State v. Grocery Mfrs. Ass'n

425 P.3d 927

STATE of Washington, Respondent,

v.GROCERY MANUFACTURERS ASSOCIATION, Appellant.

Grocery Manufacturers Association, Appellant,

v.State of Washington, Respondent.

No. 49768-9-II

Consol. w/ 50188-1-II

Court of Appeals of Washington, Division 2.

Filed September 5, 2018

Robert Bertelson Mitchell Jr., Aaron Edward Millstein K & L Gates LLP, 925 4th Ave. Ste. 2900, Seattle, WA, 98104-1158 for Appellant

Linda Anne Dalton, Attorney General Office Campaign Finance, PO Box 40100, Olympia, WA, 98504-0100, Callie Anne Castillo, Washington State Attorney General Office, 1125 Washington St. Se, Olympia, WA, 98504-0100, Garth Ahearn, Office of the Attorney General-Tacoma, 1250 Pacific Ave. Ste. 105, Po Box 2317, Tacoma, WA, 98401-2317 for Respondent

Ryan P. McBride, Lane Powell PC, 1420 5th Ave. Ste. 4200, Seattle, WA, 98101-2375, Amicus Curiae on behalf of Institute for Free Speech

Daniel J. Dunne Jr., Orrick Herrington & Sutcliffe, 701 5th Ave. Ste. 5600, Seattle, WA, 98104-7045, Amicus Curiae on behalf of Professors Michael Munger and Jeffrey Milyo

PUBLISHED OPINION

Maxa, C.J.

¶ 1 The Grocery Manufacturer’s Association (GMA) appeals the trial court’s imposition of an $18 million civil penalty for violations of the Fair Campaign Practices Act (FCPA), chapter 42.17A RCW, relating to a 2013 Washington ballot initiative, Initiative 522. I-522, which did not pass, would have required all packaged food products to identify ingredients containing genetically modified organisms (GMOs).

¶ 2 GMA created a segregated account funded by contributions from some of its member companies to address GMO labeling issues, including opposing I-522. GMA made expenditures of approximately $11 million from the account to oppose I-522. However, GMA did not register as a political committee with the Public Disclosure Commission (PDC) and did not comply with reporting and disclosure requirements for political committees. Specifically, GMA failed to disclose the companies contributing to the account.

¶ 3 The trial court ruled on summary judgment that GMA became a "political committee" as defined in former RCW 42.17A.005(37)¹ when it created the account. The court also ruled that GMA violated various FCPA reporting and disclosure requirements for political committees and violated RCW 42.17A.435 by concealing the source of the contributions it made to oppose I-522. After a bench trial on penalties, the trial court imposed a civil penalty of $6 million for the FCPA violations and trebled that amount as punitive damages under RCW 42.17A.765(5) based on a finding that GMA’s violation of the law was intentional.

¶ 4 We hold that (1) the trial court did not err in ruling on summary judgment that GMA became a political committee as defined in RCW 42.17A.005(37) because there was no genuine issue of material fact that GMA had an expectation of receiving contributions in opposition to I-522; (2) the FCPA’s reporting and disclosure requirements do not violate the First Amendment as applied to GMA because they are substantially related to an important government interest in providing information to voters; (3) neither the definition of "political committee" nor RCW 42.17.435, the statute prohibiting concealment of a contribution source, are unconstitutionally vague as applied to GMA; and (4) the trial court did not err at trial in excluding evidence of GMA’s communications and cooperation with the PDC. However, we hold that the trial court erred in ruling that GMA did not need to subjectively intend to violate the law in order to be subject to treble damages under RCW 42.17A.765(5).²

¶ 5 Accordingly, we affirm the trial court’s order granting summary judgment in favor of the State, reverse the trial court’s imposition of treble damages against GMA, and remand for further proceedings for the trial court to determine whether GMA is subject to treble damages under the proper legal standard.

FACTS

¶ 6 GMA is a nationwide trade association that represents hundreds of food, beverage, and consumer product companies. GMA is governed by a board of directors, comprised primarily of corporate officers from GMA member companies.

¶ 7 GMA is interested in promoting reasonable and national food labeling requirements. GMA became involved in the debate over whether food labels should identify ingredients derived from GMOs. On behalf of its members, GMA opposed state and local GMO-labeling efforts.

Summary Judgment Facts

¶ 8 In 2012, GMA actively opposed a ballot proposition in California, Proposition 37. The ballot proposition would have required producers of packaged food products to label products containing GMOs. Because of GMA’s opposition to Proposition 37, some of its member companies received negative public attention, including boycotts and threats.

¶ 9 Later in 2012, GMA learned about a similar proposed ballot initiative in Washington, I-522. GMA intended to oppose I-522 and any other state-level food labeling mandates. I-522 was submitted to the legislature with public signatures on January 3, 2013. GMA conducted polling in Washington to determine if a campaign to oppose I-522 would be successful. And GMA staff began planning for an aggressive campaign in Washington, assuming that polling would support such a plan.

¶ 10 At a January 2013 board meeting, GMA staff and board members discussed a plan to oppose GMO labeling initiatives, including I-522, while avoiding state financial disclosure filing requirements. The board preferred that GMA, rather than individual member companies, be identified as the source of political contributions.

¶ 11 GMA staff briefed the board on a proposed plan to provide financial support for GMO-related activities through an account held by GMA, which staff called the Defense of Brands (DOB) account. The goal was to have a strategic account that provided funding for projects to accomplish the objective of not allowing mandatory GMO labeling. Opposing state ballot measures was one of several projects the DOB account would fund. Other projects included federal advocacy, consumer research, and state advocacy. Under the plan, GMA would invoice member companies for special contributions, which GMA would place in the DOB account and then spend on campaigns under its own name.

¶ 12 Although GMA intended to oppose ballot measures in any state, at the time the possibility of creating the DOB account was discussed the only potential ballot initiative GMA planned to oppose was I-522. GMA’s proposed budget for opposing GMO labeling initiatives in 2013 allocated $10 million to defeating I-522. The board understood that a significant portion of the funds collected for the DOB account would be used to oppose I-522.

¶ 13 The board approved the plan and created the DOB account on February 28, 2013. Although I-522 had not yet officially qualified for the ballot, GMA sent its first invoice for the DOB account to member companies on March 15. The invoice was accompanied by an update on the status of the campaign to oppose I-522.

¶ 14 A total of 34 GMA member companies ultimately contributed to the DOB account. The three companies contributing significantly more money than the others were PepsiCo, Inc., Nestle USA, Inc., and The Coca Cola Company. Some members declined to participate in funding the account.

¶ 15 GMA made its first contribution to the "No on 522" campaign from the DOB account on May 8. GMA did not make the decision to provide significant financial support to oppose I-522 until then. GMA subsequently sent additional invoices to the DOB account contributors. GMA provided member companies with regular updates on the campaign to oppose I-522, and GMA members were informed when their contributions were transferred from the DOB account to the "No on 522" campaign. GMA ultimately contributed over $11 million from the DOB account to the "No on 522" campaign.

¶ 16 GMA did not register with the PDC as a political committee when it established the DOB account. GMA did not register as a political committee or file any required political committee reports until it received a violation notice from the PDC in October 2013.

Litigation and Summary Judgment

¶ 17 The State sued GMA for failing to register as a political committee, failing to report financial contributions, and concealing the true source of contributions.³ The State and GMA filed cross motions for summary judgment.

¶ 18 The trial court granted the State’s motion for summary judgment regarding the requirement that GMA register as a political committee.⁴ The trial court concluded that "GMA solicited and received political contributions from its members[,] which ... it then used to oppose ... [I-522]. ... As a receiver of contributions, GMA qualified as a political committee under RCW 42.17A.005(37)." Clerk’s Papers (CP) at 3339. The trial court ruled that from February 28, 2013 to the present, GMA had committed multiple violations of the FCPA. The trial court also ruled that the campaign finance laws at issue were not unconstitutionally vague as applied to GMA.

¶ 19 The court reserved for trial the "sole issue of whether GMA intentionally violated the law and if so, whether the judgment in this case should be trebled as punitive damages as allowed under RCW 42.17A.765(5)." CP at 3340.

Trial on Penalties

¶ 20 Before trial, the State filed a motion in limine to exclude evidence of conversations between GMA and the PDC regarding registering as a political committee. The State argued that such evidence was not relevant to the issue of whether GMA intended to violate the FCPA. The trial court granted the State’s motion and stated in its oral ruling, "Anything that occurred after [February 28, 2013] does not apply to what GMA’s intent was in proposing, creating, and implementing the [DOB] account." Report of Proceedings (RP) (Mar. 25, 2016) at 34.

¶ 21 GMA also filed a pretrial motion regarding the meaning of "intentional" in the context of RCW 42.17A.765(5). GMA argued that the State had to prove that GMA subjectively...