Free Motion in Limine - 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
1 5 6 7 8 9 10 11

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,
13

DEFENDANT GREG HANCOCK'S MOTION IN LIMINE TO EXCLUDE THE TESTIMONY OF GREG CURRY

Defendants.
14 15 16

Defendant Greg Hancock, by and through undersigned counsel, hereby moves the
17

Court for its Order precluding the testimony and expert reports of Greg Curry of Navigant
18

Consulting at the trial of this matter concerning: 1) the adequacy of Greg Hancock's
19

performance as President of Hancock Communities from 2001 to 2003; and 2) the matter
20

known generally as the Olympic Properties transaction. The grounds for the Motion
21

generally are that: 1) Curry disqualified himself from opining on Hancock's job
22

performance, and 2) Curry has no foundation for his opinion regarding the Olympic
23

Properties matter, and the topic generally is not one that is appropriate for expert testimony.
24

This Motion is supported by the accompanying Memorandum of Points and Authorities
25

which is incorporated herein by this reference.
26

Case 2:04-cv-00384-ROS

Document 504

Filed 08/03/2007

Page 1 of 11

1 2 3 4 5 6 7

RESPECTFULLY SUBMITTED this 3rd day of August, 2007. FRISBEE & BOSTOCK, PLC /s/ Robert M. Frisbee Robert M. Frisbee Attorney for Greg Hancock MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR IN LIMINE A. The Legal Standard

8

The purpose of a motion in limine is to allow the trial court to rule in advance
9

of trial on the admissibility and relevance of certain forecasted evidence. See Luce v. United
10

States, 469 U.S.38, 41 n.4, 105 S.Ct. 460, 83 L.Ed.2d 443 (1984) (noting that although the
11

Federal Rules of Evidence don'ts specifically authorize in limine rulings, the practice has
12

developed pursuant to the district court's inherent authority to manage the course of trials.
13

Evidence should be excluded on motion in limine only when the evidence is clearly
14

inadmissible on all potential grounds.
15 16

Such motions call upon the court to make

determinations on the admissibility of proffered evidence under Fed.R.Evid. 104(a), "Preliminary questions concerning the qualification of a person to be a witness . . . or the
17

admissibility of evidence shall be determined by the court . . ." See Daubert v. Merrell Dow
18

Pharmaceuticals, 509 U.S. 579, 592 n. 10, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993) and
19

Jonhnson Elec. North America, Inc. v. Mabuchi Motor America Corp., 103 F.Supp.2d
20

268, 279 (S.D.N.Y. 2000).
21

Defendant Greg Hancock's motion with regard to witness Curry has to do with the
22

admissibility of his testimony rather than the weight to be given to it. Fed.R.Evid. 702
23

states: "If scientific, technical, or other specialized knowledge will assist the trier of fact to
24

understand the evidence or to determine a fact in issue, a witness qualified as an expert by
25

knowledge, skill, experience, training, or education, may testify thereto in the form of an
26 2 Filed 08/03/2007

Case 2:04-cv-00384-ROS

Document 504

Page 2 of 11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case." Applying these factors to proffered expert testimony, a district judge assumes a "gatekeeping" role to "ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable." Daubert, at 509 U.S. 589. The gatekeeping function applies not only to scientific testimony, but also to "testimony based on `technical' and `other specialized' knowledge." Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999). District judges have broad discretionary authority "to determine [the] reliability [of an expert's testimony] in light of the particular facts and circumstances of the particular case." Kumho, 526 U.S. at 158. As will be seen, Curry's entire likely testimony will do nothing to assist the trier of fact; he has disqualified himself from opining on one portion of his testimony; and he has insufficient knowledge of the facts to opine on another portion of his testimony. B. Greg Hancock's Job Performance1 Pages 4 through 13 of Curry's expert report, sub-titled "Meritage/Hancock Acquisition Performance" and "Lost Profit Damages," through the use of multitudinous figures and graphs, compares the numerical and monetary performance of two other building companies, American Standard and Pulte, to that of Hancock Communities while Greg Hancock was at its helm. This material could only be offered by Meritage to support its contention that Hancock's job performance was sub-standard, and in breach of his employment contract. In reality, Greg Hancock's employment duties (as well as restrictive covenants) are found in his Employment Agreement (S.F. II, Exh. 15). EXHIBIT A thereto describes his

Citations are to the Statement of Facts and Exhibits there in Greg Hancock's Updated Statement of Facts supporting his Updated Motion for Summary Judgment.

1

Case 2:04-cv-00384-ROS

Document 504

3 Filed 08/03/2007

Page 3 of 11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

duties in running Hancock Communities. Significantly, and contrary to Curry's implication that Hancock was entirely responsible for land acquisition, EXHIBIT A gives Meritage, not Hancock, the right to control decisions regarding land acquisition and expansion into new market areas. Another attachment to the employment contract, EXHIBIT B, describes the calculations used to determine Hancock's right to performance bonuses, and sets specific monetary goals for the first seven months of his employment. After the first seven months, the yearly business plan agreed upon between Hancock and Meritage governed the amount of the bonus that Hancock and his eligible employees could earn. Meritage has disclosed no evidence, by Curry or anybody else, that there were any other determinants of the adequacy of Hancock's job performance. Indeed, Meritage concedes in its Responses to Requests for Admission that Hancock and all eligible employees earned 100% of available bonuses during the entire time Hancock was employed with Meritage. It does not dispute that there is not a single negative word about Hancock's job performance in the totality of Meritage's records, including Hancock's personnel file, Meritage's board minutes, budget committee minutes, and public filings (S.F. II, ¶ 34). Since neither its documents nor its officers provide any evidence that Hancock's job performance was deficient, Meritage hired Curry opine that Hancock did not perform his job adequately (S.F. II, Exh. 36, pp. 32,22). But to no avail. Curry conceded in his deposition that a comparison between American Standard/ Pulte and Hancock Communities was not the standard by which Hancock's performance was to be measured (S.F. II, Exh. 36, pp. 27-31). Greg Hancock's successor, Ron French, agreed that Curry's "company comparison" approach would be unfair to Hancock and not the measure of his job performance (S.F. II, Exh. 16, pp. 59,60). Curry implies that Hancock's performance in acquiring land for Meritage to develop was inadequate. His report states, "As of June 2001 [the date of Meritage's purchase of Hancock Communities], there were 934 lots available-for-sale as part of the Hancock
4 Filed 08/03/2007

Case 2:04-cv-00384-ROS

Document 504

Page 4 of 11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

communities that Meritage purchased. Fifteen (15) months later, the available lots Meritage had to sell had dropped in half, to 449." (S.F. II, Exh. 17) The statement is a complete fabrication, as proven by Meritage internal documents relating to its purchase of Hancock, by its lot development reports, and by its public filings: a. Meritage states in an offering circular touting a bond issue Meritage sold to the public to fund the Hancock purchase, "At March 31, 2001, Hancock had 4,647 lots on which homes could be built under its control" (S.F. II, Exh. 18). b. The Hancock Communities Project Lot Status Report dated 5/31/01 [the date Meritage purchased Hancock Communities](S.F. II, Exh. 19) shows a total inventory of 6,991 lots, including 4,674 remaining to sell, and 2,327 lots purchased under rolling options. c. One year later, on 5/31/02, there was a total inventory of 6,860 lots, including 3,926 remaining to sell and 2,934 controlled under rolling options (S.F. II, Exh. 20). d. On March 6, 2002, Meritage's Board of Directors were told, "Steve [Hilton] noted that although our business continues to be soft in our high-end Monterey/Scottsdale product [Hilton's division], business in our more moderately priced Hancock/Meritage [Greg Hancock's division] product remains good" (S.F. II, Exh. 21). e. On 7/31/02 there were not 449 lots available as claimed by Curry, but rather a total of 7,170, including 4,151 remaining to sell and 3,019 under rolling options (Exh. 22,S.F. II). f. In its Form 10-K report to the SEC for the fiscal year ended 12/31/02 Meritage stated that it had over 10,000 home sites remaining to sell in its Arizona Hancock product (S.F. II, Exh.23). g. Finally, just eight days before Hancock's employment with Meritage was terminated, Hancock Communities had 8,814 lots, including 7,360 remaining to sell and
5 Filed 08/03/2007

Case 2:04-cv-00384-ROS

Document 504

Page 5 of 11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

1,454 under rolling options (S.F. II, Exh. 24). Proving Meritage's ultimate control of land acquisitions, on one occasion Meritage co-CEO John Landon vetoed a land purchase recommended by Hancock which would have added about 800 lots (S.F. II, Exh. 3, p. 181), and Hancock continually maintained an inventory of lots sufficient for three to five years' future sales at about 1,500 home sales per year (S.F. II, Exh. 3, pp. 136-38 ). Finally, despite his nine page negative analysis of Hancock's job performance, Curry conceded in his deposition that he was not opining on the adequacy of Greg Hancock's job performance (S.F. II, Exh. 34, pp. 39,40). Thus, not only is Curry's testimony devoid of factual foundation, he has disqualified himself from rendering any opinion on the topic of Hancock's job performance. C. Olympic Properties In addition to job duties, Greg Hancock's employment agreement contained two restrictive covenants (S.F. II, Exh. 15, ¶¶ 8.A, B). The first covenant precluded him until June 2, 2006, from engaging in any homebuilding business with 100 miles of Meritage. Meritage has neither adduced nor disclosed any evidence that Hancock violated this covenant. The second restrictive covenant precluded him until June 2, 2004 (the expiration of his employment agreement) from home sales, land banking, or land development within 100 miles, with the carve-out that "Employee may be a passive investor, owning up to 25%, of any land banking or land development project." Meritage claims that Greg Hancock violated this covenant during his employment by becoming a member, with Dave Cornwall, of Olympic Properties, LLC, even though it is undisputed that Olympic never completed the purchase of or developed any property whatsoever, and that Hancock withdrew from Olympic before it was able to accomplish anything at all (S.F. II, Exh. 28, p. 110). Greg Hancock commenced employment with Meritage on June 1, 2001. Olympic
6 Filed 08/03/2007

Case 2:04-cv-00384-ROS

Document 504

Page 6 of 11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Properties, LLC, was formed on 6/29/01by David Cornwall, a real estate broker and long time Hancock friend, with Cornwall owning 75% and Hancock owning 25%. Its stated purpose was "to invest in and hold real estate for investment." Because Hancock was

involved, attorney Kurt Brueckner drafted the formation documents to comport with the restrictions contained in Hancock's employment covenants (S.F. II, Exh. 25). Because Hancock was able to foot more of the start-up expenses of Olympic than could Cornwall, he also got an executory option to increase his Olympic ownership after his Meritage employment covenant expired (S.F. II, Exhs. 25, 26). Brueckner carefully drafted the Option Agreement to comply with Hancock's restrictive covenant (S.F. II, Exh.27, pp. 80-86; Exh. 28, pp. 43,199). The option may be exercised after 6/2/04 - the expiration date of the covenant - but "Prior to June 2, 2004, Hancock shall have no right to acquire any additional Units of Olympic, or any other rights whatsoever with respect to Olympic, by virtue of this Option Agreement." Over the summer of `01 Cornwall, not Hancock, negotiated options for Olympic on land which ultimately became known by the names Westwind and Riata (S.F. II, ¶ 49). Cornwall initially sought financing for the options from Devon Properties, but because of 9-11the financing fell through (S.F. II, Exh. 3, p. 60; S.F. II, Exh. 29, Olympic letter to Devon of 11/16/01). Cornwall testified here and in Hancock's divorce case that soon after the 11/16/01 letter, Hancock was "out of Olympic and everything that had to do with it." (Exh. 28, pp. 110,177) Olympic formalized Hancock's withdrawal in its corporate records and, with a letter of 6/26/02, Cornwall returned Hancock's investment money. It said:

"As a result of the loss of our primary financial partner, Devon Properties, we were unable to proceed as planned with Olympic Properties. No property or assets of any 24 kind were ever purchased. * * * I will be filing a final tax return for Olympic for the year 2001, and dissolving the LLC. As you know, Olympic has no debt, or assets of any 25 kind." (S.F. II, Exh. 30, emphasis added.)
26

It is undisputed that the Olympic Properties and Olympic Development tax returns show no
7 Filed 08/03/2007

Case 2:04-cv-00384-ROS

Document 504

Page 7 of 11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

property owned and no income earned (S.F. II, ¶ 53). After Hancock withdrew from Olympic in November, 2001, Cornwall kept working on the Olympic projects, and found financing through Taro Properties (Larry Cox). Cornwall formed Cavalier and assigned the property options held by Olympic to Cavalier, and from Cavalier to the Westwind and Riata entities, formed for the purpose. Hancock had no interest whatever in any of the new entities or their property (S.F. II, ¶ 58). The options were assigned from Cavalier to Westwind and Riata at the same price for which Olympic originally obtained them (S.F. II, Exh. 28, pp. 210-212, 223). Ultimately, before Hancock left Meritage's employ in March, 2003, Cavalier (Cornwall) entered into partnership with Taro and Meritage (S.F. II, Exh. 28, pp. 83,84). The following entity documentation (none of which involves Greg Hancock) is taken from the Arizona Corporation Commission's records: a. 1-18­02 Cornwall forms Cavdel, LLC and Cavalier Properties, LLC b. 1-28-02 Cornwall forms Riata West, LLC, whose members are Cavalier Properties, LLC and Taro Properties; later, by amendment, Sonterra Partners, LLC and MTH-Cavalier, LLC [Meritage] are added as members Cornwall forms Westwind Properties, LLC, including as members Cavalier Properties, LLC, and Taro Properties (later by amendment Sonterra Partners, LLC is added)

c. 3-27-02
17 18

d. 12-09-02 Cornwall forms EP-The King, LLC
19 20 21 22 23 24 25 26

e. 12-19-02 MTH-Cavalier, LLP [Meritage], with its sole member Monterey Homes Construction, Inc. [Monterey formed on 3-14-97 by Meritage CEO Steven Hilton and Meritage CFO Larry Seay] formed by Meritage board member Tim White f. 12-30-02 MTH-Cavalier, LLC [Meritage], Taro and Cavalier added by amendment to Riata West, LLC, and MTH-Cavalier [Meritage], Taro and Cavalier added by amendment to Westwind Properties Utilizing the foregoing entities, on 12-30-02 Meritage purchased an interest in Riata, Westwind and EP-The King from Cornwall and Taro (S.F. II, Exh. 31). Its rationale for making the purchase was explained in a Steve Hilton MEMO to the Meritage board of
8 Filed 08/03/2007

Case 2:04-cv-00384-ROS

Document 504

Page 8 of 11

1 2 3 4 5 6

directors dated 12-17-02 (S.F. II, Exh. 32): In this venture we would be able to control several thousand lots in three transactions in southwest Phoenix at a substantial discount to today's market pricing. The transaction will allow us to share the capital risk with an experienced financial partner with which we have had a favorable track record of doing business for several years (Taro Properties). We would also be working with the managing partners, Dave Cornwall and Bob Wagoner, who have years of experience in acquiring and developing thousands of lots in the metropolitan Phoenix area. The memo also explained that, "Meritage is required to pay a "buy-in" of $1,000,000 for

7

Westwind and Riata as the platting and engineering processes for these projects are in
8

advanced stages."
9

On 3-3-02 Greg Hancock left employment with Meritage. He was not informed by
10

Meritage or Cornwall of the Westwind/Riata/EP-King transaction, even though had the
11

properties been purchased for build-out rather than investment they would have been within
12

Hancock's jurisdiction as president of Hancock Communities (S.F. II, Exh. 3, pp. 194,195).
13

S.F. II, Exhibit 31, the 12-30-02 letter of understanding from Cornwall to Cox, Hilton and
14

Landon, describes Meritage's involvement in the projects three months before Hancock left
15

Meritage. S.F. II, Exhibit 33 is the first balance sheet for Westwind, showing Meritage's
16

capital investment of $2,108,433.51, at a land purchase cost of $9,945,390.15. The 807 acres
17

cost about $12,300 per acre. That price is virtually the same as Olympic's original option
18

price per acre.
19

Then, Meritage bought a portion of this property for itself from its own partnership.
20

S.F. II, Exhibit 34, is a Meritage "Acquisition Summary" describing the purchase of
21

Westwind by Meritage from the Meritage/Cornall/Cox partnership for $35,100 per acre.
22

Thus, the Meritage/Cornwall/Cox partnership sold the property to Meritage for a profit of
23

about $23,000 per acre.
24

Greg Curry's initial expert report stated incredibly that the foregoing difference in
25

price per acre amounts to damages caused by Hancock to Meritage, rather than profit to the
26 9 Filed 08/03/2007

Case 2:04-cv-00384-ROS

Document 504

Page 9 of 11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Meritage/Cornwall/Cox partnership (S.F. II, Exh. 35), on the assumption that had Hancock told Meritage about Olympic, Meritage would have obtained all of the property for itself and therefore all of the profit. Curry nowhere explains how Meritage could have cut Cornwall out of the deal, or that it would have been interested in assuming all of the risk, and so forth. But then, by the date of his first report, even by the date of his deposition, neither Meritage nor its attorneys had told Curry the truth about the transaction, which he learned from Hancocks' expert's report (S.F. II, Exh. 36, pp. 80-81, 85, 89-92). He admitted in his deposition that he would have to do further investigation and supplement his report about Olympic Properties. As a matter of fact, the Westwind/Riata/EP-King land was not the type of real estate purchase which Meritage usually made for home building because its goal usually was not to purchase land for long term development: "We typically option or purchase land only after the necessary entitlements have been obtained so that development or construction may begin as market conditions dictate"(S.F. II, Exh.22, p.2), and "the purpose of this [Cavalier] venture is to create a vehicle in which Meritage Corporation can generate access to a significant number of lots in the metropolitan Phoenix area on a wholesale basis, without assuming all the risks of ownership. (S.F. II, Exh. 32, emphasis supplied.) Undaunted by the foregoing facts, Curry concocted a Supplemental Report dated May 23, 2006, in which he recalculated "lost opportunity damages" to include the $1 million Meritage paid to the partnership for its share of the infrastructure costs, ignored the profit it made from the sale to itself, and speculated that Meritage should have gotten 50% of the deal rather than 30%. One supposes Curry forgot that Hancock's share of Olympic was 25%, not 50%. There is no Meritage corporate document which is critical of Greg Hancock regarding any element of its partnership with Cornwall and Cox in Westwind/Riata/EP-King (S.F. II, ¶ 65). Neither Meritage's original complaint or its first amended complaint make any
10 Filed 08/03/2007

Case 2:04-cv-00384-ROS

Document 504

Page 10 of 11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

mention of Westwind/Riata/EP-King. Not until Meritage's Second Amended Complaint, filed on April 15, 2005, is the subject mentioned. Whatever the jury may make of the facts underlying Olympic Properties, it does not need an "expert" to determine them. Whether Hancock's employment agreement allowed him to participate in Olympic, whether he was obligated to introduce Cornwall to Meritage, whether Meritage would have gotten into the deal at that time, what kind of deal it would have been, and so forth, are not subjects which need expert testimony. Accordingly, Curry's "opinions" are superfluous and should be excluded. D. Conclusion Greg Curry admittedly used criteria not applicable to measuring Greg Hancock's job performance and conceded in his deposition that he was not opining on the adequacy of that performance. Therefore, his testimony on that topic is irrelevant and has no foundation. His testimony regarding Olympic Properties not only ignores virtually all of the facts surrounding the topic, it is not scientific, technical, or other specialized knowledge that would assist the trier of fact to understand the evidence or to determine a fact in issue. Accordingly, his testimony invades the province of the jury and is immaterial. All of Curry's testimony regarding Greg Hancock should be excluded. RESPECTFULLY SUBMITTED this 3rd day of August, 2007.

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 3rd day of August, 2007, and copy 25 thereof mailed to the Honorable Judge Silver.
24 26

/s/ Robert M. Frisbee
11 Filed 08/03/2007

Case 2:04-cv-00384-ROS

Document 504

Page 11 of 11