In 1978, when Governor Brendan Byrne cut the ribbon for the opening of New Jersey's first casino and hotel, Resorts International, he did so reluctantly. He had strong personal reservations about the potential for organized crime to infiltrate the new and burgeoning casino and hotel industry. Furthermore, as the former Essex County prosecutor and a judge on the state's trial court, the governor was also deeply concerned about the potential for corruption.

So it is no surprise that the Casino Control Act, in N.J.S.A. 5:12-138, included a broad prohibition on any applicant or holder of a casino license from contributing to any candidate or holder of public office in New Jersey. Given the governor's concerns, his recent reelection, and the public's desire to see the gaming industry succeed, no one at the time challenged the prohibition.

Fast forward to 2020 and the recent holding of the Third Circuit Court of Appeals striking down a similar broad prohibition on political campaign contributions under the Pennsylvania Race Horse Development and Gaming Act as a violation of the First Amendment. In reaching this result, the court rejected the argument of Pennsylvania that the 1989 decision of a New Jersey court upholding New Jersey's prohibition supported the constitutionality of Pennsylvania's prohibition.

Although restrictions on political campaign contributions are not subject to the highly demanding strict scrutiny standard of review, but the more deferential exacting or intermediate scrutiny standard of review, recent judicial decisions have shown that exacting or intermediate scrutiny is indeed a rigorous standard. In enacting legislation that restricts political campaign contributions, legislatures must not only ensure that the restriction promotes a sufficiently important government interest, but employs means closely drawn to protect that interest and thereby avoid unnecessary abridgment of First Amendment rights.

In Deon v. Barasch, 2020 WL 2781295 (3d Cir. May 29, 2020), the Third Circuit struck down the restrictions on political campaign contributions under Section 1513 of the Pennsylvania Race Horse Development and Gaming Act. Section 1513 prohibited contributions to candidates for any public office in Pennsylvania, any political party or other political committee in Pennsylvania, or any group, committee, or association organized in support of a candidate, political party, or other political committee in Pennsylvania. The prohibition applied to applicants and holders of a broad array of gaming licenses, including slot machine licenses, manufacturer licenses, supplier licenses, and principal licenses. The prohibition also applied to affiliates, intermediaries, subsidiaries, and holding companies of these persons and entities, and their licensed principals and key employees. Plaintiffs Pasquale T. Deon and Maggie Hardy Magerko challenged these prohibitions as licensed principals of slot machine licensees.

The court pointed out that the only anticorruption interest sufficient to justify political contribution restrictions is the fight against financial quid pro quo or the public perception of it. The court held that regardless of whether the prohibitions were based on a sufficiently important anticorruption interest, the prohibitions were not closely drawn to achieve that interest nor were they proportionate to the interest served. The court was deeply troubled by the flat ban on all types of contributions to all candidates and political organizations no matter how small and without a de minimis threshold amount.

The court also rejected Pennsylvania's reliance on the New Jersey case of In the Matter of the Petition of Soto, 565 A.2d 1088 (App. Div. 1989), certification denied, 121 N.J. 608 (1990), cert. denied, 496 U.S. 937 (1990). In Soto, the court upheld the constitutionality of the prohibition under N.J.S.A. 5:12-138 on any contributions to any candidates in New Jersey, any political parties in New Jersey, or to any group, committee, or association organized in support of a candidate or political party. The prohibition applied to any applicant or holder of a casino license, any holding, intermediary or subsidiary company thereof, or any officer, director, casino key employee, or principal employee of an applicant for or holder of a casino license or of any holding, intermediary or subsidiary company thereof, or any person or agent on behalf of such applicant, holder, company, or person.

The court held that Pennsylvania presumed that the records developed in Soto and the Louisiana case of State ex rel. Foster, 820 So. 2d 494 (La. 2002) "support a judgment that a total prohibition of political contributions is a proportional response. But even if they could support it, other states with legalized gaming similar to Pennsylvania—beyond New Jersey and Louisiana—have taken a much different approach. The Commonwealth never addresses this." Furthermore:

[T]he overwhelming majority of the twenty-five states with commercial, nontribal casino gambling do not have any political contribution restrictions that apply specifically to gaming industry-related parties. In these nineteen states, even accounting for political contribution laws that apply to their entire populations, none ban all political contributions by such parties. This fatally undermines the Commonwealth's central premise that the nature of gaming-industry-related corruption creates a 'common sense' need to adopt measures of the breath of Section 1513.

The court's decision in Deon likely means that a court will carefully review New Jersey's broad prohibition under N.J.S.A. 5:12-138 on any political campaign contribution by applicants and holders of casino licenses and their related parties to see whether the prohibition is closely drawn to achieve an anticorruption interest and is proportionate to the interest served.

It is also important to note that the closely drawn prong of the exacting or intermediate scrutiny standard figured prominently in the recent cases of Citizens Union v. Attorney General, 408 F. Supp. 3d 478 (S.D.N.Y. 2019), and Americans for Prosperity v. Grewal, 2019 WL 4855853 (D.N.J. Oct. 2, 2019). In Citizens Union, the court applied exacting scrutiny and struck down as facially invalid the New York statutory requirements for Section 501(c)(3) and Section 501(c)(4) organizations to publicly report their donors as violating the organizations' First Amendment rights of free speech and freedom of association. Section 172-e of the New York Executive Law required a Section 501(c)(3) organization to disclose all donors who contributed over $2,500 to the organization if the organization itself made an in-kind donation to a Section 501(c)(4) organization that engaged in lobbying in New York, either on its own behalf or through a retained lobbyist.

Section 172-f of the New York Executive Law required a Section 501(c)(4) organization to disclose all donors who contributed $1,000 or more to the organization if the organization expended more than $10,000 in a calendar year on communications made to at least 500 members of the public, unless the donors made contributions only to a segregated account not used to support these communications. The statute applied to public statements that referred to and advocated for or against a clearly identified official or the position of any elected official or administrative or legislative body relating to the outcome of any vote or substance of any legislation, potential legislation, pending legislation, rule, regulation, hearing, or decision by any legislative, executive, or administrative body.

The court held that there was no substantial relation between the requirement of donors to Section 501(c)(3) organizations to be publicly disclosed and any important government interest. The link between a Section 501(c)(3) organization's donor and the content of lobbying communications by the Section 501(c)(4) organization was too attenuated to effectively advance any informational interest.

In Americans for Prosperity, the court applied exacting scrutiny and issued a preliminary injunction against enforcement of the New Jersey statutory reporting and disclosure requirements imposed on independent expenditure committees. Under the statutory scheme, the same disclosure requirements applied whether an independent expenditure committee engaged in electioneering communications identifying a clearly identified candidate, engaged in influencing or attempting to influence any election, or engaged in providing political information, which included any fact or opinion.

First, the court found a violation of exacting scrutiny because practically any media spending triggered the disclosure and reporting regime regardless of whether New Jersey voters were reached by the media listed in the statute.

Second, the court found a violation of exacting scrutiny by the statute's application to any electioneering communications or spending from January 1 through Election Day. In other words, qualifying communications occurring on 1235 of the 1461 days from Jan. 1, 2019, through Dec. 31, 2022, or 84.53% of the time, would trigger the statute's disclosure obligations. Most other disclosure statutes applied to electioneering communications made within 30 or 60 days of an election. In addition, qualifying communications to influence a vote on a bill before the Assembly from January 1 of any year to Election Day in November would trigger the disclosure obligations, while the same otherwise qualifying communications seeking to influence the same bill but occurring from the day after Election Day to December 31 would not. The statutory scheme lacked a substantial relation between the disclosure requirement and the sufficiently important government interest in an informed electorate.

Finally, the court found constitutionally problematic the statute's expansion of disclosure obligations to communications of purely factual political information. Historically, such statutory obligations were limited to electioneering communications. Whether a legislative scorecard was an attempt to influence the election of a particular candidate or represented only the communication of political information was a distinction without a difference for triggering the disclosure obligations.

The lesson of Deon, Citizens Union, and Americans for Prosperity is clear. Legislatures must take great care in crafting statutory schemes that regulate political activity so that the statute employs means closely drawn to protect an important government interest and thereby avoid unnecessary abridgment of First Amendment rights.

William J. Palatucci is Special Counsel to Gibbons P.C. Steven H. Sholk is a Director in the Gibbons Corporate Department.