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) Richard G. Erickson (#019066) 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] [email protected] Attorneys for Plaintiffs and Counterdefendants and Third Party Defendants Steve Hilton and John Landon 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 OPPOSITION TO RICK AND Arizona corporation, and currently d/b/a Meritage BRENDA HANCOCK'S MOTION Homes Construction, Inc., an Arizona corporation, TO AMEND AND FILE and Meritage Homes of Arizona, Inc., an Arizona COUNTERCLAIM, ADD CLAIMS corporation, AGAINST EXISTING THIRD PARTY DEFENDANTS AND ADD Plaintiffs, THIRD PARTIES 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. Greg Hancock, an individual, Defendant, Counter-Claimant, and Third Party Plaintiff, v. Steven J. Hilton, an individual; John R. Landon, an individual; Larry W. Seay, an individual; and Snell & Wilmer, L.L.P., an Arizona professional corporation, Third Party Defendants. (Assigned to the Honorable Roslyn O. Silver)

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 290

Filed 03/20/2006

Page 1 of 27

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

After this case has been pending for more than two years and with a court-imposed discovery deadline imminently approaching, defendants Rick and Brenda Hancock ("the Hancocks") now seek leave to amend their pleadings to assert (for the first time) counterclaims against Meritage Corporation, Hancock-MTH Builders, Inc., HancockMTH Communities, Inc., and Meritage Homes of Arizona, Inc. (collectively, "Meritage") and third-party claims against Steven and Suzanne Hilton and John R. Landon and Debi Landon (collectively, putative "Third-Party Defendants"), and Scott Keeffe and Vicky Keeffe, Roger Zetah and Jane Doe Zetah, and James Arneson and Zane Arneson (collectively, putative "New Third-Party Defendants").1 For numerous separate and

independent reasons, these claims are futile, and the Hancocks unduly delayed filing these claims in violation of Rule 15, Federal Rules of Civil Procedure ("Rules"). I. BACKGROUND.2 On March 2, 2003, Greg Hancock called John Landon, a co-CEO of Meritage and Greg Hancock's direct supervisor, and left a voice mail message stating that he quit his job of the then-named "Hancock Communities of Meritage." See February 23, 2006 Deposition Testimony of David Cornwall at 95:16-97:4, 100:22-103:11, a copy of which is attached as Ex. A. Meritage decided not to fill the position that Greg Hancock left empty with his brother, Rick Hancock. Following that decision, Meritage officers

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

Snell & Wilmer L.L.P.

believed that Rick Hancock became disgruntled, insubordinate, and unproductive. In fact, during a company meeting, he falsely accused his supervisor Jim Arnesonwho took over Greg Hancock's role on an interim basisof engaging in illegal transactions. See, e.g., November 15, 2004 Deposition Testimony of John Landon at 96:18-99:11, a copy of which is attached as Ex. B; November 18, 2004 Deposition Testimony of Steven Hilton at 89:12-92:8, a copy of which is attached as Ex. C; September 7, 2004 Deposition Testimony of Larry Seay at 46:8-51:9, a copy of which is attached as Ex. D.
The New Third-Party Defendants are not yet parties to this lawsuit and have not been served. This Opposition is strictly written on behalf of Meritage and the putative Third-Party Defendants.
2 1

The factual assertions are either affirmatively alleged by the Hancocks or not disputed. Document 290 - 2 -Filed 03/20/2006 Page 2 of 27

Case 2:04-cv-00384-ROS

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.

Meritage Tells Rick Hancock that He Cannot Obtain a 10% Discount.

In October and November 2003, Rick Hancock and his close friend and Meritage sales person, Jerry Lilly, made it known to others at Meritage that they both wanted to purchase homes in a subdivision that Meritage anticipated opening to public sales in the near future known as the Madrid Subdivision ("Madrid"). See January 26, 2006

Deposition of Jerry Lilly at 131:22-133:8, 137:4-139:25, a copy of which is attached as Ex. E. Mr. Lilly reported directly to Rick Hancock. See id. at 22:15-22, 132:2-11. But Rick Hancock and Mr. Lilly knew that Meritage would have to commence sales to the general public before they would be able to purchase a home in Madrid. See id. at 137:6140:22. On November 21, 2003, Meritage determined the sales prices of the Madrid homes, and Meritage began selling them to the general public the next day, November 22, 2003. See id. at 94:1-3, 137:6-140:22. On or before November 21, 2003, Mr. Landon, pursuant to the express terms of the Employee Handbook, modified Meritage's Home Buying Policy from permitting employees a 10% discount off of the sales price of a Meritage home to capping that discount at $35,000. See November 8, 2004 Deposition Testimony of James Arneson at 64:11-73:10, a copy of which is attached as Ex. F. The Employee Handbook provides the following: "The guidelines set forth in this handbook are for informational purposes only. Since our employee policies, procedures, and benefits are subject to change by Meritage Corporation from time to time, with or without notice, they cannot be considered or otherwise relied upon as an employment contract." See Employee Handbook at MER044418-044419, a copy of which is attached as Ex. G (emphasis added). At sometime on or before November 21, 2003, Meritage informed both Mr. Lilly and Rick Hancock of Mr. Landon's decision to put a $35,000 cap on the employee discount. See Ex. E at 141:5-142:5, 146:2-20, 169:17-172:5; Ex. F at 64:1173:10. Shortly thereafter, at Rick Hancock's direction, Mr. Lilly filled out a purchase agreement for the Hancocks. See Ex. E at 50:14-19; 141:16-141:24, 145:13-146:1.

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 290 - 3 -Filed 03/20/2006

Page 3 of 27

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

Although they already learned that Meritage had modified its previous employee discount policy, the Hancocks signed a purported purchase agreement, which they dated November 21, 2003, for a home on Lot 10 in Madrid, in which they offered to purchase the home with the 10% employee discount which was capped at $35,000.00 and therefore not valid. See Rick and Brenda Hancocks' Purchase Agreement (the "Purchase

Agreement") at 12, a copy of which is attached as Ex. 2 to Ex. A to Motion. (The Hancocks apparently backdated the purported purchase agreement to November 21, 2003. See Ex. E at 93:8-18.) The Purchase Agreement contained many key provisions. To begin with, it

provided that the "execution or acceptance of this Agreement by any salesman [such as Mr. Lilly], broker, agent or employee of Seller other than the Authorized Officer of Seller shall not be binding upon Seller." See Ex. 2. to Ex. A to Motion at § 27. It also 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. See id. at § 16(B). 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." See id. Moreover, to the extent necessary, Brenda Hancock agreed that Rick Hancock was authorized to enter into any modification or change to the purported agreement. See id. at § 26(C). On November 24, 2003, despite knowing that the 10% discount policy had been modified, Rick Hancock turned in the Purchase Agreement containing a 10% discount to his subordinate, Meritage's contract administrator, for approval. See Ex. E at 46:1-47:4, 147:21-150-2. Additionally, the Hancocks made an initial earnest money deposit of $1,000.00, or about one-tenth of one percent of the proposed sales price, on the Madrid home. See Proposed Counterclaim and Third-Party Complaint at ¶ 19, attached as Ex. A to Motion.

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 290 - 4 -Filed 03/20/2006

Page 4 of 27

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

Then, on November 26, 2003, Mr. Landon sent a memo to all Meritage employees documenting his early verbal notification that Meritage had capped the total employee discount at $35,000: Meritage is pleased to offer employees the opportunity to purchase a home in the Madrid community in Scottsdale, Arizona. The discount on any home in this community is limited to a total discount of $35,000 including, but not limited to, all lot premiums, options and construction changes. As a reminder, and as previously advised on Friday, November 21 (prior to the opening of the Madrid community for sales), it is at the discretion of management to make changes at any time with respect to employees home buying policy. See November 26, 2003 Landon Memorandum, a copy of which is attached as Ex. H (emphasis added). In sum, despite knowing in advance that Meritage would not agree to give a 10% discount, the Hancocks nevertheless attempted to process the purported agreement with that discount. And despite receipt of the Landon memorandum, this effort continued. B. Rick Hancock's Employment is Terminated, and Meritage Offers Him a Severance in Return for the Release of All Claims Against Meritage.

12 13 14 15 16

Snell & Wilmer L.L.P.

On December 2, 2003, Meritage terminated Rick Hancock's employment and provided Rick Hancock with a proposed Severance Agreement and General Release of All 17 Claims in return for a severance payment. See Proposed Severance Agreement and 18 General Release of All Claims at RHH0118-0120, a copy of which is attached as Ex. I; 19 October 25, 2004 Deposition Testimony of Ricky Lee Hancock at 234:21-236:1, a copy of 20 which is attached as Ex. J. The Severance Agreement and General Release of All Claims 21 expressly gave Rick Hancock twenty-one (21) days to evaluate its terms with counsel and 22 seven additional (7) days to revoke his acceptance. See Ex. I at RHH0119. 23 After receipt of the proposed Severance Agreement and General Release of All 24 Claims, on December 8, 2003, counsel for Rick Hancock, Jon Titus of Titus, Brueckner & 25 Berry, wrote a letter to Meritage to negotiate the terms of the Severance Agreement and 26 General Release of All Claims. See Ex. A to Motion at ¶¶ 22-24; December 8, 2003 27 Letter from J. Titus at RHAN01508-01510, a copy of which is attached as Ex. K. As part 28
Case 2:04-cv-00384-ROS Document 290 - 5 -Filed 03/20/2006 Page 5 of 27

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

of the negotiations, Mr. Titus stated on behalf of the Hancocks that Meritage had agreed to sell them the Madrid home: Madrid House. Rick and Brenda signed a contract to purchase a house at the Madrid subdivision in reliance upon the "Home Buying Policy" set forth in Section 2, Employee Benefits, of the November 2002 Employee Handbook. They signed the contract on November 21, 2003, and their earnest money was accepted and deposited. While we are informed that there was an attempt to retroactively change this policy on November 26[sic], 2003, this attempt is ineffective. See DeMasse v. ITT Corp., 194 Ariz. 500, 509, 984 P.2d 1138, 1147 (1999), citing Leikvold v. Valley View Cmty. Hosp., 141 Ariz. 544, 548, 688 P.2d 170, 174 (1984), where the Arizona Supreme Court held that an employer cannot retroactively rescind contractual terms contained in the employee handbook. Rick would therefore like the company to honor its Employee Handbook and the purchase contract for the Madrid home. Alternatively, Rick would consider recompense, in addition to the other issues expressed herein, in a suitable amount reflecting the amount of monetary discount that would have been realized by Rick, if Meritage had complied with the terms of its Employee Handbook. See Ex. K at RHAN01509. (emphasis added.) Accordingly, on December 8, 2003, the Hancocks certainly believed that they still had valid contract for the Madrid home. See id. C. Meritage Inadvertently (1) Signs Rick Hancock's Purported Agreement, without Communicating It, (2) Cancels It, and (3) Returns the Earnest Money.

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

Snell & Wilmer L.L.P.

Also on December 8, 2003, although Mr. Hancock was no longer employed by Meritage, putative third-party defendant Scott Keeffe, who had just days before assumed the duties Rick Hancock previously held, inadvertently signed the Purchase Agreement and the Purchase Agreement Transaction Summary.3 See Ex. 2 attached to Ex. A to Motion at 9, 13; Declaration of Scott Keefe, attached as Exhibit M at ¶¶ 5-9.4 Although mistakenly signed by Mr. Keeffe, his signing of the Purchase Agreement was never communicated to the Hancocks or their counsel. See Ex. A to Motion, generally. Shortly thereafter, the Purchase Agreement inadvertently signed by Keeffe was expressly cancelled by Meritage because "CONTRACT NOT ACCEPTED BY
Meritage had directed a former employee, Shari Mesicko, to pull the purported Purchase Agreement before Mr. Keeffe signed it. See February 15, 2006 Deposition Testimony of Shari Mesicko at 30:6-31:18, a copy of which is attached as Ex. L. Ms. Mesicko, who now works for Rick Hancock, intentionally delayed following that direction, until after Mr. Keeffe had inadvertently signed the purported Purchase Agreement. See id. at 30:6-31:18; 165:7-166:23.
4 3

Mr. Keefe did not learn that he signed the Purchase Agreement until after the Motion was filed ­ more than two years after he inadvertently signed it. See Ex. M at ¶¶ 5-9. Document 290 - 6 -Filed 03/20/2006 Page 6 of 27

Case 2:04-cv-00384-ROS

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

COMPANY." See Cancellation Form, Ex. 3 attached to Ex. A to Motion. Meritage's Cancellation Form noted that Mr. Hancock was "no longer employed" by Meritage. See id. Meritage then returned, and the Hancocks accepted, the earnest money on the home. See January 15, 2004 letter from R. Hancock, attached as Ex. 27 to the October 25, 2004 Deposition of Ricky Lee Hancock, a copy of which is attached as Ex. N. D. Rick Hancock Releases All of His Claims Against Meritage.

On December 17, 2003, in response to the December 8, 2003 letter from Titus, Meritage rejected the Hancocks' Madrid house claims. See December 17, 2003 letter from S. Pidgeon at RHAN01490-01492, a copy of which is attached as Ex. O. Instead, Meritage offered Rick Hancock payments totaling $160,000 as consideration for the release of all claims as provided in the Severance Agreement and General Release of All Claims.5 See id. On December 22, 2003, Rick Hancock accepted Meritage's terms and signed the Severance Agreement and General Release of All Claims. Under its terms, Rick Hancock agreed to: [w]aive and release all of [his] existing and potential claims for relief or compensation from [Meritage] and its agents, employees, owners, and [Meritage's] parents, subsidiaries, and affiliates, including all claims that arise from [Mr. Hancock's] employment or the termination or resignation of [his] employment with [Meritage]; all claims that arise from the statements or actions of [Meritage] or its agents, employees, or representatives; . . . and all claims that arise under any other state, federal, and local statutes, regulations, and court or administrative decisions. See Final Severance Agreement and General Release of All Claims at MER002117-

12 13 14 15 16 17 18 19 20 21

Snell & Wilmer L.L.P.

002120, a copy of which is attached as Ex. P (emphasis added). In addition to agreeing to 22 the release of all claims, Rick Hancock wrote: 23 24 25 26 27 28
5

I have carefully considered the provisions of the severance agreement and general release . . . which [Mr. Landon and Steve Hilton, the other co-CEO of Meritage] provided to me, and have determined that I will accept the terms contained therein. A fully-executed copy of that acceptance is enclosed. It is my understanding that based upon the acceptance I will receive payment [totaling $160,000].
Meritage's December 17, 2003 offer was expressly conditioned on Rick Hancock abiding by the Hancock license agreement and not engaging in homebuilding industry using the "Hancock" name. See Ex. O at RHAN01491. Case 2:04-cv-00384-ROS Document 290 - 7 -Filed 03/20/2006 Page 7 of 27

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

See id. at MER002117. Rick Hancock signed and dated the formal acceptance of the Final Severance Agreement and General Release of All Claims that same date acknowledging that he understood that he "would not be entitled to receive the severance payments described in this Agreement if [he] were not releasing [his] claims. . . ." See id. at MER002120. As a final clarification, on January 15, 2004, Rick Hancock wrote Meritage stating, among other things, "[m]y release dated December 22, 2003 covers my proposed purchase contract on the home in the Madrid project. To be more specific, I agree that the contract has been cancelled and my deposit returned, and that neither of us will have any further liability to the other in respect to this contract." See Ex. N. (emphasis added). On March 14, 2004, Meritage sold Lot 10 in Madrid to a third-party. Accordingly, Meritage has had no ability or right to sell it to anyone since that date. See Ex. M at ¶ 7. II. LEGAL ARGUMENT. Amended pleadings that "would clearly not prevail or improve the position of a party will be rejected." FEDERAL CIVIL RULES HANDBOOK at 431 (2006); see e.g.,

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

Snell & Wilmer L.L.P.

Rodriguez v. United States, 286 F.3d 972, 980 (7th Cir. 2002) ("A district court may properly deny a motion to amend as futile if the proposed amendment would be barred by the statute of limitations."); Rose v. Hartford Underwriters Ins. Co., 203 F.3d 417, 420 (6th Cir. 2000) (if the proposed amendment cannot pass the motion to dismiss stage it is futile and the motion for leave should be denied); Newland v. Dalton, 81 F.3d 904, 907 (9th Cir. 1996) ("[D]istrict courts need not accommodate futile amendments"); Unispec Dev. Corp. v. Harwood K. Smith & Partners, 124 F.R.D. 211, 216 (D. Ariz. 1988) (proposed counterclaim "would be futile since it would eventually be subject to a motion to dismiss, strike or summary judgment"). Here, the proposed counterclaims and third-party claims are futile because each claim is subject to either a motion to dismiss, a motion for summary judgment, or both. The gravamen of this action and necessary predicates to each and every new claim are as
Case 2:04-cv-00384-ROS Document 290 - 8 -Filed 03/20/2006 Page 8 of 27

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

follows: (1) Meritage's alleged acceptance of Hancocks' offer to purchase the Madrid home, see, e.g., Ex. A. to Motion at ¶¶ 17-19, 21, 25-27, 40, 48, 54-57, 64-67, 72-73, 8384, 86, 88, 92-94, 115, 117, 119, 122-23, 128-131, 136, and 140; and (2) Meritage's alleged fraudulent inducement of Mr. Hancock to enter into the Severance Agreement and General Release of All Claims by concealing that Meritage had allegedly accepted the Hancocks' offer to purchase a home at Madrid. See id. at ¶¶ 21, 40, 47-50, 53, 60-61, 6475, 83-87, 92-96, 122-125, 127-134, and 137. Each of the Hancocks' claims is wholly contingent on their allegation that the Purchase Agreement, although never communicated to the Hancocks, amounted to a binding and executed agreement. In addition, all claims are dependent on Rick Hancock's release of all claims against Meritage and its employees, for which Rick Hancock received $160,000, being void. These allegations are deficient as a matter of law; therefore, as set forth below, each and every claim that the Hancocks attempt to bring is as well. A. The Counterclaims and Third-Party Claims Are Futile. 1. There Was No Agreement.

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

Snell & Wilmer L.L.P.

The lynchpin of the Hancocks' Motion and their Counterclaim and Third-Party claims is as follows: "As part of the severance package, Meritage sought and obtained a release from Rick Hancock. During the time the release was being sought, neither Steve Hilton, John Landon, James Arneson, Roger Zetah, Scott Keeffe ever informed Rick Hancock that the contract had actually been accepted. The settlement was induced by fraudulent pretenses and material omissions. Motion at 3:1-5 (emphasis added). But this allegation is simply untrue as a matter of law: the Purchase Agreement contract was never "accepted" by Meritage, and therefore a valid and binding contract was never executed. a. No Acceptance Was Communicated to the Hancocks.

"Acceptance of an offer is necessary to create a simple contract, since it takes two to make a bargain." 2 WILLISTON ON CONTRACTS § 6.1 (4th ed. 1991). This is because "[i]t is essential to a bargain that each party manifest assent with reference to the

Case 2:04-cv-00384-ROS

Document 290 - 9 -Filed 03/20/2006

Page 9 of 27

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

manifestation of the other." RESTATEMENT (SECOND) OF CONTRACTS § 23.6 But 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; Clark v. Compania Ganadera de Cananea, S.A., 94 Ariz. 391, 400-01, 385 P.2d 691, 697-98 (1963). The Supreme Court has acknowledged 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." (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."). Assuming that (1) the Hancocks' purported Purchase Agreement had not been previously rejected and was still operative as an offer, and (2) the fact that Rick Hancock was no longer an employee did not render the purported Purchase Agreement ineffective, it is undisputed and central to the Hancocks' claims that no one at Meritage ever communicated to the Hancocks that Mr. Keeffe had signed the Purchase Agreement. See,
6

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

Snell & Wilmer L.L.P.

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)

Case 2:04-cv-00384-ROS

Document 290- 10 Filed 03/20/2006

Page 10 of 27

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

e.g., Ex. A to Motion at ¶¶ 17-18, 48, 56-57, 59, 62, 64, 67, 70, 73-75, 83-85, 90, 94, 13637, and 140. The inadvertently signed Purchase Agreement simply sat in Meritage's files for two years, until Meritage complied with its discovery obligations in this case and produced it. See Ex. A to the Motion at ¶ 57; Ex. M. ¶¶ 5-9. This happenstance realization through discovery in this litigation two years after Mr. Keeffe inadvertently signed the Purchase Agreement certainly cannot be considered a seasonable notification of acceptance. Accordingly, as a matter of Black Letter law, the purported Purchase Agreement never became a binding agreement. See Lyon, 14 Conn. App. at 255, 540 A.2d at 400 (mere signing is insufficient as a matter of law); 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). The Hancocks' position to the contrary simply counters the law, commonsense, and logic. b. The Offer was Rejected by Operation of Law.

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

Snell & Wilmer L.L.P.

Additionally, it is undisputed that weeks before Mr. Keeffe inadvertently signed the purported Purchase Agreement, Meritage rejected the Hancocks' offer. Black Letter law provides that once an offeree rejects an offer the offeree cannot later accept it. The RESTATEMENT (SECOND) OF CONTRACTS § 38, entitled "Rejection," provides: "(1) [a]n offeree's power of acceptance is terminated by his rejection of the offer [and] (2) [a] manifestation of intention not to accept an offer is a rejection." Here, it is clear that Meritage rejected the Hancocks' offer. First, it is undisputed that before Rick Hancock signed the purported agreement he was told that Meritage would not give him the 10% discount. See Ex. E at 141:5-142:5, 146:2-20, 169:17-172:5; Ex. F at 64:11-73:10. Second, it is undisputed that before Mr. Keeffe inadvertently signed the purported agreement, Meritage provided Rick Hancock with written notice that it would cap the employee discount at $35,000.00 and not 10% as was the policy previously. See id.; Ex. H. Third, before the inadvertent signature, it is undisputed that Meritage told the Hancocks that there was no agreement. See, e.g., Ex. A to Motion at ¶¶ 47, 66, and 92. As a result, the offer to purchase the Madrid home was rejected.
Case 2:04-cv-00384-ROS Document 290- 11 Filed 03/20/2006 Page 11 of 27

1 2 3 4 5 6 7 8 9 10

c.

Rick Hancock's Employment Status.

Even under the Hancocks' theory, Rick Hancock's status as an employee was a condition precedent to receiving the 10% discount. See Ex. 1 to Ex. A. to Motion. Meritage terminated Rick Hancock's on December 2, 2003 thereby rendering his entitlement to any employee discount a nullity. See id.; Ex. A to Motion at ¶ 20. It is undisputed that Mr. Keeffe's signature occurred six days later. See, e.g., Motion at 2:610. Accordingly, there was no meeting of the minds and there was no binding contract. d. The Purchase Agreement Expressly Limits the Available Remedies.

If the Court determines the Purchase Agreement is a binding contract, the proposed amended pleading is still futile. "Where the contract itself provides for the amount of 11 damages in the event of breach, the terms of the contract control." Miller v. Crouse, 19
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

12 Ariz. App. 268, 273, 506 P.2d 659, 664 (1973). If the contract provides two "alternative 13 remedies" and one of the remedies "is not available," the claimant's "sole remedy" is the 14 alternative. 15 performance or retention as liquidated damages of `the amount paid herein'. Since the 16 remedy of specific performance is not available, defendants' sole remedy is recovery of 17 damages for breach of contract."); see also Motorola, Inc. v. Fairchild Camera & 18 Instrument Corp., 366 F. Supp. 1173, 1179 (D. Ariz. 1973) ("Certainly that language 19 clearly encompasses resignation by the employee, and in any event the contract 20 specifically provides the sole remedy ­ loss of the option right. The remedy specifically 21 set forth in a contract provides the exclusive remedy."). 22 Here, the Purchase Agreement expressly limited the "sole remedies" available to 23 the Hancocks in case of default by Meritage to: (1) cancellation and the return of their 24 earnest money; or (2) specific performance. See Ex. 2 to Ex. A to Motion at § 16(B). 25 And, in fact, the Hancocks "expressly waive[d] any other rights and remedies [they] may 26 have at law or in equity . . . against [Meritage] for any monetary damages of any nature, 27 including . . . actual, special, indirect, incidental, consequential, exemplary, and punitive 28
Case 2:04-cv-00384-ROS Document 290- 12 Filed 03/20/2006 Page 12 of 27

Snell & Wilmer L.L.P.

Id.

("[An] agreement provided alternative remedies to them: specific

1 2 3 4 5 6 7 8 9 10 11

damages." See id. Here, specific performance is unavailable; Meritage sold Lot 10 two years ago. See Ex. M at ¶ 7. Accordingly, the only other available remedy is cancellation and the return of the Hancocks' earnest money deposit. The Hancocks have fully

exhausted that remedy. Meritage returned the earnest money to the Hancocks, even before Rick Hancock signed the Severance Agreement and General Release of All Claims. The Hancocks accepted the earnest money refund more than two years ago. See Ex. N. Accordingly, the Hancocks' have no other remedies to pursue relating to the Purchase Agreement. 2. The Validity of the Severance Agreement and General Release of All Claims Bars Every Claim the Hancocks Attempt to Now File.

By accepting the severance payment of $160,000, Mr. Hancock agreed to waive and release all of his "existing and potential claims for relief or compensation from
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

12 [Meritage] and its agents, employees, owners . . . including all claims that arise" from his 13 employment, termination, or resignation, including all "claims that arise from statements 14 or actions of [Meritage] or its agents, employees, or representatives." See Ex. P at 15 MER002117-002120 (emphasis added). Each and every counterclaim and third-party 16 claim asserted by the Hancocks arise from his employment, termination, or resignation 17 and were claims that existed on December 22, 2003, the date on which the Severance 18 Agreement and General Release of All Claims was executed. Therefore, as a matter of 19 law, the Hancocks have waived and released all the claims they now attempt to assert. 20 The Hancocks contend that because they were fraudulently induced to enter into 21 the Severance Agreement and General Release of All Claims by Meritage's and the Third22 Party Defendants' failure to notify Rick Hancock of the purported acceptance of the 23 Purchase Agreement, the general release agreed to by him in the Severance Agreement 24 and General Release of All Claims is not enforceable. See, e.g., Motion at 3:1-5. We 25 disagree. 26 To establish a showing of fraudulent inducement, as this Court noted, "proof of all 27 nine of the elements of actionable fraud appears to be required." Lundy v. Airtouch 28
Case 2:04-cv-00384-ROS Document 290- 13 Filed 03/20/2006 Page 13 of 27

Snell & Wilmer L.L.P.

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

Comm., Inc., No. CIV 98-2007-PHX-ROS, 81 F. Supp. 2d 962, 968 (D. Ariz. 1999). The Hancocks must show the concurrence of the following elements: (1) a representation; (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). Here, the Hancocks cannot establish many of these elements, with elements (2), (4), (7) and (8) being most fatal to the Hancocks. a. The Hancocks Cannot Establish that Meritage Made Any Material False Statements or Omissions.

As set forth above, as a matter of law, the Hancocks cannot establish that the Purchase Agreement was accepted and constituted a binding agreement. Without so establishing, there is no false statement or omission that induced Rick Hancock to enter into the Severance Agreement and General Release of All Claims. b. The Hancocks Cannot Establish that Meritage Knew that It Had Made Any Material False Statements or Omissions.

12 13 14 15 16 17

Snell & Wilmer L.L.P.

Similarly, even assuming that Meritage accepted the Purchase Agreement, no reasonable juror, in the light most favorable to the Hancocks, could rule that Meritage or 18 any of its employees knew it was accepted. During the salient period from November 21, 19 2003 to December 22, 2003, Meritage and its employees acted wholly consistent with 20 parties who honestly believed that the purported Purchase Agreement never became a 21 binding contract. 22 23 24 25 26 27 28 · · · Beginning before the Hancocks signed the purported Purchase Agreement, Meritage employees told the Hancocks that there was no agreement. See, e.g., Ex. F at 64:11-73:10; Ex. E at 141:5-142:5, 146:2-20, 169:17-172:5. On November 26, 2003, Mr. Landon sent a memo to all Meritage employees documenting his early verbal notification that Meritage had capped the total employee discount at $35,000. See Ex. H; Ex. E at 169:17-171:5. Also, starting on December 2, 2003, the terms of the Severance Agreement and General Release of All Claims were negotiated, and while Rick
Document 290- 14 Filed 03/20/2006

Case 2:04-cv-00384-ROS

Page 14 of 27

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 took the position that the Purchase Agreement was a binding contract, Meritage specifically excluded any claims Rick Hancock had in a home at Madrid. See Ex. K at RHAN01508-01510; Ex. O at RHAN0149001492. · · Additionally, Meritage refunded and the Hancocks accepted the return of their earnest money deposit. See Ex. N. Moreover, on an internal request for cancellation form dated December 8, 2003, a Meritage officer explained that the "contract was not accepted by company". See Ex. 3 to Ex. A. to Motion.

There is not one allegation that any Meritage employee made a false statement to the Hancocks during the salient period knowing that that statement was false at the time made. c. The Hancocks Cannot Establish Reliance on Any Meritage Statement or Omission.

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

Snell & Wilmer L.L.P.

To prove fraud or fraudulent inducement, the Hancocks must be able to prove that they actually relied on false statements or omissions made by Meritage or its employees in deciding to accept the Severance Agreement and General Release of All Claims. See, e.g., Staheli, 122 Ariz. at 383, 595 P.2d at 175. The Hancocks simply cannot establish reliance. The Hancocks clearly believed that the Purchase Agreement was a binding contract. Mr. Titus, counsel for the Hancocks, stated so in his December 8, 2003 letter to Meritage. See Ex. A. to Motion at ¶¶ 22-25; Ex. K at RHAN01508-01510. In this light, viewing the facts in a light most favorable to the Hancocks, if Meritage knowingly made false statements, the Hancocks did not actually rely on such statements. d. The Hancocks Cannot Establish that Their Reliance Was Justified and Reasonable.

The claims for fraud and fraud in the inducement also fail as a matter of law because the Hancocks' reliance on Meritage's statements was not justified. "[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). Therefore, mere puffing is not actionable. See, e.g., Stanley Fruit Co. v. Ellery, 42 Ariz. 74, 78-79, 22 P.2d 672, 674 (1933). Every

Case 2:04-cv-00384-ROS

Document 290- 15 Filed 03/20/2006

Page 15 of 27

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

alleged material misrepresentation and omission occurred during negotiations with respect to the Severance Agreement and General Release of All Claims, and such statements and omissions are mere puffery and are not actionable. See Schott Motorcycle Supply, Inc. v. Am. Honda Motor Co., 976 F.2d 58, 65 (1st Cir. 1992) (statements made in negotiations amounting to puffing are not actionable fraud because no reasonable person would rely on them); Stickler v. Comm'r, 464 F.2d 368, 370 (3d Cir. 1972) (statements by attorneys during negotiations are puffery and are not actionable in fraud). e. Adopting the Hancocks' Position Could Seriously Impact Future Settlement Negotiations.

The Hancocks approach to the validity of a release negotiated by their own attorneys as part of a settlement is unsettling, to say the least. The Hancocks received $160,000 in exchange for a general release of claims against Meritage and its employees. See, e.g., Ex. P at MER002117-MER002120. Their position that any omission grants a settling party license to invalidate a settlement release at a later time would wreak havoc with the legal system. For example, it appears that the Hancocks' position is

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

Snell & Wilmer L.L.P.

indistinguishable from the claim that a release of an ongoing litigation is open to a later attack because the lawyers for one of the settling parties did not disclose their opinions that certain of their witnesses or pieces of evidence were weak. Courts cannot

countenance such an approach to releases; otherwise, claims would be very difficult to settle and the courts would be unduly burdened by a logjam of cases. f. The Hancocks Must Tender the $160,000.

If for some reason the Court grants the Hancocks' Motion, this Court, as it noted in Lundy, is requested to "add an offer to restore that which [the Hancocks] received under the [Severance Agreement and General Release of All Claims]." 81 F. Supp. 2d at 970. In other words, Mr. Hancock would have to offer to restore to Meritage the $160,000 he obtained in consideration for his release and waiver of all claims against Meritage and its employees. The fact that the Hancocks have not tendered the $160,000 speaks volumes.

Case 2:04-cv-00384-ROS

Document 290- 16 Filed 03/20/2006

Page 16 of 27

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.

Other Deficiencies in the Hancocks' Claims.

Even if the Court determines that the Purchase Agreement was a binding agreement and that the release was fraudulently induced, each of the specific counterclaims and third-party claims has other deficiencies that will prevent them from making it passed summary judgment. a. Fraud and Fraud in the Inducement.

Arizona law requires that the alleged misrepresentations must be based on statements or omissions of a past or existing fact to be actionable. See, e.g., Staheli, 122 Ariz. at 383, 595 P.2d at 175; McAlister v. Citibank, 171 Ariz. 207, 215, 829 P.2d 1253, 1261 (App. 1992) (upholding the trial court's dismissal because the purported misrepresentation was an opinion and not "a misrepresentation or omission of a fact") (emphasis in original); RESTATEMENT (THIRD) OF TORTS §§ 538A and 545 (if the statement cannot be fairly construed as anything but an expression of opinion, belief or judgment, it is proper for the court to so hold as a matter of law and refuse to submit the issue to the jury). Here, the Hancocks claim that Meritage and the Third-Party

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

Snell & Wilmer L.L.P.

Defendants committed fraud by failing to disclose that the Purchase Agreement had been "accepted" or "executed" (in addition to the mere fact that it had been inadvertently signed). See, e.g., Ex. A to Motion, generally. These purported omissions relate to conclusions of law and opinions about the legal effect of certain actions and are not actionable as fraud under Arizona law. b. Breach of Fiduciary Duty.

In order for the Hancocks to establish their count for breach of fiduciary duty, they must be able to establish that Meritage and/or its employees had a fiduciary relationship with the Hancocks. They are not able to do so. (i) Meritage and Its Employees Were Not Fiduciaries to the Hancocks.

"[C]ase law distinguishes a fiduciary relationship from an arm's length relationship." Standard Chartered PLC v. Price Waterhouse, 190 Ariz. 6, 24, 945 P.2d
Document 290- 17 Filed 03/20/2006

Case 2:04-cv-00384-ROS

Page 17 of 27

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

317, 335 (App. 1996). "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, 377 P.2d 305, 308 (1962))). "In a fiduciary relationship, the fiduciary holds superiority of position over the beneficiary." omitted). Here, the Hancocks have not alleged any facts that tend to prove that Meritage or any of the Third Party Defendants (all Meritage employees) were fiduciaries to the Hancocks. Rick Hancock was simply an employee of Meritage and a co-worker of the Third-Party Defendants, and Brenda Hancock never directly interacted with Meritage or the Third-Party Defendants with respect to the alleged Purchase Agreement. The Id. (internal citations

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

Snell & Wilmer L.L.P.

allegations that Mr. Lilly and Mr. Keeffe owe the Hancocks a fiduciary duty, see Ex. A. to Motion ¶¶ 77-84, are conclusory and flatly contradicted by the undisputed record. Mr. Lilly was simply a sales representative working for Meritage and not the Hancocks, and Rick Hancock's co-worker and close friend. See Ex. E at 24:24-25:10, 33:11-21, 132:2133:8. Similarly, Mr. Keeffe was nothing more than a real estate broker working for Meritage and not the Hancocks. See id. at 75:9-76:15; Ex. M. at ¶ 4. 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. (ii) Meritage and/or Its Employees Were Not Authorized to Act on Behalf of the Hancocks.

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 principal.'" Barlage v. Valentine, 210 Ariz. 270, 275, 110 P.3d 371, 376 (App. 2005) (emphasis added) (quoting Equitable Life & Cas. Ins. Co. v. Rutledge, 9 Ariz. App. 551,
Document 290- 18 Filed 03/20/2006

Case 2:04-cv-00384-ROS

Page 18 of 27

1 2 3 4 5 6 7

555, 454 P.2d 869, 873 (1969)). The Hancocks do not allege, nor could they in good faith allege, that they (the purported principals) had authorized Meritage and/or its employees (the purported agent) to act on their behalf. Accordingly, the breach of fiduciary duty claims will fail as a matter of law for failure to state a claim under Rule 12(b)(6). (iii) The Hancocks Did Not Have the Right to Control Meritage and/or Its Employees.

Further, 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 8 control Meritage's and/or its employees' (the purported agent) conduct with respect to the 9 transaction at hand. See, e.g., Urias v. PCS Health Systems, Inc., 118 P.3d 29, 36 (App. 10 2005). Again, the Hancocks do not, nor could they in good faith, allege that they had the 11 right to control Meritage or any of its employees. For this reason as well, the breach of
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

12 fiduciary duty claims will fail as a matter of law. See Rule 12(b)(6). 13 The reality is that the Hancocks turn the law of agencies and fiduciaries on its head. 14 The general rule is that employees owe employers fiduciary duties and not vice versa. 15 Even accepting all of the Hancocks' allegations about the purported Purchase Agreement 16 as true, "[n]either an agency nor a fiduciary relationship is created simply because one 17 party is obligated to turn property over to another party." Urias, 118 P.3d at 36. 18 c. 19 RESTATEMENT (SECOND) OF TORTS § 552(1) states that to establish a negligent 20 misrepresentation claim requires a person: 21 22 23 24 25 26 27 28
Case 2:04-cv-00384-ROS Document 290- 19 Filed 03/20/2006 Page 19 of 27

Snell & Wilmer L.L.P.

Negligent Misrepresentation.

in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information. (emphasis added). Here, the Hancocks make two allegations: (1) that Meritage and the Third Party Defendants negligently misrepresented that the contract for the sale of the Madrid Home had been cancelled, see Ex. A to Motion at ¶¶ 92-94; and (2) that third-

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

party defendant Roger Zetah made a negligent misrepresentation "when he wrote that Rick and Brenda Hancock sought to have the contract cancelled." See id. at ¶ 93. Both allegations fail as a matter of law. First, like the fraud claims, the Hancocks' reliance in this context must still be actual and justified. RESTATEMENT (SECOND) OF TORTS § 552(1). Here, once again, reliance is not justified where the person relying on the statement knows or has reason to know the statement is false. As noted above, taking the allegations as true, the Hancocks allege that they knew that the purported Purchase Agreement was accepted and that it was a binding contract on or before December 8, 2003. See Ex. A to Motion at ¶¶ 22-25; Ex. K at RHAN01508-01510. Second, opinions on whether the Purchase Agreement was a binding contract are merely judgments about the law and therefore not actionable. See, e.g., Fifty Associates v. Prudential Ins. Co. of America, 450 F.2d 1007, 1010-11 (9th Cir. 1971) (ruling that a land valuation is an opinion, and therefore cannot be the basis of a misrepresentation claim); McAlister, 171 Ariz. at 215, 829 P.2d at 1261. Third, the Hancocks claim that third-party defendant Roger Zetah made a negligent misrepresentation in the cancellation form "when he stated that the contract for the sale had been cancelled, and when he wrote that Rick and Brenda Hancock sought to have the contract cancelled." See Ex. A. to Motion at ¶¶ 33-36, 94. But this document was not communicated to the Hancocks. It is Black Letter law and common sense that a misrepresentation must actually be communicated to the claimant to be actionable. See RESTATEMENT (SECOND) OF TORTS § 552(1). d. Wrongful Termination.

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 release does not bar Rick Hancock's claim for wrongful termination, the statute of limitations does. 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 Dual-Deck 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,
Case 2:04-cv-00384-ROS Document 290- 20 Filed 03/20/2006 Page 20 of 27

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

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."). As alleged, Rick Hancock knew about the existence of the alleged improper activities comprising wrongful termination no later than December 2, 2003. Hancocks alleged that Mr. Hancock was terminated for the following: · · · his refusal to get involved with an alleged illegal kickback scheme taking place in October 2003, see Ex. A. to Motion, at ¶¶ 98-101; for bringing an alleged conflict of interest of Glenn Gittus up with James Arneson, see id., at ¶¶ 102-03, 109; and to preclude him from receiving the benefits allegedly due to him under the Employee Handbook. See id., at ¶¶ 104-08, 110. The

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 wrongful termination cause of action accrued more than two years ago, such a claim will not be able to survive a motion to dismiss. e. Tortious Interference with a Contractual Relationship.

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

Snell & Wilmer L.L.P.

The Hancocks' claims that Meritage and its employees tortiously interfered with the purported Purchase Agreement between Meritage and the Hancocks are patently invalid on their face. 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 Third-Party Defendants tortiously interfered, not with a contract between the Hancocks and a third-party, but with a contract between Meritage and themselves. Such an allegation against Meritage fails to state a claim upon which relief can be granted and will be dismissed. Id.
Case 2:04-cv-00384-ROS Document 290- 21 Filed 03/20/2006 Page 21 of 27

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 Hancocks cannot establish a claim against the Third-Party Defendants for tortious interference either. The Hancocks admit that "Scott Keefe, John Landon, Roger Zetah and James Arneson are employees of Meritage[.]" See Ex. A to Motion at ¶ 116. There is not a single allegation that the actions complained about relating to these ThirdParty Defendants are outside of the scope of their employment for Meritage. Indeed, the gist of the Hancocks' allegations is that all of the third-party defendants were acting within the scope of their authority. Under Arizona law, an employee acting in the scope of his employment is the company and could not 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 claims for tortious interference will not pass the motion practice stage. f. Breach of Contract.

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

Snell & Wilmer L.L.P.

To establish a breach of contract, the Hancocks must prove a contract, its breach, and the resulting damage. Correa v. Pecos Valley Dev. Corp., 126 Ariz. 601, 605, 617 P.2d 767, 771 (App. 1980); Snow v. Western Sav. & Loan Ass'n, 152 Ariz. 27, 32, 730 P.2d 204, 210 (1986). Here, aside from the putative Purchase Agreement, the Hancocks allege that Meritage breached two other contracts: (1) The Employee Handbook that allegedly allowed Rick Hancock to purchase a home at a discount; and (2) the employment policy that requires conflicts of interests to be brought to the attention of the corporation. See Ex. A to Motion at ¶¶ 123-24. But neither the Employee Handbook nor the employment policy are contracts. The Employee Handbook, of which the

employment policy is part, specifically explains that "[t]he guidelines set forth in this handbook are for informational purposes only . . . [and that] they cannot be considered or otherwise relied upon as an employment contract." See Ex. G at MER044418-044419. Accordingly, even in the light most favorable to the Hancocks, a claim for breach of contract will fail as a matter of law.

Case 2:04-cv-00384-ROS

Document 290- 22 Filed 03/20/2006

Page 22 of 27

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

g.

Breach of Covenant of Good Faith and Fair Dealing.

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 Purchase Agreement, however, is not an executed contract from which "benefits" would "flow" to the Hancocks. Accordingly, a claim for the breach of the implied covenant of good faith and fair dealing will not survive in motion practice. Additionally, the Hancocks' claim for breach of covenant of good faith and fair dealing regarding the Severance Agreement and General Release of All Claims 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 Severance Agreement and General Release of All Claims 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

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

Snell & Wilmer L.L.P.

II.A.3.b. above, 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. h. Negligence.

The Hancocks seemingly refer to the Arizona Administrative Code in alleging that "[p]urchasers of homes must be notified when a contract is executed." See Ex. A. to Motion at ¶ 136. The Code states: "Upon execution of any transaction document a
Case 2:04-cv-00384-ROS Document 290- 23 Filed 03/20/2006 Page 23 of 27

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

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). As set forth above, the Hancocks' negligence claim, however, fails as a matter of law because the Purchase Agreement never was "executed." The claim fails for other reasons as well. 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

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

Snell & Wilmer L.L.P.

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
The Hancocks seemingly allege that Messrs. Arneson, Hilton, Keeffe, and Landon were 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 the allegations in the light most favorable to the Hancocks.
7

Case 2:04-cv-00384-ROS

Document 290- 24 Filed 03/20/2006

Page 24 of 27

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

further found that a claimant could not "escape [the] limitations [of § 552] merely by 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 law, the Hancocks' claim for negligence cannot be maintained. B. The Hancocks Have Unduly Delayed in Attempting to Assert Their Proposed Counterclaims and Third-Party Claims, and Meritage and the Third-Party Defendants Would Be Unfairly Prejudiced in Attempting to Defend Against Such Claims at this Late Juncture.

12 13 14 15 16

Snell & Wilmer L.L.P.

When, as here, a party unduly delays without justification in seeking to assert its claims, leave to amend is routinely denied. See, e.g. Western Shoeshone Nat'l Council v. 17 Molini, 951 F.2d 200, 204 (9th Cir. 1991) (denying leave to amend two-and-one-half 18 years after litigation commenced with no justification for delay). This action has been 19 pending for more than two years, with the discovery cutoff right around the corner at the 20 end of May 2006. Expert disclosures have come and gone. Further, the close of fact 21 discovery is approaching (and already has been delayed a year). Despite the Hancocks' 22 assertion to the contrary, the Hancocks' must have known about the "acceptance" of the 23 Purchase Agreement on or around September 2, 2005, the date in which Meritage 24 produced documents containing a copy of it to Mr. Hancock's counsel, Ivan Mathew. See 25 September 2, 2005 letter from M. Zachow, a copy of which is attached as Ex. Q. Since 26 then, witness after witness has been deposed. And both the Hancocks' counsel, with the 27 unusual assistance of Greg Hancock's counsel, attempted to manufacture a favorable 28
Case 2:04-cv-00384-ROS Document 290- 25 Filed 03/20/2006 Page 25 of 27

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

record on issues raised for the first time in this Motion, while the Hancocks held back these allegations and their required disclosures. generally. The Hancocks' undue delay in waiting ­ at least six months until the eve of the close of fact discovery ­ before attempting to bring these claims against Meritage and the Third-Party Defendants severely prejudices them and simply smacks of bad faith. Accordingly, to the extent that it concludes that a claim is not futile, this Court should not grant the Hancocks leave to amend on prejudice grounds. III. CONCLUSION. For the reasons set forth above, Meritage and the Third-Party Defendants respectfully request the Court deny the Hancocks' Motion. DATED this 20th day of March, 2006. SNELL & WILMER L.L.P. See, e.g., Ex. E, generally; Ex. F,

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

Snell & Wilmer L.L.P.

By s/ Adam E. Lang Dan W. Goldfine Richard G. Erickson Adam Lang One Arizona Center Phoenix, AZ 85004-2202 Attorneys for Plaintiffs and Counterdefendants and Third Party Defendants Steve Hilton and John Landon CERTIFICATE OF SERVICE I hereby certify that on March 20, 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

Case 2:04-cv-00384-ROS

Document 290- 26 Filed 03/20/2006

Page 26 of 27

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

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
1806421

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 290- 27 Filed 03/20/2006

Page 27 of 27