[EL] State campaign practices post-CU

[Paul Lehto]

On 8/27/11, Doug Spencer <dougspencer at gmail.com> wrote:
> Several state legislatures promptly repealed their state bans on
> corporate/union IEs in the wake of the Citizens United decision. Several
> others did not, including Michigan whose state law was at the heart of the
> constitutional debate in CU. The Michigan Secretary of State has since made
> it clear
> <http://www.michigan.gov/sos/0,1607,7-127-48294-230881--F,00.html>that
> the state's campaign rules were affected by CU but I am curious what
> the immediate response was.

In Michigan, an important piece of the puzzle is to step back before
CU to Austin itself, decided in 1990, with its remand opinion in 1991.

In 1993, Michigan's "Eternal General" (MI Attorney General Frank J.
Kelley from 1961 to 1998), was being targeted as an example of someone
deserving term limits during MI's successful 1993 constitutional
amendment for state term limits.

In 1994, Atty Gen. Kelley opined that Limited Liability Companies were
not within the scope of 54(1) of the Campaign Finance Act. See
http://www.ag.state.mi.us/opinion/datafiles/1990s/op06807.htm  Almost
the complete extent of the analysis before this conclusion is as
follows:
-----
"In Austin v Michigan Chamber of Commerce, 494 US 652; 110 SCt 1391;
108 LEd2d 652 (1990), on remand 937 F2d 608 (1991), the United States
Supreme Court upheld the constitutionality of the section 54(1)
prohibition on corporate contributions or expenditures in elections
for state office. In reaching that result, the Court made it clear
that the section 54(1) prohibition on corporate contributions did not
apply to "unincorporated associations." Austin, supra, at 666.

Section 102(2)(i) of the LLCA defines a "limited liability company" as
"an entity that is an unincorporated association having 2 or more
members and is formed under this act." (Emphasis added.) Based on this
statutory definition, it is clear that a limited liability company is
not a corporation subject to the prohibitions on campaign
contributions in section 54(1) of the Michigan Campaign Finance Act.
------

Therefore, it holds at the top of the opinion "The prohibition on
corporations making contributions or expenditures in elections for
state office in section 54(1) of the Michigan Campaign Finance Act
does not apply to limited liability companies formed under the
Michigan Limited Liability Company Act."

Once LLCs were treated as unincorporated associations because of this
1994 opinion, the merger provisions of the same 1993 LLC act become
relevant.  The Michigan LLC act provides that an LLC may merge with
any "business organization" including a regular corporation, and the
LLC may also be the surviving entity.  See MCL 450.4705a  Because
straw man transactions and shell mergers are common in business law,
it became readily possible, for those so inclined, to merge a regular
corporation with an LLC that's a shell and have the shell be the
surviving entity, thus converting a corporation directly into an
"unincorporated association."  This would merely add the letters LLC
or PLLC onto the company name in most applications, and substitute a
detailed multi-page operating agreement for the more extensive default
provisions of corporate law that enable incorporation on a single
piece of paper.

This is how a corporation in Michigan could become a legal "person"
for political purposes 16 years before CU, simply adding LLC on the
end of its name. Clearly, there was a push for corporate campaign
activity in Michigan strong enough to get to the US Supreme Court in
Austin in 1990.  That same momentum led to the passage of the LLC act
and the push for the Attorney General Opinion in 1994 for some partial
"relief" from Austin.

To answer the question of this post, I don't think Michigan
corporations are having difficulty figuring out the "new" law of CU,
nor were Michigan business interests especially hampered prior to the
CU decision, nor do I think the failure of the legislature to repeal
54(1) is confusing to any business entities interested in politics.
Newcomers to politics always have to figure out the ropes, so they
might get a bit confused.

Interesting side note: The Eternal but term-limited General left
office in 1998 and formed Kelley Cawthorne PLLC, a lobbying and law
firm, with the former Republican majority leader.  Kelley ran as a
Democrat, so maybe he and Cawthorne don't agree on politics, but it
would be interesting to see how much, if any, LLC funds were used by
Frank Kelley from 1999 onward, pursuant to his own Attorney General
opinion of 1994.

Paul Lehto, J.D.

P.S.  LLC contribution checks presently have an option under the MI
Campaign Finance Law, exercisable by the check writer:  They can not
pass through the contribution to their LLC members (triggering PAC
registration requirements at $500) or they can pass through to their
members, and then the amount involved does not count toward the
$500.00 registration threshold applicable to partnerships and LLCs
under the Act. See p. 13 at
http://www.michigan.gov/documents/CFR_Independent_PAC_Committee_Manual_21854_7.pdf
  I'm sure that the same check having this kind of flexibility is
nice.


> ----
> Douglas M. Spencer
> Jurisprudence and Social Policy Ph.D. Program
> University of California, Berkeley, School of Law
> Phone: (415) 335-9698
> E-mail: dspencer at berkeley.edu
>


-- 
Paul R Lehto, J.D.
P.O. Box 1
Ishpeming, MI  49849
lehto.paul at gmail.com
906-204-4026 (cell)