IN THE UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF COLUMBIA

____________________________________

HERRON FOR CONGRESS , :

Plaintiff, :

v. :

: Civil Action No. 11-1466 (EGS)

FEDERAL ELECTION COMMISSION, :

Defendant. :

____________________________________:

PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT

Plaintiff Herron For Congress respectfully moves this Court for summary judgment 

pursuant to Fed. R. Civ. 56, and: 

1. Declare that the Federal Election Commission’s dismissal of plaintiff’s 

administrative complaint against Steve Fincher For Congress and its treasurer, 

MUR 6386, is arbitrary, capricious, an abuse of discretion, and contrary to law;

2. Remand MUR 6386 to the Federal Election Commission with an Order to 

conform to this Court’s declaration, and to inform this Court and the plaintiff 

within 30 days whether the Federal Election Commission has conformed to this 

Court’s Order;

3. Order the Commission to issue any Statement of Reasons within 30 days of its 

decision;

4. Award plaintiff its costs, expenses, and reasonable attorney’s fees in this action;

5. Order the parties to confer and to reach agreement on fee and cost issues and set a 

post-judgment status conference regarding the appropriate fees and costs matter 

pursuant to LCvR 54.2(a), and

Case 1:11-cv-01466-EGS Document 15 Filed 04/06/12 Page 1 of 2
6. Grant such other and further relief as this Court may deem just and proper.

Respectfully submitted,

________/s/_____________

Stephen E. Hershkowitz

D.C. Bar No. 282947

Joseph E. Sandler

D.C. Bar No. 255919

Elizabeth H. Howard

D.C. Bar No. 996712

Sandler, Reiff, Young & Lamb, P.C.

Suite 300

1025 Vermont Avenue, N.W.

Washington, D.C. 20005

w. (703) 476 - 0671

w. (202) 479 - 1111

c. (703) 731 - 6648

f. (202) 479 - 1115

hershkowitz@sandlerreiff.com

stevehershkowitz@yahoo.com

Counsel for Plaintiff

Herron For Congress

April 6, 2012

Case 1:11-cv-01466-EGS Document 15 Filed 04/06/12 Page 2 of 2
IN THE UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF COLUMBIA

____________________________________

HERRON FOR CONGRESS, :

Plaintiff, :

v. :

: Civil Action No. 11-1466 (EGS)

FEDERAL ELECTION COMMISSION, :

Defendant. :

____________________________________:

PLAINTIFF’S MEMORANDUM IN SUPPORT OF ITS 

MOTION FOR SUMMARY JUDGMENT

Stephen E. Hershkowitz

D.C. Bar No. 282947

Joseph E. Sandler

D.C. Bar No. 255919

Elizabeth H. Howard

D.C. Bar No. 996712

Sandler, Reiff, Young & Lamb, P.C.

Suite 300

1025 Vermont Avenue, N.W.

Washington, D.C. 20005

w. (703) 476 - 0671

w. (202) 479 - 1111

c. (703) 731 - 6648

f. (202) 479 - 1115

hershkowitz@sandlerreiff.com

stevehershkowitz@yahoo.com

Counsel for Plaintiff

Herron For Congress

April 6, 2012

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 1 of 47
ii

TABLE OF CONTENTS

page

I. SUMMARY.........................................................................................................................1

II. BACKGROUND.................................................................................................................2

A. The Parties And Others Involved In The Administrative Complaint......................2

B. FECA’s Enforcement Authority..............................................................................3

C. Proceedings At The Commission.............................................................................8

1. The HFC Administrative Complaint............................................................8

2. SFC’s and The Bank’s Replies to the Administrative Complaint.............10

3. The General Counsel’s Recommendation.................................................12

a. The Reporting Violation................................................................12

b. The Corporate Contribution Violation...........................................13

4. The Commissioners’ Decisions.................................................................14

III. DISCUSSION....................................................................................................................16

A. Customary Agency Deference Is Not Applicable In This Case............................16

B. The FEC Dismissal of the Reporting Violation Was Arbitrary And Capricious...20

C. The FEC Failed To Find Reason to Believe There Was A Knowing and Willful 

Reporting Violation...............................................................................................22

D. The FEC Failed To Find Reason to Believe There Was A Corporate 

Contribution...........................................................................................................24

1. There Was No Collateral, But Even If There Were Collateral, The Value 

Of The Collateral Was Insufficient To Assure Repayment And The 

Commission’s Explanation For Finding Sufficient Collateral Was 

Arbitrary And Capricious..........................................................................26

a. Adverse Inference Rule There Was RTB The Collateral Was 

Insufficient According To Adverse Inference Rule......................27

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 2 of 47
iii

b. There Was Reason To Believe That The Bank Could Not Rely On 

the Purported Collateral To Support The Signature Loan.............28

c. Even If there Were Collateral, The Evidence Suggests That The 

Value Of The Collateral Was Insufficient.....................................32

2. There Was Reason To Believe That There Was No Perfected Security 

Interest In The Purported Collateral..........................................................38

E. Other Issues............................................................................................................39

CONCLUSION..............................................................................................................................40

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 3 of 47
iv

TABLE OF CASES

page

Akins v. Federal Election Commission, 736 F.Supp. 2d 9 (D.D.C. 2010).....................................16

Alliance for Democracy v. Federal Election Commission, 335 F. Supp. 2d 39 (D.D.C. 2004)......3

Arvi-Edison Water Storage Disst. v. Hodel, 610 F. Supp. 1206, 1218 (D.D.C. 1985)..................27

Common Cause v. Federal Election Commission, 906 F.2d 705 (D.C. Cir. 1990).......................16

Democratic Congressional Campaign Committee v. Federal Election Commission, 831 F.2d. 

1131 (D.C. Cir. 1987)....................................................................................................8, 16

Federal Election Commission v. Democratic Senatorial Campaign Comm., 454 U.S. 27 

(1981).......................................................................................................................7, 17, 18

Federal Election Commission v. John A. Dramesi for Cong. Comm., 640 F. Supp. 985 (D.N.J. 

1986)..................................................................................................................................22

Federal Election Commission v. Nat’l Republican Senatorial Comm., 842 F.2d 436 (D.C. Cir. 

1988)....................................................................................................................................8

Hagelin v. Federal Election Commission, 411 F.3d 237 (D.C. Cir. 2005)..............................16, 17

Heckler v. Chaney, 470 U.S. 821 (1985).........................................................................................4

In re Stewart, 19 B.R. 165 (Bkrtcy.Tenn. 1982)............................................................................30

International Union (UAW) v NLRB, 459 F.2d 1329 (D.C. Cir 1972)..........................................27

Nader v. Federal Election Commission, --- F. Supp. 2d ----, 2011 WL 5386423 (D.D.C. 2011).16

Orloski v. Federal Election Commission, 795 F.2d 156 (D.C. Cir. 1986)................................8, 16

Safe Extensions, Inc. v. FAA, 509 F.3d 593 (D.C. Cir. 2007)........................................................17

Securities and Exchange Commission v. Chenery Corp., 337 U.S. 194 (1975)..............................4

Udall v. Tallman, 380 U.S. 1 (1965)..............................................................................................17

United States v. Hopkins, 916 F. 2d 207 (5th Cir. 1990)...............................................................22

Utility Workers Union of America, Local 369, AFL-CIO v. Federal Election Comm'n, 691 F. 

Supp.2d 101 (D.D.C 2010)................................................................................................17

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 4 of 47
v

TABLE OTHER AUTHORITIES

page

12 CFR § 27.3(b) and (c) (Information required For Home Loans)..............................................27

12 CFR § 290.271 (FDIC Records For Lending Transactions).....................................................27

17 CFR Pt 391 Subpt B. App A (FDIC Interagency Guidelines Establishing Standards For Safety 

and Soundness)..................................................................................................................27

122 Cong. Rec. H 2778 (daily ed. May 3 1976)............................................................................22

72 Fed. Reg. 12545 (2007) Statement of Policy Regarding Commission Action in Matters at the 

Initial Stage in the Enforcement Process.................................................................5, 25, 34 

Advisory Opinion 1991-10............................................................................................................33

Fed.R.Civ.P. 8(a)((2).......................................................................................................................6

Fed. R. Evid. 201...........................................................................................................................39

Fed. R. Evid. 803(14)....................................................................................................................39

Fed. R. Evid. 803(8)......................................................................................................................39 

Federal Election Campaign Act, 2 U.S.C. § 431 et seq. .......................................................passim

Federal Reserve Board Commercial Bank Examination Manual, Agricultural Loans § 2140.1 at 

pp. 8-9 (www.federalreserve.gov/boarddocs/supmanual/cbem/0005cbem.pdf)...............27 

H.R. Rep. No. 94-1057, at 43 reprinted in The Legislative History of the Federal Election 

Campaign Act Amendments of 1976 at 1043......................................................................5 

H.R. Rep. No. 94-917, at 63 (1976) reprinted in The Legislative History of the Federal Election 

Campaign Act Amendments of 1976 at 863........................................................................5

MUR 5026 (Zimmer 2000, Inc., et al.) General Counsel’s Report No. 3......................................28

MUR 5381 (Rob Bishop for Congress, et al.) First General Counsel’s Report.......................27, 36 

MUR 5381 (Rob Bishop for Congress, et al.) Response.........................................................27, 36

MUR 5398 (LifeCare Holdings, Inc. et al.) General Counsel’s Report........................................28 

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 5 of 47
vi

MUR 5421 (John Ferry for President, et al.) Factual and Legal Analysis.........................27, 36, 37

MUR 5496 (Lawrence Huffman, et al.) Factual and Legal Analysis............................................22

Tenn. Code Anno. § 47-1-201(37).................................................................................................29

Tenn. Code Anno. § 47-9-102.......................................................................................................29 

Tenn. Code Anno. § 47-9-105.......................................................................................................29 

Tenn. Code Anno. § 47-9-203(1)(b)..............................................................................................29

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 6 of 47
vii

APPENDIX OF FEC DOCUMENTS

attachment

72 Fed. Reg. 12,545 (2007) Statement of Policy Regarding Commission Action in Matters at the 

Initial Stage in the Enforcement Process............................................................................A

Advisory Opinion 1991-10..............................................................................................................B

MUR 5026 (Zimmer 2000, Inc., et al.) General Counsel’s Report No. 3 at 9 n. 7.........................C

MUR 5381 (Rob Bishop for Congress, et al.) First General Counsel’s Report 

recommending not to find RTB..........................................................................................D

MUR 5381 (Rob Bishop for Congress, et al.) Response by a Respondent.....................................E

MUR 5398 (LifeCare Holdings, Inc. et al.) General Counsel’s Report No. 2 at 4.........................F

MUR 5421 (John Ferry for President, et al.) Factual and Legal Analysis of the Commission’s 

Finding of RTB...................................................................................................................G

MUR 5496 (Lawrence Huffman, et al.) Factual and Legal Analysis.............................................H

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 7 of 47
PLAINTIFF’S MEMORANDUM IN SUPPORT OF ITS 

MOTION FOR SUMMARY JUDGMENT

I. SUMMARY

This case is a review of the Federal Election Commission’s (“FEC” or “Commission”) 

dismissal of an administrative complaint filed by Herron for Congress (“HFC”) without 

investigating the legality and the disclosure of a $250,000 signature loan to Stephen Fincher, a 

congressional candidate in 2010, who provided those funds to his campaign committee, Steve 

Fincher for Congress (“SFC”). 

The Federal Election Campaign Act of 1971 as amended, 2 U.S.C. § 431 et seq., 

(“FECA” or the “Act”) and the regulations promulgated thereunder consider bank loans as an 

illegal corporate contribution, 2 U.S.C. § 441b(a), unless the bank had adequate collateral with a 

perfected security interest, among other things not relevant here. Mr. Fincher’s only income and 

assets were the farm and residence he owned with his wife. The only evidence in the 

administrative record of any income was $124,016 that the farm earned that year, and the only 

other asset was a residence with a $200,000 mortgage and an assessed value of $250,300 in 

2012. SFC and the bank asserted, without providing any supporting documents that the signature 

loan was cross-collateralized by a note on the farm’s crops and the deed of trust on the residence. 

The Commission had no evidence, however, that the crops and residence could provide collateral 

for the signature loan because there is no evidence that Mrs. Fincher had agreed to permit her 

interest in the farm and residence to serve as collateral for the signature loan. Even if she had, 

there was no evidence that Mr. Fincher’s interest in the value of the crops or residence equaled or 

exceeded $250,000. Nevertheless, in a reversal of the adverse inference rule and without 

discussing the available information to the contrary, the Commission arbitrarily and capriciously 

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 8 of 47
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decided not to investigate because “we have no information suggesting that the $250,000 loan to 

Fincher’s committee was under-collateralized.”

This case is also about SFC’s disclosure of the funds as a loan from the candidate instead 

of from the bank despite Commission regulations that require political committees to disclose the 

bank as the source of this type of loan. 2 U.S.C. § 434(b)(3)(E) and 11 CFR § 104.3(d)(4). All 

six of the FEC Commissioners agreed there was a violation, and all voted, but not 

simultaneously, to find that there was reason to believe a violation had occurred pursuant to 2 

U.S.C. § 437g(a)(2). Nevertheless, the Commission arbitrarily and capriciously failed to make 

that finding for the unrelated reason that the Commissioners could not agree on the appropriate 

sanction. 

Accordingly, the plaintiff respectfully requests that this Court find that the 

Commission’s decisions and its explanation for those decisions were arbitrary, capricious and 

contrary to law, and remand this matter to the Commission pursuant to 2 U.S.C. § 437g(a)(8).

II. BACKGROUND

A. The Parties And Others Involved In The Administrative Complaint

Defendant Federal Election Commission is an agency within the meaning of 

5 U.S.C. § 552(f) and was established by Congress to oversee the administration and civil 

enforcement of the FECA. 2 U.S.C. § 437c. The Commission has exclusive jurisdiction with 

respect to the civil enforcement of the FECA, 2 U.S.C. § 437c(b)(1), except for a limited 

provision, 2 U.S.C. § 437g(a)(8)(C), not relevant here.

Plaintiff Herron For Congress is the authorized political committee of Roy Herron, the 

Democratic nominee for U.S. House of Representatives for the 8th Congressional District of 

Tennessee in the November 2010 general election. As an authorized committee, the HFC was 

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 9 of 47
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designated and authorized by Roy Herron to receive campaign contributions and make 

expenditures on behalf of his campaign, see 2 U.S.C. § 431 (5)and (6). Answer ¶¶ 5 and 6.

Steve Fincher for Congress was the the authorized political committee of Stephen 

Fincher, the Republican nominee for U.S. House of Representative for the 8th Congressional 

District of Tennessee in the November 2010 general election. As an authorized committee, the 

SFC was designated and authorized by Stephen Fincher to receive campaign contributions and 

make expenditures on behalf of his campaign, see 2 U.S.C. § 431 (5)and (6). Stephen Fincher 

won the election and is the incumbent Member of Congress representing that District. Answer 

¶7.

Gates Bank & Trust Company is a Tennessee bank that provided $250,000 to Stephen

Fincher who then provided those funds to SFC. Administrative Record (“AR”) at 691.

B. FECA’s Enforcement Authority

FECA’s statutory enforcement regime is well known in this District and, in particular, 

this Court. See e.g. Alliance for Democracy v. Federal Election Commission, 335 F. Supp. 2d 39, 

41(D.D.C. 2004).

1

 

1

Alliance for Democracy v. Federal Election Commission, 335 F. Supp. 2d 39, 41

(D.D.C. 2004):

The FEC is authorized to institute investigations of possible violations of the 

FECA. 2 U.S.C. §§ 427g(a)(1) and (2). The FECA permits any person to file a 

signed, sworn administrative complaint with the FEC alleging a violation of the 

Act. 2 U.S.C. § 437g(a)(1).

When a complaint is filed, the FEC notifies the respondents named in the 

administrative complaint, who are then given an opportunity to respond. 2 U.S.C. 

§ 437g(a)(1). After reviewing the complaint and responses, the FEC then prepares 

a recommendation, addressing whether there is a “reason to believe” a violation 

of the FECA has occurred. 2 U.S.C. § 437g(a)(2). If the Commission finds that a 

reason to believe exists, it can proceed to “make an investigation of [the] alleged 

violation, which may include a field investigation or audit, in accordance with the 

provisions of [section 437g(a) ].” 2 U.S.C. § 437g(a)(2).

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 10 of 47
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Some of FECA’s enforcement procedures, 2 U.S.C. § 437g(a), are unusual. Congress did 

not provide a private right of action for a violation of FECA. 2 U.S.C. § 437d(e). However, 

anyone may file an administrative complaint, and all the complainant must do is swear to the 

veracity of the information therein. 2 USC 437g(a)(1). All subsequent investigations by the 

Commission are confidential until the investigation is closed. 2 U.S.C. § 347g(a)(12). Thus, 

once an administrative complaint is filed, the complainant has no rights during the investigation

and does not know the status of the complaint. For example, the complainant does not see the 

response to the complaint, cannot respond to it or offer relevant information, and must rely on 

 

At the conclusion of the investigation, the statute authorizes the FEC's General 

Counsel to recommend that the Commission vote on whether there is “probable 

cause to believe” that the Act has been violated. 2 U.S.C. § 427g(a)(3). The 

General Counsel then prepares a report to the Commission recommending what 

action should be taken. 11 C.F.R. § 111.16. Upon consideration of the briefs and 

report, the Commission determines whether or not there is “probable cause to 

believe” a violation has occurred. 2 U.S.C. § 437g(a)(4)(A)(i). If the Commission 

finds probable cause to believe that a violation has occurred, the Commission is 

required to attempt to resolve the matter by “informal method of conference, 

conciliation, and persuasion, and to enter into a conciliation agreement” with the 

respondents. 2 U.S.C. § 437g(a)(4)(A)(i). The Commission is required to attempt 

to reach a conciliation agreement for at least 30 days and not more than 90 days. 2 

U.S.C. § 437g(a)(4)(A)(i).

If the Commission is unable to resolve the matter through voluntary conciliation, 

the Commission may vote to authorize the filing of a de novo civil suit in district 

court to enforce the Act. If the Commission determines that no violation occurred 

or dismisses the administrative complaint for some other reason, the complainant 

has an opportunity to seek judicial review of that determination. 2 U.S.C. § 

437g(a)(8)(A). Section 437g(a)(8) also allows a party who has filed an 

administrative complaint with the Commission to seek judicial review in this 

Court should the Commission “fail to act” on a complaint within 120 days. 2 

U.S.C. § 437g(a)(8)(A). If the Court finds that the Commission's dismissal or 

failure to act was ‘contrary to law,’ it may order the Commission to conform to 

the Court's decision, but must give the agency 30 days to do so. 

2 U.S.C. § 437g(a)(8)(C).

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 11 of 47
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the Commission’s staff to conduct a reasonable inquiry in private. Because the Commission may 

be called upon to investigate areas outside of its electoral expertise, Congress specifically gave it 

the power to “avail itself of the assistance, including personnel and facilities of other agencies 

and departments of the United States.” 2 U.S.C. § 437c(f)(3). 

Congress did provide the complainant with one unusual power: the ability to seek judicial 

review of the dismissal of a complaint. 2 U.S.C. § 437g(a)(8). This alone sets the Commission’s 

enforcement provisions apart from most other agencies whose decision not to enforce the law is 

a matter of discretion and unreviewable. See e.g. Heckler v. Chaney, 470 U.S. 821, 831 (1985) 

(“This Court has recognized on several occasions over many years that an agency's decision not 

to prosecute or enforce, whether through civil or criminal process, is a decision generally 

committed to an agency's absolute discretion.”) (citations omitted); Securities and Exchange 

Commission v. Chenery Corp., 337 U.S. 194, 199-200 (1975) (same). 

The provision authorizing the Commission to initiate an investigation or to dismiss a 

complaint without an investigation, 2 U.S.C. § 437g(a)(2), is unambiguous and is consistent with

the provisions prohibiting a private right of action and authorizing a judicial review of a 

Commission decision not to enforce the FECA. 2 U.S.C. § 437g(a)(2) states:

If the Commission, upon receiving a complaint under paragraph (1) or on the 

basis of information ascertained in the normal course of carrying out its 

supervisory responsibilities, determines, by an affirmative vote of 4 of its 

members, that it has reason to believe that a person has committed, or is about to 

commit, a violation of this Act or chapter 95 or chapter 96 of title 26, the 

Commission shall, through its chairman or vice chairman, notify the person of the 

alleged violation. Such notification shall set forth the factual basis for such 

alleged violation. The Commission shall make an investigation of such alleged 

violation, which may include a field investigation or audit, in accordance with the 

provisions of this section.

Id. (emphasis added). Thus, “if the Commission has reasonable cause to believe that a person has 

violated the Act . . . , the Commission is required to notify the person and to conduct an 

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 12 of 47
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investigation of the violation.” H.R. Rep. No. 94-917, at 63 (1976) reprinted in The Legislative 

History of the Federal Election Campaign Act Amendments of 1976 at 863(emphasis added). 

The Conference Committee substitute followed the House Amendment of this provision in 

relevant part. H.R. Rep. No. 94-1057, at 43 reprinted in The Legislative History of the Federal 

Election Campaign Act Amendments of 1976 at 1043. 

The reason to believe (“RTB”) standard is not defined in the FECA, but the Commission 

has issued a policy statement describing its views. “The Commission will find ‘reason to believe’ 

in cases where the available evidence in the matter is at least sufficient to warrant conducting an 

investigation, and where the seriousness of the alleged violation warrants further investigation or 

immediate conciliation.” 72 Fed. Reg. 12545 (2007).

2

 “The Commission finds ‘no reason to 

believe’ when the complaint, any response filed by the respondent, and any publicly available 

information, when taken together, fail to give rise to a reasonable inference that a violation has 

occurred, or even if the allegations were true, would not constitute a violation of the law.” Id. at 

12,546. 

Thus, the RTB standard is a low threshold during the initial phase of the Commission’s 

enforcement proceeding pursuant to 2 USC § 437g(a)(2), which is less than the grounds 

necessary to file a civil complaint, Fed.R.Civ.P. 8(a)((2) (“a short and plain statement of the 

claim showing that the pleader is entitled to relief”). In comparison, the evidence necessary to 

file a civil complaint is described in the FECA as a finding of probable cause to believe a 

violation has occurred. 2 U.S.C. § 437g(a)(4)-(6). Congress designed this system so a 

complainant, such as HFC, who has no private right of action, is only required to submit a sworn 

 

2

“Immediate conciliation” in this context refers to situations where the Commission allows the 

respondent to negotiate a settlement without the need for an investigation and without 

following the procedures described in 2 U.S.C. §§ 427g(a)(3) – (5). A typical example is when 

a respondent has admitted a violation, as in this case. 

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 13 of 47
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statement to the Commission that the facts therein, if true, allege a violation of FECA. 2 U.S.C. 

§ 437g(a)(1). Then it is up to the Commission to determine if those facts in combination with 

public information present a reason to believe a violation has occurred sufficient to initiate an 

investigation. 2 U.S.C. § 437g(a)(2). The complainant does not see the respondent’s reply and, 

consequently, must rely on the Commission to gather any relevant public information and 

understand the significant issues present in that information without the assistance of the 

complainant. As shown below, the Commission failed to live up to the responsibility entrusted 

to it by Congress to consider and understand the significance of relevant available information. 

Commission regulations governing public disclosure of its actions require the 

Commission to make public the fact that it made a finding of no reason to believe, no probable 

cause to believe, or otherwise terminated a proceeding and the basis for such action “no later 

than thirty (30) days from the date on which the required notifications are sent to complainant 

and respondent.” 11 C.F.R. § 111.20(a). In addition, 11 C.F.R. § 5.4(a)(4) requires the 

Commission to place Commissioner opinions, General Counsel’s reports, and non-exempt 

investigatory materials in enforcement cases on the public record within 30 days from the date 

on which respondents are notified the Commission has voted to close an enforcement file. A 

failure to follow these self-imposed deadlines would, at least, hamper the ability of a claimant to 

file a challenge to the dismissal within 60 days of the decision pursuant to 2 U.S.C. § 437g(a)(8).

When the Commission follows the recommendation of its general counsel and dismisses 

an administrative complaint, the General Counsel’s Report to the Commission provides the basis 

for district court review. See Federal Election Commission v. Democratic Senatorial Campaign 

Comm., 454 U.S. 27, 38 and n. 19 (1981). When the Commission rejects the General Counsel’s 

recommendation to pursue a possible violation of the FECA, the reasoning of the Commissioners 

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 14 of 47
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who voted to dismiss the complaint – generally set forth in a Statement of Reasons – provides 

the basis for judicial review. See Federal Election Commission v. Nat’l Republican Senatorial 

Comm., 842 F.2d 436, 449 (D.C. Cir. 1988). 

After the Commission dismisses a complaint, any “party aggrieved” may seek judicial 

review of that dismissal in the United States District Court for the District of Columbia, 2 U.S.C. 

§ 437g(a)(8)(A), within 60 days after the date of the dismissal,” 2 U.S.C. § 437g(a)(8)(B). If the 

District Court declares the dismissal “contrary to law,” the Court may order the Commission “to 

conform with such declaration within 30 days.” 2 U.S.C. § 437g(a)(8)(C). “’[C]ontrary to law’” 

in this context includes action that is “’arbitrary and capricious.’” Democratic Congressional 

Campaign Committee v. Federal Election Commission, 831 F.2d 1131, 1135 n.4 (D.C. Cir. 

1987) (citing Orloski v. Federal Election Commission, 795 F.2d 156, 161 (D.C. Cir.1986)).

C. Proceedings At The Commission

1. The Herron For Congress Administrative Complaint

On September 29, 2010, the plaintiff filed an administrative complaint with the 

Commission against Steve Fincher For Congress and its treasurer. AR at 1 – 18. On October 

14, 2010, the plaintiff filed a supplement to its complaint. AR at 28 – 29. The complaint and 

supplement filed by HFC described the following facts:

On July 23, 2010, the Fincher Campaign filed with the Commission the 

Campaign's pre-primary election report, covering the period July 1, 2010 through 

July 16, 2010. That report disclosed a loan of $250,000 made to the Campaign on 

July 8, 2010. The loan was reported on Line 13(a) as having been made or 

guaranteed personally by the candidate. On Schedule C to this report, the 

Campaign reported the loan source as being “Personal Funds.”

Mr. Fincher has filed two personal financial disclosure reports with the Clerk of 

the U.S. House, pursuant to the Ethics in Government Act of 1978. The first 

report was filed on October 29, 2009, covering calendar year 2009 up to 

September 29, 2009; and the second report was filed on May 17, 2010, covering 

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 15 of 47
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January 1, 2009 through May 15, 2010. These reports showed no personal 

financial assets of Mr. Fincher, at all—no bank accounts, no stocks, no bonds, no 

certificates of deposit. The only asset of any kind disclosed was Mr. Fincher's 

farm.

Clearly, it seems impossible that Mr. Fincher had $250,000 in cash available to 

loan to his campaign on July 8, 2010 yet had no personal funds at all, of any kind, 

at any time in 2010 through at least May 15. An Associated Press article on 

August 27, 2010 . . . reported that ‘Warren Nunn, chairman of the Gates Banking 

and Trust Co., said his bank was the source of the loan to Fincher, a longtime 

customer. “We did advance Stephen a loan,” Nunn said. . . . Nunn, who has given 

the Fincher campaign $4,800, declined to say what kind of collateral Fincher put 

up for the loan’ (emphasis added).

A copy of the disclosure report was attached to the administrative complaint. The 

supplement to the complaint, AR at 28-29, stated:

The Fincher Campaign . . . filed with the FEC its quarterly report for the third 

quarter of 2010. Remarkably, Schedule C on that report continues to indicate that 

the source of the $250,000 loan made to the Fincher Campaign in July was 

Stephen Fincher's personal funds. That is exactly what the Fincher Campaign 

reported in its pre-primary report filed on July 23, 2010.

Since that pre-primary report was filed, however, the chairman of Gates Banking 

&, Trust Co. of Tennessee told the Associated Press, on August 27, that Gates 

Bank was actually the source of the loan to the Fincher Campaign, as set forth in 

the Herron Campaign's original complaint. That bank chairman also refused to 

say whether Mr. Fincher had put up any collateral to secure the loan—and the 

Herron Campaign has been unable to find any UCC security statement on file 

with the Tennessee Secretary of State indicating that the Gates Bank took any 

security interest in any collateral in respect of this loan. Further, the filing of the 

complaint with the FEC has also been publicized.

In short, Mr. Fincher and his campaign have been on notice for many weeks now 

that the failure to disclose the campaign's loan from the Gates Bank, and to report 

the terms on Schedule C, is unlawful. Yet Mr. Fincher and his campaign have 

continued flagrantly to ignore and refuse to comply with the clear requirements of 

the law and now have done so again even after being put on notice.

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In short, HFC alleged that SFC knowingly and willfully failed to properly describe the Bank loan in 

violation of 2 U.S.C. § 434(b)(3)(E) and 11 CFR §§ 104.3(d)(1) and (2) (the “reporting violation”), 

see AR at 2, and SFC accepted a corporate contribution because there was insufficient unsecured 

collateral for the loan in violation of 2 U.S.C. § 441b(a) (the “corporate contribution violation”). The 

Commission designated the administrative complaint MUR 6386 for administrative purposes. AR at

19.

2. SFC’s and The Bank’s Replies to the Administrative Complaint

On October 6, 2010, the Commission mailed the administrative complaint to SFC and the 

Bank. AR at 20 - 21 and 22 - 23, respectively.

After two requests for extensions, which were granted, Steve Fincher For Congress and 

its treasurer filed a reply to the administrative complaint on November 26, 2010, AR at 58 – 81,

and filed a supplement on December 6, 2010, which consisted primarily of copies of amended 

Commission reports, AR at 82 - 685. After requesting and receiving an extension from the 

Commission, on November 17, 2010, the Bank filed a reply to the administrative complaint, AR 

at 37 - 57. 

The SFC reply admitted that the Fincher Campaign had violated the FECA’s reporting 

provisions: “a review of how the loan was reported to the FEC revealed inadvertent reporting 

errors and omissions that require the need for amended reports to be filed with the FEC.” AR at

59.

Both the SFC’s reply and the Bank’s reply admitted that on July 7, 2010, Stephen Fincher 

obtained a $250,000 signature loan for campaign-related purposes from the Bank with a rate of 

interest of 6.500% per year until paid in full. AR at 37, 42-45, 59 – 60. The maturity date was 

November 30, 2010. Id. The replies attached a “Multipurpose Note and Security Agreement.” 

AR at 42-45, 67-70.

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The SFC reply stated that the “collateral for this note was a 2010 crop production note, 

on file with the Tennessee Secretary of State, and the deed of trust on the Fincher home held by 

Gates Banking and Trust serves as evidence of the perfected security interest established by the 

Bank in the collateral.” AR at 60. “In addition the bank cross collateralized the loan with a 

deposit account held by the Finchers jointly, on which the bank possessed a right of offset.” AR 

at 60. The Bank reply described the same collateral for the loan and provided a copy of a UCC1 

Filing for the Stephen and Lynn Fincher Farms crop production and a Deed of Trust for Stephen 

and Lynn Fincher’s residence. AR at 37 – 39, 42 – 45, 51 – 54.

The Bank’s attorney asserted that 6.5% “represented the usual and customary interest rate 

at the time of the loan for this category of loan at this lending institution,” but provided no 

documentation or affidavit to support the assertion. AR at 37 – 38.

The Bank admitted that it did not file a separate UCC Financing Statement for the 

campaign loan, but asserted that Stephen Fincher’s campaign note was secured by a previously 

perfected a security interest in Stephen Fincher’s 2010 crops production and his personal 

residence, and an undisclosed amount of deposited funds. AR at 38.

Both replies asserted that the value of the collateral was greater than the amount of the 

$250,000 campaign loan. Although the Bank’s attorney asserted that the Bank had performed a 

loan analysis that evaluated the collateral (but did not describe the evaluation, or assert whether 

the evaluation was performed when the original loan was made or when the $250,000 campaign 

loan was made), no documentation of the value of the collateral was provided. Indeed, neither 

reply even asserted a value for the collateral. AR at 38, 60.

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3. The General Counsel’s Recommendation

On March 9, 2011, the Commission’s staff submitted the First General Counsel’s Report 

to the Commission, which described the relevant law, the facts and their analysis supporting their 

recommendation that the Commission: (1) find reason to believe Steve Fincher for Congress and 

its treasurer violated 2 U.S.C. § 434(b)(3)(E) and 11 CFR § 104.3(d)(4) (the “reporting 

violation”); (2) find no reason to believe the reporting violation was knowing and willful; 

(3) find no reason to believe that the campaign and the bank violated 2 U.S.C. § 441b(a) (the 

“corporate contribution violation”), and (4) enter into conciliation with Steve Fincher For 

Congress and its treasurer regarding the reporting violation. AR at 687-712. In other words, as 

more fully described below, the staff recommended that the Commission not conduct an 

investigation, but settle the matter solely with respect to the admitted reporting violation.

a. The Reporting Violation. 

The staff described the law applicable to the reporting requirements for the loan as 

follows: 

The Act provides that each report shall identify the person who makes a loan to 

the reporting committee during the reporting period, together with the 

identification of any endorser or guarantor of such loan, and date and amount or 

value of such loan. 2 U.S.C. § 434(b)(3)(E). When a candidate obtains a bank loan 

in connection with the candidate's campaign, the candidate's principal campaign 

committee shall disclose on Schedule C-1 to the report covering the period when 

the loan was obtained, the date, amount, and interest rate of the loan, the name and 

address of the lending institution, and the types and value of collateral or other sources 

of repayment that secure the loan, advance, or line of credit, if any. 11 C.F.R. 

§ 104.3(d)(4). 

AR at 690.

The staff recommended finding reason to believe that a violation of 

2 U.S.C. § 434(b)(3)(E) occurred and to negotiate a settlement of that violation, AR at 697-98,

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because “[t]he committee acknowlege[d] that it failed to properly report the loan on its original 

2010 Pre-Primary Report” as described in the administrative complaint. AR at 691. 

The staff did not recommend a finding of a knowing and willful violation because 

“[w]hile the public would have been better served by more timely amendments, [the staff] have 

no information suggesting that the Committee intentionally delayed submitting them.” AR at

692.

b. The Corporate Contribution Violation. 

The staff described the legal prohibition and exceptions applicable to the purported loan, as 

follows:

The Act prohibits corporations such as Gates Bank from making, and the Committee 

from knowingly accepting, a contribution in connection with any federal 

Campaign. 2 U.S.C. § 441b(a). [footnote omitted] The FEC's regulations provide 

that a loan of money to a political committee or a candidate is not a contribution by the 

lending institution if such loan is made in accordance with applicable banking laws and 

regulations and is made in the ordinary course of business. 11 C.F.R. § 100.82(a). A 

loan will be deemed in the ordinary course of business if it (1) bears the usual and

customary interest rate of the lending institution for the category of loan involved; (2) is 

made on a basis that assures repayment; (3) is evidenced by a written instrument; and 

(4) is subject to a due date or amortization schedule. Id.

AR at 693:3 The staff accepted the Gates Bank &Trust Company’s unsupported assertion that 

6.5% was the usual and customary interest rate because “[w]e have no information to the 

contrary.” AR at 694. The staff merely recited the committee’s and the bank’s argument, 

without any independent analysis, that the loan was made on a basis that assured repayment; i.e. 

the loan was cross collateralized with other bank debt and personal accounts, the bank had 

perfected a security interest on Mr. Fincher’s personal residence and 2010 crop production; and 

the value of the collateral was greater than the loan amount. AR at 694-95. The staff did note

 

3

The staff failed to note and discuss that a $250,000 contribution also violates the limits on 

contributions in 2 U.S.C. § 441a(a).

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that there was no separate perfected security interest for the campaign loan, and “the bank did 

not provide information as to the value of Fincher’s farm, the 2010 crops, and his personal 

residence or the amount of funds in Fincher’s non-interest bearing deposit account, or whether 

the collateral was adequate to satisfy Fincher’s total indebtedness. AR at 695. In a footnote, the 

staff noted that the bank’s UCC1 financing statement was filed on January 5, 2010 for a 

$600,000 debt. Id. 

The staff accepted the unsworn and unsupported statements from the Bank’s and SFC’s 

attorneys without any independent analysis. The staff failed to review any documents not 

provided by the Bank, failed to request additional documents form the Bank, and failed to 

analyze the documents provided by the Bank. Nevertheless, the staff concluded there was no 

RTB that there was a corporate contribution because “we have no information suggesting that the 

$250,000 loan to the Fincher Committee was under collateralized. As noted, the loan was repaid 

in full before the maturity date.” AR at 694 – 96.

4. The Commissioners’ Decisions

On June 14, 2011, the Commission considered the recommendations in the First General 

Counsel’s Report to: (1) find reason to believe that SFC and its treasurer violated 2 U.S.C. § 

434(b)((3)(E) and 11 CFR §104.3(d)(4) (the “reporting provisions”); and (2) find no reason to 

believe that SFC, its treasurer and the Bank violated reporting provisions knowingly and 

willfully; (3) find no reason to believe that SFC, its treasurer and Bank violated 2 U.S.C. § 

441(b)(a) (the corporate contribution provision); and (4) enter into conciliation with the 

committee and its treasurer regarding a Conciliation Agreement, which includes a civil money 

penalty. AR at 713 – 714, 719 – 720, 723 – 724.

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The Commissioners agreed with the General Counsel’s recommendation to find no

reason to believe that SFC, its treasurer and the Bank violated the reporting provisions

knowingly and willfully, and to find no reason to believe that SFC, its treasurer and the Bank

violated the corporate contribution provision. Id.

In spite of the unanimous agreement among the six Commissioners to accept the Office 

of the General Counsel’s first recommendation to find reason to believe that SFC and its 

treasurer violated the reporting provision, three Commission votes to make that finding failed. 

Finally, the Commissioners voted 5-1 to close the file in MUR 6386 without making a finding

that a reason to believe that a violation occurred. Id.

On July 21, 2010, FEC Commissioners Bauerly, Walther and Weintraub issued a 

Statement of Reasons explaining their votes in MUR 6386 (the “BWW SOR”). AR at 719 –

722. “All six Commissioners voted to find reason to believe that the SFC violated 2 U.S.C. § 

434(b)(3)(E) and 11 CFR § 104.3(d)(4),” and to find no reason to believe that the Bank violated 

the corporate contribution prohibition, 2 U.S.C. § 441b(a), as recommended in the First General 

Counsel’s Report. However, the Commission divided 3-3 on whether to seek a civil money 

penalty in a Conciliation Agreement from the Fincher Campaign, and then divided 3-3 on 

whether to send a letter of caution to the committee. AR at 719 – 720. 

On September 15, 2011, Commissioners Hunter, McGahn and Petersen filed a Statement 

of Reasons for their votes a month after the Complaint herein was filed (the “HMP SOR”). AR at

723 – 730. These Commissioners also agreed that they had reason to believe the reporting of the 

loan was a violation of FECA, and SFC and the Bank did not violate 2 U.S.C. § 441(b)(a). AR 

at 723 and 725. However, unlike the General Counsel and the other Commissioners, these 

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Commissioners viewed the reporting violation as technical and concluded that a civil penalty

was not appropriate. AR at 723 - 730. 

After all of the Commissioners voted at least once (but not simultaneously) to find RTB, 

and after all of the motions to find RTB failed, the Commission voted to close the file without 

making any RTB finding or imposing any sanction because the Commission could not agree on 

the appropriate sanction. AR at 713 – 714, 719 – 720, 723 – 724.

III. DISCUSSION

A. Customary Agency Deference Is Not Applicable In This Case

It is well established that this Court “may set aside the FEC's dismissal of a complaint 

only if its action was ‘contrary to law,’ see 2 U.S.C. § 437g(a)(8), e.g., ‘arbitrary or capricious, 

or an abuse of discretion,’ Orloski v. FEC, 795 F.2d 156, 161 (D.C. Cir. 1986).” Hagelin v. 

Federal Election Commission, 411 F.3d 237, 242 (D.C. Cir. 2005). “Courts must judge the 

propriety of the agency's action solely on the grounds invoked by the agency, and a decision of 

‘less than ideal clarity’ must still be upheld so long as ‘the agency's path may reasonably be 

discerned.’” Common Cause v. Federal Election Commission, 906 F.2d 705, 706 (D.C. Cir.

1990) (citations omitted). Alongside its decisions to prosecute and conduct investigations, the 

FEC's decisions to dismiss complaints are entitled to great deference as long as it supplies 

reasonable grounds. Akins v. Federal Election Commission, 736 F. Supp.2d 9, 21 (D.D.C.

2010).” Nader v. Federal Election Commission, --- F.Supp.2d ----, 2011 WL 5386423 (D.D.C. 

2011). However, “[i]ntelligent review requires justifications by the Commission or 

Commissioners for the FEC's dispositions.” Democratic Congressional Campaign Committee v. 

Federal Election Commission, 831 F.2d 1131, 1135 (D.C. Cir. 1987). Thus, the courts will not 

sustain the Commission’s decision “if the agency has not considered all relevant factors, or if the 

reviewing court simply cannot evaluate the challenged agency action . . . the proper course, 

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except in rare circumstances, is to remand to the agency for additional investigation or 

explanation.” Utility Workers Union of America, Local 369, AFL-CIO v. Federal Election 

Comm'n, 691 F.Supp.2d 101, 106 (D.D.C 2010) citing Safe Extensions, Inc. v. FAA, 509 F.3d 

593, 599 (D.C. Cir. 2007). 

There is no doubt that the Commission’s interpretation of its own statute and regulations 

is due deference by this Court.

4

Indeed, the Supreme Court has held that the Commission “is 

precisely the type of agency to which deference should presumptively be afforded,” in part 

because the Commission “is inherently bipartisan in that no more than three of its six voting 

members may be of the same political party, § 437c(a)(1), and it must decide issues charged with 

the dynamics of party politics, often under the pressure of an impending election.” Federal 

Election Comm’n v. Democratic Senatorial Campaign Comm., 454 U.S. 27, 37 (1981). 

However, such deference is not unlimited. Here, the Commissioners split along party lines, party 

politics was not an issue or even involved, and there was no pending election. Deference may 

apply to interpretations of the statutes the Commission administers and its own regulations, but 

courts “must reject administrative constructions of the statute [it administers], whether reached 

by adjudication or by rule-making, that are inconsistent with the statutory mandate or that 

frustrate the policy that Congress sought to implement.” Id. at 32. Furthermore, the 

Commission’s own actions may limit the Court’s deference to the Commission’s statutory and 

regulatory interpretations because “the thoroughness, validity, and consistency of an agency's 

 

4

See e.g. Udall v. Tallman 380 U.S. 1, 16 (1965)(“When faced with a problem of 

statutory construction, this Court shows great deference to the interpretation given the 

statute by the officers or agency charged with its administration”); Hagelin v. Federal 

Election Commission, 411 F.3d 237, 242 (D.C. Cir. 2005)(same).

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reasoning are factors that bear upon the amount of deference to be given an agency's ruling.” Id.

at 37. 

Whether there was adequate collateral to support the purported campaign loan and 

whether the Bank had perfected a security interest in collateral supporting the campaign loan 

involves banking law and the law of secured transactions – not the election laws. It does not 

involve the interpretation of the election laws or the expertise “with the dynamics of party 

politics.” Id. Accordingly, no deference is owed in another specialty area such as banking, 

which has its own regulatory scheme administered by at least four other federal agencies and 

state banking authorities. In fact, Congress recognized that the Commission’s responsibilities 

might exceed its electoral area of expertise and granted it special authority in such situations. “In 

carrying out its responsibilities under this Act, the Commission shall, to the fullest extent 

practicable, avail itself of the assistance, including personnel and facilities of other agencies and 

departments of the United States. The heads of such agencies and departments may make 

available to the Commission such personnel, facilities, and other assistance, with or without 

reimbursement, as the Commission may request.” 2 U.S.C. § 437c(f)(3).

There is no evidence in the administrative record, however, that the Commission

consulted any banking agency or even any banking or secured transactions treatise. For 

example, there are no citations to the laws governing secured transactions or the banking 

regulations. However, this matter required the Commission to evaluate agricultural and 

residential lending transactions, even though it admitted it had no expertise in that area of 

commerce or the law. “The Commission is without knowledge or information sufficient to form 

a belief” “regarding the usual practice of Tennessee banks beyond what is required by the 

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Commission’s regulations, including whether a loan in made ‘in the ordinary course of business’ 

under 11 C.F.R. 100.82(a),” Answer ¶42, including:

1. The usual and normal practice and regulatory requirements for Tennessee banks 

making similar loans require the bank to maintain a file that contains an appraisal or, 

at the very least, an evaluation and inspection report of the offered collateral, a UCC 

and real estate title search and certification, a signed financial statement (balance 

sheet) on the debtors and three years’ federal income tax returns.

2. The loan would be memorialized by promissory note, a security agreement granting 

security in described collateral, a UCC 1 filing to perfect the security interest and a 

deed of trust on the real estate.

3. When relying on collateral for a previous loan, the bank would have a document that 

authorizes the use of the collateral for “future advances.” 

4. There should also be documentation that there are no other security filings on the 

collateral or, as in this case where Helena Chemical Company has a security filing on 

the crops, there should be a subordination agreement from Helena giving the bank’s

security interest in the crops priority over Helena’s which is now prior.

5. There should be a document showing the ownership of the collateral, which in this 

case would show that there were others who had an ownership interest in the 2010 

crops. 

See Answer ¶ 42. In its Answer, the Commission stated it “is also without knowledge or 

information sufficient to form a belief as to the factual allegations in the third sentence [above] 

regarding documents that may be in the possession of Gates Bank, or allegations in the fourth 

sentence [above] regarding a prior filing in favor of Helena Chemical Company.” Id. 

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Accordingly, this Court owes no deference to the Commission’s decision regarding the 

evaluation of collateral and the perfection of security interests.

As described below, the Commission’s decision to dismiss HFC’s administrative 

complaint was based on an avoidance of the relevant facts and documents, illogical reasoning 

about the assertions made by the respondents, and an illogical decision not to find RTB when all 

concerned agreed that there was RTB. Furthermore, the written explanation for some of the 

Commission’s decisions fails to explain how the Commission reached its conclusions. Because 

the HFC is contesting the Commission’s application of the banking laws and the laws for 

perfecting secured transactions -- but not contesting Commission’s construction of its own 

regulations -- the Commission is not due any deference here. 

B. The FEC Dismissal of the Reporting Violation Was Arbitrary And Capricious

As described above, according to the two Statements of Reasons, all six Commissioners 

agreed on the only issue required by 2 USC § 437(g)(a)(2): there was reason to believe SFC and 

its treasurer violated the FECA’s reporting requirements when SFC reported the funds from the 

Bank as a contribution from Stephen Fincher. Instead of making the RTB finding, the 

Commission dismissed the administrative complaint. AR at 719 – 720, 723 -724. The 

explanation provided by all six Commissioners for dismissing the complaint without finding 

RTB was that they could not agree on a subsequent question -- the appropriate sanction. The 

BWW SOR cited previous enforcement cases and concluded that the position of the HMP SOR

“represents a ‘race to the bottom.’’’ AR at 722. “The Commission has a duty to ensure the 

accurate and complete public disclosure of the source of campaign funds. Requiring civil 

penalties for reporting violations demonstrates that the Commission takes compliance with these 

core provisions of the FECA seriously and encourages compliance.” Id. The HMP SOR was 

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issued long after this suit was filed. Answer ¶ 54. The HMP SOR disagreed with the precedent 

cited in the BWW SOR and considered the error as a technical violation. Accordingly, they 

decided that “a monetary penalty was not warranted. . . . Finally, the decision not to impose a 

civil penalty in this matter was an appropriate exercise of agency discretion.” AR at 728 

(footnote omitted). 5

As an initial matter, as noted above, 2 U.S.C. § 437g(a)(2) requires the Commission to 

take certain actions if at least four Commissioners find RTB a violation has occurred. Imposing 

sanctions is not one of those actions. The question of the appropriate sanction does not arise until 

after RTB is found, and the Commission considers the issues raised in 2 USC §§ 437g(a)(4)-(5) 

relating to probable cause to believe (“PCTB”) a violation has occurred. Even if the command to 

find RTB in 2 USC § 437g(a)(2) were not obligatory, this provision expresses Congress’s view 

of the spirit of the law that the Commission makes such findings when appropriate and, only 

after it has done so, should the Commission consider PCTB and the appropriate sanction. Here, 

all six Commissioners determined that it was appropriate to make a RTB finding. The only 

reasoning provided was about the appropriate sanction. No Commissioner gave any reason for 

not making an RTB finding. 

Accordingly, the decision to dismiss the administrative complaint without finding reason 

to believe that SFC and its treasurer violated the filing provisions, 2 U.S.C. § 434(b)(3)(E) and 

11 C.F.R. § 104.3(d)(4), was arbitrary, capricious and contrary to law. Because the appropriate 

sanction is an independent and subsequent decision to an RTB finding, the Commissioners 

 

5 HFC agrees with the reasoning in the BWW SOR. However, it is not necessary to determine 

whether the HMP SOR is contrary to law or arbitrary or capricious because the plaintiff is not 

asking this Court to determine the appropriate sanction for the reporting violation and the 

Commission will have another opportunity to consider this matter and describe its reasoning 

after a remand.

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SORs’ reliance on its inability to decide on a sanction does not provide a reasoned explanation 

for their decision to dismiss the administrative complaint. Accordingly, this Court should 

remand this matter to the Commission for an RTB finding that SFC and its treasurer violated the 

reporting provisions, 2 U.S.C. § 434(b)(3)(E) and 11 C.F.R. § 104.3(d)(4).

C. The FEC Failed To Find Reason to Believe There Was A Knowing and 

Willful Reporting Violation.

The FECA requires political committees to identify any person who provides it with a 

loan along with the identity of any endorser or guarantor. 2 U.S.C. § 434(b)(3)(E). 

When a candidate obtains a bank loan in connection with the candidate’s 

campaign, the candidate’s principal campaign committee shall disclose on 

Schedule C-1 to the report covering the period when the loan was obtained, the 

date, amount, interest rate of the loan, the name and address of the lending 

institution, and the types and value of collateral or other sources of repayment that 

secure the loan, advance, or line of credit, if any. 11 CFR § 104.3(d)(4).” AR at

690. In this case,“[t]he Committee acknowledge[d] that it failed to properly 

report the loan on its original Pre-Primary Report.

AR at 691. The phrase “knowing and willful” indicates that “actions [were] taken with full 

knowledge of all of the facts and a recognition that the action is prohibited by law.” 122 Cong. 

Rec. H 2778 (daily ed. May 3 1976); see also Federal Election Comm’n v. John A. Dramesi for

Cong. Comm., 640 F. Supp. 985, 987 (D.N.J. 1986) (distinguishing between “knowing” and 

“knowing and willful”). A knowing and willful violation may be established “by proof that the 

defendant acted deliberately and with knowledge,” but need not show that the defendant “had 

specific knowledge of the regulations” or “conclusively demonstrate a defendant’s “state of 

mind.” United States v. Hopkins, 916 F. 2d 207, 214 (5th Cir. 1990). Repeated in many 

enforcement cases, e.g. MUR 5496 (Huffman, et al.) Factual and Legal Analysis at 11.

The Commission had reason to believe that SFC knowingly and willfully violated the 

reporting provisions, 2 U.S.C. § 434(b)(3)(E) and 11 CFR § 104.3(d)(4). SFC acknowledged 

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responsibility to accurately and timely describe the Fincher campaign loan in its reports to the 

Commission and failed to do so. AR at 58. Indeed, SFC’s treasurer certified that the reports 

were complete and accurate to the best of her knowledge. AR at 6. SFC admitted that merely 

reviewing their filing revealed the error. AR at 58. Indeed, there was no need to investigate the 

circumstances surrounding the loan because the candidate obtained the loan and delivered the 

check to SFC as an agent for SFC. See 11 CFR § 104.7((b)(3). Making such an obvious error of 

a very large contribution (one that is approximately one hundred times the contribution limit) on 

a Commission report and certifying the accuracy of the report, without a reasonable explanation 

for the error, is reason to find RTB that the admitted violation was knowing and willful.

A $250,000 contribution was not a small amount from an unknown contributor that could 

have been inadvertently overlooked. The Commission’s did not assert that it believed that the 

violation was inadvertent. Nor did the Commission cite to or explain its understanding of the 

terms “inadvertent” or “knowing and willful.” More importantly, the Commission did not 

explain why it thought there was no need to investigate SFC’s assertion of an inadvertent error. 

Indeed, the Commission’s explanation for not finding the violation of the reporting 

provisions to be knowing and willful did not even refer to the admitted violation. Instead, it only 

referred to the late filing of amendments, which was not an issue in this case. “While the public 

would have been better served by more timely amendments, we have no information suggesting 

that the Committee intentionally delayed submitting them, so we do not recommend that the 

Commission find that the Committee’s reporting violations were knowing and willful.” AR at

692. At best, this explains why the Commission did not find RTB that a violation occurred for 

the late amendments. 

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This total avoidance of the question of the knowing and willful violation of the original 

filing, and the failure to provide a reasonable explanation not to find that the violation of the 

reporting provisions was knowing and willful was arbitrary and capricious and contrary to law. 

D. The FEC Failed To Find Reason to Believe There Was A Corporate 

Contribution

2 U.S.C. § 441b(a) prohibits corporate contributions. The term contribution includes, 

among other things, any loan to the extent it has not been repaid. 2 U.S.C. § 431(8)(A)(i). 

However, 2 U.S.C. § 431(8)(A)(vii) and 11 CFR § 100.82(a) exempt a loan from a bank to a 

political committee from the corporate contribution prohibition if it meets four regulatory 

criteria. Relevant here is the requirement that the loan be made on a basis that assures 

repayment. To assure repayment:

The lending institution making the loan has perfected a security interest in 

collateral owned by the candidate or political committee receiving the loan, the 

fair market value of the collateral is equal to or greater than the loan amount and 

any senior liens as determined on the date of the loan, and the candidate or 

political committee provides documentation to show that the lending institution 

has a perfected security interest in the collateral. Sources of collateral include, 

but are not limited to, ownership in real estate, personal property, goods, 

negotiable instruments, certificates of deposit, chattel papers, stocks, accounts 

receivable and cash on deposit.

11 CFR § 100.82 (e)(1)(i) (emphasis added). As described below, the information in the 

possession of the Commission did not support its conclusion that (1) the value of the collateral 

equaled or exceed the amount of the loan, and (2) there was a perfected security interest in the 

collateral.

6

 

6 HFC is not challenging the legality of the loan under the appropriate banking regulations. Nor 

is HFC challenging the Commission’s regulations. Rather, even a loan that meets the banking 

regulations for safety and soundness may be considered an illegal corporate contribution under 

FECA.

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As noted above, “[t]he Commission will find ‘reason to believe’ in cases where the 

available evidence in the matter is at least sufficient to warrant conducting an investigation, and 

where the seriousness of the alleged violation warrants further investigation or immediate 

conciliation.” 72 Fed. Reg. 12,545 (2007). “The Commission finds ‘no reason to believe’ when 

the complaint, any response filed by the respondent, and any publicly available information, 

when taken together, fail to give rise to a reasonable inference that a violation has occurred, or 

even if the allegations were true, would not constitute a violation of the law.” Id at 12,546. 

Here, the Office of the General Counsel merely repeated the Bank’s attorney’s 

unsupported assertion that Multipurpose Note and Security Agreement (Attachment A of the 

Bank’s response) “provides that the loan was cross-collateralized with other bank debt owed by 

Fincher, and with accounts held by Fincher.” AR at 42 -45. It appears that the staff accepted the

Bank’s assertion that the Bank did not need to file a separate UCC1 Financing Statement for the 

2010 crops to secure the campaign loan “since the same assets were the collateral for” a previous 

loan on those crops, and the Bank had a perfected security interest in Fincher’s personal 

residence through the mortgage. Id. The purported collateral and the method of perfecting the 

security interest are: Id.

COLLATERAL INSTRUMENT PERFECTING A SECURITY 

INTEREST

Fincher’s personal residence Deed of Trust (AR at 51-54)

Lien on all 2010 crops UCC1 Financing Statement (AR at 56) on file 

with the state AR at 57)

Right of offset to Fincher’s deposit accounts None provided and not discussed by the FEC

In this case, there is no evidence in the Administrative Record that the Commission 

reviewed relevant information on the Tennessee State’s official web site reporting UCC filings 

and property value assessments regarding the purported collateral, consulted any government 

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banking agency, or even any banking statutes, regulations, treatises or cases regarding banking 

practices or perfecting a security interest. The Commission ignored its own decisions in 

previous enforcement matters involving similar regulatory questions and decisions regarding 

signature notes, and commercial loans and deeds of trust. The Commission also ignored its own 

regulation prohibiting a candidate from contributing or using as collateral the entire value of 

property jointly owned by the candidate and spouse. Instead, the Commission’s staff concluded 

that the Bank had a perfected security interest in sufficient collateral based solely on the 

assertion of the unsworn statement of the Bank’s lawyer regarding statements made to him from 

unnamed person(s) at the Bank. AR at 695. Indeed, the Commission admitted it had no 

evidence of the value of the purported collateral other than the unsupported assertions by the 

respondents’ lawyers that the value of the collateral exceeded the $250,000 campaign note. As 

described below, neither the residence nor the crops provided adequate collateral for the 

campaign loan. In addition, neither the Deed of Trust nor the UCC Financing Statement 

provided a perfected security interest for the campaign loan. 

1. The Value Of The Purported Collateral Was Insufficient To Assure 

Repayment And The Commission’s Explanation For Finding Sufficient 

Collateral Was Arbitrary And Capricious.

The Commission failed to find reason to believe that the purported loan had insufficient 

capital to meet the requirements of 11 CFR § 100.82(a) for the following reason:

While the bank did not provide information as to the value of Fincher’s farm, the 2010 

crops, and his personal residence or the amount of funds in Fincher’s non-interest bearing 

deposit account, or whether the collateral was adequate to satisfy Fincher’s total 

indebtedness, we have no information suggesting that the $250,000 loan to Fincher’s 

committee was under-collateralized. As noted, the loan was repaid in full before the 

maturity date.

AR at 696. This reasoning is not supported by the evidence or the law, and therefore, the 

Commission’s decision was arbitrary and capricious, and contrary to law. 

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a. There Was Reason To Believe The Collateral Was Insufficient 

Pursuant To Adverse Inference Rule. 

The Commission noted that the Bank did not provide information about the value of the 

purported collateral even though it had such documentation.7There is no evidence in the 

administrative record that the Commission even reviewed these documents. 

The adverse inference rule is a well-established legal principle applied by the 

Commission in previous enforcement decisions. 

[W]hen a party has relevant evidence within-his control which he fails to produce, 

that failure gives rise to an inference that the evidence is unfavorable to him.” 

International Union (UAW) v NLRB, 459 F.2d 1329, 1336 (D.C. Cir 1972); see 

also, Arvi-Edison Water Storage Disst. v. Hodel, 610 F. Supp. 1206, 1218 n.4 

(D.D.C. 1985). The theory underlying this rule is that, all things being equal, “a 

party will of his own volition introduce the strongest evidence available to prove 

his case.” International Union (UAW), 459 F.2d at 1338. Conversely, if the party 

fails to introduce such evidence, then the trier of fact may infer that the evidence 

was withheld because it contravened the position of the party suppressing it. Id.

 

7

The Bank admitted that it made a loan analysis but did not provide that analysis or any 

documents upon which it would have relied to the Commission. AR 39. Banks are required to 

maintain a loan file when they lend funds for home mortgages and for business purposes such 

as agricultural operations. See e.g. 12 C.F.R. § 27.3(b) and (c) (Information required For Home 

Loans); 12 C.F.R. § 290.271 (FDIC Records For Lending Transactions); 17 C.F.R. Pt 391 

Subpt B. App A (FDIC Interagency Guidelines Establishing Standards For Safety and 

Soundness); Federal Reserve Board Commercial Bank Examination Manual, Agricultural 

Loans section 2140.1 at pp. 8-9 

(www.federalreserve.gov/boarddocs/supmanual/cbem/0005cbem.pdf). 

As demonstrated in MURs 5381 and 5421 supra at 35 – 37, for example, the typical loan file

might contain an appraisal or, at the very least, an evaluation and inspection report of the 

offered collateral, a UCC and real estate title search and certification, a signed financial 

statement (balance sheet) on the debtors and three years’ federal income tax returns. The loan 

would be memorialized by promissory note, a security agreement granting security in 

described collateral, a UCC filing to perfect the security interest and a deed of trust on the real 

estate. When relying on collateral for a previous loan, the bank would have a document that 

authorizes the use of the collateral for future advances. There should also be documentation 

that there are no other security filings on the collateral. There should be a document showing 

the ownership of the collateral, which includes other lien holders.

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 34 of 47
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MUR 5026 (Zimmer 2000, Inc., et al.) General Counsel’s Report No. 3 at 9 n. 7.

8

 

There is no legal support, and the Commission offers none, for its conclusion that the 

lack of documentation of the value of the purported collateral, which the Bank admits was

available, permits reliance on the unsupported assertion by the Bank’s lawyer that the value of 

the collateral exceeded $250,000. AR at 706. Instead, the Commission should have drawn the 

adverse inference, as it has done in previous enforcement decisions, that the existence of 

documents that were not provided by the respondents would demonstrate that value of the 

purported collateral was insufficient. However, the Commission failed to even consider the 

adverse inference rule, much less draw the appropriate conclusion from the respondents’ 

withholding of available documentation regarding the valuation of the purported collateral for 

the campaign loan. Accordingly, the Commission’s decision and explanation for not finding 

RTB that there was a corporate contribution was arbitrary and capricious.

b. There Was Reason To Believe That The Bank Could Not Rely On the 

Purported Collateral To Support The Signature Loan.

There was evidence to suggest that the campaign note was not secured by crosscollateralizing Stephen and Lynn Fincher’s residence or the Stephen and Lynn Farms crops that 

the Commission did not discuss. 

The campaign loan itself lists Stephen L. Fincher as the sole debtor. AR at 41. The 

space on the note where the collateral should be listed is blank: “SECURITY: I give you a 

security interest in the property described below to secure the obligations of this Loan: 

SIGNATURE.” AR at 41. There was nothing “described below” or any document annexed to 

 

8

See also MUR 5398 (LifeCare Holdings, Inc. et al.) General Counsel’s Report No. 2 at 4

(“[T]he evidence may be viewed in the context of the adverse inference that may be drawn as 

to the unavailability of testimony by persons with knowledge of” relevant facts, in the totality 

of the evidence the Commission considers in its enforcement decision).

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 35 of 47
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the note. Thus, the purported campaign loan appears to be unsecured. The Bank admitted “that 

it did not file a separate UCC financing statement for the campaign loan.” Answer ¶41 (c). 

The Commission relied on the assertion by the Bank’s attorney that the boiler plate clause 

on “page two of the security agreement provides that the loan was cross-collateralized with other 

bank debt owed by [Stephen] Fincher, and with accounts held by [Stephen] Fincher.” AR at 695. 

However, the two loans identified by the Commission were the Stephen and Lynn Fincher’s 

Deed of Trust, AR at 51, and the UCC1 filing on Stephen and Lynn Fincher Farms, AR at 56. 

To create a security interest in collateral for a loan, the debtor must grant one in property in 

which he has an interest.

9 Because the debtors and the owners of the collateral for the residence 

mortgage and the crop loan include Lynn Fincher, they are different than the debtor of the 

campaign note, Stephen Fincher. There is no evidence in the administrative record and the 

respondents did not assert that Lynn Fincher had agreed to permit her interest in the residence 

and the crops to serve as collateral for her husband’s signature loan. The Commission did not 

discuss whether Stephen Fincher’s signature loan, which did not describe any collateral and 

which, on its face, did not contain an agreement from Lynn Fincher, could have permitted the 

Bank to levy against her portion or any portion of the property she jointly owned with her 

husband. Thus, the Commission did not know whether the Bank could levy on that collateral if 

Stephen Fincher defaulted on the signature loan. In short, because Lynn Fincher did not agree to 

 

9 Written security agreement is enforceable when it is signed by debtor and contains description 

of collateral. Tenn. Code Anno. § 47-9-203(1)(b). A security agreement requires a document 

that clearly evidenced an agreement by parties that a security interest be created and granted by 

debtor in described collateral. Tenn. Code Anno. §§ 47-9-105. Under Tennessee law, pledged 

property secures only debts that parties have agreed it will secure. Tenn. Code Anno. §§ 47-1-

201(37), 47-9-102.

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 36 of 47
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provide her interest in her co-owned property as collateral for Stephen Fincher’s campaign loan, 

there was no suggestion that there was cross-collateral for the campaign loan.

More specifically, the Deed of Trust describes real property owned by Stephen L Fincher 

and his wife Lynn Fincher. AR at 51 -54. Thus, Stephen Fincher owned only an expectancy in 

the property, which was not considered by the Commission to determine whether it could have 

provided collateral for the campaign note. “Under Tennessee law, a creditor can reach only the 

right of survivorship in property held as tenants by the entirety, thereby reducing to a minimal 

value jointly held property where the creditor holds a claim against only one of the parties.” In 

re Stewart, 19 B.R. 165, 168 -169 (Bkrtcy.Tenn. 1982). Thus, because Stephen Fincher and his 

wife did not sign the signature loan together, the Commission had no evidence that the residence 

could legally secure the signature loan or whether the Bank could foreclose on the residence if 

Stephen Fincher failed to repay the signature loan. At the very least, this was an issue the 

Commission should have considered in its explanation. Accordingly, there was RTB that the 

residence did not collateralize the campaign loan. 

Second, the UCC Financing Statement submitted by the Bank was for a loan to Stephen 

& Lynn Fincher Farms. AR at 56. There is no information in the administrative record about the 

legal structure of Stephen & Lynn Fincher Farms, and whether the signature loan could have 

been collateralized by the crops with only Stephen Fincher’s signature and no description of the 

crops in the signature loan. The Bank has not provided any document to demonstrate that this 

organization agreed to pledge its assets to support Fincher’s campaign loan. The Bank did not 

say whether there were any other claims on those assets. If the Commission had reviewed the 

public records, it would have found a prior security filing in favor of the Helena Chemical 

Company. See

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www/TN.gov./sos/bussvc/iets3/ieuc/PguccSearchDisplay.jsp?_PgNO_=1&ufn=307133943&udn

=Fincher+Farm&ctl=1 (last visited March 18, 2012). Neither SFC’s nor the Bank’s submission

provided any information about the original loan secured by the same collateral that allegedly 

secured the campaign loan, e.g., the amount of the loan, the date of the loan, the balance owed on 

the loan, the assessed value of the collateral, the date of the assessment and the procedure for 

assessing the value of the collateral, whether another party had a prior security interest in any of 

the collateral, whether any parties in addition to Stephen Fincher and his wife were parties to the 

original loan, or whether any parties in addition to Stephen Fincher and his wife had an interest 

in the 2010 crops. Therefore, there is no evidence that the Bank could levy on the crop 

production if Stephen Fincher defaulted on the campaign note. In fact, the evidence supports the 

opposite conclusion. From the title, it appears that Stephen & Lynn Fincher Farms are owned, 

like the residence, by Stephen and Lynn Fincher jointly. Thus, Lynn Fincher clearly has an 

interest in the crop production, and there is no evidence that she authorized her interest to be 

used as collateral for the campaign note.

Third, the possibility of any offset against deposits at the Bank was specious. Any 

deposits could be withdrawn at any time and, therefore, provided no security for the campaign 

note.

The Commission also relies on the assertion that “the loan was repaid in full before the 

maturity date,” AR at 696, as evidence that there was sufficient collateral to support the loan. 

This is not logical because there is no evidence that the crops or the residence were sold to pay 

off the campaign loan. The funds to repay the campaign note could have come from many 

sources including another loan. Thus, repayment of the campaign note does not provide any

evidence of the value of the purported collateral.

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In view of the above, there was reason to believe the purported campaign loan was

actually an illegal corporate contribution in violation of 2 U.S.C. § 441(b)(a) because the 

purported loan does not meet the requirement in 11 CFR § 100.82(a) that the loan be sufficiently 

collateralized. Furthermore, the Commission’s explanation for its decision not to find RTB was 

arbitrary and capricious because it failed to discuss the adverse inference to be drawn from the 

respondents’ failure to provide available evidence, actual evidence that was available to the 

Commission that Lynn Fincher had an interest in the purported collateral, and the other issues 

described above that suggest there was no collateral for the campaign note.

c. Even If there Were Collateral, The Evidence Suggests That The Value 

Of The Collateral Was Insufficient. 

Arguendo, even if Stephen Fincher could have pledged the residence and the crops as 

collateral for his campaign loan, the available evidence indicates that there was RTB that his 

interest in the value of those assets was less than $250,000. 

First, neither the respondents nor the staff discussed the Commission regulation that only 

the candidate’s interest in the value of collateral co-owned by a candidate and his wife to secure 

a campaign loan may be used to determine whether there is a basis for assuring repayment of the 

loan: e.g. if a residence is co-owned by a husband and wife, only half of the equity of the 

residence may be contributed by the candidate outside of FECA’s contribution limitations. 11 

C.F.R. §§ 100.82(a) and 100.52(b)(4). The administrative record does not disclose Mr. Fincher’s 

interest in any of the so-called collateral, or whether SFC and the Bank deducted Lynn Fincher’s 

interest from the purported value of the collateral when the Bank’s attorney artfully asserted that 

its valuation of the collateral was greater than the amount of the campaign loan. The Deed of 

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 39 of 47
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Trust proves Lynn Fincher was a co-owner of the residence, and it appears she also had an 

interest in the Stephen and Lynn Fincher Farm.10

Moreover, the Commission should not have assumed that the Bank’s lawyer had asserted 

that Stephen Fincher’s interest in the collateral (minus Lynn Fincher’s interest) exceeded 

$250,000. He artfully stated that the Bank’s “loan analysis showed the fair market value of the 

equity in these assets far exceed the campaign loan amount.” AR at 39 (emphasis added). This 

assertion, while admitting that an analysis was completed but not provided or vouched for by 

counsel, applies to the total value of the purported collateral. But, the collateral was equally 

owned by Lynn Fincher. Thus, Stephen Fincher only owned half of the value of the collateral. 

Even the Bank’s lawyer did not assert that half of the value of the collateral exceeded $250,000. 

Therefore, the Commission should not have relied on the lawyer’s assertion that the Stephen 

Fincher’s share of the collateral exceeded the value of the campaign note, as required by the 

Commission’s regulations. 

Second, the administrative record demonstrates that the Commission did not review any 

relevant publicly available filings that might have provided a value of the residence, the crops or 

whether there were any prior perfected security interests in the purported collateral that would 

reduce the owners’ equity. That in and of itself is contrary to 2 U.S.C. § 437g(a)(2) and the 

Commission’s Statement of Policy for RTB to review: the complaint, any response filed by the 

 

10 The facts in this case should not be confused with the facts in the Commission’s Advisory 

Opinion 1991-10, which described the right of a candidate to pledge as collateral for a 

campaign loan half of the value of any assets held jointly with the candidate’s spouse pursuant 

to 11 CFR § 110.10(a). The issue addressed in the advisory opinion was whether a spouse’s 

signature on a loan necessitated by the joint ownership caused the spouse to violate FECA’s 

contribution limits, 2 U.S.C. § 441a(a). As described above, a spouse’s signature is necessary 

under banking law for pledging jointly owned assets. That is not an issue here because there is 

no evidence that Lynn Fincher signed any document permitting her husband to pledge jointly 

held property as collateral for his campaign loan.

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respondent, and any publicly available information.” 72 Fed. Reg. 12,546 (2007) (emphasis 

supplied). Contrary to the Commission’s conclusion that it had “no information suggesting that 

the $250,000 loan to Fincher’s committee was under-collateralized,” information suggesting the 

exact opposite was publicly available. AR at 696. 

The Bank asserted that it was relying on the 2010 crop production as collateral from a 

previous $600,000 loan to Stephen and Lynn Fincher Farms. Stephen and Lynn Fincher Farms’ 

income from crop farming was $124,016 according to Stephen Fincher’s United States House Of 

Representatives Financial Disclosure Statement for 2010. AR at 13. This suggests, if not 

proves, that the equity in the crops provided as purported collateral for the campaign loan was no 

more than $124,016, and Stephen Fincher’s half was worth no more than $62,008.11

Third, Stephen and Lynn Fincher’s residence was valued by Tennessee for tax purposes 

in 2012 at $250,300. See http:// www.assessment.state.tn.us/parceldetails3.asp?c=017 (last 

visited March 13, 2012). The residence was encumbered by a $200,000 mortgage in 2002. AR 

at 53. This suggests that, even if the mortgage was refinanced, the maximum amount of Stephen 

Fincher’s half of the equity in his and his wife’s residence would be $25,150 plus any principal 

 

11 The Bank had made a $600,000 loan secured by the crops and filed in Tennessee on January 5, 

2010. AR 56-57. Neither SFC’s nor the Bank’s submission provided any information about 

the original loan secured by the 2010 crops and the deposit account that also allegedly secured 

the campaign loan, e.g. the date of the loan, the assessed value of the collateral, the date of the 

assessment and the procedure for assessing the value of the collateral, whether the Bank held a 

primary security interest in the crops, and the amount in the deposit account. The Bank failed 

to note and the Commission apparently failed to review the collateral for any previously filed 

and perfected interest on the crops. It appears that Helena Chemical Company also lent funds 

secured by the crops, among other things, and filed a UCC1 Financing Statement to perfect its 

security interest on May 22, 2007, and that UCC1 statement was not terminated before the 

Bank filed its note. See

www/TN.gov./sos/bussvc/iets3/ieuc/PguccSearchDisplay.jsp?_PgNO_=1&ufn=307133943&ud

n=Fincher+Farm&ctl=1 (last visited March 18, 2012). This is an additional reason to question 

the assertion that there was sufficient collateral, and another reason to question the 

reasonableness of the Commission’s decision and explanation for not finding RTB.

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 41 of 47
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previously paid. And there is no evidence that any principal has been repaid. Thus, it is unlikely 

that the residence could provide any substantial collateral for the purported campaign loan. The 

Commission failed to consider and discuss these issues.

Moreover, even if the residence could have been used for collateral for the campaign 

loan, the amount was limited by the “Additional Loans and Indebtedness” clause in the Deed of 

Trust. The duration section of that clause is blank and, therefore, does not permit future 

advances. AR at 53. Even if it were not blank, future advances cannot exceed the amount of the 

original mortgage absent an amendment and additional taxes being paid. AR at 53. There is no 

evidence that there was an amortization schedule for principal repayment or that any part of the 

original $200,000 principal had been repaid, and the Bank did not provide or even assert that it 

had an amendment and paid additional taxes or that any of the original $200,000 had been 

repaid. AR at 53. The Commission also failed to consider and discuss this issue.

Fourth, with respect to the deposit account, the Commission did not consider Lynn 

Fincher’s interest in the purported collateral. Moreover, there is no evidence in the 

administrative record that there were any funds in the deposit account. 

The Chart below summarizes the above description of the purported collateral:

COLLATERAL INSTRUMENT PERFECTING A SECURITY 

INTEREST

VALUE OF 

COLLATERAL

Fincher’s personal 

residence

Deed of Trust (AR at 51-54) $25,150

Lien on all 2010 crops UCC Financing Statement (AR at 56) on file 

with the state AR at 57)

$62,008

Right of offset to Fincher’s 

deposit accounts

None provided and not discussed by the FEC 0

Fifth, the Commission failed to perform the same type of analysis in this matter that it has 

performed in the past in responding to prior administrative complaints making similar 

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 42 of 47
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allegations. There the Commission relied upon and analyzed bank documents and affidavits 

upon which it based a thorough analysis and discussion. There is a stark difference between 

those Commission decisions and the one here.

For example, one of the concerns in MUR 5381 (Rob Bishop for Congress, et al.) was the 

legality of funds from a signature loan obtained by the candidate and subsequently provided to 

his campaign. MUR 5381 First General Counsel’s Report at 20 - 25. The signature loan was 

cross-collateralized by an outstanding car loan and offset provisions on deposits on accounts. Id. 

at 24. The Commission’s extensive analysis relied upon an affidavit from a Bank officer and 

eight attached documents from the loan file, MUR 5381 Response of America First Credit 

Union, demonstrated that the credit union’s credit “risk analysts and senior loan officers 

followed every written guideline, internal point score system and computer generated 

recommendation it routinely uses in making loans.” MUR 5381 General Counsel’s Report at 

21(quoting the America First Credit Union Response). This response was supported by an 

affidavit and supporting documents. Id. 21 – 22. Some of the Commission’s analysis was 

redacted because it described personal financial information. The Commission’s analysis in that 

case, which required five pages to describe, was the antithesis of the one paragraph analysis here. 

Here, the Commission’s analysis was based on the absence of necessary evidence, inattention to 

the details in the three available documents, and the uncritical acceptance of the respondents’ 

lawyers’ arguments with no independent analysis and logical reasoning by the Commission. 

MUR 5421 (John Kerry for President, et al.) is another example of an enforcement case 

that presented similar concerns as this matter. There, the Commission provided an extensive 

analysis and reasoned explanation in response to bare bones allegations of an excessive 

contribution resulting from a loan collateralized by a residence. MUR 5421 Factual and Legal 

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 43 of 47
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Analysis supporting the Commission’s finding of RTB. In that matter, the complainant merely 

alleged that the jointly-held residence pledged as collateral for loans to the campaign committee 

exceeded the personal limit for the candidate’s spouse. Id. at 3. The respondent submitted an 

appraisal report of his and his wife’s residence to demonstrate that the value of the residence was 

more than twice the amount of the loan. Id. at 4. The Commission did not accept the 

respondent’s assertions on its face. Instead, it reviewed the appraisal, the methodology of the 

appraiser and the qualifications of the appraiser. Id. at 6-7. It compared the appraised value and 

the value assessed for property taxes. Id. at 8. After a lengthy analysis, the Commission 

determined to use the appraised value as the value of the residence. Id. The Commission then 

determined from publicly available mortgage documents (that it discovered on its own) that there 

might have been a senior lien on the property and discussed the consequences on the value of the 

collateral. Id. at 9 - 11. In spite of the appraisal report that the Commission found credible, the 

Commission determined that the “public property records raise a question as to whether the value 

of the collateral was equal to or greater than the loan amount and any senior liens on the date of 

the loan.” Id. at 12. Accordingly the Commission found RTB that the value of the collateral was 

not sufficient to secure the loan. Id. at 15. In contrast here, the Commission did not review an 

appraisal report, the assessed value of property, or check for any liens on the property, and the 

one paragraph analysis here is practically nonexistent compared to the multi-page, in-depth 

analysis in MUR 5421. Nevertheless, here the Commission found no RTB here.

In view of the above, in this case there was reason to believe that the combined equity in 

the crops, the residence and the deposit accounts was less than $250,000. Therefore, the 

Commission was incorrect when it stated that it had “no information suggesting that the 

$250,000 loan to Fincher’s committee was under-collateralized.” AR at 696 (emphasis added). 

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 44 of 47
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Accordingly, the Commission’s conclusion that there was adequate collateral was arbitrary and 

capricious, as was its explanation for that decision. 

2. There Was Reason To Believe That There Was No Perfected Security 

Interest In The Purported Collateral.

To perfect a security interest, the Bank must make a proper filing. AR at 694. As noted 

above, Stephen L. Fincher was the sole debtor on the Bank’s note for the signature and the loan

did not list any property as security for the note. AR at 41. Accordingly, the Bank could not 

have and did not file a separate UCC financing statement to secure collateral for the signature

loan. Answer ¶ 41 (c). 

The Commission relied upon the asserted cross-collateralization of Stephen and Lynn 

Fincher’s Deed of Trust, AR at 51, and the UCC1 filing on Stephen and Lynn Fincher Farms

2010 crop production, AR at 56, to satisfy the 11 CFR § 100.82(a) requirement for a perfected 

security interest in the collateral. AR at 696. As described above, because those properties were

co-owned by Stephen Fincher and Lynn Fincher, they could not have provided collateral for the 

signature loan and, thus, could not have provided a perfected security interest for Stephen 

Fincher’s campaign note. 

Accordingly, there is reason to believe that the Bank did not have a perfected security 

interest in any collateral to support the purported signature loan. The Commission’s conclusion 

to the contrary is not supported by either an analysis of the issues or the law, and therefore, is 

arbitrary and capricious. Thus, there is reason to believe the purported campaign loan is actually 

an illegal corporate contribution in violation of 2 U.S.C. § 441(b)(a) because the purported loan 

does not meet the requirement in 11 CFR § 100.82(a) that the Bank have a perfected security 

interest in the collateral. 

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E. Other Issues

This memorandum cites the State of Tennessee’s official Internet web site, a Commission

advisory opinion and other Commission enforcement decisions for facts and precedent relevant 

to this matter that are not in the administrative record. We request that the Court take judicial 

notice of these facts and precedent. Fed. R. Evid. 201 and 803(8) and (14). Alternatively, we 

request the Court note that such citations and facts were publicly available, the Commission 

should have discussed them, but the Commission has ignored them. The failure to consider such 

facts and precedent is arbitrary and capricious. 

Contrary to the Commission’s procedures, three Commissioners issued a Statement Of 

Reasons for their decision more than 60 days after the Commission’s decision to dismiss the 

administrative complaint. Answer ¶54. Accordingly, plaintiff requests that the Court order the 

Commission, if it decides to issue a Statement Of Reasons after this Court’s remand, to do so 

within 30 days of the Commission’s decision pursuant to the remand.

CONCLUSION

In view of the above, Herron For Congress respectfully requests that this Court remand 

the dismissal of the administrative complaint to the Commission for action in conformance with 

the Court’s opinion that the Commission should have found reason to believe that Steve Fincher 

For Congress violated the federal election laws.

Respectfully submitted,

___________/s/____________

Stephen E. Hershkowitz

D.C. Bar No. 282947

Joseph E. Sandler

D.C. Bar No. 255919

Elizabeth H. Howard

D.C. Bar No. 996712

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 46 of 47
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Sandler, Reiff, Young & Lamb, P.C.

Suite 300

1025 Vermont Avenue, N.W.

Washington, D.C. 20005

w. (703) 476 - 0671

w. (202) 479 - 1111

c. (703) 731 - 6648

f. (202) 479 - 1115

hershkowitz@sandlerreiff.com

stevehershkowitz@yahoo.com

Counsel for Plaintiff

Herron For Congress

April 6, 2012

Case 1:11-cv-01466-EGS Document 15-1 Filed 04/06/12 Page 47 of 47