Shea Homes Incorporated et al v. Crouch et al

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WO
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
Shea Homes Incorporated, et al.,
Plaintiffs,
v.
James Crouch, et al.,
Defendants.
No. CV-25-03884-PHX-JJT
ORDER
At issue is Plaintiffs’ Motion to Dismiss Counterclaims (Doc. 18, Mot.), to which
Defendants filed a Response (Doc. 20, Resp.) and Plaintiffs filed a Reply (Doc. 21, Reply).
For the reasons set forth below, the Court grants Plaintiffs’ Motion.
I. BACKGROUND
In the Complaint (Doc. 1, Compl.), Plaintiffs allege the following. Plaintiffs have a
national real estate business to develop, manage, build, and sell resort lifestyle residential
communities and related services, primarily to those age 55 and older. (Compl. ¶ 12.)
Plaintiffs use the Trilogy® brand, which is “consistently and nationally recognized for
trust, lifestyle quality, and community innovation.” (Compl. ¶ 13.) Plaintiffs allege that
Defendants, who are homeowners in the Wickenburg Ranch (WR) community in Arizona,
made false and defamatory statements between 2024 and 2025 to the effect that WR is not
a Trilogy® community. (Compl. ¶¶ 26–29.) Defendants persisted in making these
statements even after demands to stop, including a cease-and-desist letter sent in September
2025. (Compl. ¶ 31.) As a result, Plaintiffs filed the Complaint on October 17, 2025, raising
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four claims: defamation, defamation per se, trade libel / business disparagement / injurious
falsehood, and tortious interference with business expectancy. (Compl. ¶¶ 40–67.)
On November 24, 2025, Defendants, who appear pro se in this matter, filed an
Amended Answer that includes four counterclaims. (Doc. 17, Am. Ans.) In Count 1,
Defendants seek a declaratory judgment that no community-wide Trilogy® license exists.
(Am. Ans. at 9–10.) In Count 2, Defendants seek a declaratory judgment that Plaintiffs are
not the developers of the WR community. (Am. Ans. at 10.) In Count 3, Defendants claim
that Plaintiffs’ commencement of the current litigation is an abuse of process used to deter
Defendants’ efforts to “seek governmental review of WR governance and required
disclosures.” (Am. Ans. at 11.) And in Count 4, Defendants allege that Plaintiffs published
defamatory statements regarding Defendants’ character that caused reputational and
emotional harm. (Am. Ans. at 12.) Plaintiffs now seek dismissal of Defendants’
counterclaims with prejudice. (Mot. at 1.)
II. LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(6) is designed to “test[] the legal sufficiency
of a claim.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A dismissal under Rule
12(b)(6) for failure to state a claim can be based on either: (1) the lack of a cognizable legal
theory; or (2) the absence of sufficient factual allegations to support a cognizable legal
theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). When
analyzing a complaint for failure to state a claim, the well-pled factual allegations are taken
as true and construed in the light most favorable to the nonmoving party. Cousins v.
Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). A plaintiff must allege “enough facts to state
a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).
“The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more
than a sheer possibility that a defendant has acted unlawfully.” Id.
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“While a complaint attacked by a Rule 12(b)(6) motion does not need detailed
factual allegations, a plaintiff’s obligation to provide the grounds of his entitlement to relief
requires more than labels and conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Twombly, 550 U.S. at 555 (cleaned up and citations omitted).
Legal conclusions couched as factual allegations are not entitled to the assumption of truth
and therefore are insufficient to defeat a motion to dismiss for failure to state a claim. Iqbal,
556 U.S. at 679–80. However, “a well-pleaded complaint may proceed even if it strikes a
savvy judge that actual proof of those facts is improbable, and that ‘recovery is very remote
and unlikely.’” Twombly, 550 U.S. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236
(1974)).
III. ANALYSIS
Plaintiffs argue Counts 1 and 2 should be dismissed because Defendants improperly
attempt to create an independent cause of action in those claims and they lack standing to
challenge the existence of a community-wide Trilogy® trademark license. (Mot. at 4.)
Plaintiffs argue Count 3 should be dismissed because Defendants fail to allege improper
use of a court-issued process. (Mot. at 5.) Finally, Plaintiffs argue Count 4 should be
dismissed because Defendants base their defamation claim solely on privileged
communications. (Mot. at 6.) The Court now addresses these arguments in turn.
A. Counts 1 and 2
Under Count 1, Defendants seek a declaratory judgment that no community-wide
Trilogy® license exists. (Am. Ans. at 9.) In Count 2, Defendants seek a declaratory
judgment that Plaintiffs are not the developers of the WR community. (Am. Ans. at 10.) A
party fails to state a claim when it fails to allege a valid legal theory. Twombly, 550 U.S. at
555. A valid legal theory requires the party to identify a substantive right and provide
grounds of entitlement to relief. Balistreri, 901 F.2d at 699; Siino v. Foresters Life Ins. &
Annuity Co., 133 F.4th 936, 945 (9th Cir. 2025). Here, with regard to Defendants’ first two
counterclaims, unless a special exception exists, non-signatories to a contract do not have
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standing to adjudicate the related contractual rights. Henderson v. Moskowitz, 579 P.3d
869, 873 (Ariz. 2025).
Plaintiffs argue, and the Court agrees, that neither Counts 1 nor 2 raise a cognizable
legal theory, thus subjecting Defendants’ counterclaims to dismissal. Although not
explicitly stated in the Amended Answer, it appears Defendants seek a declaratory
judgment on the non-existence of a community-wide Trilogy® license to uproot the
defamation claims Plaintiffs raise in the Complaint. (Am. Ans. at 9–10.) In other words, to
challenge Plaintiffs’ defamation claims, Defendants challenge the existence of the
trademark license for the Trilogy® brand.
But Defendants fail to identify any related substantive rights belonging to them. The
existence of a community-wide license, like other contractual rights, can only be litigated
by the parties to the contract. Defendants do not allege they are a party to any Trilogy®
licensing agreement, past or present, nor do they allege facts to show they are intended
third party beneficiaries to such a licensing agreement. Accordingly, Defendants do not
have standing to litigate Trilogy® trademark licensing held by Plaintiffs.
With respect to Count 2, Defendants’ claim that Plaintiffs are not the developer—
presumedly of the WR community as a whole—also improperly attempts to adjudicate the
existence of or rights under a licensing or related agreement to which Defendants are not a
party. Because Defendants are not entitled to relief regarding the adjudication of a
Trilogy® trademark license or any other applicable agreement, they lack the cognizable
legal theory required to seek a declaratory judgment in Counts 1 or 2. Because the Court
does not find Defendants can cure the defects in these claims by amendment, the Court will
dismiss Counts 1 and 2 without leave to amend. Lopez v. Smith, 203 F.3d 1122, 1127–30
(9th Cir. 2000).
B. Count 3
Under Count 3, Defendants claim that Plaintiffs’ initiation of the current proceeding
constitutes an abuse of process. (Am. Ans. at 11.) An abuse of process claim is established
by showing two essential elements: “(1) a willful act in the use of judicial process; (2) for
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an ulterior purpose not proper in the regular conduct of the proceedings.” Nienstedt v.
Wetzel, 651 P.2d 876, 881 (Ariz. Ct. App. 1982). A judicial process is defined as an action
authorized or sanctioned by a court. Fappani v. Bratton, 407 P.3d 78, 81–82 (Ariz. Ct.
App. 2017); Rondelli v. Pima County, 586 P.2d 1295, 1301 (Ariz. Ct. App. 1978). Mere
initiation of a lawsuit does not constitute an abuse of process. Joseph v. Markovitz, 551
P.2d 571, 575 (Ariz. Ct. App. 1976). Filing a lawsuit is a regular use of process and not an
abusive act by itself regardless of any alleged ulterior motive for commencement. Fappani
407 P.3d at 84; see also Simon v. Navon, 71 F.3d 9, 16 (1st Cir. 1995) (collecting cases
form various states and stating, “Filing of a lawsuit is a ‘regular’ use of process, and
therefore may not on its own fulfill the requirement of an abusive act, even if the decision
to sue was motivated by a wrongful motive, purpose, or intent.” (citations omitted)).
Defendants allege that Plaintiffs initiated the current litigation to stymie
Defendants’ efforts to seek government intervention regarding the administration of WR.
(Am. Ans. at 11.) Defendants do not point to any action other than the filing of the
Complaint as the basis for their abuse of process counterclaim. The abuse of process
counterclaim thus falls short on the first prong of the test dictated in Nienstedt, 651 P.2d at
881. Claims for abuse of process are reserved for judicial processes that take place in the
course of a judicial proceeding, not for challenging potential reasons for initiating a lawsuit.
Therefore, Defendants fail to state an abuse of process claim.
Moreover, Defendants’ counterclaim also fails the second prong of the test dictated
in Nienstedt, 651 P.2d at 881. Specifically, Defendants’ allegations do not raise the
plausible inference that Plaintiffs’ initiation of this lawsuit was for an ulterior purpose not
associated with the regular conduct of the filing of a lawsuit. On the contrary, Plaintiffs
have made specific allegations in the Complaint that regularly give rise to litigation,
including the defamation claims alleged therein. As the Simon court observed, the filing of
a lawsuit is a regular use of process despite any alleged wrongful motives for commencing
the lawsuit. 71 F.3d at 16. Accordingly, the Court will dismiss Count 3, and because the
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Court finds Defendants cannot cure the defects in this counterclaim, Defendants may not
amend this counterclaim. See Lopez, 203 F.3d at 1127–30.
C. Count 4
Lastly, in Count 4, Defendants allege that Plaintiffs have “published” statements
defaming Defendants’ character. (Am. Ans. at 12.) In Arizona, the absolute litigation
privilege bars claims that stem wholly from statements made in connection with judicial
proceedings. Green Acres Tr. v. London, 688 P.2d 617, 623 (Ariz. 1984). Arizona provides
absolute privilege for a party to publish allegedly false and defamatory material within
pleadings if the material is relevant to the issues of the litigation and not “completely
frivolous.” Sierra Madre Dev. v. Via Entrada Townhouses Ass’n, 514 P.2d 503, 506–07
(Ariz. Ct. App. 1973).
In the counterclaim, Defendants do not point to any specific source of defamatory
material to support their claim. (Am. Ans. at 12.) That is, Defendants have made no
reference, including in the exhibits to the Amended Answer, to any document or statement
allegedly containing defamatory material. Defendants’ sole reference to defamatory
material is their allegation that their honesty, motives, and character have been attacked
through false statements published by Plaintiffs. (Am. Ans. at 12.) The Court must
therefore conclude that Defendants allege that Plaintiffs have defamed them only by way
of the Complaint.
Plaintiffs argue, and the Court agrees, that the statements contained in the Complaint
are privileged and may not constitute the basis for a defamation claim. While a question
whether the privilege applies may arise when an irrelevant or an out-of-court statement is
made in connection with a judicial proceeding, Defendants’ counterclaim does not
implicate that question. The statements contained in the Complaint were made for the
purpose of bringing this litigation and are not “completely frivolous.” See Sierra Madre
Dev. 514 P.2d at 506–07. Therefore, Plaintiffs’ statements in the Complaint are absolutely
privileged, thus barring a defamation claim based thereon. Accordingly, the Court will
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dismiss Count 4, and because the Court finds Defendants cannot cure the defects,
Defendants may not amend the counterclaim. See Lopez, 203 F.3d at 1127–30.
IT IS THEREFORE ORDERED granting Plaintiffs’ Motion to Dismiss
Counterclaims (Doc. 18) and dismissing Defendants’ counterclaims (Doc. 17) without
leave to amend.
Dated this 23rd day of February, 2026.
Honorable John J. Tuchi
United States District Judge
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