Imagine opening your mail to find an official looking document informing you that an “Administrative Judgment” has been entered against you and that you owe millions of dollars to someone you have never met. Worse yet, imagine that soon after receiving the “Administrative Judgment,” you also learn that the party demanding payment has filed Uniform Commercial Code (UCC) financing statements with the secretary of state in an attempt to subject all of your property to a multimillion-dollar lien. Such a scheme could endanger your credit, and force you to incur significant expense and inconvenience in order to obtain a court order to correct the damaging records. These tactics, sometimes referred to as “paper terrorism,” have been adopted by a number of groups seeking to wage war against the government and other organizations (frequently banks and lending institutions) through tactics meant to harass and intimidate their employees. Fortunately, in 2006, the Minnesota Legislature enacted two statutes meant to discourage these schemes and provide their targets an avenue for expedited relief.
Retaliatory Filings and “Redemption Scams” Have Become Increasingly Common
The scenario described above has played out with increasing frequency in recent years, generally as the result of retaliatory filings against public servants and schemes called “redemption scams” that seek to extort money from third parties. The groups that promote this paper terrorism are generally adherents of the “sovereign citizen” movement, a collection of loosely affiliated groups comprised of individuals who have adopted extreme right-wing, quasi-anarchist ideology that developed from the Posse Comitatus movement of the 1970s and 1980s.1
In recent years, several members of the sovereign citizen movement have been sent to prison where they have had the opportunity to share their tactics for harassing others. As a result, retaliatory filings have become popular with prisoners, including non-extremists, who have time on their hands and an axe to grind. In fact, handbooks aimed at teaching how to prepare retaliatory filings and fraudulent UCC financing statements are regularly circulated through prisons.2
In general, retaliatory filings seek to annoy government employees, corporations, and sometimes their employees by encumbering their personal property. Judges, prosecutors, public defenders, IRS agents, and banks and their employees are frequently subjected to these filings. Victims have frequently been forced to file declaratory judgment suits seeking to void fraudulent UCC statements meant to cast doubt over the ownership of their property. For example, in United States v. Dutson,3 the federal government sought a permanent injunction against a party who had filed UCC financing statements asserting million-dollar liens against property owned by various government employees, including a district judge. Rather than filing an answer to the government’s complaint, the defendants filed an
“affidavit” that stated:
The United States of America is a fiction (corporation), and Libellants are visitors in a court of fiction and make only a restricted appearance; Libellants are actual beings of the Creator, and are of the Creator’s likeness of character; that the Creator’s law and truth proceed from the Holy Scriptures which are truth and are not inferior to the world of corrupted fiction that has no righteousness in it, and which is manipulated by Libellees, et al., claiming immunity for Libellee’s acts to intentionally create confusion, fraud, scienter acts, and continuous torts.4
In response to this, and similar submissions from the defendants, the court ruled that
[i]t would serve no useful purpose to attempt to otherwise summarize the materials filed by Defendants. Suffice it to say that they threaten various action and/or penalties, against the Court…or government attorneys and are generally unintelligible, legally frivolous, void, and a nullity. They have no legal force or effect and are unenforceable.5
This description could just as easily be applied to the “judgments” that underlie every retaliatory filing.
A subset of the sovereign citizen movement and known as the redemption movement relies on the legally baseless and historically inaccurate process of “regaining one’s straw man,” which redemptionists contend allows them to establish special U.S. Treasury Department accounts and issue bogus instruments called “sight drafts” in order to pay debts and make purchases.6 Although these schemes originated in the 1980s, and thus are not new, they have become more popular in recent years because technology has made them more readily available and easier to pursue.
Redemption scams are frequently aimed at banks and mortgage lenders. For example, in Hibben v. Countrywide Home Loans, Inc.,7 the plaintiff pursued a scam similar to a redemption scheme in which she sued her mortgage lender seeking to enforce an “administrative award” of more than $78 million.8 The plaintiff claimed jurisdiction under admiralty law, stating that she “sets this action and files this action with the Court Clerk within the admiralty pursuant to Special Procedures in Admiralty # Rule E(8).” 9 The court found that the plaintiff lacked jurisdiction for her purported claim, and further found:
It is impossible to glean from the complaint, even under the most generous reading, how defendants harmed plaintiff. There are no facts consistent with the complaint, under any legal theory, that would entitle plaintiff to the relief she seeks….Thus, even if plaintiff could establish jurisdiction, her complaint must be dismissed because it is unintelligible and fails to inform defendants of their alleged wrongdoing.10
Redemption schemes, which were once propagated almost exclusively through audiotapes, books, and seminars, are available through a number of Internet Web sites, most or all of which are affiliated with the sovereign citizen movement.11 In addition to the mechanics behind these schemes being more widely disseminated, technology has made retaliatory filings and redemption scams much easier to perpetrate. Most states, including Minnesota, have now implemented automated UCC filing systems. These systems have largely eliminated opportunities for agency personnel oversight of UCC statements, and have made it virtually impossible to prevent fraudulent statements from being filed.
Minnesota’s Efforts to Fight UCC Fraud
A small but growing number of states have recognized the danger posed by retaliatory filings and redemptions schemes, and have passed laws meant to minimize the cost and inconvenience associated with removing fraudulent UCC statements from the secretary of state’s files. These states include Colorado, Michigan, New Hampshire, North Dakota, South Carolina, and Texas. In 2006, Minnesota joined this group when it enacted Minn. Stat. §§ 545.05 and 609.7475.
Section 545.05 allows Minnesota courts to exercise limited jurisdiction to consider motions brought for the purpose of reviewing financing statements believed to be fraudulent without requiring the filing of a civil complaint. If, after considering the motion and reviewing the financing statements, the court finds them to be fraudulent or otherwise without merit, it can issue an order authorizing their removal from the secretary of state’s files. The proper venue for such motions will lie in the county in which the moving party resides or the county in which the financing statement was recorded. Because the secretary of state’s office is in Ramsey County, it will always be a proper venue for such motions and is likely to be the most common venue. According to § 545.05 such proceedings should be completed within approximately 45 days, although extensions are left to the discretion of the courts.
Prior to the enactment of § 545.05, a party seeking to have fraudulent financing statements removed from the secretary of state’s files would have been required to file a declaratory judgment action under Minn. Stat. § 555.01 et seq. Such an action would have, at a minimum, required the subject of the fraudulent financing statements to file a complaint, engage in fact discovery, and file a dispositive motion, all of which would have taken significantly longer than the 45 days contemplated by § 545.05. It also would have involved significantly greater attorneys’ fees and costs. Prior to the enactment of
§ 545.05, these steps and the resulting expenditures would have been unavoidable, even if the financing statements were blatantly frivolous.
A recent application of these laws involved a bank based in California that was the subject of a redemption scam perpetrated here in Minnesota. This particular scam sought to extort more than $41 million and was propagated by an individual who was a former customer of the bank. His scam began by sending the bank a barrage of official-looking papers claiming to assert an “International Claim in Admiralty,” which ultimately resulted in an “Administrative Judgment.” Although the papers did not list any court or regulatory agency as the venue for the supposed claim, they were made to look “official,” and even included a fictional “File #.” The papers also bore many of the hallmarks of a redemption scam, which include names printed in all capital letters; punctuation placed before the individual’s surname; brackets around zip codes or zip codes followed by “TDC” (to indicate the use of government-established zip codes under “threat, duress, and coercion”); gratuitous and nonsensical references to the Uniform Commercial Code and other inaptly cited statutes and regulations and quasi-legal citations; references to scripture; use of a © symbol after the individual’s name; use of terms or initials after the individual’s name (“sui juris” or “SPC,” for example); and use of the term “Employer ID Number” rather than social security number.12
After the bank declined to pay the $41 million “Administrative Judgment,” the individual filed two UCC-1 financing statements with the Minnesota Secretary of State’s office, claiming that he had a lien covering all of the bank’s property, including its customers’ accounts. Although the papers purporting to establish the “Administrative Judgment” were little more than an annoyance, the individual’s decision to file the UCC financing statements made the matter serious. The fraudulent financing statements potentially endangered the bank’s credit and its general reputation, and had to be removed—the quicker the better.
Section 545.05 provided the perfect vehicle for this effort. It allowed the bank to seek expedited relief, without the need for costly fact discovery and in-depth briefing. In fact, § 545.05 includes a specific motion form that must be used when seeking the court’s review, thus eliminating the need to devote fees to research and drafting. In addition to the motion form, the party seeking review also must file an affidavit (in its own name or that of its attorney) setting forth a “concise statement of the facts upon which the claim for relief is based.” In the bank’s case, it submitted an affidavit from an employee addressing the history of the bogus claims and an attorney affidavit that highlighted the frivolous nature of the claims primarily by quoting them. One of the quoted excerpts, which was remarkably similar to the language employed in United States v. Dutson, amply demonstrated the absurdity of the claims:
[The client] is a fiction and [the individual] is a visitor in a court of fiction. [The individual] is an actual being of the Creator and is of likeness of character, his law and truth proceeds from the Holy Scriptures which are truth and not inferior to the world of corrupted fiction which has no righteousness in it and is manipulated by those claiming immunity for their acts of confusion, fraud, Scienter Acts and continuous torts.
After receiving the bank’s moving papers and consulting an attorney, the individual finally agreed to voluntarily withdraw his UCC financing statements, thus eliminating the bogus cloud over the bank’s Minnesota assets. The individual was prompted to withdraw his fraudulent filings by the threat of having to pay the bank’s attorneys’ fees, as provided by
§ 545.05, subd. 12, and also the threat of prosecution. Minn. Stat. § 609.7475 provides that a person who files a UCC financing statement with the intent to “harass or defraud any other person” may be guilty of a gross misdemeanor. A person convicted under § 609.7475 may even be guilty of a felony if the filing was intended to influence a juror or a judicial proceeding, or retaliate against a judicial officer, or if the person has previously been convicted of a violation of that section.
By providing criminal penalties for fraudulent UCC filings, the Minnesota Legislature has provided a strong disincentive to parties who might otherwise try to exploit retaliatory filings and redemption scams to their advantage. By also providing expedited civil remedies, the Minnesota Legislature has ensured that the targets of such scams can avoid their ill effects without having to incur significant attorneys’ fees and expenses. These proactive measures should go a long way toward ensuring that the scourge of UCC filing abuses that have occurred in other states does not occur here.
1 See Sovereign Citizen Movement <http://www.adl.org/learn/ext_us/SCM.asp?xpicked=4&item=20>.
2 See The Anti-Government Movement Today <http://www.ncsonline.org/WC/Publicatiosn/Trends/2006/
3 2005 WL 605381 (D. Ariz. March 10, 2005).
4 Id. at *2.
5 Id. at *3.
6 See Sovereign Citizen Movement, supra note 1.
7 2005 WL 3262971( N.D. Ill. Nov. 29, 2005).
8 Id. at *1.
10 Id. at *2.
11 See The Anti-Government Movement Today, supra note 2.