Free Response to Motion - District Court of Arizona - Arizona

O SBORN MALEDON
A P ROF E SS IO NA L A S S OC IA T I O N A T T OR NEY S A T LA W

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The Phoenix Plaza 21st Floor 2929 North Central Avenue Phoenix, Arizona 85012-2794 P.O. Box 36379 Phoenix, Arizona 85067-6379 Telephone Facsimile 602.640.9000 602.640.9050

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Mark I. Harrison, 001226 Sarah Ellison Porter, 014409 OSBORN MALEDON, P.A. 2929 North Central Avenue, Suite 2100 Phoenix, Arizona 85012-2794 (602) 640-9000 Attorneys for Greg & Linda Hancock and Robert Frisbee, Counsel of Record

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA ) ) ) ) ) ) ) ) ) ) ) Plaintiffs, ) ) vs. ) ) RICKY LEE HANCOCK and BRENDA HANCOCK, husband wife; GREGORY S. ) HANCOCK and LINDA HANCOCK, hus- ) band and wife; RICK HANCOCK HOMES ) ) LLC, an Arizona Limited Liability Company; RLH Development, LLC, an Arizona ) ) Limited Liability Company; and J2H2, LLC, an Arizona Limited Liability Com) ) pany, ) ) Defendants. and ) ) GREG HANCOCK, an individual, ) Defendant, Counter-claimant ) MERITAGE HOMES CORPORATION, a Maryland Corporation, formerly dba Meritage Corporation; HANCOCK-MTH Builders, Inc., an Arizona corporation; HANCOCK-MTH Communities, Inc., an Arizona corporation, dba Meritage Homes Construction, Inc.; and MERITAGE HOMES OF ARIZONA, INC., an Arizona Corporation,
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No. CV 04-0384-PHX-ROS

REPLY TO MOTION TO WITHDRAW MAY 31, 2005 DISMISSAL ORDER

Filed 01/13/2006

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) ) vs. ) ) STEVEN J. HILTON, an individual; JOHN ) R. LANDON, an individual; LARRY W. ) SEAY, an individual; and SNELL & ) WILMER, LLP, an Arizona professional ) corporation, ) ) Third-Party Defendants. ) )

and Third-party Plaintiff,

I.

THE RESPONSE MISCHARACTERIZES KEY FACTS. Meritage's Response to Greg Hancock's Motion for Withdrawal of the Court's

May 31, 2005 Dismissal Order misstates key facts, casting strong negative light on Hancock and his counsel without factual justification. As a preliminary matter, it is necessary to call these inaccuracies to the Court's attention. A. Hancock Has Complied with All Discovery Obligations.

First, Meritage asserts that Hancock "did not respond to Meritage's [December 9, 2005] position paper [regarding discovery and certification] as directed by the Court." [Response at 3:3] This assertion is baffling. Hancock responded to all points raised in Meritage's position paper in his December 13, 2005 letter filed in this Court. That letter details his good faith efforts to comply with all discovery requests and orders and provides information the Court requested about his and his counsel's state of mind with respect to this litigation. B. Before the November 16, 2005 Order to Show Cause, Hancock Had No Obvious Opportunity to Brief the Anti-Injunction Act. Second, contrary to Meritage's portrayal of Hancock and his counsel as deliberately disregarding the Dismissal Order for months, [Response at 9:12-10:2]) Hancock and his counsel are not entirely responsible for the manner in which the AntiInjunction Act issue has come before the Court.
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The Dismissal Order was not issued following a motion and briefing by the parties: The Court entered the Dismissal Order sua sponte, without affording Hancock a prior opportunity to brief its merits or legality. Although before the Order was issued, the Court and counsel discussed aspects of the state court claims, including the res judicata effect this Court's rulings would have on them and the operation of Arizona's savings statute, the Court never raised the possibility that it would require Hancock to dismiss his state court claims, and the question whether such an order would be legal was never discussed. [See Transcript (March 11, 2005) at 49:25-53:25 (attached herewith at Exh. 1); Transcript (March 25, 2005) at 9:22-13:8 (attached herewith at Exh. 2)] If anything, the Court indicated that it had no authority over the state court action, remarking, "I don't know that I can force [Hancock] to do so [i.e., rely on the savings statute], particularly if the cause of action has been stayed in the superior court." [Transcript (March 25, 2005) at 13:3-5 (Exh. 2)] The Dismissal Order came as a complete surprise to Hancock's counsel. He responded by petitioning the Ninth Circuit to vacate the Order, and it was not until months later, in mid-August, that he received word that his petition had been denied. Within approximately two weeks after Hancock learned of the denial, the superior court had scheduled a hearing on Meritage's renewed motions for summary judgment or dismissal of the state court claims. In the meantime, while Meritage's two Motions for an Order to Show Cause prompted briefing in this Court related to the Order, the legality of the Dismissal Order was not a key issue in those motions. The main question in the first motion was whether Hancock's failure to request a stay pending his petition put him in contempt. [Motion for Order to Show Cause (Docket #167); Reply (Docket # 173)] In response to the second motion, Hancock asked the Court to delay enforcing the Order until the superior court ruled on Meritage's pending renewed dispositive motions. [Response in Opposition (Docket # 205)]

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In short, Meritage's characterization of Hancock as letting months slide by before he finally raised the Anti-Injunction Act does not square with the facts. It was not until the Order to Show Cause issued that the validity of the Dismissal Order came into question. Until that point, Hancock continued to argue that the Dismissal Order should be delayed and there was no obvious need for him to research and brief the legality of the motion.1 Hancock could have raised the matter after the Ninth Circuit denied his petition, but in the wake of that denial Meritage quickly revived the motions to dismiss in the Superior Court. Those motions shifted the focus of the case to the Superior Court, and, therefore, bringing a separate motion for reconsideration in District Court was not an obvious route for Hancock to take. C. This Court Has Never Found that Hancock's State Court Lawsuit Was "Harassing and Vexatious."

Meritage asserts as a fact that "this Court found after two hearings and an additional briefing that Hancock's state court litigation was harassing and vexatious in a manner that interfered with this Courts' management of pretrial discovery," citing in support the transcript of the December 7, 2005 hearing on the Order to Show Cause. [Response at 8:15-18] As the transcript bears out, this Court has never made such a finding. In the portions of the transcript Meritage relies on, the Court summarizes its discussions with Hancock's counsel regarding the state court action and concludes, "[A]ll of this is what concerns me on whether or not he acted in bad faith in pursuing an appeal before the Ninth Circuit without obtaining a stay before this Court. So that gives you the perspective that I have here today and what I would like you to respond to." [Transcript (December 7, 2005) at 10:20-24 (attached herewith at Exh. 3)] Yet, according to Meritage, this Court repeatedly asked Hancock to explain why he needed to file and pursue the state court action at this time. See Amended Order dated It was in briefing the Response to the Order to Show Cause that Hancock's counsel first became aware that the Dismissal Order violated the Anti-Injunction Act.
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May 31, 2005, at n.1 and 7:21-27; see also Transcript of Proceedings on December 7, 2005, at 8:20-10:24. Each time, Hancock gave an unsatisfactory answer; indeed, an answer about protecting the statute of limitations that is not supported by Arizona law. The Court then gave Hancock yet a third opportunity by asking him to brief the issue for the Court. See Transcript of Proceedings on December 7, 2005, at 9:1-10:7. Hancock failed to file the brief, despite the Court's request. [Response at 9:12-20] This account of Hancock's conduct is not substantiated by any part of the cited transcript or any other transcript. This Court has never stated that the reasons Hancock's counsel gave for filing the state court action were "unsatisfactory"; nor did this Court express a determination that Hancock's counsel's reasons for maintaining the action were "not supported by Arizona law." At the March 11th hearing, when the Court first asked about the state court claims, Hancock's counsel explained that Hancock had "now filed in counterclaim form the same claims we made in state court," and that he had offered to stipulate to leave the state court action on the inactive calendar. [Transcript (March 11, 2005) at 50:3-20 (Exh. 1)] At the March 25th hearing, Hancock's counsel agreed with the Court about the operation of the savings statute. [Transcript (March 25, 2005) at 9:22-25 (Exh. 2)] The transcript of these discussions gives no indication that the Court regarded Hancock's counsel's strategy of holding the state court claims in abeyance as "harassing or vexatious." And, contrary to Meritage's assertion, there is no record anywhere of this Court ever requesting briefing on the propriety of an order requiring Hancock to dismiss the state court action. D. Meritage Has Demonstrated an Intention to Thwart Hancock's Compliance with the Dismissal Order.

At the same time that it is pressing this Court to punish Hancock for his failure to seek dismissal of the state court claims, Meritage anomalously continues its efforts to prevent Hancock from complying with the Order. Prior to the superior court hearing on Meritage's motions to dismiss, Hancock asked Meritage to join in a stipulation to dismiss the state court claims without prejudice and Meritage refused to do so. In
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the Response, Meritage confirms that it is unwilling to go along with a dismissal without prejudice: "Hancock is correct in that he does not control what Meritage might do (e.g., Meritage may partially oppose the motion[)] . . . or what the Superior Court might do on its own (e.g., the Superior Court might conclude that Hancock has waited too long to dismiss all claims with prejudice and award fees)." [Response at 12:16-20] The Dismissal Order required Hancock to dismiss his claims, not merely to move for dismissal. Presumably, the Order was motivated by considerations of housekeeping and efficiency--the Court wanted all the claims to be heard in one forum and wanted to obviate the risk of conflicting rulings. Meritage seems to be under the impression that the purpose of the Order is not to consolidate the case in the District Court, but, rather, to bestow on Meritage some sort of tactical leverage, giving it license to thwart Hancock's efforts to comply with the Order. Meritage's position with respect to the Order is two-sided and inequitable. II. MERITAGE'S WAIVER ARGUMENTS ARE INAPPOSITE. In arguing that Hancock has waived his right to request that the Dismissal Order be withdrawn, Meritage relies in large part on Rule 59(e) of the Federal Rules of Civil Procedure, which governs the time for bringing a motion to alter or amend a judgment. [Response at 4-5] As Hancock is not seeking a new trial or to amend a judgment, the Motion for Withdrawal is not brought pursuant to Rule 59(e), and Meritage's arguments based on that rule are irrelevant here. Likewise, Meritage's contention that the Motion for Withdrawal cannot be brought pursuant to Rule 60(b)(4) is also misplaced. [Response at 6:5-7:14] Hancock does not bring his Motion under Rule 60(b)(4).2 Rule 60(b) enumerates various bases for bringing a motion for relief from an order. It is well established that the grounds enumerated in Rule 60(b)(1) through (b)(5) are mutually exclusive with part (b)(6): A party may not seek relief under one of the first five clauses of Rule 60(b) while simultaneously requesting relief under Rule 60(b)(6). Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, 11 FEDERAL PRACTICE AND PROCEDURE, Federal Rules of Civil Procedure § 2864 (2005).
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Rather, the Motion for Withdrawal is brought pursuant to Rule 60(b)(6), [Motion at 2:17-18 & 5:5-6], which provides: On motion and upon such terms as are just, the court may relieve a party, or a party's legal representative from a judgment, order, or proceeding for the following reasons: . . . (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time. One "significant feature of Rule 60(b)(6) is that there is no time limit, save that the motion be made within a reasonable time." 11 FEDERAL PRACTICE AND PROCEDURE § 2864. For the reasons set forth in section I.B., above, Hancock's motion is timely. The issuance of the November 16, 2005 Order to Show Cause was the first point at which the validity of the Dismissal Order came into sharp focus as a key issue. While in the earlier proceedings on Meritage's motions for an Order to Show Cause, Hancock could have raised the Anti-Injunction Act, the fact that he did not is understandable--and excusable--given that his obligation to move for a stay and his request to delay enforcing the Order pending the Superior Court's decision on the Meritage's motions on the claims--and not the Dismissal Order's legality--were the primary issues in those motions. Moreover, it is not the case that for relief to issue pursuant to Rule 60(b)(6), the basis for relief must have been raised at the first possible opportunity. Rule 60(b)(6) is "an equitable remedy to prevent manifest injustice." United States v. Alpine Land & Reservoir Co., 984 F.2d 1047, 1049 (9th Cir. 1993).3 In determining whether a Rule 60(b)(6) motion is timely, "the courts have focused . . . on whether the

The opinion Meritage relies on in support of its contention that the Motion for Withdrawal is not timely is inapposite. Carroll v. Nakatani, 342 F.3d 932 (9th Cir. 2003) concerned a motion to reconsider dismissal of a claim pursuant to Rule 59(e). In denying the motion, the court invoked the stricture that a Rule 59(e) motion may not introduce evidence or arguments that could have been reasonably raised at an earlier time. In contrast, courts considering Rule 60(b)(6) motions look at whether at some earlier point in the proceeding, the movant made a calculated decision not to raise evidence or arguments introduced in the motion.
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movant made a fair and deliberate choice at some earlier time not to move for relief." 11 FEDERAL PRACTICE AND PROCEDURE § 2864. The record here does not evince a strategy by Hancock to delay raising the Anti-Injunction Act issue. He should not be deemed to have waived his right to assert the Act as a basis for relief under Rule 60(b)(6). III. THE DISMISSAL ORDER DOES NOT FALL WITHIN ONE OF THE ANTI-INJUNCTION ACT'S LIMITED EXCEPTIONS. A. The "Vexatious Litigation" Exception Does Not Apply Here.

The Anti-Injunction Act imposes an "absolute prohibition against [a district court's] enjoining state court proceedings, unless the injunction falls within one of three specifically defined exceptions": (1) where an injunction is authorized by statute; (2) where the injunction is "necessary in aid of" the court's jurisdiction; and (3) where the injunction is necessary to perfect and effectuate the district court's jurisdiction. Atl. Coast Line R.R. Co. v. Bhd. of Locomotive Eng'rs, 398 U.S. 281 (1970); see also Bennett v. Medtronic, Inc., 285 F.3d 801, 806 (9th Cir. 2002) (recognizing Act's presumption in favor of parallel proceedings in state and federal court). In Winkler, the opinion Meritage relies on in suggesting that this case falls into one of the exceptions, the court acknowledged that "[o]rdinarily, the `aid of jurisdiction' exception to the Anti-Injunction Act applies only to parallel state in rem rather than in personam actions." Winkler v. Eli Lilly & Co., 101 F.3d 1196, 1202 (7th Cir. 1996) (citing Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 641-42 (1977)). However, the court went on to note that in certain cases parties may be able to use the dual court system in order to "render the exercise of the federal court's jurisdiction nugatory," citing for example, school desegregation cases involving ongoing federal oversight and consolidated multi-district litigation. In such cases, the court concluded, the district court would be authorized in enjoining state court proceedings if necessary to effectuate its jurisdiction.

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Winkler involved multi-district product liability litigation against a drug manufacturer. After one of the lead plaintiffs reached a secret litigation-ending agreement with the defendant and the plaintiff's attorney withdrew from the case, the district court issued an order barring discovery regarding the terms of the agreement and the attorney's withdrawal. Other plaintiffs then attempted to obtain this discovery through state court actions and the district court issued a writ prohibiting any such discovery. 101 F.3d at 1198-1201. The appeals court agreed, theoretically, that "district courts in charge of complex multidistrict litigation have the authority to issue injunctions to protect the integrity of their pre-trial rulings," but vacated the order because the district court had failed to make necessary findings of fact regarding whether the secret agreement and the attorney's withdrawal would have an impact on the multidistrict litigation. Id. at 1206. While Winkler recognized that the Anti-Injunction Act's "necessary in aid of jurisdiction" exception may apply in the context of complex multidistrict litigation, Winkler does not stand for Meritage's much broader proposition that a district court may enjoin a state court action any time it deems the action "vexatious." To the contrary, Winkler reaffirmed the general presumption in favor of allowing parallel court actions. This case bears no resemblance to the complex multidistrict litigation at issue in Winkler, of course, and Winkler offers no support for extending the "necessary in aid of jurisdiction" exception to permit the federal court to enjoin a parallel state court proceeding, especially one that has languished indefinitely on the state court's inactive calendar. B. The Court Has Never Found the State Court Case "Vexatious."

The gist of Meritage's case for the validity of the Dismissal Order is that this Court "found" that Hancock's state court action was harassing and vexatious. [Response at 7:16-8:20] As discussed in detail in section I.C., above, this Court has never made such a finding. In fact, when the Court and Hancock's counsel discussed
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the state court claims in two different hearings, the Court never said anything to suggest that it found Hancock's state court action vexatious or harassing. To the contrary, the Court appeared to acknowledge that in filing the claims in state court Hancock's counsel was sincerely motivated by strategic concerns (i.e., that the state court suit was necessary to preserve the claims and whatever calendaring advantages he could garner in the face of the District Court case's imminent dismissal), but the Court disagreed with Hancock as to the continuing legitimacy of those concerns following the Court's denial of the Defendants' motions to dismiss. Hancock's counsel made clear to the Court that he intended to keep the state court complaint on the inactive calendar so that there would be no interference with the federal proceedings. Thus, even if Meritage were correct in its assertion that a district court may enjoin state court actions that it finds "vexations and harassing," there would be no basis for an injunction in Hancock's state court action because the action is not vexatious or harassing. See Winkler, 101 F.3d at 1206 (vacating injunction against state court actions in absence of supportive findings). IV. Conclusion Considerations of equity militate in favor of the Court's withdrawing the Dismissal Order. The Order clearly violates the Anti-Injunction Act, which establishes a strong presumption in favor of parallel in personam proceedings. As explained in the Motion for Withdrawal, the Order injects needless complication into the proceedings in state court, usurping the superior court judge's authority to determine the character of the claims' dismissal and the scope of any award of fees and costs. The Order adds new dimensions of confusion to the case, forcing Hancock to choose between his right to appeal the dismissal and risk further contempt proceedings in district court should he bring an appeal.

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· · · ·

For these reasons, Hancock respectfully requests that this Court withdraw its Dismissal Order. RESPECTFULLY SUBMITTED this 13th day of January, 2006. OSBORN MALEDON, P.A.

s/ Sarah Ellison Porter Mark I. Harrison Sarah Ellison Porter 2929 North Central Avenue, Suite 2100 Phoenix, Arizona 85012-2794 Attorneys for Greg & Linda Hancock and Robert Frisbee, Counsel of Record I hereby certify that on this 13th day of January, 2006 , I electronically transmitted the attached 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:
· · · · ·

·

Timothy J Burke [email protected] [email protected];[email protected] Richard Gray Erickson [email protected] [email protected],[email protected] Robert Marrs Frisbee [email protected] [email protected] Dan W Goldfine [email protected] [email protected];[email protected] Emma Cathrene Harty [email protected] Adam Elliott Lang [email protected] [email protected],[email protected] Ivan Kurian Mathew [email protected] [email protected];[email protected] Kenneth J Sherk [email protected] [email protected] John R Tellier [email protected] [email protected] Jason Scott Vanacour [email protected] [email protected],[email protected]

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I hereby certify that on 13th day of January, 2006, I served the attached document by mail on the following, who are not registered participants of the CM/ECF System: Joe M Romley Joe M Romley PC 3550 N Central Ave, Ste 1800 Phoenix, AZ 85012 s/ Lindsay B. Jensen ___

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