Free Response to Motion - District Court of Arizona - Arizona

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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 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, Hancock-MTH Builders, Inc., an Arizona corporation, Hancock-MTH Communities, Inc., an Arizona corporation, and currently d/b/a Meritage Homes Construction, Inc., an Arizona corporation, and Meritage Homes of Arizona, Inc., an Arizona corporation, Plaintiffs, v. Ricky Lee Hancock and Brenda Hancock, husband and wife; Gregory S. Hancock and Linda Hancock, husband and wife, Rick Hancock Homes L.L.C., an Arizona limited liability company; RLH Development, L.L.C., an Arizona limited liability company; and J2H2, L.L.C., an Arizona limited liability company, Defendants. 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) Case No. CV-04-0384-PHX-ROS MERITAGE'S (1) OPPOSITION TO MOTION TO DEFER EFFECTIVE DATE OF DISCOVERY ORDER AND (2) MOTION FOR AN ORDER TO SHOW CAUSE

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Case 2:04-cv-00384-ROS

Document 280

Filed 02/24/2006

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

Plaintiffs/Counterdefendant/Third-Party Defendants (collectively "Meritage"1) hereby oppose Greg Hancock's ("Hancock") Motion to Defer Effective Date of Discovery Order ("Motion"). Hancock's Motion is just another example of gamesmanship. There are no grounds to delay the Court's Order. The Court gave Hancock his current attorney, and his former attorney, the law firm of Titus, Brueckner & Berry ("Titus"), a month to produce Hancock's documents. Both have, in effect, ignored the Order and expressed clear intent not to comply with it. I. Hancock's "Request to Defer" is Without Merit

Hancock's "Request to Defer" in his Motion is without merit. The Complaint in this matter is now two-plus years old, and Hancock still has not produced documents in his attorneys' files. See Complaint (Feb. 24, 2004). Nearly a year and a half ago, Meritage served discovery requests on Hancock. Central to these requests are Hancock's documents in the possession of Titus. A year ago, Hancock objected to producing documents in Titus' possession based on the pretextual argument that documents in Titus' possession are not in Hancock's possession, custody or control. See Transcript of March 25, 2005 Hearing, at 28:19-29:23, a copy of which is attached as Exhibit B. At that time, the Court rejected Hancock's argument. See id. at 29:19-21; see also Uniden Am. Corp. v. Ericsson Inc., 181 F.R.D. 302, 306 (D. N.C. 1998) (control for purposes of Rule 34 is broadly defined). Nearly a year ago, Hancock's attorney promised this Court that he would personally review Hancock's documents in Titus' possession and produce the documents and information responsive to the discovery requests. See id. at 52:22-24. A year later, Hancock has not produced these documents, instead hiding behind a game of "Three-Card Monty" orchestrated by his attorneys, apparently including Titus. It is patently clear that a litigant cannot take his documents, prevent his attorney of record from access to them, place them in the custody of another attorney, and then not produce the documents. See Poole v. Textron, Inc., 192 F.R.D. 494, 501(D. Md. 2000) (finding documents in the possession of a party's present or former attorney are within a party's
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Third-party defendant Snell & Wilmer is excluded.
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"control" under Rule 34). Moreover, selective designation or production of responsive documents also violates the Federal Rules. See, e.g., id. II. Hancock Misstates Meritage's Position

Hancock's assertion in his Motion that Meritage had stated that it intended to issue a subpoena on Titus is mistaken. Titus' attorney stated that his client intended to ignore the Court's Order on the theory that the Court's Order was illegal because Titus is not before the Court, precipitating a tentative response2 and a thorough review of the issue of the Court's jurisdiction over Titus. See Letter dated January 31, 2006, a copy of which is attached as Exhibit C. Upon closer review, Titus' claim that it is not before this Court is without basis for several reasons. First, Hancock is before the Court, and the documents in Titus' possession are in Hancock's control. The Order is entirely effective through Hancock personally,

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irrespective of who, what, or where Titus is. See, e.g., Poole, 192 F.R.D. at 501. As noted above, this proposition is similar to Hancock's now stale proposition that documents in the possession, custody or control of one's general attorney are not in the possession, custody or control of the litigant. Hancock argued this issue a year ago and now seeks to reargue it. As this Court held, the argument had no merit then, and any reargument now has even less merit. Second, like any restraining or protective order, this Court has the power antecedent to its supervisory and inherent powers to issue Orders against agents (such as attorneys) of a litigant before it. See, e.g., Chambers v. NASCO, 501 U.S. 32, 43 (1991); Aloe Vera of America, Inc. v. United States, 376 F.3d 960, 964-5 (9th Cir. 2004). It is also certain that if the Court reviewed the filings in federal court in the District of Arizona by Titus it would find proposed and granted orders of injunctive relief with the following language: "For a temporary restraining order and preliminary and permanent injunction Meritage's counsel did state that if Titus was not before the Court in any manner, Meritage would issue a subpoena if that was a necessary baby-step. Meritage's counsel also informed Mr. Frisbee generally of his discussion with Titus' attorney, during a five minute break in a deposition. Mr. Frisbee only selects a portion of that discussion to recite to the Court. Meritage's full response is found attached as Exhibit G.
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prohibiting [party's name] and the other defendants, their agents, employees, affiliates and all those acting in concert with them . . . ." Such orders clearly implicate and are enforceable against persons and entities related to parties before this Court. Third, federal statutory law makes it clear that Judge Silver has authority over Titus. 18 U.S.C. 401(3) provides, in pertinent part: A court of the United States shall have power to punish by fine or imprisonment, at its discretion, such contempt of its authority, and none other, as-- (1) Misbehavior of any person in its presence or so near thereto as to obstruct the administration of justice; [or] (3) Disobedience or resistance to lawful writ, process, order, rule, decree, or command. (Emphasis added.) The "or so near thereto" language applies to all acts of misbehavior whose "natural tendency and effect is to interfere with the administration of justice, wherever the acts may be committed." United States v. Huff, 206 F. 700, 705 (D. Ga. 1913). In addition, a person (as opposed to a party) can obstruct the administration of justice. "The power to punish for contempt is not limited to cases of disobedience by parties to the suit of some express command or rule against them, but, subject to the limitations imposed . . . is co-extensive with the necessity for maintaining the authority and dignity of the court." See In re Reese, 107 F. 942, 945 (8th Cir. 1901). As the Supreme Court has expressly and recently noted, "nonparties who interfere with the implementation of court orders establishing public rights may be enjoined, e. g., United States v. Hall, 472 F.2d 261 (CA5 1972), cited approvingly in Golden State Bottling Co. v. NLRB, 414 U.S. 168, 180, or the rule that a court possessed of the res in a proceeding in rem, such as one to apportion a fishery, may enjoin those who would interfere with that custody. See Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 641." See, e.g., Washington v. Washington State Commercial Passenger Fishing Vessel Ass'n, 443 U.S. 658, 693 (1979).

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A person obstructs the administration of justice when it delays proceedings, makes more work for the Court, or thwarts the judicial process. See In re William Grogan, 972 F. Supp. 992, 1002 (D. Va. 1997). Clearly, Titus' efforts have the effect of delaying

proceedings, making more work for the court, and thwarting the judicial process. Fourth, Titus' position that Hancock is not entitled to produce documents of companies unless he owns 100% of the company is without merit. Hancock is the majority owner and/or controlling person of each of the Hancock entities. There are no cases, and Titus cites none to support this position. See Exhibit C. Courts must examine the actual factors indicating "control" and evaluate whether there is an effort to "try to hide documents or make discovery of them difficult." See Uniden, 181 F.R.D. at 306 (ordering defendant to comply with the request to produce documents in the possession of its sister company).3 In addition, it is well established that "control" under Rule 34 of the Federal Rules of Civil Procedure is to be broadly construed so that a party may be obligated to produce documents requested even though it may not actually possess the documents. See, e.g., In re Folding Carton Antitrust Litigation, 76 F.R.D. 420, 422-23 (N.D. Ill. 1977). If this Court were to accept Titus' position, Hancock could sell miniscule amounts of shares of each of his companies to his neighbors, close relatives, distant relatives, employees and subordinates, and Meritage would have to obtain their consent to produce the companies' documents. It is worth noting that even if this position of Titus had any validity in the law, Titus offers the argument as pure pretext. In other words, Titus never sought consent from the persons in business with Hancock. For example, David Cornwall is and was Hancock's co-owner of critical business entities. At his deposition, which took place the day before this filing, Mr. Cornwall testified that Titus never even attempted to contact him to see if he consented to the production of documents in the possession of Titus. See 3 This position is truly a case of selective production. Hancock has already produced documents in this case and in other cases that belong to entities which have minority owners. Likewise, to the extent that this is a valid objection, Hancock waived this objection by failing to raise it when he objected to the Requests for Production a year ago.
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LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

Exhibit I (Cornwall deposition transcript to be provided). In fact, Mr. Cornwall testified that Titus can voluntarily turn over any document related to any business he is or was in with Hancock. See id. Fifth, Titus' position that it "has never been made subject to the jurisdiction of the Court" is simply wrong. As an initial matter, both Titus and its lead name partner were served with subpoenas and notices of deposition in the case. See copies of these

documents, attached as Exhibit D. It is of no matter to the enforceability of the Court's Order that these subpoenas covered a subset of the materials that are the subject of the Order. In addition, Titus thrust itself before the Court by objecting to the notice of deposition. See Response to Deposition Upon Written Questions, a copy of which is attached as Exhibit E. Lastly and most importantly, Titus appeared before this Court as Greg Hancock's attorney of record in this precise matter. Sixth, reflecting Titus and Hancock's concerted effort to block Meritage from access to routine discovery and impede the Court from managing its docket, Titus takes inconsistent positions. Recognizing that discovery on a law firm such as Titus may in some instances implicate a complicated set of issues, Meritage initially served a very narrow single set of written questions per Rule 31 of the Federal Rules of Civil Procedure about Hancock's offers to purchase land after 2001. See Notice and Amended Notice of Taking Deposition Upon Written Questions, copies of which are attached as Exhibit F. This was more than a year ago. In response, Titus objected, failed to respond entirely, and suggested that Meritage either knew the deals (which it does not) or could obtain the information through discovery from Hancock. See Exhibit F. Now, a year later, Titus changes course. Titus states that requests for production on the majority shareholder and controlling person of the Hancock are "not effective" as with respect to documents in Hancock's attorney's possession. Not only is that position mistaken, as discussed above, but it is completely contrary to Titus' earlier objection. Moreover, the Court impliedly rejected that position in its most recent Order on the topic.

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Order at 5, ll. 18-24 (Jan. 18, 2006). Titus' change of course is just another example of its and Hancock's game of "Three Card Monty" with responsive documents. Finally, Titus had a duty to object before the effective date of the Order. It has not and waives its right to object at this point in time.4 III. Motion for Order to Show Cause Against Hancock and Titus

On January 18, 2005, this Court entered an Order requiring Hancock, Frisbee and Titus to "comply with their discovery obligations consistent with this Order [or] they will be required to show cause why sanctions should not be imposed." Order at 7, ll. 13-5 (Jan. 18, 2006). This Court further ordered that Hancock "and Mr. Frisbee shall serve a complete and accurate supplemental response to Plaintiff's Request for the Production of Documents consistent with this Order and within thirty days of issuance of this Order on February 19, 2006." Id. at 7, ll. 17-20. Hancock, Mr. Frisbee, and Titus have not only ignored this Court's Order; for the reasons set forth above, they have flagrantly disregarded it. Accordingly, Meritage requests that the Court enter the attached Order to Show Cause for why Hancock, Mr. Frisbee and Titus should not be held in contempt for failing to abide by this Court's January 18, 2006 Order. It is well established that federal courts have the inherent power to enforce their orders through civil contempt. See Spallone v. United States, 493 U.S. 265, 276, 110 S. Ct. 625, 632, 107 L.Ed.2d 644 (1990); Hook v. State of Ariz., 907 F. Supp 1326, 1339 (D. Az. 1995).
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Snell & Wilmer L.L.P.

See also 18 U.S.C. § 410(3).5

The district court has wide latitude in

On the date of this filing, Mr. Frisbee wrote Titus' counsel informing Titus that David Cornwall, at his deposition noticed by Meritage, had waived attorney-client privilege and consented to the production of any and all documents related to any entity Mr. Cornwall is or was in business with Hancock. See Exhibit H. Mr. Frisbee omitted two key additional facts. First, at the same deposition, Hancock made a corresponding waiver of attorneyclient privilege with respect to any and all documents related to any entity Hancock is or was in business with Mr. Cornwall. See Exhibit I (deposition of Mr. Cornwall to be provided). Second, as noted above, Titus never even attempted to contact Mr. Cornwall to see if he would consent to the production of documents related to any entity Mr. Cornwall is or was in business with Hancock. See id.
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18 U.S.C. 401(3) provides, in pertinent part: A court of the United States shall have power to punish by fine or imprisonment, at its discretion, such contempt of its authority, and none other, as--

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determining whether such contempt has occurred in violation of the court's order. Id. citing Stone v. City of San Francisco, 968 F.2d 850, 856 (9th Cir. 1992). The rule in the Ninth Circuit "regarding contempt `has long been whether defendants have performed `all reasonable steps within their power to insure compliance' with the court's orders." Id., quoting Stone, 968 F.2d at 856. The court's civil contempt power is properly exercised both to coerce a defendant into compliance with the court's order, and to compensate the complainant for losses sustained by violations of that order. Whittaker Corp. v. Execuair Corp., 953 F.2d 510, 517 (9th Cir. 1992) (holding defendant in contempt for violating order that defendant not sell product infringing plaintiff's protected trade dress). In assessing whether exercise of contempt powers are appropriate, the moving party has the initial burden of providing clear and convincing evidence that a specific and definite order of the Court has been violated. Balla v. Idaho State Bd. of Corrections, 869 F.2d 461, 466 (9th Cir. 1989). The burden then shifts to the party violating the order to show that the party "took every reasonable step to comply." Hook, 907 F. Supp. at 940, citing Sekaquaptewa v. MacDonald, 544 F.2d 396, 406 (9th Cir. 1976) (upholding contempt order where it was apparent that there was "little real conscientious effort ... to comply"). In all events, a party may not disobey a court order and later argue that there were `exceptional circumstances' for doing so. Peterson v. Highland Music, Inc., 140 F.3d 1313, 1323 (9th Cir. 1998) (there is no "good faith" excuse for non-compliance); In re Crystal Palace Gambling Hall, Inc., 817 F.2d 1361, 1365 (9th Cir. 1987). The Order could not be more clear. Indeed, Mr. Frisbee, Hancock and Titus appear to concede the clarity of the Order. Rather, they apparently challenge the Court's authority to issue the Order. Not surprisingly, however, Titus is unwilling to confront the Court directly by appearing ­ at least for the purpose of objecting to the Court's Order ­ (1) Misbehavior of any person in its presence or so near thereto as to obstruct the administration of justice; (2) Misbehavior of any of its officers in their official transactions; (3) Disobedience or resistance to lawful writ, process, order, rule, decree, or command.
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before the Court. Almost by definition, the "Motion to Defer" epitomizes Hancock and Mr. Frisbee's "flagrant disregard" of the Court's Order. There is no disputing that Hancock, Mr. Frisbee and Titus defied the Court's Order and refused to comply with the Order's requirements with respect to the documents in the possession of Titus. Their disregard is intentional, as set forth in Exhibit C attached hereto, essentially based on the thoroughly flawed idea that neither Titus nor the documents are before this Court. Accordingly, Meritage moves the Court for entry of an Order to Show Cause why Hancock, Mr. Frisbee and Titus should not be held in Civil Contempt of Court for their failure, as required by the Court Order on April 26, 2005, Order on January 18, 2006, to "comply with their discovery obligations consistent with this Order [or] they will be required to show cause why sanctions should not be imposed" and "serve a complete and accurate supplemental response to Plaintiff's Request for the Production of Documents consistent with this Order and within thirty days of issuance of this Order on February 19, 2006." A proposed form of Order setting a hearing is provided with this Motion. IV. Conclusion.

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For the reasons above, Hancock's Motion should be rejected. In addition, the proposed form of Order setting a hearing with respect to an Order to Show Cause why Hancock, Mr. Frisbee and Titus should not be held in Civil Contempt of Court for their failure, as required by the Court Order on January 18, 2006, to "comply with their discovery obligations consistent with this Order [or] they will be required to show cause why sanctions should not be imposed" and "serve a complete and accurate supplemental

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response to Plaintiff's Request for the Production of Documents consistent with this Order and within thirty days of issuance of this Order on February 19, 2006."

DATED this 24th day of February, 2006. SNELL & WILMER L.L.P.

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By s/ Adam E. Lang Dan W. Goldfine Richard G. Erickson Adam Lang One Arizona Center Phoenix, AZ 85004-2202 Attorneys for Plaintiff and Counter defendant Meritage Corporation and Third Party Defendants Steve Hilton, John Landon, and Larry Seay CERTIFICATE OF SERVICE I hereby certify that on February 24, 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

Snell & Wilmer L.L.P.

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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

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GOLDFID\PHX\1793094

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