COMPLAINT against FEDERAL ELECTION COMMISSION ( Filing fee $ 350, receipt number 4616013229) filed by DEMOCRATIC NATIONAL COMMITTEE. (Attachments: # (1) Civil Cover Sheet)(td, )
No tags have been applied so far. Sign in to add some.
There was a problem locating the requested document.
Page 1 al»
~ ~ FILED
UNITED STATES DISTRICT COURT JUN 24 2008
FOR THE DISTRICT OF COLUMBIA Clerk, U.S. District and
Bankruptcy Courts
DEMOCRATIC NATIONAL COMMITTEE )
430 S. Capitol Street, S.E. )
Washington, D.C. 20003 )
Case: 1:08-cv-01083
Assigned To : Bates, John D.
Assign. Date : 6/24/2008
V. Description: Admn. Agency Review
FEDERAL ELECTION COMMISSION
999 E Street, N.W.
Washington, D.C. 20463
Plaintiff,
Defendant.
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
(Federal Election Campaign Act of 1971 as amended 2 USC 437g(a)(8))
PRELIMINARY STATEMENT
1. This is an action for declaratory and injunctive relief with respect to the
continuing inability and failure of defendant Federal Election Commission (“FEC”) to act
on an administrative complaint filed by plaintiff Democratic National Committee
(“DNC”). That complaint alleged that U.S. Senator John McCain (R-Ariz.), a candidate
for the nomination of the Republican Party for President of the United States, and John
McCain 2008, Inc. (the “McCain Campaign”), his principal campaign committee, have
violated the Federal Election Campaign Act of 1971 as amended, 2 U.S.C. §§ 431 et seq.
(the "FECA"), the Presidential Matching Payment Account Act, 26 U.S.C. §§ 9031 et
seq. (the “Matching Payment Act’), and FEC regulations.Page 2 2. In summary, as alleged in detail below, the Matching Payment Act allows
a candidate for a major party nomination for President to enter into an agreement with the
FEC under which the candidate will receive, from the federal government, public funds
matching the first $250 of every contribution made to the candidate’s campaign by an
individual. In exchange for this public grant, the candidate must agree to abide by an
overall limit on the campaign’s spending in seeking the nomination, as well as to abide
by a number of other conditions. Senator McCain and his campaign signed a binding
agreement with the FEC to accept the spending limit and the other conditions of receiving
these public matching funds.
3. Senator McCain derived concrete and substantial benefits from his
agreement with the FEC. He used the promise of receiving public funds to secure a bank
loan to sustain his campaign, and he also used it to qualify for a position on several state
Presidential primary ballots.
4. Having used the FEC'’s certification to secure the needed private funds and
for these other purposes, Senator McCain then announced that he was unilaterally
abrogating his agreement with the FEC. Since that time, Senator McCain has conducted
his campaign unconstrained by any of the requirements and limitations, including
limitations on primary spending, to which he bound himself under his agreement with the
United States Government. The Chairman of the FEC has already advised Senator
McCain that he is not free to withdraw unilaterally from his agreement with the FEC and
to ignore the legal requirements of the Matching Payment Act, without the FEC’s
approval. Yet, Senator McCain cannot obtain such approval, because he has already
violated a key condition for dispensing with the Agreement by which he entered thePage 3 \w ww
matching funds program: he has pledged matching funds as collateral for a loan to his
campaign.
5. On February 25, 2008, the DNC filed an administrative complaint against
Senator McCain and the McCain Campaign pursuant to the FECA, alleging that Senator
McCain had violated the Matching Payment Act and the FEC’s implementing
regulations; and asking the FEC to (1) find reason to believe, pursuant to 2 U.S.C. §
437g(a)(2), that Senator McCain and the McCain Campaign have committed, or are about
to commit, a violation of Chapter 96 of Title 26 and of the FEC rules, and to conduct an
investigation; and (2) pursuant to 26 U.S.C. § 9040(c), petition the appropriate U.S.
District Court for injunctive relief to implement and enforce the provisions of Chapter 96
against Senator McCain and the McCain Campaign.
6. On April 14, 2008, the DNC filed a complaint against the FEC in this
Court, alleging the agency’s failure to act on the administrative complaint. Democratic
National Committee v. Federal Election Commission, No. 1:08-cv-00639. On May 14,
2008, this Court dismissed the complaint without prejudice because the DNC filed the
complaint less than 120 days after it filed its administrative complaint as provided in 2
US.C. § 437g(a)(8).
7. Since the DNC filed its administrative complaint, Senator McCain and the
McCain Campaign have continued and are likely to continue violating the agreement to
limit campaign spending in conformance of the Matching Payment Act.
8. Under the FECA, any party aggrieved by the failure of the FEC to act on
such a complaint during the 120-day period beginning on the date the complaint is filed,
may file a petition with this Court. 2 U.S.C. § 437g(a)(8)(A). In sucha proceeding, thisPage 4 we wi
Court may declare the failure to act to be contrary to law and may direct the FEC to
conform with such declaration within 30 days. Id. § 437g(a)(8)(B).
9. The terms of four FEC Commissioners expired in January 2008, leaving
only two sitting FEC Commissioners. At least four Commissioners must agree before the
FEC may take any action on a complaint. Thus, the FEC has not been able to find reason
to believe to believe that Senator McCain or the McCain Campaign has broken the law —
the condition precedent to investigation and conciliation. Nor can the agency initiate a
civil suit against Senator McCain or the McCain Campaign. All of these actions require
the affirmative votes of at least four Commissioners. Id. § 437g(a)(2), (4) & (6).
10. Because the FEC has not and is not likely to complete its enforcement
action before the general election, the violations committed and continue to be committed
by Senator McCain and the McCain Campaign before the November 2008 general
election will not be redressed unless and until this Court issues an order pursuant to 2
U.S.C. § 437g(a)(8), declaring that the FEC’s failure to act on the administrative
complaint is contrary to law and directing the FEC to conform with such declaration
within thirty (30) days.
11. Under the FECA, if the FEC failed to conform with such declaration
within thirty days, the DNC would be authorized as the administrative complainant to act
in the place of the FEC in seeking from this Court a declaration that the law has been
violated and a remedial order establishing any and all appropriate penalties. 2 U.S.C.
§437g(ay(8)(C).Page 5 a eetnennienernenen enti,
‘uw’ ww)
PARTIES
12. Plaintiff DEMOCRATIC NATIONAL COMMITTEE (the “DNC”) is an
unincorporated association, with its principal place of business in Washington, D.C. The
Democratic National Committee is the governing body of the Democratic Party of the
United States. The organizational purposes and functions of the DNC are to persuade and
organize citizens to register to vote as Democrats and to cast their votes for Democratic
Party nominees and candidates; to communicate the Democratic Party’s position and
messages on issues; and to aid and encourage the election of Democratic candidates at the
national, state and local levels. A principal purpose of the DNC in presidential election
years is nominate candidates for the President and Vice President of the United States, to
promote the election of the Democratic nominees for President and Vice President, and to
oppose the election of the Republican nominee.
13. DNC Services Corporation (“DNC Services”) is a District of Columbia
non-profit corporation that is controlled by the elected national officers of the DNC and
that owns the assets, employs the staff and possesses the contractual rights and
obligations of the DNC. The DNC undertakes most of its business and financial activities
through DNC Services Corporation.
10... DNC and DNC Services are jointly registered with the Federal Election
Commission (“FEC”) as a “national committee” within the meaning of the FECA, 2
U.S.C. § 431(14) and the FEC’s regulations, 11 C.F.R. § 100.13. Contributions made to
the DNC of any kind are legally treated as contributions to this federal political
committee. All contributions to the DNC are publicly reported and disclosed on reports
filed regularly with the FEC under FECA, 2 U.S.C. § 434.Page 6 Ae erie nereet ree eetee,
\ww wd
11. Defendant FEDERAL ELECTION COMMISSION (“FEC”) is the agency
designated by FECA to enforce the provisions of FECA, 2 U.S.C. § 437c(b). Except as
provided under 2 U.S.C. § 437g(a)(8), the FEC has exclusive Jurisdiction with respect to
the civil enforcement of FECA. 2 U.S.C. § 437c(b)(1).
| JURISDICTION AND VENUE
13. This Court has jurisdiction over the subject matter of this action under 28
U.S.C. §§ 1331, 2201 and 2202 and under FECA, 2 U.S.C. § 437g(a)(8).
14, Venue is proper in this Court pursuant to FECA, 2 U.S.C. § 4379(a)(8)(A).
STANDING
15. A principal role of the DNC in presidential election years is to support the
election of the Democratic nominee and oppose the election of the Republican nominee
for President.
16. Senator McCain is the presumptive nominee of the Republican Party for
President, having won, through Republican primaries and caucuses, a majority of the
delegates to the Republican National Convention. Since becoming the presumptive
nominee, Senator McCain and the McCain Campaign have focused their attention and
campaign spending first on the remaining candidates for the Democratic Presidential
nomination, Senator Obama and Senator Clinton, and solely on Senator Obama since he
became the presumptive nominee of the Democratic Party.
17. Under the FECA, the DNC may receive contributions only from individuals,
up to $28,500 per calendar year, and from federal political committees, up to $15,000 per
calendar year.Page 7 a en etntettenenatetree nee,
New wd
18. The DNC may lawfully expend its funds on communications and voter
contact activities advocating the defeat of the Republican presidential nominee, as long as
such expenditures are made independently of any candidate for the Democratic
nomination or, once there is a presumptive or actual nominee, made independently of that
nominee. 11 C.F.R. §§ 109.30. For example, in 2004, the DNC expended substantial
sums on television advertising, mailings and phone calls supporting the election of
Senator John Kerry, its then-nominee for President and/or opposing the re-election of
President George W. Bush, the Republican nominee.
19. The DNC may also expend up to a specified dollar amount in connection
with the general election campaign, including communications opposing the presumptive
Republican nominee, in coordination with the Democratic candidate(s) for President. 2
U.S.C. § 441a(d)(2); 11 C.F.R. §§ 109.30, 109.32, 109.34.
20. The DNC may also expend its funds on organizing and recruiting supporters
and volunteers, providing support for state Democratic Party offices and staff to be used
for voter contact operations, to pay for supervision and organization of volunteers
engaged in certain voter contact operations, and other activities in support of the
Democratic ticket and in opposition to Republican candidates.
21. All other factors being equal, the more money the Republican nominee is
able to spend on his campaign, the more funds the DNC must raise and spend in order to
compete effectively.
22. The DNC’s role in raising and spending funds to oppose the election of
Senator McCain was singularly important in the period, between the filing of the
administrative complaint and the emergence of Senator Obama as the DemocraticPage 8 RAS eee enna ernie,
presumptive nominee, because the contest for the Democratic nomination was continuing
and the candidates for the nomination were expending most of their resources in the
campaign to secure the nomination rather than on communications and activities to
oppose the election of the presumptive Republican nominee, Senator McCain. Now that
Senator McCain and the Republican National Committee are working together on the one
hand, and Senator Obama and the DNC are working together on the other, it remains
critically important to the DNC that the campaign finance regime in which it participates
be enforced, in a fair and even-handed way, to prevent illegal fundraising and
expenditures to the detriment of the DNC and its nominee.
23. The continuing inability and failure of the FEC to act against the violations
committed by Senator McCain and the McCain Campaign is allowing them to continue to
violate the law.
24. The FECA specifically provides that when the FEC’s failure to act is
contrary to law, and the FEC is unable to conform its actions to law within thirty days by
order of a Court, the public interest in enforcement of the law is protected by authorizing
an administrative complainant to act in place of the agency. 2 U.S.C. §437g(a)(8)(C).
The DNC, as administrative complainant, is prepared to bring and will bring an action
directly to remedy the violation described in the DNC’s administrative complaint, if the
Court grants the relief the DNC seeks.
25. The violations committed by Senator McCain have forced the DNC and its
supported candidates to compete in a presidential election cycle that is tainted by illegal
practices. Senator McCain is the presumptive Republican nominee, and his illegal
conduct—and the inability of the FEC to enforce the law — affects the competitivePage 9 eee orenepneniannnennene ene,
~ Y
positions of the DNC and the Democratic candidates for President. Inter alia, his
violations are requiring the DNC to operate in a tainted campaign finance arena, and are
compelling the DNC to raise and expend legal amounts it would not otherwise not be
required to expend in order to oppose the illegal expenditure of funds supporting the
election of Senator McCain as President.
26. The DNC has thus suffered and continues to suffer injury in fact as a direct
result of the FEC’s failure to act on the DNC’s administrative complaint.
STATUTORY AND REGULATORY BACKGROUND
27. Under the Presidential Election Campaign Fund Act, 26 U.S.C. §§ 9001 et
seq., the Secretary of the Treasury has established and maintains a separate account, the
Presidential Election Campaign Fund, into which are deposited an amount of government
funds equal to the total amount designated by individual taxpayers on their income tax
returns to be used for certain public financing of presidential campaigns. 26 U.S.C. §§
6096, 9006(a).
28. Pursuant to the Matching Payment Act, 26 U.S.C. § 9031 ef seq., the
Secretary of the Treasury maintains a sub-account of the Presidential Election Campaign
Fund to be used to provide certain public funds which a candidate for the nomination of a
major party for President of the U.S. may, under certain conditions, elect to receive and
use to support that candidate’s campaign for the nomination. 26 U.S.C. § 9037.
Specifically, such a candidate may become eligible to receive what are popularly known
as “matching funds,” which are payments from that sub-account equal to the total amount
of contributions received from individual contributors to the campaign, disregarding the
amount of each contribution over $250. Jd. § 9034(a). In other words, a participatingPage 10 ene nennnenanneitirnenneee en,
candidate can receive public funds matching the first $250 of every contribution received
from an individual donor.
29. In order to become eligible to receive these “matching funds,” however, the
candidate must agree to a number of conditions, set forth in 26 U.S.C. §§ 9033(a) & (b)
and in the FEC’s rules, 11 C.F.R. §§ 9033.1, 9033.2. One of the key conditions is that
the candidate agree not to expend more than a specified dollar amount on his campaign
for the nomination, during the period beginning on the day the candidate announces he is
running for President until the date the candidate either quits the race or receives the
nomination at the party’s National Convention. /d. § 9035; 11 C.F.R. §§ 9032.6(a),
9035.1.
30. A candidate seeking to become eligible for matching fund payments must
agree, in a letter signed by the candidate directed to the FEC, that the candidate will
comply with all the conditions set forth in the FEC’s regulations, including keeping
certain records and agreeing to an audit, 11 C.F.R. § 9033.1. The candidate must also
submit a separate written statement certifying that the candidate and his campaign will
not exceed the spending limit; and that the campaign has received initial contributions
sufficient to meet certain threshold requirements (matchable contributions totaling more
than $5,000 in each of at least 20 States), together with documentation of those initial
matchable contributions. /d. § 9033.2(b).
31. The FEC then examines these submissions and makes a determination that
the candidate has either met or has not met the threshold requirements, and then notifies
the candidate of that initial determination. Jd. § 9033.4(a).
10Page 11 New ws
32. The spending limit to which a participating Republican candidate must
agree covers all expenditures by that candidate from the date that the candidate became a
candidate until the date of his nomination by the Republican Party at the Republican
National Convention in September 2008. 11 C.E.R. § 9032.6(a).
33. The spending limit for the primary elections for President for those who
agree to participate in the matching funds program was originally set by statute at
$10,000,000. 2 U.S.C. § 441a(b)(A). This amount is indexed for inflation. The limit for
the 2008 election cycle is $42,050,000. In addition to this base limit, the FEC has
provided an additional 20% increase to the spending limit for fundraising costs (11
C.F.R. § 100.152), and an additional 15% increase for legal and compliance costs (11
C.F.R. § 9035.1(c)). Therefore, on information and belief, the applicable spending limit
for participating candidates in 2008 is $56,757,500.
FACTUAL BACKGROUND
34. On August 13, 2007, Senator McCain submitted his signed Candidate
Agreement and Certification to the FEC, seeking certification of eligibility to receive
matching funds under the Matching Payment Act. In that Candidate Agreement and
Certification letter, Senator McCain agreed to all of the provisions set forth in the FEC’s
rules, 11 C.F.R. §§ 9033.1 and 9033.2, including an express agreement that his campaign
would not exceed the applicable spending limit. Senator McCain sought to enter the
public funding system when it served his purposes, giving his campaign vitally needed
access to funding.
35. On December 20, 2007, the FEC announced that it had certified Senator
McCain to receive federal matching funds. As the FEC explained in the release, to
11Page 12 antenna name en nine,
New ww
“become eligible for matching funds, candidates must raise a threshold amount” and
“[o]ther requirements to be declared eligible include agreeing to an overall spending limit
of approximately $50 million, abiding by spending limits in each state, using public funds
only for legitimate campaign-related expenses, keeping financial records and permitting
an extensive campaign audit.” Senator McCain agreed to all of these conditions in his
Candidate Agreement letter.
36. On information and belief, Senator McCain and the McCain Campaign used
the fact that the FEC had found him eligible to receive matching funds to obtain ballot
access in several states. The applicable law in these states provided relaxed conditions
for ballot access to those candidates whom the FEC had found to be eligible for public
funds.
37. On January 31, 2008, the McCain Campaign filed, with its year-end report,
a Schedule C-1, disclosing that the Campaign had obtained a $4,000,000 line of credit
from Fidelity & Trust Bank (the “Bank”), and had drawn $2,971,697 of that line of
credit. The loan documents consisted of a Business Loan Agreement, dated as of Nov. 14,
2007 (the “Loan Agreement”): a Commercial Security Agreement dated as of Nov. 14,
2007, between the Campaign and the Bank (the “Security Agreement”); a Promissory
Note in the principal amount of $3 million, made by the Campaign to the Bank (the
“Note”); and a Loan Modification Agreement dated Dec. 17, 2007 (the “Modification
Agreement”).
38. On February 6, 2008, Senator McCain sent a letter to the FEC announcing
that he and his campaign were withdrawing from participation in the federal primary-
election funding program established by the Matching Payment Act. On February 7,
12Page 13 nner
2008, counsel for the McCain Campaign sent a letter to the U.S. Treasury announcing
that the Senator and his campaign were withdrawing from the program.
39. On February 19, 2008, FEC Chairman David Mason sent a letter to Senator
McCain advising him that the FEC considers Senator McCain’s February 6, 2008 letter
“as a request that the FEC withdraw its previous certifications” and that just as the law
“required an affirmative vote of four [FEC] Commissioners to make these certifications,
it requires an affirmative vote of four [FEC] Commissioners to withdraw them.”
VIOLATIONS OF MATCHING PAYMENT ACT BY SENATOR MCCAIN AND
THE MCCAIN CAMPAIGN
40. The FEC’s rules, 11 C.F.R. § 9033.1, require a candidate seeking to become
eligible to receive primary matching fund payments “to agree in a letter signed by the
candidate to the FEC” that the candidate and the candidate’s campaign will comply with
the legal conditions set out in that regulation. As set forth in paragraph 34 above, Senator
McCain signed and submitted such a letter and the required certification.
41. In Advisory Opinion 2003-35, the FEC ruled that, once accepted by the FEC
through certification of the candidate’s eligibility for matching funds, such a letter
constitutes “a binding contract with the FEC,” id. at 2, and that any request for withdraw
from the matching funds program will be treated as a request, “in effect, [as to] whether
the FEC would consent to a rescission of this contract.” Jd.
42. In that Advisory Opinion, the FEC held that as a matter of policy, the FEC
would grant such consent “to withdraw a certification of a candidate’s eligibility to
receive Matching Payment Act funds prior to the payment date for any such funds to such
candidate or his or her committee upon receipt of a written request signed by the
13Page 14 nA en nanenRteNERe Nemec,
New wel]
candidate, provided that the certification of funds has not been pledged as Security for
private financing.” Id. at 4 (emphasis added).
43. In the case of Senator McCain, the FEC has not granted any consent to the
Senator or the McCain Campaign to rescind the Senator’s “binding contract with the
FEC” A.O. 2003-35 at 2. Therefore, Senator McCain and the McCain Campaign are still
bound by that Candidate Agreement and Certification letter, and are not free to withdraw
unilaterally from the matching funds program, to ignore their legal obligations under the
Candidate Agreement and Certification letter, or escape all consequences for the decision
made unilaterally to abrogate that Agreement.
44, The required disclosure form filed by the Campaign with the FEC, Schedule
C-1, indicated that the collateral pledged for the loan excludes “certification for federal
matching funds” and “public financing.” The Loan Agreement also represents that “any
certification of matching funds eligibility currently possessed by [the Campaign] or
obtained before January 1, 2008 and the right of’ Senator McCain and the Campaign “to
receive payment under these certifications are not collateral” for the loan.
45. In fact, however, the Campaign did effectively pledge future matching funds
to be received under the initial certification as collateral for the loan, in several ways.
46. Inthe Loan Agreement, under “Affirmative Covenants,” a provision entitled
“Additional Requirements” provides that if the McCain Campaign withdraws from the
matching funds program before the end of 2007 but Senator McCain does not win the
New Hampshire primary or place within 10 points of the winner, Senator McCain will
continue his candidacy, reapply for public matching funds and grant to the Bank, “as
additional collateral for the Loan, a first priority perfected security interest in and to” all
14Page 15 a
of the Campaign’s “right, title and interest to the matching fund program.” Taken in
combination with the fact that Senator McCain and the Campaign had already applied for
and received the certification for matching funds, this provision can only be interpreted as
a present encumbrance, however conditional, of the Campaign’s future interest in and
entitlement to matching funds, as part of the security for the line of credit.
47. Further, a negative covenant, appears under “Negative Covenants,” on page
of the Loan Agreement, under the subheading “Indebtedness and Liens.” In that
section, the Campaign agrees that it will not, without the Bank’s consent, “transfer,
mortgage, assign, pledge, lease, grant a security interest in or encumber” any of the
Campaign’s “assets, including without limitation any of Borrower’s right, title or interest
in and to the public matching fund program or any matching fund entitlement thereunder,
whether now existing or hereafter arising...” This negative covenant clearly implies
that the Bank assumes it has a perfected security interest in all future rights of the
Campaign to receive matching funds under the initial determination of eligibility.
48. The Loan Agreement also includes a provision, on page 4, entitled
“Compliance with the Federal Election FEC's Matching Funds Program,” in which the
Campaign agrees with the Bank that, while the Loan Agreement is in effect, the
Campaign “shall not exceed overall or state spending limits set forth in the Federal
Matching Funds program, if applicable.” The only reason for inclusion of such a
provision would be to ensure that the Campaign will continue to be entitled to receive
matching funds so that the Bank can treat them as part of the collateral.
49. The Modification Agreement, made on December 17, 2007, before Senator
McCain and the McCain Campaign purported to withdraw from the matching funds
15Page 16 EE eee
Case 1:08-cv-01083-UDB Document1 Filed 06/24/2008 Page 16 of 22
¥
program, amends that provision to make it applicable “irrespective of whether Borrower
[the Campaign] is subject to such program as of any applicable date of determination.”
Thus, the Bank obtained a covenant from the Campaign to abide by the spending cap
while the Loan Agreement is in effect regardless of whether or not the Campaign
considered itself to be participating in the matching funds program. Again, the only
conceivable purpose and effect of such a covenant would be to ensure that matching
funds could be received and be available as collateral for the loan.
50. The Security Agreement, on page | under the provision entitled “Collateral
Description,” describes the collateral being pledged for the line of credit as including,
generally, all “accounts, ... deposit accounts, money, other rights to payment and
performance ....” The next to last sentence of this description states that, “any
certification of matching fund eligibility, including related rights, currently possessed by
Grantor [the Campaign] or obtained before January 1, 2008, are not themselves being
pledged as security. . . and are not themselves collateral for the indebtedness...”
(emphasis added).
51. The description of the collateral for the loan thus does not exclude but rather
includes—as of the date of the Security Agreement—rights to receive matching funds
that arise, i.e., that come into existence, after January 1, 2008, based on matchable
contributions received and presentations in good order made after that date, even without
any new certification of initial eligibility under section 9033.4 of the FEC’s rules. Again,
then, under this language, the Campaign has made a current pledge and encumbrance of
Juture rights to receive funds under the matching funds program under and pursuant to
16Page 17 the initial certification of matching payment eligibility made by the FEC in December
2007.
52. A negative covenant appearing at the end of the Collateral Description
provides that the Campaign “agrees not to sell, transfer, convey, pledge, hypothecate or
otherwise transfer to any person or entity any of its present or future right, title and
interest in and to the public matching fund program,....including related rights,” without
the Bank’s consent. It makes no sense for the Security Agreement to include such a
negative covenant unless it was intended that the Campaign is, in the Agreement, making
a current pledge of future rights to receive matching funds.
53. Further, the Modification Agreement, made on December 14, 2007, changed
the language of the exemption in the Collateral Description to exclude, from the
collateral, only those “certifications of matching funds eligibility, including related rights,
now held by Grantor. . . ,” in place of “currently possessed by Grantor or obtained before
January 1, 2008.” This modification makes clear again that, although the initial amount
certified in December 2007 may not be part of the collateral for the loan, that collateral
will include future amounts of matching funds paid, based on future submissions, even
though based on the initial certification of eligibility.
54. For these reasons, the McCain Campaign and Senator McCain pledged the
certification of matching funds as security for private financing. Assuming the FEC
treated the letter from Senator McCain as a request for withdraw from the program, the
FEC, consistent with its own rules and precedent, would be required to deny that request.
55. But Senator McCain and the McCain Campaign have announced that they
will disregard the Agreement; that they will disregard the February 2008 letter received
17Page 18 $$$ renters
from the Chairman of the FEC who advised Senator McCain that he remained bound by
his Agreement; and that they will proceed as if free to withdraw unilaterally and without
consequences from the Agreement.
56. On June 20, 2008, the McCain Campaign filed with the FEC its required
May Monthly disclosure report covering the period from May 1, 2008 through May 31,
2008. That report disclosed that Senator McCain’s campaign has, as of May 31, 2008, in
fact, exceeded the $56,757,500 spending limit. As of May 31, 2008, Senator McCain has
disclosed spending $87,827,220 in connection with his campaign for the Republican
Presidential nomination. Senator McCain and his campaign are spending without regard
to the limitations to which they bound themselves in the Candidate Agreement and
Certification executed by them and submitted to the FEC.
57. In addition, on information and belief, the McCain Campaign has continued
to expend funds since May 31, 2008, and will continue to expend such funds, thereby
continuing to violate the FECA and the Matching Payment Act.
58. Thus, Senator McCain and the McCain Campaign have violated the FECA,
2 U.S.C. § 431 et seq., the Matching Payment Act, 26 U.S.C. § 9035, and the FEC’s
rules.
THE DNC’S ADMINISTRATIVE COMPLAINT
59. On February 25, 2008, the DNC filed an administrative complaint (the
“DNC Administrative Complaint”) against Senator McCain and the McCain Campaign
pursuant to the FECA, 2 U.S.C. § 437g(a)(1), alleging that Senator McCain had violated
the Matching Payment Act and the FEC’s implementing regulations; and asking the FEC
to (1) find reason to believe, pursuant to 2 U.S.C. § 437g(a)(2), that Senator McCain and
18Page 19 ne eeneeneeee meena
Case 1:08-cv-01083-UDB Document1 Filed 06/24/2008 Page 19 of 22
Nw wi
\
the McCain Campaign have committed, or are about to commit, a violation of Chapter 96
of Title 26, United States Code, and of the FEC regulations, and to conduct an
investigation; and (2) pursuant to 26 U.S.C. § 9040(c), petition the appropriate U.S.
District Court for injunctive relief to implement and enforce the provisions of Chapter 96
against Senator McCain and the McCain Campaign.
60. In this case, the FEC has not been able to act on the DNC Administrative
Complaint because there are an insufficient number of sitting Commissioners to vote
upon the question of whether there is reason to believe that Senator McCain and the
McCain Campaign have committed a violation of the Matching Payment Act. The
decision even to commence an investigation of such a complaint requires the affirmative
votes of four of the six FEC Commissioners. Id. § 43 7g(a)(2).
61. There were only two sitting Commissioners because the terms of the other
FEC Commissioners have expired and replacements were not confirmed by the U.S.
Senate. Therefore, under 2 U.S.C. § 437g(a), the FEC has not been able to act to remedy
Senator McCain and the McCain Campaign's violations, including the initiation of a civil
action before this Court to seek declaratory relief and monetary penalties.
COUNT ONE
62. The allegations of paragraphs 1-61 above inclusive are hereby repeated and
re-alleged as though fully set forth.
63. The FEC has failed to act on the DNC Administrative Complaint to date.
64. The FEC’s inability to complete its enforcement action on the DNC
Administrative Complaint will continue for the foreseeable future unless this Court
19Page 20 a
Nw wd)
declares the FEC’s failure to act contrary to law and orders the FEC to conform to such
declaration within thirty days.
65. The FEC’s failure to act on the DNC Administrative Complaint is contrary
to law because the DNC Administrative Complaint sets forth factual allegations which, if
true, would clearly establish reason to believe, within the meaning of 2 U.S.C. §
437g(a)(2), that Senator McCain and the McCain Campaign have violated the Matching
Payment Act.
66. Plaintiffs have no adequate remedy at law, unless the Court issues an Order
under which, as provided by statute, the FEC must complete its enforcement action on the
DNC’s administrative complaint in 30 days.
67. Without the relief requested in this action, the law will go unenforced, in
direct contravention of the Congressional design by which, if the FEC does not act,
administrative complainants can seek the enforcement from this Court that is unavailable
through the administrative process.
68. The benefits that Senator McCain will achieve at the expense of the
Democratic Party, the DNC and their supported candidates, by expending funds in
violation of the Matching Payment Act, and the resulting harm to the DNC, is irreparable
in that it cannot be remedied in the future through any other legal processes.
69. Moreover, the process of determining whether the DNC complaint presents
a violation of the Act or the Matching Payment Act is — or should be —a straightforward
one. Whether Senator McCain and the McCain Campaign were indeed able to withdraw
from the public financing system, as they purport, is a question of law that the FEC can
readily decide in 30 days.
20Page 21 EE
4
RELIEF REQUESTED
WHEREFORE, plaintiffs respectfully pray that this Court:
1. Enter an order declaring that the FEC’s failure to act upon the DNC
Administrative Complaint is contrary to law under and within the meaning
of the FECA, 2 U.S.C. § 437g(a)(8)(C);
2. Pursuant to 2 U.S.C. § 437g(a)(8)(C), enter an order directing the FEC to
conform with such declaration within thirty (30) days; and authorizing the
DNC to bring a civil action to remedy the violations involved in the
original complaint if the FEC does not resolve the DNC’s administrative
complaint in thirty (30) days;
3. Grant plaintiffs the costs and expenses of this action; and
4. Grant such other and further relief as the Court deems just and proper.
Respectfully submitted,
Fvoseph E. Sandler Yo
(D.C. Bar #255919)
Stephen E. Hershkowitz
(D.C. Bar # 282947)
Elizabeth Getman
SANDLER, REIFF & YOUNG, P.C.
300 M Street, S.E. #1102
Washington, D.C. 20003
Tel: (202) 479-1111
Fax: (202) 479-1115
e-mail: sandler@sandlerreitf.com
21Page 22 aan
>
Amanda S. LaForge
(D.C. Bar # 491909)
Chief Counsel
Democratic National Committee
430 S. Capitol Street, S.E.
Washington, D.C. 20003
Tel: (202) 479-5153
Fax: (202) 479-5149
Email: laforgea@dnc.org
Attorneys for Plaintiff Democratic National
Committee
Dated: June 24, 2008
22Page 23 Case 1:08-cv-010
JS-44
(Rey.1/05 DC)
\w
)83-JDB Document 1-2
CIVIL COVER SHEET
wi
Ca
Filed 06/24/2008 Page 1 oP 8 /°F3
: Toa
I (a) PLAINTIFFS
(EXCEPT IN U.S. PLAINTIFF CASES)
‘Democratic National Committee
(b) COUNTY OF RESIDENCE OF FIRST LISTED PLAINTIFF
Washington DC
DEFENDANTS
‘Federal Election Commission
COUNTY OF RESIDENCE OF FIRST LISTED DEFENDANT
(IN U.S. PLAINTIFF CASES ONLY)
300 M Street, SE #1102
‘Washington, DC 20003
‘Telephone (202) 479-1111
(c) ATTORNEYS (FIRM NAME, ADDRESS, AND TELEPHONE NUMBER)
‘Joseph E. Sandler Sandler, Reiff & Young PC
eee ee —
Case:
Assigned To : B
6
Assign. Date -
- Description: Admn.
Il. BASIS OF JURISDICTION
(PLACE AN x IN ONE BOX ONLY)
ates,
NOTE: IN LAND CONDEMNATION CASES, USE THE LOCATION OF THE TRACT.Q&-—
LAND INVOLVED
ATTORNPYVS (16 weteo>
-08-cv-01083
4.08-cv John D.
2412008 ;
Agency Review
mmm
IV. CASE ASSIGNMENT AND NATURE OF SUIT
(Place a X in one category, A-N, that best represents your cause of action and one in a corresponding Nature of Suit)
Real Property
{—]210 Land Condemnation
[}220 Foreclosure
[230 Rent, Lease & Ejectment
("]240 Torts to Land
(]248 Tort Product Liability
(°7}290 AH Other Real Property
Personal Property
(-]370 Other Fraud
(("J371 Truth in Lending
ther Personal Property Damage
(1380 Other P | Property Damag:
roperty Damage Product Liability
(1385 Property D Product Liabili
Bankrupte
]422 Appeal 28 USC 158
[2] 423 Withdrawal 28 USC 157
Prisoner Petitions
535 Death Penalty
{]540 Mandamus & Other
[1550 Civil Rights
[5] 355 Prison Condition
Property Rights
{] 820 Copyrights
(] 830 Patent
[7] 840 Trademark
Federal Tax Suits
[] 870 Taxes (US plaintiff or
defendant
{_] 871 IRS-Third Party 26
USC 7609
Forfeiture/Penalty
(J 610 Agriculture
([7] 620 Other Food &Drug
[] 625 Drug Related Seizure
of Property 21 USC 881
[_] 630
Liquor Laws
(1 640 RR & Truck
[[_] 650 Airline Regs
(-] 660 Occupational
Safety/Health
[1] 690
Other
Other Statutes
[__} 400 State Reapportionment
(430 Banks & Banking
(1450 Commerce/ICC
Rates/etc.
(1 460 Deportation
C] 470
[_] 480
[1] 490
f|s10
C1 850
(7) 875
[7] 900
[7] 950
C_] 890
Racketeer Influenced &
Corrupt Organizations
Consumer Credit
Cable/Satellite TV
Selective Service
Securities/Commodities/
Exchange
Customer Challenge 12 USC
3410
Appeal of fee determination
under equal access to Justice
Constitutionality of State
Statutes
Other Statutory Actions (if
not administrative agency
review or Privacy Act
@Page 24
PDF Page 1
PlainSite Cover Page
PDF Page 2
al»
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 1 of 22
~ ~ FILED
UNITED STATES DISTRICT COURT JUN 24 2008
FOR THE DISTRICT OF COLUMBIA Clerk, U.S. District and
Bankruptcy Courts
DEMOCRATIC NATIONAL COMMITTEE )
430 S. Capitol Street, S.E. )
Washington, D.C. 20003 )
Case: 1:08-cv-01083
Assigned To : Bates, John D.
Assign. Date : 6/24/2008
V. Description: Admn. Agency Review
FEDERAL ELECTION COMMISSION
999 E Street, N.W.
Washington, D.C. 20463
Plaintiff,
Defendant.
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
(Federal Election Campaign Act of 1971 as amended 2 USC 437g(a)(8))
PRELIMINARY STATEMENT
1. This is an action for declaratory and injunctive relief with respect to the
continuing inability and failure of defendant Federal Election Commission (“FEC”) to act
on an administrative complaint filed by plaintiff Democratic National Committee
(“DNC”). That complaint alleged that U.S. Senator John McCain (R-Ariz.), a candidate
for the nomination of the Republican Party for President of the United States, and John
McCain 2008, Inc. (the “McCain Campaign”), his principal campaign committee, have
violated the Federal Election Campaign Act of 1971 as amended, 2 U.S.C. §§ 431 et seq.
(the "FECA"), the Presidential Matching Payment Account Act, 26 U.S.C. §§ 9031 et
seq. (the “Matching Payment Act’), and FEC regulations.
PDF Page 3
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 2 of 22
2. In summary, as alleged in detail below, the Matching Payment Act allows
a candidate for a major party nomination for President to enter into an agreement with the
FEC under which the candidate will receive, from the federal government, public funds
matching the first $250 of every contribution made to the candidate’s campaign by an
individual. In exchange for this public grant, the candidate must agree to abide by an
overall limit on the campaign’s spending in seeking the nomination, as well as to abide
by a number of other conditions. Senator McCain and his campaign signed a binding
agreement with the FEC to accept the spending limit and the other conditions of receiving
these public matching funds.
3. Senator McCain derived concrete and substantial benefits from his
agreement with the FEC. He used the promise of receiving public funds to secure a bank
loan to sustain his campaign, and he also used it to qualify for a position on several state
Presidential primary ballots.
4. Having used the FEC'’s certification to secure the needed private funds and
for these other purposes, Senator McCain then announced that he was unilaterally
abrogating his agreement with the FEC. Since that time, Senator McCain has conducted
his campaign unconstrained by any of the requirements and limitations, including
limitations on primary spending, to which he bound himself under his agreement with the
United States Government. The Chairman of the FEC has already advised Senator
McCain that he is not free to withdraw unilaterally from his agreement with the FEC and
to ignore the legal requirements of the Matching Payment Act, without the FEC’s
approval. Yet, Senator McCain cannot obtain such approval, because he has already
violated a key condition for dispensing with the Agreement by which he entered the
PDF Page 4
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 3 of 22
\w ww
matching funds program: he has pledged matching funds as collateral for a loan to his
campaign.
5. On February 25, 2008, the DNC filed an administrative complaint against
Senator McCain and the McCain Campaign pursuant to the FECA, alleging that Senator
McCain had violated the Matching Payment Act and the FEC’s implementing
regulations; and asking the FEC to (1) find reason to believe, pursuant to 2 U.S.C. §
437g(a)(2), that Senator McCain and the McCain Campaign have committed, or are about
to commit, a violation of Chapter 96 of Title 26 and of the FEC rules, and to conduct an
investigation; and (2) pursuant to 26 U.S.C. § 9040(c), petition the appropriate U.S.
District Court for injunctive relief to implement and enforce the provisions of Chapter 96
against Senator McCain and the McCain Campaign.
6. On April 14, 2008, the DNC filed a complaint against the FEC in this
Court, alleging the agency’s failure to act on the administrative complaint. Democratic
National Committee v. Federal Election Commission, No. 1:08-cv-00639. On May 14,
2008, this Court dismissed the complaint without prejudice because the DNC filed the
complaint less than 120 days after it filed its administrative complaint as provided in 2
US.C. § 437g(a)(8).
7. Since the DNC filed its administrative complaint, Senator McCain and the
McCain Campaign have continued and are likely to continue violating the agreement to
limit campaign spending in conformance of the Matching Payment Act.
8. Under the FECA, any party aggrieved by the failure of the FEC to act on
such a complaint during the 120-day period beginning on the date the complaint is filed,
may file a petition with this Court. 2 U.S.C. § 437g(a)(8)(A). In sucha proceeding, this
PDF Page 5
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 4 of 22
we wi
Court may declare the failure to act to be contrary to law and may direct the FEC to
conform with such declaration within 30 days. Id. § 437g(a)(8)(B).
9. The terms of four FEC Commissioners expired in January 2008, leaving
only two sitting FEC Commissioners. At least four Commissioners must agree before the
FEC may take any action on a complaint. Thus, the FEC has not been able to find reason
to believe to believe that Senator McCain or the McCain Campaign has broken the law —
the condition precedent to investigation and conciliation. Nor can the agency initiate a
civil suit against Senator McCain or the McCain Campaign. All of these actions require
the affirmative votes of at least four Commissioners. Id. § 437g(a)(2), (4) & (6).
10. Because the FEC has not and is not likely to complete its enforcement
action before the general election, the violations committed and continue to be committed
by Senator McCain and the McCain Campaign before the November 2008 general
election will not be redressed unless and until this Court issues an order pursuant to 2
U.S.C. § 437g(a)(8), declaring that the FEC’s failure to act on the administrative
complaint is contrary to law and directing the FEC to conform with such declaration
within thirty (30) days.
11. Under the FECA, if the FEC failed to conform with such declaration
within thirty days, the DNC would be authorized as the administrative complainant to act
in the place of the FEC in seeking from this Court a declaration that the law has been
violated and a remedial order establishing any and all appropriate penalties. 2 U.S.C.
§437g(ay(8)(C).
PDF Page 6
a eetnennienernenen enti,
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 5 of 22
‘uw’ ww)
PARTIES
12. Plaintiff DEMOCRATIC NATIONAL COMMITTEE (the “DNC”) is an
unincorporated association, with its principal place of business in Washington, D.C. The
Democratic National Committee is the governing body of the Democratic Party of the
United States. The organizational purposes and functions of the DNC are to persuade and
organize citizens to register to vote as Democrats and to cast their votes for Democratic
Party nominees and candidates; to communicate the Democratic Party’s position and
messages on issues; and to aid and encourage the election of Democratic candidates at the
national, state and local levels. A principal purpose of the DNC in presidential election
years is nominate candidates for the President and Vice President of the United States, to
promote the election of the Democratic nominees for President and Vice President, and to
oppose the election of the Republican nominee.
13. DNC Services Corporation (“DNC Services”) is a District of Columbia
non-profit corporation that is controlled by the elected national officers of the DNC and
that owns the assets, employs the staff and possesses the contractual rights and
obligations of the DNC. The DNC undertakes most of its business and financial activities
through DNC Services Corporation.
10... DNC and DNC Services are jointly registered with the Federal Election
Commission (“FEC”) as a “national committee” within the meaning of the FECA, 2
U.S.C. § 431(14) and the FEC’s regulations, 11 C.F.R. § 100.13. Contributions made to
the DNC of any kind are legally treated as contributions to this federal political
committee. All contributions to the DNC are publicly reported and disclosed on reports
filed regularly with the FEC under FECA, 2 U.S.C. § 434.
PDF Page 7
Ae erie nereet ree eetee,
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 6 of 22
\ww wd
11. Defendant FEDERAL ELECTION COMMISSION (“FEC”) is the agency
designated by FECA to enforce the provisions of FECA, 2 U.S.C. § 437c(b). Except as
provided under 2 U.S.C. § 437g(a)(8), the FEC has exclusive Jurisdiction with respect to
the civil enforcement of FECA. 2 U.S.C. § 437c(b)(1).
| JURISDICTION AND VENUE
13. This Court has jurisdiction over the subject matter of this action under 28
U.S.C. §§ 1331, 2201 and 2202 and under FECA, 2 U.S.C. § 437g(a)(8).
14, Venue is proper in this Court pursuant to FECA, 2 U.S.C. § 4379(a)(8)(A).
STANDING
15. A principal role of the DNC in presidential election years is to support the
election of the Democratic nominee and oppose the election of the Republican nominee
for President.
16. Senator McCain is the presumptive nominee of the Republican Party for
President, having won, through Republican primaries and caucuses, a majority of the
delegates to the Republican National Convention. Since becoming the presumptive
nominee, Senator McCain and the McCain Campaign have focused their attention and
campaign spending first on the remaining candidates for the Democratic Presidential
nomination, Senator Obama and Senator Clinton, and solely on Senator Obama since he
became the presumptive nominee of the Democratic Party.
17. Under the FECA, the DNC may receive contributions only from individuals,
up to $28,500 per calendar year, and from federal political committees, up to $15,000 per
calendar year.
PDF Page 8
a en etntettenenatetree nee,
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 7 of 22
New wd
18. The DNC may lawfully expend its funds on communications and voter
contact activities advocating the defeat of the Republican presidential nominee, as long as
such expenditures are made independently of any candidate for the Democratic
nomination or, once there is a presumptive or actual nominee, made independently of that
nominee. 11 C.F.R. §§ 109.30. For example, in 2004, the DNC expended substantial
sums on television advertising, mailings and phone calls supporting the election of
Senator John Kerry, its then-nominee for President and/or opposing the re-election of
President George W. Bush, the Republican nominee.
19. The DNC may also expend up to a specified dollar amount in connection
with the general election campaign, including communications opposing the presumptive
Republican nominee, in coordination with the Democratic candidate(s) for President. 2
U.S.C. § 441a(d)(2); 11 C.F.R. §§ 109.30, 109.32, 109.34.
20. The DNC may also expend its funds on organizing and recruiting supporters
and volunteers, providing support for state Democratic Party offices and staff to be used
for voter contact operations, to pay for supervision and organization of volunteers
engaged in certain voter contact operations, and other activities in support of the
Democratic ticket and in opposition to Republican candidates.
21. All other factors being equal, the more money the Republican nominee is
able to spend on his campaign, the more funds the DNC must raise and spend in order to
compete effectively.
22. The DNC’s role in raising and spending funds to oppose the election of
Senator McCain was singularly important in the period, between the filing of the
administrative complaint and the emergence of Senator Obama as the Democratic
PDF Page 9
RAS eee enna ernie,
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 8 of 22
presumptive nominee, because the contest for the Democratic nomination was continuing
and the candidates for the nomination were expending most of their resources in the
campaign to secure the nomination rather than on communications and activities to
oppose the election of the presumptive Republican nominee, Senator McCain. Now that
Senator McCain and the Republican National Committee are working together on the one
hand, and Senator Obama and the DNC are working together on the other, it remains
critically important to the DNC that the campaign finance regime in which it participates
be enforced, in a fair and even-handed way, to prevent illegal fundraising and
expenditures to the detriment of the DNC and its nominee.
23. The continuing inability and failure of the FEC to act against the violations
committed by Senator McCain and the McCain Campaign is allowing them to continue to
violate the law.
24. The FECA specifically provides that when the FEC’s failure to act is
contrary to law, and the FEC is unable to conform its actions to law within thirty days by
order of a Court, the public interest in enforcement of the law is protected by authorizing
an administrative complainant to act in place of the agency. 2 U.S.C. §437g(a)(8)(C).
The DNC, as administrative complainant, is prepared to bring and will bring an action
directly to remedy the violation described in the DNC’s administrative complaint, if the
Court grants the relief the DNC seeks.
25. The violations committed by Senator McCain have forced the DNC and its
supported candidates to compete in a presidential election cycle that is tainted by illegal
practices. Senator McCain is the presumptive Republican nominee, and his illegal
conduct—and the inability of the FEC to enforce the law — affects the competitive
PDF Page 10
eee orenepneniannnennene ene,
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 9 of 22
~ Y
positions of the DNC and the Democratic candidates for President. Inter alia, his
violations are requiring the DNC to operate in a tainted campaign finance arena, and are
compelling the DNC to raise and expend legal amounts it would not otherwise not be
required to expend in order to oppose the illegal expenditure of funds supporting the
election of Senator McCain as President.
26. The DNC has thus suffered and continues to suffer injury in fact as a direct
result of the FEC’s failure to act on the DNC’s administrative complaint.
STATUTORY AND REGULATORY BACKGROUND
27. Under the Presidential Election Campaign Fund Act, 26 U.S.C. §§ 9001 et
seq., the Secretary of the Treasury has established and maintains a separate account, the
Presidential Election Campaign Fund, into which are deposited an amount of government
funds equal to the total amount designated by individual taxpayers on their income tax
returns to be used for certain public financing of presidential campaigns. 26 U.S.C. §§
6096, 9006(a).
28. Pursuant to the Matching Payment Act, 26 U.S.C. § 9031 ef seq., the
Secretary of the Treasury maintains a sub-account of the Presidential Election Campaign
Fund to be used to provide certain public funds which a candidate for the nomination of a
major party for President of the U.S. may, under certain conditions, elect to receive and
use to support that candidate’s campaign for the nomination. 26 U.S.C. § 9037.
Specifically, such a candidate may become eligible to receive what are popularly known
as “matching funds,” which are payments from that sub-account equal to the total amount
of contributions received from individual contributors to the campaign, disregarding the
amount of each contribution over $250. Jd. § 9034(a). In other words, a participating
PDF Page 11
ene nennnenanneitirnenneee en,
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 10 of 22
candidate can receive public funds matching the first $250 of every contribution received
from an individual donor.
29. In order to become eligible to receive these “matching funds,” however, the
candidate must agree to a number of conditions, set forth in 26 U.S.C. §§ 9033(a) & (b)
and in the FEC’s rules, 11 C.F.R. §§ 9033.1, 9033.2. One of the key conditions is that
the candidate agree not to expend more than a specified dollar amount on his campaign
for the nomination, during the period beginning on the day the candidate announces he is
running for President until the date the candidate either quits the race or receives the
nomination at the party’s National Convention. /d. § 9035; 11 C.F.R. §§ 9032.6(a),
9035.1.
30. A candidate seeking to become eligible for matching fund payments must
agree, in a letter signed by the candidate directed to the FEC, that the candidate will
comply with all the conditions set forth in the FEC’s regulations, including keeping
certain records and agreeing to an audit, 11 C.F.R. § 9033.1. The candidate must also
submit a separate written statement certifying that the candidate and his campaign will
not exceed the spending limit; and that the campaign has received initial contributions
sufficient to meet certain threshold requirements (matchable contributions totaling more
than $5,000 in each of at least 20 States), together with documentation of those initial
matchable contributions. /d. § 9033.2(b).
31. The FEC then examines these submissions and makes a determination that
the candidate has either met or has not met the threshold requirements, and then notifies
the candidate of that initial determination. Jd. § 9033.4(a).
10
PDF Page 12
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 11 of 22
New ws
32. The spending limit to which a participating Republican candidate must
agree covers all expenditures by that candidate from the date that the candidate became a
candidate until the date of his nomination by the Republican Party at the Republican
National Convention in September 2008. 11 C.E.R. § 9032.6(a).
33. The spending limit for the primary elections for President for those who
agree to participate in the matching funds program was originally set by statute at
$10,000,000. 2 U.S.C. § 441a(b)(A). This amount is indexed for inflation. The limit for
the 2008 election cycle is $42,050,000. In addition to this base limit, the FEC has
provided an additional 20% increase to the spending limit for fundraising costs (11
C.F.R. § 100.152), and an additional 15% increase for legal and compliance costs (11
C.F.R. § 9035.1(c)). Therefore, on information and belief, the applicable spending limit
for participating candidates in 2008 is $56,757,500.
FACTUAL BACKGROUND
34. On August 13, 2007, Senator McCain submitted his signed Candidate
Agreement and Certification to the FEC, seeking certification of eligibility to receive
matching funds under the Matching Payment Act. In that Candidate Agreement and
Certification letter, Senator McCain agreed to all of the provisions set forth in the FEC’s
rules, 11 C.F.R. §§ 9033.1 and 9033.2, including an express agreement that his campaign
would not exceed the applicable spending limit. Senator McCain sought to enter the
public funding system when it served his purposes, giving his campaign vitally needed
access to funding.
35. On December 20, 2007, the FEC announced that it had certified Senator
McCain to receive federal matching funds. As the FEC explained in the release, to
11
PDF Page 13
antenna name en nine,
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 12 of 22
New ww
“become eligible for matching funds, candidates must raise a threshold amount” and
“[o]ther requirements to be declared eligible include agreeing to an overall spending limit
of approximately $50 million, abiding by spending limits in each state, using public funds
only for legitimate campaign-related expenses, keeping financial records and permitting
an extensive campaign audit.” Senator McCain agreed to all of these conditions in his
Candidate Agreement letter.
36. On information and belief, Senator McCain and the McCain Campaign used
the fact that the FEC had found him eligible to receive matching funds to obtain ballot
access in several states. The applicable law in these states provided relaxed conditions
for ballot access to those candidates whom the FEC had found to be eligible for public
funds.
37. On January 31, 2008, the McCain Campaign filed, with its year-end report,
a Schedule C-1, disclosing that the Campaign had obtained a $4,000,000 line of credit
from Fidelity & Trust Bank (the “Bank”), and had drawn $2,971,697 of that line of
credit. The loan documents consisted of a Business Loan Agreement, dated as of Nov. 14,
2007 (the “Loan Agreement”): a Commercial Security Agreement dated as of Nov. 14,
2007, between the Campaign and the Bank (the “Security Agreement”); a Promissory
Note in the principal amount of $3 million, made by the Campaign to the Bank (the
“Note”); and a Loan Modification Agreement dated Dec. 17, 2007 (the “Modification
Agreement”).
38. On February 6, 2008, Senator McCain sent a letter to the FEC announcing
that he and his campaign were withdrawing from participation in the federal primary-
election funding program established by the Matching Payment Act. On February 7,
12
PDF Page 14
nner
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 13 of 22
2008, counsel for the McCain Campaign sent a letter to the U.S. Treasury announcing
that the Senator and his campaign were withdrawing from the program.
39. On February 19, 2008, FEC Chairman David Mason sent a letter to Senator
McCain advising him that the FEC considers Senator McCain’s February 6, 2008 letter
“as a request that the FEC withdraw its previous certifications” and that just as the law
“required an affirmative vote of four [FEC] Commissioners to make these certifications,
it requires an affirmative vote of four [FEC] Commissioners to withdraw them.”
VIOLATIONS OF MATCHING PAYMENT ACT BY SENATOR MCCAIN AND
THE MCCAIN CAMPAIGN
40. The FEC’s rules, 11 C.F.R. § 9033.1, require a candidate seeking to become
eligible to receive primary matching fund payments “to agree in a letter signed by the
candidate to the FEC” that the candidate and the candidate’s campaign will comply with
the legal conditions set out in that regulation. As set forth in paragraph 34 above, Senator
McCain signed and submitted such a letter and the required certification.
41. In Advisory Opinion 2003-35, the FEC ruled that, once accepted by the FEC
through certification of the candidate’s eligibility for matching funds, such a letter
constitutes “a binding contract with the FEC,” id. at 2, and that any request for withdraw
from the matching funds program will be treated as a request, “in effect, [as to] whether
the FEC would consent to a rescission of this contract.” Jd.
42. In that Advisory Opinion, the FEC held that as a matter of policy, the FEC
would grant such consent “to withdraw a certification of a candidate’s eligibility to
receive Matching Payment Act funds prior to the payment date for any such funds to such
candidate or his or her committee upon receipt of a written request signed by the
13
PDF Page 15
nA en nanenRteNERe Nemec,
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 14 of 22
New wel]
candidate, provided that the certification of funds has not been pledged as Security for
private financing.” Id. at 4 (emphasis added).
43. In the case of Senator McCain, the FEC has not granted any consent to the
Senator or the McCain Campaign to rescind the Senator’s “binding contract with the
FEC” A.O. 2003-35 at 2. Therefore, Senator McCain and the McCain Campaign are still
bound by that Candidate Agreement and Certification letter, and are not free to withdraw
unilaterally from the matching funds program, to ignore their legal obligations under the
Candidate Agreement and Certification letter, or escape all consequences for the decision
made unilaterally to abrogate that Agreement.
44, The required disclosure form filed by the Campaign with the FEC, Schedule
C-1, indicated that the collateral pledged for the loan excludes “certification for federal
matching funds” and “public financing.” The Loan Agreement also represents that “any
certification of matching funds eligibility currently possessed by [the Campaign] or
obtained before January 1, 2008 and the right of’ Senator McCain and the Campaign “to
receive payment under these certifications are not collateral” for the loan.
45. In fact, however, the Campaign did effectively pledge future matching funds
to be received under the initial certification as collateral for the loan, in several ways.
46. Inthe Loan Agreement, under “Affirmative Covenants,” a provision entitled
“Additional Requirements” provides that if the McCain Campaign withdraws from the
matching funds program before the end of 2007 but Senator McCain does not win the
New Hampshire primary or place within 10 points of the winner, Senator McCain will
continue his candidacy, reapply for public matching funds and grant to the Bank, “as
additional collateral for the Loan, a first priority perfected security interest in and to” all
14
PDF Page 16
a
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 15 of 22
of the Campaign’s “right, title and interest to the matching fund program.” Taken in
combination with the fact that Senator McCain and the Campaign had already applied for
and received the certification for matching funds, this provision can only be interpreted as
a present encumbrance, however conditional, of the Campaign’s future interest in and
entitlement to matching funds, as part of the security for the line of credit.
47. Further, a negative covenant, appears under “Negative Covenants,” on page
3 of the Loan Agreement, under the subheading “Indebtedness and Liens.” In that
section, the Campaign agrees that it will not, without the Bank’s consent, “transfer,
mortgage, assign, pledge, lease, grant a security interest in or encumber” any of the
Campaign’s “assets, including without limitation any of Borrower’s right, title or interest
in and to the public matching fund program or any matching fund entitlement thereunder,
whether now existing or hereafter arising...” This negative covenant clearly implies
that the Bank assumes it has a perfected security interest in all future rights of the
Campaign to receive matching funds under the initial determination of eligibility.
48. The Loan Agreement also includes a provision, on page 4, entitled
“Compliance with the Federal Election FEC's Matching Funds Program,” in which the
Campaign agrees with the Bank that, while the Loan Agreement is in effect, the
Campaign “shall not exceed overall or state spending limits set forth in the Federal
Matching Funds program, if applicable.” The only reason for inclusion of such a
provision would be to ensure that the Campaign will continue to be entitled to receive
matching funds so that the Bank can treat them as part of the collateral.
49. The Modification Agreement, made on December 17, 2007, before Senator
McCain and the McCain Campaign purported to withdraw from the matching funds
15
PDF Page 17
EE eee
Case 1:08-cv-01083-UDB Document1 Filed 06/24/2008 Page 16 of 22
¥
program, amends that provision to make it applicable “irrespective of whether Borrower
[the Campaign] is subject to such program as of any applicable date of determination.”
Thus, the Bank obtained a covenant from the Campaign to abide by the spending cap
while the Loan Agreement is in effect regardless of whether or not the Campaign
considered itself to be participating in the matching funds program. Again, the only
conceivable purpose and effect of such a covenant would be to ensure that matching
funds could be received and be available as collateral for the loan.
50. The Security Agreement, on page | under the provision entitled “Collateral
Description,” describes the collateral being pledged for the line of credit as including,
generally, all “accounts, ... deposit accounts, money, other rights to payment and
performance ....” The next to last sentence of this description states that, “any
certification of matching fund eligibility, including related rights, currently possessed by
Grantor [the Campaign] or obtained before January 1, 2008, are not themselves being
pledged as security. . . and are not themselves collateral for the indebtedness...”
(emphasis added).
51. The description of the collateral for the loan thus does not exclude but rather
includes—as of the date of the Security Agreement—rights to receive matching funds
that arise, i.e., that come into existence, after January 1, 2008, based on matchable
contributions received and presentations in good order made after that date, even without
any new certification of initial eligibility under section 9033.4 of the FEC’s rules. Again,
then, under this language, the Campaign has made a current pledge and encumbrance of
Juture rights to receive funds under the matching funds program under and pursuant to
16
PDF Page 18
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 17 of 22
the initial certification of matching payment eligibility made by the FEC in December
2007.
52. A negative covenant appearing at the end of the Collateral Description
provides that the Campaign “agrees not to sell, transfer, convey, pledge, hypothecate or
otherwise transfer to any person or entity any of its present or future right, title and
interest in and to the public matching fund program,....including related rights,” without
the Bank’s consent. It makes no sense for the Security Agreement to include such a
negative covenant unless it was intended that the Campaign is, in the Agreement, making
a current pledge of future rights to receive matching funds.
53. Further, the Modification Agreement, made on December 14, 2007, changed
the language of the exemption in the Collateral Description to exclude, from the
collateral, only those “certifications of matching funds eligibility, including related rights,
now held by Grantor. . . ,” in place of “currently possessed by Grantor or obtained before
January 1, 2008.” This modification makes clear again that, although the initial amount
certified in December 2007 may not be part of the collateral for the loan, that collateral
will include future amounts of matching funds paid, based on future submissions, even
though based on the initial certification of eligibility.
54. For these reasons, the McCain Campaign and Senator McCain pledged the
certification of matching funds as security for private financing. Assuming the FEC
treated the letter from Senator McCain as a request for withdraw from the program, the
FEC, consistent with its own rules and precedent, would be required to deny that request.
55. But Senator McCain and the McCain Campaign have announced that they
will disregard the Agreement; that they will disregard the February 2008 letter received
17
PDF Page 19
$$$ renters
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 18 of 22
from the Chairman of the FEC who advised Senator McCain that he remained bound by
his Agreement; and that they will proceed as if free to withdraw unilaterally and without
consequences from the Agreement.
56. On June 20, 2008, the McCain Campaign filed with the FEC its required
May Monthly disclosure report covering the period from May 1, 2008 through May 31,
2008. That report disclosed that Senator McCain’s campaign has, as of May 31, 2008, in
fact, exceeded the $56,757,500 spending limit. As of May 31, 2008, Senator McCain has
disclosed spending $87,827,220 in connection with his campaign for the Republican
Presidential nomination. Senator McCain and his campaign are spending without regard
to the limitations to which they bound themselves in the Candidate Agreement and
Certification executed by them and submitted to the FEC.
57. In addition, on information and belief, the McCain Campaign has continued
to expend funds since May 31, 2008, and will continue to expend such funds, thereby
continuing to violate the FECA and the Matching Payment Act.
58. Thus, Senator McCain and the McCain Campaign have violated the FECA,
2 U.S.C. § 431 et seq., the Matching Payment Act, 26 U.S.C. § 9035, and the FEC’s
rules.
THE DNC’S ADMINISTRATIVE COMPLAINT
59. On February 25, 2008, the DNC filed an administrative complaint (the
“DNC Administrative Complaint”) against Senator McCain and the McCain Campaign
pursuant to the FECA, 2 U.S.C. § 437g(a)(1), alleging that Senator McCain had violated
the Matching Payment Act and the FEC’s implementing regulations; and asking the FEC
to (1) find reason to believe, pursuant to 2 U.S.C. § 437g(a)(2), that Senator McCain and
18
PDF Page 20
ne eeneeneeee meena
Case 1:08-cv-01083-UDB Document1 Filed 06/24/2008 Page 19 of 22
Nw wi
\
the McCain Campaign have committed, or are about to commit, a violation of Chapter 96
of Title 26, United States Code, and of the FEC regulations, and to conduct an
investigation; and (2) pursuant to 26 U.S.C. § 9040(c), petition the appropriate U.S.
District Court for injunctive relief to implement and enforce the provisions of Chapter 96
against Senator McCain and the McCain Campaign.
60. In this case, the FEC has not been able to act on the DNC Administrative
Complaint because there are an insufficient number of sitting Commissioners to vote
upon the question of whether there is reason to believe that Senator McCain and the
McCain Campaign have committed a violation of the Matching Payment Act. The
decision even to commence an investigation of such a complaint requires the affirmative
votes of four of the six FEC Commissioners. Id. § 43 7g(a)(2).
61. There were only two sitting Commissioners because the terms of the other
FEC Commissioners have expired and replacements were not confirmed by the U.S.
Senate. Therefore, under 2 U.S.C. § 437g(a), the FEC has not been able to act to remedy
Senator McCain and the McCain Campaign's violations, including the initiation of a civil
action before this Court to seek declaratory relief and monetary penalties.
COUNT ONE
62. The allegations of paragraphs 1-61 above inclusive are hereby repeated and
re-alleged as though fully set forth.
63. The FEC has failed to act on the DNC Administrative Complaint to date.
64. The FEC’s inability to complete its enforcement action on the DNC
Administrative Complaint will continue for the foreseeable future unless this Court
19
PDF Page 21
a
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 20 of 22
Nw wd)
declares the FEC’s failure to act contrary to law and orders the FEC to conform to such
declaration within thirty days.
65. The FEC’s failure to act on the DNC Administrative Complaint is contrary
to law because the DNC Administrative Complaint sets forth factual allegations which, if
true, would clearly establish reason to believe, within the meaning of 2 U.S.C. §
437g(a)(2), that Senator McCain and the McCain Campaign have violated the Matching
Payment Act.
66. Plaintiffs have no adequate remedy at law, unless the Court issues an Order
under which, as provided by statute, the FEC must complete its enforcement action on the
DNC’s administrative complaint in 30 days.
67. Without the relief requested in this action, the law will go unenforced, in
direct contravention of the Congressional design by which, if the FEC does not act,
administrative complainants can seek the enforcement from this Court that is unavailable
through the administrative process.
68. The benefits that Senator McCain will achieve at the expense of the
Democratic Party, the DNC and their supported candidates, by expending funds in
violation of the Matching Payment Act, and the resulting harm to the DNC, is irreparable
in that it cannot be remedied in the future through any other legal processes.
69. Moreover, the process of determining whether the DNC complaint presents
a violation of the Act or the Matching Payment Act is — or should be —a straightforward
one. Whether Senator McCain and the McCain Campaign were indeed able to withdraw
from the public financing system, as they purport, is a question of law that the FEC can
readily decide in 30 days.
20
PDF Page 22
EE
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 21 of 22
4
RELIEF REQUESTED
WHEREFORE, plaintiffs respectfully pray that this Court:
1. Enter an order declaring that the FEC’s failure to act upon the DNC
Administrative Complaint is contrary to law under and within the meaning
of the FECA, 2 U.S.C. § 437g(a)(8)(C);
2. Pursuant to 2 U.S.C. § 437g(a)(8)(C), enter an order directing the FEC to
conform with such declaration within thirty (30) days; and authorizing the
DNC to bring a civil action to remedy the violations involved in the
original complaint if the FEC does not resolve the DNC’s administrative
complaint in thirty (30) days;
3. Grant plaintiffs the costs and expenses of this action; and
4. Grant such other and further relief as the Court deems just and proper.
Respectfully submitted,
Fvoseph E. Sandler Yo
(D.C. Bar #255919)
Stephen E. Hershkowitz
(D.C. Bar # 282947)
Elizabeth Getman
SANDLER, REIFF & YOUNG, P.C.
300 M Street, S.E. #1102
Washington, D.C. 20003
Tel: (202) 479-1111
Fax: (202) 479-1115
e-mail: sandler@sandlerreitf.com
21
PDF Page 23
aan
Case 1:08-cv-01083-JDB Document 1 Filed 06/24/2008 Page 22 of 22
>
Amanda S. LaForge
(D.C. Bar # 491909)
Chief Counsel
Democratic National Committee
430 S. Capitol Street, S.E.
Washington, D.C. 20003
Tel: (202) 479-5153
Fax: (202) 479-5149
Email: laforgea@dnc.org
Attorneys for Plaintiff Democratic National
Committee
Dated: June 24, 2008
22
Back to 
