Free Reply in Support of 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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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 IN SUPPORT OF MOTION Arizona corporation, and currently d/b/a Meritage TO DISMISS RICK AND BRENDA Homes Construction, Inc., an Arizona corporation, HANCOCK'S COUNTER-CLAIMS and Meritage Homes of Arizona, Inc., an Arizona AND THIRD-PARTY CLAIMS 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, (Assigned to the Honorable Roslyn O. Silver)

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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. Third-party defendants1 reply to dismiss Rick and Brenda Hancock's (collectively, "Hancocks") Response ("Response") to the Motion to Dismiss ("Motion" or "Motion to Dismiss) counterclaims and third-party claims (collectively, "Claims") in their entirety. The Hancocks' convoluted Response is 24 pages long, but it is almost empty of argument directly responsive to the arguments raised in the Motion. It is difficult to make heads or tails of the organizing principle of the Response, assuming there is one. Recognizing that, this Reply is organized as follows: First, the arguments dealing with the fraudulent inducement claim are addressed. There are seven separate grounds to dismiss the

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fraudulent inducement claim. If any one of the seven prevails, then all of the Hancocks' claims fail as a matter of law, and this Court need proceed no further. Second, the Hancocks' arguments with respect to the non-fraud claims are addressed. The third and final section deals with the Hancocks' miscellaneous arguments, scattered throughout their Response, that either are unrelated and inapposite to the Motion or are simply misstatements of the law. The Hancocks described all the defendants to their claims as Third-Party Defendants. It appears that Meritage Homes Corporation, Hancock-MTH Builders, Inc, Hancock-MTH Communities, Inc., Meritage Homes Construction, Inc., and Meritage Homes of Arizona, Inc. are counterdefendants. Nevertheless, for purposes of this motion to dismiss, we will employ the Hancocks' nomenclature.
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I.

THE HANCOCKS CONCEDE THAT THE "SEVERANCE AGREEMENT AND GENERAL RELEASE OF ALL CLAIMS" BARS ALL THE HANCOCKS' CLAIMS AS A MATTER OF LAW The Hancocks concede that the "Severance Agreement and General Release of All

Claims" for which they received $160,000 bars all of their claims as a matter of law, unless it was fraudulently induced. See, e.g., Response at 5:7-14. II. HANCOCKS' FRAUDULENT INDUCEMENT CLAIM FAILS AS A MATTER OF LAW As set forth in the Motion, the Hancocks' fraudulent inducement claim fails as a matter of law for seven separate and independent deficiencies. The Hancocks' Response fails to cure any of these deficiencies. Surprisingly, the Hancocks' Response ignores many of them. A. No "Executed" Agreement to Disclose

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The Hancocks concede that to make out a claim of fraudulent inducement, they must allege and prove that there was a false statement or omission made. Response at 10:23-7. They claim that third-party defendant "Hilton failed to disclose that the Madrid contract was executed." As explained in the Motion, that allegation fails to state a claim for fraudulent inducement because the Madrid contract was not executed as a matter of Arizona law. Motion at 4:24 to 7:10. Even according to Hancocks' own case law, see Response at 10:5-7, the alleged misrepresentation or omission is not material as a result. See, e.g., Haisch v. Allstate Ins. Co., 197 Ariz. 606, 611-12, 5 P.3d 940, 945-46 (App. 2000). 1. No Acceptance Was Communicated to the Hancocks

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As noted in the Motion and acknowledged in their Response, the Hancocks repeatedly allege that Meritage did not communicate its acceptance of the purported Madrid contract. See, e.g., Claims at ¶¶ 17-18, 48, 56-57, 59, 62, 64, 67, 70, 73-75, 8385, 90, 94, 136-37, and 140; Response at 4:12. The Hancocks' Response further

acknowledges that generally an acceptance by promise that is never communicated is not a valid acceptance. See Response at 20:14-15 (offeree must "take steps that would lead a

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reasonable person to believe a contract had been accepted"); see, e.g., RESTATEMENT (SECOND) OF CONTRACTS § 56; Clark v. Compania Ganadera de Cananea, S.A., 94 Ariz. 391, 400-01, 385 P.2d 691, 697-98 (1963). But they ask this Court to overlook the general rule because they assert that the Madrid contract did not require Meritage to communicate its acceptance. Response at 20:1-3. The Hancocks have, however, confused two separate concepts: the subjective act of acceptance and the objective act of communicating that acceptance (i.e., delivery). Both are required under Arizona law, unless the agreement expressly states otherwise. Clark, 94 Ariz. at, 400-01, 385 P.2d at 697-98. While the Madrid contract discusses the former, it is absolutely silent to the latter. Accordingly, the Madrid contract does not alter Arizona's requirement that a party accepting the terms of an offer must communicate that acceptance to the offeror before the agreement is formed, binding and executed.2 Or, in the Hancocks' own words, the Madrid contract did not alter the requirement that the offeree must "take steps that would lead a reasonable person to believe a contract had been accepted." Response at 20:14-15; see also 1 FARNSWORTH ON CONTRACTS § 3.15 (2d. ed. 2001) ("Where the offer invites acceptance by a promise rather than by performance, it is commonly said that the offeree must take appropriate steps to let the offeror know of acceptance.") (citing Lyon v. Adgraphics, Inc., 14 Conn. App. 252, 255, 540 A.2d 398, 400 (Conn. App. 1988) ("act of signing the written counteroffer was not sufficient to constitute an acceptance of the counteroffer [because act] . . . failed to communicate the acceptance . . . . It was, therefore, ineffective to create a contract.")); Fowler-Curtis Co. v. Dean, 203 App. Div. 317, 318 (N.Y. App. Div. 1922) ("It is elementary that an offer is not accepted until communication Although certainly not clear from the Response, the Hancocks appear to rely on the following language in the Madrid contract: "Buyer hereby waives notice of Seller's acceptance of this Agreement." The Hancocks' reliance on this language is misplaced for two reasons. First, the language simply reflects and does not modify the "mailbox" rule which provides that once delivery is attempted (which the Hancocks allege did not occur in this instance), that is sufficient to form a binding, executed agreement. In other words, the Hancocks were agreeing that they could not avoid the agreement by avoiding receipt of or "notice" of delivery. Second, the language is only binding on "buyer;" by its express terms, the waiver of notice does not apply to Meritage.
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of acceptance is made or mailed . . . and that until such time there is no contract."). Courts squarely reject the Hancocks' contention that the offeree's signature, alone, constitutes formation of a binding "executed" agreement. See, e.g., Lyon, 14 Conn. App. at 255, 540 A.2d at 400; see also Scarborough Group v. South Australian Asset Mgmt. Corp., 1998 U.S. App. LEXIS 13063, at *6 (6th Cir. June 17, 1998) (signature in the absence of communication of acceptance does constitute formation). The Hancocks' reliance on inapposite dicta from Clark and Empire Machinery Co. v. Litton Bus. Tel. Sys., 115 Ariz. 568, 566 P.2d 1044 (App. 1977) is misplaced. Response at 20:12-18. Both cases, in fact, had acceptances that were actually communicated to the offeree. Significantly, Empire Machinery squarely rejected the Hancocks' argument by requiring, regardless of any waiver, assent of the offeree and that the assent (whether by conduct or promise) "must be conveyed by the offeree to the offeror." 115 Ariz. at 57273, 566 P.2d at 1048-49 (emphasis added). 2. Rick Hancock Was Not Eligible to Receive the Employee Discount

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The Hancocks concede that where the parties have agreed to a condition precedent before there is a binding "executed" agreement, the failure of the condition precedent prevents formation of a binding "executed" agreement. Response at 20:23 to 21:3; see, e.g., Lyle v. Madison Square Garden Corp., 1978 U.S. Dist. LEXIS 18468, at **21-22 (S.D.N.Y. 1978); Hartford Fire Ins. v. Wilson, 187 U.S. 467, 476-79 (1903). They argue, however, that nowhere in their allegations "does it state that Rick Hancock's contract was conditioned upon him being an employee at the time the contract is accepted." Response at 20:23-25. They also make the curious argument that the integration clause bars the condition precedent that Rick Hancock must be an employee at the time of formation. Id. at 21:1-2 The Hancocks' arguments cannot be squared with their own allegations. The Hancocks attached the Madrid contract to their allegations as Exhibit 2 to their Claims, and the contract therefore becomes part of their allegations for purposes of a motion to dismiss. See, e.g., Branch v. Tunnell, 14 F.3d 449, 453-54 (9th Cir. 1994), rev'd on other
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grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). The Madrid contract expressly provides as a material term a "10% Employee Discount." Exhibit 2 to the Claims at p. 12. Rick Hancock therefore had to be an employee at the time of formation to obtain an "Employee Discount." The Hancocks specifically allege, however, that Rick Hancock was not an employee on the date that they allege that the Madrid contract was purportedly formed. Claims at ¶¶ 15-20. In this light, the Hancocks' reliance on the integration clause is nonsensical and misplaced. The "Employee Discount" is a material term and a condition precedent to the agreement in its final version as alleged by the Hancocks. Exhibit 2 to Claims at p. 12. Its failure means that the Madrid contract was not "executed." See, e.g., Hartford Fire Ins., 187 U.S. at 476-79; Lyle, 1978 U.S. Dist. LEXIS 18468 at **21-22. Accordingly, the failure to disclose that the Madrid contract was "executed" is not false. See 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) (falsity is an element of fraudulent inducement under Arizona law). B. Meritage Had Cancelled the Madrid Contract

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The Hancocks concede that Meritage cancelled the contract in December 2003 but nevertheless allege that one of the third-party defendant's statements to them that the contract was cancelled amounted to fraudulent inducement. See, e.g., Claims at ¶¶ 18, 33, and 66; Response at 4:21 to 5:5, 8:6 to 9:14, and 21:4-5. In other words, the Hancocks allege that it was fraud to tell the truth. It is an odd "fraud" claim to say the least. See Lundy, 81 F.Supp.2d at 968; Staheli, 122 Ariz. at 383, 595 P.2d at 175 (falsity is an element of fraudulent inducement under Arizona law). 1. The Hancocks' Argument that They Did Not Cancel the Madrid Contract Is a Red-Herring

The Hancocks' entire "cancellation" argument is a red-herring. The alleged false statement dealt with whether Meritage had cancelled the Madrid contract: Third-party 27 defendant "Hilton falsely informed Rick Hancock that the Madrid purchase contract had 28
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been cancelled." Claims at ¶ 66. Apparently recognizing the absurdity of a fraud claim based on a true statement, the Hancocks assert that the false statement was made on an internal Meritage document, Exhibit 3 to their Claims. This twist fails as well. The Hancocks do not allege that they ever received the internal Meritage document, hardly a valid basis for a fraudulent inducement claim. See Lundy, 81 F. Supp. 2d at 968; Staheli, 122 Ariz. at 383, 595 P.2d at 175 (reasonable reliance is an element of fraudulent inducement under Arizona law). Moreover, the purported false statement relates exclusively to whether the Hancocks asked to cancel the Madrid contract. It is oxymoronic, nonsensical, and

contrary to Arizona law to assert and argue that a claimant can claim fraud based on what a putative defendant did or did not represent to the claimant about what the claimant did or did not do. See Lundy, 81 F. Supp. 2d at 968; Staheli, 122 Ariz. at 383, 595 P.2d at 175 (reasonable reliance is an element of fraudulent inducement under Arizona law). Surely, a claimant cannot reasonably rely on what a third-person says about the claimant's conduct. 2. The Cancellation Allegation is Not Material

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Also set forth in the Motion and ignored by the Hancocks in their Response, the Hancocks' fraudulent inducement allegation related to the cancellation is fundamentally flawed for another reason: a lack of materiality. See Lundy, 81 F. Supp. 2d at 968; Staheli, 122 Ariz. at 383, 595 P.2d at 175 (materiality is an element of fraudulent inducement under Arizona law). The Hancocks' cancellation allegation is not material because assuming there was a properly formed contract, the Hancocks' sole available remedy, as alleged by the Hancocks, is the return of the Hancocks' $1,000 earnest money, which was done. Claims at ¶ 17 and Ex. 2 thereto at § 16(B); see, e.g., Branch, 14 F.3d at 453-54; ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 n.8 (3rd Cir. 1994). The return of

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$1,000 is hardly material when compared to the fact that the severance payment was $160,000. See Claims at ¶ 131 and Ex. 4.3 C. The Hancocks' Allegations of Misrepresentations are Not Statements of Fact and Therefore are Not Actionable as a Matter of Law

Amongst the milieu of the Hancocks' inapposite and often nonsensical arguments, the Hancocks appear to argue that statements of opinions and legal conclusions are 6 actionable under Arizona law. Response at 12:6-15. The Hancocks are simply wrong. 7 First, Arizona law requires that the alleged misrepresentations must be based on 8 statements or omissions of a past or existing fact ­ not statements or omissions of 9 opinions or judgments about legal effect ­ to be actionable. See, e.g., Staheli, 122 Ariz. 10 at 383, 595 P.2d at 175; see also McAlister v. Citibank, 171 Ariz. 207, 215, 829 P.2d 11 1253, 1261 (App. 1992) (upholding the trial court's dismissal because the purported
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12 misrepresentation was an opinion and not "a misrepresentation or omission of a fact") 13 (emphasis in original); RESTATEMENT (THIRD) OF TORTS §§ 538A and 545 (if the 14 statement cannot be fairly construed as anything but an expression of opinion, belief or 15 judgment, it is proper for the court to so hold as a matter of law). 16 Second, the Hancocks' reliance on Love v. Home Transp. Co, Inc., 131 Ariz. 366, 17 368, 641 P.2d 854, 856 (1992) and Wagner v. Casteel, 136 Ariz. 29, 663 P.2d 1020 (App. 18 1983) is misplaced. As an initial matter, the Love decision is not a model of clarity. 19 Next, the dicta in Love cited by the Hancocks ­ "a misrepresentation does not have to be 20 in specific legal terms" ­ is not only inapposite to their own allegations; it is simply a 21 misstatement of the law. See, e.g., Fed. R. Civ. P. 9(b); Staheli, 122 Ariz. at 383, 595 22 P.2d at 175; see also McAlister, 171 Ariz. at 215, 829 P.2d at 1261 (upholding the trial 23 court's dismissal because the purported misrepresentation was an opinion and not "a 24 misrepresentation or omission of a fact"). In this light, it is not surprising that in 25 years 25
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Although difficult to decipher, the Hancocks do argue that the failure to disclose the fact that the Madrid contract had been signed is material because it involves a house worth $750,000. This argument ignores their own allegations that the Hancocks' sole available remedy is the return of the Hancocks' $1,000 earnest money, which was done in December 2003. Claims at ¶ 17 and Ex. 2 thereto at § 16(B); see, e.g., Branch, 14 F.3d at 453-54; ALA, 29 F.3d at 859 n.8.
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since the Love Court wrote its opinion no court has ever cited Love for the proposition cited by the Hancocks and no reported decision has ever relied on the holding or reasoning in Love. Likewise, one cannot even begin to imagine how Wagner is helpful to the Hancocks. In Wagner, unlike here, the defendant affirmatively misrepresented that a roof had no problems even though the defendant had been previously told that the roof leaked. 136 Ariz. at 33, 663 P.2d at 1023. The nature of an allegation of a false statement of fact that the roof was not leaky differs substantially from the nature of an allegation dealing with one's judgment or understanding of the legal effect of a signature. Neither Love nor Wagner provides the Hancocks any help whatsoever. Finally, the Hancocks try to avoid the bar on fraud claims based statements of legal opinions by simply misstating their own allegations: · Citing their Claims at ¶ 59, the Hancocks assert in their Response that "Meritage made fraudulent statements to [them] about their Madrid home contract." However, ¶ 59 alleges no such thing. Citing their Claims at ¶ 40, the Hancocks assert in their Response that "Hilton knew the contract was not cancelled as Rick and Brenda Hancock never signed the cancellation form." However, ¶ 40 alleges no such thing.

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That the Hancocks misstate their own allegations tells this Court all it needs to know about their faith their claims. D. The Hancocks' Allegation that the Third Party Defendants Knew that the Purported Misrepresentations Were False When Made Are Insufficient as a Matter of Law

The Hancocks concede in their Response at 22:24 to 23:21 that they have failed to allege any facts tending to prove that the third-party defendant Hilton knew ­ when the purported misrepresentations were made ­ that the Madrid contract was "executed" under Arizona law or that the statement that the Madrid contract was cancelled was false. See, e.g., Lundy, 81 F. Supp. 2d at 968; Staheli, 122 Ariz. at 383, 595 P.2d at 175 (the claimant must establish that the speaker knew the falsity at the time that the speaker
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spoke the false statement or made a misleading omission). Instead, they argue that case law supports the proposition that to allege fraud or fraudulent inducement a claimant may dispense with the requirement under Arizona law that each defendant actually knows that the statement or omission was false when it was made. Response at 22:24 to 23:21. We disagree. The primary case the Hancocks rely on is In re Equity Funding Corp. Sec. Litig., 416 F.Supp. 161, 181 (C.D. Cal. 1976). They have, however, misread both the context and holding of the Equity Funding case. That case actually supports the third-party defendants' argument. The District Court in Equity Funding allowed a pleading to survive a motion to dismiss only because: (1) it involved multidistrict litigation (which this case does not); (2) it involved several class actions (which this case does not); (3) the fraud took place over a period of eight years (which the Hancocks have not alleged here); and (4) the complaint broke the defendants down into groups of primary offenders and aiders and abettors and pled with particularity the basis of liability of each group and its relation to the other group (which the Hancocks have not alleged here). Id. at 171-72. Simply stated, the Hancocks have not even come close to alleging the same specifics as alleged in the Equity Funding case. As the court in that case noted, the complaint in Equity Funding "set[] out the alleged fraudulent activities related to EFCA and the acts of each defendant for which liability is claimed." Id. at 171 (emphasis added). Likewise, the Hancocks' reliance on the group-published information or group pleading doctrine from the securities fraud context is misplaced. That doctrine has been largely rejected in the only context it is used: securities fraud claims. See, e.g., In re Immune Response Sec. Litig., 375 F.Supp.2d 983, 1030 (9th Cir. 2005); see also In re Nextcard, Inc. Sec. Litig., 2006 U.S. Dist. LEXIS 38776, 2006 WL 708663, at *3 (N.D. Cal. 2006) ("This Court adopts the reasoning of the decisions concluding that the group published pleading doctrine no longer is viable after the PSLRA."); In re Netopia, Inc., Sec. Litig., 2005 U.S. Dist. LEXIS 38823, 2005 WL 3445631, at *6 (N.D. Cal. 2005) ("[P]laintiffs cannot rely on the group-published information doctrine."). Moreover, a
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LEXIS search reveals not a single decision applying the group-published information doctrine outside of the context of a securities fraud case brought by shareholders against their own corporation.4 The fact that the Hancocks rely on a thoroughly disfavored doctrine taken out of the only context it has ever been applied speaks volumes. "[A] court need not accept as true unreasonable inference, unwarranted deductions of fact, or conclusory legal allegations cast as factual allegations." Massey v. Banning Unif. School Dist., 256

F.Supp.2d 1090, 1092 (C.D. Cal. 2003). As set forth in the Motion, a trial court should not on a motion to dismiss "swallow the [claimant's] invective hook, line, and sinker; bald assertions, unsupportable conclusions, periphrastic circumlocutions, and the like need not be credited." Aulson v. Blanchard, 83 F.3d 1, 3 (1st Cir. 1996).5 The only allegation that third-party defendant Hilton (or any other third-party defendant or the counterdefendants) knew that the purported fraud was false is the bald assertion and mere conclusion of law that "[w]hen the statements were made, Defendants knew that the statements were false." Claims at ¶ 74. This allegation is insufficient as a The Hancocks also stated that a conclusory "allegation that Defendants were willful participants in a joint action was sufficient to state a claim," citing Beanal v. FreeportMcMoran, Inc., 197 F.3d 161, 164 (5th cir. 1999) and DeGrassi v. City of Glendora, 207 F.3d 636, 647 (9th Cir. 2000). Response at 13:20-23. Beanal stands for no such thing and deals with allegations of genocide. DeGrassi also stands for no such thing and deals with 42 U.S.C. § 1983 violations, the statute from which the "joint action" language actually comes from. 5 The Hancocks' reliance on Baugh v. CBS, Inc., 828 F.Supp. 745, (N.D. Cal. 1993) is misplaced. The holding in Baugh clearly requires the specificity missing from the Hancocks' allegations thereby supporting dismissal. Id. at 758-9. Similarly, the Hancocks miscite another case that, in fact, supports the third-party defendants' Motion, Deere & Co. v. Zahm, 837 F.Supp. 346 (D. Kan. 1993). The plaintiff in that case had alleged facts tending to prove that the co-workers were both aware of the scheme and knew that the statements were false when made. Id. at 350. In a different but also erroneous reference, the Hancocks cite to Denny v. Carey, 72 F.R.D. 574 (E.D. Pa. 1976) for the proposition that specifics of a fraud allegation are not necessary for each thirdparty defendant. Response at 23:10-12. The allegations in the Denny case, unlike here, included a specific allegation as to what specific statements were false, that each of the defendants had an actual involvement in making the false statements and knew that said statements were false when made. Denny, 72 F.R.D. at 579 n.8. It is also dubious to rely on pre-Private Securities Reform Law Act cases for this proposition. The Hancock's reliance on In re Checkers Sec. Litig., 858 F.Supp. 1168, 1176 (M.D. Fla. 1994) and Burkhart v. Allson Realty Trust, 363 F.Supp. 1286, 1289 (N.D. Ill. 1973) is similarly misplaced.
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matter of law. See, e.g., Aulson, 83 F.3d at 3; Fed. R. Civ. P. 9(b) (fraud must be pled with particularity). E. The Hancocks' Allegations of Reliance Fail as a Matter of Law

With the exception of an entirely conclusory statement buried in a footnote, see Response at 12:27-28, the Hancocks' Response ignores the Arizona law requirement that "before one can have relief from a claimed fraud, he must show not only that he relied on the misrepresentation, but also that he had a right to rely on it." Peery v. Hansen, 120 Ariz. 266, 269, 585 P.2d 574, 577 (App. 1978). It is black letter Arizona law that mere puffing is not actionable as fraudulent inducement. See, e.g., Stanley Fruit Co. v. Ellery, 42 Ariz. 74, 78-79, 22 P.2d 672, 674 (1933). Statements and omissions made in

negotiating settlement are mere puffery and are not actionable as fraudulent inducement because reliance thereon is not justified. See Schott Motorcycle Supply, Inc. v. Am. Honda Motor Co., 976 F.2d 58, 65 (1st Cir. 1992) (statements made in negotiations amounting to puffing are not actionable fraud because no reasonable person would rely on them); Stickler v. Comm'r, 464 F.2d 368, 370 (3d Cir. 1972) (statements by attorneys during negotiations are puffery and are not actionable in fraud). F. The Hancocks Have Not Alleged that Third-Party Defendants Landon, Keeffe, Zetah, Arneson, Hancock-MTH Builders, Inc, Hancock-MTH Communities, Inc., Meritage Homes Construction, Inc., and Meritage Homes of Arizona, Inc. Made Any Misrepresentations, and their Fraudulent Inducement Claim Against Each of Them Fails as a Matter of Law

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As set forth in the Motion, according to the Hancocks' allegations, only third-party defendant Hilton made any misrepresentations that purportedly led to the Release. Claims 22 at ¶¶ 66 and 67. The Hancocks further allege that third-party defendant Hilton is only an 23 employee of third-party defendant Meritage Homes Corporation. Id. at ¶ 6. These 24 allegations are not sufficient as against third party defendants Landon, Keeffe, Zetah, 25 Arneson, Hancock-MTH Builders, Inc, Hancock-MTH Communities, Inc., Meritage 26 Homes Construction, Inc., and Meritage Homes of Arizona, Inc. See Fed. R. Civ. P. 9(b) 27 (fraud must be pled with particularity). 28
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Allegations that putative defendants work at the same business do not tend to prove that the defendants have joined a conspiracy to commit fraud or some other wrongful or illegal act. Fed. R. Evid. 801(d)(2). The Hancocks simply do not allege any facts that tend to show that the remaining third-party defendants knew of, approved of, or authorized third-party defendant Hilton's purported misrepresentations. See, e.g., Drake v. City of Fort Collins, 927 F.2d 1156, 1159, 1162-63 (10th Cir. 1991) (conclusory allegations about a conspiracy in connection with adverse employment action insufficient to state a claim). Absent such factual allegations as required by the Federal Rules of Civil Procedure, the Hancocks' fraudulent inducement claim against the remaining third-party defendants fails under Arizona law. See, e.g., Lundy, 81 F. Supp. 2d at 968; Staheli, 122 Ariz. at 383, 595 P.2d at 175. III. SUBSTANTIVE ARGUMENTS WITH RESPECT TO CLAIMS OTHER THAN FRAUDULENT INDUCEMENT At various locations, the Hancocks' Response addresses some of the substantive

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arguments with respect to the claims other than the fraud and fraudulent inducement 15 claim. 16 17 18 19 20 21 22 23 24 25 26 27 28 A. The Hancocks' Breach of Fiduciary Duty Claim Fails as a Matter of Law

In their Response at Page 6, Lines 6-7, the Hancocks argue that the following language from a Department of Real Estate Regulation gives rise to the proposition that Meritage and its employees (the third-party defendants) owe the Hancocks, their putative customers,6 a fiduciary duty: "The licensee shall also deal fairly with all other parties to a transaction." By its plain language, however, "deal fairly" language does not give rise to a fiduciary duty. Even if this language were not patently clear, the same Regulation in the sentence above spells out that the licensee only owes a fiduciary duty to his or her client, who in this instance was Meritage and not the Hancocks. Ariz. Dept. of Real Estate R4-28-1101(A). The Hancocks concede that Rick Hancock's status as an employee and former employee does not give rise to a fiduciary duty.
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The Hancocks also argue that the ruling in Lombardo v. Albu, 199 Ariz. 97, 14 P.3d 288 (2000) gives rise to a fiduciary duty from Meritage and its employees to them. Response at 6:16 to 7:13. In this sense, the Hancocks misconstrue Lombardo out of context to create a strawman. Lombardo stands for the proposition that a real estate agent's fiduciary duties to his or her principal do not eviscerate separate and independent duties7 (but not fiduciary duties) that the agent might owe a third-party who is contracting with the principal; Lombardo simply does not create a fiduciary duty from a seller's agent to a buyer. 199 Ariz. at 100, 14 P.3d at 291.8 B. Rick Hancock's Wrongful Termination Claim is Barred by the Statute of Limitations

In his Response at Page 14, Lines 20-23, Rick Hancock does not dispute that he alleges that he knew about the existence of the following allegedly improper activities
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12 before December 2, 2003 thereby starting the clock on the statute of limitations: 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 · · His refusal to get involved with an alleged illegal kickback scheme took place in October 2003 (Claims at ¶¶ 98-101). His raising of an alleged conflict of interest of Glenn Gittus up with James Arneson took place before his dismissal on December 2, 2003. (Id. at ¶¶ 104-09)

Snell & Wilmer L.L.P.

Mr. Hancock knew about each and every one of the foregoing allegations prior to his termination on December 2, 2003 ­ well over two years before the claim was brought. Claims for wrongful termination are governed by the two-year limitations period of This Motion does not argue that Meritage did not have a duty to refrain from committing fraud. It also does not argue that if there was a formally executed contract, delivered and binding under Arizona law, Meritage would not owe the Hancocks contractual duties as limited by the agreed-upon remedy provision. The failure of the Hancocks' allegations with respect to a fiduciary relationship also means that the Response's discussion of constructive fraud is meaningless. Response at 11:16 to 12:15. For a claim of constructive fraud to survive a motion to dismiss, there must be a "confidential or fiduciary relationship" between the third-party defendants and the Hancocks. See, e.g., Taeger v. Catholic Family & Cmty Servs., 196 Ariz. 285, 289-90, 995 P.2d 721, 725-26 (App. 1999). Also, the Hancocks' reliance on Leigh v. Loyd, 74 Ariz. 84, 244 P.2d 1020 (1952) is similarly misplaced. In Leigh, unlike here, the party claiming fraud was the principal and the defendant was her fiduciary. Id. at 87, 244 P.2d at 358. The Leigh Court held that the defendant's "obligation to communicate these facts to the [claimant] arises by reason of the confidential relations existing between them." Id.
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A.R.S. § 12-542. Felton v. Unispace Corp., 940 F.2d 503, 512-13 (9th Cir. 1991); Kelley v. City of Mesa, 873 F. Supp. 320, 327 (D. Ariz. 1994). Since the Hancocks allege that the wrongful termination cause of action accrued more than two years ago, such a claim should be dismissed. Mr. Hancock argues, however, that the alleged fraudulent concealment of thirdparty defendant Keeffe's post-termination signature that allegedly induced the Release bars also tolls the statute of limitations on the wrongful termination claim, citing Walk v. Ring, 202 Ariz. 310, 318, 44 P.3d 990 (2002). Walk is inapposite. The Walk holding stands for the proposition that where a professional who owes a fiduciary duty to the claimant, the fact of injury without something more does not start the clock on the statute of limitations because the "wrong" causing the injury is concealed. Id. As explained above, Meritage and the third-party defendants do not owe Mr. Hancock a fiduciary duty. Further, the Walk Court held that the clock does not start with respect to the particular claim when the "wrong" giving rise to the particular claim is concealed; here, however, Mr. Hancock alleges that other purported "wrongs" such as the signature or the cancellation, which do not give rise to his wrongful termination claim, were purportedly concealed. The allegations comprising the wrongful termination claim were not

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concealed; the Hancocks allege that they knew about these allegations well over two years ago. Consequently, the wrongful termination claim is barred. C. The Hancocks seek to change the law with respect to tortious interference

The Hancocks seek to change both their allegations and Arizona's law with respect to tortious interference so that that claim can survive a motion to dismiss. See 23 Response at 16:18 to 18:2. The Hancocks do not and cannot allege a dual agency. 24 Meritage was the seller, and its employees represented Meritage, which is patently clear 25 in the Madrid contract attached to the Hancocks' allegations. 26 Introductory Paragraph and Pages 9 ("Seller's Sales Representative"), 10 (Seller's 27 28
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Ex. 2 to Claims at

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"Authorized Officer"), and 13 (both). Arizona law clearly states that a dual agency did not exist. See, e.g., Administrative Code R4-28-802. Despite their argument to the contrary in the Response, the Hancocks clearly allege that all of the third-party defendants were acting within the scope of their employment. Claims at ¶¶ 5-9 and 116. Under Arizona law, an employee acting in the scope of his employment is the company and cannot interfere with his own contract. Mintz v. Bell Atlantic Systems Leasing Intern., Inc., 183 Ariz. 550, 556, 905 P.2d 559, 565 (App. 1995); see also Payne v. Pennzoil Corp., 138 Ariz. 52, 57, 672 P.2d 1322, 1327 (App. 1983); Barrow v. Ariz. Bd. of Regents, 158 Ariz. 71, 78, 761 P.2d 145, 152 (App. 1988). The Hancocks misstate Administrative Code R4-28-1101(E). That provision does not preclude real estate agents or brokers from acting in the interest of their employers. It simply requires disclosure of the fact that an agent or broker was acting on behalf of an employer. The Hancocks clearly allege that the third-party defendants were working for Meritage. Certainly, Rick Hancock, as an officer and Sales Manager, knew that the thirdparty defendants worked for Meritage, and the Hancocks do not allege otherwise. D. Breach of Covenant of Good Faith and Fair Dealing

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The Hancocks' Response ignores the argument made in the Motion that the cause of action for breach of covenant of good faith and fair dealing fails as a matter of law because the putative Madrid contract is not an executed and binding contract from which "benefits" would "flow" to the Hancocks. Motion at 20:21 to 21:16; S Dev. Co. v. Pima Capital Mgmt. Co., 201 Ariz. 10, 16, 31 P.3d 123, 129 (App. 2001). Further, the Hancocks' Response concedes that "[a] party may bring an action in tort claiming damages for breach of the implied covenant of good faith, but only where there is a `special relationship between the parties arising from elements of public interest, adhesion, and fiduciary responsibility.'" Wells Fargo Bank v. Ariz. Laborers, Teamsters, & Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 490-91, 38 P.3d 12, 28-29 (2002) (quoting Burkons v. Ticor Title Ins. Co., 168 Ariz. 345, 355, 813 P.2d
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710, 720 (1991)) (emphasis added).

As noted above, there is no such fiduciary

relationship between the Hancocks and Meritage or its employees. Consequently, the breach of implied covenant of good faith and fair dealing fails as a matter of law for this reason as well. E. The Allegations Comprising the Negligence Cause of Action fail to State a Claim

The Hancocks' Response ignores the arguments challenging the negligence claim. More specifically, the Hancocks ignore that the Arizona Administrative Code requires an 8 executed agreement before there is any duty to send the contract. Administrative Code 9 R4-28-802. The Hancocks further ignore that the Code only imposes a duty on third-party 10 defendant Keeffe (the only broker) and not any of the other third-party defendants. Id. 11 The Hancocks lastly ask this Court to ignore that Arizona law prohibits a cause of action
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12 to non-clients based for professional negligence when there is no duty to the non-clients. 13 Here, because there is no executed agreement, the third-party defendants did not owe a 14 duty to the Hancocks. See, e.g., Kuehn v. Stanley, 208 Ariz. 124, 127-29, 91 P.3d 346, 15 349-51 (App. 2004); see also Donnelly Construction Co. v. Oberg/Hunt/Gilleland, 139 16 Ariz. 184, 188-89, 672 P.2d 1292 (1984) (architect prepared plans knowing that the 17 builder would be required to follow the plans, and architect owed builder a duty not to 18 give the builder faulty plans). 19 Recognizing that the third-party defendants did not owe a common law duty to 20 them, the Hancocks argue that Administrative Code R4-28-802, R4-28-804 and R4-2821 1101(A-D) created a "per se cause of action grounded in negligence" pursuant to Tellig v. 22 Saban, 188 Ariz. 165, 169, 933 P.2d 1233, 1237 (App. 1996). Response at 4:15-20 and 23 14:25-27. The reality is that the Court in Tellig did not find that the statute at issue 24 created a negligence cause of action. The Hancocks' reliance and mischaracterization of 25 Alaface v. National Inv. Co., 181 Ariz. 586, 596, 892 P.2d 1375, 1385 (App. 1994) is also 26 flawed based on the language in the Regulations. 27 Administrative Code R4-28-802 is entitled "Conveyance Documents," which did not exist 28
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Response at 13:1-5.

First,

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in this matter. It also only requires delivery "upon execution" of the "final agreement." Thus, the predicate facts required under R4-28-802 were not met. Second, Administrative Code R4-28-804 deals with the unique situation of the rescission of contracts for raw land or time-shares. Because the Madrid contract was not a contract for raw land, R4-28-802 is not salient. Third, subsections A and C of R4-28-1101 do not create any specific affirmative duties. Subsection B of the same provision required the disclosure of

information about the buyer's and seller's ability to perform (not applicable here), about defects to title (not applicable here), and about liens or encumbrances (not applicable here). Subsection D involves disputes between licensees and also does not apply here. IV. THE HANCOCKS' OTHER ARGUMENTS In their "buckshot" method, the Hancocks' Response makes several additional internally inconsistent, nonresponsive, legally unsupported, and repetitive arguments. We have attempted to address each below. A. This Motion to Dismiss Should Not Be Disfavored

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The Hancocks argue that this Motion to Dismiss should be denied because motions to dismiss are generally disfavored. Response at 2:21 to 3:15. First, the Federal Rules provide for motions to dismiss when, as is this case, claims fail as a matter of law. Second, the setting for this Motion is unusual because it is only filed after the Hancocks have taken discovery on their claims related to the Madrid contract for more than two years. It speaks volumes that after two years of discovery, after more than 100,000

documents produced, and after more than 20 depositions taken in this matter that the Hancocks are unable to articulate a claim, even assuming the truth of their allegations, that survives scrutiny on a motion to dismiss. Third, the Hancocks argue that this Court "must adopt whatever inference supports the valid claim." Response at 2:8-11. That is simply not the law. "[A] court need not accept as true unreasonable inference, unwarranted deductions of fact, or conclusory legal allegations cast as factual allegations." Massey, 256 F.Supp.2d at 1092. A trial court should not on a motion to dismiss "swallow the plaintiff's invective hook, line, and sinker; bald assertions, unsupportable conclusions,
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periphrastic circumlocutions, and like need not be credited." Aulson, 83 F.3d at 3. B. Meritage's Opposition to the Motion for Leave Does Not Resolve this Motion to Dismiss

The Hancocks erroneously assert that the arguments in the Motion had already been raised and rejected by this Court in the context of the Opposition to the Motion for 5 Leave. Response at 5:20-27. First, only Meritage and not the third-party defendants filed 6 that Opposition. Second, because of the briefing structure, Meritage was not able to 7 respond to the largely baseless arguments and misstatements of law made by the 8 Hancocks in the Reply to that Opposition. Third, the legal standards on a motion for leave 9 to amend differ from the single legal standard on a motion to dismiss. Fourth, the Court 10 did not expressly address the motion to dismiss arguments; rather, it simply held under the 11 Federal Rules for amending claims that there was no prejudice to Meritage and that, based
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12 on the Motion for Leave and its Reply, the claim was not necessarily futile. Order at 13 5:15-19 (Aug. 22, 2006). 14 15 16 prohibitions against Meritage cancelling the Madrid contract, that there are specific 17 procedures that must be followed for Meritage to cancel that contract, and that the 18 cancellation and the failure to follow procedures are actionable. Response at 9:8 to 10:2. 19 There is not a single case that holds that a party to a contract cannot cancel that contract. 20 The issues are whether the cancellation is a breach and what remedies are available should 21 the cancellation be deemed a breach. Both of these issues are addressed above. 22 Likewise, no law exists that requires Meritage to follow a prescribed set of internal 23 procedures in cancelling a contract. The cases cited on Page 9 of the Response do not 24 support the Hancocks' position, are miscited, amount to nothing more than a disparate set 25 of legal propositions that are inapposite to any issue raised by the Motion, and/or some 26 combination of the three. For example, the Court in Wells Fargo Bank, 201 Ariz. at 48927 90, 38 P.3d at 27-28 did not hold, contrary to what the Hancocks argue, that one can infer 28
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C.

There Are No Prohibitions Against Cancelling the Madrid Contract

Assuming the truth of their Claims, the Hancocks erroneously argue that there are

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fraud when a method or transaction is atypical or lacks business justification. Quite differently, the Arizona Supreme Court held that "the Bank's failure to report Symington's false representations to federal banking officials as required by law, where it was admittedly knowledgeable of the false financial statement" that gave rise to the inference of assisting in a fraud. The Hancocks do not allege that Meritage breached any reporting obligations to authorities knowing that a fraud had been committed. D. The Hancocks' Reliance on Urfirer is Misplaced

The Hancocks seem to argue that rules governing contractual limitation of remedies do not apply to them, citing Urfirer v. Cornfeld, 408 F.3d 710, 723 (11th Cir. 2005). Response at 10:18-22. Assuming that the Madrid contract is binding, Arizona law is and has been clear for fifty years: "The parties to a contract may specify certain remedies which may be used in case of breach. They may in addition make such a provision the exclusive remedy or remedies, barring all others which would otherwise be available." Hadley v. Southwest Properties, 116 Ariz. 503, 506, 570 P.2d 190, 193 (1977) quoting Zancanaro v. Cross, 85 Ariz. 394, 399, 339 P.2d 746, 750 (1959). Urfirer says nothing to the contrary and, even if it did, Urfirer is applying New York state law. Next, the Hancocks argue that Urfirer stands for the proposition that as long as fraud in the inducement is alleged the motion to dismiss based on the release should be denied. Response at 10:24-7. This is another strawman argument. The third-party defendants agree but, as set forth above and in the Motion, only to the extent the fraudulent inducement claim is properly alleged. The problem for the Hancocks is that their fraudulent inducement is not properly alleged as a matter of law and fails seven separate requirements as a matter of law. E. Hancocks' Employee Handbook Argument is a Strawman

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The third-party defendants did not raise as an issue any of the defenses based on language in Meritage's employee handbook. There are clear and obvious defenses, which will be raised on summary judgment if the Hancocks' claims survive this Motion. Here, however, the Hancocks' discussion in the Response at Page 14, Lines 1-18 of the
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employee handbook and whether another employee received more than $35,000 is immaterial to this Motion. F. No Grounds for Allowing Further Amendment

The Hancocks have more than two years of discovery to formulate their claims to survive a motion to dismiss ­ including more than 20 depositions and the production of more than 100,000 documents. Discovery is now closed. The Hancocks concede that they were apprised of the flaws in their Claims more than eight months ago but did absolutely nothing to cure them. Response at 5:20-27. The Hancocks offer neither any reason nor any case law to support why they should be entitled to amend at this late date. Id. at 24:16-19. This Court made it perfectly clear that while it was allowing the

amendment, it was not enlarging discovery. Order at 5:15-24 (Aug. 22, 2006). Allowing yet another amendment will simply delay this case. CONCLUSION For separate, independent and multiple reasons, each and every one of the Hancocks' Claims fail as a matter of law, and this Court should dismiss the claims in their entirety. At the heart of the flaws inherent and endemic to the Hancocks' allegations is their failure to specifically plead the elements of fraud or fraudulent inducement. Their pleading not only fails to give the third-party defendants adequate notice so they can defend themselves and not only fails to prescribe the scope of the Hancocks' claims to prevent them from toggling back and forth between inconsistent legal theories and factual claims, the pleading needlessly harms the third-party defendants' goodwill and reputation. See, e.g., U.S. ex rel. Clausen v. Laboratory Corp. of America, Inc., 290 F.3d 1301, 1313 n.24 (11th Cir. 2002). Given that the Hancocks waited until March 2006 before filing these Claims and took no steps to cure the deficiencies described in detail eight months ago in Meritage's Opposition to the Motion to Amend, the dismissal should be with prejudice without leave to amend.

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

DATED this 10h day of November, 2006. 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 November 10, 2006, 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. 1850 N. Central Avenue, Suite 1910 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

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

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/ Adam E. Lang
29323.0078\GOLDFID\PHX\1910792

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