Judge Kobayashi: Hawaii Act 11 Corporate Spending Challenge to Proceed

• A federal judge is likely to allow a challenge against Hawaii's Act 11, a law banning corporate election spending, to proceed.
• Senior U.S. District Judge Leslie Kobayashi indicated the Grassroot Institute of Hawaii has standing and that Act 11 restricts political speech.
• Act 11, set to take effect in 2027, rewrites Hawaii's corporate code to strip corporations, nonprofits, and unions of the power to spend on candidates or certified ballot measures.
• The state argued for dismissal, claiming Act 11 doesn't apply to Grassroot's activities and that the state can define corporate powers.
• Violations of Act 11 could result in severe penalties, including the dissolution of the offending entity.

If the law is ultimately upheld, it will drastically alter permissible political spending activities, potentially leading to severe penalties, including dissolution, for non-compliance.

A federal judge has indicated a strong likelihood of allowing a significant legal challenge against Hawaii's Act 11 to proceed, a law that aims to drastically reshape corporate political spending in the state. Senior U.S. District Judge Leslie Kobayashi, an appointee of former President Barack Obama, informed legal counsel during a recent hearing that she is inclined to deny the state's request to dismiss the lawsuit. This decision paves the way for a full examination of the controversial legislation, which is slated to take effect on July 1, 2027.

The challenge originates from the Grassroot Institute of Hawaii, a free market think tank and nonprofit organization dedicated to advocating for limited government. The Institute seeks to prevent Act 11 from being implemented, arguing it infringes upon fundamental rights. Judge Kobayashi also signaled her preliminary view that the Hawaii corporate election spending ban restricts political speech, a crucial aspect of the First Amendment.

Hawaii Act 11 represents a unique legislative effort, described as the nation's first comprehensive ban on corporate election spending. Its proponents frame the law as a direct legislative response to the 2010 U.S. Supreme Court decision in Citizens United v. FEC, which eliminated restrictions on independent corporate expenditures in elections. Rather than directly regulating campaign contributions, Act 11 fundamentally redefines Hawaii’s corporate code.

Under this new framework, corporations, nonprofit organizations, labor unions, and other similar entities would be stripped of their ability to spend funds either supporting or opposing political candidates or ballot measures once those measures are officially certified. The potential consequences for non-compliance are severe, with penalties that could extend to the dissolution of the offending entity. This broad scope and the extreme nature of the penalties underscore the profound impact Act 11 could have on corporate political speech in Hawaii.

During the proceedings, Deputy Solicitor General Ewan Rayner, representing the state, presented several arguments for dismissing the case. A primary contention was that the Grassroot Institute of Hawaii lacked standing, asserting that Act 11 would not apply to the organization's typical activities. Rayner explained that the law specifically targets spending on ballot measures only after they have been officially certified, whereas much of Grassroot's work involves advocating for or against the inclusion of measures on the ballot. He further contended that the group's past advocacy on certified measures, such as a 2008 letter concerning a rail initiative and a 2010 blog post, fell under the law's exemption for news and commentary. Rayner also highlighted the approximately 30 questions expected on the upcoming November ballot, suggesting Grassroot had shown no interest in advocating on any of them.

Senior U.S. District Judge Leslie Kobayashi, however, expressed skepticism regarding the state's narrow interpretation. She suggested that such a test would unfairly favor single-issue organizations whose future advocacy is easily predictable. The judge emphasized Grassroot's established history of community involvement, its exercise of First Amendment rights, and its consistent engagement with political questions, questioning why this track record would be deemed insufficient. Furthermore, Rayner argued that Grassroot had not demonstrated any specific expenditures covered by Act 11, noting that while the group receives donations, it does not explicitly link these funds or paid staff time to advocacy on certified ballot measures. Owen Yeates, an attorney for the Institute for Free Speech representing Grassroot, countered that the organization's descriptions of events, interviews, and mailings clearly indicated such spending, even referencing the rising cost of stamps as an example of operational expenses. While acknowledging the state's point, Judge Kobayashi stated she was still evaluating the required specificity for identifying expenditures, noting a "general inference" that Grassroot raises money, holds events, and engages in related activities.

The impending legal battle surrounding the Hawaii Act 11 corporate spending challenge carries significant implications for the landscape of corporate political speech across the state. The state's core constitutional argument posits that Hawaii possesses the inherent authority to define the powers granted to corporations it creates. Citing the Supreme Court's 2014 Hobby Lobby decision, Rayner asserted that the state is not curtailing existing rights but rather declining to bestow certain powers upon corporate entities. This argument suggests a fundamental reinterpretation of corporate personhood and First Amendment protections in the context of state-chartered organizations.

Senior U.S. District Judge Kobayashi's skepticism about this reasoning, particularly concerning its application to the Grassroot Institute of Hawaii, whose mission centers on public education regarding individual liberty and economic freedom, highlights the complex constitutional questions at play. The judge's inclination to allow the challenge to proceed signifies a major legal battle ahead regarding corporate First Amendment rights in the state. Lawyers advising corporations, nonprofits, and unions in Hawaii must closely monitor the progress of this challenge to Act 11. If the law is ultimately upheld, it will drastically alter permissible political spending activities, potentially leading to severe penalties, including dissolution, for non-compliance. This case will undoubtedly set a precedent for how states can regulate political engagement by corporate entities in the post-Citizens United era.

Lawyers advising corporations, nonprofits, and unions in Hawaii must closely monitor the progress of this challenge to Act 11. If the law is upheld, it will drastically alter permissible political spending activities, potentially leading to severe penalties up to dissolution for non-compliance. The judge's inclination to allow the challenge suggests a significant legal battle ahead regarding corporate First Amendment rights in the state.

Source: Original reporting via Courthouse News Service