Free Response in Opposition to Motion - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

Dan W. Goldfine (#018788) Adam Lang (#022545) SNELL & WILMER L.L.P. One Arizona Center 400 East Van Buren Street Phoenix, AZ 85004-2202 Telephone: (602) 382-6000 Facsimile: (602) 382-6070 [email protected] [email protected] Attorneys for Plaintiff and Counter defendant Meritage Corporation and Third Party Defendants Steve Hilton, John Landon, and Larry Seay 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 MERITAGE'S OPPOSITION TO Arizona corporation, and currently d/b/a Meritage GREG HANCOCK'S MOTION Homes Construction, Inc., an Arizona corporation, FOR STAY AND REQUEST FOR and Meritage Homes of Arizona, Inc., an Arizona RELIEF FROM OPERATION OF corporation, ORDER 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. Plaintiffs (collectively "Meritage") hereby oppose Greg Hancock's ("Hancock") Motion for Stay and Request for Relief from Operation of Order ("Motion/Request").1 Hancock's Motion/Request does not comply with the Federal Rules of Civil Procedure ("Rules") or this Court's Orders and relies on misstatements of the evidentiary record, viewed in the light most favorable to Hancock, and misstatements of the law. Moving In practical terms, Hancock's Motion/Request appears to be nothing other than a motion for reconsideration. Local Rule 7.2(g) bars responses to motions for reconsideration. Because Hancock has deftly captioned his Motion/Request something else, however, Meritage is compelled to respond.
Case 2:04-cv-00384-ROS Document 316 Filed 05/15/2006 Page 1 of 17
1

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Snell & Wilmer L.L.P.

(Assigned to the Honorable Roslyn O. Silver)

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

beyond his misstatements, Hancock's substantive arguments are nothing more than weak retreads of arguments that have failed at least eight separate times in the past. Indeed, Hancock's counsel concedes as much when he states that he filed this Motion/Request "to allay potential criticism or any contention that counsel is not thorough." Motion/Request at 2:12. For this reason and the reasons set forth below, this Court should deny Hancock's Motion/Request. I. RULE 59(E) BARS HANCOCK'S MOTION/REQUEST In his Motion/Request dated and filed April 26, 2006, Hancock moved to alter or amend this Court's March 31, 2006 Order pursuant to Rule 59(e). Motion/Request at 2:13. Rule 59(e) expressly provides that Hancock's Motion/Request "shall be filed no later than 10 days after entry." Rule 59(e) (emphasis added). In other words, giving Hancock every benefit of the doubt, Hancock's Motion/Request was due no later than April 14, 2006. Hancock missed his deadline by almost two weeks. Accordingly, to the extent that Hancock seeks modification of the March 31, 2006 Order, the Rules require this Court to deny Hancock's Motion/Request. II. THIS COURT HAS SUBJECT MATTER JURISDICTION For at least the eighth time in this litigation,2 Hancock argues that this Court does not have subject matter jurisdiction, an argument that this Court has correctly rejected all Hancock made the exact same "no subject matter jurisdiction" or "no jurisdiction" argument in his initial Motion to Dismiss at 3:1-8:20, which this Court denied. Order dated February 18, 2005 at ¶2. Second, he made the same argument in his Response to the Application for Temporary Restraining Order at 21:1-24:9, which this Court rejected. Order dated March 16, 2004, at 3:2-3. Third, he repeated the same argument in his second Motion to Dismiss the First Amended Complaint at 2:21-5:16, which this Court denied. Order dated February 18, 2005, at ¶3. Fourth, he repeated the same argument in the context of discovery, where he stated that since this Court did not have jurisdiction Hancock should not have to comply with any discovery. See G. Hancock's position paper dated March 22, 2005 This Court ordered discovery to move forward, rejecting Hancock's no jurisdiction argument. Order dated March 30, 2005. Fifth, he repeated the same argument in his motions for summary judgment, which this Court denied. Order dated April 26, 2005, at 8:14-15. Sixth, he recently made the same argument in the context of objecting to additional depositions, which this Court rejected. Order dated May 1, 2006. Seventh and eighth, Hancock made the same argument two more times during proceedings on other issues. See Transcript of Proceedings at 49:25-50:5 (Mar. 11, 2005); Transcript of Proceedings at 11:5-18:15 (Mar. 25, 2005). This accounting does not include the several occasions that the Rick Hancock defendants made the same argument, which this Court has also rejected each and every time.
Case 2:04-cv-00384-ROS Document 316 - 2 -Filed 05/15/2006 Page 2 of 17
2

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Snell & Wilmer L.L.P.

1 2 3 4 5 6 7 8 9

eight times. See Orders dated March 16, 2004, February 18, 2005, March 30, 2005, April 26, 2005, May 1, 2006. Hancock also made the same argument to the Ninth Circuit, and the Ninth Circuit also necessarily rejected the argument. See Hancock's Petition for Writ of Mandamus to the Ninth Circuit at 16, 20 (May 10, 2005); Order of the Ninth Circuit (Aug. 8. 2005). The reality, as recognized by this Court and the Ninth Circuit, is that Hancock's "no subject matter jurisdiction" argument is both legally and factually wrong. A. Hancock's "This Court Has No Jurisdiction" Argument is Legally Wrong

Hancock's "no jurisdiction" argument depends entirely on two separate but independently flawed legal suppositions. Hancock's first flawed legal supposition is that 10 prevailing on the merits, whether at the motion to dismiss stage or the summary judgment 11 stage, divests this Court of subject matter jurisdiction. Notwithstanding the frequency
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

12 with which he makes this argument, Hancock's flawed legal supposition runs right up 13 against more than sixty years of Supreme Court precedent to the contrary. See, e.g., Bell 14 15 Cir. 2004). Hancock's second equally-flawed legal supposition is that he and his co16 defendants could not possibly violate the unfair competition prohibitions of the Lanham 17 Act because, according to Hancock, Meritage no longer had a license to use the name 18 Hancock. Hancock cites, however, not a single case applying Section 1125(a) of the 19 Lanham Act. His failure is for good reason. There is nothing in the language of Section 20 1125(a) of the Lanham Act or any case interpreting that provision that supports Hancock's 21 flawed legal supposition. Indeed, the case law is to the contrary. See, e.g., Dastar Corp. 22 v. Twentieth Century Fox Film Corp., 539 U.S. 23, 29 (2003); see also FRA S.p.A. v. Sur23 O-Flex of America, 415 F.Supp. 421, 424-25 (S.D.N.Y. 1976) and cases cited therein 24 (standing under the unfair competition provisions of the Lanham Act extends to persons 25 other than trademark owners). 26 27 28
Case 2:04-cv-00384-ROS Document 316 - 3 -Filed 05/15/2006 Page 3 of 17

Snell & Wilmer L.L.P.

v. Hood, 327 U.S. 678, 682 (1946); Elvig v. Presbyterian Church, 375 F.3d 951, 955 (9th

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

1.

This Court Had and Retains Subject Matter Jurisdiction Once Meritage Alleged a Colorable Claim under Federal Law

Once Meritage alleged a colorable claim that the Defendants violated the Lanham Act, this Court had, and thereafter retained and continues to retain, subject matter jurisdiction regardless of what happens to Meritage's federal Lanham Act claim. See, e.g., Bell, 327 U.S. at 682; Elvig, 375 F.3d at 955. Notwithstanding Hancock's

unsupported argument to the contrary, it simply does not matter what happens on the merits to the bases giving rise to this Court's subject matter jurisdiction as this Court has previously noted on several occasions. See, e.g., Transcript of Hearing (May 1, 2006), attached as Exhibit 1. Once gained, this Court does not lose subject matter jurisdiction even if Meritage were to lose with respect to its Lanham Act claim, and it does not matter whether that loss is on a motion to dismiss (for failure to state a claim), summary judgment stage, or after a trial. See, e.g., Bell, 327 U.S. at 682; Elvig, 375 F.3d at 955. Earlier in the case, the Defendants repeatedly moved to dismiss Meritage's Lanham Act claim arguing that it was not a colorable claim. See, e.g., Hancock's Motion to Dismiss at 3:1-8:20; Hancock's Response to the Application for Temporary Restraining Order at 21:1-24:9; Hancock's Motion to Dismiss the First Amended Complaint 3:215:16. Each time, this Court ruled that Meritage's Lanham Act claim was a colorable claim. See Orders dated March 16, 2004 and February 18, 2005 denying each of the Motions. This Court's earlier rulings that Meritage has alleged a colorable Lanham Act claim are the law of the case. 2. Hancock Misstates and Misapplies the Unfair Competition Provisions with Section 1125(a) of the Lanham Act

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Snell & Wilmer L.L.P.

Assuming arguendo that the Court's earlier rulings that Meritage had alleged a colorable Lanham Act claim are not the law of the case, Hancock fundamentally misstates and misapplies the law with respect to an unfair competition claim under the Lanham Act. The key to an unfair competition claim under Section 1125(a) of the Lanham Act, rather than a trademark infringement claim under other provisions of the Lanham Act, is not ownership of the mark but rather whether the Defendants' actions in total pose a risk of
Document 316 - 4 -Filed 05/15/2006

Case 2:04-cv-00384-ROS

Page 4 of 17

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

consumer confusion. 15 U.S.C. § 1125(a)(1); see also Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 155 (1989) (explaining that the key to any unfair competition claim is the risk of consumer confusion). More specifically, Section 1125(a) of the Lanham Act is much broader than how Hancock seeks to portray it and "has progressed far beyond the old concept of fraudulent passing off, to encompass any form of competition or selling which contravenes society's current concepts of `fairness.'" Smith v. Montoro, 648 F.2d 602, 604 (9th Cir. 1981) (emphasis added); U-Haul Int'l, Inc. v. Jartran, Inc., 601 F.Supp. 1140, 1150 (D. Ariz. 1984) (same). Threatening termination of a license into which Meritage has invested millions of dollars of sunk costs that cannot be recouped, using a confusingly similar trade name in the same subdivision literally across the street from where Meritage sold and is selling "Hancock Communities" homes, and attempting to extort payments from Meritage in return for not terminating the license or using the trade names surely encompass "form[s] of competition or selling which contravene[] society's current concepts of `fairness.'" See, e.g., Smith, 648 F.2d at 604. This Court had original subject matter jurisdiction under Section 1125(a) of the Lanham Act when Meritage filed its Complaint and continues to have subject matter jurisdiction today. 3. Hancock Ignores that the Federal Declaratory Judgment Act Provides a Separate and Independent Basis for Subject Matter Jurisdiction

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Snell & Wilmer L.L.P.

Hancock also ignores a separate and independent ground for this Court's subject matter jurisdiction irrespective of Meritage's Lanham Act unfair competition claim. The federal Declaratory Judgment Act ("DJA") and the longstanding Edelmann doctrine provide this Court subject matter jurisdiction. E. Edelmann & Co. v. Triple-A Specialty Co., 88 F.2d 852, 854 (7th Cir. 1937); see, e.g., Jeffrey Banks, Ltd. v. Jos. A. Bank Clothiers, Inc., 619 F.Supp. 998, 1002 (D. Md. 1985). Thus, the "actual controversy" requirement of the DJA and federal question jurisdiction is met if plaintiff can show "a real and reasonable apprehension that he will be subject to liability" if he continues marketing his product. Cheseborough-Pond's, Inc. v. Faberge, Inc., 666 F.2d 393, 396
Case 2:04-cv-00384-ROS Document 316 - 5 -Filed 05/15/2006 Page 5 of 17

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

(9th Cir. 1982) (citing Societe de Conditionnement v. Hunter Eng'g Co., 655 F.2d 938, 944 (9th Cir. 1981)). Put another way, "it is sufficient [to establish a federal question for subject matter jurisdiction] if defendant's actions create in plaintiff a `reasonable apprehension' of being sued for infringement." 2 J. McCarthy, MCCARTHY ON

TRADEMARKS AND UNFAIR COMPETITION § 32.18, at 710 (footnote omitted). That is precisely what Hancock's February 13, 2004 letter, sent a week or so before Meritage filed this case, did. See Letter from Jon A. Titus to Steve D. Pidgeon on behalf of Greg Hancock, dated February 13, 2004 attached as Exhibit 2. Hancock's intent to set up the infringement claim is plain from the letter's text. See id. Indeed, he argued as much early in this case. See Defendant Greg Hancock's Response to Application for Temporary Restraining Order at pp. 21-22 ("Plaintiff could have ignored Hancock and sat back and waited for Hancock to try to enforce his rights to terminate. If and when he[sic] did, Plaintiff could have advanced the same arguments Plaintiff now raises."); see also Jeffrey Banks, 619 F.Supp. at 1002 (the standard for subject matter jurisdiction per the Edelmann doctrine is merely whether the party had a "reasonable fear" that it will be subject to a lawsuit if it continues to use the trade names). 4. Hancock Relies on a Series of Cases that are Inapposite and Have No Application Where the Court had Subject Matter Jurisdiction in the First Place

12 13 14 15 16 17 18 19 20 21 22 23 24 25

Snell & Wilmer L.L.P.

To further his argument, Hancock cites and discusses a series of inapposite cases. See Motion/Request at 4:11 to 5:26. In each case cited by Hancock, the courts concluded that federal jurisdiction never existed or was frivolously alleged. As set forth above, that is simply not the case here. B. Hancock's "This Court Has No Jurisdiction" Argument is Factually Wrong

Even assuming that this Court were to conclude that there was a legal basis to Hancock's argument that this Court no longer has subject matter jurisdiction, Hancock's 26 factual basis for the argument is nothing more than misstatements and overstatements of 27 the evidence after evaluating the evidence in the light most favorable to him. Hancock 28
Case 2:04-cv-00384-ROS Document 316 - 6 -Filed 05/15/2006 Page 6 of 17

1 2 3 4 5 6

cannot establish either that Meritage breached the License Agreement or, even if it had, that that breach bars Meritage's unfair competition claim under the Lanham Act. 1. Hancock Misstates and Overstates the Evidence a. Hancock Misstates and Twists the Meaning of Hilton's September 8, 2003 Email

To begin with, Hancock misstates and overstates the evidence. The first piece of evidence Hancock twists is the September 8, 2003 email from Steve Hilton to John 7 8 suggestion of one Meritage executive to a second Meritage executive about a future 9 strategy that Meritage might pursue in light of the fact that Meritage only had the right to 10 use Hancock names and derivatives thereof until May 2007. See License Agreement at ¶ 11 ¶ 5, attached hereto as Exhibit 3. Although Meritage continues to use the "Hancock"
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

Landon. Exhibit 1 to Hancock's Motion/Request.3 That email is nothing more than a

12 name today, see infra, and did not engage in the strategy outlined by Mr. Hilton, even if it 13 had, such conduct does not violate the License Agreement. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 b. Hancock Misleads the Court Erroneously Asserting that Meritage has Stopped Using the "Hancock" Name

Snell & Wilmer L.L.P.

Notwithstanding Hancock's unsupported allegations to the contrary (Hancock's Motion/Request at 4:2), Meritage has not yet stopped using the name "Hancock Communities." See, e.g., Depo. of Larry Seay at 78:20 to 79:15 (Sept. 7, 2004), attached as Exhibit 4; Depo. of Jim Arneson at 141:16-22 (Nov. 8, 2004), attached as Exhibit 5; Meritage's May 12, 2006 Webpages using the term "Hancock," attached as Exhibit 6. For example, today, it continues to use the name "Hancock Communities" today at the Rancho Bella Vista subdivision in the Phoenix metropolitan area. See, e.g., Meritage's May 12, 2006 Webpages using the term "Hancock," attached as Exhibit 6. Meritage continues to use the Hancock name in nearly all of its advertisements. Depo. of Ron French at 39:4-7 (Feb. 3, 2006), attached as Exhibit 7.
3

Meritage uses the name

Without factual or legal support, see Motion/Request at 3:3-5 and 4:1, Hancock accuses Meritage of concealing this email and somehow had a duty to "cc" Hancock, then a former employee of Meritage, with a copy of it. He cites no cases or supporting facts of establishing the duty to do so. There are none, and his accusation to the contrary is baseless.
Case 2:04-cv-00384-ROS Document 316 - 7 -Filed 05/15/2006 Page 7 of 17

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

"Hancock" with respect to the largest selling floorplan in the Phoenix metropolitan area, and, according to the executive who replaced Hancock, Meritage continues to use the "Hancock" name with one of its flagship product lines. Id. at 177:6-13. After Rick Hancock Homes opened across the street from Meritage's sales offices and models in the in the summer of 2004 in the Sundance subdivision, Meritage continued to use the Hancock name. All in all, through May 10, 2006, Meritage has sold more than $117 million in homes under the Hancock name since July of 2004. Declaration of Roger Zetah, attached as Exhibit 8. Even Hancock's co-Defendant, business partner, and brother conceded under oath that Meritage is continuing to use the Hancock name with respect to "millions of dollars of real estate." Depo. of Ricky Lee Hancock at 161:2 to 162:4 (Oct. 25, 2004), attached as Exhibit 9. c. Hancock Misstates the Expert Testimony See

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Snell & Wilmer L.L.P.

Without citation, Hancock also misstates Meritage's expert's testimony.

Motion/Request at 6:1-19. Notwithstanding Hancock's unsupported assertions to the contrary and efforts to muddy his testimony by suggesting he was a liability expert and not a damages expert, Meritage's expert testified that he calculated damages assuming liability. See, e.g., Depo. of Gregg Curry at 133:7 to 134:6, attached as Exhibit 10. He calculated the total damages suffered by Meritage as a result of the Defendants' tortious and wrongful conduct, about which he was asked to opine, to equal more than $54 million. See Expert Report of Gregg Curry, attached as Exhibit 11. In addition,

Defendants' tortious and wrongful conduct also caused Meritage to suffer damages in terms of the contractual goodwill and overpayments to Hancock, both not subject to opinion evidence of Meritage's damages expert but supported by other evidence in the record, in excess of $27 million. See, e.g., Depo. of Jon Titus in re the Marriage of Hancock and Hancock at 37:6 to 38:12 (Hancock Communities' goodwill is estimated at $19.7 million); See Depo of Jon Titus attached as Exhibit 12. Report of Eugene Cole at 2 (Defendants' own expert opined that Meritage paid Hancock $7,461,489 in earn-outs after Hancock commenced his secret, tortious and wrongful actions as part of the Olympic
Case 2:04-cv-00384-ROS Document 316 - 8 -Filed 05/15/2006 Page 8 of 17

1 2 3 4 5

entities). See Cole Report attached as Exhibit 13. Accordingly, Hancock's assertion that there is no evidence of damages is baseless. d. Hancock Leaves Olympic to Avoid Detection and Avoid Losing Millions of Dollars in Compensation from Meritage

Hancock misleadingly overstates Mr. Cornwall's testimony to suggest that Hancock could not have committed any wrongful acts towards Meritage causing Meritage 6 any damages because he allegedly "walked away" from the Olympic deals. 7 Motion/Request at 6:20-24. Hancock walked away from Olympic only after he made an 8 arrangement with Mr. Cornwall to let Hancock back into Olympic's successor to its 9 property holdings, Cavalier, which is the name of Hancock's family homebuilding 10 business. Depo. of David Cornwall at 75:2 to 76:8, attached as Exhibit 14. Hancock 11 walked away only after he learned that his year-long, secret involvement in Olympic
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

See

12 violated his employment agreement with Meritage and might be detected by Meritage. 13 See, e.g., id. at 72:12 to 74:14. In this respect, Hancock is no different than the bank 14 robber who burns the money he stole to avoid detection. The crime was committed, 15 burning the money does not change that fact; it only reduces the likelihood of detection. 16 By the time he left Olympic, Hancock's harm to Meritage relating to the Olympic entities 17 was done, and the effort to conceal his involvement by transferring the properties from 18 Olympic to other entities only exacerbated the harm to Meritage. 19 20 21 22 23 24 25 26 27 28
Case 2:04-cv-00384-ROS Document 316 - 9 -Filed 05/15/2006 Page 9 of 17

Snell & Wilmer L.L.P.

e.

Hancock Misstates the Meaning of "Derogating" of Trademark

Recognizing that his claims and defenses based on his allegation that Meritage breached either his Employment Agreement or the Master Transaction Agreement are empty of any factual and legal support, Hancock makes a desperate claim that Meritage somehow "derogated" the Hancock mark in violation of the License Agreement despite selling more than $117 million of homes under the name. Declaration of Roger Zetah, attached as Exhibit 8. This argument also has no merit and is equally misleading. In fact, Meritage continues to use the Hancock mark on the same type and quality homes on

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

which Meritage, under Hancock's direction, and Hancock, before Meritage's acquisition, used the mark. Hancock argues that the "derogate" language in the License Agreement placed affirmative duties on Meritage to increase sales of Hancock homes, apparently to sell some imaginary threshold quantity of homes. The License Agreement says no such thing. If the parties intended to set a minimum use threshold for the mark, why doesn't the License Agreement say so? Hancock also cites no legal authority for this proposition. For good reason, the terms "derogatory," "derogation" or "to derogate" in the trademark context involve the sale of inferior or different goods impugning the reputation of the mark or conflicting with the mark and not the sale of less goods than a mark holder might desire. See, e.g., Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 636 (1st Cir. 1992); Susser v. Carvel Corp., 332 F.2d 505, 519-20 (2d Cir. 1964); GE v. Alumpa Coal Co., 1979 U.S. Dist. LEXIS 9197, *3-4 (D. Mass. 1979) and cases cited therein. This use of the

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Snell & Wilmer L.L.P.

"derogation" is also consistent with their general use in tort law. See, e.g., Nat'l Bd. for Certification of Occupational Therapy v. American Occupational Therapy Ass'n, 24 F.Supp.2d 494, 511 (D. Md. 1998). Hancock's argument that "derogation" creates affirmative requirements of trademark use is thoroughly inconsistent with the purposes underlying trademark law. The leading treatise on trademark law defines "[t]he four [trademark] functions that are deserving of protection in the courts: 1. 2. To identify one seller's goods and distinguish them from goods sold by others; To signify that all goods bearing the trademark come from or are controlled by a single, albeit anonymous, source; To signify that all goods bearing the trademark are of an equal level of quality; and As a prime instrument in advertising and selling the goods."

3. 4.

Case 2:04-cv-00384-ROS

Document 316- 10 Filed 05/15/2006

Page 10 of 17

1 2 3 4 5 6 7 8 9 10

1 MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION at § 3:2. None of these functions support Hancock's interpretation of "derogation." At best, the subject nonderogation clause serves as a prohibition against active disparagement or belittlement that would undermine the significance of the trademark, and in no way serves as an "uber-best efforts" clause requiring the licensee to fulfill the licensor's financial expectations or perceived entitlement to force Meritage to structure its company so to increase the sales of licensed products above some imaginary threshold. 2. Hancock Reverses the Burden of Proof and Seeks to Backdoor an Improper Summary Judgment Motion

Hancock's clear intent is that this Court should treat his Motion/Request as a summary judgment motion. See Motion/Request at 4:6 ("no reasonable mind could 11 conclude") and 5:19-20 ("[t]his Court should conclude that Meritage breached the License
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

12 Agreement as a matter of law"). Not only does Hancock's effort violate this Court's 13 Order requiring Hancock to seek leave before filing the Motion, see Order dated April 26, 14 2005, at 9:1-2, Hancock improperly reverses the burden of proof by interpreting all 15 inferences in the light most favorable to him, the moving party. See Motion/Request at 16 3:6 to 4:10 (inferring from an email suggesting that Meritage should consider at some 17 time in the future transitioning away from the Hancock name over an 18 month period of 18 time but in advance of the termination of the license to mean that Meritage abandoned the 19 Hancock name immediately). This is not the first time Hancock has asked this Court to 20 21 flatly contradicted by the Rules. See, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 323 22 (1986) (the evidence and all reasonable inferences are to be viewed in light most favorable 23 to the nonmoving party); Anderson v. Liberty Lobby, 477 U.S. 242, 248-52 (1986) (same). 24 25 26 27 28 See Meritage's Response to Defendant Greg Hancock's Motion for Summary Judgment and Motion to Strike at 2:13 to 3:8 (Jan. 14, 2005).
Case 2:04-cv-00384-ROS Document 316- 11 Filed 05/15/2006 Page 11 of 17
4

Snell & Wilmer L.L.P.

reverse the burden of proof on a summary judgment motion.4 Hancock's approach is

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

3.

Even Assuming that Hancock Properly Terminated the License and that Meritage Stopped using the "Hancock" Name, Meritage's Lanham Act Unfair Competition Claims Remains Valid

Even if Meritage had stopped using the name "Hancock" or even if Hancock had properly terminated the license agreement,5 neither fact immunizes the Defendants. Their conduct still amounted to unfair competition in violation of the Lanham Act. In other words, even if the license were properly terminated, the Defendants, by opening their "Rick Hancock Homes" new home selling business right across the street from Meritage's "Hancock Communities" new home selling business, violated the Lanham Act irrespective of whether Meritage can continue to use the name. The unfair competition prohibition in the Lanham Act looks solely at the conduct of the putative defendant and not the rights of the victim: "any person who shall affix, apply, or annex . . . any false description or representation, including words or other symbols tending falsely to describe or represent the same . . . shall be liable to a civil action by . . . any person who believes that he is or is likely to be damaged by the use of any false description or representation." 15 U.S.C. § 1125(a). By its very terms, the protections in Section 1125(a) go beyond trademark protection. See, e.g., Dastar Corp., 539 U.S. at 29. In other words, irrespective of whether Meritage continued to maintain the right to use the "Hancock" mark and any derivative thereof, the Defendants are liable for using the mark "Rick Hancock Homes" in a manner that tended to create consumer confusion or deceive purchasers or potential purchasers that they were considering a home under the name "Hancock Communities" or a Hancock home sold by Meritage.
5

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Snell & Wilmer L.L.P.

In addition to the facts set forth above establishing that Meritage has continued to use the name "Hancock," the law, the law of the case and the evidence fail to support Hancock's claim that he was entitled to terminate the license agreement. Hancock claimed a breach of the license agreement in his so-called February 13, 2004 "termination letter," arguing that Meritage's failure to pay earn-outs and other compensation and failure to provide an accounting justified his termination of the license agreement. See Exhibit 2. Hancock also claimed in his "termination letter" that even though he voluntarily quit his employment at Meritage that Meritage wrongfully discharged him. See id. Long ago, Meritage set forth sufficient facts to create questions of fact with respect to each of these claims. See Meritage's Response to Defendant Greg Hancock's Motion for Summary Judgment and Motion to Strike at 7:15 to 8:10 and citations to the record therein (Jan. 14, 2005).
Case 2:04-cv-00384-ROS Document 316- 12 Filed 05/15/2006 Page 12 of 17

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

The main thrust of Meritage's unfair competition claim is that the Defendants are using "Rick Hancock Homes" in a manner that confuses consumers into associating their new homes with Meritage's "Hancock Communities" homes and thereby benefit from goodwill for which Meritage has spent tens of millions of dollars, including tens of millions of dollars to the Defendants.6 Under the Lanham Act, the Defendants' conduct is akin to "passing off" a new home by Rick Hancock Homes as a new home by Meritage's "Hancock Communities." "[T]the central inquiry . . . is `whether the defendant is passing off his goods or services as those of the plaintiff by virtue of substantial similarity between the two, leading to confusion on the part of potential customers.'" Sun-Fun Prods., Inc. v. Suntan Research & Development, Inc., 656 F.2d 186, 192 (5th Cir. 1981) (internal citation omitted). "The touchstone of a Section 1125(a) unfair competition claim is whether the defendant's actions are "likely to cause confusion.'" Matrixx Essentials, Inc. v. Emporium Drug Mart, Inc. of Lafayette, 988 F.2d 587, 592 (5th Cir. 1993). Defendants' conduct in violation of the Lanham Act has resulted in the most common presale consumer confusion, "initial interest confusion." Brookfield

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Snell & Wilmer L.L.P.

Communications, Inc. v. West Coast Entertainment Corp., 174 F.3d 1036, 1063-64 (9th Cir. 1999); see Declaration of Mario Atkins attached as Exhibit 15, (testifying to the fact that the name Rick Hancock Homes and other conduct of the defendants caused him confusion). Under the Lanham Act, initial interest confusion results when a consumer is seeking a particular company's product and instead is lured to those of a competitor by the use of "any false description or representation, including words or other symbols tending falsely to describe or represent the same." 15 U.S.C. 1125(a); see Brookfield, 174 F.3d at 1060 (the test for confusion is whether a reasonably prudent consumer would be confused at the initial stage of encountering Rick Hancock Homes). Damage occurs to Meritage Defendants' other acts of unfair competition include Defendants' wrongful termination of a license into which Meritage had invested tens of millions of sunk costs in payments over market value to Hancock, marketing and brand development that could not be recouped and Defendants' extortion of payments from Meritage in return for not terminating the license and for not using confusingly similar trade names. See, e.g., Smith, 648 F.2d at 604.
Case 2:04-cv-00384-ROS Document 316- 13 Filed 05/15/2006 Page 13 of 17
6

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

even if the consumer quickly learns Rick Hancock Homes' true identity or no actual sale occurs and manifests itself in different forms: · · · · diversion of prospective customers; impact on prospective customers' ultimate decision caused by an erroneous impression that the two homes may be associated; Rick Hancock Homes free-riding on Hancock Communities' reputation and goodwill (for which Meritage paid $19 million); and permanent damage to Meritage's reputation caused by Rick Hancock Homes' inferior quality or service or caused by Rick Hancock Homes' abrasive sales tactics. See, e.g., Brookfield Communications, 174 F.3d at 1056-57, 1063-64 and cases cited therein; Declaration of Mario Atkins, attached as Exhibit 15. The rationale of the initial interest doctrine is to prevent a company from gaining an unfair competitive advantage by using a misleading representation or advertising to get a "foot in the door" or a "free ride" on someone else's goodwill or reputation and is similar in nature to a "bait and switch" scheme.7 See, e.g., Brookfield Communications, 174 F.3d at 1056-57. Accordingly, the Defendants' misleading conduct, and not the license agreement, is "the cornerstone" of Meritage's Lanham Act claim. III. HANCOCK'S AMENDED COMPLAINT ARGUMENT IS WITHOUT MERIT Hancock misleadingly conflates his counterclaim with Meritage's First Amended

12 13 14 15 16 17 18 19 20 21

Snell & Wilmer L.L.P.

Complaint to argue that this Court in applying the Rules. See Motion/Request at 7:2 to 22 8:21. Therefore, his reliance on changes in Meritage's First Amended Complaint is 23 misplaced. The reality is that Hancock's counterclaims never changed even a word from 24 the first day he filed them, and this Court's dismissal ruling is correct. 25 There is nothing in any of Hancock's cases to support his conclusion that all 26 27 28 motions filed before the First Amended Complaint "are quite simply irrelevant." Id. at 7 When the defendant in an unfair competition claim under the Lanham Act knowingly uses a name or symbol similar to one of the defendant's competitors, the defendant's intent to deceive is presumed. See, e.g., Brookfield, 174 F.3d at 1059.
Case 2:04-cv-00384-ROS Document 316- 14 Filed 05/15/2006 Page 14 of 17

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

8:21. Hancock takes one legal proposition and applies it in an entirely inapposite context. Each of the cases cited by Hancock dealt merely with the proposition that if a plaintiff is permitted to file an amended complaint a defendant is entitled to file an amended answer and new affirmative defenses and, in two of Hancock's cases, file new counterclaims. Here, however, Hancock did not file new counterclaims; he filed the exact same counterclaims. Hancock's cases simply do not hold or even state in dicta that pending motions on counterclaims become "quite simply irrelevant" when the exact same counterclaims are refiled. More importantly, Hancock's cases do not hold or even state in dicta that a defendant is entitled to ignore a pending motion to dismiss on the exact same counterclaim simply because the defendant may have the right to amend his counterclaim. There is simply no logic or case law to support Hancock's argument. As this Court noted in commenting on Hancock's argument: "Furthermore, he cites no authority, and there is none, to support his conclusion that the filing of an amended complaint in the predicate action invalidates a dispositive motion in response to a counterclaim and third-party complaint." See Order at 5:18-21 ( Mar. 31, 2006) (emphasis added). CONCLUSION Hancock's repetitive and baseless arguments and misstatements of fact and law have increased the time, expense, and complexity of adjudicating the disputes between Hancock and the Meritage parties. The speedy, inexpensive, and just administration of this action calls for the Court to bring finality to its ruling issued in March of this year. The relief Hancock seeks will only indefinitely prolong it. DATED this 15th day of May, 2006. SNELL & WILMER L.L.P.

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Snell & Wilmer L.L.P.

By s/ Dan W. Goldfine Dan W. Goldfine Adam Lang One Arizona Center Phoenix, AZ 85004-2202 Attorneys for Plaintiff and Counter defendant Meritage Corporation and Third Party
Case 2:04-cv-00384-ROS Document 316- 15 Filed 05/15/2006 Page 15 of 17

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

Defendants Steve Hilton, John Landon, and Larry Seay CERTIFICATE OF SERVICE I hereby certify that on May 15, 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

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Snell & Wilmer L.L.P.

Case 2:04-cv-00384-ROS

Document 316- 16 Filed 05/15/2006

Page 16 of 17

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

A Copy of the foregoing served via facsimile to Kurt M. Zitzer Meagher & Geer, P.L.L.P. 8800 North Gainey Center Drive Suite 261 Scottsdale, Arizona 85258 Attorneys for Titus, Brueckner & Berry

s/ Dan W. Goldfine
GOLDFID\PHX\1830414

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
Case 2:04-cv-00384-ROS Document 316- 17 Filed 05/15/2006 Page 17 of 17

Snell & Wilmer L.L.P.