1 2 EXPEDITE (if filing within 5 court days of hearing) No hearing is set. 3 4 5 Hearing is set: Date: August 30, 2016 Time: 1:30 p.m. Judge/Calendar: Honorable Anne Hirsch 6 7 8 STATE OF WASHINGTON THURSTON COUNTY SUPERIOR COURT 9 10 11 STATE OF WASHINGTON Plaintiff, 12 No. 13-2-02156 -8 FINDINGS OF FACT AND ORDER ON TRIAL 13 V. 14 15 GROCERY MANUFACTURERS ASSOCIATION, 16 Defendant. 17 [PROPOSED — REVISED] 18 19 THIS MATTER came before the Court for trial beginning on August 15, 2016 on 20 the issue of whether the Grocery Manufacturers Association ("GMA") intended to violate 21 Washington State campaign finance disclosure laws and the amount of an appropriate 22 penalty. The State has requested that any penalty against GMA be trebled because it has 23 alleged that GMA intentionally violated Washington law. See RCW 42.17A.765(5) ("If 24 the violation is found to have been intentional, the amount of the judgment, which shall 25 for this purpose include the costs, may be trebled as punitive damages. "). 26 The Court considered the following testimony and evidence: FINDINGS OF FACT AND CONCLUSIONS OF LAW - 1 — [PROPOSED-REVISED] K&L GATES LLP 925 FOURTH AVENUE SUITE 2900 SEATTLE, WASHINGTON 98104-1158 TELEPHONE: (206) 623-7580 FACSIMILE: (206) 623-7022 1 1. The testimony of Pam Bailey, CEO of GMA; 2 2. The testimony of Louis Finkel, former Executive Vice President of Government 3 Affairs of GMA; 4 3. The testimony of Karin Moore, General Counsel of GMA; 5 4. The testimony of Bill MacLeod (by deposition), GMA outside counsel at Kelley 6 7 8 9 10 11 12 Drye & Warren LLP; 5. The testimony of Rob Maguire, former GMA outside counsel at Davis Wright Tremaine LLP; 6. The testimony of Michael Ryan, former GMA outside counsel and Attorney, Seattle City Attorney's Office; 7. The testimony of Dr. David Primo, Political Science Professor at the University of Rochester; 13 8. The testimony of Tony Perkins, Public Disclosure Commission employee; 14 9. GMA's Exhibits #131-137, 139-140, 142-159, 161-171, 173-175, 177, 179-197, 15 206-208, 210 (filing only) and 244, which were admitted as evidence at trial; and 16 10. The State's Exhibits #1-35, 37-60, 62-64, 65 (unredacted), 66-81, 82 (with 17 additional page)-89, 91-104, 116-123, 124 (MacLeod Deposition designations) 18 and 126 (redacted), which were admitted as evidence at trial. 19 The Court also considered the parties' arguments at trial as well as the parties' trial briefs 20 submitted in advance of trial. 21 Based on the record before the Court, the Court makes the following Findings of Fact: 22 11. In August of 2012, GMA officers Bailey and Finkel concluded that advancing the 23 grocery manufacturing industry position on the public benefit of member products 24 and proposals for GMO labeling would require a multi-faceted, multi-year 25 approach including public education and political engagement at state and federal level. GMA also recognized that its then-existing revenue flow was inadequate to support that effort. FINDINGS OF FACT AND CONCLUSIONS OF LAW - 2 - [PROPOSED - REVISED] K&L GATES LLP 925 FOB AVENUE SUITE 2900 SEATTLE, WASHINGTON 98104-1158 TELEPHONE (206) 623-7580 FACSIMILE: (206) 623-7022 1 12. GMA's analysis was reinforced by its efforts to support the campaign against a 2 mandatory GMO labeling referendum proposal in California in 2012. The "No" 3 campaign against Proposition 37in California required approximately $43 million 4 in total funding, about half of which was provided by food manufacturers. GMA 5 itself was able only to contribute approximately $2 million of its own funds to 6 "No." Those contributions were disclosed to California authorities, pursuant to 7 legal advice, as GMA contributions. GMA also solicited earmarked contributions 8 from its member companies to support the "No" campaign in California and 9 passed them through to the "No" committee. Those contributions were disclosed 10 to California authorities as individual member contributions with GMA identified 11 as a conduit. 12 13. In August of 2012, Mr. Finkel began to reflect on the fact that the GMO labeling 13 issue was going to be a nationwide, multi-year issue — not just an issue in 14 California — and that GMA would need funding to address the issue. While GMA 15 believed it would be politically successful in California, thus validating the 16 decision to contribute substantial amounts, Mr. Finkel along with GMA's CEO, 17 Ms. Bailey, identified a number of problems with the way GMA's California 18 effort was conducted. These were: 19 a. GMA's historic dues structure did not generate sufficient funds for GMA 20 itself adequately to support the nationwide GMO activities in which it 21 would have to engage, were it to lead the industry for the next several 22 years; 23 b. While GMA had successfully solicited contributions from individual 24 members to meet California electoral financing needs as they arose, the 25 uncertainty of response to future requests wherever they might arise 26 limited GMA's ability to play a lead role; FINDINGS OF FACT AND CONCLUSIONS OF LAW -3 - [PROPOSED-REVISED] K&L GATES LLP 925 FOURTH AVENUE SUITE 2900 SEATTLE, WASHINGTON 98104-1158 TELEPHONE: (206) 623-7580 FACSIMILE: (206) 623-7022 1 c. GMA members were concerned about meeting contribution requests for 2 which they could not budget and might decline to respond to future 3 requests depending on changing circumstances; and 4 d. Individual members, as contributors to anti-GMO labeling efforts, 5 particularly smaller members, were targets for economic retaliation and 6 intimidation, including death threats. 7 14. Mr. Finkel was aware that other national trade associations had established 8 association controlled issues funds to address similar national needs. He then 9 conceived what became known as the Defense of Brands Account as a solution 10 for GMA. Mr. Finkel and Ms. Bailey believed that a DOB Account could vest 11 GMA with substantial funds it could employ flexibly across the nation at its own 12 discretion; raise those funds through a predictable, semi-annual dues assessment 13 against interested members; make GMA the lead GMO-labeling spokesperson for 14 the grocery industry that its mission required; give members budgeting certainty; 15 and, permit GMA to disclose future GMA contributions as coming from GMA 16 rather than individual member thus, to the extent possible, limit opponents 17 targeting of smaller members for retaliation. 18 15. At the time Mr. Finkel conceived the DOB Account approach, he was not aware 19 of Washington's Initiative 522, which was at an early signature collection stage 20 and not eligible for balloting. His concept was directed at a national strategic 21 need and was unrelated to any specific state. Ms. Bailey also was focused on the 22 need to finance a national public education effort through the same mechanism. 23 16. Ms. Bailey, who also saw the wisdom of establishing a multi-faceted DOB 24 Account, added the DOB Account to the August 2012 GMA Board Meeting 25 Agenda as an information item. Because of the press of other business, the item 26 was not reached and was held over for a subsequent Board meeting. FINDINGS OF FACT AND CONCLUSIONS OF LAW -4 - [PROPOSED-REVISED] K&L GATES LLP 925 FOURTH AVENUE SUITE 2900 SEATTLE, WASHINGTON 98104-1158 TELEPHONE: (206) 623-7580 FACSIMILE: (206) 623-7022 1 17. In late 2012, Mr. Finkel prepared to submit a more detailed DOB Account 2 presentation to GMA's Government Affairs Committee ("GAC") and the Board 3 to seek approval and funding authority. 4 18. In the same period, Mr. Finkel was made increasingly aware of the possibility that 5 a Washington State GMO labeling initiative might go to ballot in November 6 2013. 7 19. In developing the DOB Account with the GAC, GMA's General Counsel, who 8 was planning for retirement, asked Bill MacLeod of Kelly Drye and Warren to 9 participate in the meetings to ensure legal compliance. Mr. MacLeod participated 10 in all of the January GAC meetings where the DOB Account was discussed and 11 crystalized and was fully informed about the basis for the DOB's creation and its 12 purpose. The GAC, with Mr. MacLeod's knowledge, forwarded the DOB 13 recommendation to the GMA Board. 14 20. The Board reviewed the proposed DOB Account on January 19, 2013. The Board 15 was favorable to the DOB concept, understanding that the funds would be used at 16 the staff's discretion, and instructed Ms. Bailey and Mr. Finkel to prepare a three 17 year budget for "greater predictability" of the funding needs before the Board 18 would approve the creation of the Account. Separately, the Board instructed 19 GMA staff to position itself, if it became necessary and feasible, to oppose I-522. 20 21. An illustrative budget was developed after the January meeting. To justify the 21 nearly $40 million in funding staff would be asking GMA members to approve, 22 and to demonstrate the urgency of creating the fund, Mr. Finkel used Washington 23 State as an example of looming problems and the magnitude of GMA's financial 24 needs. Mr. Finkel did not advise that GMA would be participating in a 25 Washington State campaign because he could not be certain that I-522 would go 26 to ballot and GMA had not undertaken the polling necessary to assess the FINDINGS OF FACT AND CONCLUSIONS OF LAW -5 - [PROPOSED-REVISED] K&L GATES LLP 925 FOURTH AVENUE SUITE 2900 SEATTLE, WASHINGTON 98104-1158 TELEPHONE: (206) 623-7580 FACSIMILE: (206) 623-7022 1 feasibility of opposition. Regardless, the funds were to be GMA's to use in its 2 discretion and the DOB Account had many priorities that it needed to address. 3 22. Mr. Finkel also sought to encourage member support for the DOB Account 4 concept by pointing out that providing GMA with funds of its own to contribute, 5 and not relying on solicitation of earmarked campaign contributions from 6 members as it had in California, would make GMA to be the disclosed contributor 7 of funds, not individual members. Mr. Finkel and Ms. Bailey believed that this 8 consequence of funding the DOB Account would be helpful to GMA's smaller 9 members and limit threats against them that had caused some to consider 10 withdrawing from GMA. Mr. MacLeod also understood that the Board would be 11 advised that economic retaliation could be limited by GMA becoming the funder 12 of its own activities. Mr. Finkel and Ms. Bailey recognized, however, that the 13 identity of GMA's large members was widely known and would be used in any 14 political effort to discredit the position of the opposition to I-522. 15 23. Neither Ms. Bailey nor Mr. Finkel believed that disclosures identifying GMA, 16 rather than member companies, as a contributor would affect the outcome of a 17 possible campaign and the issue of effect was never discussed with the 18 Government Affairs Committee or the Board. In fact, Mr. Finkel was aware of 19 polling evidence to the contrary in the California campaign In other words, GMA 20 correctly believed that identifying GMA as the contributor as opposed to member 21 companies would not in any way influence the outcome of the initiative vote. No 22 evidence was presented to the contrary. 23 24. Mr. Finkel prepared a final memo for the Board which he asked Mr. MacLeod to 24 review for legal compliance on February 12, 2013. Mr. MacLeod did so. After 25 indicating that there was "[n]ot much to nitpick here" Mr. MacLeod went through 26 the memo and suggested line edits. Mr. MacLeod did not, however, suggest that the plan violated Washington law or that it was illegal for GMA to treat itself as FINDINGS OF FACT AND CONCLUSIONS OF LAW - 6 - [PROPOSED-REVISED] K&L GATES LLP 925 FOURTH AVENUE SUITE 2 00 SEATTLE, WASHINGTON 98104-1158 TELEPHONE: (206) 623-7580 FACSIMILE (206) 623-7022 1 the "funder" of the efforts or that it was illegal under any state's law for GMA to 2 contribute its own funds and thus "better shield individual companies from 3 attack." 4 25. Mr. MacLeod next participated in the February 21 Executive Committee Meeting 5 in order to prepare for the upcoming February 28, 2013 meeting. Again, Mr. 6 MacLeod did not raise any alarm bells about compliance with Washington State 7 or any other state's disclosure laws. 8 9 10 11 26. At the request of the Board chair, both Ms. Bailey and Mr. Finkel asked Mr. MacLeod to participate in the February 28 Board Meeting and to be prepared to advise the Board on the legality of the Defense of Brands Account. 27. Mr. MacLeod told Mr. Finkel that he was "very comfortable `opining' on the 12 legal, disclosure, and flexibility benefits of the fund and will say it is a `brilliant 13 and creative' solution to a complicated problem." 14 28. The Board conducted a telephone meeting on February 28, 2013. When called 15 upon, Mr. MacLeod opined that he believed the fund to comply with all laws. 16 Mr. MacLeod wrote the Board minutes confirming his advice to the Board. After 17 hearing Mr. MacLeod's opinion, the Board approved the DOB program and 18 annual dues assessment. Invoices for the first six months DOB dues were mailed 19 on March 15, 2013. Thereafter, and continuing until today, the DOB Account 20 was used for expenditures unrelated to Washington State, including public 21 education, litigation, and lobbying. In addition, once GMA, in its sole discretion, 22 made the decision to contribute to a campaign to oppose I-522, GMA used the 23 DOB Account for expenditures relating to 1-522. 24 29. In March, 2013, Mr. MacLeod's firm helped prepare a Bylaw amendment to 25 remove all doubt on GMA's internal control of the funds. All expenditures from 26 the DOB Account were to be made under the direction and control of GMA Staff only. No Committee and no member of GMA was authorized to direct or preFINDINGS OF FACT AND CONCLUSIONS OF LAW - 7 - [PROPOSED - REVISED] K&L GATES LLP 925 FOURTH AVENUE SUITE 2900 SEATTLE, WASHINGTON 98104-1158 TELEPHONE: (206) 623-7580 FACSIMILE: (206) 623-7022 1 approve expenditures from the DOB. GMA staff hereafter made all fund 2 expenditure decisions without approval by the Board, any committee of the Board 3 or any member. 30. In April, 2013, prior to making its dues payment to the DOB Account and in order 5 to satisfy its internal due diligence procedures, Kraft, one GMA member, asked to 6 speak to the Attorney that had sanctioned the account. Mr. Finkel immediately 7 referred Kraft to Mr. MacLeod. 8 31. Almost a month later, Mr. MacLeod, who at no time disavowed or restricted his 9 advice to the Board, recommended that GMA retain Washington State Counsel to 10 reply to Kraft's concerns. 11 32. GMA then retained Rob Maguire of Davis Wright Tremaine who provided GMA 12 written legal advice on May 10 and June 12. Mr. Maguire was briefed on the 13 Defense of Brands Account and was aware that a "byproduct" of the funds 14 becoming GMA's own funds was that the fund would "shield individual 15 companies from criticism for funding of specific efforts." Mr. Maguire testified 16 that "shielding" was not a relevant consideration as to whether GMA was a 17 political committee and opined that GMA had lawfully become the funder of its 18 own contributions and that it was not a political committee in Washington State. 33. On July 31, 2013, after obtaining internal Kelley Drye memoranda that had not 19 20 previously been shared in form or substance, GMA's new General Counsel, after 21 reviewing Washington State case law, called Mr. Maguire to ensure that GMA 22 was complying with the law. After further discussing the DOB Account and 23 Washington case law, Mr. Maguire assured Ms. Moore that GMA was law 24 compliant. Thereafter, Ms. Moore spoke directly to an attorney for Kraft who 25 was not a Washington State lawyer and was not privy to any pertinent facts 26 related to the creation of the DOB Account. After understanding the factual predicates assumed by the Kraft attorney Ms. Moore explained to him that he was FINDINGS OF FACT AND CONCLUSIONS OF LAW - 8 - [PROPOSED-REVISED] K&L GATES LLP 925 F SU AVENUE ITE 2900 SEATTLE, WASHINGTON 98104-1158 TELEPHONE: (206) 623-7580 FACSIMILE: (206) 623-7022 1 misinformed about the facts. She explained that GMA at all times retained 2 discretion over the funds. Ms. Moore further concluded that she could rely on the 3 advice of her Washington State counsel with whom she had just conferred. 4 34. When the complaint leading up to this action was filed with the PDC, GMA was 5 now working with Mr. Mike Ryan, formerly of K&L Gates. Mr. Ryan, after 6 reviewing GMA's internal documents which GMA voluntarily provided to the 7 State to prove that it was acting in accordance with Washington State law, also 8 concluded that GMA was complying with Washington law. 9 35. When the State disagreed with the opinions of three GMA outside counsel, GMA 10 registered and reported the activity in the DOB account related to Washington 11 State. 12 36. The disclosures were made well prior to Election Day. 13 37. The disclosures added no significant information to an already rich information 14 environment and had no discernible effect on the I-522 vote. 38. Mr. Perkins attempted to show that members of the public frequently consulted 15 16 the PDC contributions website. However, Mr. Perkins acknowledged that the 17 website included information relating to hundreds of campaigns and multiple 18 years and that he was not able to provide any information on whether members of 19 the public sought information relating to contributions to the I-522 campaign. 20 39. (Proffered) GMA tried to resolve its differences with the State by voluntarily 21 making the filings with the PDC that the State sought. 22 40. (Proffered) Even after the State filed this complaint GMA continued to cooperate 23 with the State. Mr. Ryan and Ms. Moore received guidance from the State on 24 how its filings were to be made and followed the instructions of the State. 41. (Proffered) At the time of its filings, GMA had notified the state that it had 25 26 11 received more than $14 million, but, under instruction from the State, made initial FINDINGS OF FACT AND CONCLUSIONS OF LAW -9 - [PROPOSED-REVISED] K&L GATES LLP 925 FOURTH AVENUE SUITE 2900 SEATTLE, WASHINGTON 98104-1158 TELEPHONE: (206) 623-7580 FACSIMILE. (206) 623-7022 1 filings disclosing only about $7.25 million dollars in contributions and 2 expenditures that had already been contributed to the No on 522 Committee. 3 42. (Proffered) After making its initial filings, GMA contributed another $3.8 4 million to the No on 522 Committee, which it promptly disclosed in accordance 5 with instructions from the State. 6 7 8 9 43. (Proffered) Exhibit 247 (not admitted by the Court) is an Affidavit from Mr. Ryan describing his interactions with the State. 44. Mr. Finkel conceived the DOB Account long before he was aware of I-522, and he and Ms. Bailey advocated it for the purpose of giving GMA sufficient financial 10 resources to address brand image and GMO-labeling issues at national and state 11 levels for an extended period. Based on the California experience and their 12 working knowledge of disclosure law principles, GMA's principals and its 13 outside counsel, Mr. MacLeod, believed that the DOB Account would permit 14 GMA to be a contributor in its own right and thus have the favorable consequence 15 of not requiring disclosure of members who would be funding GMA rather than 16 contributing to individual political campaigns. 17 45. In presenting the DOB Account concept for Board approval, GMA staff used 18 rough projections of the cost of an 1-522 campaign as an illustration to justify the 19 large amounts it was seeking for a GMA Defense of Brands offensive and cited 20 GMA's ability to contribute as a single entity to allay the fears of smaller 21 members that their identifiable opposition to GMO-labeling would result in 22 damaging economic retaliation by their customers. GMA recognized that its 23 participation as a contributor would have to be disclosed to the public and that the 24 opposition would be aware of its membership and attack both GMA and its larger 25 members for political purposes. 26 46. GMA never even considered whether its disclosure posture would affect the outcome of I-522 and GMA's expert, Dr. David Primo, showed that it did not. FINDINGS OF FACT AND CONCLUSIONS OF LAW - 10 - [PROPOSED - REVISED] K&L GATES LLP 925 FOURTH AVENUE SUITE2900 1158 WASHINGTON 98104-1158 Z6)623-7580 TELEPHONE (206) 623-7580 FACSIMILE (206) 623-7022 SEATTLE, 1 47. Ms. Bailey and Mr. Finkel were operating under the belief that creating the DOB 2 Account would not require GMA to register a political Committee in Washington 3 State and was legal. This belief was confirmed by GMA outside counsel. Ms. 4 Moore, arriving at GMA after the creation of the DOB Account, also sought 5 outside counsel advice about GMA's compliance with Washington State law and 6 she too was operating under the belief that the DOB Account was not a 7 Washington State Political Committee. 8 48. The testimony established that Ms. Bailey, Mr. Finkel, and Ms. Moore believed 9 that GMA intended to accomplish a legal act and at all relevant times believed 10 that GMA was complying with Washington State law. 11 Based on these undisputed facts, the Court makes the following determination as a matter 12 of law: 13 GMA did not intend to violate Washington State law. 14 Based on this determination, it is HEREBY ORDERED that 15 16 17 1. I decline, in my discretion, to treble the penalty in this case pursuant to RCW 42.17A.765(5). 2. Based on the facts presented and the applicable penalty factors found at WAC 18 390-37-182, which take into account the penalties imposed in similar cases, the 19 lack of any harm caused by the delayed disclosures here, and GMA's long- 20 standing history of compliance with other state and federal campaign finance 21 laws, I find that the appropriate amount of penalty is $700,000. 22 23 24 DONE IN OPEN COURT this day of August, 2016. 25 26 JUDGE ANNE HIRSCH FINDINGS OF FACT AND CONCLUSIONS OF LAW-11 - [PROPOSED-REVISED] K&L GATES LLP 925 FOURTH AVENUE SUITE 2900 SEATTLE, WASHINGTON 98104-1158 TELEPHONE: (206) 623-7580 FACSIMILE: (206) 623-7022 1 Presente by: 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Philip M. Guess, WSBA #26765 Aaron E. Millstein, WSBA #44135 K&L GATES, LLP 925 Fourth Avenue, Suite 2900 Seattle, WA 98104 (206) 370-8071 philip.guess@klgates.com aaron.millstein@klgates. corn Bert W. Rein (pro hac vice) Carol A. Laham (pro hac vice) Matthew J. Gardner (pro hac vice) WILEY REIN LLP 1776 K Street, N.W. Washington, D.C. 20006 (202) 719-7000 brein@wileyrein.com claham@wileyrein.com mgardner@wileyrein. com Attorneys for Grocery Manufacturers Association Approved as to Form, Notice of Presentation Waived: ROBERT W. FERGUSON Attorney General 17 18 19 20 21 22 LINDA A. DALTON, WSBA No. 15467 Senior Assistant Attorney General CALLIE A. CASTILLO, WSBA No. 38214 Deputy Solicitor General GARTH A. AHEARN, WSBA No. 29840 Assistant Attorney General Attorneys for State of Washington/Bob Ferguson 23 24 25 26 FINDINGS OF FACT AND CONCLUSIONS OF LAW-12 — [PROPOSED-REVISED] K&L GATES LLP 925 FOURTH AVENUE SUITE 2900 SEATTLE, WASHINGTON 98104-1158 TELEPHONE: (206) 623-7580 FACSIMILE: (206) 623-7022 DECLARATION OF SERVICE Rhonda Hinman declares as follows: 1. I am and at all times hereinafter mentioned was a citizen of the United States, a resident of the State of Washington, over the age of 21 years, competent to be a witness in the above action, and not a party thereto. 2. On August 26, 2016, I caused a true and correct copy of Proposed Revised Findings of Fact and Order on Trial served in the manner indicated: Linda A. Dalton (linda.dalton@atg.wa.gov ) Callie A. Castillo (callie.castillo@atg.wa.gov ) Garth Ahearn (garth.ahearn@atg.wa.gov ) Stacy Hiatt (stacym@atg.wa.gov ) GCE Resource Mailbox (GCEEF@atg.wa.gov ) Attorney General of Washington 1125 Washington Street SE Olympia, WA 98501 ❑ via facsimile ❑ via overnight courier ❑ via first-class U.S. mail ® via email ❑ via electronic court filing ❑ via hand delivery I declare under penalty of perjury under the laws of the State of Washington that the foregoing is true and correct: Signed this W 'day of August, 2016, at Seattle, King County, Washington. Rhonda Hinman