An organization that has been taking nonprofits to court for campaign finance violations got another win on appeal.
In an unpublished opinion delivered May 30, the Colorado Court of Appeals affirmed that Colorado Pioneer Action, a nonprofit run by former Colorado gubernatorial candidate Bob Beauprez, was a political committee under the state constitution. As a result, CPA is liable for monetary sanctions that an administrative law judge imposed on the organization back in 2017.
The ALJ had also levied sanctions against the plaintiff, Campaign Integrity Watchdog, for publicizing financial information in violation of a court order, but the appellate court reversed that punishment. Barring a petition for cert to the Colorado Supreme Court, the case goes back to the ALJ to award costs to CIW.
The Court of Appeals decision is the latest in a string of wins CIW has secured in its campaign finance litigation, and in cases mostly argued by the nonprofit’s non-attorney director, Matt Arnold. CIW has gone after organizations operating as 501(c)(4) “social welfare organizations,” saying they engage in political campaign activities while not disclosing their finances as required by state law.
Under Article XXVIII of the Colorado Constitution, a political committee has to register with the state and submit to campaign finance disclosure laws. Colorado voters passed Amendment 27 in 2002 to install these rules and others to limit dark money in state political campaigns. Colorado’s campaign finance rules under Article XXVIII are enforced by private litigants, who can have a case heard by an ALJ.
In April 2017, an ALJ ordered CPA to pay $17,735 for failing to register as a political committee under Article XXVIII. CPA argued it that it didn’t coordinate with any candidates and therefore didn’t qualify as a political committee. But the Court of Appeals found that coordination with a candidate isn’t required for a nonprofit to fit the definition of a political committee; the “coordination” requirement isn’t in the plain language of Article XXVIII and “an organization may be a political committee without coordinating with any candidate or candidate committee,” according to the opinion written by Judge David Furman. The court noted that CPA accepted over $660,000 to fund political advertisements that supported some electoral candidates and opposed others.
“This [decision] demolishes the pretense of using a 501(c)(4) social welfare organization as a vehicle for campaigns,” Arnold told Law Week. He said he suspects CPA will petition for cert to the Colorado Supreme Court “I don’t think that they have much of a shot given the clarity of the opinion,” he added.
CPA was represented at the Court of Appeals by Holland & Hart partners Douglas Abbott and Stephen Massiocchi. They declined to comment on the decision.
An ALJ can issue fines for state campaign finance violations, but it lacks the authority to enforce them; the opposing party or the Secretary of State would then have to take that organization to state district court to make it pay the fines. CIW filed such an action against CPA in district court months after the ALJ levied sanctions, and the May 30 Court of Appeals decision means that action stays alive, Arnold said.
CIW has sued other 501(c)(4) nonprofits for failing to register as political committees. These included Citizens for Reasonable Rational and Responsible Governance, which in May 2017 was hit with a $23,148 fine, and Republican state Sen. Bob Gardner’s Alliance for a Safe and Independent Woodmen Hills, which the ALJ sanctioned for $9,650. The Colorado Supreme Court will hear oral arguments in the latter case June 25.
In the Colorado Pioneer Action case, the ALJ agreed with CPA that it didn’t coordinate with a candidate, but it decided that CPA should have registered as a political committee anyway because it had “the major purpose of supporting or opposing candidates.” The Court of Appeals would also rule against CPA but hold that “coordination” wasn’t even required in the definition of a committee.
The ALJ had ordered Arnold to pay CPA’s attorneys fees for disclosing financial information in violation of a court order. Arnold had leaked to a reporter the financial connections between CPA and writers who were publishing negative pieces about him. The ALJ lacked the authority to hold him in contempt, and instead imposed the fees. But in these proceedings, a non-attorney like Arnold cannot be sanctioned for attorney’s fees, the court noted, unless “the party clearly knew or reasonably should have known that his action or defense . . . was substantially frivolous, substantially groundless, or substantially vexatious.”
The court sided with CIW in ruling that the ALJ didn’t sanction Arnold on those grounds, but erringly on the grounds of improper conduct, and it reversed the sanctions on Arnold.
Arnold said the $17,000 fine against CPA is “unfortunately a slap on the wrist” that came after the ALJ reduced the fine to a tenth of the maximum. The money isn’t enough to discourage political committees from concealing their activities behind the façade of social welfare nonprofits, he added. “For this enforcement regime to work … [it] has got to have more teeth. And $170,000 is going to have a lot more impact than $17,000.”