Free Response to Motion - District Court of Arizona - Arizona

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LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

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

12 13 14 15 Meritage Homes Corporation, et al., 16 Plaintiffs, 17 v. 18 Ricky Lee Hancock, et al., 19 Defendants. 20 21 22 23 24 25 26 27 28
Case 2:04-cv-00384-ROS Document 515 Filed 08/20/2007 Page 1 of 11

Snell & Wilmer L.L.P.

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Case No. CV-04-0384-PHX-ROS PLAINTIFFS' RESPONSE TO DEFENDANT GREG HANCOCK'S MOTION IN LIMINE TO EXCLUDE THE TESTIMONY OF P. GREGG CURRY (Assigned to the Honorable Roslyn O. Silver)

AND RELATED COUNTERCLAIMS AND THIRD PARTY CLAIMS

Greg Hancock's recent arguments regarding Gregg Curry's expert testimony are the exact same arguments Hancock made during summary judgment. Compare Greg Hancock's Motion in Limine to Exclude The Testimony of Greg [sic] Curry ("Motion") at 3:16-11:2 and Defendant Greg Hancock's Updated Motion for Summary Judgment or

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Dismissal ("Greg Hancock's MSJ") at 7:18-13:8, Exhibit 1 hereto1; see also Order at 22:11-13 (July 3, 2007) (Item # 503) ("[w]hether Greg Hancock's actions violated any contractual or common law duties will be decided at trial"). In his current Motion, Hancock says he is challenging the "admissibility of [Mr. Curry's] testimony rather than the weight to be given to it" (Motion at 2:21-23). Hancock, however, cut and pasted his seven-page summary judgment argument beginning with the same accusation that Curry is a liar. Compare Motion at 5:3-4 with Greg Hancock's MSJ at 8:9-10. Calling any witness a liar only challenges the weight of their testimony and has nothing at all to do with admissibility. The Court should therefore deny the Motion on its face. In addition to repeating arguments already rejected by the Court, Hancock invents a strawman argument premised upon an erroneous assertion that Curry really meant to opine about Hancock's job performance. Motion at 3:15-6:11. (Oddly, however,

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Hancock later concedes and emphasizes (in italics no less, id. at 6:8-9) that Curry never opined about Hancock's job performance.) By attempting to put words in Curry's mouth, Hancock hopes to persuade the Court that Hancock has sufficiently raised a Daubert challenge to Curry's testimony. Hancock's argument is in no way, shape or form a Daubert challenge that is limited to the qualifications of the expert (not challenged by Hancock), the reliability of the data on which the expert relies (not challenged by Hancock) and the fit of the opinion in terms of relevance (not challenged by Hancock). Hancock's effort is nothing more than his third summary judgment motion containing virtually the same arguments. (It is his fourth if the Court includes Hancock's motion for reconsideration.) See Order at 8:1-10:9 (Aug. 24, 2006) (Item # 336).

Because of the voluminous record in this case and with the exception of the Court's Orders, Meritage has attached exhibits for more immediate and convenient access for the Court.
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MEMORANDUM OF POINTS AND AUTHORITIES I. Introduction Hancock's Motion makes three arguments: (1) Curry's testimony will not help the fact finder to decide the case; (2) Curry "disqualified himself" to provide a damages analysis on lost profits because he is not testifying about Hancock's job performance; and (3) Curry's testimony about Olympic properties is based on facts that Hancock disputes. Motion at 3:12-14, 11:10-17. All three arguments fail because Hancock relies upon conjecture and misstatement of the disputed facts. II. Curry's Opinions Are Admissible Under Rule 702. An expert witness must rely upon sufficient facts or data, use reliable principles and methods and reliably apply the facts. Rule 702, Fed.R.Evid. The key to an expert's opinion, however, is that it assists the trier of fact. Rule 703, Fed.R.Evid. Hancock says that Curry "... will do nothing to assist the trier of fact." Motion, at 3:12 (emphasis added). That a forensic accountant of Curry's skill and background will do nothing to assist the trier of fact is the type of insupportable generalization that has plagued Hancock throughout the case. As provided above, the Court's July 3, 2007 Order ruled that the trial will decide Hancock's violations of contractual and common law duties. Order at 22:11-13 (July 3, 2007) (Item # 503). These contractual and common law duties arise from concepts of intellectual property, fiduciary relationships and corporate enterprise. See generally

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Second Amended Complaint, Exhibit 2 hereto (April 15, 2005) (Item # 159). The fact finder will be left to deliberate over complex damages theories that require assistance in understanding commercial accounting, whether land was marketable, business agreements, home building, real estate development, partnerships, capital contributions, preferred returns and profit splits upon the sale of real estate. See generally Curry Report, Exhibit 3 hereto, at pp. 4-15 and Curry Supplemental Report, Exhibit 4 at Exhibit II. Relying on his expertise and the evidence in the case, Curry has broken down complex home building statistics and provides the highly technical and specialized
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testimony that the fact finder needs to make a decision about Meritage's damages. Curry Report, Exhibit 3 at pp. 4-15; Curry Supplemental Report, Exhibit 4 at pp. 1-2. Curry will be subject to cross examination exactly as Hancock has outlined in his Motion. See Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 594-96, 113 S.Ct. 2786 (1993) (cross examination is the proper way to challenge otherwise admissible testimony). Other than innuendo and the usual name calling, however, there is no support at all for Hancock's argument that Curry's testimony will do nothing to help the fact finder decide this case. II Hancock's Argument Surrounding Job Performance Is a Strawman. Hancock only challenges two "portions" of Curry's testimony. Motion at 3:13-14. One portion that Hancock challenges is Curry's opinion that Hancock breached his duties to Meritage or otherwise performed his job deficiently. Id. at 3:16-22. This is a strawman that Hancock seeks to knock down because Curry did not opine on any liability issues dealing with Hancock's job performance. Curry's opinions about the amount of damages could not be more clear.2 Curry Depo., Exhibit 5 hereto, at 33:14-19, 39:18-40:4 (where Curry states that the fact finder will best determine Hancock's job performance); see also Motion at 6:7-11 (where Hancock concedes that Curry testified that he was not opining on the adequacy of Hancock's job performance). Not surprisingly, Hancock attempts to create an erroneous strawman by taking evidence out of context. As part of Curry's analysis addressing the reasonableness of opining that Meritage would have maintained or grown its market share and as a benchmark for his "but for" analysis opposed to Meritage losing its market share (which For example, in order to calculate the amount of lost profits caused by Hancock's selfdealing and purposeful neglect in acquiring land on which Meritage could build homes, Curry provided a detailed analysis of the number of lots available for purchase during Hancock's tenure at Meritage. See Curry Report, Exhibit 3 at p. 7. Upon deciding from the evidence that Hancock breached his fiduciary and other duties by self-dealing, usurping corporate opportunities and by neglecting land deals that Meritage would have otherwise pursued, the fact finder will be able to use Mr. Curry's opinions to help determine the amount of damages Meritage suffered, including the amount of lost profits.
Document 515 - 4 -Filed 08/20/2007
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actually occurred), Curry evaluated the performance of other publicly-owned builders in the Phoenix area.3 Curry Report, Exhibit 3 at p. 9. Based on that evaluation plus several other factors, Curry conservatively concluded that Meritage reasonably should have maintained its historical market share prior to the Hancock-Meritage transaction if it had adequate land to develop. Curry Report, Exhibit 3 at p. 12. Curry does not opine that it was Hancock's fault Meritage did not have sufficient land to maintain its market share or on any other issue of causation or liability. Curry Depo., Exhibit 5 at 40:2-4. Of course Meritage will put on evidence of causation and Hancock's liability including, but not limited to, that (1) he was the President of Meritage's Phoenix operations; (2) his primary duties included acquiring adequate developed land to ensure that Meritage could grow its sales; (3) he was secretly acquiring land for his own account; (4) he was not acquiring land for Meritage; and (5) he told his subordinates and Phoenix area land brokers that he would not acquire land for Meritage because Hancock would not personally profit. See, e.g., Cornwall Depo., Exhibit 6 hereto, at 46:3-6, 43:18-54:2, 75:15-76:8, 103:12-104:10; Arneson Decl., Exhibit 7 hereto, at ¶¶ 4-9. Aside from Hancock's strawman argument, his other contentions against Curry have already been rejected by the Court. Hancock, for example, is still arguing as he did during summary judgment that "Meritage has disclosed no evidence, by Curry or anybody else, that there were any other determinants of the adequacy of Hancock's job performance." Motion at 4:8-10. As was asserted and explained during summary

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judgment motion practice, there is substantial evidence that Hancock breached his duties

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Indeed, Curry engaged in the type of testing of his benchmarks that are required by experts. See, e.g., Nichols v. Smithkline Beecham Corp., 2003 U.S. Dist. LEXIS 2049, 2003-1 Trade Cas. (CCH) ¶ 73,974 (D. Pa. 2003); Ayers v. Robinson, 887 F. Supp. 1049, 1059 (D. Ill. 1995). He does not opine that Hancock breached any duty by looking at other home builders. See Curry Report and Supplemental Report, Exhibits 3 and 4.
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to Meritage.4 See Order at 22:11-13 (July 3, 2007) (Item # 503). Consequently and given that this purports to be a Daubert motion, that evidence will not be repeated here in detail. Even though the trial court is a "gatekeeper" of reliable expert opinions, challenging expert testimony under Daubert is not, as Hancock argues, accomplished in a vacuum. Kumho Tire Co. v. Carmichael, 526 U.S. 137, 138 (1999); see also Weisgram v. Marley Co., 528 U.S. 440, 455 (2000), citing Daubert. Daubert sets the standard that an expert's opinion is admissible if it has "a reliable basis in the knowledge and experience of his [or her] discipline." Daubert, 509 U.S at 592. And Daubert's progeny teaches that an expert's reasonable methodologies should be allowed. Kumho, 526 U.S. at 138 . Curry used a reasonable methodology that reliably determined damages from information available in the home building marketplace. One of Curry's opinions

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regarding Meritage's underperformance in the homebuilding market is based on the number of lots available for salelots that were already developed and ready for sale to potential home buyers. See Curry Report, Exhibit 3 at p. 6; Curry Depo., Exhibit 5 at 44:1-23. The terminology "lots available-for-sale" expressly does not include any lot that is "a piece of raw land sitting out in the desert that an individual is not able to go out and buy a lot from." Curry Depo., Exhibit 5 at 44:1-23. Curry performs a number other analyses based on market statistics and data to demonstrate that Meritage underperformed against the market. See Curry Report, Exhibit 3 at p. 6. In trying to invent inconsistencies (again a matter of credibility, not admissibility) between Curry's analysis and the record showing Meritage's acquisition of lots on which it could build homes, Hancock intentionally ignores the distinction between lots available for sale and lots on which homes could be built to be sold to home buyers. Motion at 5:3There is a false premise inherent in Hancock's job performance argument. He asserts that he never received a negative performance evaluation and always received his bonus. Motion at 4:11-18. That assertion, however, is meaningless because Hancock concealed from Meritage the fact that he was secretly acquiring land for his own account, not acquiring land for Meritage, and Hancock was telling subordinates and land brokers that he would not acquire land for Meritage because he would not benefit from it. Had Meritage known this, not only would Hancock have received bad performance reviews and no bonuses, Meritage would have had grounds to terminate Hancock accordingly. See Hilton Dec., Exhibit 8 hereto, at ¶¶ 1-5.
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6:6. Curry has consistently explained the importance of this distinction, but Hancock continues to ignore it by trying to falsely characterize the concept of "total inventory," as though all available land is ready for building homes. See Curry Report, Exhibit 3 at p. 6; Curry Depo., Exhibit 5 at 44:1-23; see also Plaintiffs' (1) Objections to Defendant Greg Hancock's Updated Statement of Facts and (2) Controverting Statement of Facts at ¶¶ 3542 ("Objections") (Item # 435). As an experienced home builder, Hancock knows full well that not all land is marketable to home buyers. See Cornwall Depo., Exhibit 6 at 114:5-117:9; Hancock Depo., Exhibit 9 hereto, at 11:4-24, 124:17-128:3, 135:15-139:4; Keeffe Decl., Exhibit 10 hereto, at ¶¶ 2-13; Cole Depo, Exhibit 11 hereto, at 246:1-259:6; Krause Depo., Exhibit 12 hereto, at 161:5-165:20. Among other things, a lot cannot be sold to build a home on it until it is platted. Krause Depo., Exhibit 12 at 161:5-165:20; Curry Report, Exhibit 3 at p. 6; Curry Depo., Exhibit 5 at 44:1-23; Cole Depo, Exhibit 11 at 246:1-259:6. The lots available for sale, moreover, are those that were already developed, open for sale and obviously not yet sold. See Curry Report at p. 6; Curry Depo., Exhibit 5 at 44:1-23. A simple reading of the Lot Status Report clearly shows that there is a

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distinction between the total lots, including raw land, and the total lots that are ready to be sold. See Curry Report at pp. 6-7; Krause Depo., Exhibit 12 at 160:1-165:5. To the extent, furthermore, that Hancock is claiming credit for lots under Meritage control on his first day at work, including the lots at Sundance that Meritage acquired as part of the purchase of Hancock Communities, there is no support in the evidentiary record, but he remains able to cross-examine Curry on that point if he so desires. Hancock furthermore takes some statements out of context and misrepresents others. This is also not appropriate fodder for a Daubert motion. Meritage, moreover, has both explained and refuted these mischaracterizations in earlier motion practice. Compare Motion at 5:15-24 with Objections at ¶¶ 35-39 (Item # 435).

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III.

Curry's Damages Analysis of Westwind and Riata West Damages Is Also Admissible. Hancock also cuts and pastes in his Motion the same argument he made during

summary judgment surrounding the Westwind and Riata West damages.5

Compare

Motion at 6:12-11:2 with Greg Hancock's MSJ at 9:15-13:8. The details of this argument will not be repeated here but, for purposes of preserving the record, are incorporated here in. See Objections at ¶¶ 47-65 and Controverting Facts at ¶¶ 43-53 (Item # 435). The gist of Hancock's in limine arguments on the Westwind/Riata West damages rests again upon a false premise: that there was no contemporaneous criticism of Hancock for entering into the options for these parcels for his own account at the exclusion of Meritage. Motion at 10:24-26. Putting aside whether that premise matters at all for purposes of a Daubert motion, the premise is false because Hancock's deals were secret, rendering the absence of criticism meaningless. See Cornwall Depo., Exhibit 6. at 43:1854:2, 46:3-6, 75:15-76:8, 103:12-104:10; Cornwall Depo. in Hancock v. Hancock, Exhibit 15 hereto, at 18:4-15; Arneson Decl., Exhibit 7, Id. at ¶¶ 4-9. Meritage could hardly be critical of Hancock when he concealed land deals of which he had no intention sharing with Meritage, especially considering Hancock's plan all along to quit Meritage. Cornwall Depo. at 43:18-54:2, 46:3-6, 75:15-76:8, 103:12104:10; Cornwall Depo. in Hancock v. Hancock at 18:4-15; Arneson Decl. at ¶¶ 4-9; see also Hancock Depo., Exhibit 9 at 58:23-59:8; Brueckner Depo., Exhibit 16 hereto, at 10:9-13:4, 15:15-16:12, 21:10-20, 22:4-24:2, 24:6-11, 66:15-19, 68:11-16, 80:2-24,

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Hancock's argument refers to one of the categories of damages about which Curry opined and offered a damages calculation. Curry calculated the amount of damages Meritage suffered because it had to pay a buy-in fee and take a lower profit participation for buying into the Westwind and Riata West partnerships, when Hancock had secretly optioned the land for his own account and concealed it from his employer. Curry Supplemental Report, Exhibit 4 at pp. 1-2; see also Hilton Decl., Exhibit 8 at ¶¶ 1-5.
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116:10-117:1 and 195:24-196:21.6 Hancock, moreover, had much more than a lapse in judgment because he acted as the front man for Olympic Properties arranging the financing. See, e.g., Rodgers Depo., Exhibit 18 hereto, at 11:17-16:18, 20:16-21:8, 21:24-22:21; Cornwall Depo., Exhibit 6 at 59:7-60:19. Hancock cannot downplay his active role (Motion at 10:18-23) in order to try to exclude Curry's calculation of lost opportunity damages. At best, it is apples and oranges. Absent any true Daubert analysis, Hancock has nothing left but to call Curry a liar again ­ this time claiming that Curry "concocted" his analysis.7 Motion, Id. Be-it-as-itmay, such name-calling is relegated to cross-examination and argument. See Daubert, 509 U.S. at 594-96 (credibility is not a bar to admissibility, and cross-examination remains the appropriate means for challenging credibility). CONCLUSION Hancock's Motion challenges Curry's credibility. In so doing, he makes the same credibility arguments that he made at summary judgment. This is not appropriate fodder for a Daubert motion, and the Court has already decided that there are sufficient facts for Meritage to make its case for liability and damages to the fact finder. Curry is qualified, and his opinions are relevant, reliable and admissible to aid the fact finder. The Court Hancock has repeatedly suggested that, in order to breach his fiduciary and contractual duties to Meritage, he had to actually complete the purchase of or develop raw land. See Motion at 6:21-25. This goes directly to arguing against his liability, of which Curry has offered no opinion. Hancock's suggestion is otherwise an obvious distraction from the fact that the fact finder can find his 60% option in Olympic (or his active participation in Olympic) was alone a breach of his employment agreement. Hancock's attack on Curry's recalculation and reduction of the amount of damages flowing from the fact that Hancock caused Meritage to overpay for its investments in Westwind and Riata West is baseless. Motion at 10:18-11:8. Hancock pointed out an incorrect assumption in the original calculation. Instead of standing on the incorrect assumption, Curry recalculated the damages more than a year ago, and Hancock was given an opportunity to redepose Curry on this calculation. Honest reflection on incorrect assumptions and correcting them is not a sign of an inadequate expert; it is a sign of strong expert. See Crowley v. Chait, 322 F.Supp.2d 530, 540 (D.N.J. 2004) ("Daubert does not require that an expert's testimony be excluded simply because he admitted and corrected his own mistakes or retracted his false statements . . . . There is no stigma attached to such error correction, nor should there be. If anything, it strengthens the quality of the expert report.")
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should deny Hancock's Motion accordingly. RESPECTFULLY SUBMITTED this 20th day of August, 2007. SNELL & WILMER L.L.P.

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

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Snell & Wilmer L.L.P.

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

CERTIFICATE OF SERVICE I hereby certify that on August 20, 2007, 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 the following CM/ECF registrants: Ivan K. Mathew Mathew & Mathew, P.C. 3300 North Central Avenue, Suite 1730 Phoenix, Arizona 85012 Attorneys for Rick Hancock, Brenda Hancock, Rick Hancock Homes, L.L.C., and RLH Development, L.L.C.

Document 515- 10 Filed 08/20/2007

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Robert M. Frisbee Frisbee & Bostock, PLC 1747 East Morton Avenue Suite 108 Phoenix AZ 85020 Attorneys for Greg Hancock Kenneth J. Sherk Timothy J. Burke Fennemore Craig, P.C. 3003 N. Central Ave. Suite 2600 Phoenix, AZ 85012-2913 Attorneys for Defendant Snell & Wilmer, L.L.P. in State Court Action s/ Deborah Yanazzo
29323.0078\ERICKSR\PHX\2032535

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