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Hobbs v. Martin

United States District Court, D. Maryland

January 11, 2017

GARY HOBBS, Plaintiff
SEAN ST. MARTIN, Defendant


          James K. Bredar United States District Judge.

         Gary Hobbs (“Plaintiff”) brought an action against Sean St. Martin (“Defendant”) for Money Had and Received (Count I), Unjust Enrichment (Count II), and Conversion (Count III). (Compl., ECF No. 1.) Pursuant to Defendant's motion, the Court dismissed Count III with prejudice, dismissed Counts I and II without prejudice, and ordered the case closed. (Order Granting Mot. to Dismiss, ECF No. 19.) Plaintiff has since moved to reopen the case and for permission to file an amended complaint. (Pl.'s Mot. to Reopen, ECF No. 20.) In response, Defendant has moved for sanctions against Plaintiff. (Def.'s Mot. for Sanctions, ECF No. 23.) Both motions have been fully briefed (ECF Nos. 21, 22, 24, 26), and no hearing is required, see Local Rule 105.6 (D. Md. 2016). For the reasons stated below, the Court will vacate its previous order to dismiss the case, [1] grant Plaintiff's motion to file an Amended Complaint, and deny Defendant's motion for sanctions.

         I. Standard to File an Amended Complaint After a Final Judgment

         In order to grant a motion to amend a complaint in a case in which it previously entered a final judgment, a court must first vacate said judgment according to Rule 59(e) or Rule 60(b) of the Federal Rules of Civil Procedure. Laber v. Harvey, 438 F.3d 404, 427 (4th Cir. 2006). However, in such a case, the district court need not focus on the legal standards applicable to those rules, but “need only ask whether the amendment should be granted, just as it would on a prejudgment motion to amend pursuant to Fed.R.Civ.P. 15(a).” Katyle v. Penn Nat. Gaming, Inc., 637 F.3d 462, 471 (4th Cir. 2011). Accordingly, a party may amend its complaint only if doing so avoids “prejudice, bad faith, [and] futility.” Id. “Futility is apparent if the proposed amended complaint fails to state a claim under the applicable rules and accompanying standards.” Id.

         A complaint must contain “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Facial plausibility exists “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. An inference of a mere possibility of misconduct is not sufficient to support a plausible claim. Id. at 679. As the Twombly opinion stated, “Factual allegations must be enough to raise a right to relief above the speculative level.” 550 U.S. at 555. “A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.' . . . Nor does a complaint suffice if it tenders ‘naked assertion[s]' devoid of ‘further factual enhancement.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555, 557). Although when considering a motion to dismiss a court must accept as true all factual allegations in the complaint, this principle does not apply to legal conclusions couched as factual allegations. Twombly, 550 U.S. at 555.

         II. Allegations of the Amended Complaint

         The facts leading to this action began in 2003 when Richard Hagen, a nonparty, allegedly first solicited funds from Plaintiff to invest in companies providing support for clandestine intelligence operations on behalf of the United States Government. (Am. Compl ¶¶ 5-6, ECF No. 20-3.) Plaintiff believed Hagen's investment opportunity to be legitimate and, consequently, invested $500, 000 with Hagen.

         Defendant works in the defense intelligence community and is a member of Stag Mountain, LLC, a corporation of which Hagen was also a member. (Id. at ¶ 9.) On May 15, 2014, Defendant, in his capacity as managing member, approved Hagen's request that Stag Mountain extend him a short-term loan in the amount of $500, 000. (Demand Note, ECF No. 21-1.)[2] Defendant and Hagen executed a note indicating that Hagen would identify a destination for those funds, that the (unnamed) recipient would render repayment, and that Hagen would be personally liable should the recipient fail to repay the full value by May 25, 2014. (Id.) According to the Amended Complaint, the purpose of this loan was to allow Hagen to repay Bret Anderson, an investor in Hagen's fund. (Am. Compl. at ¶ 15.) Plaintiff further alleges that Defendant approved this loan in spite of knowing that Hagen (1) was in a distressed financial condition, (2) had difficulty maintaining his financial obligations to Stag Mountain, and (3) had defrauded others by soliciting their investment in a Ponzi scheme. (Id. at ¶¶ 13-16.)

         In June of 2014, Hagen purportedly requested an additional $500, 000 from Plaintiff as a short-term loan in order to buy out other investors in Hagen's venture. (Id. at ¶ 18.) Plaintiff agreed and instructed the broker for his IRA account to transmit the funds according to Hagen's directions. (Id. at ¶¶ 19-21.) On June 5, 2014, instead of using Plaintiff's money to buy out investors, Hagen directed Plaintiff's broker to wire the money directly to Defendant's account. (Id. at ¶ 21.) Later, having learned that Hagen had been sued for fraud, Plaintiff demanded the return of his initial investment as well as the $500, 000 in loan proceeds, but Hagen failed to comply.[3] (Id. at ¶ 26.) Defendant does not deny he accepted the wire transfer, but he has refused Plaintiff's demands that the money be returned. (Id. at ¶ 27.)

         Plaintiff alleges that Defendant retains the contested funds despite having paid no consideration for them and in spite of having reason to believe that he received them only through Hagen's fraudulent actions. (Id. at ¶¶ 32, 33, 42, 43.)

         III. Analysis

         Plaintiff brings claims for unjust enrichment and for money had and received. (Am. Compl. ¶¶ 29, 38.) A claim for unjust enrichment requires the plaintiff to establish three elements: (1) the plaintiff conferred a benefit upon the defendant; (2) the defendant knew of or appreciated the benefit; and (3) the defendant accepted or retained the benefit under such circumstances that it would be inequitable to allow the defendant to retain the benefit without paying value in return. Hill v. Cross Country Settlements, LLC, 936 A.2d 343, 351 (Md. 2007). An action for money had and received “lies whenever the defendant has obtained possession of money which, in equity and good conscience, he ought not to be allowed to retain, ” and may apply “where the defendant receives the money as a result of a mistake of law or fact and did not have a right to it.” Benson v. State, 887 A.2d 525, 547 (Md. 2005) (internal citations omitted). Thus, as the Court stated previously in this case, the two relevant causes of action require a common analysis of equitable considerations, and “to recover under either theory, the plaintiff must demonstrate that the defendant received a benefit which equity requires the defendant to relinquish.” (Mem. Op. on Mot. to Dismiss 4-5, ECF No. 18 (citing Jennings v. Rapid Response Delivery, Inc., Civ. No. WDQ-11-0092, 2011 WL 2470483, at *6 (D. Md. June 16, 2011)).)

         The Court also proposed two ways in which Plaintiff might establish that equity lies in his favor: (A) by showing that Defendant knew the money he received from Plaintiff was a result of Hagen's fraudulent activity or (B) by showing that Defendant did not pay sufficient consideration in exchange for the money he received from Plaintiff. (Id. at 7, 9.) Plaintiff has adequately integrated both theories into his proposed Amended Complaint (Mem. in Supp. of Pl.'s Mot. to Reopen 5-6), and the Court will grant Plaintiff's motion to reopen the case.

         A. Plaintiff's “Bad Faith” ...

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