montana’s I-125 from

the statute struck down in Bellotti. First, as already extensively discussed above, the statute at issue in Bellotti did not include a provision allowing corporations to establish segregated funds for use in ballot measure campaigns. See supra at 12, 42-43 and sources cited at n. 5.

Second, the statute struck down in Bellotti required the state to make content-based distinctions among ballot measures in deciding whether particular corporate expenditures were or were not permissible. The Court found this content-based aspect of the statute particularly objectionable. See Bellotti, 435 U.S. at 785 n.22 (stating "[a]s the facts in this case illustrate, management never could be sure whether a court would disagree with its judgment as to the effect upon the corporation’s business of a particular referendum issue"); see also Winkler, supra n. 5, 32 Loy. L.A. L. Rev. at 173-174 ("One should not under-estimate the importance to the Bellotti Court of the content discrimination in the Massachusetts law; Justice Powell’s opinion repeatedly stresses that the content-discriminatory aspects of the law render it clearly unconstitutional").[fn 25] Montana’s I-125, by contrast, is not based upon the subject-matter of the particular initiative, but simply prohibits direct expenditures from corporate general treasury funds.

Even assuming, however, that neither of these distinctions had any constitutional significance, Montana’s I-125 would still be constitutional under the reasoning of Bellotti itself. Bellotti did not hold that even an absolute ban on corporate spending in ballot measure campaigns would be unconstitutional in all circumstances. Instead, Bellotti emphasized the lack of any record evidence that corporate spending had the potential to overwhelm the initiative process in Massachusetts prior to enactment of the statute in 1977:

If appellee’s arguments were supported by record or legislative findings that corporate advocacy threatened imminently to undermine democratic process, thereby denigrating rather than serving First Amendment interests, these arguments would merit our consideration. But there has been no showing that the relative voice of corporations has been overwhelming, or even significant in influencing referenda in Massachusetts, or that there has been any threat to the confidence of the citizenry in government.

435 U.S. at 789-790, citations and footnote omitted.

The record in this case contains precisely such evidence. As explained in Point I.C., supra, defendants and defendant-intervenors documented numerous initiative campaigns in Montana since 1980 in which spending by corporations to oppose various initiatives was overwhelming in comparison to the amounts spent to advance the other side of the debate. See supra at 25-36. The evidence, including campaign documents obtained from the plaintiffs or their witnesses, even showed how these immense funds had been used deliberately to suppress public debate and media coverage of the merits of particular initiatives. Supra at 29-32. The record also includes survey research of Montana voters showing their disillusionment about the initiative process, and their belief that a ban on spending from corporate funds would cause them to have more faith in the integrity of the initiative process. See Exhibit 580A; see discussion of survey results supra at 33-34, 41. Finally, the evidence establishes that corporate spending in opposition to initiatives proposed by citizens’ groups has been particularly overwhelming in assuring the defeat of such initiatives. When two-thirds or more of the total spending was done on the "no" side (the side opposing enactment of the initiative), the initiative was defeated seven out of nine times. Ex. 742; see also supra at 28.

Further, the political scientists whose works are regarded by plaintiffs’ experts themselves as the leading texts on the subject of direct democracy have also concluded that corporate spending is highly important in initiative campaigns based on patterns very similar to those found in Montana. See David B. Magleby, Direct Legislation: Voting on Ballot Propositions in the United States (1984) and Thomas Cronin, Direct Democracy: the Politics of Initiative, Referendum and Recall (1989). Cf. Testimony of Dr. Herbert Alexander, plaintiffs’ expert witness, RT 414-415 (ER 24-25)(acknowledging that Magleby’s and Cronin’s works are the leading texts on the subject); id. at 424 (ER 30) (noting that Professor Magleby "has made this subject his life’s work"). The findings of these scholars, both of whom had access to considerable evidence not available to the Bellotti Court, include the following:

Justice Powell did leave the door open for his decision to be narrowed or modified when he implied that if and when arguments put forth by Attorney General Bellotti were supported by findings that business advocacy threatened to undermine the democratic process, this controversy would merit reconsideration. Most studies, many of them made after the Bellotti decision, do suggest that one-sided spending on ballot issue elections can influence initiative voting outcomes. [RT 368 (ER 22) (quoting Cronin, Direct Democracy, at 107)]

* * *

It seems clear, however, that the proponents of the initiative and referendum seriously underestimated the effect of money in initiative elections. Although money is not always a decisive factor, it is always an important one, and big money, well spent, can usually defeat ballot questions. [RT 420 (ER 29) (quoting Cronin, Direct Democracy, at 123)].

* * *

However, when big money (usually, though not always, business money) opposes a poorly funded ballot measure, the evidence suggests that the wealthier side has about a 75 percent or better chance of defeating it. This is where money counts the most. [RT 442 (ER 31) (quoting Cronin, Direct Democracy, at 109)]

* * *

Proposition elections provide a clearer test than do candidate elections of the effect of campaign spending on election outcomes. Other factors such as party affiliation, incumbency, and name recognition typically are not part of initiative campaigns. Voters on propositions are more susceptible to campaign spending than are voters in candidate elections. [RT 417 (ER 27) (quoting Magleby, Direct Legislation at 146)].

* * *

While proponents of initiatives are generally unable to obtain passage of their initiatives by out-spending the opposition, it is equally evident that groups or interests opposed to an initiative can virtually guarantee the defeat of an initiative if they significantly out-spend the proponents. In cases where initiative opponents’ spending was equal to two-thirds or more of the total expenditures, they were successful in defeating the proponents 87 percent of the time. [RT 416 (ER 26) (quoting Magleby, Direct Legislation at 147)]

Thus, not only the data in Montana, but the data studied by the nation’s leading political science authorities on direct democracy, provide factual support for Montana’s conclusion that spending has the potential to dominate important initiative elections. Legal scholars likewise have concluded that evidence of precisely the type presented in this record is sufficient to make the factual showing contemplated by Bellotti. See Daniel Hays Lowenstein, Campaign Spending and Ballot Propositions: Recent Experience, Public Choice Theory and the First Amendment, 19 U.C.L.A. L. Rev. 505, 591 (1982); Shockley, supra n. 14, 39 U. Miami L. Rev. at 393-397.

For all these reasons, Montana’s I-125 should be upheld even if Bellotti were regarded as the controlling authority, without reference to the more recent holdings of the Supreme Court in Austin and MCFL.

CONCLUSION

For the foregoing reasons, and on the basis of the authorities cited, the district court’s judgments should be reversed.

Respectfully submitted,

/S/BRENDA WRIGHT
John C. Bonifaz
Gregory Luke
National Voting Rights Institute
294 Washington Street, Suite 713
Boston, Massachusetts 02108
(617) 368-9100

Jonathan Motl
Reynolds, Motl and Shewood, P.L.L.P.
401 Last Chance Gulch
Helena, Montana 59601
(406) 442-3261

Counsel for Defendant-Intervenor-Appellant

Footnotes

[1] "CR" refers to the Clerk's Record number listed on the civil docket sheet for Montana Chamber of Commerce, et al. v. Argenbright, No. CV 97-6-H-CCL. "CRMMA" refers to the Clerk's Record number listed on the civil docket sheet for Montana Mining Association et al. v. Argenbright, No. CV 98-37-H-CCL.

[2] The text of I-125 is reproduced as an Addendum to this Brief.

[3] The district court's opinion mentions Austin only in passing and contains no reference to MCFL.

[4] See Buckley v. Valeo, 424 U.S. 1, 48 (1976) (striking down limits on independent expenditures in federal election campaigns and noting "[a]dvocacy of the election or defeat of candidates for federal office is no less entitled to protection under the First Amendment than the discussion of political policy generally or advocacy of the passage or defeat of legislation"); FEC v. National Conservative Political Action Committee ("NCPAC"), 470 U.S. 495 (1985) (striking down $1000 limit on independent expenditures by political committees on behalf of candidate who accepted public funding). Indeed, prior to Austin, the Supreme Court had never sustained any limitation on independent expenditures in political campaigns.

[5] See also Gerold G. Ashdown, Controlling Campaign Spending and the "New Corruption": Waiting for the Court, 44 Vand. L. Rev. 767, 781 (1991) ("The conclusion is inescapable that legislatures are now free to restrict corporations to spend only from separate political funds in ballot measures as well as candidate elections. These restrictions will ensure that 'the money collected is that intended by those who contribute to be used for political purposes and not money diverted from another source'" (quoting MCFL, 479 U.S. at 258)); Adam Winkler, Beyond Bellotti, 32 Loy. L.A. L. Rev. 133, 173-174 (1998) ("If, however, a state allows unlimited corporate political speech in elections so long as the financing is through segregated funds or PACs, its prohibition on the corporation's use of general treasury funds is constitutional under Austin"); Michael J. Merrick, Note, The Saga Continues - Corporate Political Free Speech and the Constitutionality of Campaign Finance Reform: Austin v. Michigan Chamber of Commerce, 24 Creighton L. Rev. 195, 235-237 (1990); Samuel M. Taylor, Note, Austin v. Michigan Chamber of Commerce: Addressing a "New Corruption" in Campaign Financing, 69 N.C. L. Rev. 1060, 1077 (1991).

[6] "RT ___" refers to the original page number of the Reporter's Transcript for the Chamber case (district court no. CV 97-6-H-CCL). All such transcript pages cited in this Brief may be found in the Excerpts of Record under the tab labeled "RT". The excerpted transcript pages have also been assigned consecutive numbers within the RT tab in compliance with Ninth Circuit Rule 30.1-5. Those page numbers are given in parentheses following the RT cite ("ER ___").

[7] See Daniel R. Ortiz, The First Amendment at Work: Constitutional Restrictions on Campaign Finance Regulation, in Campaign Finance Reform: A Sourcebook, at 65 (noting that Austin "expanded" the notion of corruption); Ashdown, supra n. 5, at 770 (same).

[8] The district court's failure to follow Austin in its judgment striking down I-125 is particularly puzzling in light of the district court's earlier opinion addressing plaintiffs' motion for summary judgment. In that opinion, the district court correctly recognized Austin's holding, stating as follows:

[T]he segregated fund regulation imposed by I-125 is narrowly tailored to satisfy Montana's compelling interest in protecting the integrity of its political system while yet permitting corporate speech by the officers, directors, shareholders, and other employees or members of corporations. This is so because the regulation is "precisely tailored" to the state's intent to "eliminat[e] from the political process the corrosive effect of political 'war chests' amassed with the aid of the legal advantages given to corporations." [CR 77 at 28 (quoting Austin)].

[9] The deposition testimony of Joseph McNulty was admitted into evidence as Exhibit 736. See CR 180.

[10] Other Supreme Court decisions in the campaign finance area similarly recognize that the unique features of the corporate form justify distinctions between corporations and other entities. See, e.g., FEC v. National Right to Work Committee, 459 U.S. at 209-210 (holding that Court would defer to legislative judgment embodied in FECA that unique characteristics of corporations "require particularly careful regulation"); see also California Medical Association v. FEC, 453 U.S. 182, 201 (1981). Notably, Chief Justice Rehnquist would go further and would hold that corporations, as creations of the state, need not be endowed by the states with political speech rights under the 14th Amendment. See First National Bank of Boston v. Bellotti, 435 U.S. at 749 (Rehnquist, J., dissenting).

[11] See David Schultz, Revisiting Buckley v. Valeo: Eviscerating the Line Between Candidate Contributions and Independent Expenditures, 14 J. Law & Politics 33, 70 n. 243 (1998) (in Austin, "the Court did not really look at empirical evidence or examine a legislative record provided by the State of Michigan. Instead, they accepted at face value the state's claim of the need to address corruption"); Adam Winkler, Beyond Bellotti, 32 Loy. L.A. L. Rev. at 136 ("by shifting the focus of the 'corruption' inquiry in MCFL and Austin, the Court has made the evidentiary question of corporate dominance moot").

[12] A total of approximately $4.7 million was raised for all ballot measure campaigns from 1982 through 1994. Ex. 602 at 12.

[13]
Initiative / Proponents' Contributions / Opponents' Contributions / Opponents % of Total

I-87 1980 (bottle bill) / $ 24,422 / $575,794 / 95.9%

I-113 1988 (litter control) / $ 54,806 / $493,339 / 90.0%

I-115 1990 (tobacco tax) / $ 43,654 / $1,583,865 / 97.3%

I-122 1996 (clean water) / $460,252 / $2,336,343 / 83.5%

Source: Ex. 506 (I-87), Ex. 602 Appendix C (I-113, I-115); Ex. 801 (I-122).

[14] Testimony of Professor William Chaloupka, RT 940 (ER 72) (purpose of initiative process is "to provide an outlet . . . for citizen involvement on issues when the legislative body or the executive leadership of the state have failed to address what citizens regard as a very important issue"); see also John S. Shockley, Direct Democracy, Campaign Finance, and the Courts: Can Corruption, Undue Influence, and Declining Voter Confidence Be Found? 39 U. Miami L. Rev. 377, 380 (1985) (purpose of direct democracy is "to bypass and reform the more stagnant and potentially corrupt governmental processes"); id. at n.30.

[15] The citizens' side was also hopelessly outspent in other areas as well; for example, the tobacco companies' campaign called for 360,000 pieces of direct mail to Montana voters, with postage alone for such mailings costing $90,000 - more than twice the entire budget available to the proponents. RT 529-530 (ER 47-48). The fees of $60,000 paid to Jerome Anderson, the chief counsel for the anti-I-115 campaign, alone exceeded the entire budget available to the citizens' side. RT 528 (ER 46).

[16] Of course, the fact that it may be easier to fund initiative campaigns by drawing from corporate general treasury funds amassed in the economic marketplace, rather than by raising funds from individuals who actually support the corporation's goals in the electoral arena, does not establish a constitutional right to use the corporate checkbook.

[17] "RTMMA __" refers to the Reporter's Transcript for the Montana Mining Association Case (district court docket no. 98-37-H-CCL). "ERMMA __" refers to the corresponding page number within the RTMMA tab in the Excerpts of Record.

[18] See also CR 186 at 12 (noting Mr. Feaver's concern that funds raised through ballot issue PAC would not be sufficient to conduct the most effective initiative campaign); id. at 9 (noting concern of plaintiff's witness, Robert Gannon, chairman and CEO of Montana Power Company, that "large amounts of money could be required to mount effective campaigns against ballot initiatives threatening MPC's interests").

[19] See Shockley, supra n. 14, at n.54 ("A certain irony exists in monied interests challenging laws regulating the expenditure of money in campaigns when simultaneously they argue that the expenditure of money is not all that important to a campaign").

[20] Montana's voter turnout relative to other states has much to do with its comparatively small population, which historically has fostered a high degree of participation compared to states with large, more urbanized populations. See Testimony of Secretary of State Mike Cooney, RT 833-34 (ER 60-61); Testimony of Professor William Chaloupka, RT 957-958 (ER 73-74).

[21] For the same reason, this Court's decision in C & C Plywood Corp. v. Hanson, 583 F.2d 421, 423 (9th Cir. 1978), is not controlling. The Montana statute struck down in C&C Plywood imposed a complete prohibition on corporate spending on ballot issues, and did not permit spending through segregated funds.

[22] Exhibit 51, introduced by plaintiffs, lists numerous initiative campaigns from 1986 through 1996 in which the Montana Chamber of Commerce claims to have made contributions or expenditures. For many of the listed initiatives, however, the Chamber failed to report any contributions or expenditures. RT 996-1001 (ER 76-81) (Pearson testimony). During the entire 10-year period covered by Ex. 51, the Chamber reported a total of only $2,440 in contributions to Montana ballot campaigns. Id. at 1001 (ER 81). See also Testimony of David Owen, RT 150-151 (ER 10-11) (admitting that the Chamber did not file reports disclosing its in-kind expenditures until 1996, after it was the subject of a complaint for reporting violations) (Owen testimony). Similarly, staff of the Montana Mining Association spent time on the I-122 campaign in 1996, but failed to report this time as an in-kind contribution as required by Montana law. RTMMA 72 (ERMMA 6) (testimony of Jill Andrews).

[23] See Testimony of Eric Feaver, RT 202 (ER 16) (in 1990, MEA spent $1,600 on CI-55 and $10,000 I-111; in 1992 and 1993, MEA made no expenditures on ballot measures; in 1994, MEA spent $4,400 on CI-25 and a combined total of $70,000 on CI-66 & 67).

[24] Prior to the enactment of I-125, the Montana Mining Association spent $10,140 opposing I-122, a water quality initiative that the MMA considered very important to its members. RTMMA 76-77 (ERMMA 7-8). After the enactment of I-125, MMA established a ballot measure PAC that had already raised $10,000 at the time of trial. RTMMA 63 (ERMMA 4).

[25] It should be noted that Professor Winkler's article specifically discusses Montana's I-125, but makes one factual mistake in describing it. Professor Winkler actually analyzed HB575 rather than I-125 itself, and therefore concluded that Montana's provision was overbroad based on its failure to provide an exemption for non-profit corporations meeting the criteria set out by the Supreme Court in MCFL. Professor Winkler was apparently unaware that the district court struck down HB 575 in its February 18, 1998 summary judgment opinion, CR 77 at 42, leaving in place the original provisions of I-125, which contain precisely the exemption required by MCFL.