Knapp v. Compass Minnesota, LLC

Background

Preston Byron Knapp and Michelle Nichole Knapp filed their complaint without lawyers. They alleged breach of contract and fiduciary duties, sought a civil money penalty under the Federal Reserve Act, and asserted claims under federal criminal statutes concerning laundering monetary instruments, transporting stolen securities, and securities and commodities fraud.

The defendants moved to dismiss the complaint for defective process and service and for failure to state a legally sufficient claim. The plaintiffs also filed motions seeking communication with Brandon Joe Williams, whom they described as their attorney-in-fact, and seeking default judgments against each defendant.

After a May 29, 2024 hearing, the court’s June 4 order granted the defendants’ motion to dismiss with prejudice and denied the plaintiffs’ motions. The court did not decide the sanctions motion at that time and instead required the defendants to provide evidence supporting their requested attorney fees and costs.

Rule 11 sanctions

Federal Rule of Civil Procedure 11 allows sanctions when a filing is made for an improper purpose, lacks factual or legal support, or contains claims that are not reasonably supported by the evidence or law. The court explained that the rule applies to people representing themselves as well as to lawyers.

The defendants argued that the complaint relied on rejected “redemption” and “vapor money” theories and was filed to harass them or increase the cost of the case. The plaintiffs argued that sanctions for exercising their constitutional rights were improper. They also alleged that the defendants had acted in bad faith and challenged the amount and relevance of the requested fees and costs.

The court found that the plaintiffs’ conduct violated Rule 11. It held that the allegations concerning an alleged obligation to exchange “collateral securities” for Federal Reserve Notes were frivolous because no such securities existed and the identified contracts did not require such an exchange. The court also found that the Federal Reserve Act and criminal-statute claims were baseless because those laws did not provide private rights of action and the defendants were not member banks of the Federal Reserve system.

The court stated that the defects in the complaint were legal, rather than factual. Even accepting the plaintiffs’ factual allegations as true and reading their complaint liberally, the court found that they had not identified a contractual or fiduciary duty requiring the defendants to follow their instructions or a legal basis making those instructions possible for a law-abiding party to follow. The court concluded that the complaint was baseless in its entirety and had no purpose other than to harass or cause unnecessary litigation costs.

Attorney fees and costs

The court reviewed declarations and supporting records submitted by the defendants’ counsel. It found the lawyers’ hourly rates reasonable based on the court’s knowledge of market rates in the Twin Cities area. It also found the billed work reasonable in light of the number of motions, the arguments presented, and the plaintiffs’ conduct during the litigation.

Disposition

The court GRANTED the defendants’ Joint Motion for Sanctions. It awarded $36,520.63 in reasonable attorney fees and costs to counsel for Compass Minnesota, LLC and $27,816.83 in reasonable attorney fees and costs to counsel for Daniel Philip Hollerman. The order directed that judgment be entered accordingly.