In a landmark 5-4 ruling, the Supreme Court radically shifted the First Amendment playing field for corporations and unions, at least theoretically. The long-awaited decision, Citizens United v. Federal Election Commission, No. 08-205, —S. Ct.—, 2010 WL 183856 (Jan. 21, 2010), has already provoked a tsunami of commentary, some outraged, some overjoyed. It seems clear that the decision will have a major impact on our political system, both because of what corporations and unions are now freed to do and because of the additional constitutional rulings that may be built on the foundation of Citizens United. While debate continues about the potential long-term impact of the decision for good or ill, the immediate effect of the ruling, somewhat paradoxically, may turn out to be more limited if corporations and unions do not take up the invitation to spend money on electioneering speech financed out of their general treasuries.

After Citizens United, corporations and unions are no longer prohibited from using general treasury funds to pay for so-called “electioneering” communications, which are broadcast, cable or satellite communications that explicitly advocate for or against a particular candidate within a certain time period shortly before a primary or general election. Previously, under the Bipartisan Campaign Finance Reform Act of 2002 (BCRA), all such advertising had to be funded through an organization’s Political Action Committee, or PAC. See 2 U.S.C. § 441b(b)(2). However, any entity that funds this type of advertising, whether a corporation, union or PAC, must still comply with the same reporting and disclaimer requirements that previously have applied. See, e.g., id. §§ 441d, 441f. In Citizens United, an 8-1 majority of the Court held that such requirements are constitutional.

Of further note, the Citizens United Court did not consider the constitutionality of other important federal election law provisions, including: 1) any of the federal limitations on direct contributions to candidates, including the prohibition on such contributions by corporations and unions (which apply with particular force to many banks and other federally-chartered institutions) and the direct contribution limits that apply to both organizations and individuals, see 2 U.S.C. §§ 441a, 441b(a); 2) Federal Election Commission (FEC) limitations on the funding of “coordinated communications” — purportedly independent political advertising that is in fact produced and/or funded at a candidate’s request or with their material involvement, see 11 C.F.R. 109.21; or 3) the federal ban on the national political parties’ involvement with “soft money,” i.e. money unregulated by the Federal Election Campaigns Act, see id. § 441i. While the Citizens United decision certainly calls the constitutionality of some of these provisions into question, for now they remain fully in force.

In sum, all corporations and unions should revisit their government relations policies to integrate the holding in Citizens United. However, there are both legal and practical reasons to proceed with caution before abandoning any longstanding political strategy executed through a PAC to wade directly into electoral politics. Caution is especially warranted because federal campaign finance law is clearly in flux. It may take years of litigation to understand the full impact of the Citizens United ruling. Until then, all organizations should stay abreast of the latest developments in the law, and plan their political activities accordingly.

In this Client Alert, we provide a preliminary guide to Citizens United, as well as an analysis of several key aspects of the majority’s reasoning and that of the dissent. We then examine the decision’s practical impact, and some of the important questions it raises.

The Ruling in Citizens United

Citizens United, a nonprofit corporation funded by individual and corporate donations, released a film in January 2008 entitled Hillary: The Movie, a highly critical documentary about Senator Hillary Rodham Clinton, then a candidate for president. 2010 WL 183856 at *7. Citizens United sought to distribute the film through an agreement with a provider of video-on-demand services. Because Citizens United knew that distributing the film through videoon- demand might subject it to civil and criminal penalties under the BCRA, the organization filed an action against the FEC for declaratory and injunctive relief seeking to have the relevant provisions of the Act declared unconstitutional. Id. at *8. The special three-judge panel of the district court ruled for the FEC, considering itself bound by the Supreme Court’s prior rulings in McConnell v. Federal Election Commission, 540 U.S. 93 (2003), and Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990). 2010 WL 183856 at *8. Citizens United petitioned successfully for certiorari to the Supreme Court. After the initial merits briefing was completed in March 2009, the Court took the highly unusual step of requesting supplemental briefs addressing whether the relevant portions of McConnell and Austin should be overruled. The argument took place on September 9, 2009.

The most important provisions of the BCRA that Citizens United challenged were those governing “electioneering communications” by corporations. 2010 WL 183856 at *7. An “electioneering communication” is defined as “any broadcast, cable or satellite communication” that “refers to a clearly identified candidate for Federal office” and is made available within 30 days of a primary or 60 days of a general election. 2 U.S.C. § 434(f)(3) (A). The BCRA prohibited both for-profit and most nonprofit corporations and unions from engaging in any electioneering communication using their general treasury funds. Instead, such organizations were required to establish a “separate segregated fund,” usually through a PAC supported by voluntary donations from stockholders, employees or members. See id. § 441b(b)(2). These provisions withstood a facial challenge in McConnell, see 540 U.S. at 203-209, although the Court subsequently narrowed the definition of an “electioneering communication” to one expressly advocating the election or defeat of a candidate. See Fed. Election Comm’n v. Wisc. Right to Life, Inc., 551 U.S. 449, 481 (2007). In Citizens United, however, a 5-4 majority of the Court ruled the prohibition unconstitutional in its entirety. 2010 WL 183856 at *36.

Citizens United also challenged several other provisions of the BCRA, notably the disclaimer provision contained in 2 U.S.C. § 441d(a)(3), which requires a person or organization that funds a political advertisement to identify itself and its address in the script of the ad, and certain reporting provisions requiring organizations that engage in a minimum annual amount of political advertising to file disclosures with the FEC regarding their members and sources of funding. See id. §§ 434(f)(1)-(2). An 8-1 majority of the Court rejected this challenge and upheld these provisions as constitutional. 2010 WL 183856 at 37*-*40.

A 5-4 Divide on Corporate Speech

Justice Kennedy’s majority opinion in Citizens United runs to 57 pages. Justice Stevens’ dissent comes in at 90 pages. All five of the opinions issued sport unusually strong rhetoric. But, at bottom, nine members of the Court appear to have agreed that restrictions on corporate political speech, like those on individual speech, merit serious judicial scrutiny. Compare 2010 WL 183856 *20 (“[P]olitical speech does not lose First Amendment protections simply because its source is a corporation”) (quotations omitted), with id. at *65 (Stevens, J., concurring in part and dissenting in part) (all campaign finance laws “burden political speech, and that is always a serious matter, demanding careful scrutiny”).

The main disagreement was on the question of whether there are sufficiently weighty government interests that justify heightened regulation of corporate (or union) political speech versus that of individuals. Justice Kennedy, joined by Chief Justice Roberts and Justices Scalia, Thomas and Alito, suggested that such interests rarely, if ever, will exist. The majority reasoned that most laws that “identif[y] certain preferred speakers” at the expense of others will be constitutionally suspect, 2010 WL 183856 at *19, and thus that the First Amendment rarely will allow “political speech restrictions based on the speaker’s corporate identity.” Id. at *24. The majority rejected all of the interests proffered to justify the BCRA’s prohibition on corporate and union electioneering communications. It expressed particular hostility to the “antidistortion” interest recognized in Austin, wherein the government would be justified in targeting corporate speech to prevent “the corrosive and distorting effects of immense aggregations of wealth,” id. at *24 (quoting 494 U.S. at 660), a goal the majority deemed antithetical to basic First Amendment values that disfavor efforts to “equalize[ ] the relative ability of individuals and groups to influence the outcome of elections.” Id. at *25 (quoting Buckley v. Valeo, 424 U.S. 1, 48 (1976)). The majority also rejected justifications based on the need to prevent quid pro quo corruption, id. at *33, and protect dissenting shareholders or union members. Id. at *34. The majority did, however, leave open the possibility that the government might have a compelling interest in preventing foreign entities from participating in the political process, but declined to decide this question because the challenged provisions of the BCRA were not so limited. Id.

In dissent, Justice Stevens (joined by Justices Ginsburg, Breyer and Sotomayor) sharply disagreed with the majority’s core reasoning and conclusions. The dissenters accused the majority of ignoring the long history in American law of distinguishing between corporations and natural persons for many regulatory purposes. Noting that “the Government’s interests may be more or less compelling with respect to different classes of speakers,” 2010 WL 183856 at *65, the dissent argued that “the special characteristics of the corporate structure require particularly careful regulation in the electoral context.” Id. at *66 (quotations omitted). The dissenters would have reaffirmed the holding in McConnell, derived from Austin, that limitations on corporate and union electioneering are justified by the need to “preserve[ ] the integrity of the electoral process, prevent[ ] corruption, sustain the active, alert responsibility of the individual citizen … and maintain[ ] the individual citizen’s confidence in government.” Id. at *73 (quoting 540 U.S. at 206-07 & n.88) (other quotations and ellipses omitted). These four Justices also would have upheld the relevant prohibition as necessary to protect dissenting shareholders and union members. Id. at *94.

Although the Citizens United majority found no governmental interest sufficient to sustain the BCRA’s limitations on corporate and union electioneering, it did not reach the same result with respect to the disclaimer and reporting requirements that Citizens United also challenged. Such requirements continue to be subject to an “exacting” but still intermediate level of scrutiny, under which they must bear a “substantial relation” to a “sufficiently important government interest.” 2010 WL 183856 at *37. In this case, eight members of the Court found that the requirements were justified by the need to provide information to the electorate about who is speaking in a particular advertisement, and to dissenting shareholders or members who might wish to object to a corporation or union’s political activities. Id. at *39. Such interests could be defeated, however, and a regulation held unconstitutional as applied to a particular set of circumstances, if “there were a reasonable probability that [a] group’s members would face threats, harassment, or reprisals if their names were disclosed.” Id.1

PACs and the First Amendment

The majority and dissenters also clashed on whether the prohibition on direct corporate electioneering in the BCRA was properly considered a complete “ban” on such speech, notwithstanding the ability to engage in the same speech through a PAC. In the view of the majority, the alternative of PAC formation was too “burdensome” and restrictive to furnish any type of effective substitute for direct speech. 2010 WL 183856 at *17-*18. The dissenters, however, would have reaffirmed McConnell’s holding that “[t] he ability to form and administer separate segregated funds … provide[s] corporations and unions with a constitutionally sufficient opportunity to engage in express advocacy.” Id. at *63 (quoting 540 U.S. at 203). Although the nature of a PAC was an important bone of contention between the majority and dissent, the Citizens United ruling has little or no practical effect on the rules governing such entities.

Looking to the Future

Since the Court handed down Citizens United, a number of commentators, both hostile and friendly, have suggested that the ruling’s impact will be immediate and far-reaching. In his State of the Union address, for instance, President Obama predicted that the decision would “open the floodgates for special interests — including foreign corporations — to spend without limits in our elections.” Others have suggested that the ruling will decisively tip the balance of power in American elections towards trade associations and advocacy groups, and away from the political parties (who remain subject to the BCRA’s soft money ban).2

Still others, however, have opined that the decision’s immediate effect may be less far-reaching.3 That may well turn out to be true. It may well be that many organizations will be reluctant to plunge into electoral politics in 2010, even though they now have a right to do so. Certainly, we would advocate careful deliberation before any move to do so. Such efforts are likely to be expensive and not always effective, particularly since the FEC’s restrictions on coordinated communications with individual candidates remain fully in force. Aggressive advertising for or against particular candidates could even trigger a public or shareholder backlash, and possibly a costly government investigation if coordination or direct contribution limit violations are suspected.

We can be more confident in predicting that the lasting impact of Citizens United on American election law will be very substantial. The decision almost certainly undermines the validity of other federal and state laws and regulations that single out corporate and union political spending for special treatment, including laws that ban direct contributions to candidates by these organizations. State prohibitions on political participation by out-ofstate U.S. companies are also at risk, although the Court does appear open to permitting the exclusion of non-U.S. entities (just as foreign nationals are normally barred from contributing).4

The opinion also includes tantalizing hints of more potentially sweeping changes in this area. Presented with an appropriate case, the Court might strike down the BCRA’s ban on contributions of soft money to political parties. The Citizens United majority might be troubled by the special burdens the soft money ban places on the speech and associational rights of political parties. Counterbalancing that concern would be the unique role the parties play in our national politics, perhaps providing compelling government interests that might prevent constitutional invalidation of the soft money ban. That case is not yet teed up, but someone, somewhere, is probably searching for the appropriate legal vehicle to place this issue squarely before the Court.

Finally, the reasoning in Citizens United appears less likely to impact regulations that do not implicate differential treatment for corporate and individual speakers, such as generally applicable contribution limits. That said, the majority’s general hostility to any perceived effort to “equalize” the relative power of different participants in the political process does cast some doubt on the long-term validity of even these types of provisions.

Given these possibilities for further significant changes, all participants in the political process should stay tuned. There is certainly more to come.