Free Reply in Support of 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) Adam Lang (#022545) SNELL & WILMER L.L.P. One Arizona Center 400 East Van Buren Street Phoenix, AZ 85004-2202 Telephone: (602) 382-6000 Facsimile: (602) 382-6070 [email protected] [email protected] Attorneys for Plaintiff and Counter defendant Meritage Corporation and Third Party Defendants Steve Hilton, John Landon, and Larry Seay IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Meritage Homes Corporation, a Maryland Corporation, formerly d/b/a Meritage Corporation, Case No. CV-04-0384-PHX-ROS Hancock-MTH Builders, Inc., an Arizona corporation, Hancock-MTH Communities, Inc., an MERITAGE'S REPLY RE ITS Arizona corporation, and currently d/b/a Meritage MOTION TO STAY Homes Construction, Inc., an Arizona corporation, ARBITRATION OF ISSUE RAISED and Meritage Homes of Arizona, Inc., an Arizona IN THIS COURT corporation, (Assigned to the Plaintiffs, Honorable Roslyn O. Silver) v. Ricky Lee Hancock and Brenda Hancock, husband and wife; Gregory S. Hancock and Linda Hancock, husband and wife, Rick Hancock Homes L.L.C., an Arizona limited liability company; RLH Development, L.L.C., an Arizona limited liability company; and J2H2, L.L.C., an Arizona limited liability company, Defendants. Plaintiffs ("Meritage") reply with respect to its motion for an Order staying Defendant Greg Hancock's effort to arbitrate claims arising from alleged breaches of his license agreement with Meritage. As set forth below, Defendant Greg Hancock's

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response does not offer a single ground for not staying his effort to arbitrate claims arising from alleged breaches of his license agreement with Meritage. Indeed, he concedes that his counterclaim should be stayed.

Case 2:04-cv-00384-ROS

Document 335

Filed 08/07/2006

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I.

DEFENDANT GREG HANCOCK CONCEDES THAT THIS COURT SHOULD STAY HIS COUNTERCLAIMS IN ARBITRATION Defendant Hancock's initial argument in Response at 4:18 to 6:6 is premised on his

concession that this Court should, in fact, grant Meritage's motion for the stay. The only issue truly raised by Defendant Hancock is not whether Meritage's motion staying Defendant Hancock's claims in arbitration should be granted, but whether the warranty dispute should be stayed. See infra. Accordingly, this Court should enter an Order staying Defendant Hancock's claims in arbitration. II. DEFENDANT GREG HANCOCK MERITAGE'S WARRANTY CLAIMS AGREED TO ARBITRATE

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

Notwithstanding his assertions to the contrary, Defendant Greg Hancock agreed to arbitrate Meritage's warranty claims and now appears to have buyer's remorse. Meritage filed its warranty claims against Defendant Greg Hancock before the American Arbitration Association ("AAA"). Instead of moving to dismiss, Defendant Greg Pursuant to AAA Rules agreed to by

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Hancock filed an answer before the AAA.

Defendant Greg Hancock, by filing his answer instead of moving to dismiss, Defendant Greg Hancock consented to jurisdiction before the AAA with respect to warranty claims. See AAA Rule R-7(c) ("A party must object to the jurisdiction of the arbitrator or to the arbitrability of a claim or counterclaim no later than the filing of the answering statement to the claim or counterclaim that gives rise to the objection." (Emphasis added.)) He buttressed the conclusion that he consented to the jurisdiction by filing a counterclaim. III. DEFENDANT GREG HANCOCK'S "CLAIM SPLITTING" ARGUMENT IS WITHOUT MERIT IN THIS CONTEXT AND SIMPLY INAPPOSITE Defendant Greg Hancock's "claim splitting" argument is inapposite to the issues of whether AAA has jurisdiction over the warranty claims or whether the warranty claims are arbitrable. These are the sole issues raised on motion for a stay and the response thereto. Both of these issues are determined by whether both parties agreed to arbitration. As explained above, Defendant Greg Hancock consented to jurisdiction before the AAA

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

with respect to the warranty claims. See Clements v. Airport Auth., 69 F.3d 321, 328 (9th Cir. 1995) (res judicata and the bar against claim splitting do not apply when the parties have consented to splitting the claims). With respect to the warranty claims and these claims alone, Defendant Greg Hancock is relegated to making his "claim splitting" arguments solely before the AAA and not in this Court. It is worth noting, however, Defendant Greg Hancock overstates the "claim splitting" doctrine. The "claim splitting" doctrine is derivative of res judicata and issue preclusion principles. It provides, according to the Court of Claims cases cited by the Defendant: In general, a final judgment on the merits of a claim (i.e., cause of action) precludes the same plaintiff from bringing against the same defendant a subsequent action on the same claim, or any part of the claim that was, or reasonably could have been, brought in the initial action. * * * A plaintiff's claim consists of all rights against a particular defendant "with respect to all or any part of the transaction, or a series of connected transactions, out of which the action arose." What factual grouping constitutes a "transaction," and what groupings constitute a "series," are to be determined pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectation or business understanding or usage. Aleyeska Pipeline Service Co. United States, 688 F.2d 765, (Ct. Cl. 1982) (citations omitted); accord Everett Plywood Corp. v. United States, 512 F.2d 1082, 1087 (Ct. Cl. 1975). On its merits, the core problem with Defendant Greg Hancock's "claim splitting" argument is that the claims before this Court and the warranty claim before the AAA are fundamentally different from each other and do not arise from the same transaction and/or occurrence. The Ninth Circuit has held: There are various criteria for determining whether the same cause of action is involved in the two suits: (1) whether rights or interests established in the prior judgment would be
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LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

destroyed or impaired by prosecution of the second action; (2) whether substantially the same evidence is presented in the two actions; (3) whether the two suits involve infringement of the same right; and (4) whether the two suits arise out of the same transactional nucleus of facts. See Expert Electric, Inc. v. Levine, 554 F.2d 1227, 1234 (2d Cir. 1977); 1B MOORE'S FEDERAL PRACTICE & PROCEDURE, P 0.410(1) at 1157-58. "The crucial element underlying all of the standards is the factual predicate of the several claims asserted. For it is the facts surrounding the transaction or occurrence which operate to constitute the cause of action . . ." Expert Electric, Inc. v. Levine, supra, 554 F.2d at 1234. Harris v. Jacobs, 621 F.2d 341, 343 (9th Cir. 1980); see Latman v. Burdette, 366 F.3d 774, 783 (9th Cir. 2004) (applying the Harris factors and cautioning against the overapplication of the factors by instructing courts to focus on whether there is "`sufficient identity' of issues to bar absolutely a subsequent action"). Here, to the extent that the AAA is limited to the warranty claims alone as agreed to by the parties, there is no risk that rights or interests established already or about to be established in this Court will be destroyed or impaired. The evidence with respect to the claims before this Court (e.g., Defendants' Olympic conduct and unfair competition in breach of their fiduciary duties and the license and employment agreements) and with respect to the warranty claims (e.g., who is obligated under an indemnification agreement to pay for approximately $100,000 of warranty claims submitted by owners of homes built by the Defendant before he sold the assets of his business to Meritage) is manifestly, if not entirely, different and do not arise out of the same "nucleus of facts." Simply stated, the wrongful acts are different. The warranty claims relate to the interpretation of the

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separate indemnification agreement. To the extent that the claims in this action relate to agreements, they relate to the license agreement and Defendant Greg Hancock's employment agreement. Accordingly, under Ninth Circuit law, Meritage warranty claims are not the same as its claims before this Court.

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

IV.

DEFENDANT GREG HANCOCK'S ARGUMENT THAT HE SHOULD BE ENTITLED TO BRING HIS BREACH OF THE LICENSE AGREEMENT CLAIMS IN THE ARBITRATION IS WITHOUT MERIT In order to avoid the stay of his counterclaims for breach of the license agreement,

Defendant Greg Hancock argues that he was prejudiced by the purported late production of a single email.1 See Response at 6:7 to 7-22. Even assuming late production, this argument does not support denying the motion for a stay of the arbitration of Defendant Greg Hancock's claims that Meritage breached the license agreement. The basic premise justifying the stay is that Defendant Greg Hancock alleged precisely the same facts (i.e., a breach of the license agreement) as affirmative defenses more than two years ago in this Court. Answer of Greg Hancock at ¶¶ 3, 10 (Dec. 5, 2004). He realleged precisely the same facts more than a year ago. Answer of Greg Hancock to the Second Amended Complaint at ¶¶ 3, 11 (May 11, 2005). In this light, his allegations made in the AAA are compulsory counterclaims in this Action. Fed. R. Civ. P. 13(a); Motion at Part I. Defendant Greg Hancock does not ­ nor could he in good faith ­ dispute that he made the breach of license allegations long ago in this lawsuit. The fact that Meritage produced a single email that, in Defendant Greg Hancock's mind, supports his allegations does not mean that he can now file, as affirmative claims, the exact allegations he has known about for years. Moreover, as set forth in the Motion at Part III and not disputed by him, Defendant Greg Hancock has already asserted these exact same facts ­ including citing to and quoting from the allegedly belated email ­ before this Court thereby waiving their arbitrability. See Greg Hancock's Motion for Stay and Request for Relief from Operation of Order at 4:6-10 (Apr. 26, 2006) ("Meritage purposely entered into a course of conduct which derogated and detracted from the licensed mark'[s] repute, value, marketability, degree of public recognition and popularity. It is Greg Hancock, not Meritage, who has
1

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Meritage strongly disputes that it did anything wrong with respect to the timing of this particular production, which is strongly evidenced by the fact that the Defendants have not filed any discovery motions in this case nor has Defendant Greg Hancock filed a motion to amend the pleadings.
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LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

been damaged be[sic] reason of breach of the License Agreement.") A party waives arbitration to an issue when the party, aware of the right to arbitrate the issue, acted inconsistently with their right to invoke arbitration. See, e.g., Hoffman Constr. Co. of Oregon v. Active Erectors and Installers, Inc., 969 F.2d 796, 798 (9th Cir. 1992). CONCLUSION For the reasons set forth above, Meritage respectfully asks that this Court enter an Order staying Defendant Greg Hancock's claims brought in arbitration related to the license agreements. DATED this 7th day of August, 2006. SNELL & WILMER L.L.P.

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By s/ Dan W. Goldfine Dan W. Goldfine Adam Lang One Arizona Center Phoenix, AZ 85004-2202 Attorneys for 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 August 7, 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

Snell & Wilmer L.L.P.

Case 2:04-cv-00384-ROS

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

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

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