Knapp v. Compass Minnesota, LLC

Background

Preston Byron Knapp and Michelle Nichole Knapp sued Compass Minnesota, LLC, and Daniel Philip Hollerman concerning agreements connected to the sale of their existing home and the purchase of another property. The Knapps alleged that they hired Brandon Joe Williams to review the transaction documents and that Williams treated those documents as collateral securities, promissory notes, or bills of exchange. Williams then instructed the defendants to exchange the documents for Federal Reserve Notes and place the notes in escrow. The Knapps alleged that Hollerman, acting on instructions from Compass’s lawyers, refused to follow those instructions and that the Knapps consequently could not complete the purchase of the requested home.

The complaint sought damages for breach of contract and breach of fiduciary duty. It also referred to a civil penalty under the Federal Reserve Act and federal criminal statutes concerning money laundering, transportation of stolen securities, and securities and commodities fraud. The Knapps filed the case without a lawyer.

Default-Judgment Motions

The Knapps sought default judgments against Hollerman and Compass, arguing that both defendants had been served by certified mail and had not timely answered. The court denied both motions. Under the applicable federal and Minnesota service rules, certified mail was not a valid method of serving these defendants. Because the defendants were not properly served, the court found no basis for default judgment and did not reach the parties’ other arguments about default.

Motion to Dismiss

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(4), Rule 12(b)(5), and Rule 12(b)(6). Rule 12(b)(6) permits dismissal when a complaint does not allege enough facts to state a legally plausible claim. The court considered the transaction agreements because the complaint necessarily referred to them and their authenticity was not disputed.

The court held that the Knapps had not plausibly alleged that the transaction agreements were negotiable instruments or collateral securities. The agreements included conditions such as acceptable offers, successful closing, mortgage financing, inspections, and the sale of the Knapps’ property. The court also held that 12 U.S.C. § 412 applies to Federal Reserve banks seeking Federal Reserve Notes and does not apply to the defendants, who were not Federal Reserve banks or other banks under Title 12.

Because the agreements could not be exchanged for Federal Reserve Notes as the Knapps alleged, the court found that the Knapps had not plausibly alleged a breach of contract or fiduciary duty based on the defendants’ refusal to carry out Williams’s instructions. The court also found that the complaint did not identify a specific contractual provision that the defendants breached. It rejected the asserted civil and criminal statutory theories because the cited statutes did not provide a basis for the Knapps’ claims against the defendants.

The court concluded that the complaint did not state a claim on which relief could be granted. It granted the defendants’ motion to dismiss, and the order dismissed all claims against the defendants with prejudice.

Motion to Compel Communication

The Knapps asked the court to require the defendants to communicate with Williams as their attorney-in-fact under Minnesota law. The court treated the request under Federal Rule of Civil Procedure 37, the rule governing motions to compel discovery, because no federal or local rule authorized a motion to compel communication with a third party.

The court found that the Knapps’ limited power-of-attorney documents did not satisfy the requirements of Minnesota Statutes section 523.20 and section 523.23. As a result, the defendants could not be held liable under those statutes for refusing to communicate with Williams. The court also held that a power of attorney does not authorize a nonlawyer to act as an attorney for another person. It therefore concluded that the Knapps could not require the defendants to participate in Williams’s unlicensed practice of law and denied the motion to compel communication.

Fees and Expenses

Under Rule 37, a court generally must require the person who filed a denied motion to compel to pay the opposing party’s reasonable expenses, including attorney’s fees, unless the motion was substantially justified or awarding expenses would be unjust. The court found that the Knapps’ motion was not substantially justified and that an award would not be unjust. It granted the defendants’ request for reasonable costs and fees connected to that motion. The defendants were ordered to submit supporting evidence by June 14, 2024, and the Knapps were allowed to respond by July 3, 2024, limited to the reasonableness of the requested fees and costs.

Disposition

The defendants’ motion to dismiss was granted, and the claims against them were dismissed with prejudice. The Knapps’ motion to compel communication with Williams was denied. The Knapps’ motions for default judgment against Hollerman and Compass were denied. The court granted the defendants costs and fees related to the motion to compel, with the amount to be addressed through the later submissions.