[Federal Register Volume 70, Number 21 (Wednesday, February 2, 2005)]
[Proposed Rules]
[Pages 5382-5385]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-1892]


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FEDERAL ELECTION COMMISSION

11 CFR Parts 109 and 300

[Notice 2005-3]


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

AGENCY: Federal Election Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Election Commission requests comments on the 
proposed revision of the definition of ``agent'' for its regulations on 
coordinated and independent expenditures, and non-Federal funds, which 
are commonly referred to as ``soft money.'' Current Commission 
regulations define agent as ``any person who has actual authority, 
either express or implied'' to perform certain actions. This definition 
does not include persons acting only with apparent authority. The 
Commission's regulations defining agent were challenged in Shays v. 
FEC. The District Court held that the Commission's definitions of agent 
did not necessarily run contrary to Congress's intent and were based on 
a permissible construction of the statute. However, the court also held 
that the Commission had not provided adequate explanation of its 
decision to exclude from the definition of agent persons acting only 
with apparent authority and therefore had not satisfied the reasoned 
analysis requirement of the Administrative Procedures Act. The court 
remanded the regulations to the Commission for further action 
consistent with the court's opinion. Accordingly, in order to comply 
with the court's decision, the Commission now revisits the definition 
of agent by issuing this Notice of Proposed Rulemaking. No final 
decision has been made by the Commission on the issues presented in 
this rulemaking. Further information is provided in the supplementary 
information that follows.

DATES: Comments must be received on or before March 4, 2005. If the

[[Page 5383]]

Commission receives sufficient requests to testify, it may hold a 
hearing on these proposed rules. Commenters wishing to testify at the 
hearing must so indicate in their written or electronic comments.

ADDRESSES: All comments should be addressed to Mr. Brad C. Deutsch, 
Assistant General Counsel, and must be submitted in either electronic 
or written form. Commenters are strongly encouraged to submit comments 
electronically to ensure timely receipt and consideration. Electronic 
mail comments should be sent to [email protected] and may also be 
submitted through the Federal eRegulations Portal at http://www.regulations.gov. All electronic comments must include the full 
name, electronic mail address, and postal service address of the 
commenter. Electronic comments that do not contain the full name, 
electronic mail address, and postal service address of the commenter 
will not be considered. If the electronic comments include an 
attachment, the attachment must be in the Adobe Acrobat (.pdf) or 
Microsoft Word (.doc) format. Faxed comments should be sent to (202) 
219-3923, with printed copy follow-up. Written comments and printed 
copies of faxed comments should be sent to the Federal Election 
Commission, 999 E Street, NW., Washington, DC 20463. The Commission 
will post public comments on its Web site. If the Commission decides 
that a hearing is necessary, the hearing will be held in the 
Commission's ninth floor meeting room, 999 E Street, NW., Washington, 
DC.

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 (March 27, 2002) (``BCRA''), contained 
extensive and detailed amendments to the Federal Election Campaign Act 
of 1971, as amended, 2 U.S.C. 431 et seq. (the ``Act''). On July 29, 
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 Regulations on Prohibited and Excessive 
Contributions; Non-Federal Funds or Soft Money, 67 FR 49064 (July 29, 
2002) (``Soft Money E&J''). On January 3, 2003, the Commission 
promulgated regulations 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 and regarding expenditures by 
political party committees that are made either in coordination with, 
or independently from, candidates. Final Rules and Explanation and 
Justification for Regulations on Coordinated and Independent 
Expenditures, 68 FR 421 (Jan. 3, 2003) (``Coordination E&J'').
    Many of the regulations promulgated in these two rulemakings apply 
not only to principals, such as a candidate or party committee, but 
also to their agents. 67 FR at 49081-82; 68 FR at 421-22. Accordingly, 
in each rulemaking the Commission adopted a definition of the term 
``agent.'' 67 FR at 49081-83; 68 FR at 423-25. The two identical 
definitions provide that an agent is ``any person who has actual 
authority, either express or implied'' to perform certain actions. See 
11 CFR 109.3 and 300.2(b). The definitions do not include persons 
acting only with apparent authority.
    Subsequently, in Shays v. FEC, 337 F.Supp.2d 28 (D.D.C. 2004), 
appeal filed, No. 04-5352 (D.C. Cir. Sept. 28, 2004) (``Shays''), the 
district court held that the Commission had not satisfied the reasoned 
analysis requirement of the Administrative Procedures Act (``APA'') 
because the Commission had not provided adequate explanation of its 
decision to exclude from the definition of agent persons acting only 
with apparent authority.\1\ The court based its conclusion that the 
Explanations and Justifications for the Commission's definitions of 
agent did not satisfy APA requirements on three grounds. First, the 
court found that the Commission had not explained why its former 
definition of agent, which pre-dated BCRA and which had included a 
definition that covered certain aspects of apparent authority, should 
be changed. 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 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 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 both definitions to the Commission for further 
action consistent with its opinion. Id. at 130. Accordingly, in order 
to comply with the court's decision in Shays, the Commission is now 
issuing this Notice of Proposed Rulemaking (``NPRM'') on the definition 
of agent. For reasons explained in more detail below, the Commission 
proposes to revise its regulations to include persons acting with 
apparent authority in its definitions of agent at 11 CFR 109.3 and 
300.2(b). The Commission may nonetheless determine after the comment 
period to retain the current definitions of agent, which exclude 
apparent authority. Accordingly, this NPRM seeks comment both on 
whether apparent authority should be added to the Commission's 
definitions of agent and on whether there are reasons for continuing to 
exclude apparent authority from the definitions.
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    \1\ Although the court held that, with respect to the definition 
of agent, the Soft Money E&J and the Coordination E&J both failed to 
satisfy APA requirements, it found that the definitions of agent at 
11 CFR 109.3 and 300.2(b) did not necessarily run contrary to 
Congress's intent and were based on a permissible construction of 
the statute. Id. at 71-72, 81-86 (finding that both definitions 
``survive[ ] Chevron review''). The court concluded that ``the FEC's 
definition of the term `agent' is, at least on its face, a 
`permissible construction of the statute' '' and that ``the 
Commission's construction of the term `agent' is faithful to the 
literal terms of the statute.'' Id. at 84.
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Proposed 11 CFR 109.3 and 300.2(b)--Definitions

    According to the common law definition of actual and apparent 
authority as codified in the Restatement (Second) of Agency (1958) 
(``Restatement''),\2\ an agent's actual authority is created by 
manifestations of consent (express or implied) made by the principal to 
the agent. Restatement, Sec.  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, 
Sec.  8. It is important to emphasize that apparent authority is 
created only where the principal's word or conduct ``reasonably 
interpreted, causes the third party 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

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Restatement, Sec.  27). Moreover, to have apparent authority ``the 
third party 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, Sec.  27, cmt. a) (emphasis 
added). Finally, ``apparent authority can be created by appointing a 
person to a position, such as that of manager or treasurer, that 
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, 
Sec.  27, cmt. a.
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    \2\ 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].'')
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    At the time the Commission decided to exclude apparent authority 
from its definitions of agent, its primary goal was to ensure that a 
principal would be able to control whether a would-be agent had 
authority to act on the principal's behalf. Accordingly, the Commission 
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. Particularly, the Commission was concerned 
that by including apparent authority in the definition of agent it 
would, first, expose principals to liability based solely on the 
actions of a rogue or misguided volunteer and, second, ``place the 
definition of `agent' in the hands of a third party''. See Soft Money 
E&J, 67 FR at 49083; Coordination E&J, 68 FR at 425. The Commission 
seeks comment on rationales for excluding apparent authority from the 
definition of agent.
    According to the Shays court, the scope of the common law concept 
of apparent authority appears to exclude from the definition of agent 
precisely the types of conduct that the Commission sought to exclude 
when it decided to limit its definitions of agent to persons acting 
with actual authority. Just as the Commission intended when it adopted 
its current definitions of agent, the common law definition of agent, 
including apparent authority, limits a principal's liability for a 
would-be agent's actions to situations where the principal has taken 
specific action to create authority, either actual or apparent, in a 
person.
    Given the Shays court's interpretation of the narrow scope of 
apparent authority, the Commission now proposes to revise 11 CFR 109.3 
and 300.2(b) by defining agent as any person acting with either actual 
authority, express or implied, or apparent authority, but also seeks 
comments on whether or not there remain reasons to exclude apparent 
authority from the Commission's definitions of agent.
    By including persons acting with apparent authority in the 
definition of agent, the proposed revision would ensure that when a 
candidate or party committee conveys through words or actions that 
another person has authority to act on that candidate's or committee's 
behalf, then the actions of that person are imputed to the candidate or 
party committee for purposes of determining liability under the 
Commission's soft money and coordination provisions. The Commission 
solicits comments on whether persons acting with apparent authority 
should be included in the definitions of agent at 11 CFR 109.3 and 
300.2(b). Is the proposed revision required by BCRA? Would the proposed 
revision reduce the opportunities for circumvention of the Act and the 
appearance of corruption? Furthermore, would including apparent 
authority in the definition of agent affect the exercise of political 
activity, and if so, how? Would including apparent authority in the 
definition of agent make it more difficult for a campaign or party 
organization to predict potential liability?
    The Commission also seeks comment on whether it should specify the 
appropriate conclusions to be drawn from a principal's silence. Should 
a principal be held liable for the actions of another person based 
solely on the principal's failure to disavow that person's actions, or 
must there be some other facts present to indicate knowledge and/or 
complicity? Should the Commission's rules provide that the failure of a 
person to disavow the actions of another person shall not, without 
more, create apparent authority for purposes of the Act?
    Alternatively, the Commission solicits comment on whether, instead 
of including apparent authority, it would be more consistent with the 
purposes of BCRA to continue to exclude persons acting only with 
apparent authority from the definitions of agent. The Supreme Court has 
noted that not every nuance of the law of agency need be incorporated 
into Federal statutes where full incorporation is not necessary to 
effect the statute's underlying purpose. See, e.g., Farragher v. City 
of Boca Raton, 527 U.S. 775, 802 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.'') 
However, would excluding apparent authority from the definitions of 
agent create opportunities for circumvention of the Act or permit 
activity that would give the appearance of corruption?
    In the Soft Money E&J, the Commission reasoned that the exclusion 
of apparent authority from the definition of agent was appropriate 
because apparent authority was primarily designed to ``protect innocent 
third parties who had suffered monetary damages as a result of 
reasonably relying on representations by individuals who purported to 
have, but did not actually have, authority to act on behalf of 
principals. Unlike other statutes, such as consumer protection or anti-
fraud legislation, BCRA does not affect individuals who have been 
defrauded or have suffered economic loss due to detrimental reliance on 
unauthorized representations.'' 67 FR at 49082. The Commission solicits 
comments on whether there are reasons supporting this rationale for 
excluding apparent authority from the definition of agent. 
Specifically, do the legislative purposes of BCRA of preventing 
circumvention of the Act and the appearance of corruption differ from 
those of other statutes, such as anti-fraud, consumer protection, or 
antitrust, in ways that support excluding apparent authority from the 
definition of agent?
    Particularly, the Commission notes the following differences 
between ordinary commercial settings, which are the settings in which 
the concept of apparent authority has been applied, and political 
settings, in which the Commission's regulations operate: (1) 
Ordinarily, in commercial settings people have no incentive to promote 
a product with which they are not associated; (2) in commercial 
settings, those who have not suffered harm generally have no incentive 
or standing to file complaints, whereas in political settings opposing 
candidates may be motivated to impede their rivals' campaigns by filing 
complaints; (3) in commercial settings, businesses usually have 
incentives to dissuade people from purporting to act on their behalf, 
whereas in political settings a candidate's or party's goal is often to 
motivate others to act on their behalf; and finally (4) in political 
settings, constitutional rights are at stake that are not often at 
stake in commercial settings. Do these differences between commercial 
and political settings provide grounds for excluding apparent authority 
from the Commission's definitions of agent? Are there additional 
reasons for excluding

[[Page 5385]]

apparent authority from the definition of agent?
    Alternatively, rather than either excluding apparent authority 
altogether from the definitions of agent at 11 CFR 109.3 and 300.2(b) 
or simply adding the term ``apparent authority'' to these definitions, 
should the Commission instead provide a more narrowly tailored 
definition of agent? Before the Commission adopted the definition of 
agent in the soft money regulations in 2002, the Commission's former 
regulations contained a narrowly tailored definition of agent that 
included certain aspects of apparent authority. Specifically, former 11 
CFR 109.1(b)(5) defined agent as including ``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.'' Former 11 CFR 
109.1(b)(5) appears to be narrower than the revision proposed in this 
NPRM because it does not include cases where apparent authority exists 
for persons other than those who hold a position ``where it would 
reasonably appear that in the ordinary course of campaign-related 
activities he or she may authorize expenditures.'' Under the proposed 
revision of the definitions of agent, which would add the term 
``apparent authority'' and rely on the Restatement for the definition 
of the term, a principal potentially could invest a person with the 
authority of an agent also by making statements to, or engaging in 
conduct with respect to, a third party, regardless of the position the 
putative agent occupies within the principal's organization. Should the 
Commission re-adopt the definition of agent at former 11 CFR 
109.1(b)(5)? Or would that definition be either too narrow or too broad 
to effectuate the purposes of BCRA's soft money and independent and 
coordinated expenditures provisions? Would former 11 CFR 109.1(b)(5) be 
more or less effective than the proposed revision in preventing 
circumvention of the Act and the appearance of corruption?
    Alternatively, the Commission seeks comments on whether it should 
adopt an entirely new approach towards apparent authority, different 
from both the definition at former 11 CFR 109.1(b)(5) and the 
Restatement. Commenters who propose such a new approach should explain 
how their proposal would be more effective than both the revision 
proposed in this NPRM and former 11 CFR 109.1(b)(5) in implementing the 
purposes of BCRA's soft money and independent and coordinated 
expenditures provisions, and how a wholly new approach would prevent 
circumvention of the Act and the appearance of corruption.
    Finally, although the Commission proposes to have consistent 
definitions in both 11 CFR 109.3 and 300.2(b), the Commission also 
solicits comments on whether effective implementation of BCRA's 
purposes would be better served by defining agent in the soft money 
context differently from agent in the coordination context and, 
specifically, whether apparent authority should be included in one but 
not in the other definition.

Certification of No Effect Pursuant to 5 U.S.C. 605(b) (Regulatory 
Flexibility Act)

    The Commission certifies that the attached proposed rules, if 
promulgated, would not have a significant economic impact on a 
substantial number of small entities. The basis for this certification 
is that the national, State, and local party committees of the two 
major political parties, and other political committees are not small 
entities under 5 U.S.C. 601 because they are not small businesses, 
small organizations, or small governmental jurisdictions. Further, 
individual citizens operating under these rules are not small entities. 
To the extent that any political party committees or other political 
committees may fall within the definition of ``small entities,'' their 
number is not substantial.

List of Subjects

11 CFR Part 109

    Elections, Reporting and recordkeeping requirements.

11 CFR Part 300

    Campaign funds, Nonprofit organizations, Political candidates, 
Political committees and parties, Reporting and recordkeeping 
requirements.
    For the reasons set out in the preamble, the Federal Election 
Commission proposes to amend subchapters A and C of chapter I of title 
11 of the Code of Federal Regulations as follows:

PART 109--COORDINATED AND INDEPENDENT EXPENDITURES (2 U.S.C. 
431(17), 441a(a) AND (d), AND PUB. L. 107-55 SEC. 214(c))

    1. The authority citation for part 109 would continue to read as 
follows:

    Authority: 2 U.S.C. 431(17), 434(c), 438(a)(8), 441a, 441d,; 
Sec. 214(c) of Pub. L. 107-55, 116 Stat. 81.
    2. Section 109.3 would be amended by revising the introductory text 
of the section to read as follows:


Sec.  109.3  Definitions.

    For the purposes of 11 CFR part 109 only, agent means any person 
who has actual authority, either express or implied, or apparent 
authority to engage in any of the following activities on behalf of the 
specified persons:
* * * * *

PART 300--NON-FEDERAL FUNDS

    3. The authority citation for part 300 would continue to read as 
follows:

    Authority: 2 U.S.C. 434(e), 438(a)(8), 441a(a), 441i, 453.

    4. Section 300.2 would be amended by revising the introductory text 
of paragraph (b) to read as follows:


Sec.  300.2  Definitions.

* * * * *
    (b) Agent. For the purposes of part 300 of chapter I, agent means 
any person who has actual authority, either express or implied, or 
apparent authority to engage in any of the following activities on 
behalf of the specified persons:
* * * * *

    Dated: January 27, 2005.
Scott E. Thomas,
Chairman, Federal Election Commission.
[FR Doc. 05-1892 Filed 2-1-05; 8:45 am]
BILLING CODE 6715-01-P