Free Response in Opposition 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) Adam Lang (#022545) 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] - 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 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. Ricky Lee Hancock, et al., Defendants. AND RELATED COUNTERCLAIMS AND THIRD PARTY CLAIMS PLAINTIFFS' RESPONSE IN OPPOSITION TO DEFENDANTS RICK AND BRENDA HANCOCK, RICK HANCOCK HOMES, INC., AND RLH DEVELOPMENT, INC.'S RENEWED MOTION FOR SUMMARY JUDGMENT

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Case 2:04-cv-00384-ROS Document 470 Filed 04/11/2007 Page 1 of 18

Snell & Wilmer L.L.P.

Plaintiffs (collectively, "Meritage") respond to defendants Rick and Brenda Hancock, Rick Hancock Homes, Inc., and RLH Development, Inc.'s (collectively "Defendants'") Renewed Motion for Summary Judgment ("Motion"). The Motion contains the same flaws, misstatements of law, and inaccurate statements of evidentiary record as it did two years ago. This Response is supported by the following Memorandum of Points and Authorities, Objections to Defendants' Statement of Facts ("Objections"), and a Controverting Statement of Facts ("CSOF"), including exhibits attached thereto. Meritage also incorporates by reference the Statement of Facts in support of its Motion for

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Summary Judgment and its Objections and Controverting Statement of Facts in response to Greg Hancock's Motion for Summary Judgment. MEMORANDUM OF POINTS AND AUTHORITIES I. ARGUMENT A. Meritage Has Not the Abandoned "Hancock" Name

Defendants argue that abandonment occurs when a party expresses the intent to abandon the name in the future. (See Motion at 3:17-20.) That is not the law. Abandonment, as defined by the Lanham Act, occurs when "use has been discontinued with intent not to resume such use." 15 U.S.C. § 1127 (emphasis added). To prove abandonment, Defendants must establish that there is no question of fact that both Meritage discontinued its use of the "Hancock" name and Meritage freely expressed its intent not to use the "Hancock" name in the future. Id.; see Money Store v. Harriscorp Fin., Inc., 689 F.2d 666, 675-76 (7th Cir. 1982) (abandonment requires both elements, not just expressions of intent to abandon). Defendants fail on both elements. Meritage has sold more than $117 million in homes under the "Hancock" name through metropolitan Phoenix since July 1, 2004. (See, e.g., Objections at ¶¶ 27 and 28; CSOF at ¶ 7.) Such use is in line with the Hancocks' home sales under the "Hancock" name prior to the sale of the Hancock Communities business to Meritage. (See Objections at ¶¶ 27 and 28.) Even according to Defendant's own expert, Barb Sorget, Meritage increased the frequency of its use of the "Hancock" name in 2003, after Greg Hancock was no longer the President of Hancock Communities. (See Graphs of Advertising Dollars and Total Points included in Greg Hancock's Statement of Facts ("GH SOF"), at Exhibit 111) (noting that the data points reflecting total year use increased after Greg Hancock left Meritage); see also Objections at ¶ 27; CSOF at ¶¶ 3-6 (identifying that Meritage continuously and regularly used and advertised the mark "Hancock" from before the lawsuit began through mid-2006). In fact, as of February 21, 2007, Meritage still had Exhibit 11 to GH SOF failed to include Barb Sorget's expert report in its entirety. For the benefit of the Court, the entire report is attached to the Response to Greg Hancock's Motion for Summary Judgment as Exhibit 1, in order to complete Exhibit 11 to GH SOF.
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Snell & Wilmer L.L.P.

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three remaining Hancock Communities Series homes available for sale at Rancho Bella Vista! (See Objections at ¶ 97; CSOF at ¶¶ 2, 4, and 5.) Lastly, even Defendant Rick Hancock conceded, on December 20, 2006, that Meritage continued to use the "Hancock" name. (See Rick Hancock Statement of Facts ("RH SOF") at ¶ 17.) There is a material difference between expressing the intent to rebrand a unit's identity and expressing the intent to abandon the use of the name in its entirety with no intent to continue to use the name or resume its use in the future. See 15 U.S.C. § 1127 (making it clear that the cease of use has to be with the complete intent not to resume use); Money Store, 689 F.2d at 675-76 (statements of intent to stop using in the future are not material). Here, but for isolated emails discussing what to do in the future and press releases saying Meritage was continuing to use the Hancock name, there is simply no evidence that Meritage expressed the intent to abandon the "Hancock" name. Indeed, the evidence is to the contrary. (See, e.g., Objections at ¶¶ 23, 82, and 88; CSOF at ¶¶ 2, 4, 5, 6, 7, and 9.) The September 8, 2003 email is nothing more than a suggestion by one corporate officer to another about how to use a license that would terminate in May 2007. (See Objections at ¶ 82.) Steve Hilton, the author of the email, testified that "[Meritage] only [has] the license to the name for six years, so we need to create a smooth transition from the Hancock Communities name to the Meritage Homes name. . . . [we] [c]an't just flip the switch." (See id.) (emphasis added). As can be discerned from the email, Hilton was simply concerned with what to do in the future when the license ended. Defendants also selectively ignore the fact that, even as part of the rebranding program, Meritage expressed that it planned on continuing and, in fact, continued to use the "Hancock" name to sell homes. (See Objections at ¶¶ 17, 27 and 97; CSOF at ¶¶ 1-7.) The rebranding program was implemented in July 2004. (See Greg Hancock Counterclaim at ¶¶ 43, 46, 48, 61-63; see also CSOF at ¶ 9.) This is five months after Greg Hancock wrote Meritage purporting to immediately terminate the License Agreement and threatening to sue Meritage if it did not remove the "Hancock" name from its advertising. (See CSOF at ¶ 10.)
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Snell & Wilmer L.L.P.

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Defendants' reliance on IntraWest Fin. Corp. v. W. Nat'l Bank, 610 F. Supp. 950, 958 (D. Colo. 1985) and Exxon Corp. v. Humble Exploration Co., Inc., 695 F.2d 96, 102 (5th Cir. 1983) is misplaced. IntraWest involved a situation, unlike here, where none of the bank's advertisements announcing its name change "apprised the public of any continued use of the mark" "First National." 610 F. Supp. at 958. Further, IntraWest's only continued use of the name "First National" began belatedly after it stopped using it, which never happened here. Id. at 958. The Exxon holding is also not helpful to the Defendants. Exxon's use of the mark, HUMBLE, was limited to sales of only "$9.28 in 1973, $0 in 1974, $140.12 in 1975, and $42.05 in 1976." Exxon, 695 F.2d at 96. Exxon's only other use of the HUMBLE mark during that same time was limited to a few invoices. See id. In contrast, Meritage used the "Hancock" name on its most popular homes in two separate neighborhoods, in advertisements, and has sold $117 million dollars worth of sales under the mark since July 2004. (See Objections at ¶¶ 27 and 28; CSOF at ¶¶ 3-7.) Meritage's extensive use of the Hancock mark is distinguishable from Exxon's ten dollars of use of the HUMBLE mark.2 B. Disclaimers 1. Use of Disclaimers Is Not a Defense to a Lanham Act Violation

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Snell & Wilmer L.L.P.

Defendants' disclaimer argument is baseless, and his supporting case law is taken out of context. (See Motion at 4:16 to 6:13.) First, Defendants concede that the use of an agreed-upon disclaimer is a "remedy" only after there is a finding of liability (see Motion at 4:16-17). Defendants' use of disclaimers amounts, therefore, to a tacit admission of liability ­ that the name Rick Hancock Homes is confusingly similar to the name Hancock Communities. Second, courts only employ a disclaimer as a remedy when the products at issue differ from each other and when the defendant can establish as a matter of law that the disclaimer removes the risk of confusion. E. & J. Gallo Winery v. Gallo Cattle Co., Likewise, expressions of intent to change the use of the Hancock name at some point in the future (such as the Hilton email or the Arneson Christmas party statement) are meaningless since Meritage's use of the Hancock name was continuous and substantial. See, e.g., Money Store, 689 F.2d at 675-76.
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967 F.2d 1280, 1289 (9th Cir. 1992).3 This is because the use of a disclaimer is only meaningful when the junior user's products ("Rick Hancock Homes") are unrelated to the senior user's products ("Hancock Communities" homes or "Hancock Homes"). E. & J. Gallo, 967 F.2d at 1289. In E. & J. Gallo, the junior user's wholesale cheese market differed greatly from the senior user's retail wine market. As a result, despite the presence of disclaimers, the junior user could only use his name/mark on wholesale packages of cheese, and the court prohibited him from using the words "Gallo" or "Joseph Gallo" as a trademark for retail cheese or in audible advertisements. Id. Here, Defendants used a confusingly similar name, Rick Hancock Homes, in the same market for the same product in which Meritage used "Hancock Homes" and "Hancock Communities." (See CSOF at ¶ 5.) Further, Defendants advertised the confusingly similar name in the same ways that Meritage advertises its Hancock marks. (See id.) In other words, Defendants and Meritage are both marketing the same type of goods and services--namely single family homes, to the same consumers--single family homebuyers. (See id.) In this light, a disclaimer is meaningless and not an appropriate remedy. See, e.g., E. & J. Gallo, 967 F.2d at 1289. In fact, the limited number of disclaimers did not prevent actual confusion. For example, Sgt. Mario Atkins was interested in purchasing a Hancock Communities home from Meritage. (See Objections at ¶¶ 77 and 101; CSOF at ¶¶ 11-15.) Believing that Rick Hancock Homes was affiliated "with the Meritage/Hancock subdivision at Sundance and to be a Hancock Home in a Hancock Community built by Meritage[,]" Sgt. Atkins set up an appointment with Rick Hancock Homes and entered into a lot hold guaranteeing him the option to purchase a home at Rick Hancock Homes. (See id.) Sgt. Atkins never bought a home from Meritage. 2. Defendants Frequently Did Not Use a Disclaimer Defendant Rick Hancock conceded that Defendants do not use a disclaimer on all uses of the "Hancock" mark with respect to marketing new homes. (See CSOF at ¶ 21.) Defendants do not use disclaimers when their employees answer their main phone The only exception is when a defendant's use of the name was derived independently and was in good faith. See, e.g., Adray v. Adry-Mart, Inc., 76 F.3d 984, 990-91 (9th Cir. 1995). This circumstance is not present here. (See CSOF at ¶¶ 24, 53, 89, and 93-95.)
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Snell & Wilmer L.L.P.

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

number. (See Objections at ¶ 33; CSOF at ¶¶ 21 and 22.) In the few circumstances it is used, the so-called "disclaimer" only disclaims an affiliation with "Meritage Homes/Hancock Communities;" it is silent as to any affiliation with "Hancock Homes," a mark for which Meritage is also an exclusive licensee. (See CSOF at ¶ 23.) In fact, by failing to disclaim the association with "Hancock Homes," the nature of the disclaimer misleads the reader into believing that "Hancock Homes" or a Hancock home by Meritage is the same as Rick Hancock Homes ­ a tactic that is plainly intentional on Defendants' part. (See CSOF at ¶ 53 (Defendants' expressed goal is to capitalize on the goodwill associated with the "Hancock" mark with respect to new homes in the Phoenix market.).) C. Defendants' Mark Is Confusingly Similar To Meritage's Marks

Meritage only needs to prove that there is a likelihood of confusion. E. & J. Gallo, 967 F.2d 1280, 1290-92 (9th Cir. 1992) (citing Levi Strauss & Co. v. Blue Bell, Inc., 778 F.2d 1352, 1360 n.10 (9th Cir. 1985)). Further, where actual confusion is found, it need not last long to be actionable; initial interest confusion (that is, confusion as the consumer commences her search for homebuilders) will suffice. See, e.g., Brookfield Comm'ns v. West Coast Ent't Corp., 174 F.3d 1036, 1062 (9th Cir. 1999); Grotrian, Helfferich, Schulz, Th. Steinweg Nachf v. Steinway & Sons, 523 F.2d 1331, 1342 (2d Cir. 1975). "Infringement can be based upon confusion that creates initial customer interest, even though no actual sale is finally completed as a result of the confusion." 4 MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION at § 23:26 (4th ed. 2006). Confusion occurs where a junior mark user attempts to capitalize on the consumers' initial interest confusion in thinking that the junior mark user is related to the senior mark user. Nissan Motor Co. v. Nissan Comp. Corp., 378 F.3d 1002, 1019 (9th Cir. 2004). Here, Defendants engage in precisely that type of "bait" and "switch" in an attempt to impact the "buying decisions of consumers in the market for the goods, effectively allowing [defendants] to get [their] foot in the door by confusing consumers." Dorr-Oliver Inc. v. Fluid-Quip Inc., 94 F.3d 376, 382 (7th Cir. 1996.) See Sections I.B.1 and 2, supra.

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Snell & Wilmer L.L.P.

Case 2:04-cv-00384-ROS

Document 470 - 6 -Filed 04/11/2007

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D.

The Other Uses Of The "Hancock" Name Are Immaterial

Defendants' evidence of third party use of the "Hancock" name is irrelevant and immaterial under long-established Ninth Circuit law. See, e.g., AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979). Neither Meritage, defendant Greg Hancock, nor defendant Rick Hancock have precluded any of the third-parties identified by Defendants from using the "Hancock" name ­ because they are not likely to cause the confusion Rick Hancock Homes has. (See RH SOF at ¶¶ 15, 16, 21, and 22; Objections at ¶¶ 37-48.) Unlike Rick Hancock Homes, the third-party users do not (1) involve prior owners and management of Hancock Homes or Hancock Communities4; (2) deal with goods and services that are in close proximity or related to those of Meritage; (3) use marks that are similar in sight, sound, and meaning to Meritage's marks; (4) utilize the same marketing channels for their goods and services; and (5) intend to confuse and freeride on Meritage's goodwill and reputation in selecting their marks. (See CSOF at ¶¶ 2431.) Defendants, on the other hand, have used the "Hancock" name to sell $45 million of virtually identical homes to what Hancock Communities was selling right across the street. (See CSOF at ¶¶ 32 and 88.) E. The Anti-Cyber Squatting Act is Inapposite

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Snell & Wilmer L.L.P.

Notwithstanding Defendants' unsupported argument to the contrary, the AntiCyber Squatting Act does not render the Lanham Act a nullity. See 15 U.S.C. § 1125. Defendants mistakenly cite an arbitration decision in Springsteen v. Burgar, WIPO Case No. D2000-1532 (2000), for the proposition that the good faith use of his name is allowed by law. In Springsteen, the arbitrator, however, ruled that "it is hard to infer from the conduct of [Burgar (not Springsteen)] in this case an intent for commercial gain, to misleadingly divert consumers." It then ruled that Burgar was entitled to use the Springsteen name despite the fact that it was not Burgar's name, and was the plaintiff's surname. Here, the roles are reversed. More importantly, unlike Burgar, there is evidence that Defendants acted in bad faith and that Defendant Rick Hancock's intent was and Meritage recognizes that there could be confusion with the Mark Hancock Development Corporation if it was not doing business as Camelot Homes. (See CSOF at ¶ 28.)
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remains to steal 50 years of goodwill for which Meritage paid. (See Objections at ¶ 80; CSOF at ¶¶ 24, 53, 88, 89, and 93-95.) F. The Hancock Name Still Has Public Awareness

Defendants' argument that there is no public awareness of the "Hancock" name in homebuilding in Phoenix is perplexing and contrary to the evidence. (See Motion at 7:1216.) Rick Hancock testified that he wanted to use the Hancock name because of the fifty years of goodwill in homebuilding in the Phoenix area that the name represents. (See CSOF at ¶¶ 24, 93 and 95.) Meritage continued to use the "Hancock" name to sell $117 million more in homes. (See CSOF at ¶ 7.) Likewise, Defendants have used the "Hancock" name to sell $45 million in similar homes across the street from Meritage. (See CSOF at ¶¶ 32 and 88.) In fact, defendant Greg Hancock has recently stated that he is commencing operations under the trade name Hancock Communities in June 2007 when Meritage's license expires. (See CSOF at ¶ 92.) G. The Rebranding Effort Did Not Breach The License Agreement · The License Agreement does not require Meritage to use the Hancock name at all or to use it a certain amount; · The terms "derogate" and "detract," in the context of trademarks do not require a certain quantum of use of the Hancock name; · Even if the terms "derogate" and "detract" were to require a certain quantum of use of the Hancock name, Meritage sold more than $110 million of Hancock homes; such use is not "derogatory" or "detracting;" and · Meritage could not have breached the License Agreement after Greg Hancock's February 13, 2004 purported termination letter or after Defendants commenced using the name "Rick Hancock Homes." See Plaintiffs' Motion for Summary Judgment at 5:25 to 9:11 (Dec. 15, 2006). H. Unfair Competition Under the Lanham Act 1. Defendants' Surname Argument is Baseless

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Snell & Wilmer L.L.P.

Defendants' rebranding argument is a red herring:

Ninth Circuit law bars the use of a person's name when that person seeks to use it on similar products or on dissimilar products in the same chain of commerce. See E. & J. Gallo, 967 F.2d at 1288-89 (barring Joseph Gallo from using the "Gallo" mark on retail
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cheese or in audible advertisements). Defendants' reliance on Avery Dennison v. Sumpton, 189 F.3d 868, 877 (9th Cir. 1999), is misplaced. Avery Dennison holds that special protections to surnames exist only when there are "non-competing" uses.5 "[A] man has no absolute right to use his own name, even honestly, as the name of his merchandise or his business." John R. Thompson Co. v. Holloway, 366 F.2d 108 (5th Cir. 1966). In addition, where the Ninth Circuit has found that there has been an attempt to confuse the public or bad faith, it has enjoined the junior user regardless of who the user was. See, e.g., E. & J. Gallo, 967 F.2d 1288; Robi v. Five Platters, Inc., 918 F.2d 1439, 1445 (9th Cir. 1990); Friend v. H. A. Friend & Co., 416 F.2d 526, 531 (9th Cir. 1969), cert. denied, 397 U.S. 914 (1970); see also Hoyt Heater Co. v. Hoyt, 68 Cal. App. 2d 523, 527 (1945) ("One must use his own name honestly and not as a means of pirating the goodwill and reputation of a business rival; and where he cannot use his own name without inevitably representing his goods as those of another he may be enjoined from using his name in connection with his business.") Here, Defendants act in bad faith and attempt to confuse the public. First, defendant Rick Hancock testified that his goal was to usurp the goodwill that Meritage purchased as part of its $88 million acquisition of "Hancock Communities" and "Hancock Homes." (See CSOF at ¶¶ 24, 53, 89, and 9395.) That goal is only achieved if consumers confuse "Rick Hancock Homes" with

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Snell & Wilmer L.L.P.

Furthermore, defendant Rick Hancock admitted that he needed to obtain his brother's permission to use "Rick Hancock Homes," effectively proving that his right to use his surname was not absolute. (See CSOF at ¶ 72.) If the law permitted defendant Rick Hancock to use his name, why did defendant Greg Hancock have to assign his rights to "Hancock Communities" and "Hancock Homes" to his brother?
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"Hancock Communities" or "Hancock Homes" and the Defendants thereby free-ride on goodwill owned by Meritage.6 2. No Special Internet Protection to Surnames

Notwithstanding Defendants' arguments to the contrary, there is also no special or absolute protection for internet uses of confusingly similar names, even surnames. See, e.g., Nissan Motor Co., 378 F.3d at 1018-19. 3. The Federal Claim Is an Unfair Competition Claim

For at least the eleventh time in this lawsuit, one of the Defendants misconstrue Meritage's claim under the Lanham Act as a claim for trademark infringement rather than unfair competition and then argue that Meritage has no standing. (See Motion at 12:2327.) This Court has already rejected this argument as part of its ruling with respect to subject matter jurisdiction. (See Order at 8: n. 6, 8:1-2, and 8: 18-23 (Aug. 22, 2006).) Meritage will therefore not belabor this point here. 4. Meritage Is the Licensee and Has Standing a. There Was No Breach

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Snell & Wilmer L.L.P.

Defendants offer no evidence that the License Agreement was in fact terminated. The cited evidence of Greg Hancock's own self-serving affidavit submitted in support of this Motion does not even assert that he revoked the License Agreement. (See Declaration of Greg Hancock, Exhibit 2 to RH SOF, generally.) The License Agreement permits termination only upon certain breaches of it or the MTA ­ none of which Defendants have asserted or are supported by evidence. (See Objections at ¶¶ 12 and 13; CSOF at ¶¶ 38 and 99.) The only breach ever suggested in this lawsuit is the purported failure of Meritage to pay Greg Hancock the earn-out and provide an accounting therefore. (See Defendants' bad faith can also be inferred from their violation of promises to this Court. On March 10, 2004, this Court issued an Order to maintain the status quo, referring to "Defendant Rick Hancock's statement in his Response that he has only registered the name `Hancock Family Builders' and has not held himself out as Hancock Family Builders to customers or creditors." (See CSOF at ¶¶ 97 and 98.) Despite this Order and defendant Rick Hancock's promises, he intentionally took further actions to mislead the public by registering an even more confusingly similar name, Rick Hancock Homes, and conducting business under it. (See CSOF at ¶¶ 35, 97 and 98.) Lastly, the fact that Defendants intend to go into business as "Hancock Communities" in a few months is further evidence of bad faith. (See CSOF at ¶ 92.)
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GH SOF at ¶¶ 19 and 20; Objections at ¶¶ 102; CSOF at ¶¶ 39, 40, and 99.) But the evidence establishes that Meritage did not owe Greg Hancock any earn-out monies. (See CSOF at ¶¶ 39, 40 and 99.) In fact, Greg Hancock's own expert concedes that during the period of time that Greg Hancock worked for Meritage, it fully paid the earn-outs he was owed. (See Objections at ¶ 102; CSOF at ¶¶ 42 and 99.) In addition, the earn-out accounting was provided in a timely manner. (See CSOF in Response to Greg Hancock's Motion for Summary Judgment at ¶¶ 27-30 and 31; see also Objections to Greg Hancock's Motion for Summary Judgment at ¶ 18.) Most importantly, this Court has dismissed Greg Hancock's claims relating to the purported failure to pay earn-outs. (See Order at 5 (Mar. 31, 2006); Order at 10 (Aug. 22, 2006).) b. All Meritage Plaintiffs Have Standing

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Both Hancock-MTH Builders, Inc. and Hancock-MTH Communities, Inc. ­ the expressed licensees ­ have subsequently merged into Meritage Homes.7 (See CSOF at ¶¶ 41, 43, and 44) Accordingly, after the merger, Meritage Homes became the expressed licensee by operation of law.8 Even without the merger, Meritage Homes has standing to sue. The MTA, as well as the other agreements incorporated into the MTA, makes it clear that Meritage Homes is a party to the License Agreement. Meritage Homes is referred to as an intended beneficiary pursuant to the License Agreement or "all related Agreements." (See CSOF at ¶ 45.) For example, the Agreement of Purchase and Sale of Assets ("Assets Agreement") that the MTA incorporates states: Greg Hancock and Sellers [HC Builders, L.L.C. and Hancock Communities, L.L.C.] hereby grant to Buyers [Meritage, Hancock-MTH Builders, Inc. and Hancock-MTH Communities, Inc.] an exclusive license to use the names "Hancock Homes" and "Hancock Communities," and all variations of or derivations from such names and any and all logos used in connection therewith for a period of six years from the date of the Closing. (See CSOF at ¶ 46.) Defendants' standing arguments are necessarily limited to the breach of contract claims.

Snell & Wilmer L.L.P.

Although Meritage Homes has standing by itself to sue Defendants in this matter, the complaint was amended long ago to include the original expressed licensees thereby curing any possible defect in standing. Defendants are aware of this amendment, did not oppose it, and Defendants' failure to abandon this argument is perplexing to say the least.
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Further, the License Agreement specifically provides standing. It states: "[t]he parties to this transaction intend that any and all subsidiaries of Licensee or affiliated business entities which are involved with Licensee . . . are to be bound by this Agreement. Licensee agrees that any such entities shall execute such documentation as Licensor shall require in order to evidence the fact that they are bound by this Agreement." (See CSOF at ¶ 41.) Even if Meritage Homes was not expressly a licensee, Defendants, when they were officers for Meritage's Hancock Communities division, authorized Meritage to use the licensed name thereby creating an implied license. (See CSOF at ¶¶ 47-51.) "An implied license in fact `arises out of the objective conduct of the parties, which a reasonable person would regard as indicating that an agreement has been reached.'" Villanova Univ. v. Villanova Alumni Found., 123 F. Supp. 2d 293, 307 (E.D. Pa. 2000) (quoting Birthright v. Birthright, Inc., 827 F. Supp. 1114, 1134 (D.N.J. 1993)). In the trademark context, "permission to use the trademarks coupled with the exercise of reasonable control over such use can lead to the conclusion that an implied license existed between the parties, even where no contract was made." Villanova, 123 F. Supp. 2d at 307; see also United States Jaycees v. Philadelphia Jaycees, 639 F.2d 134 (3rd Cir. 1981) (affirming finding that a license existed when chapters affiliated with the United States Jaycees were permitted during the term of affiliation to use the Jaycees trade and service marks). I. State Claims For Unfair Competition And Trademark Infringement 1. Defendants' Conduct with Respect to Rick Hancock Homes Amounts to Palming Off

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Snell & Wilmer L.L.P.

The purpose of the common law doctrine of unfair competition is to "prevent business conduct that is `contrary to honest practice in industrial or commercial matters.'" 24 Fairway Constr. Inc. v. Ahern, 193 Ariz. 122, 124, 970 P.2d 954, 956 (1998), quoting 25 Amer. Life Insur. Co. v. Heritage Life Insur. Col, 494 F.2d 3, 14 (5th Cir. 1974). 26 Defendants' use of the Hancock mark, for which Meritage paid $88 million largely to the 27 Defendants, in a confusingly similar manner, and for the sale of similar homes right across 28
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the street from Meritage, gives Defendants an unfair competitive advantage. (See CSOF at ¶¶ 16, 17, 24, 53, 88-91, and 93-95); see also, Fairway Constr., 193 Ariz. at 124, 970 P.2d at 956. This is precisely the type of palming-off that Arizona law prohibits. See, e.g., Fairway Constr., 193 Ariz. at 124, 970 P.2d at 956. 2. Defendants Misstate Larry Seay's Testimony

Defendants cannot select one witness, misstate his testimony, ignore all the evidence in the record to the contrary (see Objections at ¶¶ 55-57, 63-69, 77-79, and 102; CSOF at ¶¶ 5, 16-31, 35, 53-56, 69-77, 89-91, and 93-96), and then argue that there is no question of fact. Larry Seay and other witnesses, as well as documents, establish that Rick Hancock Homes is confusingly similar to Hancock Communities and Hancock Homes. (See id.) 3. Defendants' Federal Preemption Argument Is Baseless

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Citing the Supremacy Clause and Freightliner Corp. v. Myrick, 514 U.S. 280, 287 (1995), Defendants argue that the common law unfair competition and trademark infringement claims are preempted by federal law. (See Motion at 13:9-16.) Freightliner simply states that preemption occurs when either Congress intended to occupy the entire field or state law is in conflict with federal law. 514 U.S. at 287. Defendants make neither showing and identify no cases in support of preemption. Indeed, Arizona case law is to the contrary. See, e.g., Fairway Const., 193 Ariz. at 124, 970 P.2d at 956. J. Rick Hancock Breached His Fiduciary Duties

Arizona law recognizes that corporate officers owe fiduciary duties to their companies. See, e.g., Nordin v. Kaldenbaugh, 7 Ariz. App. 9, 435 P.2d 740 (1967). These fiduciary duties extend to former officers. See, e.g., E. J. McKernan Co. v. Gregory, 252 Ill. App. 3d 514, 531, 623 N.E.2d 981 (1993). A corporate officer violates his fiduciary duties whenever he places his own interests ahead of that of the corporation. Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993). As an officer to Meritage, defendant Rick Hancock owed Meritage the duty of protecting Meritage's goodwill and trademarks. Defendant Rick Hancock nevertheless breached his fiduciary
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duty by tortiously interfering with Meritage's License Agreement and by usurping a Meritage corporate asset by using a confusingly similar name ­ Rick Hancock Homes. (See CSOF at ¶¶ 89-91 and 93-96.) Defendant Rick Hancock's use of the name Rick Hancock Homes for his business constitutes self-dealing and usurpation of Meritage's business opportunities. As noted in Sections I.B.2 and I.D through H, supra, defendant Rick Hancock desired to capitalize on the goodwill and reputation associated with the Hancock name for his own benefit. (See CSOF at ¶¶ 24-26, 53, 88, 89, and 93-95.) K. Meritage Has Trade Secrets That Arizona Law Protects

Notwithstanding Defendant's efforts to twist Seay's testimony and ignore other witnesses and documents to the contrary, Meritage's pricing strategies, market strategies relating to its marks and services, land development strategies, house plans, advertising strategies, customer lists and files, employee compensation, as well as other confidential and proprietary information compiled and maintained by Meritage, constitute trade secrets within the meaning of A.R.S. § 44-401(4). (See CSOF at ¶ 56.) "[A] trade secret may consist of a compilation of information that is continuously used or has the potential to be used in one's business and that gives one an opportunity to obtain an advantage over competitors who do not know of or use it." Enter. Leasing Co. v. Ehmke, 191 Ariz. 141, 148, 3 P.3d 1064, 1068 (App. 1999). Defendant Rick Hancock expressly agreed to protect, not disclose, and not use Meritage's proprietary, confidential or trade secret information. (See CSOF at ¶¶ 57-59.) Further, because the competition between Rick Hancock Homes and Meritage's "Hancock Communities" at Sundance was direct, the use and disclosure of Meritage's trade secrets was and continues to be inevitable and violate Arizona law. (See CSOF at ¶¶ 89-91 and 93-96); see, e.g., PepsiCo v. Redmond, 54 F.3d 1262, 1269 (7th Cir. 1995); see also Bed Mart, Inc. v. Kelley, 202 Ariz. 370, 373, 45 P.3d 1219, 1222 (App. 2002) (the inevitable disclosure doctrine). In fact, in acknowledging that he would learn confidential and proprietary information while employed at Meritage, defendant Rick Hancock agreed as a

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term of his employment that he would not "accept any employment . . . that would involve the use or disclosure of Proprietary Information." (See CSOF at ¶ 58.) L. Defendants' Arguments With Respect To Intentionally Interfering With Prospective Contractual Advantage Claims Are Without Merit 1. The Free Market Does Not Permit Defendants to Commit Torts

There is nothing in American jurisprudence that allows businesses and individuals 6 to engage in unlawful tactics in order to compete with their competitors. Claims for unfair 7 competition, misappropriation of trade secrets, and interference with prospective 8 contractual advantage are all causes of action that limit the actions a competitor may take. 9 Defendants claim that they have an absolute right to compete with Meritage in any 10 fashion, including breaking the law. (See Motion at 14:22 to 15:2.) There is not a single 11 case that supports that assertion.
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2.

Defendants' Misconstrue the Evidence

The heart of Meritage's tortious interference claim is that Defendants have 14 intentionally used the Hancock mark thereby interfering with Meritage's exclusive use of 15 it and otherwise blocking Meritage from growing its business. (See CSOF at ¶¶ 78-87.) 16 Defendants were well aware of the business dealings and prospective contracts of 17 Meritage, for Rick Hancock served as an officer, vice-president, and sales manager for 18 Meritage. (See CSOF at ¶ 59.) By tortiously interfering with the License Agreement and 19 other agreements, Defendants usurped business opportunities and goodwill belonging to 20 Meritage with current and prospective customers and business expectancies. Hill v. 21 Peterson, 201 Ariz. 363, 366-67, 35 P.3d 417, 420-21 (App. 2001); 22 23 24 25 26 27 28 M. Defendants Were Unjustly Enriched Defendants make two arguments with respect to the unjust enrichment claim. (See Motion at 15:19-16:12.) First, they argue that they are not enriched by using the Hancock mark belonging to Meritage. This is contrary to Defendant Rick Hancock's own testimony in which he concedes that he is seeking to take advantage of the fifty years of goodwill and reputation for quality associated with the mark. (See CSOF at ¶¶ 24-26, 32,

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88, 93 and 95.) It is also contrary to the $45 million in sales of Rick Hancock Homes. (See CSOF at ¶¶ 32 and 88.) Second, Defendants appear to argue that unjust enrichment is not a valid claim under Arizona law. This argument is without basis. See, e.g., In re Krohn, 203 Ariz. 205, 213, 52 P.3d 774, 782 (2002); see also RESTATEMENT (Third) of Unfair Competition, §§ 2, 3, and 9(C) (1995) (stating that unjust enrichment is a valid claim and remedy for conduct otherwise amounting to unfair competition or trademark infringement). N. The Defendants Have Converted Meritage's Assets

In Arizona, conversion is the intentional act of wrongful dominion over another's property in denial of or inconsistent with that person's rights in that property. See, e.g., Focal Point, Inc. v. U-Haul Co. of Ariz., Inc., 155 Ariz. 318, 319, 746 P.2d 488, 489 (App. 1986); RESTATEMENT (Second) of Torts § 222A (1965). Defendants argue that Meritage has no right to use the Hancock mark and has no trade secrets to protect; therefore no conversion exists. Meritage addresses these arguments in Section I.A, I.H., and I.K, supra. O. Defendant Rick Hancock Has Breached His Contract With Meritage

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Defendant Rick Hancock entered into an Employment Agreement with Meritage that contained obligations that extended beyond his employment. (See CSOF at ¶¶ 5966.) As part of the agreement, defendant Rick Hancock agreed not to "directly or indirectly: (a) induce or encourage or solicit any employee of [Meritage] to become employed by any competitor or potential competitor of [Meritage]." (See CSOF at ¶ 62.) He also agreed not to "divulge or use Proprietary Information . . . [and] not accept any employment . . . that would involve the use or disclosure of Proprietary Information." (See CSOF at ¶ 63.) The record reveals that defendant Rick Hancock has solicited and engaged at least nine former Meritage employees to work for Rick Hancock Homes, a competitor of Meritage, in violation of the non-solicitation provision. (See CSOF at ¶ 64.) It further reveals that he will necessarily use and/or disclose Meritage's proprietary

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information, thereby violating his Employment Agreement. (See CSOF at ¶ 65; see, e.g., PepsiCo, 54 F.3d at 1269.) P. Defendant Rick Hancock Has Breached The Implied Covenant Of Good Faith And Fair Dealing

By bootstrapping a flawed assertion that there is no breach of contract as a matter of law, Defendants argue that the claim for breach of the implied covenant of good faith and fair dealing fails as well. (See Motion at 17:8-17.) As noted above in Section I.O, supra, however, there is a contract and the contract has been breached. The type of contract defendant Rick Hancock breached and on which he engaged in free-riding on the goodwill for which Meritage paid millions also amounts to a breach of the implied covenant of good faith and fair dealing. (See CSOF at ¶¶ 24, 53, 88, 89, and 93-95.) Q. Defendants Have Intentionally Interfered With The License Agreement

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Defendants argue that it cannot interfere with the License Agreement because defendant Rick Hancock is using his own surname, because he used a disclaimer, and because Greg Hancock purportedly terminated the License Agreement. (See Motion at 17:19-25.) These arguments are addressed at length above, and will not be repeated here. See I.A, I.B, I.H.1, I.H.2, and I.L supra. II. CONCLUSION For the foregoing reasons, Defendants' Motion should be denied. DATED this 11th day of April, 2007. SNELL & WILMER L.L.P. By s/ Dan W. Goldfine Dan W. Goldfine Adam Lang One Arizona Center Phoenix, AZ 85004-2202 Attorneys for Plaintiffs and

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By s/ Grant Woods Grant Woods GRANT WOODS, P.C. 1726 North Seventh Street Phoenix, AZ 85006 Attorneys for Plaintiffs CERTIFICATE OF SERVICE I hereby certify that on April 11, 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 Defendants Rick Hancock, Brenda Hancock, Rick Hancock Homes, L.L.C., and RLH Development, L.L.C. Robert M. Frisbee Frisbee & Bostock, PLC 1747 East Morton Avenue Suite 108 Phoenix AZ 85020 Attorneys for Defendant 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/ Becky Kinningham
1933257.10

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