Free Response in Opposition to Motion - District Court of Arizona - Arizona

Robert M. Frisbee #018779 FRISBEE & BOSTOCK, PLC 2 1747 Morten Ave. E. Suite 108 Phoenix, Arizona 85020 3 Phone: (602) 354-3689 [email protected] 4 Attorneys for Defendant Greg Hancock
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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA MERITAGE CORPORATION, a Maryland corporation Plaintiff, vs. ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

NO. CIV 04-0384-PHX-ROS

GREG HANCOCK, an individual; RICK HANCOCK, an individual; and 12 RICK HANCOCK HOMES, L.L.C., an Arizona Corporation,
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DEFENDANT GREG HANCOCK'S RESPONSE TO PLAINTIFFS' MOTION IN LIMINE TO EXCLUDE REFERENCE TO SARBANES-OXLEY REPORTING REQUIREMENTS

Defendants.
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Meritage, a publicly held company, contends that defendants ought not be able to
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mention the fact that it failed to report its damage/loss claim of $44 million to the SEC or to
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its shareholders because, 1) there is no authoritative basis on which to claim that such a loss
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is a reportable event, and 2) that such a loss is not "material" to a company the size of
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Meritage.
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To take the second point first, then why did Meritage report a significiantly smaller
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loss in its Ft. Myers/Naples, Florida division on July 6, 2007? In a Press Release carried by
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PRIME NEWSWIRE1 it said: * * * the Company believes the goodwill and other intangible assets relating to a February 2005 acquisition in Ft. Myers/Naples are impaired, and anticipates recording non-cash, pre-tax charges in the second quarter of 2007 of approximately $28 million relating to these assets. As to its claim of no authoritative reference, evidently Meritage does not believe its
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Found at http://ir.meritagehomeinvestor.com/phoenix.zhtml?c=61337&p=irol-newsArticle&t=Reg

Case 2:04-cv-00384-ROS

Document 510

Filed 08/14/2007

Page 1 of 4

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officers and experts are sufficiently competent to make the point. Ron French, Greg Hancock's successor as the President of the Phoenix division of Meritage, testified: Q. * * * [T]his document [Meritage's Code of Ethics], if it's lived up to, requires you to conduct your business with integrity and in compliance with all applicable laws; is that correct? A. That's correct. Q. And one of those applicable laws is the so-called Sarbanes-Oxley reporting requirements, true? A. Yes, sir. Q. Have you had occasion to go to any training or seminars, meetings about Sarbanes-Oxley? A. We've had several meetings about Sarbanes-Oxley. Q. Will you tell me what your general understanding is about the requirements of Sarbanes-Oxley with regard to financial reporting in a publicly traded company? A. My understanding it has to be, you know, true and correct. Q. Supposed to be accurate, isn't it? A. Accurate. Q. It's supposed to be done in such a fashion that an investor who might want to buy Meritage stock is not misled and understands fully what they're buying, true? A. True. (French Dep. 54) Q. Would you agree that 10 percent of 460,000,000 [Hancock Division annual gross income] is a significant financial figure to the affairs of the Hancock division or the Phoenix division? A. Yes. Q. Would you agree that a claimed $44,000,000 loss to that division would
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be an event that would be required to be reported under Sarbanes-Oxley? A. It would be, yes. Q. And if there is no such reporting by Meritage of a $44,000,000 loss that is claimed in this lawsuit, then would you agree that either Meritage did not live up to the requirements of Sarbanes-Oxley or there is no such loss? A. I don't believe there's a loss yet. Q. There is no loss, is there? A. No. (French Dep. 56,57) Meritage's hired gun, Greg Curry, believes that such a loss would be significant if it had occurred: Q. Are you familiar with Sarbanes-Oxley reporting requirements? A. Generally. Q. And tell us how you came about that knowledge. A. Well, our firm does a lot of work in the area of SEC investigations and Sarbanes-Oxley reviews, for audit committees, for example. Q. Would you agree that a $44 million claimed loss for a company the size of Meritage is significant? A. Well, I - - it probably is a fairly significant number. (Curry Dep. 109) French and Curry tried to parry the blow by saying that the loss didn't have to be disclosed because it hadn't occurred yet. However, in its Rule 26(A)(1)(C) Disclosure Statement dated August 13, 2004 said, "Meritage's best estimate of these damages at the present time is approximately $44,000,000 * * *" (Emphasis supplied.) Sarbanes-Oxley puts Meritage in a very awkward box because its requirements demonstrate that Meritage either has no loss or has failed to report it. In either event, defendants should not be constrained from demonstrating the point.

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As in every other area in which Meritage has played fast and loose with the law and the truth2 - "confusion," the License Agreement, the "big lie" of Olympic Properties, and its claimed loss/damages - Meritage is desperate to hide from the jury that if it really had been damaged or had suffered a loss, it would have been obliged to report it. When asked about the accuracy of the claimed loss, CFO Seay and CEO's Hilton and Landon all said "see our lawyers." Specifically, Seay testified: "I said I am not currently able to tell you how [the $44 million figure] was derived. My attorneys developed the number, and I need to review their calculation." It's too late in the game to throw it on the attorneys, or to pretend that the dichotomy between verified assertions in pleadings and truth does not exist. The motion in limine regarding Sarbanes-Oxley should be denied. RESPECTFULLY SUBMITTED this 14th day of August, 2007.

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FRISBEE & BOSTOCK, PLC /s/ Robert M. Frisbee Robert M. Frisbee Attorney for Greg Hancock

The foregoing Motion in Limine was electronically filed and served this 14th day of August, 2007, and copy 19 thereof mailed to the Honorable Judge Silver.
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There is no citation in Meritage's fn.1to its motion because there is no such statement in any public filing as that claimed; indeed, there is no intimation in any filing that Meritage didn't have enough land.
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/s/ Robert M. Frisbee

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