Ex-Rite Aid GC Loses Yet Another CaseSue Reisinger Corporate Counsel
2012-10-24 00:00:00.0
Franklin Brown, the ex-convict and ex-general counsel of Rite Aid Corp., is 0 for 3 against his former boss and fellow ex-con Martin Grass. But Brown keeps trying.
Brown’s latest effort ended last week when the U.S. Court of Appeals for the Fourth Circuit ruled against him. The court opinion [PDF] is interesting for suggesting, if nothing else, how $30 million worth of securities could be misappropriated from a company and its shareholders, with apparently no one held accountable.
The secret is to hide it long enough until the statute of limitations expires.
But back to Brown, the three-time loser.
First, Grass testified against the former GC in his 2003 trial over an $18 million accounting scandal at Pennsylvania-based Rite Aid. Brown’s defense attorney blamed Grass and others for the scandal, but Brown was convicted and served 71 months of a 7½-year prison sentence.
Brown, who was disbarred, got out of prison in August of 2011.
Grass pled guilty, after reaching a deal with prosecutors and testifying against Brown, and received a shorter sentence.
Then came round two. Brown’s wife, Karen, sued Grass for allegedly reneging on a private stock-purchase deal made in 2001, which the Browns claim lost them some $5 million. Grass denied breaching the contract and claimed that the Browns scammed him out of several million dollars. This time Brown testified against Grass.
But last December, a jury in U.S. Middle District Court in Harrisburg found that Grass didn’t violate the stock agreement and that the Browns had met their obligations as well. So Grass won over Brown again.
And now we sound the bell for round three. Last week the appeals court upheld a lower court ruling favoring Grass over the Browns in yet another alleged fraud.
In this case, the Browns had sued Grass—along with the Baltimore law firm Neuberger, Quinn, Gielen, Rubin & Gibber and two name attorneys, Isaac Neuberger and Michael Quinn—for fraud and breach of fiduciary duties.
The appellees’ attorney, James Ulwick of Kramon & Graham in Baltimore, denied the accusations. Neuberger and Quinn didn’t return messages, but Ulwick spoke to CorpCounsel.com for the firm.
“The firm does not agree that any of the things the Browns claim actually happened,” Ulwick said. “We would have denied it had the case gotten that far, but we didn’t need to because the court dismissed it first.”
According to the unpublished opinion, $30 million worth of securities were allegedly misappropriated at Rite Aid in 1994 during the sale of a subsidiary to Martin Grass’s father.
Brown alleged that Grass, or someone working on his behalf, forged Brown’s signature from another document on papers that allowed Grass to move the securities through various shell corporations and into Grass’s private trust.
Grass named Brown’s wife, Karen, as trustee but replaced her in 2005. She claimed not to know at that time where the trust money came from.
The opinion states that in 2004, Brown alerted both the government and Rite Aid’s new general counsel, William Slaughter, about the possible theft of securities. But the Browns remained unaware that they might be implicated in the wrongdoing.
When Rite Aid discovered the securities missing, it naturally suspected the Browns were in on the theft because of his signature on the documents and her trusteeship. The company sued the Browns and Grass in 2005 in a case that was dismissed for improper venue, and again in 2006.
Brown alleged that Grass used the Neuberger law firm to help move the securities through the shell corporations, and that the law firm misled the Browns about their liability in the Rite Aid suit.
Karen Brown alleged that she received a phone call from Neuberger offering to represent the Browns in the Rite Aid suit without charge, according to the opinion. Neuberger, who was representing Grass, allegedly told the Browns that the Rite Aid claims “were specious and nothing to worry about.”
But Ulwick’s brief said the law firm never represented Brown in the case.
Not until 2006, the Browns claim, when they hired their own counsel, did they see the forged signature on the documents. Upon further investigation, the Browns allegedly “learned for the first time that Isaac Neuberger, Michael Quinn, and NQGRG had facilitated the corporate name changes that helped Martin Grass secret his theft of the investment securities from Rite Aid,” the opinion states.
Rite Aid’s lawsuit was eventually dismissed as untimely, having been filed 11 years after the theft. And the Grass trust allegedly kept the proceeds from Rite Aid’s securities.
Brown fared no better than Rite Aid in his civil suit. Brown claimed that he and his wife didn’t know about or participate in the securities scheme, and that Rite Aid only sued them because they were wrongfully implicated by Grass.
The U.S. District Court in Baltimore ruled that the Browns were on notice of the claims in September 2005 and had three years to file their suit. But they waited too long.
The court found their claim time-barred and granted defendants’ motion for summary judgment. On appeal, the circuit court affirmed the ruling on October 18, saying the Browns didn’t exercise reasonable diligence when they suspected the wrongdoing.
The Browns’ “lack of diligence alone is fatal” to their arguments, the appeals court said, without examining the merits of the case.
Brown’s attorney, Ray Shepard of Smith, Gildea & Schmidt, in Towson, Maryland, declined comment on the case.
So Martin Grass sticks it to Brown for a third time. Will there be a round four? It seems so.
Shepard, Brown’s attorney, said Brown has filed notice of another action in state court in Pennsylvania. Details of the claims will be “forthcoming,” he said, but it is “indirectly related” to last week’s case.
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