Free Motion to Dismiss Counts/Claims - 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 Steve Hilton and John Landon and Grant Woods, Esq. (#006106) GRANT WOODS, P.C. 1726 North Seventh Street Phoenix, Arizona 85006 Telephone: (602) 258-2599 Facsimile: (602) 258-5070 [email protected] Attorneys for Plaintiffs and Counterdefendants and Third Party Defendants Steve Hilton and John Landon

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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 MOTION TO DISMISS RICK AND Arizona corporation, and currently d/b/a Meritage BRENDA HANCOCK'S Homes Construction, Inc., an Arizona corporation, COUNTER-CLAIMS AND THIRDand Meritage Homes of Arizona, Inc., an Arizona 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. (Assigned to the Honorable Roslyn O. Silver)

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Rick and Brenda Hancock, 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 move to dismiss Rick and Brenda Hancock's (collectively, "Hancocks") counterclaims and third-party claims (collectively, "Claims") in their entirety. The Hancocks' claims fail as a matter of law because: · · · The Hancocks, as they allege themselves, have released all of their claims against the third-party defendants. The Hancocks' fraudulent inducement claim, as they allege, fails because of seven separate and independent reasons. Even if the Court were not to apply the release to the Hancocks' claims, each of the Hancocks' claims fail as a matter of Arizona law.

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Accordingly, all of the Hancocks' claims should be dismissed.

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

Claims ("General Release") was entered into by the parties, and they have attached the General Release to and incorporated it in their Claims. See Claims at ¶ 131 and Ex. 4 thereto (attaching the General Release. On a motion to dismiss, all well-pled factual allegations are assumed true, see, e.g., Leatherman v. Tarrant County, 507 U.S. 163, 164 (1993), but that does not mean the Court should "swallow the plaintiff's invective hook, line, and sinker: bald assertions, unsupportable conclusions, periphrastic circumlocutions, and like need not be credited." Aulson v. Blanchard, 83 F.3d 1, 3 (1st Cir. 1996). Also for purposes of a motion to dismiss, exhibits attached to the allegations are incorporated therein and accepted as true in their entirety. See, e.g., Branch v. Tunnell, 14 F.3d 449, 453-54 (9th Cir. 1994), rev'd on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). In the event of a conflict between an incorporated

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document and the Complaint, the content of the document controls over the allegations. See, e.g., ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 n.8 (3rd Cir. 1994). The Hancocks allege that in return for $160,000, Rick Hancock agreed to waive and release all of his "existing and potential claims for relief or compensation from [Meritage] and its agents, employees, owners . . . including all claims that arise" from his employment, termination, or resignation, including all "claims that arise from statements or actions of [Meritage] or its agents, employees, or representatives" as of December 22, 2003. See Claims at ¶ 131 and Ex. 4 thereto at 1 (emphasis added). Each and every

counterclaim and third-party claim asserted by the Hancocks arise from his employment, termination, or resignation and were claims that existed on December 22, 2003, the date on which the General Release was executed. Therefore, as a matter of law and as alleged by the Hancocks, the Hancocks have waived and released all the claims they now attempt to assert. See, e.g., Branch, 14 F.3d at 453-54; ALA, 29 F.3d at 859 n.8.

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II.

HANCOCKS' FRAUDULENT INDUCEMENT CLAIM FAILS AS A MATTER OF LAW To avoid this obvious dismissal resulting from the General Release, the Hancocks

allege that they were fraudulently induced to take the $160,000 in return for the General Release. See Claims at ¶¶ 63-75. The Hancocks' fraudulent inducement allegations fail, however, as a matter of law for seven separate and independent reasons. See, e.g., Dickson v. Microsoft Corp., 309 F.3d 193, 212 (4th Cir. 2002). To establish a showing of

fraudulent inducement, as this Court has previously noted, "proof of all nine of the elements of actionable fraud appears to be required." Lundy v. Airtouch Comm., Inc., 81 F. Supp. 2d 962, 968 (D. Ariz. 1999). The Hancocks must show the concurrence of the following elements: (1) defendants made a representation of fact; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) his intent that it should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) his reliance on its truth; (8) his right to rely thereon; and (9) his consequent and proximate injury. Staheli v. Kauffman, 122 Ariz. 380, 383, 595 P.2d 172, 175 (1979). A. The Hancocks' Allegations of Falsity Fail as a Matter of Law to their own allegations, there are only two purported

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According · ·

misrepresentations that form the basis of the Hancocks' claim for fraudulent inducement: Third-party defendant "Hilton failed to disclose that the Madrid contract was executed"; and Third-party defendant "Hilton falsely informed Rick Hancock that the Madrid purchase contract had been cancelled."

Claims at ¶¶ 66 and 67. These allegations fail because the Madrid contract was not "executed," as a matter of Arizona law, so there was no omission by definition and because, according the Hancocks' own allegations elsewhere in their Claims, the Madrid contract had been cancelled so third-party defendant Hilton's alleged statement that it had been cancelled is simply not false as alleged by the Hancocks.

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1.

The Madrid Contract was Not Executed as a Matter of Law so there is No Actionable Omission

Whether the Madrid contract was "executed" under Arizona law is a question reserved for this Court, and there are two reasons that the Madrid contract was not executed as a matter of law: o The Hancocks allege that Meritage's purported acceptance of Madrid contract was not communicated. o The Hancocks allege that Rick Hancock's status as an employee was a condition precedent to the formation of Madrid contract and that, at the time of execution, Hancock's employment had been terminated. a. No Acceptance Was Communicated to the Hancocks.

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, 83-85, 90, 94, 136-37, and 140. Absent Meritage communicating its

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acceptance to the Hancocks, the Madrid contract was not executed, as a matter of law, and not enforceable against either Meritage or the Hancocks. It is basic hornbook law, the "mailbox rule" from first-year contracts, that an acceptance by promise that is never communicated is not a valid acceptance. See, e.g., RESTATEMENT (SECOND) OF CONTRACTS § 56;2 Clark v. Compania Ganadera de Cananea, S.A., 94 Ariz. 391, 400-01, 385 P.2d 691, 697-98 (1963). The Arizona Supreme Court has stated that "without communication of the acceptance of an offer the contract does not come into being." Clark, 94 Ariz. at 400, 385 P.2d at 697. RESTATEMENT (SECOND) OF CONTRACTS § 56 emphasizes the requirement that an acceptance is not effective until communicated: "It is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably."

Where Arizona does not have law to the contrary, Arizona courts "will follow the Restatement whenever applicable." First Nat'l Bank of Ariz. v. Bennett Venture, Ltd., 130 Ariz. 562, 563, 637 P.2d 1065, 1066 (App. 1981).
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(cited and acknowledged by United Leasing, Inc. v. Commonwealth Land Title Agency of Tucson, Inc., 134 Ariz. 385, 389, 656 P.2d 1246, 1250 (App. 1982)); 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 of acceptance is made or mailed . . . and that until such time there is no contract."). The Hancocks' signing allegation is not sufficient to create 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, *6 (6th Cir. June 17, 1998) (signature in the absence of communication of acceptance does constitute formation). b. Rick Hancock was Not Eligible to Receive the Employee Discount

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The Hancocks cannot square the following allegations they make: · "Meritage's employment policy provided that employees could purchase a home at a 10% discount." (Claims at ¶ 15 (emphasis added)) "On or about November 21, 2003, Brenda and Rick Hancock made a offer to Meritage to purchase a house in the Madrid subdivision" using the 10% employee discount. (Claims at ¶ 16) Nine days later, before any acceptance was communicated, Meritage "terminated" the employment of Rick Hancock "on December 2, 2003." (Claims at ¶ 20) Six days later, "[o]n or about December 8, 2003, the [Hancocks'] contract was accepted by Meritage's designated broker, [third-party defendant] Keefe." (Claims at ¶ 17)
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According to the sequence of events, as alleged by them, the Hancocks made an offer based on an employee discount as an expressed condition precedent to whether there would be a binding agreement. Claims at ¶¶ 15-17, 20 and Ex. 1 thereto; see Lyle v. Madison Square Garden Corp., 1978 U.S. Dist. LEXIS 18468, **21-22 (S.D.N.Y. 1978) (where the parties have agreed to a condition precedent before there is a binding agreement, the failure of the condition precedent results in no binding agreement). Again according to the Hancocks' allegations, that condition precedent disappeared before the Madrid contract was allegedly accepted. Claims at ¶ 20 and Ex. 1 thereto. Absent the condition precedent that Rick Hancock was an employee of Meritage, there is no binding, executed agreement. See, e.g., Hartford Fire Ins. v. Wilson, 187 U.S. 467, 476-79 (1903); Lyle, 1978 U.S. Dist. LEXIS 18468 at **21-22. For two separate and independent reasons as alleged by the Hancocks, the Madrid contract was not formed or "executed" as a matter of law. Accordingly, the Hancocks' allegation that the third-party defendant Hilton's failure to disclose that the Madrid contract was "executed" does not amount to fraud under Arizona law or any law. See, e.g., Lundy, 81 F. Supp. 2d at 968; Staheli, 122 Ariz. at 383, 595 P.2d at 175 2. The Hancocks Allege that Meritage Had Cancelled the Madrid Contract so Third-Party Hilton's Statement that Meritage Had Cancelled the Contract Cannot Be False as a Matter of Law

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Other than the purported omission about the alleged "execution" of the Madrid contract, the only other purported misrepresentation alleged by the Hancocks as a basis for their fraudulent inducement claim is that during negotiations with respect to the General Release, third-party defendant "Hilton falsely informed Rick Hancock that the Madrid purchase contract had been cancelled." Claims at ¶ 66. The Hancocks allege elsewhere in their Claims, however, that the third-party defendants "sought to cancel the contract" and that Meritage executed a document to cancel the Madrid contract. Claims at ¶¶ 18 and 33. Under Black Letter law, "the Court need not accept conflicting allegations as true and may dismiss the claim." Harris v. City of Seattle, 2003 U.S. Dist. LEXIS 3553 * 11 (W.D. Wa. 2003) (internal quotation omitted); see, e.g., Branch, 14 F.3d at 453-54; ALA,
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29 F.3d at 859 n.8. Accordingly, even accepting the Hancocks' allegations as true, thirdparty defendant Hilton did not falsely inform Rick Hancock that the Madrid contract was cancelled. See, e.g., 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). Moreover, the allegation is fundamentally flawed for another reason. 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 since even if there was a properly formed contract the Hancocks' sole available remedy, as alleged by the Hancocks at 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, is the return of the Hancocks' $1,000 earnest money. The Hancocks have not alleged, nor could they in good faith, that Meritage has not returned the earnest money. Likewise, the suggestion that the failure to return $1,000 is hardly material when compared to the fact that the severance payment was $160,000. See Claims at ¶ 131 and Ex. 4. B. The Hancocks' Allegations of Misrepresentations are Not Statements of Fact and Therefore are Not Actionable as a Matter of Law

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As noted above, the two purported misrepresentations ­ whether a contract was or was not "executed" and whether a contract was or was not "cancelled" ­ had to do with 18 the legal effect of documents and are not, as a matter of law, actionable as fraud. 19 Arizona law requires that the alleged misrepresentations must be based on statements or 20 omissions of a past or existing fact ­ not statements or omissions of opinions or 21 judgments about legal effect ­ to be actionable. See, e.g., Staheli, 122 Ariz. at 383, 595 22 P.2d at 175; see also McAlister v. Citibank, 171 Ariz. 207, 215, 829 P.2d 1253, 1261 23 (App. 24 misrepresentation was an opinion and not "a misrepresentation or omission of a fact") 25 (emphasis in original); RESTATEMENT (THIRD) OF TORTS §§ 538A and 545 (if the 26 statement cannot be fairly construed as anything but an expression of opinion, belief or 27 judgment, it is proper for the court to so hold as a matter of law). 28
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1992)

(upholding

the

trial

court's

dismissal

because

the

purported

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C.

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 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 spoke the false statement or made a misleading omission). The only allegation that the third-party defendant Hilton knew that either was false when made 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 matter of law. See Aulson, 83 F.3d at 3 ("bald assertions, unsupportable conclusions, periphrastic circumlocutions, and like need not be credited" to the claimant on a motion to dismiss); Fed. R. Civ. P. 9(b) (fraud must be pled with particularity). D. The Hancocks' Allegations of Reliance Fail as a Matter of Law

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The Hancocks allege that both the alleged omission with respect to the purported "executed Madrid contract" and the alleged false statement by third-party defendant Hilton that Meritage had cancelled the Madrid contract occurred during negotiations with respect to the terms of the severance payment and the General Release. See Claims at ¶ 64 ("[d]uring the period that Rick Hancock was in the process of negotiation his severance package"). "[B]efore 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
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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).3 E. 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

According to the Hancocks' allegations, only third party defendant Hilton made any misrepresentations that purportedly led to the entry of the General Release. Claims at 10 ¶¶ 66 and 67. The Hancocks further allege that third party defendant Hilton is only an 11 employee of third party defendant Meritage Homes Corporation. Id. at ¶ 6. These
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12 allegations are not sufficient as against third party defendants Landon, Keeffe, Zetah, 13 Arneson, Hancock-MTH Builders, Inc, Hancock-MTH Communities, Inc., Meritage 14 Homes Construction, Inc., and Meritage Homes of Arizona, Inc. See Fed. R. Civ. P. 9(b) 15 (fraud must be pled with particularity). 16 Apparently anticipating this problem (at least with respect to the individuals), the 17 Hancocks make the following bald and conclusory allegation: third-party defendants 18 Landon, Arneson, Keeffe and Zetah "acted in concert to prevent Rick and Brenda 19 Hancock from finding out about the Madrid home contract being executed." Id. at ¶ 73. 20 21 22 23 24 25 26 27 28 They allege no particular facts specifying how each of them acted in concert. Such a bald 3 The rule that statements and omissions made during the settlement of litigation or potential litigation are not actionable in fraud because reliance thereon is not reasonable makes complete sense. If the courts of Arizona were to adopt the opposite rule, no settlement would be final. Each settlement would be subject to a collateral attack as to what facts were or were not disclosed. For example, one party in a federal case does a jury study and realizes that its claims are weak because the mock jury viewed the party's key witnesses as not credible. That party decides to settle and says nothing to the other side about the jury study. A settlement is reached. Later the opponent discovers the results of the jury study and makes the allegation, which could never be disproved, that he or she would not have had settled had the jury study been disclosed. Apparently, according to the Hancocks' view of law, the settlement agreement would be subject to a collateral challenge in state court (or another federal court). If that were the case, parties would quickly learn that settlement is futile, and our courts would be overwhelmed with trials.
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and conclusory allegation is insufficient as a matter of law to establish the element of a false misrepresentation with respect to the tort of fraudulent inducement. Aulson, 83 F.3d at 3; Fed. R. Civ. P. 9(b) (fraud must be pled with particularity). 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 allege no facts that tend to show that the remaining third-party defendants knew of, approved of, and authorized third-party defendant Hilton's purported misrepresentations. Absent such factual See, e.g.,

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. F. The Hancocks Failure to State a Claim for Fraudulent Inducement Means that the General Release Bars the Claims

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As discussed above, the Hancocks have failed to state a claim that the General Release was fraudulently induced for several independent reasons. 15 according to the Hancocks' own allegations, the General Release bars all of the remaining 16 17 18 19 and their end-run around it via the fraudulent inducement claim fails as a matter of law. 20 Putting aside the General Release and the insufficient fraudulent inducement Claim, the 21 Hancocks' other allegations also fail on their own as a matter of law for separate reasons. 22 23 24 25 26 27 28 A. The Hancocks' Allegations that the Third-Party Defendants Committed Fraud with Respect to the Madrid Home Fails as a Matter of Law III. THE HANCOCKS' OTHER ALLEGATIONS As noted above, all of the Hancocks' allegations are barred by the General Release, Claims. See Claims at ¶ 131 and Ex. 4 at 1.4 Accordingly,

The Hancocks also allege plain vanilla fraud. They allege that the third-party defendant "Zetah executed a document to fraudulently cancel the contract." Claims at ¶ 4 We strongly believe that the Hancocks' fraudulent inducement claim fails as a matter of law in its entirety as against all of the third-party defendants. However, should the Court conclude that it fails only pursuant to Section II, E, supra, the Hancocks themselves allege that the General Release bars all of the remaining claims against all the remaining thirdparty defendants except third-party defendants Hilton and Meritage Homes Corporation. See Claims at ¶ 131 and Ex. 4 at 1.
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33.

Also according to the Hancocks' allegations, that "document" was falsely dated

December 8, 2003, and third-party defendant Zetah falsely put "N/A no longer employed" in the blank for the signature of the putative buyers and failed to fill in one of the dates on that "document." Id. at ¶¶ 34-36, 51 and Ex. 3; see Branch, 14 F.3d at 453-54; ALA, 29 F.3d at 859 n.8 (contracts attached to the complaint by the claimant become part of the complaint and control over contrary allegations). The Hancocks then allege that thirdparty defendant Hilton5 falsely informed Rick Hancock that the contract had been cancelled and omitted telling him that it had been signed. Claims at ¶¶ 47 and 48. These allegations fail to state a claim for fraud as a matter of Arizona law. 1. Third-Party Zetah's Statements are Not Actionable Because They Were Never Communicated to the Hancocks

It is the very nature of a fraud claim that the purported fraudulent 12 misrepresentations must be communicated to the claimant so that the claimant can 13 actually and reasonably rely on the statements to their detriment. See, e.g., Lundy, 81 F. 14 Supp. 2d at 968; Staheli, 122 Ariz. at 383, 595 P.2d at 175 (Arizona law requires both that 15 the alleged false statement was communicated to the claimant and that the claimant 16 actually and reasonably rely on communication). Here, the Hancocks do not allege that 17 the "document" prepared by third-party Zetah, an accountant in the Phoenix division of 18 Meritage homes, was ever disclosed to them. See Claims at ¶¶ 13-62 (not a single 19 20 communication of the "document" to them, the Hancocks fail to state a claim for fraud 21 with respect to the "document" ­ even if the document purports to contain false 22 23 24 25 26 27 28 In their fraud allegations, the Hancocks allege that both third-party defendants Hilton and Landon falsely told Rick Hancock that the Madrid contract had been cancelled and omitted disclosing that it had been signed; however, with respect to their fraudulent inducement claim, the Hancocks specifically allege that only third-party defendant Hilton made the statement. Compare Claims at ¶¶ 47 and 48 with ¶¶ 66 and 67. Under Black Letter law dealing with conflicting allegations, only the allegations that Hilton made the allegedly false statement survive. Harris, 2003 U.S. Dist. LEXIS 3553 * 11 (W.D. Wa. 2003); see, e.g., Branch, 14 F.3d at 453-54; ALA, 29 F.3d at 859 n.8. 6 This is not surprising since the "document" was nothing more than an internal form used solely by Meritage and not shared outside the company.
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reference suggesting that the "document" was communicated).6 Absent an allegation of

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statements. See, e.g., Lundy, 81 F. Supp. 2d at 968; Staheli, 122 Ariz. at 383, 595 P.2d at 175. 2. Hilton's Statement that the Madrid Contract was Cancelled is Not False Based on the Hancocks' Allegations

As set forth above, third-party defendant Hilton's statement that the Madrid contract was cancelled is not a false statement, according to the Hancocks' own 6 allegations, and is therefore not actionable in fraud. See Section II.A.2, supra; see, e.g., 7 Lundy, 81 F. Supp. 2d at 968; Staheli, 122 Ariz. at 383, 595 P.2d at 175 (Arizona law 8 requires a false statement or omission); Harris, 2003 U.S. Dist. LEXIS 3553 * 11 9 (conflicting allegations are not accepted on a motion to dismiss); ALA, 29 F.3d at 859 n.8 10 (same). 11
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3.

Snell & Wilmer L.L.P.

The Hancocks' Allegation that Third-Party Defendant Hilton's Omission during Negotiations that the Madrid Contract had been Signed Fails to State a Fraud Claim a. The Fact of the Signature is Not Material

The failure to disclose the fact of signature is not actionable as fraud under Arizona law because it is simply not material. See, e.g., Lundy, 81 F. Supp. 2d at 968; Staheli, 16 122 Ariz. at 383, 595 P.2d at 175 (materiality is a requisite for fraud under Arizona law). 17 Here, the signature is not material because that signature, absent communication of 18 acceptance by Meritage, does not make the Madrid contract a binding, enforceable 19 agreement under Arizona law. See Section II.A.1.a, supra. 20 21 22 23 contract had been signed when he failed to disclose that fact. See, e.g., Lundy, 81 F. Supp. 24 2d at 968; Staheli, 122 Ariz. at 383, 595 P.2d at 175 (fraud claimant must allege and prove 25 that the defendant knew that the omission was misleading when made). 26 27 28
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b.

The Hancocks Fail to Allege that Hilton Knew that the Madrid Contract Had Been Signed When He Failed to Disclose that Fact

The Hancocks fail to allege that third-party defendant Hilton knew that the Madrid

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c.

The Hancocks' Reliance on Hilton's Failure to Disclose that the Madrid Contract Had Been Signed is Not Justified in the Negotiating Context and is Insufficient as a Matter of Law

According to the Hancocks, they relied on Hilton's failure to disclose that the Madrid contract had been signed. Claims at ¶¶ 50 and 59. As a matter of law, however, reliance on what a putative opposing litigant says or fails to say during negotiations of a settlement leading to a complete release of claims is not justified as a matter of law. See,

e.g., Peery, 120 Ariz. at 269, 585 P.2d at 577 ("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"); Stanley Fruit Co., 42 Ariz. at 78-79, 22 P.2d at 674 (mere puffing is not actionable); Motorcycle Supply, 976 F.2d at 65 (statements made in negotiations amounting to puffing are not actionable fraud because no reasonable person would rely on them); Stickler, 464 F.2d at 370 (statements by attorneys during negotiations are puffery and are not actionable in fraud). d. The Hancocks' Fraud Allegations are Only Against ThirdParty Defendants Hilton, Zetah and Meritage Homes Corporation

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As was the case with their fraudulent inducement claim, the Hancocks' fraud allegations are not sufficient as against third party defendants Landon, Keeffe, Arneson, Hancock-MTH Builders, Inc, Hancock-MTH Communities, Inc., Meritage Homes Construction, Inc., and Meritage Homes of Arizona, Inc. See Section II.E, supra. B. The Hancocks' Negligent Misrepresentation Claim Fails as a Matter of Law

Here, like their fraud and fraudulent inducement claims, the Hancocks make similarly-deficient allegations again ­ fashioning them this time as claims of negligent misrepresentation. Claims at ¶¶ 92-94. Absent the intent element, the negligent

misrepresentation elements are identical to the fraud elements under Arizona law. RESTATEMENT (SECOND) OF TORTS § 552(1). Accordingly, for the same reasons, the Hancocks' negligent misrepresentation claims fail as a matter of law. See Sections II and III.A, supra.

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C.

The Hancocks' Breach of Fiduciary Duty Claim Fails as a Matter of Law

The Hancocks allege that all of the third-party defendants ­ Rick Hancock's employer, bosses, and subordinates ­ owed them fiduciary duties and breached those duties. Claims at ¶¶ 76-90. They fail, however, to allege any facts that would establish that any of the third-party defendants were in a fiduciary relationship with the Hancocks or owe a fiduciary duty to them. See, e.g., Aulson, 83 F.3d at 3 ("bald assertions, unsupportable conclusions, periphrastic circumlocutions, and like need not be credited" to the claimant on a motion to dismiss). The gist of Hancocks' breach of fiduciary duty claim borders on the ludicrous and turns the law of fiduciaries on its head. The general rule is that employees owe employers fiduciary duties and not vice versa. See Urias v. PCS Health Systems, Inc., 118 P.3d 29, 36 (Ariz. App. 2005) (the right to control someone is what establishes whether there is a fiduciary relationship and who the beneficiary of that relationship is). A simple contract does not create a fiduciary relationship. See, e.g., Standard Chartered PLC v. Price Waterhouse, 190 Ariz. 6, 24, 945 P.2d 317, 335 (App. 1996). Even accepting that all of the Hancocks' allegations about the purported Madrid contract were true, "[n]either an agency nor a fiduciary relationship is created simply because one party is obligated to turn property over to another party." Urias, 118 P.3d at 36. 1. Arizona Law Provides that Employers and Co-Workers are Not Fiduciaries to Employees

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"[C]ase law distinguishes a fiduciary relationship from an arm's length relationship." Standard Chartered, 190 Ariz. at 24, 945 P.2d at 335. "Mere trust in another's competence or integrity does not suffice; `peculiar reliance in the trustworthiness of another' is required." Id. (citing Stewart v. Phoenix Nat'l Bank, 49 Ariz. 34, 44, 64 P.2d 101, 106 (1937)). Its attributes include `great intimacy, disclosure of secrets, [or] intrusting of power.'" Id. (citing Rhoads v. Harvey Pubs., Inc., 145 Ariz. 142, 149, 700 P.2d 840, 847 (App. 1984) (quoting Condos v. Felder, 92 Ariz. 366, 371,

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377 P.2d 305, 308 (1962))). "In a fiduciary relationship, the fiduciary holds superiority of position over the beneficiary." Id. (internal citations omitted). Here, the Hancocks have not alleged any facts that tend to prove that the thirdparty defendants were the Hancocks' fiduciaries. Rick Hancock was simply an employee of Meritage and a subordinate and co-worker of the other third-party defendants. Claims at ¶ 14. Other than the purported Madrid contract, according to their allegations, Brenda Hancock had no relationship with Meritage or the other third-party defendants. See id. (mere arm's length contractual relationship does not give rise to a fiduciary relationship). Any involvement either of them or any other employee of Meritage had with the Hancocks and their Purchase Agreement was done solely for the benefit of Meritage, not as a fiduciary of the Hancocks. Stewart, 49 Ariz. at 44, 64 P.2d at 106. 2. Neither Meritage nor Its Employees Were Not Authorized to Act on Behalf of the Hancocks

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Under Arizona law, "`[a]n essential element of the principal-agent relationship which carries a fiduciary responsibility is the ability of the agent to act on behalf of his 15 principal.'" Barlage v. Valentine, 210 Ariz. 270, 275, 110 P.3d 371, 376 (App. 2005) 16 (emphasis added) (quoting Equitable Life & Cas. Ins. Co. v. Rutledge, 9 Ariz. App. 551, 17 555, 454 P.2d 869, 873 (1969)). The Hancocks do not allege, nor could they in good faith 18 allege, that they (the purported principals) had authorized Meritage and/or its employees 19 (the purported agent) to act on their behalf. Accordingly, the breach of fiduciary duty 20 claims will fail as a matter of law. 21 22 23 24 25 26 27 28 3. The Hancocks Did Not Have the Right to Control Meritage or Its Employees

For the Hancocks to succeed pursuant to a breach of fiduciary duty claim under Arizona law, they must prove that they (the purported principals) had the right to control Meritage's or its employees' (the purported agents) conduct with respect to the transaction at hand. See, e.g., Urias, 118 P.3d at 36. Again, the Hancocks do not, nor could they in good faith, allege that they had the right to control Meritage or any of its employees. For this reason as well, the breach of fiduciary duty claims fail as a matter of law.
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D.

Rick Hancock's Wrongful Termination Claim is Barred by the Statute of Limitations

As alleged, the statute of limitations bars Rick Hancock's wrongful termination claim. The cause of action for wrongful termination accrued when he knew or by the exercise of reasonable diligence should have known that the claims existed. In re DualDeck Video Cassette Recorder Antitrust Litig. v. Matsushita Elec. Indus. Co., No. Civ. 87-987-PHX-RCB, 1990 WL 126500 at *21 (D. Ariz. July 25, 1990) (citing Kenyon v. Hammer, 142 Ariz. 69, 76 n.6, 688 P.2d 961, 968 n.6 (1984)); see also Gust, Rosenfeld & Henderson v. Prudential Ins. Co., 182 Ariz. 586, 588, 898 P.2d 964, 966 (1995) ("[A] cause of action accrues, and the statute of limitations commences, when one party is able to sue another."). Rick Hancock alleges that he knew about the existence of the alleged improper activities comprising wrongful termination no later than December 2, 2003: · · 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)

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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 motion for leave was filed. Claims for wrongful termination are governed by the two-year limitations period of 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. E. The Hancock's Tortious Interference with a Contractual Relationship Claims are Barred by Arizona Law

The Hancocks allege that the third-party defendants (including Meritage) tortiously interfered with the purported Madrid contract between Meritage and the Hancocks are
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patently invalid on their face. Claims at ¶¶ 114-120. In order to establish a prima facie showing of tortious interference, the putative defendant must have interfered with a contract involving a third-party. Pasco Industries, Inc. v. Talco Recycling, Inc., 195 Ariz. 50, 62-63, 985 P.2d 535, 547-48 (App. 1998). Here, the Hancocks claim that Meritage and the other third-party defendants tortiously interfered, not with a contract between the Hancocks and a third-party, but with a contract between Meritage and the Hancocks. Such an allegation against Meritage fails to state a claim under Arizona law. See, e.g., id. The Hancocks' tortious interference claim also fails as to the third-party defendants since the Hancocks have alleged that the third-party defendants were acting in 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). Therefore, the Hancocks' claim for tortious interference must be dismissed under Arizona law. F. Breach of Contract Claim Fails as a Matter of Law

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Snell & Wilmer L.L.P.

The Hancocks' breach of contract claim also fails as a matter of law for several separate and independent reasons. 1. No Acceptance Was Communicated to the Hancocks

As discussed above, see Section II.A.1.a, supra, there is no "executed," binding agreement because, as alleged repeatedly by the Hancocks, Meritage did not communicate its acceptance of the purported Purchase Agreement. Claims at ¶¶ 17-18, 48, 56-57, 59, 62, 64, 67, 70, 73-75, 83-85, 90, 94, 136-37, and 140. Absent a valid acceptance

communicated to to the Hancocks, and absent their receipt of that communication, the Madrid contract never became binding. See, e.g., RESTATEMENT (SECOND) OF

CONTRACTS § 56; Clark, 94 Ariz. at 400-01, 385 P.2d at 697-98; see also 1 FARNSWORTH
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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."); Lyon, 14 Conn. App. at 255, 540 A.2d at 400 ("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, 203 App. Div. at 318 ("It is elementary that an offer is not accepted until communication of acceptance is made or mailed . . . and that until such time there is no contract."). 2. Rick Hancock Was Not Eligible to Receive the Employee Discount

According to the Hancocks' allegations, Rick Hancock's status as a Meritage employee was a condition precedent to their receipt of the employee discount and whether there would be a binding agreement. Claims at ¶¶ 15-17, 20 and Ex. 1 thereto. Where the parties have agreed to a condition precedent before there is a binding agreement, the failure of the condition precedent results in no binding agreement. Lyle, 1978 U.S. Dist. LEXIS 18468, **21-22 (S.D.N.Y. 1978). Again according to the Hancocks' allegations, that condition precedent evaporated ­ when Rick Hancock's employment terminated ­ before the Madrid contract was allegedly accepted. Claims at ¶ 20. Absent the condition precedent, there is no binding, executed agreement. See, e.g., Hartford Fire Ins., 187 U.S. at 476-79; Lyle, 1978 U.S. Dist. LEXIS 18468 at **21-22. 3. Hancocks Have Exhausted Their Remedies

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Snell & Wilmer L.L.P.

The Hancocks have alleged that the Madrid contract expressly limited the "sole remedies" available to the Hancocks in case of default by Meritage to: (1) cancellation and the return of their earnest money; or (2) specific performance. 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. And, in fact, the Hancocks "expressly waive[d] any other rights and remedies [they] may have at law or in equity . . . against [Meritage] for any monetary damages of any nature, including . . . actual, special, indirect, incidental, consequential, exemplary, and punitive damages." Claims at ¶ 17 and Ex. 2 thereto at § 16(B).
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"Where the contract itself provides for the amount of damages in the event of breach, the terms of the contract control." Miller v. Crouse, 19 Ariz. App. 268, 273, 506 P.2d 659, 664 (1973). If the contract provides two "alternative remedies" and one of the remedies "is not available," the claimant's "sole remedy" is the alternative. Id. ("[An] agreement provided alternative remedies to them: specific performance or retention as liquidated damages of `the amount paid herein'. Since the remedy of specific performance is not available, defendants' sole remedy is recovery of damages for breach of contract."); see also Motorola, Inc. v. Fairchild Camera & Instrument Corp., 366 F. Supp. 1173, 1179 (D. Ariz. 1973) ("Certainly that language clearly encompasses resignation by the employee, and in any event the contract specifically provides the sole remedy ­ loss of the option right. The remedy specifically set forth in a contract provides the exclusive remedy."). It speaks volumes that the Hancocks have not alleged that Meritage did not return the earnest money refund to them. (Meritage did so more than two years ago.) It further speaks volumes that the Hancocks do not allege the possibility of specific performance. (Meritage sold the lot in question to a third party more than two years ago.) According to the Hancocks' own allegations, the Hancocks' have no other remedies to pursue relating to the Purchase Agreement. Accordingly, the Hancocks seek to adjudicate a claim for which they have been provided the exclusive remedy. This Court's time should not be wasted in such a manner. G. Breach of Covenant of Good Faith and Fair Dealing

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Snell & Wilmer L.L.P.

Under Arizona law, a party to a contract may not exercise its "contractual power[s] in bad faith," Wells Fargo Bank v. Arizona Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust, 201 Ariz. 474, 492, 38 P.3d 12, 30 (2002), so as to "impair the right of the other to receive the benefits which flow from their...contractual relationship." Bike Fashion Corp. v. Kramer, 202 Ariz. 420, 423, 46 P.3d 431, 434 (App. 2002) (quoting Rawlings v. Apodaca, 151 Ariz. 149, 153-54, 726 P.2d 565, 569-70 (1986)). The putative Madrid contract, however, is not an executed contract from which "benefits" would
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"flow" to the Hancocks. See Sections II.A.1 and III.F.1-3, supra. Accordingly, the Hancocks' claim for the breach of the implied covenant of good faith and fair dealing fails under Arizona law. Additionally, the Hancocks' claim for breach of covenant of good faith and fair dealing regarding the General Release must fail as well. A party may either bring an action for breach of the implied covenant of good faith in tort or for breach of contract. Here, the Hancocks do not allege that Meritage or the Third-Party Defendants breached the General Release and therefore this claim does not sound in contract. "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, 201 Ariz. at 490-91, 38 P.3d at 28-29 (Ariz. 2002) (quoting Burkons v. Ticor Title Ins. Co., 168 Ariz. 345, 355, 813 P.2d 710, 720 (1991)) (emphasis added). As noted in Section III.C, supra, there is no such fiduciary relationship between the Hancocks and Meritage or its employees. As a result, the breach of implied covenant of good faith and fair dealing fails as a matter of law for this reason as well. H. Negligence

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Snell & Wilmer L.L.P.

The Hancocks allege that the Arizona Administrative Code provides that "[p]urchasers of homes must be notified when a contract is executed." See Claims at ¶ 136. The Code states: "Upon execution of any transaction document a salesperson or broker shall, as soon as practical, deliver a legible copy of the signed document and final agreement to each party signing the document." Ariz. Admin. Code R4-28-802(A)

(emphasis added). As set forth above, the Hancocks' negligence claim, however, fails as a matter of law because the Purchase Agreement never was "executed." See Section II.A, supra. The negligence claim fails for two other reasons as well. First, as a matter of law, the only duty imposed is on the real estate broker. Ariz. Admin. Code R4-28-802(A); Claims at ¶ 136. As alleged, see Claims at ¶¶ 17, 77, and 136, only third-party defendant
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Keeffe was a real estate broker, Ariz. Admin. Code R4-28-802(A), owing a duty to the Hancocks. Thus, the negligence claim fails as to third-party defendants Meritage Homes Corporation, Hilton, Landon, Zetah and Arneson. Second, where a claimant alleges that a provider of professional information, such as a real estate broker,7 did so negligently, a claimant may have a cause of action for negligent misrepresentation under RESTATEMENT § 552 but may not pursue a separate claim for professional negligence. See Standard Chartered, 190 Ariz. at 31, 945 P.2d at 342; Kuehn v. Stanley, 208 Ariz. 124, 127-29, 91 P.3d 346, 349-51 (App. 2004). Arizona courts have found that a non-client's claim for professional negligence is essentially subsumed in a claim for negligent misrepresentation under § 552 of the RESTATEMENT (SECOND) OF TORTS. In Standard Chartered, the Court of Appeals found that in the situation in which a claimant, who was not the client of or otherwise in privity with the professional, alleges that a provider of professional information did so negligently, a plaintiff may not pursue a separate cause of action for professional negligence, but may only pursue a claim for negligent misrepresentation under the RESTATEMENT. The Court found that claims for auditor negligence and negligent misrepresentation were essentially the same; that "the gravamen of auditor negligence is negligent misrepresentation, a tort for which the Arizona courts have already adopted the narrower range of risk set forth in RESTATEMENT (SECOND) § 552 . . . ." Id. at 29, 945 P.2d at 340. The Standard Chartered Court then agreed with the professional that to permit the claimant to proceed under simple negligence (which, among other things, employs a less stringent foreseeability test and does not require a showing of justifiable reliance) would sanction an "end run" around RESTATEMENT § 552. Id. at 31, 945 P.2d at 341. The Court further found that a claimant could not "escape [the] limitations [of § 552] merely by The Hancocks seemingly allege that they had engaged the third-party corporate defendants and third-party defendants Arneson, Hilton, Keeffe, and Landon as their professional real estate brokers. Meritage and Third-Party Defendants do not necessarily agree with the allegation but for purposes of this opposition are required to accept even laughable allegations as true.
8

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attacking the same conduct in an ordinary negligence count." Id. at 32, 945 P.2d at 342. Accordingly, the Court held that the claimant "may not submit a claim for auditor negligence separate and distinct from its negligent misrepresentation claim." Id.; see also Kuehn v. Stanley, 208 Ariz. 124, 91 P.3d 346 (App. 2004) (holding that a party's claim against an appraiser could not proceed as a negligence claim but instead must be analyzed as one for negligent misrepresentation under RESTATEMENT § 552). The same is true for the Hancocks' claims. The gravamen of the Hancocks' claims for negligence and negligent misrepresentation is the same: the supposed inadequacy of failing to notify the Hancocks that the purported Purchase Agreement had been consummated. Thus, as a matter of Arizona law, the Hancocks' claim for negligence cannot be maintained. 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. Given that the Hancocks waited until March 2006 before filing these Claims and took no steps to cure the deficiencies, described in detail six months ago in Meritage's Opposition to the Motion to Amend, the dismissal should be with prejudice without leave to amend. DATED this 28th day of September, 2006. SNELL & WILMER L.L.P.

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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 /September 28, 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 Mark I. Harrison Sarah Porter Osborn Maledon, P.A. 2929 North Central Avenue Suite 2100 Phoenix, Arizona 85012-2794 Attorneys for Defendant Greg and Linda Hancock and Counsel of Record Robert Frisbee 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\1881921

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