2010-12-10 - WRITTEN OPINIONS

2010-12-10. WRITTEN OPINIONS

GARY O. BARTLETT

Executive Director

MAILING ADDRESS:

P.O. BOX 27255

Raleigh, nc 27611-7255

December 10,2010

John R. Wallace, Esq.

Wallace & Nordan, L.L.P.

3737 Glenwood Avenue, Suite 27609

Raleigh, North Carolina 27612

Re: Advisory Request of the North Carolina Democratic Party N.C. Gen. Stat § 163-278.23

Dear Mr. Wallace:

On October 25, 2010 you requested an advisory opinion pursuant to N.C, Gen.Stat. § 163-278 23 on wthether the provisions of Article 22M of chapter 163 applicable to political parties. You correctly note that on April 3, 2005 I wrote the president Pro Tempore of the North Carolina Senate and the Speaker of the North Carolina House of Representatives to inform them that the issue of treatment of egal defense funds was not adequately addressed in North Carolina statutes. My letter highlighted the issues that across with respect to candidates and political committees, and explained that, since before my tenure, it had been the "longstanding practice of the State Board of Elections through the Executive Director, not to regulate monies raised and spent for expenses arising from contested elections or lawsuits filed against candidates and other political committees as long as that money was not deposited in a political committee account." A political party or executive committee of a political party is one form of a political committee under N.C. Gen. Stat. § 163-278.6(14).

The General Assembly adopted Article 22M in Session Law 2007-349, effective January 1 2008 Some of the statutes m the Article were amended by Session Law 2009-534, effective December 1, 2009. As you note, the Article addresses legal expense funds for "elected officers," defined to include individuals serving in or seeking a public office." N.C. Gen. Stat. § 163-278.300(3). A legal expense fund may be created by an individual other than the elected officer or by a group of individuals "Legal expense fund" is defined as "[a]ny collection of money for the purpose of funding a legal action or a potential legal action, taken by or against an elected officer in that elected officer's capacity." N.C. Gen. Stat. § 163-278.300(6). Thus, Article 22M addresses legal expenses funds created to support elected officers and those seeking elective office.

Article 22M does not address legel funds set up to defend non-candidate political committees or legal funds of political parties set up to pay for the expenses incurred by the political party to prosecute or defend a legal action If such funds are set up as part of the party's political committee structure then monies into and out of the funds would need to comply with source and reporting requirements for political committees. If the legal fund is set up separately from the party's political committee structure, however, it is not covered by Article 22M of Chapter 163.

The purpose of my letter of April 3, 2005, was to alert the General Assembly to the fact that "North Carolina's campaign finance statutes [did] not clearly address fund raising by candidates or political caommittees for legal expenses." The general Assembly responded by adopting legislation that clearly addresses fund raising by or on behalf of candites for legel expenses. The general Assembly did not address fund raising by or on behalf of political parties fir the parties' legal expenses. Consistent with the longstanding approach of the State Board of Elections, it will not seek to regulate an area that the General Assembly has chosen not to give the State Board authority to regulate.

The leadership of the General Assembly and the chairs of ail three recognized political parties will be provided with copies of your opinion request, this response, and my letter of April 3,2005, so they will be aware of this issue should the leadership choose to address it in the upcoming session.

This opinion is based upon the information provided in your letter of October 25 2010 If the information should change, you should evaluate whether this opinion is still applicable and binding Finally, this opinion will be filed with the Codifier of Rules to be published unedited in the North Carolina Register and the North Carolina Administrative Code.

Sincerely,

Gary O. Bartlett

Executive Director

cc: The Honorable Marc Basnight, President Pro Tempore of the Senate

The Honorable Phil Berger, President-Elect Pro Tempore of the Senate

The Honorable Joe Hackney, Speaker of the House of Representatives

The Honorable Thorn Tillis, Speaker-Elect of the House of Representatives

The Honorable Julian Mann, III, Codifier of Rules

David Young, Chair of the Democratic Party

Barbara Howe, Chair of the Libertarian Party

Tom Fetzer, Chair of the Republican Party

3737 GLENWOOD AVENUE, SUITE 260

RALEIGH, NORTH CAROLINA 27612

JOHN R. WALLACE

RICHARD P. NORDAN

JOSEPH A. NEWSOME

October 25, 2010

The Honorable Gary O. Bartlett, Executive Director

North Carolina State Board of Elections

VIA HAND DELIVERY

506 North Harrington Street

Raleigh, North Carolina 27603

Re: Advisory Request of the North Carolina Democratic Party, pursuant to N.C.G.S. § 163-278.23

Dear Mr. Bartlett:

In the past, you have noted that the State Board has "never required legal funds to be bound by contribution limits and reporting requirements set out for regular campaign accounts." See News & Observer article, "Schools hopeful seeks donors," dated December 29,2004. On April 13,2005, you formally expressed this position by letter addressed to the leadership of both our North Carolina Senate and House, noting in particular:

North Carolina's campaign finance statutes do not clearly address fundraising by candidates or political committees for legal expenses. It has been the long standing practice of the State Board of Elections, through the Executive Director, not to regulate monies raised and spent for expenses arising from contested elections or lawsuits filed against candidates and political committees as long as that money was not deposited into a political committee account. This practice was in place prior to my tenure and has not been changed. The rationale for this policy is that (1) monies raised in these situations are for legal fees, and not for an election, and (2) frivolous or questionable lawsuits should not be allowed to cripple a candidate committee during an election or prevent a candidate from challenging or defending the results of an election.

Letter of Gary Bartlett, dated April 13,2005.

Following your letter of April 13,2005, the North Carolina General Assembly, aware that candidates and party committees had been utilizing legal funds in connection with litigation matters and post election contests, enacted the provisions of N.C.G.S. § 163-278.300, et seq. Article 22M, which provides for the regulation and reporting of legal expense funds created by "elected officers" as defined therein.

In N.C.G.S. § 163-278.301, entitled "Creation of legal expense funds," the General Assembly provided:

(a) An elected officer, or another individual or group of individuals on the elected officer's behalf, shall create a legal expense fund if given a legal expense donation, other than from that elected officer's self, spouse, parents, brother, or sister, for any of the following purposes:

(1) To fund an existing legal action taken by or against the elected officer in that elected officer's official capacity.

As I am sure that you are aware, the definition of "elected officer" in N.C.G.S. § 163-278.300(3) includes individuals both "serving in or seeking a public office."

Thus, in spite of your letter of April 13,2005, the General Assembly chose not to require political parties utilizing legal funds to create legal expense funds subject to the provisions of Article 22M. Specifically, although Article 22M adds the requirement that elected officers receiving "legal expense donation[s]" create "legal defense funds[s]," it imposes no such obligation on political parties. The General Assembly made this determination, aware that both the Republican and Democratic parties in this State had utilized legal funds to fund litigation and post-election contests.

The North Carolina Democratic Party has a renewed need to fund legal expenses and is desirous of forming a legal expense fund in its own behalf. The Party has recently been named in two actions filed in the Superior Courts of this State, alleging, we believe without merit, that certain campaign communications by the Party are defamatory. Each of these actions seeks recovery of money damages, and the Party must mount defenses. The defense of these actions will occur, in large measure, subsequent to the November 2010 General Election. Therefore, the expenses of the defense of these actions will not have a bearing on the outcome of the impending General Election.

Your confirmation of the foregoing understanding will be appreciated.

With best regards, I remain

Sincerely,

WALLACE & NORDAT, LLP

John R. Wallace

GARY O. BARTLETT

Executive Director

MAILING ADDRESS:

P.O. BOX 27255

RALEIGH, NC 276U-7255

April 3, 2005

The Honorable Marc Basnight

President Pro Tempore of the Senate

North Carolina General Assembly

2007 Legislative Building

Raleigh, NC 27601-2808

The Honorable Jim Black

Speaker of the House of Representatives

North Carolina General Assembly

2304 Legislative Building

Raleigh, NC 27601-1096

Re: Disclosure of Attorneys Fees Arising Prom Contested Elections or Lawsuits filed against Candidates/Political Committees

Dear Mr. President Pro Tempore and Mr. Speaker:

A campaign finance issue has arisen with increasing frequency in recent years and is not clearly addressed in our statutes. This letter is intended to provide you background information about this issue, and to request guidance on whether legislative action with respect to it is appropriate for consideration.

In the past three years, the State Board of Elections has received inquiries about whether current campaign finance statutes are applicable to fund raising to pay for legal expenses arising from election contests or from post-election lawsuits against a candidate or political committee over campaign activity For example, the 2002 race for sheriff of Caldwell County resulted in a lengthy election protest hearing at the county level and subsequent administrative and judicial appeals. The candidates conducted post-election fund raising in order to pay their legal expenses. This year the candidates for Commissioner of Agriculture and Superintendent of Public Instruction also asked for guidance about fund raising to pay for legal expenses associated with their contested e ections. In addition, the State Board currently has pending a complaint alleging violations of campaign finance statutes by Attorney General Roy Cooper and his political committee arising from his defense of a lawsuit filed by Dan Boyce about campaign activities in the 2000 General Election.

North Carolina's campaign finance statutes do not clearly address fund raising by candidates or political committees for legal expenses. It has been the longstanding practice of the State Board of Elections, through the Executive Director, not to regulate monies raised and spent for expenses arising from contested elections or lawsuits filed against candidates and political committees as long as that money was not deposited into a political committee account. This practice was in place prior to my tenure and has not been changed. The rationale for this policy is that (1) monies raised in these situations are for legal fees and not for an election, and (2) frivolous or questionable lawsuits should not be allowed to cripple a candidate committee during an election or prevent a candidate from challenging or defending the results of an election. This policy is similar to the approach of the Federal Election Commission with respect to federal candidates raising funds to cover legal expenses.

Given that increasingly large sums are being raised and spent for legal expenses in this State, it appears that it would be in the public interest for the statutes clearly to require disclosure of such fund raising. Candidates and political committees should be allowed to raise funds for such legal expenses and to deposit them into an account separate from a campaign account. Donations to a legal expenses account would not be considered "contributions" subject to contribution limits. Any funds raised could not be used to fund any other efforts by a candidate or a political committee in pursuit of election or reelection. All monies raised and costs incurred for such legal expenses would be disclosed in periodic reports, and these reports would be available for public review.

Current law does not require disclosure of funds raised unless they are deemed "contributions." Although the current statutory definition of "contribution" includes "anything of value [given] to a candidate to support or oppose the nomination or election of one or more clearly identified candidates, to a political committee, to a political party, or to a referendum committee, whether or not made in an election year," it has not been construed to extend to postelection donations to candidates to off-set legal expenses. See G.S. 163-278.6(6). Any legislation adopted to require disclosure of funds raised for legal expenses would need to define the donations that are required to be disclosed. It would need to address the frequency with which reporting is required. Finally, it would need to address whether volunteer services of an attorney should ever be considered either contributions to a political committee or donations to a separate fund for legal expenses. Currently, the definition of "contribution" includes language allowing individuals to "volunteer" a portion or all of their time on behalf of a candidate. See G.S. 163-278.6(6). The question has arisen whether there is a point at which services provided by attorneys cross the line from "volunteer services" to contributions.

At my request, C. Colon Willoughby, District Attorney, 10th District, reviewed this letter and offered additional comments that should be considered. Colon is district attorney of the prosecutorial district where most campaign reporting violations are filed. His thoughts follow:

"I agree that there should be disclosure of contributions and volunteer "services" of professionals for work/expenses done other than to assist the campaign in filing its required reporting. Lawyers, CPA's and other professionals should be allowed to donate their time so long as there is disclosure. I also agree that any contribution for legal expenses should be separated from ordinary contributions. However, the General Assembly may wish to consider some regulation of this flow of funds. I would suggest that the funds/services only be allowed to be used to "defend" the candidate, treasurer, or committee, and that the funds not be used to prosecute lawsuits against others, including the Board, etc. This would discourage disgruntled losing candidates from attempting to overturn results that the Board certifies or attempts to certify, It seems prudent to also impose some limits on these funds-such as the amount an individual may contribute and whether or not corporations would be allowed to contribute. Without some type of regulation I believe we will be vulnerable to system attacks by wealthy and out of state persons or entities."

As always, I appreciate your wisdom and guidance on administering the law as it has been passed and whether additional legislative action is required. If you should have any questions, please feel free to contact me at 919-715-1827.

Most sincerely,

@#19#@

Gary O. Bartlett

Executive Director

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