Answer Brief of Paladino Parties - Ethics Watch v. Gessler, CO Court of Appeals

7/28/2019 Answer Brief of Paladino Parties - Ethics Watch v. Gessler, CO Court of Appeals

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COURT OF APPEALS, STATE OF

COLORADO2 East 14

thAvenue

Denver, Colorado 80203

COURT USE ONLY

Appeal from the District Court, City and County

of Denver, Colorado

The Honorable J. Eric Elliff

Case No. 2012CV2133 (consolidated with

2012CV2153)

Plaintiffs-Appellees/Cross-Appellants:

COLORADO ETHICS WATCH andCOLORADO COMMON CAUSE,

Plaintiffs-Appellees:

DAVID PALADINO; MICHAEL CERBO; PRO-

CHOICE COLORADO PAC; PPRM BALLOT

ISSUE COMMITTEE; and CITIZENS FORINTEGRITY, INC.,

v.

Defendant-Appellant/Cross-Appellee:

SCOTT GESSLER, in his capacity as ColoradoSecretary of State

Attorneys for Paladino Plaintiffs-Appellees:

Mark G. Grueskin, No. 14621Heizer Paul Grueskin LLP2401 15th Street, Suite 300Denver, Colorado 80202Phone Number: (303) 376-3703FAX Number: (303) 595-4750E-mail: [email protected]

Case No.: 12CA1712

PALADINO PLAINTIFFS-APPELLEES ANSWER BRIEF


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CERTIFICATE OF COMPLIANCE

I hereby certify that this brief complies with all requirements of C.A.R. 28

and C.A.R. 32, including all formatting requirements set forth in these rules.

Specifically, the undersigned certifies that the brief complies with C.A.R. 28(g). It

contains 9,404 words.

Further, the undersigned certifies that the brief complies with C.A.R. 28(k).

For the party raising the issue:

It contains under a separate heading (1) a concise statement of the

applicable standard of appellate review with citation to authority; and (2) a citation

to the precise location in the record (R.__, p.__), not to an entire document, where

the issue was raised and ruled on.

For the party responding to the issue:

It contains, under a separate heading, a statement of whether such party

agrees with the opponents statements concerning the standard of review and

preservation for appeal, and if not, why not.

I acknowledge that my brief may be stricken if it fails to comply with any of

the requirements of C.A.R. 28 and C.AR. 32.

s/Mark G. Grueskin


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TABLE OF CONTENTS

PageSTATEMENT OF ISSUES PRESENTED ................................................................ 1STATEMENT OF THE FACTS ............................................................................... 1STATEMENT OF THE CASE ..................................................................................2SUMMARY OF ARGUMENT ..................................................................................3LEGAL ARGUMENT ...............................................................................................3

A. Rule 28(k): Standard of review and preservation for appeal ..........................41. The Secretary failed to comply with C.A.R. 28(k) ..................................... 42. The Secretarys overarching standard of review is only partially correct ...53. The Secretary incorrectly omitted any reference to the full Chevron

standard for judicial review of administrative actions ................................ 64. The Secretary incorrectly omitted any reference to the judicial review

provisions in the Administrative Procedure Act .........................................75. The Secretary must prove that existing statutory and constitutional

definitions are unconstitutional beyond a reasonable doubt ......................96. The Secretary is incorrect that his rules or legal interpretations are owed

deference .................................................................................................. 10B. The Secretary erred in adopting Rule 1.12.3 which created a 30%

expenditure threshold before an issue committee has a major purpose ofaffecting ballot issue elections .....................................................................11

1. Rule 28(k) certification: standard of review and citation to the record ... 112. Rule 1.12.3 ............................................................................................... 123. The District Court properly found that Rule 1.12.3 is invalid .................134. The General Assembly has directly addressed the meaning of a major

purpose. .................................................................................................. 145. A major purpose is not ambiguous and thus the Secretary exceeded his

lawful authority ........................................................................................166. The 30% test is arbitrary and capricious and not based on substantial

evidence in the record ..............................................................................18


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7. The 30% test is inconsistent with the rights and privileges accorded toplaintiffs under the Constitution............................................................... 20

C. The Secretary erred in adopting Rule 1.18.2 which imposed the majorpurpose test for political committees that support or oppose the election ofstate and local candidates and limits the way the major purpose can beestablished ...................................................................................................... 21

1. Rule 28(k) certification: standard of review and citation to the record ...212. Rule 1.18.2 ............................................................................................... 223. The District Court properly found that Rule 1.18.2 is invalid .................244. The voters and the General Assembly have directly addressed the

meaning of political committee. ...........................................................255. Rule 1.18.2 exceeds the Secretarys delegated authority ......................... 276. Rule 1.18.2 is arbitrary and capricious .................................................... 287. Limiting the considerations by which an entitys purpose could be

established was arbitrary and capricious .................................................. 29a. The organizational statement test is arbitrary and capricious ........... 31

b. The majority of expenditures test is arbitrary and capricious ...........31D. The Secretary erred in creating the major purpose test for entities known

as political organizations and further erred in subjecting those entities toregistration and reporting requirements only if that engage in expressadvocacy. .....................................................................................................32

1. Rule 28(k) certification: standard of review and citation to the record ...332. Rules 1.10 and 7.2.1 ................................................................................. 343. The district court properly invalidated Rules 1.10 and 7.2 ......................354. The General Assembly specifically defined political organization. ....365. Rule 7.2.1 exceeds the Secretarys delegated authority and is arbitrary

and capricious, as the statute does not require that political organizationshave the major purpose of influencing elections .................................. 37

6. Rule 1.10s requirement that entities dedicated to influencing orattempting to influence engage in express advocacy exceeds theSecretarys delegated authority and is arbitrary and capricious .............. 38


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a. Disclosure by political organizations is not dependent on their use ofexpress advocacy" ............................................................................... 38

b. The functional equivalent of express advocacy is a sufficientnarrowing construction to preserve the current level of disclosure ofspending on electioneering communications by political organizations...............................................................................................................40

c. Under these rules, Citizens Unitedwould not apply in Colorado.........41d. Rules 1.10 and 7.2.1 contravene voter intent ........................................ 42

CONCLUSION ........................................................................................................44


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TABLE OF AUTHORITIES

Page(s)Cases

A & A Auto Wrecking, Inc. v. Department of Revenue,602 P.2d 10 (Colo.Ct.App. 1979) .........................................................................15

Alliance for Colorados Families v. Gilbert,172 P.3d 964 (Colo.Ct.App. 2007) ................................................................ 27, 28

Buckley v. Chilcutt,968 P.2d 112 (Colo. 1998) ........................................................................... passim

C.P. Bedrock, LLC v. Denver County Bd. of Equalization,259 P.3d 514 (Colo.Ct.App. 2011) .......................................................................34

Carter v. Brighton Ford, Inc.,251 P.3d 1179 (Colo.Ct.App. 2010) .....................................................................28

Cerbo v. Protect Colo. Jobs, Inc.,240 P.3d 495 (Colo.Ct.App. 2010) ............................................................. 5, 12, 17

Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.,467 U.S. 837 (1984) ............................................................................. 6, 11, 21, 33

Citizens for Free Enterprise v. Dept. of Revenue,649 P.2d 1054 (Colo. 1982) .................................................................................12

Citizens United v. FEC,130 S.Ct. 876 (2010) .................................................................................... passim

Colo. Citizens for Ethics in Gov't v. Comm. for the Am. Dream,

187 P.3d 1207 (Colo.Ct.App. 2008) .....................................................................27

Colo. Common Cause & Colo. Ethics Watch v. Gessler,2012 COA 147, P15 (Colo.Ct.App. 2012) ...................................................... 8, 10

Colo. Common Cause v. Meyer,758 P.2d 153 (Colo. 1988) ...................................................................................18


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Colo. Ethics Watch v. Clear the Bench Colo.,2012 COA 42, P29 (Colo.Ct.App. 2012) .............................................................27

Colo. Ethics Watch v. Senate Majority Fund, LLC,

2012 CO 12, P25 (Colo. 2012) ............................................................................. 35

Colo. Right to Life Comm., Inc. v. Coffman,498 F.3d 1137 (10th Cir. Colo. 2007) .......................................................... passim

Colorado Ground Water Comm'n v. Eagle Peak Farms,919 P.2d 212 (Colo. 1996) ......................................................................................5

Common Sense Alliance v. Davidson,

995 P.2d 748 (Colo. 2000) ................................................................................... 26

Ctr. for Individual Freedom v. Madigan,2012 U.S. App. LEXIS 18956, 53 (7th Cir. Ill. Sept. 10, 2012) ................... 26, 41

Dallman v. Ritter,225 P.3d 610 (Colo. 2010) ...................................................................... 24, 25, 42

Draper v. DeFrenchi-Gordineer,282 P.3d 489 (Colo.Ct.App. 2011) ......................................................................... 4

FEC v. Wis. Right to Life, Inc.,551 U.S. 449 (2007) ............................................................................................. 40

Fed. Election Commn. v. Mass. Citizens for Life, Inc.,479 U.S. 238 (1986) ...................................................................................... 30, 32

Human Life of Wash. Inc. v. Brumsickle,624 F.3d 990 (9th Cir. 2010) ................................................................................ 26

Independence Institute v. Coffman,209 P.3d, 1130 (Colo.App. 2008) ................................................................ passim

Jachetta v. Milano,362 P.2d 1065 (Colo. 1961) .................................................................................32

League of Women Voters of State v. Davidson,23 P.3d 1266 (Colo.Ct.App. 2001) .......................................................................31


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McConnell v. Fed. Election Commn,540 U.S. 93 (2003) ........................................................................................ 41, 43

Mesa County Bd. of County Comm'rs v. State,203 P.3d 519 (Colo. 2009) .....................................................................................9

Natl Org. for Marriage v. McKee,649 F.3d 34 (1

stCir. 2011) ........................................................................... passim

People v. Durapau,2012 COA 67, P44 (Colo.Ct.App. 2011) ...............................................................5

Regular Route Common Carrier Conference of Colorado Motor Carriers Assn. v.

Public Utilities Commn,761 P.2d 737 (Colo. 1988) ...................................................................................19

Sanger v. Dennis,148 P.3d 404 (Colo.Ct.App. 2006) ............................................................... passim

Shays v. Fed. Election Commn,414 F.3d 76 (D.C. Cir. 2005) ............................................................................... 16

Taxpayers for Pub. Educ. v. Douglas County Sch. Dist.,

2013 COA 20, P73 (Colo.Ct.App. 2013) .............................................................28

The Real Truth About Abortion, Inc. v. Fed. Election Commn,2012 U.S. App. LEXIS 11890 (4th Cir. 2012) .............................................. 30, 40

Vt. Right to Life Comm., Inc. v. Sorrell,875 F. Supp. 2d 376 (D. Vt. 2012) .......................................................................29

Wine & Spirits Wholesalers v. Colorado Dep't of Revenue, Liquor Enforcement

Div.,

919 P.2d 894 (Colo.Ct.App. 1996) ....................................................... 6, 11, 22, 33

Zamarripa v. Q & T Food Stores,929 P.2d 1332 (Colo. 1997) .................................................................... 11, 22, 33

StatutesC.R.S. 1-45-103(12)(b) .........................................................................................14


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C.R.S. 1-45-103(12)(c) .........................................................................................15

C.R.S. 1-45-103(14) ....................................................................................... 22, 25

C.R.S. 1-45-103(14.5) .................................................................................... 34, 36

C.R.S. 1-45-111.5(1) ............................................................................................... 4

C.R.S. 24-4-103(8)(a) ............................................................................ 7, 8, 18, 36

C.R.S. 24-4-106(7) .................................................................................................. 8

Other AuthoritiesBlacks Law Dictionary 1220 (8th ed. 2004) ............................................................32

Rules8 CCR 1505-6 ............................................................................................................ 3

C.A.R. 28(k) ...........................................................................................................4, 5

Constitutional ProvisionsColorado Constitution, art. XXVIII ................................................................. passim

Colorado Constitution, art. XXVIII, sec. 1 ................................................. 20, 29, 33

Colorado Constitution, art. XXVIII, sec. 1, 2(7)(a) ..................................................32

Colorado Constitution, art. XXVIII, sec. 2(10)(a)(I) ............................................... 12

Colorado Constitution, art. XXVIII, sec. 2(12)(a) ...................................... 22, 24, 25

Colorado Constitution, art. XXVIII, sec. 2(7) ..........................................................34

Colorado Constitution, art. XXVIII, sec. 6(a) ...........................................................33Colorado Constitution, art. XXVIII, sec. 9(1)(b) ..................................................4, 7


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STATEMENT OF ISSUES PRESENTED

Did the Secretary of States Opening Brief fail to comply with C.A.R.

28(k)?

Did the trial court correctly determine the Secretarys redefinition of

campaign finance terms and his creation of thresholds for certain committee

registration and reporting none of which are found in the Constitution or

state statute were unlawful?

STATEMENT OF THE FACTS

The Secretary issued a "Notice of Proposed Rulemaking" to amend certain

campaign finance rules in November 2011. A rule making hearing occurred on

December 15, 2011, based on a revised draft rules published on December 9. On

February 22, 2012, Defendant issued temporary rules, effective March 7, 2012.

Because of a failure to timely publish the rules, the date on which the rules became

permanent was April 12, 2012.

Among other changes, these rules: (1) redefined the thresholds that trigger

registration and reporting requirements for certain types of political entities issue

committees, political committees, and political organizations; and (2) added

express advocacy to the requirements of a political organization which typically

pays for electioneering communications. Electioneering communications are


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political messages that do not expressly advocate a candidacy but instead addresses

issues or matters that reflect political speech. The adopted rules are included in the

sections below that address each of the District Courts rulings.

STATEMENT OF THE CASE

The Paladino plaintiffs (Paladino) challenged these rules in Denver District

Court. These plaintiffs had interests (whether as voter, taxpayer, candidate,

contributor, political committee, ballot issue committee, or activist interested in

transparency) in preserving Colorados system of registration and reporting by

entities attempting to alter the outcome of elections among candidates and on ballot

issues. Each plaintiff has no other means of obtaining such campaign finance

information except through public reports mandated by the Constitution, the

Colorado Revised Statutes, and regulations of prior secretaries of state.

The Paladino lawsuit was consolidated with another challenge to the

Secretarys rules filed by Colorado Ethics Watch and Colorado Common Cause,

although those groups challenged additional rules not addressed by Paladino. Based

solely upon responsive briefing and oral argument, the trial court found that each

rule challenged by Paladino was invalid as a matter of law. This appeal followed,

and although the Secretary sought to stay the decision of the lower court, that motion

was denied.


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SUMMARY OF ARGUMENT

The Secretary fundamentally disagrees with much of what is currently in the

states campaign finance laws. He made that clear by means of publicly reported

statements during the pendency of this litigation. See Paladino Plaintiffs Reply

Brief, CD page 334, n.2.

The Secretary erred by redefining terms that the voters and the General

Assembly had specifically addressed. Those key terms relate to the required public

disclosure in ballot issue campaigns, candidate campaigns, and independent group

spending that addresses candidates. His amended agency rules, see generally 8

CCR 1505-6, would unquestionably limit the amount of public disclosure about

campaign contributions and expenditures. That determination is at odds with the

clear import of Article XXVIII to the Colorado Constitution which places a

priority on public disclosure, an objective that has been embraced by the Colorado

and United State Supreme Courts. These policy judgments are beyond the

Secretarys reach; he has authority to superintend not make campaign finance

law.

LEGAL ARGUMENT

A campaign finance rule may only be adopted by the Secretary if it is

necessary to administer and enforce the campaign finance provisions of the


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Constitution and in statute. Colo. Const., art. XXVIII, 9(1)(b); see C.R.S. 1-

45-111.5(1). Not every rule enacted by the Secretary meets this standard.

Specifically, rules fail to meet this standard if they depart from the specific

provisions of Article XXVIII or the discernible intent of the voters in adopting

those provisions. Sanger v. Dennis, 148 P.3d 404, 412-13 (Colo.Ct.App. 2006).

A. Rule 28(k): Standard of review and preservation for appeal

Paladino disagrees with the Secretarys statement of the applicable standard

of review in that it is incomplete and thus would lead to an unwarranted decision on

appeal.

1. The Secretary failed to comply with C.A.R. 28(k).The Opening Brief contains a lengthy discussion about the applicable

standard of review. Opening Brief at 11-23. Not one of the five rules addressed in

the brief contains the requisite separate heading placed before discussion of the

issue setting forth a concise statement of the applicable standard of appellate

review with citation to authority and a citation to the precise location in the record

where the issue was raised and ruled on. C.A.R. 28(k).

These rules are not mere technicalities; they are structured to facilitate

meaningful discourse in the parties briefs. Draper v. DeFrenchi-Gordineer, 282

P.3d 489, 499 (Colo.Ct.App. 2011). Compliance with Rule 28(k) is no less


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important because the issues presented revolve around legal interpretation by a

lower court. Id. (in review of summary judgment, appellant must set out, under a

separate heading for each issue, a citation to the precise location in the record

where the issue was raised and ruled on as well as authority establishing the

proper standard of review for this issue). Given this failure, arguments relating to

this portion of the brief can be stricken or the appeal dismissed. See People v.

Durapau, 2012 COA 67, P44 (Colo.Ct.App. 2011). The Paladino Plaintiffs request

this relief.

Assuming the Court may not strike the Opening Brief or dismiss the appeal,

however, the Paladino Plaintiffs address the Secretarys standards of review below.

2. The Secretarys overarching standard of review is only partially correct.As asserted by the Secretary, an adopted agency rule is presumed to be valid,

and a party challenging the rule must prove it to be unconstitutional beyond a

reasonable doubt. Colorado Ground Water Comm'n v. Eagle Peak Farms, 919 P.2d

212, 217 (Colo. 1996). A court will evaluate the legal issue of interpretation of a

rule, a statute, or a constitutional amendment on a de novo basis. Cerbo v. Protect

Colo. Jobs, Inc., 240 P.3d 495, 500 (Colo.Ct.App. 2010) (citations omitted). And if

the statute is silent or ambiguous with respect to the specific issue, the question for

the court is whether the agency's answer is based on a permissible construction of


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the statute. Opening Brief at 19, quoting Wine & Spirits Wholesalers v. Colorado

Dep't of Revenue, Liquor Enforcement Div., 919 P.2d 894, 897 (Colo.Ct.App. 1996),

which cites Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467

U.S. 837, 842-43 (1984).

3. The Secretary incorrectly omitted any reference to the full Chevronstandard for judicial review of administrative actions.

Nevertheless, in quoting Wine & Spirits Wholesalers, supra, the Secretary

omitted important language, which sets forth the first test contained in the well-

known Chevron standard for judicial review of agency actions.

When a court reviews an agency's construction of the statute which itadministers, it is confronted with two questions. First, always, is thequestion 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 giveeffect to the unambiguously expressed intent of [the legislature].

Id. The trial court specifically took note of and applied the complete Chevron/Wine

& Spirits Wholesalers standard, and it was correct to do so. Order, CD page 387.

The second test applies where the statute is silent or ambiguous about a given

topic. This standard was the only portion of the Chevron test the Secretary raised for

this Court. Opening Brief at 19.

The failure to point to the first Chevron standard is error. If the legislature has

spoken to the issue on which the Secretary now attempts to craft regulations, his


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exercise of authority is unwarranted and unlawful. This inquiry must be the first

issue this Court addresses as to each of the rules in question.

4. The Secretary incorrectly omitted any reference to the judicial reviewprovisions in the Administrative Procedure Act.

Campaign finance rules must comply with the Administrative Procedure Act

(APA), as the Constitution requires that these rules be adopted in accordance

with article 4 of title 24, C.R.S. Colo. Const., art. XXVIII, 9(1)(b). As such,

these rules cannot exceed the scope of, or conflict with, the agencys organic

source of authority. Every rule must be within the power delegated to the agency

and as authorized by law. Any rule or amendment to an existing rule issued by

any agency which conflicts with a statute shall be void. C.R.S. 24-4-103(8)(a).

The Secretarys discussion of the applicable standard of review fails to even

note the applicability of the Administrative Procedure Act and the judicial review

provisions contained therein. The APA sets forth grounds for invalidating an

agency rule:

the agency action is arbitrary or capricious, a denial of statutory right,contrary to constitutional right, power, privilege, or immunity, in

excess of statutory jurisdiction, authority, purposes, or limitations, notin accord with the procedures or procedural limitations of this articleor as otherwise required by law, an abuse or clearly unwarrantedexercise of discretion, based upon findings of fact that are clearlyerroneous on the whole record, unsupported by substantial evidencewhen the record is considered as a whole, or otherwise contrary tolaw.


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C.R.S. 24-4-106(7).

In the campaign finance arena, an applicable standard of review is whether

the agency exceeded its constitutional or statutory authority or made an erroneous

interpretation of law. Colo. Common Cause & Colo. Ethics Watch v. Gessler,

2012 COA 147, P15 (Colo.Ct.App. 2012). An agency exceeds its authority when

it promulgate[s] rules that modify or contravene statutory or constitutional

provisions. Id. at P18. There, this Secretary changed the statutory definition of

issue committee because he felt that there was a gap in the law because of a

10th Circuit decision. Id. at P23. He was wrong in interpreting the law to think

that a gap existed and thus exceeded his authority. Id. at P27. He must be held to

the same, specific, APA-based standards in this matter.

The Secretary sees openings for rulemaking where the legislature has not

specifically prohibited him from adopting the standards he now advocates. Under

the APA, a rule is not necessarily authorized by law just because it is not expressly

prohibited. [A] rule shall not be deemed to be within the statutory authority and

jurisdiction of any agency merely because such rule is not contrary to the specific

provisions of a statute. C.R.S. 24-4-103(8)(a). After all, it is not the

legislatures job in passing a statute to provide litanies of what the Secretary may

not address in his rulemaking endeavors.


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5. The Secretary must prove that existing statutory and constitutionaldefinitions are unconstitutional beyond a reasonable doubt.

The states principal elections officer is arguing that validly enacted statutes

and validly adopted constitutional amendments are unconstitutional. He is doing

so without having met the burden imposed on anyone who makes such an

assertion.

Statutes are presumed to be constitutional. Mesa County Bd. of County

Comm'rs v. State, 203 P.3d 519, 527 (Colo. 2009). The presumption of

constitutionality disappears only if persons challenging the statute prove, beyond a

reasonable doubt, the statute is unconstitutional. Id. This burden is great because

invalidating the act of the elected legislature is one of the gravest duties impressed

upon the courts. Id. The presumption of constitutionality flows from the

deference the court affords the legislature in its law making functions. Id.

(citations and internal quotation marks omitted).

If a statute can be given two constructions one that results in the statute

being deemed constitutional and the other that results in the statute being deemed

unconstitutional a court must opt for the former. Buckley v. Chilcutt, 968 P.2d

112, 116 (Colo. 1998). Yet, the Secretary unilaterally found certain campaign

finance provisions cannot survive without his regulatory changes despite the fact

that these statutes are presumed constitutional, the Secretary has not been sued


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over their meaning, and there are accepted ways of construing the statutes so that

they are fully compliant with the First Amendment.

Unless this Court finds the Secretary established that constitutional and

statutory definitions were unconstitutional beyond a reasonable doubt, it must

affirm the District Courts holding.

6. The Secretary is incorrect that his rules or legal interpretations are oweddeference.

The questions presented to this Court are purely matters of law, including

review the Secretarys view of various court holdings. The Secretary couches his

justification for these rules as a non-discretionary mandate based on judicial

precedent.

The Secretary has misinterpreted various judicial holdings dealing with

campaign finance matters. This Court need not defer to his legal opinions dealing

with those cases. [N]o deference is required where, as here, the underlying facts

are undisputed and the issue is a matter of law. Similarly, we are not bound by

an agency's interpretation of judicial precedent. Colo. Common Cause & Colo.

Ethics Watch, supra, 2012 COA 147 at P22.


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B. The Secretary erred in adopting Rule 1.12.3 which created a 30%expenditure threshold before an issue committee has a major purpose of

affecting ballot issue elections.

1.Rule 28(k) certification: standard of review and citation to the recordThe Paladino Plaintiffs disagree with the Secretarys statement of the

standard of review as to this issue. In addition to the general propositions

addressed relating to appellate review on p. 4-10, supra, this Court should apply

the complete Chevron standard, including the first test of whether the legislature

has directly addressed the definition of the phrase, a major purpose. APA

standards for review applicable to allegations concerning Rule 1.12.3 are:

An agency action is beyond delegated authority where the legislaturehas directly addressed the issue and the administrative rule purports to

alter the legislative will. Wine & Spirits Wholesalers, supra, 919 P.2d

at 897.

An agency action is arbitrary and capricious where it misapplies thegoverning statute. Zamarripa v. Q & T Food Stores, 929 P.2d 1332,

1337, 1343 (Colo. 1997).

An agency rule must be based upon substantial evidence presented tothe rulemaking official, or stated differently, the factual component

of administrative rulemaking must be supported by the administrative


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record. Citizens for Free Enterprise v. Dept. of Revenue, 649 P.2d

1054, 1063 (Colo. 1982).

An agency rule cannot impinge upon the exercise of constitutionalrights and privileges. Sanger, 148 P.3d at 414-18.

This issue is raised in the record below at Paladino Plaintiffs First

Amended Complaint, CD pages 149-59; Paladino Plaintiffs Opening Brief, CD

page 236-39; Paladino Plaintiffs Reply Brief, CD pages 386-90.

2.Rule 1.12.3Organizations are issue committees if they have a major purpose of

supporting or opposing ballot issues and ballot questions. Colo. Const., art.

XXVIII, 2(10)(a)(I). In two separate cases, the Court of Appeals found a major

purpose was not unconstitutionally vague. Cerbo, supra, 240 P.3d at 502-03;

Independence Institute v. Coffman, 209 P.3d, 1130, 1139 (Colo.App. 2008).

Despite a statutory definition of a major purpose, the Secretary's Rule 1.12

redefined a major purpose. Under that rule, in order to demonstrate a pattern of

conduct that reflects a major purpose, an organization must spend 30% of its

annual expenditures on supporting or opposing ballot measures or 30% of annual

expenditures on broadcast or written communications that support or oppose ballot

measures. Rule 1.12.3. The Secretarys rule reads:


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Rule 1.12.3 (issue committees)

FOR PURPOSES OF DETERMINING WHETHER AN ISSUE COMMITTEE HAS AMAJOR PURPOSEUNDERARTICLE XXVIII,SECTION 2(10)(A)(I) ANDSECTION 1-45-103(12)(B)(II)(A), A DEMONSTRATED PATTERN OFCONDUCT IS ESTABLISHED BY:

(a) ANNUAL EXPENDITURES IN SUPPORT OF OR OPPOSITION TOBALLOT ISSUES OR BALLOT QUESTIONS THAT EXCEED 30% OF THEORGANIZATIONS TOTAL SPENDING DURING THE SAME PERIOD; OR

(b) PRODUCTION OR FUNDING OF WRITTEN OR BROADCASTCOMMUNICATIONS IN SUPPORT OF OR OPPOSITION TO A BALLOT ISSUE OR

BALLOT QUESTION, WHERE THE PRODUCTION OR FUNDING COMPRISESMORE THAN 30% OF THE ORGANIZATIONS TOTAL SPENDING DURING ACALENDAR YEAR.

(Emphasis added.)

3. The District Court properly found that Rule 1.12.3 is invalid.

The trial court considered Plaintiffs arguments about why the Secretarys

redefinition of a major purpose was invalid. The court also considered the

Secretarys defense of this rule but found Rule 1.12 lacking in terms of the

Secretarys legal authority and the rule making record.

The additional 30% requirement adds a restriction not found in thestatute and not supported by the record. Regardless of theconsequences of the 30 percent requirement, its addition to the major

purpose definition inappropriately modifies and contravenes anexisting statute. Moreover the revenue test clearly is at odds withthe express intent of the legislature, which has enacted a definitionwithout use of such a test.

Order, CD pages 390-91 (citations omitted).


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The Secretary questions the trial courts analysis because it evaluated

whether the rule was consistent with the voters intentions in adopting Article

XXVIII. Opening Brief at 13, 39. The Secretarys concerns are misplaced and are

discussed at greater length below, but even if they had merit, the trial court made

its legal judgment [r]egardless of the consequences of the 30 percent

requirement. Thus, the trial courts observations about the goals of the voters

who adopted it cannot rise to the level of reversible error.

4. The General Assembly has directly addressed the meaning of a

major purpose.

The General Assembly has defined this specific phrase. It did not, however,

use the 30% figure adopted by the Secretary. As a result, this attempt to

substantively add to or change the legislatively adopted test is contrary to law.

The legislature codified the holdings on the meaning of a major purpose

provided by this Court in 2008 and 2010. A major purpose of supporting or

opposing ballot measures is established by: (a) statements in the entity's

organizational documents; (b) general expenditures in support or opposition of a

ballot measure; or (c) money spent to distribute communications to support or

oppose a ballot measure. C.R.S. 1-45-103(12)(b). If there had ever been any

public uncertainty about the parameters of a major purpose, the legislature

specifically clarified the law by codifying this definition. In doing so, the


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legislature did not make a substantive change to it, in light of the

Independence Institute holding. C.R.S. 1-45-103(12)(c).

The Secretary's rule that carved a 30% exception to this standard was

unwarranted. [A]gency rules and regulations are invalid if inconsistent with the

statute under which they are promulgated. A & A Auto Wrecking, Inc. v.

Department of Revenue, 602 P.2d 10, 11-12 (Colo.Ct.App. 1979) (striking down

administrative rule that department adopted to prevent certain abuses, stating the

General Assembly has the authority to amend the statute but department of

revenue may not do so by administrative rule or regulation). The legislature left

no room for the Secretarys 30% idea.

As the legislature enacted this statute for the purpose of formalizing the law

after the appellate decisions cited above, there is no basis to assume that it also

anticipated that the Secretary would add substantive elements it saw no reason to

incorporate. There was no need for the 30% exception to the existing registration

and reporting requirements. The legislature certainly could not have foreseen the

Secretary would add any percentage threshold, much less 30%. In this way, this

rule is very much like the rules at issue in Sanger v. Dennis which added to the

substantive law rather than simply clarified it. 148 P.3d at 412.


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Finally, the Secretary extols clarity the proverbial bright line test as the

basis for this rule and others at issue in this litigation. Opening Brief at 31; Admin.

Rec., Tr. 16:25-17:2. It is equally true, however, that a bright line can be drawn

in the wrong place. Shays v. Fed. Election Commn, 414 F.3d 76, 110 (D.C. Cir.

2005). Where bright lines foster non-disclosure of contributions and expenditures,

as they do here, such guidelines have been drawn in the wrong place. They are

directly contrary to the priorities and definitional provisions established by the

voters and the Colorado General Assembly.

5. A major purpose is not ambiguous and thus the Secretary exceededhis lawful authority.

The Secretary maintains that a major purpose of an issue committee is an

ambiguous phrase and thus his rule was a permissible construction of the statute.

Opening Brief at 33, 36. Yet, the two Colorado appellate opinions that directly

address this topic hold to the contrary.

InIndependence Institute, the Court found that a multi-faceted entity that

spent its money on a variety of policy objectives did not have a major purpose of

affecting ballot measures and thus was not an issue committee. 209 P.3d at 1139.

In contrast, in Cerbo, a 501(c)(4) organization that was used to channel funds to a

reporting issue committee (and thus hide the identity of contributors and the

amounts they had contributed) and was run by the same two individuals who were


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behind the reporting issue committee did have a major purpose of affecting

ballot measures. As such, it was an issue committee that violated the law by

refusing to disclose this information to the public. 240 P.3d at 501.

In both instances, the entities alleged to be issue committees argued to this

Court that a major purpose was ambiguous. And in both instances, this Court

rejected that argument. Id.; 209 P.3d at 1139.

The Secretary argues that because the two cases had different results (the

Cerbo court overturned the ALJ whereas theIndependence Institute court endorsed

her findings), the major purpose requirement is difficult to apply in practice.

Opening Brief at 31. Further, he insists that the tests developed by this Court fail

to provide adequate guidance to the public, and the legislature's codification of

that test does not resolve the ambiguity. Id. at 33. But the Secretary simply

cannot preempt this Court and the General Assembly, which is what his

formulation of the 30% standard attempts to do. He has no authority to displace

two other branches of government. There are limits on the ability of a secretary of

state to mold campaign finance law in his own manner. Sanger, supra, 148 P.3d at

412.

Even before this test was developed by this Court and embraced by the

legislature, at least one of his predecessors expressly came to the opposite


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conclusion and argued as much to this Court. InIndependence Institute, supra,

[Secretary of State] Coffman argues, and we agree, that the phrase a major

purpose, is not inherently vague. 209 P.3d at 1139 (emphasis added).

This about-face in the policy of that office is meaningful: as a result of it, Secretary

Gessler's construction is owed no deference whatsoever. Non-uniform

interpretations of law by successive secretaries of state make the general principle

of deferring to [the secretary's] administrative interpretations of a statutory

scheme simply inapplicable. Colo. Common Cause v. Meyer, 758 P.2d 153,

159 (Colo. 1988). As such, the Secretarys position in this appeal carries no

weight, particularly given that it flies in the face of the agreed-upon position

arrived at by the judicial and legislative branches of government.

6. The 30% test is arbitrary and capricious and not based on substantialevidence in the record.

This 30% threshold is found nowhere in the Constitution or the campaign

finance statutes and thus violates the APA prohibition on rulemaking in excess of

an agencys delegated authority. C.R.S. 24-4-103(8)(a).

The Secretary justifies that percentage because it is lower than the 50%

threshold for political committees. Opening Brief at 35. Of course, the same could

be said for forty-nine other percentages. Why 30%? Why not 15%? Or 45%?


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Picking a number out of the air is the very essence of arbitrariness. A rule making

officials choice of a percentage figure is justifiable only if it reflects an agencys

long-standing practice, its express statutory authority, or specific testimony at the

rule making proceeding. Regular Route Common Carrier Conference of Colorado

Motor Carriers Assn. v. Public Utilities Commn, 761 P.2d 737, 752 (Colo. 1988)

(PUC capped rates charged by certain contract carriers of commodities at no more

than 20% greater than the rate charged by common carriers). In light of these

factors, an agency regulation cannot be the function of the rulemaking officials

whim.

The 30% figure certainly does not reflect the secretary of states long-

standing practice. The Secretary does not and cannot argue that 30% is reflected in

the express statutory authority relating to issue committees. And there is an

absence of substantial evidence in the record to document why 30%, as opposed to

any other percentage, would represent a well-considered policy decision. See

Admin. Rec., Tr. 62:12-63:3 (30% is problematic for small, grassroots

organizations); 114:18-19 (50% better than 30%); see Admin. Rec. at Tabs 11 and

24 (30% test allows for concealment of reportable expenditures).

The trial court correctly determined that the Secretary's enactment of Rule

1.12.3 violated the APA.


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7. The 30% test is inconsistent with the rights and privileges accorded toplaintiffs under the Constitution.

Article XXVIII is explicit about the purposes of campaign finance

regulation. Committee registration and reporting of contribution and expenditure

information was intended to ensure timely disclosure about campaign funding

sources. Colo. Const., art. XXVIII, sec. 1. The Paladino Plaintiffs need for that

information was addressed at length below, Paladino Plaintiffs Opening Brief, CD

pages 221-24, and is unquestioned by the Secretary. That disclosure is frustrated if

entities operating as issue committees have no reporting obligation at all in

connection with the first 30% of their expenditures that urge voters to support or

oppose ballot measures or if certain entities advocate for the passage or defeat of a

ballot measure but keep their expenditures at 29.99% of annual revenue.

The Secretary states that the District Court exceeded its authority by

assessing voter intent in evaluating these rules. The lower court looked to the

objectives to be achieved or the mischief to be avoided by the enactment of the

ballot measure resulting in the adoption of Article XXVIII. Order, CD page 390.

Yet, that is precisely the methodology used by the Court of Appeals in

evaluating another campaign finance rule. In 2006, the then-secretary of state

adopted a rule defining member as it applied to organizations that were

permitted by law to contribute to political entities. That regulation imposed a


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requirement that was not provided by law in order for a person to qualify as a

member. In part, this Court looked to the representations made to the voters when

they enacted Article XXVIII (dealing with campaign finance) in the Colorado

Constitution. Sanger, supra, 148 P.3d at 413. Thus, courts can and do review the

analysis that is sent to voters prior to an election the so-called Blue Book to

determine what considerations were before the voters. While not binding, this

document provides useful legislative history behind initiated provisions of law. Id.

Therefore, the adoption of Rule 1.12 was in violation of the rights and

privileges granted by the Constitution here, to disclosure of information about

campaigns that seek to change our Constitution or statutes. As such, it violated the

APA.

C. The Secretary erred in adopting Rule 1.18.2 which imposed the majorpurpose test for political committees that support or oppose the election ofstate and local candidates and limits the way the major purpose can beestablished.






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has addressed the definition of the phrase, political committee. APA standards

for review applicable to allegations concerning Rule 1.18.2 are:



at 897.

An agency action is arbitrary and capricious where it misapplies thegoverning statute. Zamarripa, supra, 929 P.2d at 1337 and 1343.

This issue was raised in the record below at Paladino Plaintiffs First

Amended Complaint, CD pages 148, 153-59; Paladino Plaintiffs Opening Brief,

CD pages 240-41; Paladino Plaintiffs Reply Brief, CD pages 342-46.

2.Rule 1.18.2A political committee is defined by law as any person (other than a natural

person) or any group of persons that accept or make contributions or expenditures

in excess of $200 to support or oppose the nomination or election of one or more

candidates. Colo. Const., art. XXVIII, sec. 2(12)(a); adopted by C.R.S. 1-45-

103(14). In one instance, this definition was determined to be unconstitutional on

an as-applied basis. Colo. Right to Life Comm., Inc. v. Coffman, 498 F.3d 1137,

1152 (10th Cir. Colo. 2007) (hereafter CRLC). In no other instance has any


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court, state or federal, held that this definition is facially unconstitutional. In fact,

the CRLCcourt was presented with that question and refused to hold it

unconstitutional on a facial basis. Id. at 1156 (we cannot say that in every

application 2(12) will be unconstitutional).

The Secretary enacted Rule 1.18.2 that: (1) added the major purpose

requirement to the constitutional and statutory definitions of political committee;

and (2) restricted the means for determining the major purpose of an entity to

either statements in its organizational documents about supporting or opposing

candidates or a showing that the entity dedicated a majority of the organizations

total spending calculated as a function of its annual expenditures to

supporting or opposing candidates.

The Secretarys rule reads:

Rule 1.18.2 (political committees)

POLITICAL COMMITTEE INCLUDES ONLY A PERSON OR GROUP OFPERSONS THAT SUPPORT OR OPPOSE THE NOMINATION OR ELECTION OF

ONE OR MORE CANDIDATES AS ITS MAJOR PURPOSE. FOR PURPOSES OFTHIS RULE,[]MAJOR PURPOSE[] MEANS:

(a) THE ORGANIZATION SPECIFICALLY IDENTIFIES SUPPORTING OROPPOSING THE NOMINATION OF ONE OR MORE CANDIDATES FOR STATE OR

LOCAL PUBLIC OFFICE AS A PRIMARY OBJECTIVE IN ITS ORGANIZING

DOCUMENTS; OR

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


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OFFICE ARE A MAJORITY OF THE ORGANIZATIONS TOTAL SPENDINGDURING THE SAME PERIOD.

(Emphasis added.)

3. The District Court properly found that Rule 1.18.2 is invalid.

No Colorado court has ruled Article XXVIII is facially deficient because it

did not include the major purpose in the definition of political committee. The

trial court was correct when it decided the question of whether to include such

language in the definition of political committee is one for the legislature or the

voters. Because the Rule 1.18.2s limitation is contrary to the intent of Art.

XXVIII 2(12)(a) as passed by the citizens of Colorado, the Secretary cannot read

the major purpose limitation into the definition. Doing so would result in the

addition of a new, strict, limitation into Section 2(12)(a). Order, CD pages 390-

91. Similarly, there is no basis in law to restrict the ways in which the major

purpose to an organizations statement of purpose or a tracking of expenditure

patterns.

As addressed below, there are certainly circumstances where the definition,

as written, will be constitutional. A facial challenge under First Amendment must

show that law is unconstitutional in all of its applications. See Dallman v. Ritter,

225 P.3d 610, 625 (Colo. 2010). As such, the Secretary exceed[ed] his delegated

authority, and Rule 1.18.2 was void. Order, CD pages 391-92.


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4. The voters and the General Assembly have directly addressed the

meaning of political committee.

As noted above, the Constitution specifically defines political committee,

and the statutes embrace this definition exactly as it appears in Article XXVIII.

Colo. Const., art. XXVIII, sec. 2(12)(a); adopted by C.R.S. 1-45-103(14).

Ten legislative sessions have passed since Article XXVIII was adopted at

the 2002 election. At no point has the General Assembly seen fit to engraft the

major purpose onto the constitutional/statutory definition of political

committee. See id.

Likewise, five general elections have passed since Article XXVIII was

adopted by the voters. Ballot measures addressing campaign finance were before

the voters in 2008 (Amendment 54, prohibiting contributions by defined sole

source government contractors) and 2012 (Amendment 65, seeking Congressional

approval of constitutional amendment to reverse Citizens United v. FEC, 130 S.Ct.

876 (2010)). Neither measure changed the definition of political committee.

Amendment 54 restricted the operation of certain political committees associated

with sole source government contractors. Dallman, supra, 225 P.3d at 634

(addressing unconstitutional limits on labor organizations political committees).

But voters did not change the definition of political committee while they were

addressing the workings of those committees. See id. at 636-38. This is critical.


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Voters, like legislators, are presumed to know the law they are amending and are

presumed to have omitted key phrases deliberately. Common Sense Alliance v.

Davidson, 995 P.2d 748, 754 (Colo. 2000).

One reason for this reluctance by the legislature and the electorate may be

found in a close reading of the Secretarys Opening Brief and case law cited

therein. On page 46 of that brief, the Secretary citesNatl Org. for Marriage v.

McKee, 649 F.3d 34 (1st Cir. 2011.) That opinion expressly approved regulation of

political committees that did not have the major purpose of supporting or

opposing candidates. In fact, the entities required to disclose their contributions

and expenditures were referred to in statute as non-majorpurposepolitical

committees. Id. at 52 (emphasis added). The trial court in this matter knew of

that case and its holding. Paladino Plaintiffs Reply Brief, CD pages 343, n.2.1

Given the Secretarys concession thatMcKee is important for the Courts

consideration of this appeal, this Court should consider this aspect of the First

Circuits decision as well.

1 Other circuits are in sync with the decision cited by the Secretary to this Court.SeeCtr. for Individual Freedom v. Madigan, 2012 U.S. App. LEXIS 18956, 53-67(7th Cir. Ill. Sept. 10, 2012);Human Life of Wash. Inc. v. Brumsickle, 624 F.3d990, 1009-10 (9th Cir. 2010).


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5. Rule 1.18.2 exceeds the Secretarys delegated authority.

As the lower court found, this rule goes far beyond what the voters and the

legislature intended for the political committee definition to address. There are

numerous instances of application of the existing definition that have not violated

the First Amendment. See, e.g., Colo. Ethics Watch v. Clear the Bench Colo.,

2012 COA 42, P29 (Colo.Ct.App. 2012) (respondent committee accepted

contributions and made expenditures of over $200 to oppose the retention of three

justices of the Colorado Supreme Court. It is, therefore, a political committee.);

Colo. Citizens for Ethics in Gov't v. Comm. for the Am. Dream, 187 P.3d 1207,

1217 (Colo.Ct.App. 2008) (expanding disclosure responsibilities of political

committees whose ads expressly advocated the election of candidates for state

legislature). The Secretary has failed to establish that the existing political

committee definition is unconstitutional beyond a reasonable doubt. There is no

question that it can be applied in many situations without triggering his concerns.

The decision ofAlliance for Colorados Families v. Gilbert, 172 P.3d 964

(Colo.Ct.App. 2007) does not alter this conclusion. There, the ALJ failed to make

any factual findings that would allow an appellate court to determine whether an

entity was committed to express advocacy of candidates, given a single brochure

that used such language at the end of the campaign. In essence, the question before


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the Court was whether a single instance of such direct candidate advocacy 2% of

its entire budget meant that ACF had violated the law. Id. at 966.

That decision did not provide mandatory precedent for Rule 1.18.2 as

suggested by the Secretary.2 Actually, this Court noted the impact ofGilbert. The

presumption stemming from it is not that this provision of the Colorado

Constitution violates the First Amendment. The issue is how the political

committee definition is applied without violating the Constitution. See Taxpayers

for Pub. Educ. v. Douglas County Sch. Dist., 2013 COA 20, P73 n.17

(Colo.Ct.App. 2013), citing Gilbert.

Thus, the Secretarys law-making was unwarranted and beyond his legal

capacity to act.

6. Rule 1.18.2 is arbitrary and capricious.

As theMcKee decision points out, a major purpose test for political

committees of the sort advocated here in the form of Rule 1.18.2 would yield

perverse results. 649 F.3d at 59.

[A] small group with the major purpose of re-electing a Maine state

representative that spends $1,500 for ads could be required to registeras a PAC. But a mega-group that spends $1,500,000 [out of a larger

2 The Secretary relies on the Tenth Circuits decision in CRLCfor this samepurpose. Of course, no Colorado state court is bound by decisions of any federalcourt, other than the U.S. Supreme Court. Carter v. Brighton Ford, Inc., 251 P.3d1179, 1182 (Colo.Ct.App. 2010).


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budget] to defeat the same candidate would not have to registerbecause the defeat of that candidate could not be considered the

corporation's major purpose.

Id. (citing district court decision). Similarly, a national organization might have

the major purpose of advancing candidates for state office in every state, but could

avoid registering as a PAC in any particular state because it did not have the

major purpose of affecting elections in any one of them. Vt. Right to Life Comm.,

Inc. v. Sorrell, 875 F. Supp. 2d 376, 395 (D. Vt. 2012) (upholding state statute that

omitted the major purpose from its definition of political committee; disclosure

of contributions and expenditures was defined, as they are in Colorado, to

apply solely to campaign related funds). In that vein, Colorado voters prioritized

full and timely disclosure of campaign contributions and strong enforcement of

campaign finance requirements when they enacted Article XXVIII. Disparate

treatment of large and small entities involved in the same election is inherently

inconsistent with that goal. Colo. Const., art. XXVIII, sec. 1.

7.Limiting the considerations by which an entitys purpose could beestablished was arbitrary and capricious.

The Secretary adopted a two-prong test for political committees in adopting

Rule 1.18.2. Under that rule, an entity could become a political committee based

only on:


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(1) examination of the organizations central organizational purpose;or (2) comparison of the organizations independent spending with

overall spending to determinate whether the preponderance ofexpenditures are for express advocacy or contributions to candidates.

Opening Brief at 26, citing CRLC, supra, 498 F.3d at 1152, andFed. Election

Commn. v. Mass. Citizens for Life, Inc., 479 U.S. 238, 252 n.6 (1986) (hereafter

MCFL).

MCFLs discussion about when entities might become political committees

is dicta. MCFL was not a political action committee; the question of what

threshold must be passed by an entity that accepts contributions and makes

expenditures in order to donate to other candidates was not before the Court. The

Real Truth About Abortion, Inc. v. Fed. Election Commn, 2012 U.S. App. LEXIS

11890 at 35 (4th Cir. 2012). TheMCFL holding does not make consideration

of any other factors improper, and neitherMCFL nor its progeny foreclose the

(Secretary) from using a more comprehensive methodology. Id. at 36, 37. Thus,

the Secretarys concern that the First Amendment tied his hands and required the

approach taken in Rule 1.18.2 is incorrect as a matter of law.

In truth, these two tests in Rule 1.18.2 are anything but constitutionally

mandated. As the Tenth Circuit observed, InMCFL, the Court suggested two

methods to determine an organizations major purpose. CRLC, supra, 498 F.3d

at 1152 (emphasis added). Contrary to the Secretarys contention, this two-fold


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approach is not the constitutionally required method of assessing whether the

major purpose test was met.

a. The organizational statement test is arbitrary and capricious.

Statements by a group in documents filed with the Secretary can be

untrustworthy if used to determine whether such entities are subject to campaign

finance limits and disclosure laws. To rely on such representations would permit

regulable conduct to escape regulation merely because the stated purposes were

misleading, ambiguous, fraudulent, or all three. In addition, such a holding would

exalt form over substance and would almost entirely eviscerate the Act and make a

mockery of a legitimate attempt at campaign finance reform. League of Women

Voters of State v. Davidson, 23 P.3d 1266, 1277 (Colo.Ct.App. 2001). An entity

that wants to avoid regulation will simply make its statement of purpose so

obsequious as to be uninformative altogether.

b. The majority of expenditures test is arbitrary and capricious.

Of course,MCFL did not actually hold that an entity had to expend the

majority of its funds in order to have the major purpose of affecting election

outcomes. The Supreme Courts observation in this regard was fairly limited:

should MCFL's independent spending become so extensive that the organization's

major purpose may be regarded as campaign activity, the corporation would be


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classified as a political committee. Id. at 262 (emphasis added). So extensive

is a relative term; it is certainly not synonymous with a majority.

Even if the quoted language from CRLCapplies here, preponderance of

expenditures does not necessarily mean 51% of the dollars spent, as the Secretary

assumes. Preponderance goes to the impact of the activity and is defined to

mean, Superiority in weight, importance, or influence. Blacks Law Dictionary

1220 (8th ed. 2004); cf. Jachetta v. Milano, 362 P.2d 1065, 1006 (Colo. 1961)

(preponderance of the evidence is not a matter of which party presents a majority

of witnesses but of the weight given to admitted testimony). The major purpose

is thus an evaluation of the organizations candidate-related spending in terms of

its overall mission, and that relative importance will not revolve around whether

candidate-related expenditures reflect 49.99% of an annual budget or 50.01%.

Thus, neither prong of the major purpose test was warranted as a matter of

law.

D. The Secretary erred in creating the major purpose test for entities knownas political organizations and further erred in subjecting those entities toregistration and reporting requirements only if that engage in express

advocacy.

Electioneering communications seek to influence elections without calling

for voters to vote for or against a named candidate. See Colo. Const., art. XXVIII,

sec. 1, 2(7)(a). Under Article XXVIII, the voters have called for fully and timely


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disclosure of funding of electioneering communications. Id., sec. 1. Groups

paying for these ads, including political organizations, have specific disclosure

responsibilities, including the reporting of the groups spending and the name of

anyone who contributes $250 or more, his address, his occupation, and his

employer. Id., sec. 6(a).





has addressed the definition of the phrases, political organization. Similarly,

standards for appellate review contained in the APA are applicable here as well.



at 897.

An agency action is arbitrary and capricious where it misapplies thegoverning statute. Zamarripa, supra, 929 P.2d at 1337 and 1343.


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An agency action is contrary to statute or the constitution where theagency interpretation is inconsistent with the clear language or with

legislative intent. C.P. Bedrock, LLC v. Denver County Bd. of

Equalization, 259 P.3d 514, 517 (Colo.Ct.App. 2011).

This issue was raised in the record below at Paladino Plaintiffs First

Amended Complaint, CD pages 148-49, 153-59; Paladino Plaintiffs Opening

Brief, CD page 241-48; Paladino Plaintiffs Reply Brief, CD pages 347-54.

2.Rules 1.10 and 7.2.1The Secretarys rule amendments address organizations that seek to influence

elections by distributing political materials known as electioneering

communications. Colo. Const., art. XXVIII, sec. 2(7). The entities that transmit

these ads are political organizations, a term that has been defined by the

legislature. C.R.S. 1-45-103(14.5). Notwithstanding that definition, the Secretary

imposed a major purpose test on such entities and also limited their susceptibility

to disclosure requirements by requiring that they engage in express advocacy of

candidates.

Rule 7.2.1 (political organizations)

FOR PURPOSES OF SECTION 1-45-108.5,C.R.S., AN ENTITY ISCONSIDERED A POLITICAL ORGANIZATION ONLY IF [IT]:


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(A) HAS AS ITS MAJOR PURPOSE INFLUENCING OR ATTEMPTING TOINFLUENCE ELECTIONS AS DEFINED IN RULE 1.10; AND

(B) IS EXEMPT, OR INTENDS TO SEEK EXEMPTION, FROM TAXATION BYTHE INTERNAL REVENUE SERVICE.

Rule 1.10

INFLUENCING OR ATTEMPTING TO INFLUENCE, FOR PURPOSES OFPOLITICAL ORGANIZATIONS AS DEFINED IN SECTION 1-45-103(14.5),C.R.S. MEANS MAKING EXPENDITURES FOR COMMUNICATIONS THATEXPRESSLY ADVOCATE THE ELECTION OR DEFEAT OF A CLEARLY

IDENTIFIED CANDIDATE OR CANDIDATES.

(Emphasis added.) Express advocacy is often referred to certain magic words:

vote for, elect, support, cast your ballot for, Smith for Congress, vote

against, defeat, and reject. In Colorado, express advocacy also includes any

word or phrase that is substantially synonymous to the listed magic words. Colo.

Ethics Watch v. Senate Majority Fund, LLC, 2012 CO 12, P25 (Colo. 2012).

3. The district court properly invalidated Rules 1.10 and 7.2.The district found that the Secretary exceeded his legal authority,

transforming political organizations into political committees.

[T]he Secretarys rules improperly narrow the definition of politicalorganization. Under the statute, it is an organization that is engagedin influencing elections or appointments of individuals to public

office. Under Rule 7.2.1, this is narrowed to organizations with amajor purpose in influencing elections. Rule 1.10 further narrowsthe definition to groups which expressly advocate for or againstcandidates. These narrowing rules effectively eliminate distinctions

between political organization and political committee. Politicalcommittees, subject to a constitutional contribution reporting limit of$200, could switch to a political organization and avoid this


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restriction under the challenged rules. Such a result is contrary to theclear terms of the statute and the intent of the legislature. He thus

has exceeded his delegated authority under C.R.S. 24-4-103(8)(a).

Order, CD pages 392-93. These rule changes would have insulated large

amounts of spending in candidate campaigns from any disclosure to voters if

either of two conditions was met: (1) the entities could assert that their major

purpose was not to influence elections; or (2) they did not tell voters how to

cast their ballots (i.e., use express advocacy) but still discussed candidates,

their qualifications, their backgrounds, or their election-related viewpoints.

4. The General Assembly specifically defined political organization.

After the proliferation of electioneering communications, the General

Assembly defined the entities that were required to report such spending and

specifically defined them:

Political organization means a political organization defined insection 527 (e) (1) of the federal Internal Revenue Code of 1986, asamended, that is engaged in influencing or attempting to influence theselection, nomination, election, or appointment of any individual toany state or local public office in the state and that is exempt, orintends to seek any exemption, from taxation pursuant to section 527of the internal revenue code.

C.R.S. 1-45-103(14.5). This definition, adopted in the wake of the 2006 election,

has been applied in the 2008, 2010, and 2012 election cycles without being

challenged. Only the Secretary seems to find it lacking.


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5. Rule 7.2.1 exceeds the Secretarys delegated authority and is

arbitrary and capricious, as the statute does not require that political

organizations have the major purpose of influencing elections.

Rule 7.2.1 provides that an entity is a political organization only if its

major purpose is influencing or attempting to influence a state or local election.

The Secretary attempts to justify this addition to the existing regulation by

suggesting that the Internal Revenue Code requires that an entity organized under

Section 527 be organized and operated primarily for the purpose of influencing

elections. Opening Brief at 42. According to the Secretary, Rule 7.2, in requiring

a political organization to have as its major purpose influencing or attempting to

influence elections, does nothing more than incorporate the primary purpose

requirement of 527. Id.

As the District Court pointed out, though, the statutory definition of

political organization does not look to the purpose of the entity; it looks to the

actual activities of the entity. The question under the statute is whether an entity

is engaged in influencing elections or appointments of individuals to public

office. Order, CD page 393 (emphasis added). The legislature decided that it

was more important to look at what an organization was actually doing than what it

claimed it would do in the future. And interestingly, while the Secretary has gone

to great length to specify what major purpose means for issue committees and


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political committees (referencing organizational documents and expenditure

patterns), he provided no such yardsticks of establishing the major purpose of

political organizations.

Thus, the Secretary was arbitrary and capricious in adopting Rule 7.2.1.

6. Rule 1.10s requirement that entities dedicated to influencing or

attempting to influence engage in express advocacy exceeds the

Secretarys delegated authority and is arbitrary and capricious.

The Secretary argues that Colorados statute requiring disclosure by political

organizations, because it refers to the purpose of such organizations as

influencing or attempting to influence elections, is unconstitutional. He states

this phrase, underBuckley, is impermissibly vague and requires a narrowing

construction. Opening Brief at 45-47. That construction resulted in his adoption

of Rule 1.10, which states that influencing or attempting to influence an election

occurs only where there is express advocacy of candidates.

a. Disclosure by political organizations is not dependent on theiruse of express advocacy.

The Secretary argues that influencing or attempting to influence is

constitutional because only express advocacy provides a narrowing construction to

save this phrase as a matter of constitutional law. Rule 1.10 incorporates the

express advocacy standard into the ambiguous phrase influencing or attempting


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to influence, using language fromBuckley to avoid the phrases constitutional

problems. Opening Brief at 45.

However, Colorado only requires political organizations to disclose where

their money comes from and how they spend it. It does not, for instance, limit the

amount of contributions a political organization can receive. As to disclosure

responsibilities, the Secretarys concerns fall flat. Eight justices agreed, in the

context ofCitizens United, that disclosure is a less restrictive alternative to more

comprehensive regulations of speech. [W]e reject Citizens United's contention

that the disclosure requirements must be limited to speech that is the functional

equivalent of express advocacy. Citizens United, 130 S.Ct. at 915.

This priority on disclosure was in high relief in that case. The nonprofit

corporation, Citizens United, was not only contesting the disclosure requirements

as applied to its movie; it also challenged disclosure as to the advertisements that

sought to convince viewers to watch the movie. Even if the ads only pertain to a

commercial transaction, the public has an interest in knowing who is speaking

about a candidate shortly before an election. Id. As such, the informational

interest justified both disclaimers and disclosure as to both the movies and the ads.

Reportable expenditures on electioneering communications clearly did not have to

contain express advocacy. In fact, disclosure requirements have been upheld for


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all electioneering communications including those that are not the functional

equivalent of express advocacy. The Real Truth About Abortion, supra, at 18

(emphasis in original).

b. The functional equivalent of express advocacy is a sufficientnarrowing construction to preserve the current level ofdisclosure of spending on electioneering communications by

political organizations.

The Secretarys reliance onBuckley is absolute, which is part of the

problem. As he points out, that opinion was issued nearly forty years ago.

Opening Brief at 44. The courts have moved away from the need to use express

advocacy as the only curative narrowing construction under the First Amendment.

Instead, appropriate narrowing constructions for influence can either be express

advocacy or the functional equivalent of express advocacy, which is defined as

being susceptible of no reasonable interpretation other than to promote or oppose

a candidate. FEC v. Wis. Right to Life, Inc., 551 U.S. 449, 470 (2007);Nat'l Org.

for Marriage, supra, 649 F.3d at 66-67. AfterCitizens United, it is not credible to

argue that the functional equivalent of express advocacy cannot insulate a

disclosure provision from constitutional attack. [T]he Supreme Court has

explicitly rejected an attempt to import [the] distinction between issue and

express advocacy into the consideration of disclosure requirements. Id. at 54

(citation omitted).


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Thus, there is no constitutional basis for looking solely toBuckley as the

polestar for analyzing these issues. Buckley's narrowing interpretation of the

phrase for the purpose of influencing was the product of statutory interpretation

rather than a constitutional command. Nat'l Org. for Marriage, supra, 649 F.3d

at 73, citing McConnell v. Fed. Election Commn, 540 U.S. 93, 102 (2003); accord,

Ctr. for Individual Freedom, supra, 697 F.3d at 487.

c. Under these rules, Citizens Unitedwould not apply in Colorado.

The ultimate irony in the Secretarys position is that the very spending that

was at the heart ofCitizens Unitedwould not be disclosed under Rules 7.2.1 and

1.10. Hillary: The Movie, was an electioneering communication. So, too, were the

ads, which included pejorative references to then-former Senator Hillary Clinton,

that promoted the movie. 130 S.Ct. at 887, 889-90, 914-15. Neither the movie nor

the ads used the magic words or any terms or phrases that were substantially

synonymous. Nevertheless, because money is spent on this manner of politically

influential speech, disclosure is an entirely appropriate requirement. The

Government may regulate corporate political speech through disclaimer and

disclosure requirements, but it may not suppress that speech altogether. Id. at

887.


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In contrast, under Rule 1.10, there would be no disclosure at all if the movie

were shown in Colorado, addressing a candidate for state or local office, because it

did not use words of express advocacy. Put differently, the First Amendment as

applied by the United States Supreme Court is lenient enough to allow both the

showing of Hillary as well as disclosure of the funding behind it. But as applied by

the Secretary, the First Amendment only allows an electioneering communication

to be broadcast; it is not elastic enough to permit the public to know who is behind

it. The Secretary tilts toward non-disclosure when the United States Supreme

Court has expressly approved it. See Dallman, supra, 225 P.3d at 622

(acknowledging that Citizens Unitedaddressed both expenditure limits and

disclosure requirements and applies in Colorado).

There is no justification for applying Citizens Unitedin all federal elections

and the elections of all states except Colorado. The departure of Rules 7.2.1 and

1.10 depart from Citizens Unitedis plainly irrational.

d. Rules 1.10 and 7.2.1 contravene voter intent.

The Secretary argues that his rule will not have a significant impact on the

amount of political spending that is disclosed. SOS Ans.Br. at 33, 35. He

disagrees with Plaintiffs that a great deal of political spending by political

organizations will go unreported because of Rules 7.2.1 and 1.10.


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There is no question that, prior to the enactment of Article XXVIII and its

federal counterpart, the greatest part of political advertising fell in the non-express

advocacy realm. It is undisputed that very few ads whether run by candidates,

parties, or interest groups used words of express advocacy. In the 1998

election cycle, just 4% of candidate advertisements used magic words; in 2000,

that number was a mere 5%. McConnell, supra, 540 U.S. at 128 n.18. This

statistical dichotomy was attributable to two facts: (1) ads that avoided the use of

express advocacy were deemed more effective; and (2) disclosure of donors and

amounts expended could, at that time, be avoided for ads that omitted express

advocacy. Id. at 127-28 (campaign professionals testified that the most effective

campaign ads should, and did, avoid the use of the magic words and such ads

were attractive to organizations and candidates precisely because they were

beyond FECA (Federal Election Campaign Act's reach).

It is simply not credible for the Secretary to suggest that his revised Rules

7.2.1 and 1.10 will have no effect on the amount of public reporting. A return to

the pre-Article XXVIII era of non-reporting of electioneering communications

could mean that 95% of political spending ads that make their points without

expressly advocating the election or defeat of a candidate would be unreported.

This result is flatly inconsistent with the goal of maximizing disclosure and is an


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unauthorized use of the Secretarys rule making power to undermine the operation

of Article XXVIII.

CONCLUSION

The District Court correctly assessed and invalidated these rules. The

Secretarys departure from his predecessors and from judicial precedent was

unwarranted. This Court should affirm that decision.


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Respectfully submitted this 8th day of March, 2013.

HEIZER PAUL GRUESKIN LLP

By: s/Mark G. Grueskin

Attorneys for Paladino Plaintiffs-Appellees


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CERTIFICATE OF SERVICE

The undersigned hereby certifies that on the 8th day of March, 2013, a trueand correct copy ofPALADINO PLAINTIFFS-APPELLEES ANSWERBRIEF was filed and served via LexisNexis File & Serve to the following:

Luis ToroMargaret PerlColorado Ethics Watch1630 Welton Street, Suite 415Denver, CO 80202Email: [email protected]

[email protected] for Plaintiff-Appellee/Cross-Appellant Colorado Ethics Watch

Jennifer H. HuntHill & Robbins, P.C.1441 18th Street, Suite 100Denver, CO 80202-1256Email: [email protected]

Attorney for Plaintiff-Appellee/Cross-Appellant Colorado Common Cause

Leeann Morrill, First Assistant Attorney GeneralFrederick R. Yarger, Assistant Solicitor GeneralMatt D. Grove, Assistant Attorney GeneralOffice of the Colorado Attorney General1300 Broadway, 10th FloorDenver, CO 80203Email: [email protected]; [email protected];[email protected]

Attorneys for Defendant-Appellant/Cross-Appellee Scott Gessler

s/Amy Knight

I d i h C A R 30(f) i d f hi d i h i i l i i

Answer Brief of Paladino Parties - Ethics Watch v. Gessler, CO Court of Appeals

Documents

Transcript of Answer Brief of Paladino Parties - Ethics Watch v. Gessler, CO Court of Appeals