Definitions of “Agent” for BCRA Regulations on Non-Federal Funds or Soft Money and Coordinated and Independent Expenditures, 4975-4980 [06-853]

Agencies

• Federal Election Commission

[Federal Register Volume 71, Number 20 (Tuesday, January 31, 2006)]
[Rules and Regulations]
[Pages 4975-4980]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-853]



========================================================================
Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
Prices of new books are listed in the first FEDERAL REGISTER issue of each 
week.

========================================================================


Federal Register / Vol. 71, No. 20 / Tuesday, January 31, 2006 / 
Rules and Regulations

[[Page 4975]]



FEDERAL ELECTION COMMISSION

11 CFR Parts 109 and 300

[Notice 2006-1]


Definitions of ``Agent'' for BCRA Regulations on Non-Federal 
Funds or Soft Money and Coordinated and Independent Expenditures

AGENCY: Federal Election Commission.

ACTION: Revised Explanation and Justification.

-----------------------------------------------------------------------

SUMMARY: The Federal Election Commission is publishing a revised 
Explanation and Justification for its definitions of ``agent'' in its 
regulations on coordinated and independent expenditures, and non-
Federal funds, which are commonly referred to as ``soft money.'' The 
regulations, which are being retained, implement the Bipartisan 
Campaign Reform Act of 2002 by defining ``agent'' as ``any person who 
has actual authority, either express or implied'' to perform certain 
actions. These definitions do not include persons acting only with 
apparent authority. These revisions to the Explanation and 
Justification are in response to the decision of the U.S. District 
Court for the District of Columbia in Shays v. FEC. Further information 
is provided in the supplementary information that follows.

DATES: Effective date is January 31, 2006.

FOR FURTHER INFORMATION CONTACT: Mr. Brad C. Deutsch, Assistant General 
Counsel, or Mr. Ron B. Katwan, Attorney, 999 E Street, NW., Washington, 
DC 20463, (202) 694-1650 or (800) 424-9530.

SUPPLEMENTARY INFORMATION: The Bipartisan Campaign Reform Act of 2002, 
Pub. L. 107-155, 116 Stat. 81 (2002) (``BCRA'') amended the Federal 
Election Campaign Act of 1971, as amended, 2 U.S.C. 431 et seq. (the 
``Act''). In 2002, the Commission promulgated regulations in order to 
implement BCRA's new limitations on party, candidate, and officeholder 
solicitation and use of non-Federal funds. Final Rules and Explanation 
and Justification for Prohibited and Excessive Contributions: Non-
Federal Funds or Soft Money, 67 FR 49064 (July 29, 2002) (``Soft Money 
Final Rules''). The Commission also approved final rules implementing 
BCRA's provisions regarding payments by political committees and other 
persons for communications that are coordinated with a candidate, a 
candidate's authorized committee, or a political party committee, as 
well as other expenditures that are made either in coordination with, 
or independently from, candidates and political party committees. Final 
Rules and Explanation and Justification for Coordinated and Independent 
Expenditures, 68 FR 421 (Jan. 3, 2003) (``Coordination Final Rules'').
    Many of BCRA's provisions and the regulations implementing BCRA 
apply not only to principals, such as candidates, political party 
committees, or other entities, but also to their agents. See 67 FR at 
49081-82; 68 FR at 421-22. Before BCRA was enacted, the Commission's 
regulations at former 11 CFR 109.1(b)(5) (2001) defined ``agent'' only 
for purposes of establishing whether an expenditure made by an 
individual was made independent of a candidate or political party. The 
definition was limited to ``any person who has actual oral or written 
authority, either express or implied, to make or to authorize the 
making of expenditures, or [* * *] any person who has been placed in a 
position within the campaign organization where it would reasonably 
appear that in the ordinary course of campaign-related activities he or 
she may authorize expenditures.'' The definition of ``agent'' at former 
section 109.1(b)(5) did not apply to any fundraising activities.
    When implementing BCRA in 2002, the Commission did not seek comment 
on whether it should retain the pre-BCRA definition of ``agent.'' 
Rather, the Commission sought comment on whether a principal should be 
held liable if an agent has actual, as opposed to apparent, authority 
to engage in the alleged actions at issue, and whether a principal 
should be held liable only if an agent has express, rather than 
implied, authority to act. See Notice of Proposed Rulemaking on 
Prohibited and Excessive Contributions; Non-Federal Funds or Soft 
Money, 67 FR 35654, 35658 (May 20, 2002). The Commission also sought 
comment on whether the term ``agent'' should be left undefined in the 
Commission's rules and interpreted instead based on common law 
principles of agency. Id.
    The final rules adopted by the Commission in 2002 contained two 
identical definitions of ``agent'' for the regulations on coordinated 
and independent expenditures (11 CFR 109.3) and the soft money 
regulations (11 CFR 300.2(b)). Both rules defined ``agent'' as ``any 
person who has actual authority, either express or implied,'' to 
perform certain actions. The Commission decided to exclude from the 
BCRA rules defining ``agent'' those persons acting only with apparent 
authority. The 2002 BCRA rules sought to limit a principal's liability 
for the actions of an agent to situations where the principal had 
engaged in specific conduct to create an agent's authority. The 
Commission was concerned that by including apparent authority in the 
definitions of ``agent'' it would expose principals to liability based 
solely on the actions of a rogue or misguided volunteer and ``place the 
definition of `agent' in the hands of a third party.'' See Soft Money 
Final Rules, 67 FR at 49083; Coordination Final Rules, 68 FR at 424-
425. Accordingly, the Commission's BCRA definitions did not include the 
second part of the pre-BCRA definition, which had covered only limited 
aspects of apparent authority, specifically, apparent authority based 
on ``a position within the campaign organization.''
    In 2004, the Commission's post-BCRA definitions of ``agent'' were 
reviewed by the U.S. District Court for the District of Columbia in 
Shays v. FEC, 337 F. Supp. 2d 28 (D.D.C. 2004) (``Shays''), aff'd, 414 
F.3d 76 (D.C. Cir. 2005) (pet. for reh'g en banc denied Oct. 21, 2005) 
(No. 04-5352). The District Court held that the Commission's decision 
not to include apparent authority within the definitions of ``agent'' 
was an acceptable and permissible construction of the term under the 
Act. Shays at 84. The court found that Congress had not directly spoken 
to the question at issue, satisfying the first step of Chevron

[[Page 4976]]

review.\1\ Id. at 71, 84. The court determined that ``the Commission's 
construction of the term `agent' is faithful to the literal terms of 
the statute.'' Id. at 71-72, 81-86 (finding that both definitions 
``survive[] Chevron review''). Specifically, the District Court 
concluded, ``the term `agent' is subject to different interpretations 
and the FEC's interpretation of the term complies with an acceptable 
interpretation of the statute.'' Id. at 84. The court emphasized that 
the Shays plaintiffs ``provide[d] no basis for the conclusion that the 
term `agent' has developed a `settled meaning under * * * the common 
law,' or that the meaning includes those acting with apparent 
authority.'' Id. at 83. The District Court noted, ``Black's Law 
Dictionary provides that the term in its normal parlance does not 
include those acting with apparent authority.'' Id. (emphasis 
added).\2\ Accordingly, the court ``conclude[d] that the term `agent' 
does not have a settled common law meaning that includes those acting 
with apparent authority.'' Id.
---------------------------------------------------------------------------

    \1\ The first step of the Chevron analysis, which courts use to 
review an agency's regulations, asks whether Congress has directly 
spoken to the precise questions at issue. The second step considers 
whether the agency's resolution of an issue not addressed in the 
statute is based on a permissible construction of the statute. See 
Shays at 51-52 (citing Chevron, U.S.A., Inc. v. Natural Res. Def. 
Council, 467 U.S. 837, 842-43 (1984)).
    \2\ The court also noted that individuals with apparent 
authority ``are therefore not technically `agents' with regard to 
the activity at issue; it is only by their actions and those of 
their `principal' that they are deemed to act as agents for purposes 
of establishing liability.'' Id. at 84, citing Restatement (Second) 
of Agency 8, cmt. a.
---------------------------------------------------------------------------

    While upholding the Commission's definition under Chevron, the 
District Court found that the Commission's Explanation and 
Justification for the definitions of `agent' at 11 CFR 109.3 and 
300.2(b) did not satisfy the reasoned analysis requirement of the 
Administrative Procedure Act (``APA'') on three grounds. See Shays at 
72, 88; see also 5 U.S.C. 553. First, the court found that the 
Commission had not adequately explained why it departed from its pre-
BCRA definition of `agent,' by not including the portion of the 
definition that covered certain applications of apparent authority. 
Shays at 87. Second, the court found that the Commission had not 
addressed the impact that its construction of the term ``agent'' might 
have on preventing circumvention of the Act's limitations and 
prohibitions and on preventing the appearance of corruption, two 
policies that Congress sought to advance in passing BCRA. Id. at 72, 
87. Third, the court found that the Commission's main concern in 
excluding apparent authority from the definitions--namely, to prevent a 
candidate or political party committee from being held liable for the 
actions of a rogue or misguided volunteer who purports to act on behalf 
of the candidate or committee--was ``not supported by the law of agency 
* * *.'' Id. at 87.
    The court remanded the definitions to the Commission for further 
action consistent with its opinion. Id. at 130. The Commission did not 
appeal this portion of the District Court decision.
    In response to the Shays decision, the Commission issued a Notice 
of Proposed Rulemaking, which was published in the Federal Register on 
February 2, 2005. Notice of Proposed Rulemaking on the Definitions of 
``Agent'' for BCRA Regulations on Non-Federal Funds or Soft Money and 
Coordinated and Independent Expenditures, 70 FR 5382 (Feb. 2, 2005) 
(``NPRM''). The NPRM sought comment on several alternatives, which were 
(1) whether to continue to exclude apparent authority from its 
definitions of ``agent'' at 11 CFR 109.3 and 300.2(b); (2) whether to 
add apparent authority to these definitions; (3) whether to return to 
the pre-BCRA definition; and (4) whether to adopt a different 
definition of ``agent'' covering certain applications of apparent 
authority while excluding others. The comment period closed on March 4, 
2005. The Commission received six written comments from eleven 
commenters on the proposed rules. Additionally, the Commission received 
a letter from the Internal Revenue Service indicating, ``the proposed 
rules do not pose a conflict with the Internal Revenue Code or the 
regulations thereunder.'' The Commission held a hearing on this 
rulemaking on May 17, 2005. Four commenters testified at the hearing. 
For purposes of this document, the terms ``comments'' and ``commenter'' 
apply to both written comments and oral testimony at the public 
hearing.\3\
---------------------------------------------------------------------------

    \3\ The written comments and a transcript of the hearing are 
available at https://www.fec.gov/law/law_rulemakings.shtml under 
Definition of Agent for BCRA Regulations on Coordinated and 
Independent Expenditures and Non-Federal Funds or Soft Money.
---------------------------------------------------------------------------

    The commenters were divided between those who favored adding 
apparent authority to the definitions of ``agent'' and those who 
supported retention of the 2002 rule. The Commission has decided, after 
carefully weighing the relevant factors, including its extensive 
experience in investigating and prosecuting statutory violations, to 
retain the current definitions in 11 CFR 109.3 and 300.2(b) and to 
provide this revised Explanation and Justification for the decision to 
exclude apparent authority from these definitions. The Commission has 
decided that its current definitions of ``agent'': (1) As required by 
BCRA, cover individuals engaged in a broad range of activities 
specifically related to BCRA-regulated conduct, thereby dramatically 
increasing the number of individuals and type of conduct subject to the 
Act, especially when compared to the Commission's pre-BCRA definition 
of agent; (2) cover the wide range of activities prohibited by BCRA and 
the Act, thereby providing incentives for compliance, while protecting 
core political activity permitted by BCRA and affirmed by the U.S. 
Supreme Court in McConnell \4\ that, under an apparent authority 
standard, could otherwise be restricted or subject to Commission 
investigation; and (3) are best suited for the political context, which 
is materially different from other contexts in which apparent authority 
is applicable.
---------------------------------------------------------------------------

    \4\ See McConnell v. FEC, 504 U.S. 93, 159-61 (2003).
---------------------------------------------------------------------------

Explanation and Justification

11 CFR 109.3 and 300.2(b)--Definitions

    According to the common law definition of actual authority, as 
codified in the Restatement (Second) of Agency (1958) 
(``Restatement''), an agent's actual authority is created by 
manifestations of consent (express or implied) made by the principal to 
the agent.\5\ Restatement 7. Apparent authority, by contrast, is the 
result of manifestations the principal makes to a third party about a 
person's authority to act on the principal's behalf. Restatement 8. 
Apparent authority is created where the principal's words or conduct 
``reasonably interpreted, causes the third person to believe that the 
principal consents to have the act done on his behalf by the person 
purporting to act for him.'' Overnite Transp. Co. v. NLRB, 140 F.3d 
259, 266 (D.C. Cir. 1998) (quoting Restatement 27). Moreover, to have 
apparent authority ``the third person must not only believe that the 
individual acts on behalf of the principal but, in addition, `either 
the principal must intend to cause the third party to believe that the 
agent is authorized to act for him, or he should realize that his 
conduct is likely to create such belief.' '' Id. (quoting Restatement 
27, cmt. a) (emphasis added).
---------------------------------------------------------------------------

    \5\ See Kolstad v. American Dental Ass'n, 527 U.S. 526, 542 
(1999) (``The common law as codified in the Restatement (Second) of 
Agency (1957), provides a useful starting point for defining [the] 
general common law [of agency].'')

---------------------------------------------------------------------------

[[Page 4977]]

    Finally, apparent authority may be created not only by 
manifestations the principal makes directly to a third party, but, in 
addition, ``as in the case of [actual] authority, apparent authority 
can be created by appointing a person to a position, such as that of 
manager or treasurer, which carries with it generally recognized 
duties; to those who know of the appointment there is apparent 
authority to do the things ordinarily entrusted to one occupying such a 
position, regardless of unknown limitations which are imposed upon the 
particular agent.'' Restatement 27, cmt. a.
    The Supreme Court has emphasized that not every aspect of agency 
law needs to be incorporated into a Federal statute when it is not 
necessary to effectuate the statute's underlying purpose. See, e.g., 
Faragher v. City of Boca Raton, 524 U.S. 775, 803 n.3 (1998) (The 
``obligation here is not to make a pronouncement of agency law in 
general or to transplant [the Restatement (Second) of Agency into a 
Federal Statute, but] is to adapt agency concepts to the [Statute's] 
practical objectives.''). In construing the term ``agent,'' the 
Commission believes that the current definitions of ``agent,'' which 
are based on actual authority, either express or implied, best 
effectuate the intent and purposes of BCRA and the Act.
    The Commission's current definitions of ``agent': (1) As required 
by BCRA, cover individuals engaged in a broad range of activities 
specifically related to BCRA-regulated conduct, thereby dramatically 
increasing the number of individuals and types of conduct subject to 
the Act, especially when compared to the Commission's pre-BCRA 
definition of agent; (2) cover the wide range of activities prohibited 
by BCRA and the Act, thereby providing incentives for compliance, while 
protecting core political activity permitted by BCRA and affirmed by 
the U.S. Supreme Court in McConnell that, under an apparent authority 
standard, could otherwise be restricted or subject to Commission 
investigation; and (3) are best suited for the political context, which 
is materially different from other contexts in which apparent authority 
is applicable.
    1. As required by BCRA, the Commission's definitions of ``agent'' 
cover individuals engaged in a broad range of activities specifically 
related to BCRA-regulated conduct, thereby dramatically increasing the 
number of individuals and types of conduct subject to the Act, 
especially when compared to the Commission's pre-BCRA definition of 
agent.
    In implementing BCRA, the Commission adopted regulations that 
defined ``agent'' based on a broad range of activities specifically 
related to BCRA-regulated conduct, thereby dramatically increasing the 
number of individuals who met the definitions of an ``agent'' of a 
candidate, political party committee, or other political committee. The 
Commission's pre-BCRA independent expenditure rules limited the 
definitions of ``agent'' to ``any person who has actual oral or written 
authority, either express or implied, to make or to authorize the 
making of expenditures, or [* * *] any person who has been placed in a 
position within the campaign organization where it would reasonably 
appear that in the ordinary course of campaign-related activities he or 
she may authorize expenditures.'' 11 CFR 109.1(b)(5)(2001).
    Campaign committees typically authorize very few people to make 
expenditures, and typically limit those powers to employees under the 
campaign's direct control. The number of positions within a campaign 
organization where it would reasonably appear that a person could make 
expenditures is similarly limited. Therefore, the Commission's pre-BCRA 
definition of ``agent'' captured only a small number of individuals 
within a campaign organization. Moreover, by defining agency based on 
authority to make expenditures, the Commission's pre-BCRA definition 
did not restrict individuals involved in the solicitation and receipt 
of funds specifically prohibited by BCRA.
    In enacting BCRA, Congress extended the scope of agency for 
purposes of the Act to include persons with the authority to solicit 
and receive funds, thereby increasing significantly the number of 
persons subject to the Act. Accordingly, the Commission's soft money 
regulations define ``agents'' as individuals with actual authority to 
solicit or receive funds. See, e.g., 11 CFR 300.2(b)(1)(i) (``solicit, 
direct or receive funds'') and 300.2 (b)(3) (``solicit, receive, 
direct, transfer, or spend funds''). In contrast to the pre-BCRA rule, 
the current definition applies to the solicitation of funds generally, 
and is not limited to activities based on statutorily defined terms, 
such as expenditures or contributions. The number of individuals 
involved in fundraising for a campaign can reach hundreds and, in the 
case of presidential campaigns and national party committees, 
potentially thousands of individuals, most of whom are volunteers. 
Therefore, the number of individuals subject to the Commission's 
current definition of ``agent'' in the soft money regulations is far 
greater than the number of individuals who were subject to the pre-BCRA 
regulation, while the type of activity restricted is specifically 
related to BCRA-regulated conduct.
    The Commission's current definition of ``agent'' in its 
coordination regulations defines agents as individuals with actual 
authority to request, make, or be materially involved with the 
production of certain types of communications. 11 CFR 109.3. In 
contrast to the pre-BCRA rule, this definition applies to a wide range 
of activities related to the creation and distribution of political 
communications, and is not limited to activities based on statutorily 
defined terms, such as expenditures or contributions. For example, the 
rule captures individuals who, on behalf of a Federal candidate, have 
actual authority, ``to provide material information to assist another 
person in the creation, production, or distribution of any 
communication.'' 11 CFR 109.3(b)(5). Therefore, the rule not only 
captures a much larger set of individuals than the pre-BCRA rule, but 
also captures the proper type of activity prohibited by the 
coordination regulations, i.e., activities related to the production 
and distribution of communications.
    After examining the Commission's pre- and post-BCRA enforcement 
record, the Commission has determined that the decision to limit agency 
to those with actual authority, express or implied, has not had a 
material impact on its ability to prosecute cases in the three years 
the rule has been in place. In the Commission's experience in 
administering and enforcing the Act since promulgating the current 
rules in 2002, excluding apparent authority from the definitions of 
``agent'' has not facilitated circumvention of the Act nor led to 
actual or apparent corruption. Commenters both favoring and opposing 
the regulations in their current form agreed that there is no evidence 
that the operation of the current definitions of ``agent'' in the 2003-
2004 election cycle in any way undermined the success of BCRA cited by 
its Congressional sponsors. When asked at the hearing whether the lack 
of apparent authority had led to circumvention of the Act, a 
representative of a major reform organization testified, ``I don't know 
of any specific situation.'' The Commission concurs with this 
conclusion.
    In upholding the Commission's definitions of ``agent'' under 
Chevron, the District Court observed, ``it is not readily apparent that 
the regulation on its face creates the potential for gross abuse'' and 
``in the end simply finds

[[Page 4978]]

Plaintiffs'' concerns [that the definitions would allow circumvention 
of the Act] to be too amorphous and speculative at this stage to 
mandate the reversal of the Commission's regulation.'' Shays at 85-86. 
The record evidence developed and reviewed in this rulemaking and the 
Commission's prosecutorial experience support the District Court's 
conclusion.
    Nevertheless, if the Commission should encounter evidence of actual 
or apparent corruption or of circumvention of the Act in the future, 
the Commission has the authority to revisit the regulation and take 
action as appropriate, including an approach targeted to the specific 
problems that are actually found to occur.
    2. Actual authority, either express or implied, is a broad concept 
that covers the wide range of activities prohibited by BCRA and the 
Act, thereby providing appropriate incentives for compliance, while 
protecting core political activity permitted by BCRA and affirmed by 
the U.S. Supreme Court in McConnell that, under an apparent authority 
standard, could otherwise be restricted or subject to Commission 
investigation.
    Based on a careful review of the relevant factors, the Commission 
has found that inclusion of apparent authority in the Commission's 
definitions of ``agent'' is not necessary to implement BCRA or the Act, 
and that actual authority is sufficient to prevent circumvention and 
the appearance of corruption. In arguing for an apparent authority 
standard, some commenters erroneously stated that the Commission's 
current definitions of ``agent'' were too narrow because they failed to 
capture various hypotheticals involving allegedly prohibited activity. 
These hypotheticals included: (a) Actions by individuals with certain 
titles or positions within a campaign organization or party committee; 
(b) actions by individuals where the candidate privately instructed the 
individual to avoid raising non-Federal funds; (c) actions by 
individuals acting under indirect signals from a candidate; and (d) 
actions by individuals who willfully kept a candidate, political party 
committee, or other political committee ignorant of their prohibited 
activity. As discussed further below, actual authority, either express 
or implied, sufficiently addresses this hypothetical behavior. 
Moreover, a principal's private instructions or indirect signals to 
agents, or a principal's attempts to keep himself ignorant of an 
agent's activities, do not implicate apparent authority, which involves 
manifestations by a principal to a third person rather than to the 
agent.
    While the Commission's actual authority standard is sufficiently 
broad to address this activity, it also protects core political 
activity permitted by BCRA and affirmed by the U.S. Supreme Court in 
McConnell that, under an apparent authority standard, could otherwise 
be restricted or subject to Commission investigation. Therefore, the 
Commission's current definitions of ``agent'' best effectuate the 
intent and purpose of BCRA and the Act, and create the appropriate 
incentives for candidates, party committees, and other political 
committees to ensure that their employees and volunteers are familiar 
with, and comply with, BCRA's soft money and coordination provisions.
    a. Actions of individuals with certain titles or positions. 
Apparent authority is not necessary to capture impermissible activity 
by persons holding certain titles or positions within a campaign 
organization, political party committee, or other political committee. 
A title or position is most frequently part of the grant of actual 
authority, either express or implied, to act on behalf of a principal. 
The scope of the authority created will depend on the title given and 
the understanding of the agent and the principal. For example, an 
individual with the title of fundraising chair of a campaign has actual 
authority to raise funds on behalf of that campaign. See Restatement 
27, cmt a. Fundraising is within the scope of a fundraising chair's 
actual authority. Later actions by a principal, reasonably understood 
by the agent, can expand the scope of authority under either express or 
implied actual authority. Thus, even if the definitions of ``agent'' 
are limited to persons acting with actual authority, a person may be an 
agent as a result of actual authority based on his or her position or 
title within a campaign organization, political party committee, or 
other political committee.
    b. Actions by individuals where the candidate privately instructed 
the individual to avoid raising non-Federal funds. The Commission's 
current definitions of ``agent'' are sufficiently broad to capture 
actions by individuals where the candidate authorizes an individual to 
solicit Federal funds on his or her behalf, but privately instructs the 
individual to avoid raising non-Federal funds. One commenter's scenario 
proposed, ``a Federal candidate publicly named a fundraising chairman 
who thus was vested with the apparent authority of the candidate, but 
where the candidate privately instructed the agent to avoid raising 
non-Federal funds. Suppose further that the fundraiser nonetheless 
solicits soft money.'' Contrary to the commenter's assertion, the 
fundraising chairman in this scenario could be an agent for the purpose 
of soliciting funds under the Commission's current regulations.\6\ 
Because raising funds is within the fundraising chair's scope of actual 
authority, soft money solicitations on behalf of the candidate are 
prohibited. As an agent of a federal officeholder the fundraiser would 
be liable for any such violation. In addition, the candidate/principal 
may also be liable for any impermissible solicitations by the agent, 
despite specific instructions not to do so. See U.S. v. Investment 
Enterprises, Inc., 10 F.3d 263, 266 (5th Cir. 1993) (determining that 
it is a settled matter of agency law that liability exists ``for 
unlawful acts of [] agents, provided that the conduct is within the 
scope of the agent's authority''); see also Restatement 216 (``A master 
or other principal may be liable to another whose interests have been 
invaded by the tortious conduct of a servant or other agent, although 
the principal does not personally violate a duty to such other or 
authorize the conduct of the agent causing the invasion.''); 
Restatement 219(1) (``A master is subject to liability for the torts of 
his servant committed while acting in the scope of their 
employment.'').
---------------------------------------------------------------------------

    \6\ The Commission notes that regardless of whether it includes 
apparent authority in the definition of ``agent,'' for the candidate 
to be liable in this scenario under existing Commission regulations 
prohibiting soft money solicitations, the fundraising chair must be 
``acting on behalf'' of the candidate when he or she makes the soft 
money solicitation. See 11 CFR 300.10(c)(1) (``An officer or agent 
acting on behalf of a national party committee or a national 
congressional campaign committee;'') and 300.60(c) (``Agents acting 
on behalf of a Federal candidate or individual holding Federal 
office;'') (emphases added). As the Commission noted in the Soft 
Money Final Rules, ``a principal can only be held liable for the 
actions of an agent when the agent is acting on behalf of the 
principal, and not when the agent is acting on behalf of other 
organizations or individuals. Specifically, it is not enough that 
there is some relationship or contact between the principal and 
agent; rather, the agent must be acting on behalf of the principal 
to create potential liability for the principal.'' Soft Money Final 
Rules, 67 FR at 49083.
---------------------------------------------------------------------------

    c. Actions by individuals acting under indirect signals from a 
candidate. The Commission's current definitions of ``agent'' are 
sufficiently broad to capture actions by individuals acting under 
indirect signals from a candidate. Commenters raised concerns that 
candidates could withhold actual authority to violate the law, but 
attempt to signal indirectly that the agent should ignore his or her 
express instructions and solicit illegal soft money nevertheless. 
Several commenters described this as the use of a ``wink and a nod'' 
that would authorize the agent to act illegally. Contrary to what these 
commenters suggested, however, the

[[Page 4979]]

principal's indirect signals give the fundraiser actual authority to 
raise money, and by implication, to do so illegally. See Restatement 
26, cmt. c (``[authority to perform a particular act] may be inferred 
from words or conduct which the principal has reason to know indicate 
to the agent that he is to do the act for the benefit of the 
principal''). Moreover, because apparent authority is based on 
communications between the principal and a third party, if the 
principal indirectly signaled to the agent that the agent should 
violate the law, the principal's actions would not create apparent 
authority. Apparent authority does not further the Commission's efforts 
to prevent this type of misconduct.
    d. Actions by individuals who willfully keep a candidate, political 
party committee, or other political committee ignorant of their 
prohibited activity. The Commission's current definitions of ``agent'' 
are also sufficiently broad to capture actions by individuals who 
willfully keep a candidate, party committee, or other political 
committee ignorant of their prohibited activity. In another scenario, 
commenters maintained that ``so long as agents keep their principals 
sufficiently ignorant of their particular practices * * * those 
operating with apparent authority could exploit their positions to 
continue soliciting and directing soft money contributions, continue 
peddling access to their principals, and continue by virtue of their 
apparent authority to perpetuate the appearance if not the reality of 
corruption.''
    Assuming that apparent authority in this scenario is based on a 
position like that of fundraising chair, the agent would have actual 
authority to raise funds and thus the candidate would be liable for the 
agent's illegal soft money solicitations, if done on the candidate's 
behalf, even if the solicitations were made without the candidate's 
knowledge.\7\ Moreover, under actual authority, a principal cannot 
avoid liability through attempts to keep himself ignorant of his or her 
agent's actions. See Restatement 43 (``Acquiescence by the principal in 
conduct of an agent whose previously conferred authorization reasonably 
might include it, indicates that the conduct was authorized; if clearly 
not included in the authorization, acquiescence in it indicates 
affirmance.'')
---------------------------------------------------------------------------

    \7\ See note 6, above.
---------------------------------------------------------------------------

    Thus, for all the reasons discussed above, actual authority, 
whether express or implied, is a broad concept that provides 
candidates, political party committees, and other political committees 
with the appropriate incentives to monitor the conduct of those whom 
they hold out to the public as their agents.
    e. Apparent authority based on direct manifestations a principal 
makes to a third party is not necessary to implement the purposes of 
BCRA and the Act because the Commission's soft money and coordination 
regulations would, in many situations, reach the principal's own 
conduct directly. In addition, apparent authority based on direct 
manifestations a principal makes to a third party is not necessary to 
implement the purposes of BCRA and the Act because the Commission's 
soft money and coordination regulations would, in many situations, 
reach the principal's own conduct directly. Where a Federal candidate 
creates apparent authority to solicit soft money for a volunteer, 
employee, or consultant by talking directly to a third party, in many 
situations, the conversation between the candidate and the third party 
will constitute a solicitation by the candidate in and of itself. For 
example, assume a Federal candidate informs a contributor that an 
illegal soft money contribution to Jane Doe's gun owners' rights 
organization would greatly benefit the Federal candidate's campaign. 
Regardless of whether Jane Doe has authority to act on behalf of the 
Federal candidate, the Federal candidate would face liability based on 
his or her own comments to the contributor. Not only is the principal's 
statement likely captured by the Commission's current regulations, the 
Commission is currently conducting a rulemaking to expand its 
definition of ``solicit'' at 11 CFR 300.2(m), as it was understood by 
the Shays court, and in light of the Court of Appeals decision in Shays 
v. FEC. See Notice of Proposed Rulemaking on the Definitions of 
``Solicit'' and ``Direct'', 70 FR 56599 (Sept. 28, 2005); see also 
Shays v. FEC, 414 F.3d 76, 105-07 (D.C. Cir. 2005) (holding the 
Commission's definitions of ``to solicit'' and ``to direct'' did not 
survive the first step of Chevron review.). Under this approach, 
liability for statements to third parties will rest directly on 
candidates, rather than indirectly through purported agents.
    f. Actual authority protects core political activity permitted by 
BCRA and affirmed by the U.S. Supreme Court in McConnell that, under an 
apparent authority standard, could otherwise be restricted or subject 
to Commission investigation.
    While the Commission's current regulations are sufficiently broad 
to create appropriate incentives for candidates, party committees, and 
other political committees to ensure that their employees and 
volunteers are familiar with, and comply with, BCRA's soft money and 
coordination provisions, the current regulations also preserve the 
ability of individuals to solicit funds on behalf of multiple entities. 
BCRA restricts the ability of Federal officeholders, candidates, and 
national party committees to raise non-Federal funds. BCRA does not 
prohibit individuals who are agents of the foregoing from also raising 
non-Federal funds for other political parties or outside groups.\8\ As 
the Supreme Court made clear in McConnell, even ``party officials may 
also solicit soft money in their unofficial capacities.'' McConnell, 
504 U.S. at 159-61. The Commission recognized in the Soft Money Final 
Rules that ``individuals, such as State party chairmen and chairwomen, 
who also serve as members of their national party committees, can, 
consistent with BCRA, wear multiple hats, and can raise non-Federal 
funds for their State party organizations without violating the 
prohibition against non-Federal fundraising by national parties.'' Id.; 
see also Restatement 13 (``merely acting in a manner that benefits 
another is not necessarily acting on behalf of that person.'').\9\
---------------------------------------------------------------------------

    \8\ Federal candidates and officeholders may raise non-Federal 
funds in limited circumstances. See 2 U.S.C. 441i(e)(1)(B), (2), and 
(3).
    \9\ In order to preserve an individual's ability to raise funds 
for multiple organizations, the Commission's current regulations 
specifically require an agent to be acting on behalf of a candidate 
or party committee to be subject to BCRA's soft money prohibition. 
See note 6, above.
---------------------------------------------------------------------------

    An apparent authority standard would potentially subject 
individuals conducting permissible fundraising activities to Commission 
complaints and investigations. Such a result would unduly burden 
participation in permissible political activity. For example, assume 
Candidate meets Contributor who mentions he is from Trenton, New 
Jersey. Candidate mentions to Contributor that he knows a politically 
prominent environmentalist named Tom who is also from Trenton. 
Candidate praises Tom's involvement in an environmental group in New 
Jersey and says, ``Say hello to Tom if you see him, and tell him to 
give me a call. Tom is an old friend and one of the reasons I keep 
getting elected.'' In fact, Tom has not spoken to the Candidate in over 
a year, and knows him only though past efforts to lobby him on 
tightening environmental laws. Contributor later meets Tom, who 
solicits Contributor for

[[Page 4980]]

a soft money contribution to the environmental group.
    If a complaint was filed with the Commission, the Commission could, 
under an apparent authority standard, investigate whether Contributor 
reasonably believed Tom was Candidate's agent, and if so, whether Tom 
made the solicitation on behalf of Candidate. However, under an actual 
authority standard, there is no actual authority between Tom and 
Candidate, thereby ending the Commission's inquiry into his conduct and 
preserving his ability to remain active in his environmental 
organization.
    In reaching this conclusion, the Commission is mindful that both 
the Supreme Court in McConnell and the commenters agreed that citizen 
participation in both Federal campaigns and with organizations that may 
raise soft money is permissible under BCRA.
    3. Liability premised on actual authority is best suited for the 
political context, which is materially different from contexts where 
apparent authority is applicable.
    The Commission emphasizes that the decision to exclude apparent 
authority from its definitions of ``agent'' is informed by the 
difference between the political context in which the Commission's 
definitions of ``agent'' operate, and the non-political contexts in 
which apparent authority is normally applied.\10\
---------------------------------------------------------------------------

    \10\ This rulemaking does not impact the role of apparent 
authority in the enforcement or interpretation of commercial 
obligations between political committees and vendors. See, e.g., 
Karl Rove & Co. v. Thornburgh, 39 F.3d 1273 (5th Cir. 1994).
---------------------------------------------------------------------------

    Electoral campaigns are materially different from many commercial 
endeavors in that campaigns must depend on broad participation by 
volunteers. Unlike commercial agents, political volunteers have an 
affirmative interest in promoting and working toward the campaign's 
goals based on personal and ideological, rather than economic, 
incentives. Unlike commercial principals, campaigns welcome the 
assistance and support of nearly any volunteer, regardless of their 
expertise, availability, or exact reasons for supporting the campaign. 
A commercial principal does not customarily rely on a large number of 
mainly inexperienced volunteers to carry out its commercial purposes. 
Moreover, a commercial principal typically does not have a large number 
of people willing to work on its behalf for no economic benefit and 
without the commercial principal's knowledge. See, e.g., AO 1999-17 
(discussing campaign volunteers' independent Internet activities on 
behalf of a presidential campaign).
    As the Commission pointed out in the Soft Money Final Rules, in 
most non-political contexts, the purpose of apparent authority is ``to 
protect innocent third parties who have suffered monetary damages as a 
result of reasonably relying on the representations of individuals who 
purported to have, but did not actually have, authority to act on 
behalf of [the] principals. Unlike other legislative areas, BCRA does 
not affect individuals who have been defrauded or have suffered 
economic loss due to their detrimental reliance on unauthorized 
representations.'' 67 FR 49082. See, e.g., United States v. One Parcel 
of Land, 965 F.2d 311, 318-19 (7th Cir. 1992) (`` `Apparent authority' 
is a vehicle by which a principal is held vicariously liable to an 
innocent third party for injury resulting from the misrepresentations 
or misdeeds of the principal's agent who acted with apparent authority 
from the principal.''); Fraioli v. Lemcke, 328 F. Supp. 2d 250, 278-79 
(D.R.I. 2004) (``The doctrine of apparent authority exists to promote 
business and protect a third party's reasonable reliance on an agency 
relationship.''); Hammett v. VTN Corp., 1989 WL 149261 at *6 (E.D. La. 
1989).
    Instead, an overriding purpose of BCRA, and the purpose to which 
the rules interpreting agency are drafted, is to prevent circumvention 
of the Act and actual corruption or the appearance thereof. Applying 
apparent authority concepts developed to remedy fraud and economic loss 
to the electoral arena could restrict permissible electoral activity 
where there is no corruption or the appearance thereof.
    As the Supreme Court noted in Buckley v. Valeo, ``encouraging 
citizen participation in political campaigns while continuing to guard 
against the corrupting potential of large financial contributions to 
candidates'' is an important goal of the Act. Buckley v. Valeo, 424 
U.S. 1, 36 (1976). In the Commission's judgment, the potential of 
apparent authority to restrict activity that would not circumvent the 
statute or give the appearance of corruption outweighs any possible 
benefits that may be derived from providing candidates and party 
committees with additional incentives for monitoring their campaign 
workers, especially given the fact that actual authority is a broad 
concept that already creates appropriate incentives for such 
monitoring.
Conclusion
    This revised Explanation and Justification, thus, addresses the 
three concerns articulated by the District Court in Shays. First, the 
Commission determined that its current definitions of ``agent,'' by 
focusing on authority to engage in a broad range of activities 
specifically related to BCRA-regulated conduct rather than only on 
expenditures, dramatically increases the number of individuals and 
types of conduct subject to the Act, and therefore, properly implements 
BCRA's prohibitions.
    Second, the Commission has attempted to address the District 
Court's concern regarding prevention of circumvention of the Act and 
the appearance of corruption by explaining (1) that there is, at 
present, no evidence of corruption or circumvention under the current 
definitions of ``agent'' that dictates a change in Commission 
regulations; (2) that even without inclusion of apparent authority, the 
Commission's soft money and coordination regulations would reach 
situations where the principal makes direct manifestations to a third 
party regarding a person's authority to act on the principal's behalf; 
and (3) that even without inclusion of apparent authority, reliance on 
actual authority, express or implied, still reaches most situations 
where agency is based on title or position.
    Third, this revised Explanation and Justification addresses the 
District Court's concern regarding a perceived misunderstanding of the 
law of agency, by explaining that the Commission's decision now to 
continue to exclude apparent authority from the definitions of 
``agent'' is not based on an assumption, noted by the court, that 
``rogue agents'' might potentially create liability for campaigns, 
party committees, or other political committees solely through the 
agents' own actions. Instead, the revised Explanation and Justification 
recognizes that apparent authority does, in fact, require affirmative 
conduct by a principal (whether through title or position or through 
direct manifestations to a third party), and that there are persuasive 
policy reasons for excluding apparent authority from the definitions of 
``agent.''

    Dated: January 24, 2006.
Michael E. Toner,
Chairman, Federal Election Commission.
[FR Doc. 06-853 Filed 1-30-06; 8:45 am]
BILLING CODE 6715-01-P