Independence Institute v. Gessler (936 F. Supp. 2d 1256, 2013)

ORDER

PHILIP A. BRIMMER, District Judge.

The Court presided over a trial to the court from May 14 to May 24, 2012. The trial addressed one principal issue — whether the State of Colorado’s limitation on per-signature compensation for petition circulators violates the First Amendment to the United States Constitution. The following constitute the Court’s findings of fact and conclusions of law pursuant to Rule 52(a)(1) of the Federal Rules of Civil Procedure.

I. FINDINGS OF FACT

Plaintiffs are petition circulators, nonprofit organizations, and petition entities involved in the initiative and referendum process in the State of Colorado. They filed this 42 U.S.C. § 1983 action challenging the constitutionality of House Bill 09-1326 (“H.B. 1326”), which amends the rules and procedures pertaining to the initiative and referendum processes. On April 26, 2012, the Court granted defendant Scott Gessler’s motion for summary judgment, [Docket No. 327] on plaintiffs’ second, third, fourth, eighth, ninth, and tenth claims for..relief. ■ Plaintiffs’ sixth and seventh claims for .relief were .dismissed as moot and the Secretary stipulated to the entry of final judgment on plaintiffs’ first claim for relief [Docket No. 339]. The trial to court addressed plaintiffs’ only remaining claim — the fifth claim for relief, which challenges the constitutionality of Colorado’s hybrid compensation scheme.

The hybrid compensation scheme is codified at Colo.Rev.Stat. § 1-40-112(4) and states as follows: “It shall be unlawful for any person to pay a circulator, more than twenty percent of his or her compensation for circulating petitions on a per signature or petition section basis.” The. statute does not restrict all compensation to circulators on a per-signature basis; however, as a practical matter, the twenty percent restriction limits per-signature compensation to bonuses or incentive payments. As a result, the statute requires that circulators receive the majority of their compensation in the form of hourly' payments.

Plaintiffs claim that the hybrid scheme severely infringes their First Amendment rights to free speech because it decreases the pool of professional circulators'who are necessary for any successful signature-gathering campaign. Plaintiffs also argue that the hybrid scheme increases the cost of signature-gathering efforts, making it more difficult to qualify measures for the statewide ballot. Finally, plaintiffs assert that there is no evidence that the hybrid scheme will reduce the rate or incidence of fraud in the initiative and referendum process. The Secretary responds that plaintiffs offer no proof that § 1-40-112(4) will actually reduce the number of available professional circulators or that the statute will increase the cost of signature-gathering efforts in Colorado.

The Court previously enjoined the Secretary from'enforcing Colo.Rev.Stat. § 1-40-112(4), § IhIO-135, and § 1-40-121 to the extent that those sections applied to the hybrid, scheme. See Docket No. 60 at 37. Evidence at the preliminary injunction hearing established that the statute would deter most professional circulators from working in Colorado and would raise the cost of qualifying a measure for statewide vote. The Court also found that the Secretary failed to establish that pay-per-signature compensation was connected to the likelihood of circulator fraud. Id. at 29-30.

The evidence and arguments presented at trial established the following:

A. The Initiative and Referendum Process

The constitution of the State of Colorado permits its citizens to place propositions on the ballot through the initiative process. Colo. Const. Art. V, § 1. Proponents of a measure have two years to qualify an issue for the ballot, hut may only propose Taxpayer’s Bill of Rights measures — issues pértaining to taxes — for statewide vote in odd years.

To qualify a measure, proponents must complete the statutorily mandated process as set forth in Colo.Rev.Stat. § 1-40-101 et seq. Proponents must first submit a draft of the proposed legislation to the Legislative Counsel Office for review and comment.. Colo.Rev.Stat. § 1-40-105(1). Following a public hearing, the draft is submitted to the Title Board] to designates a title (the measure’s title cannot mislead or confuse voters) and a submission clause (paragraph summarizing the proposed legislation). Colo.Rev.Stat. § 1-40-106. Once the petition title and the submission clause are set, proponents must provide the Secretary with a sample petition section which contains a circulator affidavit, the ballot title, and the submission clause as approved by the Title Board. Thereafter, the Secretary must endorse a sample petition section and proponents may provide sequential copies of the petition section for circulation. Finally, proponents need to complete the circulation process in a six-month period, wherein they must collect the requisite number of valid signatures to present to the Secretary for review. The signature-gathering process is the matter at issue in this case.

B. Section l-40-112(4)’s Effect on the Cost of Signature-Gathering

1. Pay-Per-Signature vs. Hybrid Compensation

The testimony from both sides established that the effect of § 1-40-112(4) is to raise the per-signature cost to a petition entity. The cost of running signature-gathering campaigns will increase because the hybrid scheme excludes some professional circulators from working in Colorado and makes the signature-gathering process significantly less efficient. The evidence, however, did not provide an easily determinable method to quantify that increase in costs.

a. Pool of Circulators

At the preliminary injunction hearing, the Court found that petition entities in Colorado rely on a group of itinerant professional circulators to perform signature-gathering activities. Docket No. 60 at 7. Testimony from the preliminary injunction hearing established that itinerant professional circulators are integral to signature-gathering campaigns because they (1) are able to gather a large number of signatures in a short amount of time, (2) do not require training because they are familiar with the laws of various states, and (3) are easy to locate. Id. at 6. The testimony at trial, however, demonstrated that petition entities are not so dependent on professional circulators, but instead rely on a variety of circulators during signature-gathering campaigns. Dan Kennedy, owner of Kennedy Enterprises LLC, ■ a petition entity in Colorado, testified that petition entities typically rely on three types of circulators: (1) low-volume but high-validity professionals (i.e. individuals who occasionally circulate petitions for additional income); (2) medium-volume professionals (i.e. individuals who circulate on a part-time basis and produce an hourly average of 15 to 30 signatures); and ■ (3) high-volume itinerant professionals (i.e. individuals who rely on signature-gathering campaigns for their primary income and travel between states in search of the best compensation).

Jon Caldara, president of plaintiff The Independence Institute, testified that his 2010 Healthcare Choice measure would not have qualified for the statewide ballot without professional circulators. Caldara stated that, between April 2010 and August 2010, his all-volunteer signature-gathering effort yielded just 20,000 signatures. Only after this Court enjoined § 1-40-112(4) and he retained Kennedy Enterprises to enlist professional circulators was his signature-gathering campaign able to collect the necessary 110,676 signatures. See Ex. B-43 at 9. Kennedy estimated that 40% of the circulators working the Healthcare Choice measure were itinerant professionals. He testified that itinerant professionals are important to all signature-gathering efforts because they do not require training, have a high validity rate, and consistently collect 30 signatures in an hour and sometimes can collect 100 signatures in an hour.

Kennedy Enterprises contracted with Lamm Consulting, a petition entity in Colorado, to gather signatures on the Healthcare Choice Measure. Scott Lamm, owner of Lamm Consulting, also testified that itinerant professionals were the first contacted to circulate that petition. Lamm relied on itinerant circulators because only seven and a half weeks remained to collect signatures after the Court enjoined § 1-40-112(4). In Lamm’s words, the signature-gathering campaign had “no time to waste on training people or orienting people on what we needed to do.”

The evidence at trial established that any campaign performed without professional circulators would likely spend additional time and resources training new circulators. Although proponents have six months to collect signatures in Colorado, testimony revealed that, due to legal challenges, signature-gathering efforts are never conducted within a full six-month window. Additionally, new circulators require at least a week of training before they are able to collect signatures at a consistent rate. Thus, as the time to collect signatures grows shorter, professional circulators are an increasingly important part of a successful signature-gathering campaign.

Edward Blaszak, who owns a pay-per-hour signature gathering firm in Oregon and has run pay-per-hour campaigns in other states, testified about the importance of well-trained petition circulators. Blaszak stated that the training he provides to new circulators allows them to become efficient circulators. For example, during a petition campaign, the first day at Blaszak’s company includes intensive training sessions where circulators practice pitching a proposed measure to registered voters, role playing activities where circulators simulate actual conditions, and on-site training once new circulators are out in public. Moreover,, Blaszak often retrains poorly performing circulators rather than terminating.them so long as they continue to provide adequate effort:

Lamm, Kennedy, Blaszak, and William Huckins, one of Blaszak’s circulators, testified that, although petition circulation is not a difficult concept to understand, it is not an easy task to master. Lamm opined that only one out of every ten individuals who attempts to circulate is ultimately successful, while Huckins testified that it took him a “week [to] two weeks” to acquire the necessary skills. 'Edward Agazarm, who has been involved in signature-gathering for 19 years, testified that new circulators are less productive because they have not acquired the skills necessary to identify eligible voters and collect a large number of signatures. Agazarm, Lamm, Blaszak, and Kennedy testified that nonprofessional circulators’ lack of skills typically results in lower overall production and lower validity rates.

The evidence at trial established that § 1-40-112(4) would likely exclude some professional circulators (both itinerant professionals and low-volume professional circulators) from working in Colorado. The testimony demonstrated that itinerant professionals are driven primarily by their earning potential. Jacob Thaler and David Vaughn, two pay-per-signature itinerant professionals, testified that they would work in Colorado under § 1-40-112(4) if they could earn between $30 to $50 per hour. Jeffrey Zax, professor of economics at the University of Colorado, Boulder, testified that earning potential is an important criteria itinerant professionals consider when choosing signature-gathering campaigns.

Zax opined that itinerant professionals avoid working in pay-per-hour states such as Oregon because the hourly rate for circulators in those states is between $9 and $12 per hour. He testified that professional circulators would work in Colorado if their compensation was closely linked to productivity. Zax described a hybrid compensation model consistent with § 1-40-112(4) that he argued would allow itinerant professionals to maintain the earning potential they possessed under a pay-per-signature system. Zax testified that itinerant professionals could earn $35 per hour, which consisted of an hourly wage of $28 and a 20$ bonus for every signature collected up to 35. Petition entities could also replicate this hybrid compensation scheme by calculating a 20% bonus rate from the anticipated hourly production total for an itinerant professional.

Despite the theoretical plausibility of Zax’s model, the Court finds that § 1^10-112(4) will likely deter most itinerant professionals from working in Colorado. First, there was no testimony that any pay-per-hour signature gathering entity pays circulators the $28 to $50 per hour that pay-per-signature itinerant professionals can earn. Blaszak typically pays $14 per hour. Second, the flexibility afforded to itinerant, professionals by the pay-per-signature model would not be available under a hybrid compensation scheme. Moreover, because a. petition entity operating under § 1-40-112(4)’s hybrid scheme must exert more control over its circulators, itinerant professionals will likely decline to work under such conditions. According to Arno, itinerant professionals want the freedom to work in places and during times they are likely to gather a high volume of signatures (e.g. grocery store after 6:00 p.m., outdoor events, or sporting events). Thaler and Vaughn testified that they had reservations’ about pay-per-hour systems because they would not adequately compensate them for the unusually high production days when they can collect up to 100 signatures in an hour. Thus, imposing restrictions on itinerant professionals’ freedom to work where they want and when they want is likely to not only curtail their production, but also to result in certain professionals’ refusal to submit to such conditions. Additionally, the uncertainty surrounding circulators’ employment status (i.e. employee or independent contractor) under a hybrid system will likely deter most itinerant professionals from working in Colorado just as they currently avoid Oregon. Consequently, the net effect of § 1-40-112(4) will be to deter the majority of itinerant professionals.

The Court finds that the hybrid scheme will also eliminate low-volume professional circulators. Kennedy and Lamm testified that, because low-volume professional circulators collect only a few signatures during any given week, it would not be economically feasible to compensate these circulators with an hourly wage. Additionally, they testified that, because it is not feasible to pay low-volume professionals by the hour, the only alternative under the hybrid scheme would be to pay low-volume professional circulators 20$ per signature. However, low-volume professional circulators would not find compensation of 20$ per signature sufficient to continue signature-gathering activities. By contrast, Lamm and Kennedy testified that, under a pay-per-signature system, they can collect signatures from low-volume professional circulators without oversight because their low productivity (i.e. a net gain of five to fifteen signatures over the course of a week) garners the same compensation regardless of the length of time to collect. Kennedy and Lamm both testified that the constant flow of high-validity signatures from low-volume professional circulators can account for 20% of total signatures. These signatures are essential because the high validity rate decreases the burden of collecting “buffer” signatures.

Without access to the majority of itinerant professionals and low-volume professional circulators, petition entities will have to expend more resources training new circulators. In addition, petition entities will have to compensate circulators for more hours of work in order to generate the 20% of signatures usually provided by low-volume professional circulators. When time is of the essence, the necessarily greater reliance on new circulators under^ 1-40-112(4) increases the likelihood of poor validity and thereby makes it more likely that a signature-gathering campaign will be unsuccessful As a result, the loss of itinerant professionals and low-volume professional circulators is likely to raise costs for proponents and make it less likely that an issue qualifies.

b. Inefficiency Costs

The testimony at trial established that § 1-40-112(4) would significantly decrease the efficiency of signature-gathering campaigns. Lamm, Kennedy, and Albie Hurst, an employee of Lamm Consulting, testified that circulators in Colorado under their pay-per-signature models receive compensation only for the signatures they provide and are not compensated for training or travel time. Additionally, Kennedy and Lamm testified that their firms review petition sections to determine validity rates. Circulators with validity rates lower than 75% have their compensation partially reduced.

Kennedy testified that he has relatively low day-to-day expenses. He hires his daughters or temporary agency workers to perform office functions. On signature collection days, which happen twice a week, crew managers help perform validity checks and Bonnie Todd, a circulator who is also a licensed notary, usually notarizes petition sections. Moreover, because everyone performing work on behalf of Kennedy Enterprises is considered an independent contractor, completing payroll does not require specialized skill. Kennedy testified that the hybrid scheme would increase his costs of conducting a signature-gathering campaign because he would have to collect signatures daily, could not reduce circulator compensation for low validity rates, and would have to compensate circulators for activities that do not directly yield signatures such as training, rest breaks, and travel time.

Agazarm, who has participated in both pay-per-signature and pay-per-hour campaigns in the State of Oregon, testified that circulators are not as productive under pay-per-hour systems. Agazarm stated that, because circulator compensation is not tied to -productivity under a pay-per-hour, system, circulators “shirk” their responsibility to gather signatures. He further testified that shirking increases a petition entity’s exposure to loss because. circulators are compensated regardless of how many signatures they collect. Shirking, however, is non-existent in a pay-per-signature system because circulators are not compensated if they fail to collect signatures.

Arno, who has qualified more than 650 initiatives nationwide since 1979, testified that the • cost of running a pay-per-hour drive can double the cost of a pay-per-signature campaign. Arno based this estimate on a pay-per-hour campaign he performed in Oregon after the passage of Measure 26. Arno testified that, under a pay-per-signature system, he could collect 140,000 signatures in Oregon at a rate of $1.55 per signature for a total of $217,000. However, in 2003, after the passage of Measure 26, he spent over $500,000 to collect the same number of signatures. In addition to the added costs identified by Agazarm and Kennedy, Arno testified that pay-per-hour campaigns increase costs because petition entities must hire additional field supervisors to counter shirking, pay overtime to circulators who work longer than 8 hours in a day without permission, and cannot reduce circulator compensation even if circulators report inflated hours.

This testimony was consistent with Blaszak’s experience conducting pay-per-hour campaigns. Blaszak testified that he compensates circulators' for training and travel time and has field managers supervise circulators. Additionally, Blaszak testified that, in order to counter shirking, his circulators report signature totals twice daily. Blaszak provides bonuses in the form of movie tickets and pizza parties to increase production. Blaszak terminates a circulator if a circulator consistently collects below a certain number of signatures.

Zax acknowledged that a principal weakness of a pay-per-hour system is that circulators will attempt to shirk when given the opportunity. However, Zax opined that the 20