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From Securities Regulation Daily, September 6, 2018

State ban on corporate political contributions is constitutional

By Anne Sherry, J.D.

Massachusetts’ highest court ruled that a statute banning business corporations from contributing to political candidates or campaigns violates neither the U.S. Constitution nor the state Declaration of Rights. The plaintiff business corporations had argued that the state law was an unconstitutional restraint on free speech and association and denied them equal protection by failing to prohibit other entities from making political contributions, but U.S. Supreme Court precedent drew a relevant distinction between laws that limit independent expenditures and those that limit contributions (1A Auto, Inc. v. Director of the Office of Campaign and Political Finance, September 6, 2018, Gants, R.).

At the federal level and in 22 states, including Massachusetts, corporations are prohibited from making political contributions. Reviewing the federal ban in Federal Election Comm’n v. Beaumont (U.S. 2003), the Supreme Court stated that independent expenditure limits are subject to strict scrutiny, while limits on contributions are upheld if they are closely drawn to match a sufficiently important interest. Reasoning that independent expenditures are a form of political expression, but contributions merely express general support for a candidate without articulating the underlying basis for that support, the Court held that an absolute ban on corporate contributions is permissible under the First Amendment.

Beaumont remains the law of the land despite the intervening Citizens United case, the Massachusetts high court wrote. The Citizens United Court defined corruption narrowly, limiting it to the exchange of dollars for political favors, but did not overrule Beaumont. The case left in effect the core distinction between contributions—which present a special risk of quid pro quo corruption—and independent expenditures. The court would not require the state campaign finance office to present evidence that corporate contributions lead to corruption in Massachusetts. This would be unrealistic because corporate political contributions have been banned in the state for over a century, and it would be unnecessary because avoiding even the appearance of corruption is a sufficiently important interest.

The plaintiffs argued that the statute was overinclusive because rather than an outright ban, narrower restrictions were available, such as a contribution ceiling or disclosure requirements. But since Citizens United, the court noted, Massachusetts does allow corporations to engage in a significant form of political expression via unlimited expenditures and unlimited PAC contributions. The plaintiffs’ opposite argument, that the statute was underinclusive because it applies to corporations but not unions, did not fare any better with the court. Underinclusiveness is only an issue to the extent the law does not actually advance a sufficiently important interest, and the court had already concluded that the statute advances an important anticorruption interest.

Having rejected the plaintiffs’ First Amendment challenge, the court also concluded that they could not sidestep that result by recasting the challenge as an equal-protection argument. For equal protection purposes, strict scrutiny is warranted only where a law implicates a suspect class or burdens a fundamental right. Because contributions lie towards the edges, rather than the core, of political expression, contribution limits do not sufficiently burden the fundamental rights to free speech and association. The high court also determined that the Massachusetts Declaration of Rights did not afford corporations broader contribution rights than the U.S. Constitution. Justice Budd wrote a separate concurrence to describe the state’s interest in limiting the appearance of corruption.

The case is No. SJC-12413.

Attorneys: James Manley (James Manley, Attorney at Law) for 1A Auto, Inc. Julia Kobick, Massachusetts Attorney General’s Office, for Director of the Office of Campaign and Political Finance.

Companies: 1A Auto, Inc.

MainStory: TopStory CorporateFinance CorporateGovernance MassachusettsNews

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