Free Reply to Response to Motion - District Court of Arizona - Arizona

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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] Attorneys for Plaintiffs and Counterdefendants and Third Party Defendants and

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Snell & Wilmer L.L.P.

Grant Woods, Esq. (#006106) GRANT WOODS, P.C. 1726 North Seventh Street Phoenix, Arizona 85006 Telephone: (602) 258-2599 Facsimile: (602) 258-5070 [email protected] Attorneys for Plaintiffs and Counterdefendants and Third Party Defendants

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Meritage Homes Corporation, a Maryland Corporation, formerly d/b/a Meritage Corporation, Case No. CV-04-0384-PHX-ROS Hancock-MTH Builders, Inc., an Arizona corporation, Hancock-MTH Communities, Inc., an REPLY RE (1) PLAINTIFFS' Arizona corporation, and currently d/b/a Meritage MOTION FOR PARTIAL Homes Construction, Inc., an Arizona corporation, SUMMARY JUDGMENT, AND and Meritage Homes of Arizona, Inc., an Arizona (2) COUNTERDEFENDANTS' AND corporation, THIRD-PARTY DEFENDANTS' MOTION FOR SUMMARY Plaintiffs, JUDGMENT ON RICK AND BRENDA HANCOCKS' v. COUNTER-CLAIMS AND THIRDPARTY CLAIMS Ricky Lee Hancock and Brenda Hancock, husband and wife; Gregory S. Hancock and Linda Hancock, husband and wife, Rick Hancock Homes L.L.C., an Arizona limited (Assigned to the liability company; RLH Development, L.L.C., Honorable Roslyn O. Silver) an Arizona limited liability company; and J2H2, L.L.C., an Arizona limited liability company, Defendants. Rick and Brenda Hancock,

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Defendants, Counter-Claimants, and Third Party Plaintiffs, v. Meritage Homes Corporation, a Maryland Corporation, formerly d/b/a Meritage Corporation, Hancock-MTH Builders, Inc., an Arizona Corporation, Hancock-MTH Communities, Inc., an Arizona Corporation, an Arizona Corporation; and currently d/b/a Meritage Homes Construction, Inc., an Arizona Corporation, and Meritage Homes of Arizona, Inc., an Arizona Corporation; Steven J. Hilton and Suzanne Hilton, husband and wife; John R. Landon and Debi Landon, husband and wife; Scott Keeffe and Vicky Keeffe, husband and wife; Roger Zetah and Jane Doe Zetah, husband and wife; and James Arneson and Zane Arneson, husband and wife, Third Party Defendants. This is a combined reply memoranum in support of the motion for summary judgment ("Motion") filed by plaintiffs, counterdefendants, and third-party defendants (collectively, "Meritage") ("Reply"). Both the Greg Hancock group of defendants ("Defendant Greg Hancock") and the Rick and Brenda Hancock group of defendants, counterclaimants and third-party plaintiffs ("Defendant/Counterclaimant Rick Hancock") (collectively, "the Defendants") filed strikingly nonresponsive oppositions to the Motion containing repeated misstatements of law. Further, as set forth in the Motion to Strike filed contemporaneously herewith, the Defendants make statements of fact that are either not referenced to the evidentiary record or, in some instances, the evidentiary record does not support the statements made. See Fed. R. Civ. P. 56(e) ("Rule"); Local Rule 56.1(b). I. REPLY ARGUMENT A. Partial Summary Judgment Motions With Respect To Meritage's Claims 1. The Doctrine of Collateral Estoppel Bars All of the Defendants' Defenses Based on Their Claims that Meritage Breached Contractual Duties to Greg Hancock

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Defendants make differing but equally ineffectual arguments in response to the collateral estoppel argument in the Motion.
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Defendant Greg Hancock misstates Meritage's collateral estoppel argument. Compare Motion at Section II.A.1 (affirmative defenses are barred by collateral estoppel) with Defendant Greg Hancock's ("GH") Response at 3:3-11 (Meritage is seeking summary judgment with respect to Greg Hancock's counterclaims). In sum, Meritage made the following argument in the Motion: At the heart of each and every one of the defendants' affirmative defenses is their assertion that Meritage was the first to breach the License Agreement (Exhibit 1 to Statement of Facts in Support of Motion ("SOF)), the Master Transaction Agreement (Exhibit 2 to the SOF), and Greg Hancock's Employment Agreement (Exhibit 3 to the SOF) (collectively, "Agreements"). (SOF at ¶ 1.) The Court does not have to address the merits of these defenses because this Court has already dismissed with prejudice Greg Hancock's claims that Meritage breached each of these Agreements. Accordingly, under the doctrine of collateral estoppel, each one of the defendants' affirmative defenses based on Meritage's purported breaches is barred. See Motion at 4:5-14. The fact that the argument relates to the affirmative defenses is perfectly clear, and Rule 56 does not envision feigned ignorance of an argument as grounds for not granting summary judgment. See Rule 56(e) ("If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party."). Defendant/Counterclaimant Rick Hancock argues that because this Court has not entered a formal final judgment, collateral estoppel cannot apply as a matter of law. (Defendant/Counterclaimant Rick Hancock's ("RH") Response at 11:26 to 12:14.) This argument misstates the law because Ninth Circuit precedent (as well as the RESTATEMENT) relaxes the "finality" requirement for collateral estoppel. O'Malley Lumber Co. v. Lockard (In re Lockard), 884 F.2d 1171, 1174-75 (9th Cir. 1989). In the Lockard case, the Ninth Circuit explained: As the parties have noted, the "final judgment" requirement is somewhat more relaxed for purposes of "issue preclusion" than it is for purposes of "claim preclusion": For purposes of issue preclusion (as distinguished from merger and bar), `final judgment' includes any prior

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adjudication of an issue in another action that is determined to be sufficiently firm to be accorded conclusive effect. RESTATEMENT at § 13. The Arizona courts have also indicated their acceptance of the finality principles of the Restatement. See Tucson Steel Div. v. Industrial Comm'n of Ariz., 154 Ariz. 550, 744 P.2d 462, 466 (Ariz.Ct.App. 1987). Whether a judgment is "sufficiently firm" as to be "final" within the meaning of section 13 of the RESTATEMENT depends upon consideration of several factors. Preclusion should be refused, for example, where the decision to be carried over is "avowedly tentative." RESTATEMENT at § 13 comment g. On the other hand, that the parties were fully heard, that the court supported its decision with a reasoned opinion, and that the decision was subject to appeal or was in fact reviewed on appeal, are factors supporting the conclusion that the decision should be given preclusive effect. Id. The basic test, according to the Restatement, is whether the earlier decision was "procedurally definite," and not whether the court might have had doubts in reaching the decision. Id. Id. (emphasis in original). The fact that there is controlling Ninth Circuit precedent on this point was cited and argued in the Motion at Page 5, Lines 9-13 but ignored by Defendant/Counterclaimant Rick Hancock. Under Lockard and other cases in the Ninth Circuit,1 the decisive factor is whether this Court's adjudication of the issues it dismissed is "sufficiently firm to be accorded conclusive effect." Id. Neither of the Defendants argues that this Court's adjudication is not "sufficiently firm;" in fact, Defendant Greg Hancock asked that this Court enter a final judgment on these issues. See Greg Hancock's Motion for Rule 54(b) Judgment on Less Than All Claims (lodged on September 5, 2006). This Court's dismissal of the claims with "prejudice" was "procedurally definite," and there was nothing "avowedly tentative" about this Court's decision. In re Lockard, 884 F.2d at 1175. Likewise, that Defendant Greg Hancock moved for reconsideration and that this Court denied his motion is further evidence this Court's decision dismissing Defendant Greg Hancock's The Ninth Circuit's rule relaxing the finality requirement for collateral estoppel purposes was followed in Reed v. Pizzi, 1994 U.S. App. LEXIS 738 *4 (9th Cir. 1994), in which an evidentiary ruling at a voluntariness hearing was sufficiently final for collateral estoppel to apply. It was also followed by the District of Arizona in Still v. Michaels, 791 F.Supp. 248, 250 (D. Ariz. 1992) and a federal bankruptcy court in this Circuit, Brown v. Simonis, 205 B.R. 939 (Bankr. S.D. Cal. 1997).
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counterclaims with prejudice is sufficiently firm to be accorded conclusive effect. See Greg Hancock's Motion to Stay Entry of Judgment Pursuant to this Court's March 31, 2006 Order [dismissing all of Greg Hancock's claims with prejudice]; Order at 5:23 to 10:23 (Aug. 22, 2006) (characterizing the motion to stay as a motion for reconsideration, evaluating all arguments, and denying the motion in its entirety) Defendant/Counterclaimant Rick Hancock's reliance on the holding in FDIC v. Bancinsure, Inc., 770 F.Supp. 496, 500 (D. Minn. 1991) is misplaced. See RH Response at 12:15-26. In Bancinsure, the District of Minnesota simply dismissed a defendant's counterclaim for declaratory relief because it was "redundant" of the defendant's "denials and affirmative defenses." Bancinsure, 770 F.Supp. at 500 It was unnecessary. Id. Collateral estoppel was not an issue in Bancinsure. Id. Lastly with respect to collateral estoppel, Defendant/Counterclaimant Rick Hancock points to changes in Meritage's complaint. See RH Response at 13:1-12. This argument is a red-herring. Only Greg Hancocks' counterclaims, not Meritage's claims, were and are the issue ­ his counterclaims that have never changed from day one of this lawsuit until the Court dismissed them with Prejudice. More importantly, this Court has already addressed this issue in the context of Motion for Reconsideration and rejected it. Order at 7:1-5 (Aug. 22, 2006). 2. The Hancocks' Defenses Based on Meritage's Purported Breaches of the Agreements Also Fail as a Matter of Law for Other Reasons

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As conceded by the Defendants, the Court needs to address the following arguments only if the Court declines to apply the doctrine of collateral estoppel. 22 23 24 25 Motion at 5:25 to 7:19, which explain that the terms "derogate" and "detract" in the 26 trademark context do not set minimum use requirements as a matter of law. Rule 56(e) 27 expressly provides for summary judgment if the opposing party fails to respond. 28
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a.

The Terms "Derogate" and "Detract" Mean a Defaming Use and Not the Mere Reduction or Change in Use as a Matter of Law

In both Responses, Defendants simply ignore the case law and treatises, cited in the

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b.

Even Assuming that the Terms "Derogate" and "Detract" Were to Relate to a Reduction in Use, It Is Undisputed that Meritage Sold More than $117 Million of Homes under the Name "Hancock," and Such Use Is Not "Derogatory" or "Detracting" as a Matter of Law.

It remains undisputed that Meritage has sold more than $117 million homes under the name "Hancock" throughout metropolitan Phoenix since July 2004, when the rebranding commenced. See Meritage's Statement of Facts in Support of Its Motion for Summary Judgment ("SOF") at ¶ 3. Neither of the Responses dispute this fact or even argue that this quantum of use is "derogatory" or "detracting."2 Defendant Greg Hancock ignored this argument in its entirety in his Response and does not controvert this fact. (Defendant Greg Hancocks List of Controverting Facts ("GH CSOF") at 1-2 (not controverting ¶ 3 of Meritage's SOF).) Defendant/Counterclaimant Rick Hancock ignored the argument but attempted to controvert this fact by asserting "Meritage has never used the name `Hancock' alone." (Defendant/Counterclaimant Rick Hancock's Controverting Statement of Facts ("RH CSOF") at 3:5.) This is a distinction without a difference and is subject to the accompanying Motion to Strike. Accordingly, as a matter of law, Meritage is entitled to partial summary judgment that its use of the "Hancock" name is neither "derogatory" nor "detracting." c. Meritage Could Not Have Breached the License Agreement after Greg Hancock Purportedly Terminated It by Letter on February 13, 2004.

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In its Motion at 8:3-13, Meritage argued that as a matter of law Defendant Greg Hancock cannot instruct Meritage to stop using the "Hancock" name and then later complain in law or equity when Meritage does what he instructed it to do. Neither of the Defendants address this argument in their Responses, and Meritage is entitled to partial summary judgment that its post-instruction conduct is immaterial to whether it breached Both Responses pointed out that there is evidence that the rebranding effort, which commenced after Greg Hancock's precipitous February 13, 2004 purported termination letter, made the name less visible than it would have otherwise been. Neither Response, however, was able to: (1) articulate why that is "derogatory" or "detracting;" (2) cite a single case supporting their views; or (3) find any law that is contrary to the law cited in the Motion that the terms "derogatory" and "detracting" do not relate to a quantum of the mark's use.
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the License Agreement. Rule 56(e). d. Even Assuming that Meritage Could Have Breached the License Agreement after Greg Hancock's February 13, 2004 Termination Letter, Meritage Could Not Have Breached the Agreement after Rick Hancock Commenced Using the Name "Rick Hancock Homes."

In its Motion at 8:14 to 9:3, Meritage argued that Defendants breached a promise to this Court upon which this Court relied and that the doctrine of unclean hands does not allow the Hancocks to use conduct after their breach. Defendant Greg Hancock ignored this argument. Defendant/Counterclaimant Rick Hancock did, however, respond. Using settlement discussions in violation of Federal Rule of Evidence 408, Defendant/Counterclaimant Rick Hancock tells the Court that there was a "deal" to permit him to use "Rick Hancock Homes." (RH Response at 6:13-27.) Unbelievably, he then adds that "the parties came to an agreement that Rick Hancock could use the name Rick Hancock Homes." (RH CSOF at 3:17-19.) There was no such "deal" or "agreement" ­ even the testimony Rick Hancock cites says no such thing. Id. (the testimony cited states that negotiations indicated that Meritage's counsel might be okay with the use of "Rick Hancock Homes"). From May 2004 to July 2004, Meritage offered to Rick Hancock that it might be willing to let him use the name "Rick Hancock Homes" as long as he provided complete disclaimers (1) wherever and whenever he used it (which he has never done) and (2) otherwise agreed to the terms of a settlement agreement that Meritage had drafted (which he never did). (Supplemental Statement of Facts in Support of Meritage's Motion for Summary Judgment ("SSOF") at ¶ 1) Negotiations continued but unsuccessfully ­ even though Meritage was willing to settle without any payment from Rick Hancock. (SSOF at ¶¶ 2 and 3) By July 12, 2004, the parties had no agreement, and discovery went forward. (SSOF at ¶4.) Defendant/Counterclaimant Rick Hancock's non-sequitor into settlement negotiations fails to avoid the fact he and his brother promised this Court that they would
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maintain the "status quo" and not use the name "Hancock" in a homebuilding business that competed with Meritage. He does not dispute this fact. (RH CSOF at 3:18-24.) Neither does he dispute that this Court denied Meritage an injunction on the basis of his promise ­ which he and his brother breached when they opened Rick Hancock Homes right across the street from Meritage's Hancock Communities. (Id. at 3:18-24 and 15:23 to 16:2.) In this light, it is undisputed that Defendants acted with unclean hands, and the Court should bar them from using any evidence against Meritage that arose in response to their use of the name "Hancock" in the homebuilding business right across the street. e. Greg Hancock's Own Expert Concedes that Meritage Complied with the Earn-Out Provisions of the Master Transaction Agreement

In the Motion at 9:4-11, Meritage argued that it did not breach the earn-out agreement with Defendant Greg Hancock because his own expert concedes that ­ during the period of time that Greg Hancock worked for the company ­ Meritage fully paid the earn-outs owed. (SOF at ¶ 5.) These are earn-outs which were under discussion in February 2004 when Defendant Greg Hancock purported to terminate the License Agreement because he believed he was owed earn-outs. After a thorough analysis, his own expert disagreed. Id. Not only does Defendant Greg Hancock fail to address this argument in his Response, he does not controvert the fact that his own expert concedes that Meritage fully paid him the earn-outs owed. (GH CSOF at 1 (not controverting SOF ¶ 5).)3 In this light, Meritage is entitled to partial summary judgment that Meritage complied with its earn-out obligations to Defendant Greg Hancock at the time payment was required for 2003. f. Greg Hancock's Affirmative Defense of Constructive Discharge Fails as a Matter of Law

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In the Motion at 9:12-25, Meritage observed that in his divorce lawsuit Greg Hancock testified that the circumstances involving his wife and step-son during a heated 26 27 28 Although not relevant since he is not a party to the earn-out agreement and because it is for a different time period, Defendant/Counterclaimant misleads the Court by pointing out that his expert's opinion that Greg Hancock would have been entitled to earn-outs if he had not left Meritage's employment. (RH CSOF at ¶ 5.)
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divorce were so intolerable to force him to quit his employment with Meritage, and therefore his constructive discharge claim fails. See, e.g., Maclean v. Dep't of Educ, 195 Ariz. 235, 245, 986 P.2d 903, 913 (App. 1999) (a plaintiff claiming wrongful discharge must prove, exclusive of other reasons, that his "working conditions were so intolerable that a reasonable person would have been compelled to resign") (emphasis added); Draper v. Coeur Rochester, 147 F.3d 1104, 1110 (9th Cir. 1998) (same). The Defendants in their Responses fail to point to evidence sufficient to meet the Maclean test. See Kortan v. CYA, 217 F.3d 1104, 1108-11 (9th Cir. 2000) (evidence of conduct directed at co-workers or subordinates and some retaliatory conduct is insufficient to give rise to a genuine issue as to the existence of an objectively hostile work environment). On the issue of causation, there is no dispute. See Maclean, 195 Ariz. at 245, 986 P.2d at 913 (the constructive discharge must be caused by an "actionably adverse action" by the employer). According to his own testimony, it is undisputed that events in which Meritage had no role substantially caused Defendant Greg Hancock to quit his job: Q: Why did you terminate employment at Meritage on March 3rd? A. Stress. Q. So it was your decision alone to terminate employment at Meritage? A. It was a very uncomfortable working environment, A. The divorce was very stressful, still is. C, the Frank Johnson issue was very stressful and having to listen to those tapes; and it caused me a great deal of grief hearing what he had to say on those tapes about black men are not supposed to go down on white women. His friend told him that. Multiple times about oral sex, 45 times of having sex. Him laughing about [my wife] thinking the relationship was serious and all he was in it for was the sex. Him laughing about failing the polygraph test, that he could never go near a polygraph machine again because he had blatantly lied the first time he took the test. That caused a great deal of stress. The three death threats in seven months from my former stepson. It all added up, and I just finally had enough. I couldn't do my job. (SOF at ¶ 27; see also SSOF at ¶ 5 (recent corroboration of why Defendant Greg Hancock found the events surrounding his divorce stressful). In this light, other events caused Defendant Greg Hancock to quit his job, and it cannot be found by any factfinder that his
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Meritage's conduct solely caused him to quit his job as required by Arizona law. See, e.g., Maclean, 195 Ariz. at 245, 986 P.2d at 913. Defendant/Counterclaimant Rick Hancock argues that Greg Hancock's testimony from another case is inadmissible. (RH Response at 7:7-11; RH CSOF at 16:17-19.) That argument is mistaken. Defendant Greg Hancock's prior testimony under oath is an admission of a party-opponent and not hearsay under Federal Rule of Evidence 801(d)(2). Even if it were to be held to be hearsay, Defendant Greg Hancock's prior testimony is admissible under the exception set forth in Federal Rule of Evidence 807. 3. The License Agreement Does Not Require Meritage to Obtain Greg Hancock's Permission before Changing How It Uses the "Hancock" Name

In the Motion at 9:26 to 10:10, Meritage argued that there is simply no language in the License Agreement that subjected Meritage's use of the Hancock name to Defendant Greg Hancock's discretion. Defendant Greg Hancock conceded this point, by asserting that "the License Agreement's covenant by Meritage not to diminish the Hancock name is entirely independent of any action or inaction by Greg Hancock." (GH CSOF at 1:18-20.) Defendant/Counterclaimant Rick Hancock similarly conceded by attempting to controvert the absence of language with the inapposite observation that the "License Agreement allows Greg Hancock, as licensor, to terminate the License Agreement without notice for a breach of the Agreement." (RH CSOF at 4:15-17.) Of course, there is a difference between language allowing termination upon a breach and language requiring a party's consent to exercise rights provided to the exclusive licensee. (SOF at ¶ 6.) 4. The Use of One's Surname Is Not Immune from Scrutiny under the Lanham Act or under Arizona law

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As argued in the Motion at 10:11 to 11:14, the Ninth Circuit law bars the use of a person's name when that person seeks to use it in a confusing manner on similar products 25 or dissimilar products in the same chain of commerce. See E. & J. Gallo Winery v. Gallo 26 Cattle Co., 967 F.2d 1280, 1288-89 (9th Cir. 1992) (barring Joseph Gallo from using the 27 "Gallo" mark on retail cheese or in audible advertisements); Avery Dennison Corp. v. 28
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Sumpton, 189 F.3d 868, 877 (9th Cir. 1999) (offering special protections to only "noncompeting" uses unlike the Defendants' use here); Nissan Motor Co. v. Nissan Computer Co., 378 F.3d 1002, 1018-19 (9th Cir. 2004) (there is no special internet protection to surnames). Where the Ninth Circuit has found that there has been an attempt to confuse the public or bad faith,4 it has enjoined the infringing user regardless of who the user is. See, e.g., E. & J. Gallo, 967 F.2d at 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). Defendant Greg Hancock ignores this argument in its entirety, and Defendant/Counterclaimant Rick Hancock ignores the holdings in E. & J. Gallo, Avery Denison, Nissan Motor, Robi, and Friend (instead relying on inapposite dicta). (RH Response at 9:11-28.) Meritage stands by Ninth Circuit law and simply asks the Court to apply it. Likewise, the Anti-Cyber Squatting Consumer Protection Act ("ACPA"), discussed at 10:1 to 11:24 of the RH Response, is not helpful to the Defendants. The cases cited therein and the ACPA simply do not (1) give special rights to surnames in the commercial setting or (2) impliedly overrule the Lanham Act's prohibition on unfair competition by the use of confusingly similar names or marks. More importantly, the plain language of the ACPA provides that an internet domain owner "shall be liable in a civil action . . . if it (i) has a bad faith intent to profit from that mark . . . and (ii) registers . . .or uses a domain that. . .is confusingly similar to [another's protected] mark." 15 U.S.C. § 1125(d)(1)(A). This language is entirely consistent with and subordinate to the unfair competition prohibition two paragraphs above it in 15 U.S.C. § 1125(a)(1)(A).

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Meritage asserted in the Motion that it is undisputed that Defendant/Counterclaimant Rick Hancock used the "Hancock" name to usurp the fifty years of goodwill for which Meritage purchased as part of $88 million it paid the defendants (and others) for "Hancock Communities." (Motion at 11:5-8.) Defendant/Counterclaimant Rick Hancock does not dispute this fact but rather asserts that he wanted to usurp the goodwill from the "Hancock" name rather than from "Hancock Communities." (See RH CSOF at 5:3-10.) Putting aside the obvious disingenuousness of his argument, in the context of building homes in Phoenix, this is a distinction without a difference.
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5.

The Use of Disclaimers Is Not a Defense to a Lanham Act Violation

As with the preceding Section, all Meritage seeks is partial summary judgment of what is an unremarkable statement of Ninth Circuit law: The use of a disclaimer is only meaningful when the junior user's products (e.g., "Rick Hancock Homes") are unrelated to the senior user's products (e.g., "Hancock Communities" homes or "Hancock Homes"). E. & J. Gallo, 967 F.2d at 1289; Miss Universe, Inc. v. Flesher, 605 F.2d 1130, 1134-35 (9th Cir. 1979). Defendant Greg Hancock ignores this argument. His brother concedes this point as it relates to liability, arguing that Courts prefer to use disclaimers as a remedy when effective. (RH Response at 8:13 to 9:10.) Even as to a disclaimer's use as a remedy, Defendants have failed to meet his burden of proof. See, e.g., Miss Universe, 605 F.2d at 1134-35. The Ninth Circuit only employs disclaimers as a remedy (1) when the products at issue differ from each other, (2) when the defendant can establish as a matter of law that the disclaimer removes the risk of confusion, or (3) when the 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) E. & J. Gallo, 967 F.2d at 1289; Miss Universe, 605 F.2d at 1134-35; Everest & Jennings, Inc. v. E. & J. Mfg. Co., 263 F.2d 254, 260-61 (9th Cir. 1958); Honor Plastic Indus. Co. v. Lollicup USA, Inc., 462 F.Supp.2d 1122, (E.D. Cal. 2006). First, Defendant/ Counterclaimant Rick Hancock concedes that the Defendants were selling the exact same product as Meritage. (RH CSOF at 5:11 to 6:9 (not controverting that the Defendants were selling the same product in the same market as Meritage).) Second, there is no evidence in the record that the disclaimer is effective at the initial interest stage; indeed, it is undisputed that the disclaimer occasionally employed

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was not effective.5 See Meritage's Response to Rick Hancock's Motion for Summary Judgment at Sections II.B.2-4 (Feb. 23, 2007). Because disclaimers generally do not work, the burden of their effectiveness is on the Defendants ­ the junior user. See, e.g., Miss Universe, 605 F.2d at 1134-35; see also Adray, 76 F.3d at 990 (acknowledging that studies have shown that disclaimers have little to no effect). The Second Circuit addressed the limited curative value of disclaimers, reasoning that they often lead to more consumer confusion rather than less: Requiring infringing users such as Showtime to demonstrate the effectiveness of proposed disclaimers is supported by cases from other circuits in which the use of a disclaimer by an infringing user has been found not to be sufficient to avoid consumer confusion in the marketplace. See, e.g. United States Jaycees v. Philadelphia Jaycees, 639 F.2d 134, 142 (3d Cir. 1981); Miss Universe, Inc. v. Flesher, 605 F.2d 1130, 1134-35 (9th Cir. 1979). In addition, we note that there is a body of academic literature that questions the effectiveness of disclaimers in preventing consumer confusion as to the source of a product. See Jacoby & Raskoff, DISCLAIMERS AS A REMEDY FOR TRADEMARK INFRINGEMENT LITIGATION: MORE TROUBLE THAN THEY ARE WORTH?, 76 Trademark Rept. 35 (1986); Radin, DISCLAIMERS AS A REMEDY FOR TRADEMARK INFRINGEMENT: INADEQUACIES AND ALTERNATIVES, 76 Trademark Rept. 59 (1986); 2 H. Nims, UNFAIR COMPETITION AND TRADEMARKS §§ 366f, 379a (4th ed. 1947). These authors have concluded that disclaimers are frequently not effective. One discussion concluded that disclaimers, especially those (like the disclaimers in question in this case) which employ brief negator words such as "no" or "not," are generally ineffective. See Jacoby & Raskopf, supra at 54. . . . At the very least, no disclaimer should issue without a full hearing regarding its likely effectiveness." Id. at 57-58 (citations omitted), see also Radin, supra at 72. Radin also advocates the use of other methods either to make a disclaimer more effective or wholly unnecessary; the primary method he advocates is altering the context in which the infringing use occurs to make consumer confusion less likely. Id. at 71. Home Box Office, Inc. v. Showtime/Movie Channel, Inc., 892 F.2d 1311, 1315-16 (2d Cir. 5 On Page 9, Lines 6-7 of his Response, Defendant/Counterclaimant Rick Hancock asserts that "every purchaser acknowledge in writing that he/she understands that Greg [sic, but of Freudian proportions] Hancock Homes is not affiliated with Meritage or the Hancock Communities. (CSOF, ¶ 56-58.)" The cite, however, does not support the purported fact. Even if true, a disclaimer that Defendant/Counterclaimant Rick Hancock required someone who wanted to contract to buy a home from the defendants to sign, as part of closing documents, does not tend to prove that consumers were not confused at the initial stage. Fed. R. Evid. 401.
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1987). In the absence of any evidence that the disclaimer was effective in curing confusion, the Defendants' repeated reliance on the disclaimers is meaningless. See, e.g., Miss Universe, 605 F.2d at 1134-35. Third, as explained above and in the Motion in Section I.A.2.d, Defendants can hardly claim that they have acted in good faith when they broke a promise to this Court and can hardly claim they derived the name independently when they intentionally selected the "Hancock" name so he could free-ride on 50 years of goodwill that he and his brother sold to Meritage as part of an $88 million deal. (SOF at ¶¶ 4 and 26.) 6. Meritage Did Not Abandon the "Hancock" Name as a Matter of Law

In the Motion at 12:6 to 13:3, Meritage argues that it has not abandoned the "Hancock" mark as a matter of law citing the definition of abandonment in the Lanham
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

12 Act, 15 U.S.C. § 1127. See Pilates, Inc. v. Current Concepts, Inc.., 120 F.Supp.2d 286, 13 295 (S.D.N.Y. 2000) (the defense of abandonment must be proven by clear and 14 convincing evidence); MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 17:21 15 (4th ed. 1997) (same). The Greg Hancock Response does not address this argument. 16 Defendant/Counterclaimant Rick Hancock does and unavailingly relies Intrawest, 17 Exxon and Cherie Amie, and Iowa Health System as well as a case that has been vacated at 18 4:9 to 5:4 and 9:24-28 of his Response. These abandonment cases are clearly 19 distinguishable because it is undisputed that Meritage continuously used the "Hancock" 20 name and sold more than $117 million of "Hancock" homes after July 1, 2004. (See RH 21 CSOF at 3:5 (not disputing the amount of sales); GH CSOF at 1-2 (same).) Meritage's 22 use is clearly a "bona fide use" under any standard. See Iowa Health Sys. v. Trinity 23 Health Corp., 177 F.Supp.2d 897, 919 (D. Iowa 2001) (distinguishing between "bona 24 fide" 25 Defendant/Counterclaimant Rick Hancock focuses, Meritage's use is continuous. 26 IntraWest, 610 F.Supp. at 958 ("IntraWest Bank discontinued all use of the mark for 27 several months after the name change."). Finally, his own characterization of the cases ­ 28
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Snell & Wilmer L.L.P.

use

and

"token"

use).

Unlike

the

IntraWest

case

on

which

1 2 3 4 5 6 7 8 9

"abandonment . . . occurs whenever it can be shown that there is no intent to resume the use of the mark" (emphasis added) ­ belies the fact that his entire argument is flawed factually and legally. B. Summary Judgment On Rick And Brenda Hancock's Counterclaims And Third-Party Claims 1. Summary Judgment on the Entirety of Rick and Brenda Hancocks' Counterclaims and Third-Party Claims Should be Entered a. Meritage's Legal Arguments Set Forth in Its Motion to Dismiss Memoranda Are Incorporated Here

As noted in the Motion, Meritage incorporates its arguments in its Motion to Dismiss memorandum dated September 28, 2006, and reply memorandum, filed with 10 11 reveals that he raises no new arguments or asserts no new facts that were not asserted in
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leave on November 20, 2006. A review of Counterclaimant6 Rick Hancock's Response

12 his Response to the Motion to Dismiss. 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 b. It Is Undisputed that the Hancocks Acknowledged in Writing that the Madrid Contract Existed and Meritage Had Cancelled It, Making Reliance on Any False Statement or Omission Impossible as a Matter of Law

Snell & Wilmer L.L.P.

As argued in the Motion at 13:16 to 14:11 , Meritage moved for partial summary judgment that Counterclaimant Rick Hancock did not actually rely on any false statement or omission as a matter of law. See, e.g., Lundy v. Airtouch Comm., Inc., 81 F. Supp. 2d 962, 968 (D. Ariz. 1999); Staheli v. Kauffman, 122 Ariz. 380, 383, 595 P.2d 172, 175 (1979) (actual reliance is an element of fraud under Arizona law). In response, Counterclaimant Rick Hancock ignores the actual reliance element, does not properly controvert the fact that he knew that the contract was cancelled (Meritage's Motion to Strike ("MTS") at ¶ 60), and attempts for four pages to obfuscate the issue by focusing on assertions of false statements and omissions rather than his lack of actual reliance. (RH Resp. at 13:12 to 17:11.). Accordingly, Meritage is entitled to partial summary judgment that Defendant/Counterclaimant Rick Hancock did not actually rely on any purported false statement or omission. Rule 56(e). 6 The use of Counterclaimant is intended because these arguments only relate to Rick and Brenda Hancock's counterclaims.
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c.

It Is Undisputed that Meritage's Employee Handbook Expressly Did Not Grant the Hancocks Any Rights with Respect to the Madrid Home and Expressly Permitted Meritage to Change Its Policies without Any Notice

Counterclaimant Rick Hancock does not identify a single fact that controverts that Meritage's employee handbook expressly did not create contract rights for its employees and expressly permitted Meritage to change its discounting policy without any notice. (See RH CSOF at 14:3-13.) Rather, he points out the obvious, that employee handbooks can create rights. However, he overlooks the salient and undisputed fact, which is that the employee handbook at issue expressly does not create any rights. (SOF at ¶ 21) He does not controvert this fact with any facts. (MTS at ¶ 61) It is a matter of Black Letter Arizona law that if a handbook expressly states that it is not creating a binding agreement between the employer and employee no such agreement is created. See, e.g., DeMasse v. ITT Corp., 194 Ariz. 500, 505, 984 P.2d 1138, 1143 (1999). 2. Meritage Is Also Entitled to Partial Summary Judgment on the Amount of the Hancocks' Damages

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In the Motion at 15:7 to 17:7, Meritage argues that the Counterclaimant is not entitled to seek the appreciation of a home that was never (1) purchased (at the slightly higher price because of the smaller discount), (2) designed, (3) permitted or (4) built because he failed to mitigate his purported damages. Counterclaimant Rick Hancock's Response ignores this argument. He fails to controvert that he took no steps to mitigate any purported damages. (RH CSOF at 14:20 to 15:10.) Rather, he appears to argue that he had no duty to mitigate by buying the Madrid house at the modestly higher price even though he had more than three months to do so. Id. This is contrary to Arizona law. See, e.g., W. Pinal Family Health Ctr. v. McBryde, 162 Ariz. 546, 548-49, 785 P.2d 66, 68 (App. 1989). Accordingly, Meritage is entitled to partial summary judgment that the Counterclaimant is not entitled as a matter of law to seek the increase in value of the Madrid home. II. NONRESPONSIVE ARGUMENTS The Defendants make a number of arguments that are simply not responsive to the
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1 2 3

Motion. Out of abundance of caution, they are addressed here. A. The Law Of The Case Is That This Court Has Subject Matter Jurisdiction

The Defendants argue for at least the tenth time that this Court does not have 4 subject matter jurisdiction. (GH Response at 1:15 to 2:2; see RH Response at 2:19-25 5 (phrasing the argument as one of standing for the unfair competition claim under the 6 antitrust laws).) They are mistaken. First, it is the law of the case that this Court has 7 subject matter jurisdiction, and the Defendants identify no basis for changing that 8 decision. See Order at 8:1 to 10:9 (Aug. 22, 2006). Even if they were to identify a basis, 9 as this Court observed, "as long as the court had original jurisdiction over the Lanham Act 10 claim at the time it was filed, it makes no difference for purposes of subject matter 11 jurisdiction whether the claim is ultimately successful." Id. at 8:20-23 (emphasis added).
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12 Even if it were not the law of the case, the Defendants cite not a single case 13 applying Section 1125(a)(1)(A) of the Lanham Act. There is nothing in the language of 14 Section 1125(a)(1)(A) of the Lanham Act or any case interpreting that provision that 15 supports the Defendants' flawed legal supposition. Indeed, the case law is to the contrary. 16 See, e.g., Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 29 (2003); see 17 also FRA S.p.A. v. Sur-O-Flex of Am., 415 F.Supp. 421, 424-25 (S.D.N.Y. 1976) and 18 cases cited therein (persons other than trademark owners have standing under the unfair 19 competition provisions of the Lanham Act). 20 21 22 23 24 25 26 27 28 B. Defendant Greg Hancock's Name Calling is Unsupported by the Record

Snell & Wilmer L.L.P.

Defendant Greg Hancock accuses the undersigned counsel of committing "a fraud on this [C]ourt." (GH Response at 1:18.) He does so by misconstruing and falsely stating that Meritage had conceded that it committed a fraud by observing in the Motion the painfully obvious that Greg Hancock wrote a letter on February 13, 2004, stating that he had terminated the License Agreement. (Id. at 1:15 to 2:2.) Despite his notions to the contrary, Defendant Greg Hancock's word is not the law, and Meritage has disputed throughout this lawsuit Defendant Greg Hancock's claim that he was entitled to terminate
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the License Agreement based on his purported assertion that Meritage had already breached that agreement or any other agreement. Compare Initial Complaint at ¶¶ 31 and 32 (Feb. 24, 2004) with Motion at Section II.A.1. Indeed, as argued in the Motion and conceded by Defendant Greg Hancock, the law of the case is that Meritage did not breach the License Agreement or any any other agreement with Defendant Greg Hancock. See Order at 5 (Mar. 31, 2006) (this Court dismissed with prejudice Defendant Greg Hancock's claims that Meritage breached the License Agreement or any other agreement); Order at 10 (Aug. 22, 2006) (this Court affirmed its March 31, 2006 Order); Motion at Section II.A.1 and Reply at Section I.A.1 (explaining why this Court's March 31, 2006 Order collaterally estops Defendant Greg Hancock's use of his assertion that Meritage breached the License Agreement or any other agreement as a defense). This Court's March 31, 2006 and August 22, 2006 Orders eliminate any grounds Defendant Greg Hancock had for terminating the License Agreement. C. Defendant Greg Hancock Misconstrues Meritage's Pre-February 13, 2004 Conduct And Ignores This Court's Ruling 1. The Pre-February 13, 2004 Conduct is Inapposite and Immaterial

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Defendant Greg Hancock argues that emails before February 13, 2004, a Christmas 18 announcement, and discussions with its advertising agency amount to a breach of the 19 License Agreement. (GH Response at 2:4-14.) This argument is inapposite to each and 20 every argument made in the Motion. Moreover, this Court has already rejected Defendant 21 Greg Hancock's argument because the same evidence "cannot . . . establish a breach." 22 Order at 8:9-16 (Aug. 22, 2006). 23 2. 24 As noted above, Defendant Greg Hancock's assertion in his Response at 2:24-25 25 that Meritage conceded that he properly terminated the License Agreement is without 26 basis. Meritage made no such concession, and he brazenly takes statements in the Motion 27 out of context. Moreover, Greg Hancock cites no facts to support the assertion and is 28
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Defendant Greg Hancock's Purported Termination of the License

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therefore in violation of Rule 56(e) and Local Rule 56.1(b). 3. Breach Based on a Purported Failure to Advise

Defendant Greg Hancock argues that Meritage breached its duties to him by failing to advise him about his earn-out. (GH Response at 2:26 to 3:2.) He asserted this purported breach in his counterclaims, and this Court dismissed that claim with prejudice. Order at 5 (Mar. 31, 2006). Moreover, it is undisputed that as February 2004, Meritage had fully paid the earn-outs it owed Greg Hancock, and therefore there was nothing to report to him. Compare SOF at ¶ 5 with GH CSOF at 1 (not controverting SOF at ¶ 5). D. Counterclaimant Rick Hancock's Arguments About Fraud

Counterclaimant Rick Hancock makes several assertions that Meritage committed fraud. (RH Response at 13:12 to 17:11.) For purposes of this Motion only, this Court can accept each of these assertions as true. The reality is that each assertion of fraud is inapposite and immaterial to each of the precise arguments in the Motion. As explained above, actual reliance is an element of fraud under Arizona law, and Defendant Rick Hancock fails to controvert the fact that he did not rely on any statement or omission by Meritage. III. CONCLUSION For the reasons set forth above and in the Motion, Meritage respectfully requests that the Court enter the proposed Order attached to the Motion. DATED this 5th day of March, 2007. SNELL & WILMER L.L.P.

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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 Third Party Defendants 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 and Third Party Defendants CERTIFICATE OF SERVICE I hereby certify that on March 5, 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. 3000 N. Central Avenue, Suite 1730 Phoenix, Arizona 85004 Attorneys for Defendant Rick Hancock 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

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s/ Adam E. Lang
29323.0078\GOLDFID\PHX\1960452

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