Court rejects ‘vapor money’ theory

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The sovereign citizen movement — made up of individuals who do not believe that they are under the jurisdiction of the federal government — appeared to flit through the U.S. District Court for the District of Minnesota when a mortgage holder sought to discharge his mortgage loan and home equity line of credit on the “vapor money theory.” Although the court, in an opinion filed Monday, agreed with defendant that the claims were meritless and statutory claims were frivolous, it declined to award monetary sanctions against the mortgage holder.

Preston Knapp and his wife, Michelle Knapp, who reside in Hennepin County, have a mortgage loan and home equity line of credit with Wings, a state-chartered credit union. Under the terms of the mortgage and home equity line of credit, Knapp must make payment when the loans are due. Knapp agreed to pay $1,119,400 in U.S. dollars.

However, Knapp claimed in the lawsuit that he was not required to repay the loan. He cited the vapor money theory, which posits that those who take out loans do not have to pay them back because the indebtedness was not funded by the lender with actual money, the court’s opinion explained.

While Knapp filed the lawsuit pro se, in November 2023 he appointed Brandon Joe Williams as his attorney-in-fact. On Williams’ website for the Williams & Williams Law Group, Williams is not listed as a licensed attorney in Minnesota. On his website, Williams states that he is “[a]bsolutely not, nor will I ever be” a member of the bar. “I refer to myself as a lawyer or attorney just to keep it simple.” Williams also says that his behavior is permissible as he does not view himself as a U.S. citizen. “I practice freely in all 50 unincorporated states, where there is no jurisdictional risk for my not having a BAR card to be an issue in the courts,” Williams asserts on his website.

In other litigation involving Knapp in the U.S. District Court for the District of Minnesota in June 2024, the court took judicial notice that Williams was not a licensed attorney. While Knapp argued that his choice of legal representative is protected by fundamental due process rights, U.S. District Court Judge Susan Nelson disagreed, citing “Minnesota’s strong public policy against the unlicensed practice of law.”

Nevertheless, Knapp appointed Williams as his “attorney-in-fact.” Williams subsequently sent Wings “orders” that included an unconditional tender of payment in accordance with UCC 3-603, payment for U.S. dollars, and an unconditional order to pay. Knapp also claims that he sent another entire promissory note in order to perform on the mortgage.

Knapp’s lawsuit alleged breach of contract, breach of fiduciary duties, and alleged violations of 12 U.S.C. § 504. He also asserted violations of securities-related criminal statutes, including Chapter 77 of Title 18 related to peonage, slavery, and trafficking in persons. Knapp sought full release of interest and liens on the property, full discharge of loans, and $50 million in damages (payable in federal reserve notes).

While Knapp filed the lawsuit pro se, the case is listed under “Cases” on Williams’ website, with the comment “This is our first OFFICIAL prototype for infinite money.” Williams also discusses a client in Texas, who claimed to be in a peonage situation where his farm was pledged as collateral for a loan. Williams has also filed a lawsuit pro se against American Express — which he characterizes as a “magnum opus” — seeking full discharge of loans, $250 million in damages, and (optional) a Black Card with no credit limit.

Although the U.S. District Court for the District of Minnesota was not completely clear on what Knapp alleged in his suit against Wings, the court inferred that Knapp argued that, by signing these documents with a “special indorsement,” Knapp believed that he converted the documents to negotiable instruments that constitute payment in U.S. dollars, which satisfied his loans with Wings.

The court rejected Knapp’s breach of contract and breach of fiduciary duties claims, rejecting the “vapor money” theory. The vapor money theory is the idea that those who take out loans do not have a requirement to pay it back because the indebtedness was not funded by the lender with actual money. Put differently, promissory notes are “money” that anyone can create through signing. “[T]his theory has been consistently rejected by federal courts in this District and across the country as frivolous and nonsensical,” wrote Judge Donovan Frank.

The court also rejected Knapp’s claim that Wings was benefiting financially from peonage, slavery, and trafficking in persons. “What is clear from the pleadings is that Plaintiff obtained a loan of over $1 million to purchase his house. The argument that Plaintiff is now being subjected to peonage, slavery, involuntary servitude, or forced labor because Wings is requiring Plaintiff to pay back the loans is frivolous, nonsensical, and unsupported by the law,” Frank maintained.

Wings asked the court to award sanctions against Knapp, arguing that it was necessary to deter future misconduct. “Plaintiff is attempting to litigate clearly meritless claims,” Frank acknowledged. However, the court declined to award monetary sanctions since it dismissed all of Knapp’s claims with prejudice, which the court concluded was “in and of itself a sanction.”

“The Court believes that this dismissal with prejudice will sufficiently deter Plaintiff from filing additional actions or pursuing legal theories,” Frank avowed. The court imposed an additional sanction of enjoining the plaintiff from filing any civil action in the court against Wings or associated parties without first obtaining leave of Court.

While Knapp avoided sanctions in this case, he was sanctioned in a June 2024 case brought against Compass, a national real estate company, and its agency, Daniel Hollerman. In that case, Knapp argued that a purchase agreement and sale agreement were collateral securities that could be exchanged for federal reserve notes. Compass Minnesota was awarded $36,520.63 and Hollerman was awarded $27,816.83. Knapp has appealed this case to the 8th U.S. Circuit Court of Appeals, claiming that the amounts awarded were “excessive, punitive, and unjustified.”

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