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Hobbs v. St. Martin

United States District Court, D. Maryland

May 1, 2018

Gary Hobbs, Plaintiff,
Sean St. Martin, Defendant.


          James K. Bredar Chief Judge.

         Gary Hobbs (“Plaintiff”) brought an action against Sean St. Martin (“Defendant”) for Money Had and Received (Count I) and Unjust Enrichment (Count II). (Am. Compl., ECF No. 29.) Now pending before the Court is Defendant's Motion for Summary Judgment. (ECF No. 48.) The Motion has been briefed (ECF Nos. 48-1, 51, and 55) and no hearing is required, see Local Rule 105.6 (D. Md. 2016). For the reasons set forth below, Defendant's Motion will be DENIED.

         I. Background

         This case revolves around the conduct of an individual named Richard Hagen, a nonparty. Mr. Hagen operated a Ponzi scheme for years: He solicited money from individuals to “invest” in various endeavors and then used the money to support an extravagant lifestyle and pay off other “investors.” Both Plaintiff and Defendant invested money with Mr. Hagen over the years. Although they both received returns on some of their investments, they now generally agree that Mr. Hagen likely never used any of their money for legitimate purposes. Unfortunately for Plaintiff, he was left holding the short straw when Mr. Hagen failed to pay back a $500, 000 loan from Plaintiff that Mr. Hagen used to pay off a debt he owed to Defendant's company, Stag Mountain LLC. Mr. Hagen subsequently committed suicide.

         Plaintiff met Mr. Hagen in 2002 or 2003 when they were working together at a company called Unisys. (Hobbs Dep., ECF No. 48-2, at 233.) Beginning in 2003, Mr. Hagen started soliciting funds from Plaintiff, purportedly to invest in various companies and endeavors. Plaintiff first gave Mr. Hagen $20, 000 to $50, 000 to invest in a grocery store. (Id. at 38-43.) A short time later, Mr. Hagen informed Plaintiff that he could get a better return on his investment by putting it towards an operation that involved purchasing land in New Jersey to build “cell towers” on and then leasing the land to the state “for highway maintenance stuff.” (Id. at 39.) Plaintiff contributed another $40, 000 to the purported cell tower land project, and Mr. Hagen also rolled over Plaintiff's original investment into this new venture. (Id. at 41.) Plaintiff did not receive any documentation from Mr. Hagen regarding either of these “investments.” (Id. at 47- 49.)

         Mr. Hagen subsequently approached Plaintiff about investing money in a fund that was set up to contribute to a “classified operation” that was similar to “AirAmerica.” (Id. at 50.) Plaintiff's original investment was purportedly rolled over into this fund. (Id.) Plaintiff also contributed significantly more money to the fund in three tranches, ultimately bringing his total investment in the fund to approximately $495, 000. (Id.) Mr. Hagen told Plaintiff that he would receive regular interest payments from the fund and would eventually receive a payout of $3 million in anywhere from four to seven years. (Id. at 52.) From June 2010 through May 2014, Plaintiff received a monthly check from Mr. Hagen in the amount of $5, 500, which was purported to be an interest payment on his investment in the fund. (Id.) Because the fund was investing in a classified operation, Plaintiff never received nor asked for any documentation that would verify its operations (or even its existence). (Id. at 61-62.)

         Defendant and Mr. Hagen first met in 2008 through a mutual acquaintance named Bill Cowan. Mr. Hagen approached Mr. Cowan and Defendant with a purported investment opportunity involving a contract to supply services to the Department of Homeland Security (“DHS”) for a survey project at airports, ports, and other facilities. (Answers to Interrogs., ECF No. 51-4, at 13.) Mr. Hagen and Mr. Cowan formed a joint venture called Tamarack Systems, which they used to facilitate their investments in the purported DHS contract. (Id.) Tamarack invested $1, 478, 471.71 in the DHS project through Mr. Hagen and received $2, 023, 322.71 in return between October 2008 and September 2011. (Tamarack Ledger, ECF No. 51-9.) Defendant and Mr. Cowan never received any documentation from Mr. Hagen about the DHS contract due to the purportedly sensitive and secure nature of the work. (ECF No. 51-4, at 13.)

         In 2012, Mr. Hagen acquired a ten percent stake in Stag Mountain, LLC, (“Stag”) a government contractor in the security field. Defendant is the managing (and only other) member of Stag. According to Defendant, Mr. Hagen “did not participate in the business of the company” and “was not an employee.” (ECF No. 51-4, at 14.) However, Mr. Hagen told Plaintiff that he was the Chief Executive Officer of Stag Mountain and gave him a business card indicating as much. (Hobbs Decl., ECF No. 51-27, ¶ 24.) The record indicates that Mr. Hagen made two contributions to Stag in October 2012, a wire in the amount of $200, 000 and a check for $25, 000. (ECF No. 51-20.) It is not clear how this money was used. Mr. Hagen's tax records indicate that he had a negative capital account with Stag for 2014 and 2015. (Hagen K-1s, ECF No. 51-21.)

         In February 2014, Mr. Hagen solicited a $500, 000 “investment” from an individual named Bret Anderson. This investment triggered a cascading series of events ending with the instant lawsuit. Mr. Hagen told Mr. Anderson that his money would be invested in a company called In-Q-Tel, which Mr. Hagen described as a private arm of the CIA. (Anderson Dep., ECF No. 48-3, at 8.) Due to the nature of In-Q-Tel's work with the CIA, Mr. Anderson did not receive any documentation regarding his investment. (Id. at 20.) Mr. Anderson's investment was for a forty-five day term with the opportunity to reinvest at the end of that time period. (Id. at 12-13.) However, Mr. Anderson became nervous about his “strong leap of faith” and told Mr. Hagen he wanted to cash out at the end of the first forty-five day period. (Id. at 18.)

         In order to pay Mr. Anderson back, Mr. Hagen asked Defendant for a short term loan. Defendant told Mr. Hagen that Stag would provide a $500, 000 loan on the condition that the recipient or Mr. Hagen pay it back within ten days. (St. Martin Dep., ECF No. 51-2, at 163.) Mr. Hagen and Defendant (on behalf of Stag) then executed a “demand note” laying out those terms. (Note, dated May 15, 2014, ECF No. 51-24.) Defendant subsequently authorized a $500, 000 wire transfer directly from Stag's bank account to Mr. Anderson's bank account. Defendant did not ask who Mr. Anderson was nor did he ask Mr. Hagen why he needed the money. (St. Martin Aff., ECF No. 51-6, ¶ 5.) Mr. Hagen did not repay the funds by May 25, 2014, as promised. (Id., ¶ 6.)

         In early June 2014, Mr. Hagen approached Plaintiff and requested a loan of $500, 000. (ECF No. 51-27, ¶ 8.) Mr. Hagen claimed that the money would be used to buy out an investor in the purported fund that Plaintiff had already sunk roughly $495, 000 into. (Id., ¶ 9.) Mr. Hagen led Plaintiff to believe that once the investor was bought out he would receive the substantial multi-million dollar return from the fund he had been promised. (Id.) Of course, it now seems clear that there was no fund and Mr. Hagen simply needed the money to repay Stag. Mr. Hagen instructed Plaintiff to wire the money to Defendant, and Plaintiff then instructed his broker to wire $500, 000 from his Individual Retirement Account (“IRA”) directly to Defendant's bank account.[1] (ECF Nos. 48-6, 48-7, 48-8.)

         Upon receiving the money, Defendant retained $289, 000 in his personal bank account. (St. Martin. Supp. Aff., ECF No. 48-10, ¶ 7.) Defendant claims that Stag owed him this money for loans he had made to Stag over the prior sixteen months. (Id.) Defendant transferred an additional $70, 000 to Affiliations Group, another entity owned by Defendant that Stag allegedly owed money for past loans. (Id., ¶ 8.) Finally, Defendant transferred the remaining $141, 000 to Stag. (Id.)

         II. Standard for Summary Judgment

         A party seeking summary judgment must show “that there is no genuine dispute as to any material fact” and that he is “entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The burden is on the moving party to demonstrate the absence of any genuine dispute of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). If a party carries this burden, then the court will award summary judgment unless the opposing party can identify specific facts, beyond the allegations or denials in the pleadings, that show a genuine issue for trial. Fed.R.Civ.P. 56(e)(2). If sufficient evidence exists for a reasonable jury to render a verdict in favor of the party opposing the motion, then a genuine dispute of material fact is presented and summary judgment should be denied. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). To carry these respective burdens, each party must support its assertions by citing specific evidence from the record. Fed.R.Civ.P. 56(c)(1)(A). The ...

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