Free Order on Motion to Dismiss Case - District Court of Arizona - Arizona

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Case 2:04-cv-00384-ROS Document 296 Filed 03/31/2006 Page 1 of 11

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

Maryland) ) ) ) Plaintiff, ) ) vs. ) ) Rick Hancock, an individual; Rick) Hancock Homes, LLC, an Arizona) ) corporation, ) ) Defendants, ) and ) Greg Hancock, an individual, Defendant,) Counter-Claimant, and Third Party) ) Plaintiff, ) ) vs. ) ) Steven J. Hilton, an individual; John R.) Landon, an individual; Larry W. Seay, an) individual; and Snell & Wilmer, LLP, an) ) Arizona professional corporation, ) ) Third-Party Defendants. ) ) Meritage Corporation, corporation, a

No. CV 04-0384-PHX-ROS ORDER

Pending before the court are several miscellaneous motions. The Court's ruling and reasons are set forth below. Because the parties are familiar with the factual and procedural history, the Court will only restate those portions relevant to the motions addressed herein.

1 2 3 On April 1, 2005, Meritage filed a Motion For Attorney's Fees, which was 4 essentially a motion for sanctions pursuant to Rule 37 (Doc. #149), as well as a Motion 5 To File Under Seal The Declaration in support thereof (Doc. #150). In its Motion, 6 Meritage seeks sanctions for Defendants' failure to respond to certain discovery requests 7 that were first addressed at a discovery dispute hearing on March 25, 2005. At a show 8 9 Greg Hancock and Mr. Frisbee have yet to provide certification pursuant to this Court's 10 March 25, 2005 Order concerning certain documents requested. Upon conclusion of the 11 December 7, 2005 hearing and after reviewing counsels' reports on the discovery dispute, 12 the Court found that the certification provided by Mr. Frisbee was inadequate to comply 13 with the terms of its March 25, 2005 Order and required him to supplement the 14 certification. The Court postponed awarding sanctions while the issue of continued non15 compliance was pending. See Jan. 18, 2006 Order Requiring Supplemental Certification 16 (Doc. #265). 17 As a result, Plaintiff's Motion for Attorney's Fees (Doc. #149), as well as its 18 Motion To File Under Seal certain documents in support thereof (Doc. #150), will be 19 denied at this time subject to refiling after the issue of non-compliance has been finally 20 resolved. 21 II. 22 On April 27, 2005, the Court ordered Greg Hancock to dismiss his state law action 23 with prejudice (Doc. #157); this order was amended on May 31, 2005 to allow dismissal 24 25 26 27 28 On December 7, 2005, a hearing was held requiring Greg Hancock and his counsel Mr. Frisbee to show cause why sanctions should not be imposed for his failure to dismiss his state law cause of action without prejudice in compliance with this Court's April 26 and May 12, 2005 Orders. The Court imposed sanctions against Mr. Frisbee. See Jan. 19, 2006 Order (Doc. #266). -2Case 2:04-cv-00384-ROS Document 296 Filed 03/31/2006 Page 2 of 11
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I.

MERITAGE'S MOTION FOR ATTORNEY'S FEES/SANCTIONS, MOTION TO FILE UNDER SEAL

cause hearing on December 7, 2005 on another issue,1 Meritage informed the Court that

GREG HANCOCK'S MOTION FOR STAY

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without prejudice (Doc. #174) ("the Order").2 Greg Hancock failed to adhere to the Court's Order, and instead filed a writ of mandamus in the Ninth Circuit challenging it. See Plaintiff's Motion For Order To Show Cause, Exh. 1, Petition For Writ of Prohibition and Mandamus ("Petition") (Doc. #167). In addition, on May 24, 2005, Greg Hancock filed the now pending alternative motion to stay the case until the Ninth Circuit ruled on the legality of the Order (Doc. #173). In its January 19, 2006 Order Issuing Sanctions, the Court stated that Defendant's Alternative Motion For Stay was not made in accordance with the federal rules of civil procedure or the local rules of the District of Arizona, and as such, was not construed as a procedurally appropriate motion for stay.3 See Jan. 19, 2006 Order Issuing Sanctions (Doc. #266). For this reason, the Motion will be denied herein. III. MERITAGE & THIRD-PARTY DEFENDANTS' MOTION TO DISMISS, MOTION FOR SUMMARY RULING, MOTION TO STRIKE; GREG HANCOCK'S MOTION TO STRIKE

On March 2, 2005, Defendant Greg Hancock filed a counterclaim against Meritage and a third-party complaint against Hilton, Landon, and Seay, directors and officers of Meritage, and Snell & Wilmer ("Snell"), counsel for Meritage (Doc. #127); this counterclaim and third-party complaint was later amended on May 12, 2005 (Doc. #165). Against Meritage only Greg Hancock alleges breach of contract, unjust enrichment, and conversion; against Meritage, Hilton, Landon, and Seay Greg Hancock alleges breach of duty and covenant of good faith; against Hilton, Landon, and Seay Greg Hancock alleges wrongful interference with contractual advantage; against Snell Greg Hancock alleges abuse of process and wrongful institution of civil proceedings. (Doc. #127). All of these claims are virtually identical to those brought in Arizona state court on September 8, 2004. Rule 7(b) of the Federal Rules of Civil Procedure provides that (1) [a]n application to the court for an order shall be by motion which, unless made during a hearing or trial, shall be made in writing, shall state with particularity the grounds therefor, and shall set forth the relief or order sought. Local Rule 7.2 requires the moving party to "serve and file with the motion's papers a memorandum setting forth the points and authorities relied upon in support of the motion." Defendant did not file a separate motion for a stay, provide any grounds supporting the request, or file a memorandum of points and authorities in support of the motion. Partially, for these reasons, the Court did not rule on the request for stay. -3Document 296 Filed 03/31/2006 Page 3 of 11
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On March 2, 2005, Counter-defendant Meritage and Third-Party Defendants Hilton, Landon, and Seay filed a responsive Motion To Dismiss Greg Hancock's Counterclaims and Third-Party Complaint ("Meritage and Third-Party Defendant's Motion To Dismiss") (Doc. #131).4 On April 15, 2005, Meritage filed a Second Amended Complaint (Doc. #159). Without responding to the Motion To Dismiss, Greg Hancock filed an Amended Counterclaim and Third-Party Complaint on May 12, 2005 (Doc. #165). On May 23, 2005, Meritage and Third-Party Defendants filed a Motion For Summary Ruling On Motion To Dismiss Counterclaim and Third Party Complaint ("Motion For Summary Ruling") (Doc. #169), claiming that Greg Hancock's failure to respond on or before March 22, 2005 should be deemed as a consent to the granting of the motion pursuant to Local Rule 7.2(i).5 In the event the Court allowed the Amended Counterclaim and ThirdParty Complaint, Meritage renewed its Motion To Dismiss. See id. In response to Plaintiff's Motion For Summary Ruling, Greg Hancock filed a Cross-Motion To Strike this motion ("Greg Hancock's Motion To Strike")(Doc. #177), arguing that Meritage and Third-Party Defendant's Motion To Dismiss is moot because Meritage's Second Amended Complaint recommenced the lawsuit such that prior complaints and pleadings responsive to, including Greg Hancock's original counterclaim and third-party complaint, "are of no legal effect." Id. at 2.6 As a result, Greg Hancock

This document was lodged on January 14, 2005 with the Clerk's Office, but because the amended complaint had not officially been accepted by the Court it was not filed by the Clerk's Office until March 2, 2005. On March 15, 2006, Meritage filed a notice of withdrawal of Section II(E) of its Motion To Dismiss (Doc. #287). Local Rule 7.2(i) provides that "non-compliance may be deemed a consent to the denial or granting of the motion and the Court may dispose of the motion summarily." Greg Hancock further argues that if Meritage wants to challenge the amended counterclaim and third-party complaint, based on this Court's Order that no dispositive motions will be entertained after April 27, 2005, it can only do so after receiving the Court's permission to file such a motion. See Greg Hancock's Motion To Strike at 3. -4Document 296 Filed 03/31/2006 Page 4 of 11
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requests the Court strike Meritage's Motion For Summary Ruling, because it was filed after the April 27, 2005 cutoff for dispositive motions. See id. On June 3, 2005, Meritage filed a Motion For Leave To File Its Motion To Strike Defendant Greg Hancock's Amended Counterclaims and Third Party Complaint ("Meritage's Motions To Strike") (Doc. #179 and 180). Meritage argues that Greg Hancock's filing of the amended counterclaim and third-party complaint was procedurally improper and should be stricken under Rule 15(a) because (1) it was filed after a responsive pleading had been served, and (2) Greg Hancock did not seek leave of this Court or permission by Meritage to file amended pleadings pursuant to Rule 15(a).7 See Meritage's Motion To Strike Defendant Greg Hancock's Amended Counterclaims and Third-Party Complaint ("Meritage's Motion To Strike") (Doc. #179). Meritage correctly notes that Greg Hancock filed a new counterclaim and thirdparty complaint after Meritage served a responsive pleading to the original counterclaim and third-party complaint without seeking leave of Court or obtaining permission from Meritage to do so. As a result, the amended pleading will be stricken. Greg Hancock's argument that he was somehow relieved from the obligation to respond once Meritage's amended complaint was filed on April 15, 2005 ignores the fact that a response was due on March 22, 2005, prior to Meritage's filing of the amended complaint. 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. For these reasons, the Court will grant Meritage's Motion and dismiss the counterclaim and third-party complaint against Meritage and Third-party Defendants, except for Snell & Wilmer ("Snell"). Further, Greg Hancock should have responded to Meritage's alternative motion to renew its motion to dismiss as part of its Motion For Summary Ruling. See Motion For

Rule 15(a) provides that "[a] party may amend the party's pleading once as a matter of course at any time before a responsive pleading is served . . . . Otherwise a party may amend the party's pleading only by leave of court or by written consent of the adverse party." -5Document 296 Filed 03/31/2006 Page 5 of 11

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Summary Ruling p. 3 fn 3 ("In the alternative, Meritage and Third Party Defendants renew the Motion To Dismiss lodged January 14, 2005 and filed by the Court on March 2, 2005"). Greg Hancock's only response to Meritage's Motion For Summary Ruling was that it is moot and should be stricken, because it was filed after the Court's April 27, 2005 deadline for filing dispositive motions. See [Response] To And Motion To Strike Meritage's Motion For Summary Ruling On Motion To Dismiss p. 2. Meritage's Motion for Summary Ruling was not an independent motion, but inextricably interrelated to the initial Motion To Dismiss filed on March 2, 2005, and therefore not subject to the Court's filing deadline. As a result, Greg Hancock's Motion To Strike will be denied. IV. GREG HANCOCK'S MOTION FOR LEAVE TO FILE ITS RENEWED MOTION FOR SUMMARY JUDGMENT On April 26, 2005, the Court denied Greg Hancock's motion for summary judgment without prejudice based on Meritage's assertion that discovery as to Greg Hancock was incomplete, and further ordered that "no further procedural or dispositive motions" be brought "without permission of this Court." See Apr. 26, 2005 Order p. 9. Greg Hancock filed a Motion For Leave To Renew Its Motion For Summary Judgment ("Motion For Leave") (Doc. #194) on July 26, 2005 claiming that the additional requested discovery had been provided. See Motion For Leave p. 2. As Meritage and Snell point out, however, relevant discovery is still on-going with regard to certain documents held by Titus Bruecknew & Berry ("Titus"), counsel for Greg Hancock on other matters, that Greg Hancock claims are not within his possession, custody, or control. Summary judgment should be denied "or the hearing on the motion to be continued, if the nonmoving party has not had an opportunity to make full discovery." Celotex Corp. v. Catrett, 477 U.S. 317, 326 (1986), quoting Rule 56(f). Rule 56(f) protects parties from a premature grant of summary judgment. See Weinberg v. Whatcom County, 241 F.3d 746, 751 (9th Cir. 2001). Because the consequences of summary judgment are so severe, a court should avoid premature termination of the claims. See, e.g., Murrell v. Bennett, 615 F.2d 306 (5th Cir. 1980). Until this matter is -6-

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resolved, Greg Hancock's summary judgment motion is premature. Thus, his Motion For Leave will be denied. V. SNELL'S MOTION TO DISMISS & GREG HANCOCK'S MOTION TO DEFER On July 11, 2005, Third-Party Defendant Snell filed a Motion To Dismiss Third

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Party Complaint ("Snell's Motion To Dismiss") (Doc. #185).8 Greg Hancock responded on July 26, 2005 (Doc. #192) and filed a Motion To Defer Ruling until after the Court

7 decides his renewed motion for summary judgment (Doc. #193); Snell replied on August 8 17, 2005 (Doc. #204). 9 Snell argues that both claims should be dismissed for failure to state a claim for 10 which relief can be granted pursuant to Rule 12(b)(6). In ruling on a Rule 12(b)(6) 11 motion, the complaint must be construed in the light most favorable to plaintiff and the 12 material factual allegations assumed true. See Wyler Summit Partnership v. Turner 13 14 state a claim is proper "only if it is clear that no relief could be granted under any set of 15 facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 16 467 U.S. 69, 73 (1984). Determination of whether there are grounds for dismissal of the 17 state law claims will be evaluated under Arizona law. 18 A. 19 1. 20 The elements of an abuse-of-process claim in Arizona are (1) a willful act in the 21 use of judicial process, and (2) for an ulterior purpose not proper in the regular conduct of 22 the proceedings. See Nienstedt v. Wetzel, 133 Ariz. 348, 353, 651 P.2d 876, 881 (App. 23 1982). A party can demonstrate the "ulterior purpose" element of abuse of process by 24 showing "that the process has been used primarily to accomplish a purpose for which the 25 process was not designed." Id. The claim may not be based solely on the fact that a party 26 27 28 Against Snell, Greg Hancock alleges abuse of process and wrongful institution of civil proceedings (Doc. #127). -7Case 2:04-cv-00384-ROS Document 296 Filed 03/31/2006 Page 7 of 11
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Broadcasting System, Inc., 135 F.3d 658, 661 (9th Cir. 1998). Dismissal for failure to

Abuse of Process Claim Legal Standard

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received some secondary gain or emotional satisfaction from the use of a court process; rather, a claimant must show that the court process was used primarily to pursue that improper motive. See Crackel v. Allstate Ins. Co., 92 P.3d 882, 888 (Ariz. App. 2004). Arizona courts have held that something more than merely instituting and continuing the litigation is required. See Morn v. City of Phoenix, 152 Ariz. at 167, 730 P.2d 873, 876 (Ariz. App. 1986) ("Abuse of process . . . . is not commencing an action or causing process to issue without justification"). Indeed, as long as a defendant uses the legal process for its authorized and intended purpose, even if the defendant has bad intentions or an "incidental motive of spite," no action lies. Id. at 875. Abuse of process "requires an overt act other than the initiation of a lawsuit to effect the illegitimate end." See Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach (In re American Continental Corp.), 845 F. Supp. 1377, 1385 (D. Ariz. 1993) (granting a motion to dismiss an abuse of process claim for failing to make a prima facia case of something more than filing a complaint occurred), aff'd, 523 U.S. 26 (1998); Morn, 730 P.2d at 877. "It is the subsequent misuse which constitutes the misconduct for which liability is imposed. Without more, an abuse of process claim will not lie even when process was issued without justification." Lexecon, 845 F. Supp. at 1385. Arizona does not adhere to the position of some courts which require as an additional element a showing that the wrongful use of the court's process has resulted in the seizure of plaintiffs' person or property. See Nienstedt, 651 P.2d at 881. Rather, Arizona interprets the term "process" as "encompassing the entire range of court procedures incident to the litigation process, and do not restrict the tort to the utilization of process in the nature of attachment, garnishment or warrants or arrest." Id. 2. Discussion

Greg Hancock alleges that Snell's lawsuit is "unfounded and spurious" mainly for the "invocation of Federal jurisdiction pursuant to the Lanham Act." See Third-party Complaint. He further alleges that Snell, despite having knowledge that any lawsuit against Greg Hancock by Meritage is "baseless," cooperated with Meritage and the third-8Document 296 Filed 03/31/2006 Page 8 of 11

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party defendants to file and prosecute this suit, and that Snell, Meritage and the thirdparty defendants "are willfully using the judicial process to accomplish a purpose for which the legal process was not designed, and for the ulterior purpose of depriving Greg Hancock of his money and property." Id. Snell correctly notes that "[n]owhere in Defendant Greg Hancock's Counterclaims and Third-Party Complaint is there an allegation that Snell & Wilmer took some improper overt act outside the normal judicial process in Federal court." See Snell's Motion To Dismiss p. 6. In his reply, Greg Hancock reiterates his allegation that the legal process was abused because the case was spurious when commenced and when amended. His only support is his contention that Meritage had knowledge at the time the lawsuit was initiated that the claims were unfounded, lacked a federal jurisdictional basis, and that Meritage had not been damaged. See Greg Hancock's Reply To Snell's Motion To Dismiss p. 6-7. Arizona law requires that some overt and improper act, other than the institution of a legal process itself or causing process to issue for an improper purpose, be made. "Something more than filing the complaint is required...to make a prima facie showing" of an abuse of process claim. See Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach (In re American Continental Corp.), 845 F. Supp. 1377, 1386 (D. Ariz. 1993) (granting a motion to dismiss where no overt act was stated in the pleadings). Even assuming all of Defendant's allegations are true, he fails to allege an overt and improper act, and as such cannot state a claim. As a result, the claim will be dismissed. B. Malicious Prosecution Claim 1. Legal Standard Both parties agree as to the elements of a claim for malicious prosecution, otherwise known as wrongful institution of civil proceedings. As stated in Smith v. Lucia, 173 Ariz. 290, 842 P.2d 1303 (Ariz. App. 1993), there are five elements to the claim: the defendant (1) instituted a civil action which was (2) motivated by malice, (3) begun without probable cause, (4) terminated in plaintiff's favor, and (5) damaged plaintiff. With regard to the fourth element, the civil action claimed to be maliciously -9Document 296 Filed 03/31/2006 Page 9 of 11

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filed by the defendant must be terminated and resolved in the plaintiff's favor. See Wolfinger v. Cheche, 206 Ariz. 504, 508, P.3d at 787-78. "It is universally held that an essential element of a malicious prosecution claim is that the proceedings must have terminated in favor of the person against whom they were brought". See Nataros v. Superior Court, 113 Ariz. 498, 500, 557 P.2d 1055, 1057 (Ariz. 1976) (granting a motion to dismiss for failure to state a claim where the malicious prosecution claim did not accrue until the prior proceedings were terminated in the defendant's favor). Snell argues that Greg Hancock's claim cannot lie until and unless the underlying action is resolved in Greg Hancock's favor. Greg Hancock argues that the fourth element will be satisfied "when the Court grants [his] renewed motion for summary judgment." See Greg Hancock's Response To Snell's Motion To Dismiss p. 8. As a result, Greg Hancock requests this Court defer ruling on this Motion until it rules on Hancock's Renewed Motion For Summary Judgment. The Court denied Hancock's Motion For Leave To File His Renewed Motion For Summary Judgment in section V. As such, Greg Hancock's request to defer ruling is moot. Further, because he can not satisfy the fourth element, Greg Hancock's claim for malicious prosecution is premature. Of course, should he ultimately prevail on the merits of the underlying claim, Greg Hancock may be able to reassert his claim.

Accordingly, IT IS ORDERED Meritage and Third-Party Defendants' Motion To Dismiss (Doc. #131) is GRANTED; Meritage's Motion For Attorney's Fees (Doc. #149) is DENIED as moot; Meritage's Motion To Seal (Doc. #150) is DENIED as moot; Meritage and Third Party Defendant's Motion For Summary Ruling (Doc. #169) is DENIED as moot; Greg Hancock's Motion To Stay (Doc. #173) is DENIED; Greg Hancock's Motion To Strike (Doc. #177) is DENIED; Meritage's Motion To Strike (Doc. #179) is GRANTED; Meritage's Alternative Motion To Refile (Doc. #179) is DENIED; Snell's Motion To Dismiss (Doc. #185) is GRANTED; Snell's Motion To Defer Ruling (Doc. #193) is - 10 Document 296 Filed 03/31/2006 Page 10 of 11

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DENIED; Greg Hancock's Motion For Leave To File Renewed Motion (Doc. #194) is DENIED. IT IS FURTHER ORDERED that the counterclaim and third-party complaint shall be dismissed with prejudice, except for Greg Hancock's claim against Snell & Wilmer for malicious prosecution, which shall be dismissed without prejudice.

DATED this 31 day of March, 2006.

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