Alyssa Whitmore

Telecommunications Law & Policy (Com. 5410)

Austin v. Michigan Chamber of Commerce (1989)

02/27/08

United States Supreme Court

AUSTIN v. MICHIGAN CHAMBER OF COMMERCE, 494 U.S. 652 (1990)

494 U.S. 652

AUSTIN, MICHIGAN SECRETARY OF STATE, ET AL. v. MICHIGAN STATE CHAMBER OF COMMERCE
APPEAL FROM THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
No. 88-1569.
Argued October 31, 1989
Decided March 27, 1990

Problem Defined

The Michigan State Chamber of Commerce is a nonprofit corporation, whose bylaws set forth both political and nonpolitical purposes. Established in 1959, the Michigan Chamber represents more than 8,000 business employers, local chambers of commerce and trade and professional associations. Members include businesses of every kind and size and come from every one of the state’s 83 counties, representing a broad cross-section of the state’s economy.[1] Members vary, ranging from big corporations, such as DaimlerChrysler Corporation and Ford Motor Company, to government organizations, such as the Office of the Governor. Its general treasury is funded through annual dues required of all members.

In 1976, the state of Michigan implemented the Michigan Campaign Finance Act in an effort to regulate political activity and campaign financing, and restrict campaign contributions. The Act was largely designed to prevent corruption, or the appearance of corruption among corporations in the political arena. However, a specific segment of the Act, known as Section 54(1), explicitly prohibits corporations from using treasury funds for independent expenditures in support or in opposition to any candidate in elections for state office. However, the constitutionality of this Act was thoroughly deliberated in the case Austin v. Michigan Chamber of Commerce (1989), when the non-profit corporation wanted to endorse a candidate running for state office.

Does Section 54(1) of the Michigan Campaign Finance Act, which prohibits corporations from using treasury money for independent expenditures to support or oppose candidates in elections for state offices, violate a corporation’s rights under the First and Fourteenth Amendments? Or does the Act serve as a means of protection against political corruption in an effort to address a greater compelling state interest?

Case Description

In June 1985,Michigan scheduled a special election to fill a vacancy in the Michigan House of Representatives. Although the Chamber had already established and financed a separate political fund, it sought to use its general treasury funds to place in a local newspaper an advertisement supporting a specific candidate for state office.[2]This violated Section 54(1) of the Michigan Campaign Finance Act, which prohibited corporations from using general treasury money to support state candidates. The law was enacted with the assumption that “the unique legal and economic characteristics of corporations necessitate some regulation of their political expenditures to avoid corruption or the appearance of corruption.”[3]However, Michigan companies who wish to contribute to a political candidate may do so if they make such expenditures from segregated funds. Therefore, people who contribute to segregated funds understand that their money will be used solely for political purposes.

The Act made such expenditure punishable as a felony. The Chamber’s decision to use general funds to publicly endorse a political candidate in a local newspaperbrought suit against the plaintiffs, Richard H. Austin, Michigan Secretary of State, and Frank J. Kelley, Michigan Attorney General, in the Federal District Court for injunctive relief against 54(1)’s enforcement, arguing that the expenditure restriction is unconstitutional under the First and Fourteenth Amendments.

In making its case, the defendant (Michigan Chamber of Commerce) argued that even if the Michigan Campaign Finance Act is constitutional with respect to for-profit corporations, it nonetheless cannot be applied to the Chamber becauseis a “nonprofit ideological corporation which was more analogous to a political association than a business firm.”[4]

The Chamber asserted the Act was unconstitutional under the Equal Protection Clause (part of the Fourteenth Amendment to the United States Constitution), which states:

All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

The Michigan Chamber of Commerce believed the Michigan Campaign Finance Act was a way for the State of Michigan to enforce prior restraint against corporations wanting to endorse a political candidate. The Chamber argued the government was purposely censoring corporations from giving money to candidates to prevent biased opinions during the political process, seeing that it may unfairly influence elections, which deliberately hinders the Chamber’s right to political speech.Furthermore, the Chamber argued media companies and labor unions were excluded from the Act, and articulated the idea that the state government was culpable of providing“special privileges” for specific organizations.

The case was first heard at the Federal District Court, which found that section 54(1) of the Michigan Campaign Finance Act was in fact constitutional and did not violate the Michigan Chamber of Commerce’s First or Fourteenth Amendment rights. However, that decision was reversed by the Sixth Circuit Court of Appeals, holding that Section 54(1) did, in fact,violate the Chamber’s First Amendment rights because:

“The Chamber was a nontraditional corporation formed for essentially ideological purposes and to disseminate economic and political ideas, the Chamber’s expenditures did not pose the threat or appearance of corruption, and there was thus no compelling state interest that justified the infringement of the Chamber’s freedom of speech.”[5]

Appellants Richard H. Austin, Michigan Secretary of State, and Frank J. Kelly, Michigan Attorney General, provided a writ petitioning to have the case heard before the Supreme Court.

Outcome

On October 31, 1989, the case made its way to the United States Supreme Court. In order to determine whether Michigan’s statutory restrictions on corporate political expenditures may constitutionally be applied to the Chamber, the Court had to establish whether it would burden the exercise of political speech and whether the statutory law was narrowly tailored to serve a compelling state interest.[6]

Furthermore, the question of whether the Michigan Act violated the Chamber’s First and Fourteenth Amendment rights,whether it was unconstitutional under the Equal Protection Clause, and whether the Act was an attempt to unfairly censor corporations was thoroughly deliberated before making a final decision.

The Michigan Chamber of Commerce also called attention to a case previouslydecided before the Supreme Court, FEC v. Massachusetts Citizens for Life, Inc., 479 U.S. 238, 253 (1986), involving a non-profit organization and its right to publicly endorse and financially contribute to a political campaign.[7]

On March 27, 1990, the Supreme Court, in a 6-3 decision, upheld the Federal District Court’s decision and found Section 54(1) of the Michigan Campaign Finance Act constitutional. Justice Marshall delivered the opinion of the Court, in which Rehnquist, Brennan, White, Blackmun, and Stevens joined. Kennedy and Scalia filed dissenting opinions, in which O’Connor joined.

Majority Opinion

Justice Marshall, who delivered the majority opinion of the Court, found that the Chamber was akin to a business group given its activities, linkages with community business leaders, and high degree of members, over seventy-five percent, which were business corporations. Furthermore, Marshall found that the statute was “narrowly crafted and implemented to achieve the important goal of maintaining integrity in the political process.”[8]The following information was held by the United States Supreme Court:

  1. Section 54(1) does not violate the First Amendment
  2. Although 54(1)’s requirements burden the Chamber’s exercise of political expression, see FEC v. Massachusetts Citizens for Life, Inc., 479 U.S. 238, 253 (1986), they are justified by a compelling state interest: preventing corruption or the appearance of corruption in the political arena by reducing the threat that huge corporate treasuries, which are amassed with the aid of favorable state laws and have little or no correlation to the public’s support for the corporation’s political ideas, will be used to influence unfairly election outcomes.[9]
  3. Section 54(1) is sufficiently narrowly tailored to achieve its goals, because it is precisely targeted to eliminate the distortion caused by corporate spending while also allowing corporations to express their political views by making expenditures through separate segregated funds. Because persons who contribute to segregated funds understand that their money will be used for solely political purposes, the speech generated accurately reflects contributors’ support for the corporation’s political views. The fact that 54(1) covers closely held corporations that do not possess vast reservoirs of capital does not make is substantially over inclusive, because all corporations receive the special benefits conferred by the corporate form and thus present the potential for distorting the political process.[10]
  4. There is no merit to the Chamber’s argument that even if 54(1) is constitutional with respect to for-profit corporations, it cannot be applied to a nonprofit ideological corporation such as itself. The Chamber does not exhibit the crucial features identified in MCFL, supra, that would require the State to exempt it from independent spending burdens as a nonprofit corporation more akin to a voluntary political association than a business firm. MCFL’s narrow focus on the promotion of political ideas ensured that its resources reflected political support, while the Chamber’s more varied bylaws do not. Additionally, unlike MCFL members, the Chamber’s members are similar to shareholders—who have an economic disincentive for disassociating with a corporation even if they disagree with its political activity—in that they may be reluctant to withdraw from the Chamber because they wish to benefit from its nonpolitical programs and to establish contacts with other members of the business community. Also in contrast to MCFL, which took no contributions from business corporations, more than three-quarters of the Chamber’s members are business corporations, whose political contributions and expenditures can constitutionally be regulated by the State, and who thus could circumvent 54(1)’s restriction by funneling money through the Chamber’s general treasury.[11]
  5. Section 54(1) is not rendered under inclusive by its failure to regulate the independent expenditures of unincorporated labor unions that also have the capacity to accumulate wealth, because the exclusion does not undermine the State’s compelling interest in regulating corporations whose unique form enhances such capacity. Moreover, because members who disagree with a union’s political activities can decline to contribute to them without giving up other membership benefits, a union’s political funds more accurately reflect members' support for the organizations’ political views than does a corporation’s general treasury.[12]
  6. Section 54(1) does not violate the Equal Protection Clause of the Fourteenth Amendment. Even under strict scrutiny, its classifications pass muster. The State’s decision to regulate corporations and not unincorporated associations is precisely tailored to serve its compelling interest. Similarly, the exemption of media corporations does not render the section unconstitutional. Restrictions on the expenditures of corporations whose resources are devoted to the collection and dissemination of information to the public might discourage news broadcasters or publishers from serving their crucial societal role of reporting on and publishing editorials about newsworthy events; thus, their exemption from the section’s restrictions is justified.[13]

The majority agreed with the State of Michigan and found that requiring corporations to make all independent political expenditures through a separate fund made up of money solicited expressly for political purposes is constitutional, and the Michigan Campaign Finance Act reduces the threat that huge corporate treasuries amassed with the aid of favorable state laws will be used to influence unfairly the outcome of elections. Justice Marshall stated the following when delivering the majority opinion:

Michigan identified as a serious danger the significant possibility that corporate political expenditures will undermine the integrity of the political process, and it has implemented a narrowly tailored solution to that problem.[14]

In addition, the Court did not find the FEC v. Massachusetts Citizens for Life, Inc., 479 U.S. 238, 253 (1986) case applicable to the Chamber’s case because the structure of both corporations varied greatly; therefore the outcome of both cases would vary greatly as well. The Court held the following:

The Michigan Chamber of Commerce does not exhibit the characteristics identified in MCLF that would require the State to exempt it from a generally applicable restriction on independent corporate expenditures.[15]

Dissenting Opinions
Justices Scalia and Kennedy each filed dissenting opinions, which O’Connor joined. Justice Scalia expressed his opinion that just because corporations are sometimes given “special advantages” by state laws and can have large treasuries, they should not be required “to forfeit their First Amendment rights,” and that the statute was not sufficiently narrow in its construction.[16] Justice Kennedy expressed a dissenting opinion because hefelt that the statute was in violation of the First Amendment as it constituted censorship of speech, the act was not narrow enough and believed that “the Act does not meet our standards for laws that burden fundamental rights.”[17]He stated:

The majority opinion validates not one censorship of speech but two. One is Michigan’s content-based law which decrees it a crime for a nonprofit corporate speaker to endorse or oppose candidates for Michigan public office. By permitting the statute to stand, the Court upholds a direct restriction on the independent expenditure of funds for political speech for the first time in its history.[18]

The other censorship scheme, I most regret to say, is of our own creation. It is value-laden, content-based speech suppression that permits some nonprofit corporate groups, but not others, to engage in political speech. After failing to disguise its animosity and distrust for the particular kind of political speech here at issue - the qualifications of a candidate to understand economic matters - the Court adopts a rule that allows Michigan to stifle the voices of some of the most respected groups in public life on subjects central to the integrity of our democratic system. Each of these schemes is repugnant to the First Amendment and contradicts its central guarantee, the freedom to speak in the electoral process. I dissent.[19]

Significance

The case of Austin v. Michigan Chamber of Commerce raised several key issues regarding state laws put in place to control and regulate political contributions and expenditures from corporations, including freedom of speech and press that will surely continue to be contested in the courts of our country. Because the right to engage in political expression is fundamental to the United States’ constitutional system, statutory laws and regulations that affect this right must be narrowly tailored to serve a compelling governmental interest. The significant concern ofcorporate political expenditures posing potential threats on the political process was properly addressed in this case.

The Justices who were a part of the dissenting opinion raised an interesting point: does the outcome of this case coincide with what the framers had intended when they created the constitution, particularly the First and Fourteenth Amendments? Justice Scalia contended that the majority opinion does not promote free speech in the way it was intended under the First Amendment, and restricting corporate political speech is allowing more government regulation than needed. He said:

I doubt that those who framed and adopted the First Amendment would agree that avoiding the New Corruption, that is, calibrating political speech to the degree of public opinion that supports it, is even a desirable objective, much less one that is important enough to qualify as a compelling state interest. Those Founders designed, of course, a system in which popular ideas would ultimately prevail; but also, through the First Amendment, a system in which true ideas would readily become popular.[20]

The role of the government in political campaign contributions will continue to be a contentious issue subject to further question and evaluation. The Supreme Court’s decision has leveled the playing field for all candidates who will run for political office, and has reduced the possibility for corruption or the appearance of corruption to occur in the political arena. The case of Austin v. Michigan Chamber of Commercehas set forth a precedent that will continue to be used in similar cases in the future. This case has already been cited in six U.S. Supreme Court cases and 11 Circuit Court cases, as of 1998.