Free Response to Motion - District Court of Arizona - Arizona

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Dan W. Goldfine (#018788) Richard G. Erickson (#019066) SNELL & WILMER L.L.P. One Arizona Center 400 East Van Buren Street Phoenix, AZ 85004-2202 Telephone: (602) 382-6000 Facsimile: (602) 382-6070 [email protected] [email protected] Attorneys for Plaintiffs and Grant Woods, Esq. (#006106) GRANT WOODS, P.C. 1726 North Seventh Street Phoenix, Arizona 85006 Telephone: (602) 258-2599 Facsimile: (602) 258-5070 [email protected] Attorneys for Plaintiffs and Counterdefendants and Third Party Defendants

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Meritage Homes Corporation, et al., Case No. CV-04-0384-PHX-ROS Plaintiffs, v. Greg Hancock, et al., Defendants. PLAINTIFFS' RESPONSE TO DEFENDANT HANCOCK'S RULE 50 MOTION FOR DISMISSAL OR DIRECTED VERDICT (Assigned to the Honorable Roslyn O. Silver)

Defendant Hancock has once again asked for dismissal on the same jurisdictional grounds that have been repeatedly and consistently resolved against him by this Court, since 2004. See, e.g. Order 7/3/07 at 16:15-17:3 (rejecting Defendant Hancock's

arguments on subject matter jurisdiction); Order 3/2/05 at 3:23-4:2 (denying supplemental briefing on subject matter jurisdiction); Order 2/24/05 (denying Defendant Hancock's Motion to Dismiss for Lack of Jurisdiction). Defendant Hancock's latest request for

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dismissal on jurisdictional grounds makes the same argument addressed and disposed of by this Court repeatedly in the past, including its July 3, 2007 opinion that contained an admonition to Defendant Hancock not to raise this issue again. Order 7/3/07, id. at n. 3. ("Accordingly, counsel for Greg Hancock need no longer raise the issue of subject matter jurisdiction.") . THIS COURT HAS JURISDICTION. The Supreme Court held in Bell v. Hood that when a well-pleaded complaint states a federal claim, "jurisdiction, therefore, is not defeated . . .by the possibility that the averment might fail to state a cause of action on which the petitioners could actually recover," and "if the court does later exercise its jurisdiction to determine that the allegations in the complaint do not state a ground for relief, then dismissal of the case would be on the merits, not for want of jurisdiction." Siemens Components PTE. Ltd. v. Schenker Intl. Inc., 344 F. 3d 931, 936 (9th Cir. 2003) (internal citations omitted). Thus, the black letter law is that resolution of the federal claims on the merits does not mean that this Court no longer has supplemental jurisdiction over the state law claims. See, e.g., Herman Family Revocable Trust v. Teddy Bear, 254 F.3d 802, 806 (9th Cir. 2001) ("Teddy Bear"). As noted above, over a year ago this Court ordered that "[c]ounsel for Greg Hancock need no longer raise the issue of subject matter jurisdiction." July 3, 2007 Order at n. 3. This Court's Order related specifically to same argument made here, and

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Defendant Hancock has violated the Order, requiring unnecessary, costly and prejudicial briefing in the middle of the trial. Id. at 16:15-16. This Court ruled it had and would retain supplemental jurisdiction over the non-federal claims even if no claim under the Lanham Act had remained for trial after summary judgment. Id. at n. 3. This Court quoted from Teddy Bear, 254 F.3d at 806 that even "[i]f the district court dismisses all federal claims on the merits, it has discretion under § 1367(c) to adjudicate the remaining claims[.]" (Nevertheless, Lanham Act claims did remain and have been tried to the jury.)

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In addition to disregarding the Court's admonition not to raise the jurisdictional issue again, Defendant Hancock miscites Teddy Bear. As to supplemental jurisdiction, Defendant Hancock cites Teddy Bear as though page 807 says something different than page 806, the page from which the Court decided that the issue was dead. July 3, 2007 Order at 2:14-3:1, citing Teddy Bear, 254 F.3d at 807. It does not. The ruling in the Teddy Bear case was that the district court never had original admiralty jurisdiction and therefore lacked subject matter jurisdiction. Teddy Bear, 254 F.3d at 803. Accordingly, the court could not exercise supplemental jurisdiction in a case in which it never had original jurisdiction in the first place. Id.; see also, Christianson v. Colt Indus. Op. Corp., 486 U.S. 800, 818, 108 S.Ct. 2166, 2178-79 (1988) (cited by Defendant Hancock in his motion at 3:6-8). That is not the case here, as this Court has ruled many times that it has and always had original jurisdiction. See, e.g., July 3, 2007 Order at n. 3; February 24, 2005 Order. The Teddy Bear case did not involve an argument that the proof failed on one of the elements of the federal claim, as Defendant Hancock argues here, and if it had, the Ninth Circuit was perfectly clear that the trial court would have retained supplemental jurisdiction: This requirement that the supplemental state-law claims be dismissed where the district court had no underlying original jurisdiction must be distinguished from the district court's discretionary authority to retain jurisdiction over state-law claims where it has dismissed on the merits federal claims over which it did have original jurisdiction. Pursuant to the supplemental jurisdiction statute, when a district court dismisses on the merits a federal claim over which it had original jurisdiction, it may then decline to exercise supplemental jurisdiction over the remaining state claims, subject to the factors set forth in §§ 1367(c)(1)-(4).

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Teddy Bear, 254 F.3d at 806 (citations omitted and emphasis added).

Defendant

Hancock's later quotation of Teddy Bear applying an inapposite analysis is, to the say the least, immaterial and wrong.

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.

LANHAM ACT CLAIMS (FALSE ADVERTISING AND TRADE DRESS) A. Rule 50 Standard

Defendant Hancock neglected to provide the standard governing his Rule 50 motion. Under Rule 50, the evidence must be viewed in a light most favorable to the nonmoving party, including all reasonable inferences from which the jury could decide that the elements of proof exist. E.E.O.C. v. Pacific Maritime Ass'n, 351 F.3d 1270, 1272 (9th Cir. 2003) (citing Monroe v. City of Phoenix, Ariz., 248 F.3d 851, 861 (9th Cir. 2001)). B. Defendant Hancock Aided and Abetted Rick Hancock Homes.

The Ninth Circuit Model Civil Jury Instruction 15.18, to which Defendant Hancock stipulated, makes him liable for aiding and abetting another's violation of the Lanham Act if Meritage can show: (1) an identifiable person or company violated the Lanham Act; (2) that Greg Hancock and/or J2H2 intentionally induced that person to violate the Lanham Act; and (3) that Meritage was damaged by the violation. Meritage presented direct and circumstantial evidence, as well as the reasonable inferences therefrom, proving: · In January 2004, using Defendant Hancock's personal attorneys, Rick Hancock reserved the name Hancock Family Builders. Ex. 260, attached hereto. · Defendant Hancock, through his attorney, acknowledged in February 2003 that Meritage's license to the Hancock name was exclusive and included the name Hancock Family Builders. Realtime Unedited Transcript 9/18/08 at 34:9-19, 60:12-16 (testimony of Jon Titus). · In February 2004, Defendant Hancock purportedly attempted to terminate (albeit wrongfully) Meritage's exclusive license to the Hancock name and all derivations to it as part of a scheme to extort additional monies from Meritage. · Exs. 235 at Recital 1 and ¶1.2E and 507, attached hereto;

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Realtime Unedited Transcript 9/18/08 at 43:3-44:9 (testimony of Jon Titus). In Spring 2004, despite Meritage's instructions to the contrary, Defendant Hancock gave his brother a license to use the Hancock name while
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Meritage's license was still in existence. Realtime Unedited Transcript 9/18/08 at 34:9-19 (testimony of Jon Titus); Exs. 547 and 548, attached hereto. · Later in 2004, after his brother changed the company name from Hancock Family Builders to Rick Hancock Homes, Defendant Hancock sold Rick Hancock Homes Parcel 7 and, later in 2005, other parcels in Sundance. Realtime Unedited Transcript 9/10/08 at 162:18-164:8 (testimony of Jim Arneson); 9/11/08 at 125:22-126:3 (testimony of David Cornwall); 9/17/08 at 127:2-128:24 (testimony of Ken Krouse). · In 2004, Defendant Hancock provided land banking financing to Rick Hancock Homes. Realtime Unedited Transcript 9/11/08 at 125:1-128:18 (testimony of David Cornwall); 9/16/08 at 68:17-20 (testimony of Larry Seay); 9/17/08 at 108:8-23 (testimony of Ken Krouse). · In early 2005, Defendant Hancock provided short-term financing to Rick Hancock Homes. Realtime Unedited Transcript 9/17/08 at 108:16-23

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(testimony of Ken Krouse); Krouse video deposition 9/26/06 at 132:20134:17 (shown during cross-examination on 9/17/08); Ex. 57, attached hereto. This is more than sufficient evidence from which the jury could find that Defendant Hancock wrongfully aided and abetted Rick Hancock Homes. C. Injury and Damages under the Lanham Act Claims: False Advertising and Trade Dress

The parties stipulated to the Lanham Act instructions. See Joint Proposed Pretrial Order, Exhibit G. The false advertising jury instructions detailing the burden of proof and elements of the false advertising claim are derived from Southland Sod Farms v. Stover Seed Co., 108 F. 3d 1134 (9th Cir. 1997). According to the agreed upon instructions, Meritage must show that (1) Defendant Hancock or J2H2 caused or assisted in the making of a false or misleading statement of
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fact about its own or another's product in a commercial advertisement or promotion; (2) that the statement actually deceived or has the tendency to deceive a substantial segment of its audience;1 (3) that the deception was material, in that it is likely to influence the purchasing decision; and (4) that Meritage has been or is likely to be injured, either the loss of sales or lessening of goodwill associated with its products. The parties also stipulated to the Lanham Act Trade Dress jury instruction and, in fact, the instruction comes directly from the Ninth Circuit Model Civil Jury Instruction 15.6. According to the agreed upon instruction, Meritage must show that (1) Meritage's business image is distinctive; (2) Meritage owns the business image as trade dress; (3) the business image is nonfunctional; (4) Greg Hancock and/or J2H2 used Meritage's business image, or a confusingly similar business image, without the consent of Meritage in a manner that is likely to cause confusion among ordinary purchasers as to the source of Meritage's goods; and (5) Meritage was damaged by Greg Hancock and/or J2H2's infringement. During argument on Defendant's Rule 50 motion, there was a discussion about the evidence of lost sales. As an initial point, Meritage is not required to prove any lost sales to recover. Even if lost sales were so required, Meritage proved lost sales with testimony from homeowners Staff Sergeant Mario Atkins and Kelly Brassfield. When a violation of the Lanham Act, 15 U.S.C. 1125(a) occurs, the plaintiff is entitled to recover (1) a defendant's profits, (2) any actual damages suffered by the plaintiff, and (3) the costs of the action. See 15 U.S.C.S. § 1117(a). Thus, according to Congress in the express terms of the Lanham Act, proof of a lost sale is not necessarily a required element, and all Meritage has to show is a lessening of goodwill. See id.; accord Collegenet, Inc. v XAP Corp., 483 F. Supp. 2d 1058, 1065 (D. Or. 2007) (citing Adray v. Adry-Mart, Inc., 76 F.3d 984, 988 (9th Cir. 1995)). 1 A jury instruction, stipulated to by the parties, shifts the burden of proof on the second element if the jury determines that Greg Hancock or J2H2 deliberately in causing or making of a false or misleading statement. Specifically, the jury is "entitled to assume that the statement actually deceived or has the tendency to deceive a substantial segment of its audience unless Greg Hancock or J2H2 proves otherwise by a preponderance of the evidence."
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Let's first turn to "actual damages" under the Lanham Act.

To determine

Meritage's "actual damages," Defendant Hancock stipulated to a jury instruction that asks the jury to consider several factors distinct from lost sales: (1) the injury to Meritage's reputation; (2) the injury to Meritage's goodwill; including injury to Meritage's general business reputation; (3) the lost profits that Meritage would have earned but for the defendant's infringement; (4) the expense of preventing customers from being deceived; and (5) the cost of future corrective advertising reasonably required to correct any public confusion caused by the infringement. Of course, Meritage is not required to show all five potential sources of damages to proceed to the jury. One will do. The evidentiary record, however, supports Meritage's actual damages claims in several ways. The evidence in the record is that Defendant Hancock's assistance limited Meritage's options under its exclusive license agreement and to lose the goodwill for which it paid $11.4 million half-way through the six-year license agreement. Realtime Unedited Transcript 9/9/08 at 145:6-146:14 (testimony of Steve Hilton); 9/16/08 at 58:1025, 66:3-15 (testimony of Larry Seay). Like with Beazer, Defendant Hancock's

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intentional and willful start-up of a similar company homebuilding operation in the same subdivision created confusion. Realtime Unedited Transcript 9/12/08 at 80:8-89:5

(testimony of Scott Keeffe). The jury can draw reasonable inferences from that fact that Meritage's damages are a loss of all or some portion of the $11.4 million in goodwill. See, id. There is also evidence of specific reputational harm and loss of goodwill in the Sundance area as established by two consumers there. Staff Sergeant Mario Atkins testified that before the Rick Hancock Homes sign went up he held Meritage in high opinion, Rick Hancock Homes made false statements and omissions that induced him to contract with Rick Hancock Homes believing that Rick Hancock Homes was part of Meritage, that the Rick Hancock Homes' conduct and delays, after wrongfully inducing him to contract with it, led him to buy from another home builder (Pulte), and it is reasonable for the jury to infer that Atkins thought less of Meritage. Realtime Unedited
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Transcript 9/12/08 at 65:1-72:7. Kelly Brassfield had similarly positive views about Meritage before her dealings with Rick Hancock Homes, which she thought was Meritage, and she had negative views afterwards. Id. at 83:15-86:25. Meritage also accelerated the transition to the Meritage Homes name because, as testified by its sales manager Scott Keeffe, he had been through the Hancock Homes versus Hancock Communities situation once before with respect to Beazer Homes.2 Ex. 109, attached hereto; Realtime Unedited Transcript 9/12/08 at 80:8-89:5 (testimony of Scott Keeffe). The acceleration evidence tends to prove reduction in the use of the license ­ a cognizable injury ­ according to the law and the jury instruction stipulated to by Defendant Hancock. Defendant Hancock also fails to recognize a second source of damages available to Meritage for both of its Lanham Act claims. The Lanham Act allows Meritage to "prove actual damages based either on its lost sales or on the [violator's] profits as a measure of lost sales." Collegenet, 483 F. Supp. 2d at 1065 (citing Adray, 76 F.3d at 988).

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Moreover, "a finding that the defendant engaged in willful misconduct is not a prerequisite to an award of actual damages under Section 35(a) of the Lanham Act if the measure of such damages is calculated by the amount of the [violator's] profits." Id. at 1064 (citing Adray v. Adry-Mart, Inc., 76 F.3d 984, 988 (9th Cir. 1995)). Further still, even if Meritage was not able to prove the defendant's lost profits, the Ninth Circuit permits "a monetary award based on equitable theories of unjust enrichment and deterrence" when the plaintiff shows the defendant engaged in willful misconduct. Id. Meritage has also proved the amount of Rick Hancock Homes' profits: $4.4 million. Realtime Unedited Transcript 9/16/08 at 135:25-137:1; 138:2-21; Ex. 130, attached hereto. The Ninth Circuit has, indeed, established that a plaintiff is not required to prove lost sales to successfully bring a claim under the Lanham Act. See American Council of 2 The fact that Meritage decided not to assign an amount to the acceleration of the transition to the Meritage Homes name does not mean that Meritage has not suffered a cognizable injury. Rather, all Meritage has done is selected damages remedies for its Lanham Act claims: loss of goodwill and Rick Hancock's Homes profits.
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Certified Podiatric Physicians and Surgeons v. American Bd. of Podiatric Surgery, Inc., 185 F.3d 606 (6th Cir. 1999). The Lanham Act protects businesses like Meritage when customers are confused at the initial interest stage. See, e.g. Dr. Seuss Enterprises, L.P. v. Penguin Books USA Inc., 109 F.3d 1394, 1405 (9th Cir. 1997); Brookfield Comm., Inc. West Coast Entertainment Corp., 174 F.3d 1036, 1063-64 (9th Cir. 1999); Nissan Motor Co. v. Nissan Comp. Corp., 378 F.3d 1002 (9th Cir. 2004). As a practical matter, customers lost at this initial stage are hardly ever identifiable and proof of lost sales impossible. The Ninth Circuit has also determined that "the expenditure by a competitor of substantial funds in an effort to deceive customers and influence their purchase decisions justifies the existence of a presumption that consumers are, in fact, being deceived" and goes so far as to point out that "he who has attempted to deceive should not complain when required to bear the burden of rebutting a presumption that he succeeded." U-Haul Intl., Inc., v Jartran, 793 F.2d 1034, 1041 (9th Cir. 1986). The initial interest confusion is applicable in false advertising and trade dress cases because the damaged party cannot be expected to determine customers who are confused by the defendant's conduct when the misconduct by the defendant prevented the potential customers from walking in the door in the first place. As set forth above and explained throughout the case, the evidentiary record in the light most favorable to Meritage shows that Greg Hancock engaged in willful misconduct by aiding and abetting Rick Hancock Homes in violation of the Lanham Act. Meritage has also established that Rick Hancock Homes, with the assistance of Defendant Hancock, made a sale as a result of its false advertising and trade dress violation. From this evidence, it is reasonable to infer that other sales by Rick Hancock Homes were due, at least in part, to the same illegal conduct. Even if Meritage were required to show a lost sale, it has: it lost sales to both Ms. Brassfield and Staff Sergeant Atkins. Both testified that they wanted to buy a Meritage Hancock Communities home. Realtime Unedited Transcript 9/12/08 at 65:6-72:2, 84:3Case 2:04-cv-00384-ROS Document 614 - 9 -Filed 09/19/2008 Page 9 of 12

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25. Both testified that Rick Hancock Homes made false representations, omissions and otherwise "dressed" Rick Hancock Homes like Meritage's Hancock Communities. Id. at 66:2-69:4, 85:9-87:13. Ms. Brassfield testified that she would have purchased a Meritage home in one of the active adult communities at Sundance but it was sold at the time; however, the evidence in the record is that Meritage opened new parcels of active adult and non-active adult communities at Sundance on a regular basis and that there was always an allocation for under 45 years of age. Id. at 85:3-12; Realtime Unedited Transcript 9/17/08 at 157:28, 157:23-158:2, 162:17-163:9 (mis-marked as Desiree Coates direct). The jury can infer that if Rick Hancock Homes had not deceived Brassfield into contracting, all the while believing that she had purchased a Meritage home, she would have purchased a Meritage home when it opened a new parcel. Likewise, Staff Sergeant Atkins contracted with Rick Hancock Homes in December 2004, believing from similar lettering and coloring on signage that the Rick Hancock Homes home was the same as the Meritage models he regarded so highly. Realtime Unedited Transcript 9/12/08 at 69:16-20. Over the next few months, while believing that Rick Hancock Homes was part of Meritage, Atkins became dissatisfied with price increases and delays he associated with both Meritage and Rick Hancock Homes. Id. at 70:9-22. A sales representative who was directly competing with Meritage was able to take advantage of this dissatisfaction to induce Staff Sergeant Atkins to buy a home from Pulte Homesalso in Sundance on the same side of the highway where the Meritage homes were located. Id. at 67:17-70:3. Again, it is a reasonable inference from these facts that Meritage lost this sale as well. One last note on the evidence of lost sales, it is reasonable for the jury to infer from the trial record that if Meritage was able to identify these two customers and their stories that Meritage lost other sales as well. The Lanham Act case law is clear that it is not intended to require proof of every specific customer. See Marathon Mfg. Co. v Enerlite Products Corp., 767 F.2d 214, 221 (5th Cir.) (a party "need not prove confusion on the
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part of actual customers" but "need only prove likelihood of confusion."); Balance Dynamics Corp. v. Schmitt Indus., 204 F.3d 683, 693 (6th Cir. 2000) ("Because proof of `actual confusion' can be difficult to obtain, Lindy Pen Co. Inc. v. Bic Pen Corp., 982 F.2d 1400, 1407 (9th Cir 1993), most of the circuits have ruled that when a statement is literally false, a plaintiff need not demonstrate actual customer deception in order to obtain relief under the Lanham Act"). CONCLUSION Defendant Hancock's Rule 50 Motion is just another roll of the dice. Meritage has developed enough evidence to support a jury's decision on the "actual damages" element of the Lanham Act claims. Furthermore, under § 1367(c), the Court had and continues to have subject matter jurisdiction and has properly exercised supplemental jurisdiction even if the Lanham Act evidence at trial is not sufficient. The Motion should be denied. RESPECTFULLY SUBMITTED this 19th day of September, 2008. SNELL & WILMER L.L.P.

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By s/ Dan W. Goldfine Dan W. Goldfine Richard G. Erickson Snell & Wilmer, L.L.P. One Arizona Center 400 E. Van Buren Street Phoenix, Arizona 85004-2202 Attorneys for Meritage and

By s/ Grant Woods Grant Woods, Esq. GRANT WOODS, P.C. 1726 North Seventh Street Phoenix, Arizona 85006 Attorneys for Meritage

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CERTIFICATE OF SERVICE I hereby certify that on September 19th, 2008, I electronically transmitted the foregoing document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to all CM/ECF registrants.

s/ Lindsey M. Perez
9118555

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