Door Opened to Circumvent Campaign Law : Court: Judge indicates that $1,000 cap on contributions might be exceeded if a spouse gives money that is not community property.

A federal judge Wednesday refused to allow a campaign donor to exceed Orange County’s strict political contribution limit, but left open the possibility that the election reform law could be legally circumvented.

In spontaneous remarks from the bench, U.S. District Judge John G. Davies suggested that married couples might be able to make two $1,000 contributions instead of one, if one spouse simply gave the other a monetary “gift.” That gift might be considered “separate property” and used as a contribution apart from the spouse’s donation, he said.

Such a loophole, political reformers said Wednesday, would allow hundreds of thousands of additional dollars to be funneled into campaigns, violate the intent of the county’s law and severely limit its effectiveness.

“Clearly that would undermine the intent of the law,” said Ruth Holton, executive director of the Sacramento-based California Common Cause, a watchdog group. “Our attorneys do not believe that the case law supports the notion of a gift as separate property.”

Davies’ comments came during a hearing on a preliminary injunction sought by Debra L. Reed, wife of unsuccessful Republican state Senate candidate Dana Reed, who sued the county April 26, claiming that its campaign finance law was discriminatory to married couples.

The law, listed on the June, 1992, ballot as Measure T, was overwhelmingly approved by Orange County voters. The ordinance is among the strictest in the state, prohibiting candidates from accepting more than $1,000 from any single source during an election cycle, generally four years.

Married couples are considered a single source and bound by the $1,000 limit. The only exception allows a spouse to contribute from funds that are not considered a couple’s community property.

Debra Reed’s lawsuit is the first legal challenge to the county ordinance. According to court documents she filed, Debra Reed gave $100 to County Supervisor William G. Steiner on April 26, after her husband had already contributed $1,000 to the supervisor’s reelection campaign for the June 7 primary.

Steiner’s treasurer returned Debra Reed’s donation because it exceeded the limit.

Davies denied Debra Reed’s request for an injunction, ruling that there was insufficient evidence to determine whether the $100 was from the couple’s community property or her separate funds.

He also said it was unclear whether Dana Reed’s contribution, drawn on a check from his law firm, was separate or community property.

“The facts are missing,” Davies said. “Whether it was separate property, community property, whatever, we don’t know what it is.”

Davies indicated that if Dana Reed gave money to his wife as a “gift,” she might be able to consider it separate property and make an additional contribution.

Without knowing the source of the contribution, Davies said he couldn’t get to “the fascinating issues of the case . . . the discrimination (charge). That’s a good issue.”

Debra Reed, however, considers the money she used for the contribution to Steiner as community property and will not try to circumvent the law by calling it a gift, her husband said. Instead she intends to fight the law in court as discriminatory no matter where the funds come from, Dana Reed said.

A hearing on the case is scheduled for July 25, more than a month after the primary election.

Davies comments on the gift issue were part of a legal debate with Debra Reed’s attorney and did not constitute any official court ruling.

Attorney Bradley W. Hertz, who represented Debra Reed, told the judge that he thought “these type of reform laws could be circumvented” if spouses used gifts to separate their contributions.

“That’s not the issue of the moment,” Davies replied.

Dana Reed, who attended the court hearing, said he interpreted the judge’s comments to mean that he could bypass the county’s law by giving his wife a $100 gift.

“He basically instructed me to do that,” Reed said.

Deputy County Counsel Donald H. Rubin, who represented the county, said he was concerned by Davies’ comments because he seemed to be “saying the law could be circumvented.”

Rubin said a gift from one spouse to another for the sole purpose of exceeding the campaign contribution limit would “violate the intent” of the law.

He added that he needed to do research to determine whether gifts from one spouse to another would be classified legally as separate property. “I can’t tell what the county’s position will be until we look into it,” Rubin said.

Shirley L. Grindle, a local political activist who pushed for the campaign finance reform law, said she doubted politicians would accept more than $1,000 from married couples.

“It would look very bad,” she said. “It’s a sneaky way (around the law). No candidate is going to accept that.”

Dana Reed said that Davies’ argument might enable one wealthy individual to funnel unlimited amounts of money into a campaign by giving various people money and having them submit the cash to a designated candidate.

“I don’t think it would be all right for a single person to do that,” Rubin said. “I think that an enforcement act could be brought.”