Campaign Spending Commission

     A law firm representing corporate client’s requests an advisory opinion on the question of contribution limits to be applied when one corporation merges with or is acquired by another corporate entity. The question becomes pertinent where both entities make campaign contributions to state and local candidates in Hawaii. The Campaign Spending Commission (“Commission”) by this advisory opinion would apply the statute as written, to the three corporate entities as separate entities.

     Specifically, the request poses an example to clarify the question: “When two separate corporations, Corporation A and Corporation B, that are not affiliated with one another merge into a single corporation, Corporation AB, and one or both corporations have made pre-merger contributions to Hawaii state and local candidates and committees, must these pre-merger contributions be aggregated with corporation AB’s post merger contributions for purposes of Hawaii’s contribution limits? Or, as a new corporate entity, will Corporation AB be entitled to make contributions without considering the pre-merger contributions of either Corporation A or Corporation B?”

     Section 11-204(g), Hawaii Revised Statutes (“HRS”) provides that:

     A contribution made by two or more corporations shall be treated as one person when such corporations:

(1) Share the majority of members of their boards of directors; 
(2) Share two or more corporate officers; 
(3) Are owned or controlled by the same majority shareholder or shareholders; or 
(4) Are in a parent-subsidiary relationship.

     The language of subsection 11-204(g) suggests that campaign contributions made by Corporation A and Corporation B are to be aggregated when there is a merger into Corporation AB. Specifically, where two corporations “share the majority of members of their boards of directors,” or “share two or more corporate officers” there may be technical argument that the contributions made by Corporation AB are to be aggregated with Corporation A and Corporation B. However, the intent of the subsection is to preclude the possibility that two or more entities in a close relationship could under a single directive be directed to make a multiple contributions to a candidate.

     However, there is little logic to support a conclusion that two entities would merge to form a single entity to make a larger contribution to a candidate. Where Corporation A and Corporation B both contribute to a candidate for a particular office, each entity presumably, made an independent decision to make a campaign contribution to a candidate. When Corporation AB subsequently makes a contribution to the same candidate; it is presumed that the decision to make a contribution was not related to any contributions made by the separate entities. This may have the consequence of the sum of the contributions by Corporation A and Corporation B, and Corporation AB of being in excess of the maximum contribution allowed under law. However, the overriding policy and legislative intent is that each of the three entities are presumed to be independent entities, making constitutionally protected campaign contributions. Unless facts show otherwise, the application of section 11-204(g), Hawaii Revised Statutes a priori to a merger of two corporations would not be warranted.

     Therefore, campaign contributions by entities that merge, or, are acquired, need not be aggregated in the formation of a third separate entity. Campaign contributions by the post-merger entity need not be aggregated with campaign contributions that may have been made by the separate independent entities prior to the merger. This advisory is based upon the premise that the campaign contributions result from an independent decision by the various entities involved. In the context of the hypothetical example, Corporation A campaign contributions and Corporation B campaign contributions to the same candidate or committee are not aggregated with the campaign contributions of Corporation AB.

     This Advisory Opinion is provided by the Commission as a means of stating its current interpretation of the Hawaii election Campaign Contributions and Expenditures laws provided under HRS section 11-191, et seq. and the administrative rules of the Commission provided in chapter 2-14, Hawaii Administrative Rules. The Commission may adopt, revise or revoke this Advisory Opinion upon the enactment of amendments to the Hawaii Revised Statutes or the adoption of administrative rules by the Commission.

Dated: Honolulu, Hawaii, September 18, 2001.

CAMPAIGN SPENDING COMMISSION

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A. Duane Black
Chairperson

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Della Au Belatti
Commissioner

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Clifford Muraoka
Commissioner

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Mona Chock
Commissioner