[House Report 112-195]
[From the U.S. Government Publishing Office]
112th Congress
1st Session HOUSE OF REPRESENTATIVES Report
112-195
_______________________________________________________________________
House Calendar No. 69
IN THE MATTER OF ALLEGATIONS
RELATING TO
REPRESENTATIVE JEAN SCHMIDT
----------
R E P O R T
of the
COMMITTEE ON ETHICS
August 5, 2011.--Referred to the House Calendar and ordered to be
printed
IN THE MATTER OF ALLEGATIONS RELATING TO REPRESENTATIVE JEAN SCHMIDT
For sale by the Superintendent of Documents, U.S. Government Printing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202�09512�091800, or 866�09512�091800 (toll-free). E-mail, [email protected].
112th Congress
1st Session HOUSE OF REPRESENTATIVES Report
112-195
_______________________________________________________________________
House Calendar No. 69
IN THE MATTER OF ALLEGATIONS
RELATING TO
REPRESENTATIVE JEAN SCHMIDT
__________
R E P O R T
of the
COMMITTEE ON ETHICS
August 5, 2011.--Referred to the House Calendar and ordered to be
printed
COMMITTEE ON ETHICS
JO BONNER, Alabama LINDA T. SANCHEZ, California
Chairman Ranking Member
MICHAEL T. McCAUL, Texas JOHN A. YARMUTH, Kentucky
K. MICHAEL CONAWAY, Texas DONNA F. EDWARDS, Maryland
CHARLES W. DENT, Pennsylvania PEDRO R. PIERLUISI, Puerto Rico
GREGG HARPER, Mississippi JOE COURTNEY, Connecticut
Report Staff
Daniel A. Schwager, Chief Counsel/Staff Director
Deborah Sue Mayer, Director of Investigations
Kelle A. Strickland, Counsel to the Chairman
Daniel J. Taylor, Counsel to the Ranking Member
Thomas A. Rust, Senior Counsel
LETTER OF TRANSMITTAL
----------
U.S. House of Representatives,
Committee on Ethics,
Washington, DC, August 5, 2011.
Hon. Karen L. Haas,
Clerk, U.S. House of Representatives,
Washington, DC.
Dear Ms. Haas: Pursuant to clauses 3(a)(2) and 3(b) of rule
XI of the Rules of the House of Representatives, we herewith
transmit the attached Report, ``In the Matter Regarding
Allegations Relating to Representative Jean Schmidt.''
Sincerely,
Jo Bonner,
Chairman.
Linda T. Sanchez,
Ranking Member.
C O N T E N T S
----------
Page
I. Introduction......................................................1
II. Background........................................................4
III.Findings and Conclusions.........................................11
IV. Statement Under Rule 13, Clause 3(c) of the Rules of the House of
Representatives..................................................20
Appendix A: Report and Findings of the Office of Congressional
Ethics Regarding Representative Jean Schmidt (Review No. 11-
6574).......................................................... 21
Appendix B: Representative Jean Schmidt's Response to the Report
and Findings of the Office of Congressional Ethics............. 475
112th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 112-195
======================================================================
IN THE MATTER REGARDING ALLEGATIONS RELATING TO REPRESENTATIVE JEAN
SCHMIDT
_______
August 5, 2011.--Referred to the House Calendar and ordered to be
printed
_______
Mr. Bonner, from the Committee on Ethics,
submitted the following
R E P O R T
I. INTRODUCTION
The Committee on Ethics submits this Report pursuant to
Rule XI, clause 3(a)(2), of the Rules of the U.S. House of
Representatives (House Rules), which authorizes the Committee
to investigate any alleged violation by a Member, officer, or
employee of the House of Representatives, of the Code of
Official Conduct or any law, rule, regulation, or other
standard applicable to the conduct of such Member, officer, or
employee.
Since the spring of 2009, Representative Jean Schmidt has
been involved in litigation regarding statements made about her
by David Krikorian, an opponent in her 2008 re-election
campaign. That dispute has involved proceedings before an Ohio
state agency, in Ohio state court, and in federal court.
In a letter dated September 17, 2009, Representative Jean
Schmidt first sought guidance related to payment of legal
services provided to her in the state agency and state court
proceedings by lawyers associated with the Turkish American
Legal Defense Fund (TALDF). On February 26, 2010, the Committee
provided guidance on the possible use of a legal expense fund
or of campaign funds to pay for legal work already completed in
those proceedings. The Committee's letter did not formally
approve a legal expense fund pursuant to the Committee's
written guidance on legal expense funds, because Representative
Schmidt had not yet asked the Committee for such approval.
In letters dated July 19, 2010, August 9, 2010, and August
11, 2010, Representative Schmidt sought approval from the
Committee of a legal expense fund, a contingency fee
arrangement, and further guidance related to payment of legal
services provided to her in the state agency and state court
proceedings, as well as a federal court proceeding. Since first
seeking the Committee's guidance, Representative Schmidt has
worked in good faith with the Committee's Office of Advice and
Education to resolve any outstanding issues regarding the
payment of legal services to the lawyers associated with TALDF.
On May 18, 2011, the Committee formally received a referral
from the Office of Congressional Ethics (OCE), recommending
further review of allegations that Representative Schmidt:
``(1) accepted legal services from TALDF without establishing a
legal expense fund; and (2) failed to report the legal services
on her financial disclosure statements for calendar years 2008
and 2009.''\1\ Upon receipt of OCE's Report and Findings
(Report and Findings), the Committee sent a copy of the Report
and Findings to Representative Schmidt and offered her an
opportunity to respond. Representative Schmidt submitted a
response to OCE's Report and Findings on May 27, 2011.\2\ On
July 1, 2011, the Chairman and Ranking Member of the Committee
jointly decided to extend the Committee's review of the OCE
referral regarding Representative Schmidt pursuant to House
Rule XI, clause 3(a)(8)(A), and Committee Rules 17A(b)(1)(A)
and 17A(c)(1). Unless the Committee voted to empanel an
investigative subcommittee, those rules required the Committee
to release OCE's Report and Findings no later than August 16,
2011.
---------------------------------------------------------------------------
\1\Report and Findings in the Matter of Representative Jean
Schmidt, OCE Review No. 11-6574, May 18, 2011. A copy of OCE's Report
and Findings is attached as Appendix A to this report.
\2\Letter from Representative Schmidt to Committee, May 27, 2011. A
copy of Representative Schmidt's response to OCE's Report and Findings
is attached as Appendix B to this report.
---------------------------------------------------------------------------
The Committee conducted an independent investigation into
the matters in the OCE referral pursuant to House Rule XI,
clause 3(b)(1)(B)(ii), and Committee Rule 18(a), which
authorize the Chairman and Ranking Member to jointly gather
additional information concerning an alleged violation by a
Member, officer, or employee unless and until an investigative
subcommittee has been established.
Based on the Committee's investigation and nearly two years
of guidance to Representative Jean Schmidt through the
Committee's Office of Advice and Education, the Committee voted
unanimously on August 1, 2011, to resolve the issues
surrounding Representative Schmidt's outstanding requests for
guidance from the Committee and the allegations regarding
Representative Schmidt by OCE, by issuing a letter to
Representative Schmidt and releasing this Report.\3\ The
Committee further determined that it was appropriate to
publicly release OCE's Report and Findings, along with
Representative Schmidt's response to the Report and Findings,
through this Report.
---------------------------------------------------------------------------
\3\Pursuant to Committee Rule 3(j), the Committee will not release
any of its letters to Representative Schmidt at this time.
---------------------------------------------------------------------------
With respect to Representative Schmidt's request for
guidance from the Committee, the Committee in its guidance,
issued contemporaneously with this Report, approved the use of
funds from the Jean Schmidt Legal Expense Trust to pay legal
bills incurred in connection with her complaint before the Ohio
Elections Commission and the defamation action, subject to
certain restrictions discussed below. The Committee denied the
use of funds from the Jean Schmidt Legal Expense Trust to pay
legal bills incurred in connection with amicus briefs filed in
Krikorian v. Ohio Elections Commission. Additionally, the
Committee has determined that Representative Schmidt's use of
campaign funds to pay for the Ohio Elections Commission matter,
the defamation action, and the amicus briefs filed in Krikorian
v. Ohio Elections Commission would not violate House rules,
subject to certain restrictions discussed below. However, the
Committee advised Representative Schmidt to consult with the
Federal Election Commission (FEC) before using campaign funds
for any of these purposes. Finally, the Committee denied
permission to enter into a so-called ``contingency fee''
arrangement.
With respect to the referral from OCE, it appears that,
based on the evidence examined by the Committee, unbeknownst to
Representative Schmidt or the Committee, Representative
Schmidt's lawyers were not employees of TALDF, or the related
entity, the Turkish Coalition of America (TCA), and were not
planning to send her a bill for attorneys' fees at the
conclusion of the matter, but instead her lawyers were outside
counsel to TCA who have sent monthly bills to TCA for their
TALDF-related legal representation of Representative Schmidt,
which TCA has paid on an ongoing basis. According to OCE's
referral, between 2008 and 2010 TCA actually paid the TALDF
lawyers approximately $500,000 for legal services provided to
Representative Schmidt. Neither the Committee nor, according to
the evidence, Representative Schmidt was aware of these
payments when the Committee provided advice to Representative
Schmidt regarding her options for paying legal fees in the
various proceedings.
Despite Representative Schmidt's apparent lack of knowledge
of this arrangement, it was in fact improper and constituted an
impermissible gift from TCA to Representative Schmidt. Thus,
the Committee has decided that it will not dismiss the
allegations in the OCE referral. However, the Committee does
not see the need to empanel an investigative subcommittee at
this time. The Committee does not believe that further fact-
gathering is necessary, and, given the evidence that
Representative Schmidt lacked knowledge of the arrangement, the
Committee does not believe that any sanction is necessary. In
addition, the Committee notes that Representative Schmidt has
been working in good faith with the Committee since 2009 to
ascertain the appropriate means by which to pay her attorneys.
However, Representative Schmidt must disclose and repay the
improper gift. Thus, Representative Schmidt must ensure that
TCA does not pay for any further legal services on her behalf,
and, subject to the guidance below, Representative Schmidt must
pay, from a permissible source, the lawyers associated with
TALDF for all legal services they performed on her behalf;
Representative Schmidt must also amend her annual Financial
Disclosure Statements for calendar years 2009 and 2010 to
disclose the gifts from TCA; and finally, Representative
Schmidt must disclose the remaining unpaid legal fees from TCA
as liabilities on her future Financial Disclosure Statements,
until the lawyers associated with TALDF have been repaid in
full, for all services provided, including those they
originally billed to TCA.
II. BACKGROUND
Based on OCE's referral, the Committee's independent
investigation, and nearly two years of guidance to
Representative Schmidt through the Committee's Office of Advice
and Education, the following is the background on this matter.
A. LITIGATION INVOLVING MR. KRIKORIAN
Representative Schmidt currently represents the 2nd
District of Ohio. In the 2008 general election cycle, Mr. David
Krikorian ran for her congressional seat as an independent.\4\
In the final days of the 2008 election cycle, Mr. Krikorian
distributed materials accusing Representative Schmidt of
accepting a $30,000 bribe from the Government of Turkey in
exchange for denying the genocide of Armenians in Turkey during
World War I. The campaign materials also called for
Representative Schmidt's immediate resignation from her
congressional seat and/or her defeat at the polls in the 2008
general election. Representative Schmidt was reelected in the
November 2008 general election.
---------------------------------------------------------------------------
\4\Complaint, para.3, Jean Schmidt v. Mr. David Krikorian, Ohio
Elections Commission, 2009E-003, April 29, 2009 (Ohio Elections
Commission Complaint).
---------------------------------------------------------------------------
Shortly after the 2008 election, Representative Schmidt was
contacted by Mr. Bruce Fein and Mr. David Saltzman, who
introduced themselves as lawyers with TALDF.\5\ At that time,
Mr. Fein and Mr. Saltzman offered to represent Representative
Schmidt in a lawsuit challenging Mr. Krikorian's claims about
her. At that time, Representative Schmidt expressed some
interest in Mr. Fein and Mr. Saltzman representing her, but she
stated that she wanted it to be done on whatever terms were
consistent with the House ethics rules.\6\ At some point, Mr.
Fein suggested using a contingency fee arrangement, in which
the lawyers associated with TALDF would not charge
Representative Schmidt for legal services, but she would split
the proceeds of any damage award that resulted from their
representation.\7\ However, Representative Schmidt and the
lawyers associated with TALDF never came to a final
understanding of how she would pay for their legal services.
---------------------------------------------------------------------------
\5\Transcript of Interview of Barry Bennett, at 5 (Bennett Tr.).
\6\Transcript of Interview of Bruce Fein, at 15 (Fein Tr.).
\7\Fein Tr. at 31.
---------------------------------------------------------------------------
In April 2009, Mr. Fein and Mr. Saltzman filed a complaint
on Representative Schmidt's behalf against Mr. Krikorian with
the Ohio Elections Commission.\8\ The Ohio Elections Commission
has jurisdiction over false campaign statements under Ohio
law.\9\ Representative Schmidt filed the complaint as a
candidate and used her campaign committee address.\10\ The
complaint sought: (1) a finding by the Ohio Elections
Commission that Mr. Krikorian violated Ohio law by making false
campaign statements; (2) a public reprimand of Mr. Krikorian;
and (3) any other appropriate relief.\11\
---------------------------------------------------------------------------
\8\Id. at 16.
\9\See Ohio Rev. Code Sec. 3517.21.
\10\Ohio Elections Commission Complaint.
\11\Id.
---------------------------------------------------------------------------
On August 31, 2009, Mr. Fein was deposed in the Ohio
Elections Commission matter.\12\ Later that day, Representative
Schmidt's then-Chief of Staff, Barry Bennett, was also deposed
in the Ohio Elections Commission matter.\13\ Lawyers
representing Mr. Krikorian asked Mr. Fein and Mr. Bennett about
the arrangement for payment of Mr. Fein's and Mr. Saltzman's
attorneys' fees for representing Representative Schmidt. In
response to the question of whether TALDF had charged
Representative Schmidt's campaign for legal services to her,
Mr. Fein stated, ``The answer is no. We stated that we would do
this and we would not charge them legal fees.''\14\ Mr. Bennett
was asked if there was an ``ethics issue associated with
[TALDF] paying for Ms. Schmidt's legal fees?''\15\ Mr. Bennett
responded, ``No, not that I'm aware of.''\16\
---------------------------------------------------------------------------
\12\Deposition of Bruce Fein, August 31, 2009 (Fein Deposition).
\13\Deposition of Barry Bennett, August 31, 2009 (Bennett
Deposition).
\14\Fein Deposition at 60.
\15\Bennett Deposition at 49.
\16\Id.
---------------------------------------------------------------------------
According to Committee records, Mr. Bennett first called
the Committee on or around September 10, 2009, to ask the
Committee's guidance regarding the payment of legal fees
incurred on Representative Schmidt's behalf in the course of
pursuing the complaint against Mr. Krikorian before the Ohio
Elections Commission.\17\ In that telephone call Mr. Bennett
discussed a possible contingency fee agreement.\18\ Committee
counsel asked Mr. Bennett if Representative Schmidt had
considered using a legal expense fund, and Mr. Bennett said
that this was the first time he had considered it.\19\
Committee counsel instructed Mr. Bennett that Representative
Schmidt should submit a letter to the Committee to get formal
guidance on these issues.\20\ Representative Schmidt first
submitted a letter to the Committee on September 17, 2009,
seeking formal guidance.\21\
---------------------------------------------------------------------------
\17\Committee Telephone Inquiries Log, September 10, 2009, 3:11:17
p.m. (Sept. 10 Phone Log).
\18\Id.
\19\Bennett Tr. at 6-7.
\20\Sept. 10 Phone Log.
\21\Schmidt Letter to Committee, September 17, 2009.
---------------------------------------------------------------------------
In October 2009, Representative Schmidt received a finding
of fact from the Ohio Elections Commission that there was clear
and convincing evidence that Mr. Krikorian made false
statements with malice.\22\ Mr. Krikorian filed an appeal in
Ohio state court seeking to overturn the administrative ruling
by the Ohio Elections Commission, which was denied. On October
8, 2009, Representative Schmidt's office responded to requests
from Committee counsel by providing the Committee with
information related to her September 17, 2009, request.\23\
These materials included a letter in which Mr. Fein and Mr.
Saltzman stated that they ``have agreed to represent
[Representative Schmidt] as attorneys . . . for a contingency
fee of one-third of any recovery, plus out-of-pocket
expenses.''\24\ Mr. Bennett believed it was unlikely that a
contingency fee arrangement would be approved, and understood
from his conversations with Committee counsel that it appeared
that the Committee had not previously approved a contingency
fee arrangement. Representative Schmidt subsequently amended
her request to omit the request for approval of a contingency
fee arrangement.
---------------------------------------------------------------------------
\22\Email from Barry Bennett to Committee counsel, October 2, 2009.
\23\Letter from Barry Bennett to Committee counsel, October 8,
2009.
\24\Letter from Bruce Fein and David Saltzman to Representative
Schmidt, undated.
---------------------------------------------------------------------------
On January 21, 2010, Mr. Krikorian filed a civil suit in
federal court against the Ohio Elections Commission that
challenged the constitutionality of Section 3517.21(B)(10) of
the Ohio Revised Code, which prohibits a candidate from making
``a false statement concerning a candidate, either knowing the
same to be false or with reckless disregard of whether it was
false or not, if the statement is designed to promote the
election, nomination, or defeat of the candidate.''\25\ Mr.
Krikorian also contended the statute is preempted by the
Federal Elections Campaign Act of 1971 (as amended). He sought
a declaratory judgment that the Ohio statute is
unconstitutional and an injunction against its enforcement
against him. Representative Schmidt was not a named party to
this federal court case. On January 29, 2010, Representative
Schmidt filed an amicus brief in the federal court action in
support of the Ohio Elections Commission.\26\ The brief was
prepared for Representative Schmidt by the lawyers associated
with TALDF.
---------------------------------------------------------------------------
\25\Complaint, Krikorian v. Ohio Elections Commission, 1:10-cv-
00720-TSB (S.D. Ohio Jan. 21, 2010).
\26\Amicus Brief, Krikorian v. Ohio Elections Commission, 1:10-cv-
00720-TSB (S.D. Ohio Jan. 29, 2010).
---------------------------------------------------------------------------
On February 26, 2010, the Committee sent a response to
Representative Schmidt's September 17, 2009, letter.\27\ This
letter provided guidance on the possible use of a legal expense
fund or of campaign funds to pay for legal work already
completed during the Ohio Elections Commission proceedings and
future work on Representative Schmidt's behalf in the appellate
case in Ohio state court. The Committee's letter did not
formally approve a legal expense fund pursuant to the
Committee's written guidance on legal expense funds, because
Representative Schmidt had not yet asked the Committee for such
approval. The letter noted Mr. Krikorian's civil suit in
federal court against the Ohio Elections Commission, but stated
that Representative Schmidt was ``not a named party to this
federal court case and [did] not anticipate any involvement in
that separate litigation.''\28\
---------------------------------------------------------------------------
\27\Letter from Committee to Representative Schmidt, February 26,
2010.
\28\Id. The Committee had not been previously aware that
Representative Schmidt's intention to participate in the federal court
matter had changed.
---------------------------------------------------------------------------
On June 8, 2010, lawyers associated with TALDF filed a
defamation action on Representative Schmidt's behalf against
Mr. Krikorian in the Ohio Court of Common Pleas.\29\
Representative Schmidt's complaint in the defamation action
alleges that Mr. Krikorian made defamatory statements similar
to those made in the campaign and republished the defamatory
statements made during the campaign when interviewed by
Asbarez.com in June 2009.\30\ Representative Schmidt alleges he
made further defamatory statements in The Armenian Reporter and
The Armenian Mirror-Spectator in August 2009 and again in a
televised interview in September 2009.\31\
---------------------------------------------------------------------------
\29\Complaint, Schmidt v. Krikorian, et al., 2010-cvc-1217 (June 8,
2010).
\30\Id.
\31\Id.
---------------------------------------------------------------------------
On July 13, 2010, Mr. Krikorian filed a complaint regarding
Representative Schmidt with the Office of Congressional Ethics.
Mr. Krikorian asserted that Representative Schmidt's acceptance
of legal services from the TALDF attorneys may have violated
the House gift rule, and alleged possible violations of the
Ethics in Government Act, the False Statements Accountability
Act, and other House Rules. In the complaint, Mr. Krikorian
stated ``while purely an estimate on my part, I believe the
total fees and expenses associated with the OEC Action exceeded
$200,000 and may have ranged up to $500,000.'' The complaint
also stated that publicly available records showed no payments
from her campaign for the legal services or the establishment
of a legal defense fund.
On July 19, August 9, and August 11, 2010, Representative
Schmidt wrote letters to the Committee seeking approval of the
Jean Schmidt Legal Expense Trust. She sought to use the fund to
pay for legal expenses incurred in the Ohio Elections
Commission matter and the federal court litigation to which she
was not a party. Representative Schmidt also resubmitted a
request for approval of a contingency fee arrangement to pay
for the defamation action.
On September 27, 2010, Mr. Fein filed a motion to be
admitted pro hac vice in the Ohio Court of Common Pleas for
Representative Schmidt's defamation action.\32\ On October 22,
2010, the defendants in the defamation matter filed a legal
brief opposing Mr. Fein's admission pro hac vice.\33\ In the
opposition brief, defendants asserted that Mr. Fein was a
``necessary witness'' in the matter, and had potentially
perjured himself, because:
---------------------------------------------------------------------------
\32\Motion for Admission Pro Hac Vice for Bruce Fein of Bruce E.
Fein & Associates, Inc., Schmidt v. Krikorian, et al., 2010-cvc-1217
(September 27, 2010).
\33\Memorandum in Opposition to Motion for Admission Pro Hac Vice
for Bruce Fein of Bruce E. Fein & Associates, Inc., Schmidt v.
Krikorian, et al., 2010-cvc-1217 (October 22, 2010).
Mr. Fein testified under oath that the Turkish American
Legal Defense Fund (``TALDF'')--an entity that is part
of the Turkish Coalition of America (``TCA'')--was
paying Plaintiff Schmidt's legal fees during the
pendency of the Ohio Elections Commission that serve as
a basis of this instant case.\34\
---------------------------------------------------------------------------
\34\Id. at 4.
The opposition brief further asserted that Mr. Fein may have a
conflict of interest in the case because ``it is also very
likely Mr. Fein advised Plaintiff Schmidt that their
arrangement regarding not charging her, her congressional
office, or her campaign was perfectly legal without any
disclosure.''\35\
---------------------------------------------------------------------------
\35\Id. at 7.
---------------------------------------------------------------------------
Representative Schmidt's lawyers filed a reply brief in the
matter which asserted that ``Mr. Fein's statements during his
deposition were accurate and consistent with the information
available to him at the time they were made.''\36\ The reply
brief further stated that ``Mr. Fein has testified under oath
that he never provided free legal services to plaintiff.''\37\
Instead, the brief stated that ``[t]he Turkish Coalition of
America . . . has consistently funded Fein's representation of
Jean Schmidt as senior counsel at the Turkish American Legal
Defense Fund . . . for the duration of her several legal
actions against Defendant Krikorian.''\38\ Finally, the reply
brief stated that ``Mr. Fein did not advise Plaintiff Schmidt
rules [sic] governing the receipt of free legal services by
members of Congress.''\39\
---------------------------------------------------------------------------
\36\Reply Memorandum of Plaintiff Jean Schmidt in Support of Motion
for Admission Pro Hac Vice for Bruce Fein, Schmidt v. Krikorian, et
al., 2010-cvc-1217 (November 11, 2010), at 13.
\37\Id. at 14.
\38\Id. at 14-15.
\39\Id. at 14.
---------------------------------------------------------------------------
Following oral argument, the Ohio Court of Common Pleas
issued an order denying Mr. Fein's motion.\40\ As part of its
support for this ruling, the court stated:
---------------------------------------------------------------------------
\40\Order, Decision and Entry Denying Plaintiff's Motion to Admit
Pro Hac Vice Bruce Fein, Esq., Schmidt v. Krikorian, et al., 2010-cvc-
1217 (April 4, 2011).
First, the defense has raised a material issue as to
who(m) is paying for the legal fees for Plaintiff
Schmidt during the pendency of the Ohio Elections
Commission [sic]. In an earlier deposition, Attorney
Bruce Fein said that the Turkish American Legal Defense
Fund (``TALDF'') was paying for Schmidt's legal fees,
and Plaintiff Schmidt denied that same statement. The
issue of who is paying for these fees is material in
regards to the matter before the Court.\41\
---------------------------------------------------------------------------
\41\Id. at 3.
The Committee was unaware that Mr. Krikorian had opposed
Mr. Fein's appearance in the case or of the basis for his
objection. The Committee learned these facts in the spring of
2011 from news reports.
None of the lawyers associated with TALDF have submitted
any bills to Representative Schmidt for any of the matters in
which they represented her.\42\ This was true even with regard
to the five months that the lawyers associated with TALDF
represented Representative Schmidt before she sought the
Committee's guidance on how to pay for their legal
services.\43\ Mr. Bennett told the Committee that before
Representative Schmidt initially sought the Committee's
guidance in September 2009, she had intended to pay for her
legal bills using campaign resources once the matter was
complete.\44\ While this appears to be potentially inconsistent
with Mr. Bennett's deposition testimony in the matter before
the Ohio Elections Commission,\45\ he told the Committee that
Representative Schmidt's practice in prior matters before the
Ohio Elections Commission was to pay legal expenses at the end
of the matter using campaign funds.\46\ No written fee
agreement had been entered into by Representative Schmidt's
campaign for payment of the legal fees as of September 2009.
---------------------------------------------------------------------------
\42\Schmidt Letter to Committee, May 27, 2011.
\43\Fein Tr. at 17.
\44\Bennett Tr. at 7.
\45\Bennett Deposition at 49 (``Q. And there's no ethics issue
associated with Turkish American Legal Defense Funds paying for Ms.
Schmidt's legal fees? A. No, not that I'm aware of.''). See below on
pages 11-12 for a further discussion of this potential inconsistency.
\46\Bennett Tr. at 17.
---------------------------------------------------------------------------
B. OCE AND COMMITTEE INVESTIGATIONS
OCE commenced its initial review of this matter on January
25, 2011.\47\ OCE voted to initiate a second-phase review on
February 22, 2011, and voted to extend the second-phase review
on April 23, 2011.\48\ OCE voted to refer the matter to the
Committee on April 29, 2011, and transmitted its Report and
Findings to the Committee on May 18, 2011.\49\ Upon receipt of
OCE's Report and Findings, the Committee sent a copy of the
Report and Findings to Representative Schmidt and offered her
an opportunity to respond. Representative Schmidt submitted a
response to OCE's Report and Findings on May 27, 2011.\50\
---------------------------------------------------------------------------
\47\Report and Findings In the Matter of Representative Jean
Schmidt, OCE Review No. 11-6574, May 18, 2011.
\48\Id.
\49\Id.
\50\Schmidt Letter to Committee, May 27, 2011.
---------------------------------------------------------------------------
The Committee conducted an independent investigation into
the matters in the OCE referral pursuant to House Rule XI,
clause 3(b)(1)(B)(ii), and Committee Rule 18(a), which
authorizes the Chairman and Ranking Member to jointly gather
additional information concerning such an alleged violation by
a Member, officer, or employee unless and until an
investigative subcommittee has been established.
The investigations by OCE and the Committee revealed that
TALDF was first formed around 2007, but it is not an
independent corporate entity.\51\ Instead, TALDF is under the
umbrella of TCA.\52\ TCA is an Internal Revenue Code section
501(c)(3) organization, which has employed registered federal
lobbyists under the Lobbying Disclosure Act in the past.\53\
Lawyers associated with TALDF have represented between six and
twelve clients in TALDF-related matters since its inception in
2007.\54\ The lawyers associated with TALDF have had retainer
agreements with each of these clients, except for
Representative Schmidt.\55\
---------------------------------------------------------------------------
\51\Fein Tr. at 3.
\52\Id.
\53\Lobbying Disclosure Act filings reflect individuals registered
to lobby on behalf of TCA in 2008, but that registration was terminated
as of December 31, 2008.
\54\Fein Tr. at 6.
\55\Id. at 12-13.
---------------------------------------------------------------------------
Mr. Fein and Mr. Saltzman are the primary attorneys
associated with TALDF.\56\ Occasionally, TALDF will use
additional lawyers, if, for example, the representation
requires local counsel.\57\ Mr. Fein and Mr. Saltzman used
local counsel in their work for Representative Schmidt.\58\ Mr.
Fein and Mr. Saltzman are not employees of TALDF or TCA, and
they do not receive a salary from either entity.\59\ They each
work for their own law firms: Bruce Fein & Associates and
Saltzman & Evinch, P.C., respectively.\60\ This appears to be
inconsistent with the statement in the reply brief supporting
Mr. Fein's admission pro hac vice that Mr. Fein was a ``senior
counsel at the Turkish American Legal Defense Fund.''\61\
---------------------------------------------------------------------------
\56\Id. at 3.
\57\Id.
\58\Id.
\59\Id.
\60\Id. at 4.
\61\Id. at 14-15.
---------------------------------------------------------------------------
Mr. Fein and Mr. Saltzman have never charged the people
whom they have represented in their TALDF-related matters for
their legal services.\62\ Instead, Mr. Fein and Mr. Saltzman
send monthly bills to TCA for their TALDF-related legal work
through their respective law firms.\63\ This is the standard
arrangement for all TALDF-related legal work.\64\ Occasionally,
Mr. Fein and Mr. Saltzman will enter into what Mr. Fein
described as a ``contingency fee arrangement'' with the people
whom they have represented in their TALDF-related matters.\65\
Under these agreements, TALDF and the individual represented by
Mr. Fein and Mr. Saltzman agree to split the proceeds of any
damage award received as a result of a lawsuit brought by Mr.
Fein and Mr. Saltzman.\66\ Because TALDF is not a separate
corporate entity, its portion of any award would go to TCA.\67\
In this context, however, the phrase ``contingency fee'' is a
misnomer as Mr. Fein's and Mr. Saltzman's receipt of their fees
is never contingent on the outcome of a matter, but would be
paid as billed by Mr. Fein and Mr. Saltzman on an ongoing
basis, regardless of the result of the action.\68\ It was this
arrangement that Mr. Fein suggested to Representative Schmidt
in 2009,\69\ and for which Representative Schmidt sought
Committee approval. The Committee did not understand the nature
of the misnamed ``contingency fee'' arrangement until its
interview of Mr. Fein following the referral of the matter by
OCE.
---------------------------------------------------------------------------
\62\Id. at 9.
\63\Id. at 4.
\64\Id. at 5.
\65\Id. at 8.
\66\Id. at 9.
\67\Id.
\68\Id.
\69\Id. at 31.
---------------------------------------------------------------------------
Both Representative Schmidt and Mr. Bennett told the
Committee that she was never made aware of this payment
arrangement with TCA, and Mr. Fein confirmed that he never
discussed the payment arrangement with Representative Schmidt
or any member of her staff.\70\ Thus, the evidence suggests
that Representative Schmidt did not have knowledge of the
details of TCA's financial relationship with Mr. Fein and Mr.
Saltzman, or the fact that the contingency fee proposal did not
actually cover the lawyer's fees, at any time prior to the
Committee's discovery of the relationship following the
referral of the matter by OCE. The fact of the payment
arrangement was material to the Committee's guidance on this
matter, and if the Committee had given Representative Schmidt
guidance without being aware of this arrangement, the guidance
would not have been correct or binding on the Committee.\71\
---------------------------------------------------------------------------
\70\Fein Tr. at 17-18; Bennett Tr. at 17.
\71\See House Comm. on Standards of Official Conduct, In the Matter
of the Investigation into Officially Connected Travel of House Members
to Attend the Carib News Foundation Multinational Business Conferences
in 2007 and 2008, H. Rep. 111-422, 111th Cong., 2d Sess. 2 (2010).
---------------------------------------------------------------------------
Mr. Bennett told the Committee that he never viewed a
contingency fee arrangement to be a realistic possibility.\72\
Instead, Mr. Bennett stated that in Representative Schmidt's
prior matters before the Ohio Elections Commission, the
ordinary practice had been for the law firm representing
Representative Schmidt to not provide monthly or quarterly
bills, but instead to submit one bill at the end of the
proceeding.\73\ Mr. Bennett stated that he had no reason to
suspect that the billing arrangement for this matter would be
any different.\74\ This appears to be inconsistent with Mr.
Bennett's deposition testimony in the matter before the Ohio
Elections Commission.\75\ However, during the Committee's
independent investigation, he explained that he never meant to
imply that Representative Schmidt was not planning to pay the
lawyers' fees.\76\ Instead, Mr. Bennett stated:
---------------------------------------------------------------------------
\72\Bennett Tr. at 19.
\73\Id. at 5.
\74\Id.
\75\Bennett Deposition at 49 (``Q. And there's no ethics issue
associated with Turkish American Legal Defense Funds paying for Ms.
Schmidt's legal fees? A. No, not that I'm aware of.'').
\76\Bennett Tr. at 22.
No. I take from [the deposition testimony] that [TALDF]
were clearly covering costs, like any law firm would
cover costs. And then you get a bill. You know, every
lawyer I know gets paid every 2 weeks whether or not
his client has paid or not. So I take that to mean yes,
you know, they are covering these costs or whatever,
and they are going to bill us for them. Now it's
illogical that I could ever think that they were going
to do this for free . . . [b]ecause it would clearly be
either use of House money to furtherance [sic] your
official capacity, an illegal campaign contribution, or
some hybrid of both.\77\
---------------------------------------------------------------------------
\77\Id.
---------------------------------------------------------------------------
III. FINDINGS AND CONCLUSIONS
Following the Committee's investigation and nearly two
years of guidance to Representative Jean Schmidt through the
Committee's Office of Advice and Education, the Committee
reached the following findings and conclusions.
A. COMMITTEE'S RESPONSE TO REQUESTS FOR GUIDANCE
Based on Representative Schmidt's statements to the
Committee, the evidence gathered by OCE, and the Committee's
independent investigation, the Committee approved the use of
funds from the Jean Schmidt Legal Expense Trust to pay legal
bills incurred in connection with Representative Schmidt's
complaint before the Ohio Elections Commission and the
defamation action, subject to certain restrictions discussed
below. However, the Committee denied the use of funds from the
Jean Schmidt Legal Expense Trust to pay legal bills incurred in
connection with amicus briefs filed in Krikorian v. Ohio
Elections Commission. Additionally, the Committee has
determined that Representative Schmidt's use of campaign funds
to pay for the Ohio Elections Commission matter, the defamation
action, and the amicus briefs filed in the Krikorian v. Ohio
Elections Commission matter would not violate the House rules,
subject to the restrictions below. However, the Committee
advised Representative Schmidt to consult with the Federal
Election Commission before using campaign funds for any of
these purposes.\78\ Finally, the Committee denied permission to
enter into the so-called ``contingency fee'' arrangement.
---------------------------------------------------------------------------
\78\The legal services provided by the lawyers associated with
TALDF were not provided on a pro bono basis, and were not contingent on
the outcome of the case. Thus, the Committee does not express an
opinion on whether the services could be provided on a pro bono basis
or under a contingency fee agreement, as the underlying facts would not
support either arrangement.
---------------------------------------------------------------------------
1. Legal Expense Trust Fund
a. Legal background
Under a provision of the gift rule, a Member, officer, or
employee may accept ``a contribution or other payment to a
legal expense fund established for the benefit of [the
official] that is otherwise lawfully made in accordance with
the restrictions and disclosure requirements of the Committee
on Ethics.''\79\ Under the Committee's Legal Expense Fund
Regulations (LEF Regulations), a Member may not receive or
solicit donations to such a fund without prior approval of the
trust agreement by the Committee.\80\
---------------------------------------------------------------------------
\79\See House Rule 25, clause 5(a)(3)(E). See generally 2008 House
Ethics Manual at 63-65.
\80\LEF Regulations para.para.1, 11.
---------------------------------------------------------------------------
Under the Committee's LEF Regulations, a fund may be
established only when the legal expenses arise in connection
with one of the following matters:
The individual's candidacy for or election
to federal office;
The individual's official duties or position
in Congress (including a matter before the Ethics
Committee);
A criminal prosecution; or
A civil matter bearing on the individual's
reputation or fitness for office.\81\
---------------------------------------------------------------------------
\81\LEF Regulations para.2.
---------------------------------------------------------------------------
The Committee will not grant permission to establish a fund
when legal expenses arise in connection with a matter that is
primarily personal in nature, such as a matrimonial action.\82\
The rules governing the operation of a legal expense fund
include:
---------------------------------------------------------------------------
\82\LEF Regulations para.3.
---------------------------------------------------------------------------
No contribution may be solicited for or
accepted by a fund prior to the Committee's written
approval of the completed trust document and the
trustee;\83\
---------------------------------------------------------------------------
\83\LEF Regulations para.11.
---------------------------------------------------------------------------
A fund must be established as a trust,
administered by a trustee who is entirely independent
of the Member and has no family, business, or
employment relationship with the Member;\84\
---------------------------------------------------------------------------
\84\LEF Regulations para.para.5-6.
---------------------------------------------------------------------------
Trust funds may be used only to pay legal
expenses, or the expenses incurred in soliciting for or
administering the trust;\85\
---------------------------------------------------------------------------
\85\LEF Regulations para.7.
---------------------------------------------------------------------------
A fund may not accept more than $5,000 in a
calendar year from any individual or organization, but,
in accordance with the gift rule, no contribution may
be accepted from a registered lobbyist or foreign
agent;\86\
---------------------------------------------------------------------------
\86\LEF Regulations para.para.8-9.
---------------------------------------------------------------------------
Excess funds must be returned to the
contributors;\87\ and
---------------------------------------------------------------------------
\87\LEF Regulations para.7.
---------------------------------------------------------------------------
A fund may not pay for legal services for
anyone other than the named beneficiary except with the
Committee's written permission. Written Committee
permission is also required for any amendment of the
trust document and any change in the trustee.\88\
---------------------------------------------------------------------------
\88\LEF Regulations para.11.
---------------------------------------------------------------------------
Once a legal expense trust agreement has been approved by
the Committee, the Member must file an executed copy with the
Legislative Resource Center of the Office of the Clerk, for
placement on the public record.\89\ In addition, Members must
file quarterly reports on the public record regarding certain
contributions and expenditures under the LEF Regulations.\90\
---------------------------------------------------------------------------
\89\LEF Regulations para.12.
\90\LEF Regulations para.13.
---------------------------------------------------------------------------
b. Analysis
The trustee named in the agreement for the Jean Schmidt
Legal Expense Trust is Mr. Larry Neuman, Esq., of Cincinnati,
Ohio. According to Representative Schmidt's representations to
the Committee, Representative Schmidt has no family, business,
or employment relationship with Mr. Neuman. Representative
Schmidt's representations to the Committee further indicate
that the trust funds will be used to pay legal expenses
incurred in connection with a legal action directly related to
Representative Schmidt's candidacy for federal office in 2008
and matters bearing upon her reputation and fitness for office.
Recital A of the trust agreement indicates that the purpose of
the Legal Expense Fund is to pay expenses incurred in
connection with Representative Schmidt's official duties and
position in Congress and matters bearing on her reputation and
fitness for office. Pursuant to Representative Schmidt's
correspondence with the Committee, it is the Committee's
understanding that the specific purpose of the trust is to pay
legal expenses that Representative Schmidt incurred by filing a
complaint with the Ohio Elections Commission regarding false
campaign statements and her amicus filing in Krikorian v. Ohio
Elections Commission.
The Committee therefore approved the use of funds from the
Jean Schmidt Legal Expense Trust provided by Representative
Schmidt to pay for the legal expenses incurred in filing the
complaint before the Ohio Elections Commission and the appeal
of that decision in the Ohio state courts.
The Committee denied the use of funds from the Jean Schmidt
Legal Expense Trust to pay for legal costs incurred filing
amicus briefs in the federal court action. At its core, Mr.
Krikorian's legal action was a constitutional challenge to a
state statute. Mr. Krikorian wanted permission to utter any
statement regarding any opponent in the course of an election
campaign because he viewed it as political speech. As
Representative Schmidt noted in the Complaint in her defamation
action, Mr. Krikorian also made controversial statements
regarding his opponent during the course of the 2010 Democratic
primary campaign. If Mr. Krikorian's case had survived, the
Court would ultimately have decided if the statute was
constitutional and if it was preempted by federal law.
Representative Schmidt's 2008 election and the statements Mr.
Krikorian made about her were only relevant in this matter as
factual background, and they were not part of the core legal
issues to be decided. As a result, the legal expenses related
to this matter were not incurred adjudicating matters in
connection with her candidacy for office, her official duties,
or her reputation and fitness for office, and a legal expense
trust may not be used.
Representative Schmidt's defamation action is related to
her election for office and reputation and fitness as a Member
of Congress. As a result, Representative Schmidt met the first
criterion to use a legal expense fund under the LEF Regulations
and House Rules. There is, however, a challenge to using a
legal expense fund to pay expenses related to the defamation
case in that Representative Schmidt is seeking monetary damages
in her personal capacity. Seeking monetary damages makes it
appear as if the suit is personal in nature. The Committee
believes this defect can be cured.
The Committee will approve Representative Schmidt's use of
a legal expense fund to pay for expenses related to the
defamation action under the following conditions: (1) any
damages award will first be used to defray the cost of
litigation; (2) any remaining damages award will be used to
repay donors to the Jean Schmidt Legal Expense Trust; (3) any
additional amount will be donated to a nonprofit organization
organized under Sec. 501(c)(3) of the Internal Revenue Code;
and (4) Representative Schmidt represents to the Committee in
writing that she will receive no direct or indirect financial
benefit from the lawsuit.\91\
---------------------------------------------------------------------------
\91\See Federal Election Commission, AO 1997-27, at 3 (February 23,
1998). ``For example, to the extent that the effect of the charitable
deduction would provide more that 100 percent offset to the additional
taxable income, that part of the deduction may not be taken.''
---------------------------------------------------------------------------
In accordance with paragraph 12 of the LEF Regulations,
Representative Schmidt must file a copy of the executed trust
agreement with the Legislative Resource Center (B-106 Cannon
House Office Building) within one week of Committee approval.
In accordance with LEF Regulation 13, Representative Schmidt
(not the trustee) is responsible for filing quarterly reports
with the Committee regarding certain receipts and expenditures.
The original version of Representative Schmidt's quarterly
reports must be filed with the Committee and a copy must also
be filed with the Legislative Resource Center for public
disclosure. In addition to the quarterly reports, any
contributions of more than $350 in a calendar year from a
single source (other than a relative) must also be disclosed on
Schedule VI of Representative Schmidt's annual Financial
Disclosure Statement.
2. Campaign Funds
a. Legal background
The Committee has long advised Members to consult with the
Committee prior to using campaign funds for legal expenses to
ensure that the legal services are ones that the Member may
properly pay with campaign funds. House Rule 23, clause 6,
provides as follows:
A Member, Delegate, or Resident Commissioner--
(a) shall keep the campaign funds of such individual
separate from the personal funds of such individual;
(b) may not convert campaign funds to personal use in
excess of an amount representing reimbursement for
legitimate and verifiable campaign expenditures; and
(c) except as provided in clause 1(b) of rule [24],
may not expend funds from a campaign account of such
individual that are not attributable to bona fide
campaign or political purposes.
While the rule permits the use of campaign funds for ``bona
fide campaign or political purposes,'' it does not include a
definition of that phrase. The Committee has long advised that
Members have wide discretion to determine whether any
particular expenditure would serve such purposes, provided that
the Member does not convert campaign funds to personal or
official uses (other than as permitted by House Rule 24, clause
1(b)).\92\ Put another way, the rule is not interpreted ``to
limit the use of campaign funds strictly to a Member's
reelection campaign,'' but instead is interpreted ``broadly to
encompass the traditional politically-related activities of
Members of Congress.''\93\
---------------------------------------------------------------------------
\92\See Comm. on Standards of Official Conduct, Advisory Opinion
No. 6, reprinted in Appendix to 2008 House Ethics Manuat at 375, 376.
\93\House Select Comm. on Ethics, Final Report, H. Rep. 95-1837,
95th Cong., 2d Sess. 16 (1979).
---------------------------------------------------------------------------
In accordance with these principles, the Committee has
determined that it is generally permissible under House rules
for a Member to use campaign funds to pay for the Member's own
legal fees which arise in connection with the Member's
campaign, election, or the performance of official duties.\94\
---------------------------------------------------------------------------
\94\See 2008 House Ethics Manual at 156-57.
---------------------------------------------------------------------------
Pursuant to the Federal Election Campaign Act, the FEC
administers a separate set of restrictions on the use of
campaign funds. Although our understanding is that the FEC
generally permits the use of campaign funds and the
establishment of legal expense funds for legal expenses arising
out of a Member's congressional campaign and official duties,
interpretation of FEC regulations is outside this Committee's
jurisdiction. As a result, the Committee traditionally
encourages all Members to consult with the FEC to determine
whether use of campaign funds is permissible under the
applicable law and regulations.
b. Analysis
The Ohio Elections Commission matter and Representative
Schmidt's defamation action are related to her election for
office and reputation and fitness as a Member and, as a result,
Representative Schmidt met that criterion to use campaign funds
under the House rules. With respect to the defamation matter,
however, Representative Schmidt faces the same challenge to
using campaign funds to pay expenses that she has with the use
of a legal expense fund in that Representative Schmidt is
seeking monetary damages in her personal capacity. Seeking
monetary damages makes it appear as if Representative Schmidt
would be converting campaign funds for her personal use.
The Committee notes that in 1998, Representative John
Boehner sought an opinion from the FEC regarding the use of
campaign funds to pay for legal expenses incurred in connection
with his lawsuit against Representative James McDermott, in
which he was seeking monetary damages.\95\ The FEC permitted
Representative Boehner to pay his legal expenses with campaign
funds under the following conditions: (1) any damages award
first defrayed the cost of litigation; (2) any additional
amount be donated to charity; and (3) Representative Boehner
had to represent he would receive no direct or indirect
financial benefit from the lawsuit.\96\
---------------------------------------------------------------------------
\95\See Federal Election Commission, AO 1997-27 (February 23,
1998).
\96\See id. at 3. ``For example, to the extent that the effect of
the charitable deduction would provide more that 100 percent offset to
the additional taxable income, that part of the deduction may not be
taken.''
---------------------------------------------------------------------------
The Committee notes that Representative Schmidt may be able
to reach a similar arrangement with the FEC in this instance.
Committee staff has been informed by FEC staff that that they
do not provide the advisory opinion given to Representative
Boehner to other individuals because it is so fact specific
that it should not be relied on by anyone other than
Representative Boehner. As a result, the Committee strongly
urges Representative Schmidt to seek an advisory opinion from
the FEC before using campaign funds to pay legal expenses
related to the defamation action.
With respect to the amicus brief filed in Krikorian v. Ohio
Elections Commission, although the Committee does not perceive
that matter as either pertaining to Representative Schmidt's
candidacy for federal office or bearing on her reputation and
fitness for office, this view may not be shared by the FEC and
would not foreclose Representative Schmidt's ability to seek an
FEC advisory opinion regarding whether one may use campaign
funds to pay for legal expenses related to this matter. If
Representative Schmidt wanted to proceed with using campaign
funds to pay for this action, the Committee strongly urges
Representative Schmidt to seek an advisory opinion from the FEC
before doing so.
B. COMMITTEE'S DISPOSITION OF THE OCE REFERRAL
Based on the evidence examined by the Committee, it appears
that the arrangement whereby the lawyers associated with TALDF
sent bills for their legal representation of Representative
Schmidt to TCA, which TCA then paid, constituted an improper
gift from TCA to Representative Schmidt. According to OCE's
referral, between 2008 and 2010 TCA actually paid the TALDF
lawyers approximately $500,000 for legal services provided to
Representative Schmidt. Neither the Committee nor, according to
the evidence, Representative Schmidt was aware of these
payments when the Committee provided advice to Representative
Schmidt regarding her options for paying legal fees in the
various proceedings.
Thus, the Committee will not dismiss the allegations in the
OCE referral. As explained below, however, the Committee does
not see the need to empanel an investigative subcommittee at
this time. The Committee does not believe that further fact-
gathering is necessary, and, given the evidence that
Representative Schmidt did not know of the payment arrangement
between TCA and the lawyers associated with TALDF, the
Committee does not believe that any sanction is necessary.
However, in order to remedy the actual, even if unknown,
receipt of an impermissible gift, both disclosure and repayment
of the gift are necessary. Thus, Representative Schmidt must
ensure that TCA does not pay for any additional future legal
services on her behalf. In addition, subject to the guidance
below, Representative Schmidt must pay the lawyers associated
with TALDF, from a permissible source, for all legal services
they have performed on her behalf to date. Furthermore, this
remedy will only be sufficient if Mr. Fein and Mr. Saltzman and
any other attorney who was actually paid with TCA funds, first
agree that, as Representative Schmidt pays them directly, they
will repay to TCA the fees TCA originally paid to them for
their representation of Representative Schmidt. Such an
agreement must be in writing and submitted to the Committee.
Representative Schmidt must also amend her annual Financial
Disclosure Statements for calendar years 2009 and 2010 to
disclose the gifts from TCA. Finally, Representative Schmidt
must disclose any gifts from TCA on her future Financial
Disclosure Statements, until the lawyers associated with TALDF
have been repaid in full.\97\
---------------------------------------------------------------------------
\97\It is not necessary for Representative Schmidt to file an
actual amended Financial Disclosure Statement. Instead, it would be
acceptable for her to submit a letter to the Clerk detailing the
source, description, and value of the legal services. This is an option
available to any filer when amending their Financial Disclosure
Statement.
---------------------------------------------------------------------------
1. Improper Gift
As noted above, Members may not accept any gift, except as
specifically permitted by House rules.\98\ The definition of
gift expressly includes gifts of services, and thus the value
of legal services provided to a Member at no cost would be
deemed to be a gift under the gift rule.\99\ Each time TCA paid
the legal fees of the lawyers associated with TALDF in
connection with their representation of Representative Schmidt,
that payment was a gift to her. There is no exception to the
gift rule that would permit Representative Schmidt to accept
this gift, and thus this arrangement was a violation of House
Rules. Indeed, even if Representative Schmidt had reimbursed
TCA the next day for its payment to the lawyers associated with
TALDF for their representation of her, TCA's payments would be
considered a loan, and thus an improper gift.
---------------------------------------------------------------------------
\98\House Rule 25, cl. 5(a)(1)(A)(i); see also House Rule 23, cl.
4.
\99\As a general matter, the amount of any discount on the cost of
legal fees offered to a Member based on that individual's official
status would be deemed a gift for purposes of the gift rule. See House
Rule 25, cl. 5(a)(2)(A).
---------------------------------------------------------------------------
However, the evidence indicates that Representative Schmidt
did not have knowledge of the specific payment arrangement
between TCA and the lawyers associated with TALDF. Both
Representative Schmidt and Mr. Bennett told the Committee that
she was never made aware of the payment arrangement, and Mr.
Fein confirms that he never discussed the payment arrangement
with Representative Schmidt or any member of her staff.\100\
Furthermore, the Committee has not seen any document suggesting
that Representative Schmidt or her staff knew of the payment
arrangement.
---------------------------------------------------------------------------
\100\Fein Tr. at 17-18.
---------------------------------------------------------------------------
The Committee further notes, however, that none of the
lawyers associated with TALDF submitted any bills to
Representative Schmidt. This was true even during the five
months that the lawyers associated with TALDF represented
Representative Schmidt before she sought the Committee's
guidance on how to pay for their legal services.\101\ Mr. Fein
stated that he has never billed the individuals he represents
in TALDF-related matters, and that he always submits those
legal bills to TCA. Mr. Fein further stated it was his
intention not to charge Representative Schmidt for the TALDF-
related legal services, and that instead, TALDF would accept
half of any damages award she received, as part of a
``contingency fee'' arrangement.\102\ Mr. Bennett, however,
stated that he never viewed a contingency fee arrangement to be
a realistic possibility.\103\ Instead, Mr. Bennett stated that
in Representative Schmidt's prior matters before the Ohio
Elections Commission, the practice had been for the law firm
representing Representative Schmidt to not provide monthly or
quarterly bills, and instead to submit one bill at the end of
the proceeding.\104\ Mr. Bennett stated that he had no reason
to suspect that this matter would be any different.\105\
---------------------------------------------------------------------------
\101\Id. at 17.
\102\Id. at 31.
\103\Bennett Tr. at 17.
\104\Id.
\105\Id.
---------------------------------------------------------------------------
The Committee is troubled that the lawyers associated with
TALDF never disclosed their payment arrangement with TCA to
Representative Schmidt. Such disclosure likely would have made
this investigation unnecessary. While the Committee believes
that the payment arrangement between TCA and Representative
Schmidt's lawyers should have been disclosed from the beginning
of their representation of her, the Committee is particularly
concerned that Representative Schmidt's lawyers did not
disclose the payment arrangement to her even after Mr.
Krikorian's lawyers raised the issue of TALDF providing
Representative Schmidt free legal services, or after the Ohio
Court of Common Pleas denied Mr. Fein's motion to be admitted
pro hac vice.
These legal maneuverings should have prompted
Representative Schmidt's lawyers to have a fuller discussion
with her regarding the payment arrangements for their legal
services. However, it does not appear that Mr. Krikorian's
allegations that TALDF was offering free legal services should
have put Representative Schmidt on notice that her lawyers were
not employees of TALDF or TCA and were instead outside counsel
submitting regular bills to TCA. Mr. Krikorian only asserted
that Representative Schmidt's arrangement with her lawyers was
improper because her lawyers had not yet provided
Representative Schmidt with a legal bill. And when Mr.
Krikorian made this allegation in the depositions of Mr. Fein
and Mr. Bennett, Representative Schmidt appropriately responded
by seeking the guidance of the Committee. Thus, Representative
Schmidt was aware that she had not yet received a bill because
she was working in good faith with the Committee to ascertain
the appropriate means by which to pay her attorneys. Further,
Mr. Fein and Representative Schmidt's other lawyers did not
state that they were not employees of TALDF or TCA and were
instead outside counsel submitting regular bills to TCA.
Instead, they specifically asserted that they were ``senior
counsel at the Turkish American Legal Defense Fund[.]''\106\
This statement appears to be inconsistent with the fact that
Representative Schmidt's lawyers were not employees of TALDF or
TCA and were instead outside counsel submitting regular bills
to TCA.
---------------------------------------------------------------------------
\106\Id. at 14-15.
---------------------------------------------------------------------------
The Committee notes that Representative Schmidt never
finalized an engagement agreement with the lawyers associated
with TALDF, including in the five months before she sought the
Committee's guidance.\107\ Such an agreement may have provided
further clarity regarding the relationships between
Representative Schmidt's lawyers, TALDF, and TCA. It would have
been preferable, in this case, for Representative Schmidt to
have (1) entered into a written agreement with her lawyers at
the beginning of each matter; or (2) absent such an agreement,
inquired of her lawyers about the payment for ongoing legal
services. It is for this reason, among others, that the
Committee strongly encourages all Members to enter into written
agreements with lawyers representing Members, and for Members
to seek the guidance of both the Committee and the FEC before
spending campaign funds on legal representation.\108\
---------------------------------------------------------------------------
\107\The Committee notes that shortly after Mr. Krikorian's lawyers
raised the issue of TALDF (not TCA) providing free legal services to
Representative Schmidt, she sought the guidance of the Committee
regarding this issue.
\108\2008 House Ethics Manual at 157.
---------------------------------------------------------------------------
Even if Representative Schmidt did not know that TCA was
paying these legal fees on her behalf, the payments still
constituted gifts to her. The Committee was not aware that TCA
was paying legal fees on Representative Schmidt's behalf until
it conducted an independent investigation following the OCE
referral. If the Committee had given Representative Schmidt
guidance regarding the payment of these legal expenses based on
an incorrect understanding of the nature of the fee
arrangement, the Committee's guidance would have been invalid
and would not have protected Representative Schmidt from a
charge that she received an improper gift.\109\
---------------------------------------------------------------------------
\109\See House Comm. on Standards of Official Conduct, In the
Matter of the Investigation into Officially Connected Travel of House
Members to Attend the Carib News Foundation Multinational Business
Conferences in 2007 and 2008, H. Rep. 111-422, 111th Cong., 2d Sess. 2
(2010).
---------------------------------------------------------------------------
Representative Schmidt and her staff have consistently
stated that it is her intention to pay the legal fees of the
lawyers associated with TALDF.\110\ The Committee has now given
her guidance on permissible methods to pay for the TALDF-
related legal fees.\111\ While it was appropriate for
Representative Schmidt not to pay the legal fees while she was
waiting for guidance from the Committee, those fees must now be
paid. Furthermore, because it is inappropriate for TCA to pay
legal fees on Representative Schmidt's behalf and then be
reimbursed by her, Representative Schmidt's payments must be
made directly to the lawyers associated with TALDF for all fees
incurred in their representation of her.
---------------------------------------------------------------------------
\110\41 CFR Sec. 102-42.10 (2011).
\111\The Committee notes that Representative Schmidt would also be
permitted to pay for any of these legal services with her own personal
funds.
---------------------------------------------------------------------------
The Committee recognizes that the lawyers associated with
TALDF have been representing Representative Schmidt for more
than two years, in at least three different legal proceedings,
and the legal fees for this work are substantial. For this
reason, the Committee does not expect Representative Schmidt to
fully pay the lawyers associated with TALDF immediately.
However, Representative Schmidt must ensure that TCA does not
make any further payments on her behalf to the lawyers
associated with TALDF, and Representative Schmidt must begin
paying the lawyers associated with TALDF as soon as funds are
available. Furthermore, this remedy will only be sufficient if
Mr. Fein and Mr. Saltzman and any other attorney actually paid
with TCA funds, first agree to repay all TCA funds as they
receive Representative Schmidt's payments. Additionally, the
Committee notes that it did not approve the use of LEF funds
for fees related to the amicus brief. Thus, Representative
Schmidt must pay for any fees the attorneys billed and TCA paid
for work on the amicus brief using appropriate funds other than
the LEF funds. She must pay those fees immediately and provide
the Committee with a cancelled check as proof of payment of the
legal services related to the amicus brief. Until
Representative Schmidt has paid the lawyers associated with
TALDF for all fees originally paid by TCA, Representative
Schmidt must disclose on Schedule V of her annual Financial
Disclosure Statement all outstanding TALDF-related fees which
were originally paid by TCA.
2. Disclosure of Improper Gifts
The Ethics in Government Act (EIGA) requires disclosure of
gifts received during the year, from someone other than a
relative, whose aggregate value exceeds ``minimal value,'' as
defined by that statute. For 2009 and 2010, ``minimal value''
was defined as $335, but gifts valued below $134 need not be
counted towards the limit.\112\ This disclosure is made on
Schedule VI of a Member's annual Financial Disclosure
Statement. TCA's payment of legal services on Representative
Schmidt's behalf was a gift whose aggregate value exceeded
$335. These payments were not disclosed on Representative
Schmidt's Financial Disclosure Statements covering calendar
years 2009 and 2010. Given that Representative Schmidt was not
aware of the gifts, it is not surprising that she did not
disclose them. However, now that Representative Schmidt is
aware of the gifts, she must amend her Financial Disclosure
Statements to disclose the payments by TCA of legal services on
her behalf.
---------------------------------------------------------------------------
\112\Minimal value for purposes of disclosure under EIGA is the
same as that for the Foreign Gifts and Decorations Act, 5 U.S.C.
Sec. 7342(a)(5). Pursuant to that statute, the General Services
Administration sets the minimal value every three years. Minimal value
for calendar years 2008 until 2011 was $335. See 73 Fed. Reg. 7475
(Feb. 8, 2008). Minimal value for calendar years 2011 until 2014 is
$350. See 76 Fed. Reg. 30551 (May 26, 2011).
---------------------------------------------------------------------------
The Committee directed the Chairman, upon providing the
notices required pursuant to House Rule XI, clause 3(b)(8)(A),
and Committee Rule 17A(b)(2), to file this Report with the
House, and copies of OCE's Report and Findings in this matter,
along with any response filed, all of which are made a part of
this Report and appended hereto.\113\ The filing of this
Report, along with its publication on the Committee's Web site,
shall serve as publication of OCE's Report and Findings in this
matter, pursuant to House Rule XI, clause 3(b)(8)(A), and
Committee Rule 17A(b)(3) and 17A(c)(2).
---------------------------------------------------------------------------
\113\See House Rule XI, clauses 3(a)(2) and 3(b).
---------------------------------------------------------------------------
IV. STATEMENT UNDER RULE 13, CLAUSE 3(c) OF THE RULES OF THE HOUSE OF
REPRESENTATIVES
The Committee made no special oversight findings in this
Report. No budget statement is submitted. No funding is
authorized by any measure in this Report.