Free Response to Motion - District Court of Arizona - Arizona

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MATHEW & MATHEW, P.C. IVAN K. MATHEW (SBN: 011610) 3300 N. Central Avenue, Suite 1730 Phoenix, Arizona 85012 Tel: (602) 254-8088 / Fax: (602) 254-2204 E-mail: [email protected] Attorneys for Defendants RICKY LEE HANCOCK, BRENDA HANCOCK, RICK HANCOCK HOMES, L.L.C. and RLH DEVELOPMENT, L.L.C.
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

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, and currently d/b/a Meritage Homes Construction, Inc., an Arizona corporation, and Meritage Homes of Arizona, Inc., an Arizona corporation, Plaintiffs, v. 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 liability company; RLH Development, L.L.C., an Arizona limited liability company; and J2H2, L.L.C., an Arizona limited liability company, Defendants. _________________________________________ Rick and Brenda Hancock, Defendants, Counterclaimants and Third-Party Plaintiffs, v. Meritage Homes Corporation, a Maryland Corporation, formerly d/b/a Meritage Corporation,
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CASE NO. CV-04-0384-PHX-ROS RICK AND BRENDA HANCOCKS' RESPONSE TO (1) PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT AND (2) COUNTERDEFENDANTS' AND THIRD PARTY DEFENDANTS' MOTION FOR SUMMARY JUDGMENT ON RICK AND BRENDA HANCOCKS' COUNTER-CLAIMS AND THIRDPARTY CLAIMS

(Assigned to the Hon. Roslyn O. Silver)

Filed 02/15/2007

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Hancock-MTH Builders, Inc., an Arizona corporation, Hancock-MTH Communities, Inc., 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. The Rick Hancock Defendants/Counterclaimants and Third-Party Plaintiffs, respectfully request that the Plaintiffs'/Counterdefendants' Motions for Summary Judgment be denied. I. STANDARDS FOR SUMMARY JUDGMENT Summary judgment is not appropriate if there is a material issue of dispute. F.R.C.P. 56. Credibility determinations, the weighing of evidence, and the drawing of inferences from the facts are jury functions, are not appropriate at the summary judgment stage. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 255. The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor at the summary judgment stage. Id. II. MERITAGE LACKS STANDING Greg Hancock terminated the license agreement with MTH­Homes on February 13, 2004. (Plaintiffs' Statement of Facts, ¶ 24.) Meritage is not even a licensee at this point in time. Meritage has no standing to contest Rick Hancock's contemplated use of his own name. S&R Corp. v. Jiffy Lube International, Inc., 968 F.2d 371 (3d Cir. 1992); McDonald's Corp. v. Robertson, 147 F.3d 1301 (11th Cir. 1998) (holding that termination of the License Agreement precludes enforcement of trademark by licensee, i.e., holdover licensee). SUMMARY OF ARGUMENT Plaintiffs are precluded from enforcing the terms of summary judgment as its claims are predicated on the assumption that Meritage had a valid license to use the Hancock
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Communities name. However, plaintiffs admit that the License Agreement was cancelled. (CSOF, ¶ 24.) Therefore, they have no right to the exclusive use of the Hancock Communities name. The evidence in the light most favorable to the Defendants shows that Greg Hancock was not paid his earn out and that he cancelled the License Agreement. The License

Agreement was cancelled for other reasons as well. The License Agreement also precluded adverse diminution in the public recognition of the Hancock Communities name. There was a plan by Meritage as early as 2004, to do away with the Hancock Communities name--"to take the name dark"--to phase out the name in 18 months, to make it worthless when it was resurrected by Greg Hancock. This, combined with the actual name change announcement in December 2004, as well as the removal of the name from the subdivisions and removal from advertising resulted in a breach of the License Agreement. This was a breach of the License Agreement. Meritage also entered into a contract to sell the Madrid House to Rick and Brenda Hancock. However, rather than let them know of the contract, Meritage engaged a ruse to obtain a release without disclosing there was an executed contract. The contract superseded all other agreements. When the contract was discovered to be in existence Meritage claimed that the contract was inadvertently signed. III. THERE HAS BEEN A DIMINUTION IN THE RECOGNITION OF THE TRADEMARK WHICH BREACHED THE LICENSE AGREEMENT There has been a diminution in the recognition of the trademark which breached the License Agreement. (CSOF, ¶ 17.) This was by design. Id. In 2004, Hilton and Landon discussed taking the Hancock name "dark. Id. At the Meritage Christmas party in 2003, Jim Arneson announced to all the employees that the name Hancock Communities would be changed to Meritage. (CSOF, ¶ 52.) This was part of a national branding campaign. (CSOF, ¶ 50.) All of the subdivisions having the Hancock Communities name were changed. (CSOF, ¶ 9.) After the lawsuit was filed, the names of two subdivisions, Rancho Bella Vista and The Sundance Subdivision were changed back to include the Hancock name. (CSOF, ¶ 50.) The names were also diminished in the public media. (CSOF, ¶ 17.) An analysis of the Arizona
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Republic shows a diminution in name recognition. Id. After the name was dropped, it was resurrected in two neighborhoods. Id. The purpose of this was to cubbyhole the name, i.e., preclude the Hancocks from using their name. This is precluded as a matter of law and is not a legitimate use of a trademark. (See pp. 9 to 11, infra.) Missy Vallirie, the Marketing Director of Meritage, stated under oath, the explicit purpose of this was to preclude the Hancocks from using their name. (CSOF, ¶ 17.) She stated that there was no legitimate marketing reason for use of the name Hancock Communities, and it was not consistent with the goal of Meritage to go to a national branding campaign.
A.

Courts Will Not Assist Trade Name Squatters

Courts will not hesitate to declare that an abandonment of a mark occurs whenever it can be shown that there is no intent to resume the use of the mark. 15 U.S.C. § 1127; IntraWest Financial Corp. v. Western National Bank of Denver, 610 F.Supp. 950, 956 (D. Co. 1995); Chere Amie Inc. v. Windstar Apparel Corp., 191 F.Supp.2d, 348 (S.D.N.Y. 2001.) The court can infer intent of abandonment by looking at the various actions of the parties, as well as objective intent not to resume use of the mark. IntraWest, 610 F.Supp. at 958; Chere, 191 F.Supp. 2d. at 348. In a case directly on point, IntraWest, the plaintiff switched all existing branches from First Bank of Denver to IntraWest Bank of Denver. IntraWest then informed existing customers of the planned name change. They advertised weekly in newspapers that "The First National Bank of Denver is now IntraWest Bank of Denver. The court held this was sufficient evidence of IntraWest's abandonment of the "First Bank of Denver" mark. IntraWest, 610 F.Supp. at 953 and 958. One cannot change a name and then have a few limited uses for that name. Id. at 958. This act, in and of itself, destroys valuable good will of the old name and the name association the public may have with the mark. Exxon Corp. v. Humble Exploration Company, Inc., 695 F.2d 96, 98-99 (5th Cir. 1983), Iowa Health System v. Trinity Health Corp., 177 F.Supp.2d 897, 918 (ND Iowa 2001); Major League Baseball v. Sed Non Olet Denarius, 817 F.Supp. 1103, 1129 (SDNY 1993.)

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An attempt to hoard or warehouse a known mark precludes others from using it and is not sufficient to overcome a claim of abandonment. Iowa Health, 177 F.Supp. 2d at 919; Exxon 695 F.2d 96; IntraWest, 610 F.Supp. 950. Missy Vallirie testified that the purpose of using the name was to try to prevent the Hancocks from using the name. Attempts to hoard a mark is itself deceptive. Id. at 960. It is merely a ploy to prevent others from being able to use a mark. IntraWest, 610 F.Supp. at 958-959. (Emphasis added.) Trade name squatters would only serve to further ruin and destroy the good will associated with the mark to the detriment of the public and others who wish to use it. 1 The limited use of a trade name under the name of the larger corporation, constitutes a sham attempt to confuse the public and prevent others from using the mark. Exxon, 695 F.2d at 100. (Limited use of "Humble" mark on a limited basis on Exxon products did not constitute a bona fide use of the mark.) Plaintiff's actions are identical to the IntraWest case. In this particular case, Meritage, the large New York Stock Exchange company, wants to ditch the Hancock Communities name and utilize the Hancock Communities names in only two subdivisions. It is also inconsistent with the purported goal of plaintiff, as testified to by Larry Seay, CFO of Meritage, in trying to create the impression that Meritage homes are built by a large national homebuilder as opposed to a local builder. Meritage placed numerous full-page newspaper advertisements in the Arizona Republic which announced the re-branding of Hancock communities to Meritage. They did so weekly over many weeks. Meritage informed current customers by a letter that as part of a company wide branding program, Hancock Communities will now be known as Meritage. (S.O.F. No. 69.) They informed employees and vendors that they would be changing their name from Hancock to Meritage. Such actions dilute the mark. Subsequently, after his deposition, after Ron French realized that the name had been abandoned, he told Missy Vallirie to use the name Hancock again. (CSOF, ¶ 17.)

Meritage's purported claim is even weaker. Meritage is not a trade name holder. Prior to the termination, they were only a mere licensee. They do not contest that there was a termination.
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There is an actual contract between the parties which sets out the rights and obligations of the parties and the trademark--a license agreement. (CSOF, ¶ 4.) As such, this matter is governed by contract law. Hernandez v. Banco Las Americas, 116 Ariz. 552, 556, 570 P.2d 494, 498 (agreements should be enforced absent fraud). The agreement precludes a

diminution in the name recognition. (CSOF, ¶ 103.) Barb Stanton, an expert witness, has done a detailed analysis of the diminution of the name Hancock Communities. CSOF, ¶ 17.) She notes that there has been a "significant" diminution in the Hancock Communities name recognition. (CSOF, ¶ 49.) The Hancock Communities name was deleted. (CSOF, ¶ 52-55.) The Hancock Communities were going to be known as Meritage. Then after the Motion to Dismiss was filed, Meritage sought to use the name in only two locations. (CSOF, ¶ 17.) Furthermore, the use of Hancock "Homes" has never been at issue. Meritage has never used the name Hancock Homes. (CSOF, ¶ 3.) IV. NAME RECOGNITION HAS BEEN DIMINISHED Rick Hancock's use of the name Hancock Family Builder was forged as part of a potential settlement negotiation with Meritage in 2004. (CSOF, ¶ 4.) However, Meritage then reneged on the terms of the deal. Id. Rick Hancock was supposed to be able to use the Rick Hancock Homes or a similar Hancock name with a disclaimer. Id. The Court was made aware of this in 2004. Id. Rick Hancock is using a disclaimer. (SOF, ¶ 56-58, 113.) Rick Hancock is being honorable. However, rather than stick with its commitment and agreement, Meritage continues to complain that Rick Hancock is somehow a bad person for using his family name with a disclaimer, pursuant to dealings between the parties. Furthermore, the doctrine of clean hands precludes the relief requested by Meritage. It simply is not equitable for someone to agree to a settlement and its terms, then sit by quietly while Rick Hancock starts his business with a name and the attendant costs, and then subsequently changing their mind. See Tiffany, Inc. v. W.M. Transit Mix, Inc., 16 Ariz. App. 415, 419, 493 P.2d 1220, 1224 (App. 1 1972) (justifiable reliance on promissory estoppel precludes such a complaint).

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V.

GREG HANCOCK IS DUE MONIES Contrary to statements of Meritage, at his deposition, Eugene Cole, the expert witness,

stated that Greg Hancock is due monies. Mr. Cole calculated that Mr. Hancock is owed approximately 2.5 million dollars. (CSOF, ¶ 5.) Meritage's reference to Mr. Cole's testimony is taken out of context. Mr. Cole merely stated he is not opining on theories of "causation" or "liability. Id. Earlier he testified to the earn-out calculation short fall. Id. VI. GREG HANCOCK HAS PRESENTED EVIDENCE OF CONSTRUCTIVE DISCHARGE The defendants have sought to utilize Greg Hancock's testimony from a deposition in another case in this case--the divorce case. (PSOF, ¶ 27-28.) This is not allowed. Deposition testimony in another case is not admissible in this case. Rick Hancock was not a party to that litigation. For some reason, plaintiffs disregard Greg Hancock's testimony in this case,

perhaps because it is not helpful. First, Greg Hancock's testimony in this case shows that he was micromanaged to the point where the president of a multi-million dollar company is being threatened with lawsuits by his supervisor, being fired by facsimile, told how many runners to have, berated for conducting business on a golf course, having subordinates secretly report to Greg Hancock's boss and account for his whereabouts, and overtly having Greg Hancock's subordinates bypass him and deal with Greg Hancock's boss. (CSOF, ¶ 27-28.) There were personnel decisions of Greg Hancock's division employees that Greg Hancock was not privy to, and indeed hidden from him, further undermining his authority as president of the company. Id. This perception is not illusory. Id. The employees corroborate Greg

Hancock's perception. Id. VII. CONTROL OF THE TERMS AND LICENSE Meritage acts like it owns the trademark. It does not. (CSOF, ¶ 35.) It is not the owner of the trademark. (CSOF, ¶ 36.) It is a mere licensee. (CSOF, ¶ 35.) The terms of use

25 of the Hancock Communities name is subject to the terms and conditions of the License 26 27 28
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Agreement negotiated by the parties.2 Id. In this particular case, Greg Hancock, the owner of the trademark, wanted certain conditions to be met and maintained. (CSOF, ¶ 49.) These were the terms under which Meritage could use the name. (CSOF, ¶ 41.) The names Hancock Communities and Hancock Homes are assets of Greg Hancock. (CSOF, ¶ 36.) He did not want their value to be reduced, thus, the terms of the License were limited in duration. (CSOF, ¶ 35.) The License Agreement provided that there would be no diminution in value or diminution in name recognition. (CSOF, ¶ 49.) The contract provides that in Greg Hancock's sole discretion he could enforce the rights under the contract. (CSOF, ¶ 41.) Plaintiffs' claim that Greg Hancock has no discretion is simply meritless. For some reason, this explicit term seems to be overlooked by Meritage. The fact that Meritage disagrees with the explicit terms of the contract does not mean that Meritage can disregard what is in the contract. VIII. DISCLAIMERS AVOID CONFUSION AND ARE A FAVORED REMEDY Contrary to the musings of Meritage, disclaimers are a preferred way to distinguish between products.3 The Ninth Circuit has expressly stated its preference for the use of disclaimers. Use of a disclaimer is especially appropriate where there is an allegation of trademark infringement and the trademark utilized involves a defendant's own name. Examples of disclaimers being used in similar products include the cases of Adray v. AdryMart, Inc., 716 F.3d 984, 990-991 (9th Cir. 1995); Taylor Wine Co. v. Bully Hill Vineyards, Inc., 569 F2d. 731, 735-36 (2nd Cir. 1978); Friend v. H.A. Friend & Company, 416 F.2d 526, 534 (9th Cir. 1969) (use allowed provided first name and disclaimer utilized); see, Everston Chang's, Inc. v. E&J Manufacturing Company, 263 F.2d 254, 260-61 (9th Cir. 1958) (finding that the District Court had erred in issuing absolute injunction where defendant had built a
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While the Agreement would cover the name "Hancock Homes," Meritage has never used the name Hancock Homes.

A Fifth Circuit case does not trump Ninth Circuit law. More importantly, it does not trump an Act of Congress. Anti-Cyber Squatting Consumer Protection Act ("ACPA") (15 U.S.C. § 1125(d)). There is no assertion that Rick Hancock is using the name "Hancock Communities."
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mark in good faith.) Congress and the Ninth Circuit recognize the right of a person to use their own name. Avery Dennison, 189 F.3d 868, 877 (9th Cir.1999). This principle is not limited to "diluted claims." 15 U.S.C. §1052(e) and (f) (1994). Moreover, this is not a small ticket item like a piece of cheese. This is generally the biggest purchase an individual makes. Furthermore, the extent of the disclaimers is more significant than a package label on cheese. Every purchaser must acknowledge in writing that he/she understands that Greg Hancock Homes is not affiliated with the Meritage or the Hancock Communities. (CSOF, ¶ 56-58.) He/she must document this with a signature. (CSOF, ¶ 113.) Disclaimers are on marketing materials. (CSOF, ¶ 56,57,59.) A. Congress and the Ninth Circuit Acknowledge the Special Right of People to Use Their Surname Name in Connection With Their Business

In this Circuit, actions seeking to preclude the use of a surname are not favored. Avery Dennison Corporation v. Sumpton, 189 F.3d at 877, 882 (9th Cir. 1999). There is a longstanding principle of trademark law that there is a right of a person to use his or her name in connection with a business. Id. This principle is incorporated into the Lanham Act. 15 U.S.C. § 1052(e)(4) and (f) (1994); Id. at 877. The Ninth Circuit noted that the Senate Judiciary Committee emphasized: "The committee intended to give special protection to individual's ability to use his or her name in good faith. Id. at 877. The Ninth Circuit will give effect to Congress' intent that people have a right to be able to use their own name in connection with their business. Id. at 882. The Ninth Circuit will not allow one business to highjack a common surname to absolutely preclude use by someone who has the same last name. Id. at 878. "Hancock" is a common name. The name cannot be cubby holed solely by plaintiff. One cannot change a name and then have a few limited uses for that name. IntraWest, 610 F.Supp. at 958. This act, in and of itself, destroys valuable good will of the old name and the name association the public may have with the mark. Exxon Corp. v. Humble Exploration Company, Inc., 695 F.2d at 98-99, Iowa Health System v. Trinity Health Corp., 177 F.Supp.2d at 918; Major League Baseball v. Sed Non Olet Denarius, 817 F.Supp. at 1129.
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B.

The Use of One's Name in an Internet Domain Name is Protected by an Act of Congress

Meritage complains that Rick Hancock and Rick Hancock Homes is using the internet domain name HancockHomesAZ.com. Rick Hancock is entitled as a matter of law to use his name as his domain name by an act of Congress signed by the President. § 1125(d)(1)(B)(II). 15 U.S.C.

The use of internet domain names is governed by the Anti-Cyber

Squatting Consumer Protection Act ("ACPA") (15 U.S.C. § 1125(d)). The main purpose of the ACPA is to eliminate a practice which has become known as "cyber squatting" or "cyber piracy" by individuals seeking extortion or profits by reserving internet domain names that are similar or identical to trademark names with no intention of using the names in commerce themselves. Hartog and Co. v. Swix, 36 F.Supp.2d at 531, 536 (E.D. Virginia (2001))

(emphasis in original). Congress specifically provided that use of one's own name in an internet domain name is prima facie evidence that it is not utilized in bad faith. 15 U.S.C. § 1125(d)(1)(B)(II). Before there is any cause of action with the use of a domain name, there must be a "bad faith" use of the name, 15 U.S.C. § 1125(d)(1)(A). "Bad faith" means the use of a domain name with an attempt to blackmail or extort the one with a trade name. Cello Holdings, LLC and Cello Music v. Film Systems, Inc., 89 F.Supp.2d 464, 473 (S.D.N.Y. 2000). Courts considering claims similar to ones made by Meritage regarding the trade name and internet addresses have been rejected. HQM, Ltd. v. Hatfield, 71 F.Supp.2d 500, 506 (D. Md. 1999) (citation omitted). There is no reason for Meritage's internet address to have the name "Hancock" in it as it is re-branding the Hancock Community with the Meritage name. Plaintiffs are actually involved in reverse cyber squatting whereby they seek to hold the "Hancock" name hostage from use. The name Hancock is the 265th most common last name in the United States. The use of the "Hancock" name in connection with websites is fairly common. (See, Google,

"Hancock".) The genie is out of the bottle. The analysis of the Cello court is compelling: "Plaintiff has not demonstrated why he has any greater right to `Cello.com' than any other of a
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dozen companies that have registered `Cello' alone or utilized `Cello' in their domain name. Cello, 89 F.Supp.2d at 464. `Cello' is a common noun. Id. Many companies use Cello in their name, and since other companies have been using the name longer than Cello has been using the mark, the court declined to award the domain name to the plaintiff. Id. at 474. This is also the law of the Ninth Circuit. Avery Dennison Corporation v. Sumpton, 189 F.3d 878. There simply is no bad faith intent under the ACPA when someone uses their own name in conjunction with their business internet address. Hartog and Co. v. Swix, 36 F.Supp.2d at 531, 536 at 540-541. The use of the Hancock name by Rick Hancock is a good faith use of his own name and cannot be used against Rick Hancock, as it is clearly allowed by law. Avery Dennison, 189 F.3d at 881; Hartog and Co. v. Swix, 36 F.Supp.2d at 542. See, also, Bruce Springsteen v. Jeff Burgar; Bruce Springsteen Club, WIPO Case No. D2000-1532 (2001). (Even "The Boss" could not preclude the Bruce Springsteen Club from using domain name brucespringsteen.com.) The use of a common name such as "Hancock" in the construction industry in connection with the Internet is important to this Court's analysis. (CSOF, ¶ 61-73.) Avery Dennison Corp. v. Sumpton, 189 F.3d at 877-78 (9th Cir. 1999.); see, Cello Holdings, LLC and Cello Music v. Film Systems, Inc., 89 F.Supp.2d 464, 473 (S.D.N.Y. 2000). Meritage, like Cello, cannot claim it has a superior right to the use of a common name already being used by other people in connection with the home building industry. Id. These include Hancock Building Company, Inc., Hancock Contracting, Hancock Construction, L.L.C., etc. Id. Power Beverages, Inc. v. Perrier Group of America, Inc., 269 F.3d 114, 124 (2nd Cir. 2001); see, Columbia University v. Columbia/HCA Healthcare, 964 F.Supp. 733, 746 (S.D.N.Y. 1977) (holding that momentary confusion with a small number of non-purchasers constituted de minimus showing of confusion). IX. COLLATERAL ESTOPPEL IS NOT APPLICABLE TO THE FACTS IN THIS CASE First, there is no final judgment. Collateral estoppel requires "a final judgment on the merits." Durkin v. Shea & Gould, 93 F.3d 1510, 1515-16 (9th Cir. 1996). "The party
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asserting collateral estoppel must first show that the estopped issue is identical to an issue litigated in a previous action. In addition, `[i]n order for collateral estoppel to apply, the issue to be foreclosed in the second litigation must have been litigated and decided in the first case.'" Kamilche v. U.S., 53 F.3d 1059, 1062. "Collateral estoppel is inappropriate if there is any doubt as to whether an issue was actually litigated in a prior proceeding." Eureka Fed. Sav. & Loan Ass'n v. American Casualty Co. of Reading, Penn., 873 F.2d 229, 233 (9th Cir. 1989); see also, Durkin, 92 F.3d at 1515. "`If the decision could have been rationally grounded upon an issue other than that which the defendant seeks to foreclose from consideration, collateral estoppel does not preclude re-litigation of the asserted issue.'" Id. (quoting Davis & Cox v. Summa Corp., 751 F.2d 1507, 1518-19 (9th Cir. 1985)). See Steen v. John Hancock Mut. Life Ins. Co., 106 F.3d 904. If there is doubt, collateral estoppel will not be applicable. Dunkin, 92 F.3d at 1515. There has not been a final judgment. Indeed, the Court refused a 54(b) motion by codefendants. Collateral estoppel is not applicable. The situation in this case is analogous to the case when a court dismisses a counterclaim of a Declaratory Judgment Act. Although the Court can dismiss mirror claims, this does not mean that the original claim therefore gets subsumed by the dismissal. Courts will dismiss declaratory judgment counterclaims which are duplicative of defendant's answer. See, e.g., Federal Deposit Ins. Corp. v. Bancinsure, Inc., 770 F. Supp. 496, 500 (D. Minn. 1991) (dismissing counterclaim which "seeks the same result as defendant's denials and affirmative defenses" as "redundant"). To allow this to happen would produce the absurd result; in effect, bootstrapping a dismissal with another dismissal. In this particular case, there was a great deal of acrimonious litigation about which court Greg Hancock should be litigating in, i.e., state court or federal court. Rick Hancock was not a party to any action going on at state court and any sanctions, punishment, punitive actions or actions against Greg Hancock for litigating in state court.

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In addition in this particular case, the Court dismissed the counterclaim. Rick Hancock filed an answer to the first amended complaint and also filed an answer to the second amended complaint. The second amended pleading complaint superseded the first amended complaint and rendered the first amended complaint of no legal effect. King v. Dogan, 31 F.3d 344, 346 (4th Cir. 1994); Carver v. Condi, 169 F.3d 469, 472 (7th Cir. 1999). This is especially true when the complaint is not only filed but served as it was in this case. Due v. Unocal Corp., 27 F. Supp 2d 1174, 1180, (CD CA 1998) affd. 248 F.3d 915, 920 (9th Cir. 2001). The opportunity to respond is fundamental to due process. Nelson v. Adams USA, Inc., 529 US 460, 466, 12 S.Ct. 1579, 1584 (2000). It is a right secured to parties and enumerated in Rule 12. Id. There is no doubt that the second amended complaint was served as Rick Hancock filed an answer. Id. See Order dated August 24, 2006, p. 7, ll. 1-7. X. MERITAGE FAILED TO DISCLOSE AN EXECUTED CONTRACT. Meritage failed to disclose the executed contract. Plaintiff claims there is no need to disclose the contract because the contract was inadvertently signed. First, the regulations governing the conduct of real estate agents requires a signed contract to be disclosed. R4-28802. It was not. It was disclosed in early 2006. The disclosure was to be timely. R4-281101(C). It was not. There was a regulatory duty to disclose it and undisputed that it was not disclosed. There is a per se cause of action when one fails to abide by statutory duty as in this case. THE EXECUTION OF THE CONTRACT WAS NOT "INADVERTENT". The execution of the contract was not "inadvertent." (Declaration of Greg Hancock.) Knowledge of fraud may be inferred from the circumstances. See, In re American Continental Corp./Lincoln Sav. and Loan Sec. Litig., 684 F.Supp. 1424, 1436 (D.Ariz. 1992). The former controller of Meritage testified that the only way the purchase contract can be cancelled is if Meritage first sends the request for cancellation to the buyer and the buyer cancels with his or her signature. (CSOF, ¶ 130.) Meritage knew where to locate Rick and Brenda Hancock as he was a former employee. (CSOF, ¶ 131.) They did not.
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The earnest money of Rick and Brenda Hancock was accepted on November 21, 2003 and deposited five days later on November 25, 2003. (CSOF, ¶ 132.) Ron French and Jerry Lilly both reviewed the contract and noted that Scott Keeffe was the one authorized to accept the contract and he was the designated agent to accept the contract. (CSOF, ¶ 133.) The signature of Scott Keeffe signified that the contract was accepted. (CSOF, ¶ 134.) Jerry Lilly, the real estate agent employed by Meritage, stated that the contract was signed and it was his understanding that Rick Hancock should have been sold the house. (CSOF, ¶ 135.) Roger Zetah requested Scott Keeffe's office to cancel the contract. (CSOF, ¶ 136.) Mr. Keeffe's office refused to do so. Id. Indeed, Scott Keeffe never canceled the contract. (CSOF, ¶ 137.) Roger Zetah admitted that Meritage attempted to cancel the contract but without Rick and Brenda Hancock's knowledge. (CSOF, ¶ 138.) The notice of cancellation was back dated. (CSOF, ¶ 139.) The notice of cancellation states it was cancelled on December 8. Id. This is false. Id. Roger Zetah signed the cancellation notice on December 9 or later as Shari Mesicko retrieved it on December 9 or later. Id. The area above Roger Zetah's name contains the designation "Signed this ___ day of ____." Id. This was left blank by Mr. Zetah. (CSOF, ¶ 140.) A jury could find that the document was not signed on December 8. Id. At the deposition of Roger Zetah, it was never stated that Scott Keeffe's signature of the contract was "inadvertent." (CSOF, ¶ 141.) At the deposition of Ron French, the President of Meritage Arizona Division, Mr. French never stated that the contract which was signed was inadvertently signed by Roger Zetah. (CSOF, ¶ 134.) Indeed, he said the opposite. Id. Meritage has now come up with "the inadvertent signature theory" after the proposed counterclaim had been lodged. Defendants have alleged there is a written contract signed by the parties. The Court should accept that there is a contract at this stage. XII. THE FAILURE TO GIVE NOTICE WHEN THERE IS A STATUTORY TO DISCLOSE IS FRAUD. The failure to give notice when there is a statutory to disclose is fraud. When someone is under a common law or statutory duty to disclose information and they fail to do so, it is the basis of fraud. Haisch v. Allstate Ins. Co., 197 Ariz. 606, 5 P.3d 940 (Ariz.App.Div.1 2000.)
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Real Estate Regulation R4-28-802 provides that executed contracts must be provided to buyers and sellers. It is undisputed this was not done, as required by law. Meritage's claim that notice of the acceptance was not conveyed to the Hancocks is unavailing. (CSOF, ¶ 20.) Meritage fails to understand that they cannot claim the benefit of the failure to give notice as such a failure is in direct contravention of the law which required disclosure. It is the sine non qua of the regulation. Meritage owed a duty of fair dealing to Rick and Brenda Hancock. Or to put it another way, they owed the duty of disclosure. Lombardo at 100, 292. Upon signing the document, Meritage should have given notice without a two year delay to Rick and Brenda Hancock. By virtue of Mr. Keeffe's signatures and their regulatory duties they cannot claim that acceptance was not conveyed. XIII. THE RELEASE. A waiver or release of rights does not preclude a party from claiming fraud in the inducement of the very instrument by which the party waived his rights. The maxim that fraud vitiates every transaction would no longer be the rule, but the exception. It could be applied then only in such case as the guilty party neglected to protect himself from his fraud by means of such a stipulation. Such a principle would in a short time break down every barrier which the law has erected against fraudulent dealing. Urfirer v. Cornfeld, 408 F.3d 710, 723 (11th Cir. 2005.) [D]efenses based upon allegations of fraud may not be waived. This is because a written waiver in any form cannot operate to shield a party from his own fraud. Id. For the Courts to give effect to such a clause would be violative of both public policy and morality, since an ultimate finding of fraud must of necessity vitiate the contract relied upon. Id. "Where fraud or duress in the procurement of a release is alleged, a motion to dismiss should be denied." Id. at 724. "A releasor is entitled to be relieved from the consequences of the release obtained by fraud, misrepresentation, or deceit. A release obtained through fraud may on that basis be rendered invalid." Id. at FN2. "It is the duty of the Court not to enforce fraudulently obtained agreements." Id.

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A settlement agreement obtained on the basis of fraud is a nullity. Id. Plaintiff claims that their settlement agreement precludes release. They are mistaken. In Arizona and

elsewhere settlement agreements must be obtained without "the taint" of fraud. Wick v. Wick, 107 Ariz. 382 384, 489 P.2d 19, 21 (1971). A party cannot use fraudulent tactics to obtain a release and then when the deceit is uncovered use the improperly obtained release as a shield. XIV. FRAUDULENT CONCEALMENT. One party to a transaction who by concealment or other action intentionally prevents the other from acquiring material information is subject to the same liability to the other, for pecuniary loss as though he had stated the nonexistence of the matter that the other was thus prevented from discovering. Wells Fargo at 496, 34. Where failure to disclose a material fact is calculated to induce a false belief, "the distinction between concealment and affirmative misrepresentation is tenuous." Schock v. Jacka, 105 Ariz. 131, 133, 460 P.2d 185, 187 (1969); Wells Fargo Bank v. Arizona Laborers, et al., 201 Ariz. at 496, 38 P.2d at 34. Liability for fraudulent concealment occurs under § 550 of the RESTATEMENT (SECOND) OF TORTS and lies against a "party to a transaction who by concealment or other action intentionally prevents the other from acquiring material information." (Emphasis added.) Concealment necessarily involves an element of non-disclosure, but it is the intentional act of preventing another from learning a material fact that is significant, and this act is always the equivalent of a misrepresentation. Restatement (Second) of Contracts § 160 ("Action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist", i.e., the executed contract. Where fraud is based on a plan of actual concealment, as opposed to simple nondisclosure, a duty to speak is not required. Wells Fargo at 497, 35. Rick Hancock kept requesting the Madrid house in December 2003. (Proposed Counterclaim, Complaint, ¶ 65.) Hancock was told that the contract was not accepted. (Proposed Counterclaim, ¶ 47.) There is actual concealment. "Thus, fraudulent concealment--without any misrepresentation or duty to disclose - can constitute common law fraud." Id. at 899. Any words or acts which create a false impression covering up the truth, or which remove an opportunity that might otherwise have led to the discovery of a material fact - as by
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floating a ship to conceal the defects in her bottom, sending one who is in search of information in a direction where it cannot be obtained, or even a false denial of knowledge by one in possession of facts - are classed as misrepresentation, no less than a verbal assurance that the fact is not true. Wells Fargo, 498, 36. Actions by Meritage which intended to conceal material facts or alleged are sufficient to prove a claim. A jury could find (1) Meritage had knowledge of false information being given the Hancocks, and (2) Meritage took measures intended to prevent the Hancocks from learning the truth. These inferences are grounded in fact and are sufficient to take the concealment theory to the jury under the applicable clear and convincing standard. allegations in the complaint are taken as true. CONCLUSION Based upon the above authorities and analysis, including but not limited to the fact that the license has been terminated, it is requested that the motion for partial summary judgment be denied. RESPECTFULLY SUBMITTED this 15th day of February, 2007. MATHEW & MATHEW, P.C More importantly, the

By: /s/Ivan K. Mathew Ivan K. Mathew, Attorneys for Ricky Lee Hancock, Brenda Hancock, Rick Hancock Homes, L.L.C. and RLH Development, L.L.C.

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CERTIFICATE OF SERVICE Meritage v. Hancock, et al. Case No. CV 04 00384 ROS

I hereby certify that on February 15, 2007, I electronically transmitted the attached 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: Dan W. Goldfine Richard G. Erickson Adam Lang Snell & Wilmer, LLP One Arizona Center 400 E. Van Buren Phoenix, AZ 85004-2202 e-mail: [email protected] Attorneys for Plaintiffs and Counterdefendants and Third Party Defendants Steve Hilton and John Landon Timothy J. Burke Fennemore & Craig, P.C. 3003 N. Central Avenue, Suite 2600 Phoenix, AZ 85012 e-mail: [email protected] Attorneys for Third Party Defendant, Snell & Wilmer, LLP Robert M. Frisbee Frisbee & Bostock 1747 E. Morten Avenue, Suite 108 Phoenix, AZ 85020 e-mail: [email protected] Attorneys for Defendant Gregory Hancock

Grant Woods Grant Woods, P.C. 1726 N. Seventh Street Phoenix, AZ 85006 e-mail: [email protected] Attorneys for Plaintiffs and Counterdefendants and Third Party Defendants Steve Hilton and John Landon

s/Karen Gawel

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