‘Soft Money’ Ad Ban Upheld

Times Staff Writers

In the first legal test of last year’s campaign funding reform, a special three-judge court Friday upheld the key part of the McCain-Feingold law that blocks the flow of corporate and union money to political parties to pay for thinly disguised campaign ads.

In a 2-1 decision, the court said congressional reformers had made a convincing case that the “sham issue” ads must be stopped.

The significance of Friday’s ruling lies mostly in helping to define the broad legal issues of the case, which goes directly to the Supreme Court for a final judgment.

In an unusually complex and exhaustive decision -- the three judges’ opinions and a long introductory section approached 1,700 pages -- the law’s proponents and critics both found things they liked as some portions of the statute were struck down. But the section that matters most to reformers was upheld.


For most of the 20th century, corporations and unions were forbidden from funding candidates for federal office. After the Watergate scandal of the 1970s, Congress also limited how much individuals can give to candidates.

But the dam that had blocked the flow of money broke in the 1990s when Democrats and Republicans realized they could collect unlimited amounts of money from corporations, unions and wealthy donors -- so long as they used it for veiled campaign ads.

As long as the TV and radio ads did not say “Elect Smith” or “Vote Against Jones,” they were judged to be “issue ads,” not campaign ads.

This became known as the “soft-money loophole” in the campaign funding laws. This soft -- or largely unregulated -- money flowed freely in recent election cycles and made a mockery of the elaborate campaign finance restrictions.

Last year, Congress voted to close that loophole in the McCain-Feingold law.

But the legality of the ban has remained in doubt. Opponents, led by Sen. Mitch McConnell (R-Ky.) and the Republican National Committee, said the restriction amounted to an unconstitutional limit on free political speech.

On Friday, the reformers won a significant but not a final victory.

Congress may seek “to prevent actual and apparent corruption arising from the funding of sham issue advertisements,” said U.S. District Judge Richard J. Leon, a recent appointee of President Bush. He proved to be the swing vote in a badly divided court panel that took nearly a year to decide the case.


The reformers “have more than adequately demonstrated the constitutionally necessary basis ... to restrict the use of soft money donations by national, state and local parties to fund certain types of campaign contributions which are designed to directly affect federal elections,” Leon said.

District Judge Colleen Kollar-Kotelly, a President Clinton appointee, voted to uphold the soft-money ban entirely. Appeals Court Judge Karen Henderson, an appointee of President Bush’s father, voted to strike it down.

Although Leon upheld the key section that forbids the use of soft money for campaign ads, he voted to strike down the ban on soft money to “fund a variety of election activities that do not directly affect federal elections.”

The Republicans and some Democrats say they want to collect money to build their parties, even if they cannot use these funds to pay for campaigns or ads in federal elections.


In another significant ruling, the court said Congress can regulate some “attack ads” funded by corporations and unions. However, the court struck down other limits on corporations and unions as unconstitutional.

Reform advocates said they were pleasantly surprised by Friday’s decision.

“They have upheld the core provision of the law. The national parties can no longer serve as conduits for truckloads of corporate and union soft money,” said Joshua Rosenkranz, an election law expert at the Brennan Center in New York who helped defend the law.

The Supreme Court will have the last word.


Under a special clause written into the bill, the legal battle goes directly to the high court now, and the justices are required to rule on it.

But the long delay in the district court has pushed back the final test. The justices are unlikely to take up the issue until the fall. That means a ruling may not come until early in the election year of 2004.

‘This Is a Mixed Bag’

Friday’s thick set of opinions is likely to keep party officials and election law experts busy for awhile.


“This is a mixed bag. They upheld some of the soft-money bans and struck down others,” said professor Richard Hasen at Loyola Law School in Los Angeles. “I also don’t know if this will matter a great deal since the Supreme Court will make up its own mind.”

Both sides found cause for celebration and dismay.

The congressional sponsors of the law, Sens. John McCain (R-Ariz.) and Russell D. Feingold (D-Wis.) and Reps. Christopher Shays (R-Conn.) and Martin T. Meehan (D-Mass.), gave a mixed assessment in a joint statement.

“Upon initial analysis, while we are pleased with the district court’s split decision upholding important provisions of the campaign finance reform law, unfortunately, it also could create serious loopholes that undermine the law’s effectiveness,” they said.


“We are confident that the Supreme Court will uphold the provisions of this law as it was originally enacted.... Our great Constitution ensures Congress is not powerless. The public is not doomed to a corrupt campaign finance system,” they added.

Opponents of the law also found parts of the ruling to applaud.

“I am gratified by much of the court’s decision today,” said Sen. McConnell, the lead plaintiff in the case. “Obviously, it will take time to fully review a complex ... ruling. That said, this case has always been headed to the U.S. Supreme Court, and I look forward to leading the effort to make our case there.”

The three judges heard arguments in the case in December and had pledged to rule by January. But they found themselves bitterly divided.


All three ended writing separate opinions that ranged from a tidy 345 pages to 706 pages.

Since two of the judges were Republican appointees who sounded skeptical in December, the reform advocates expected an across-the-board defeat. Instead, they found themselves pleasantly surprised.

“We’re pleased that major portions of the new law have been upheld by this court,” said Fred Wertheimer of Democracy 21, a reform group.

He cited the court’s split decision upholding a ban on the raising of soft money by federal officeholders and candidates and another ban that prevents parties from spending soft money on so-called sham issue advertisements.