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A federal judge has pruned some of the claims from a lawsuit brought by a lawyer who says he left his partnership of Klett Rooney Lieber & Schorling in Philadelphia to take a vice president’s post at Rite Aid Corp. only to be fired less than two years later in the wake of Rite Aid’s financial scandal. U.S. District Judge Mary A. McLaughlin of the Eastern District of Pennsylvania found that while attorney William A.K. Titelman can sue Rite Aid for breach of contract, his fraud claim must be dismissed under Pennsylvania parol evidence rule. Likewise, McLaughlin held that Titelman cannot pursue a claim for unjust enrichment because his relationship with Rite Aid was purely contractual. According to the suit, Titelman left his senior partnership at Klett Rooney in March 1998 to join Rite Aid as an executive vice president at a salary of $375,000 plus stock options and bonuses. His contract also provided for a “golden parachute.” In July 1999, Titelman agreed to move to Washington, D.C., with a new agreement that boosted his salary to more than $460,000 and a guaranteed bonus of at least $100,000 and potentially equal to his base salary. The 1999 agreement also provided that Rite Aid would loan Titelman $1 million to buy a home in the Washington area, and that the loan would be forgiven at a rate of $100,000 per year. Titelman claims that prior to making the move to Washington, he questioned Rite Aid executives about “persistent rumors” that the company was suffering from severe financial problems despite its public filings that portrayed the company as profitable. He claims he was assured that Rite Aid was financially sound, and that his relocation should go forward as planned. But within days of moving to Washington, Titelman says, he was instructed to cancel the relocation of his staff because the financial problems at Rite Aid had become public knowledge. In October 1999, Rite Aid announced that it was restating its earnings downward for the previous three years by $500 million — a move that caused the company’s stock price to plummet and led to the resignation of its chairman. The following month, Titelman and other company executives were given additional stock options to compensate for the sudden worthlessness of their previous stock options, the suit says. In January 2000, Titelman says, he was asked to resign by Rite Aid’s new chairman, Robert Miller. Titelman claims Miller told him that the company would honor his contract, and that the request for his resignation was not related to his job performance. But Titelman says he refused to resign because he was being asked to sign a general release that would have resulted in his forfeiting contractual rights. As a result, he says, he was promptly fired. In July 2000, Titelman filed suit alleging claims of fraud, unjust enrichment, breach of contract and ERISA violations. Rite Aid’s lawyers — William A. Slaughter and Douglas L. Flitter of Ballard Spahr Andrews & Ingersoll in Philadelphia, along with Lisa A. D’Avolio and David E. Schwartz of New York-based Skadden, Arps, Slate, Meagher & Flom — moved to dismiss the ERISA, fraud and unjust enrichment claims. Now Judge McLaughlin has granted the motion in its entirety. McLaughlin found that Titelman’s fraud claim has two prongs — that he was induced to leave his law practice and later to move to Washington by his reliance on the company’s false and misleading financial statements; and that he was induced to join the company by a false promise of a golden parachute. Rite Aid’s lawyers argued that the fraud claim was barred by Pennsylvania’s parol evidence rule, and that the golden parachute claim was barred by the “gist of the action” doctrine. In her opinion, McLaughlin traced the parol evidence rule back to the Pennsylvania Supreme Court’s 1953 decision in Bardwell v. Willis. Since then, McLaughlin found, Pennsylvania courts have consistently enforced the rule in cases where both parties were sophisticated and their negotiations resulted in a final, fully-integrated written contract. Titelman’s lawyers, John H. McKeon of Conrad O’Brien Gellman & Rohn in Philadelphia and Gerald S. Berkowitz of Malvern, Pa., argued that the parol evidence rule bars a fraud in the inducement claim only where the subject matter of the allegedly fraudulent statement is included in the final written agreement. But McLaughlin found that federal judges sitting in Pennsylvania have consistently rejected that argument. “The analysis in these cases makes sense,” McLaughlin wrote. “One of the assumptions underlying the parol evidence rule is that parties logically will insist on inclusion of all matters material or important to them in any integrated contract.” Titelman’s reading of the rule, she said, “runs counter to this assumption.” Instead, McLaughlin said, “there is no reason to allow a fraud in the inducement claim to go forward when the plaintiff alleges that he relied on allegedly fraudulent statements that he did not insist be included in the final written agreement.” Titelman argued that the rule should not bar a claim of fraudulent concealment and non-disclosure, as opposed to one involving an allegedly affirmative misstatement. McLaughlin disagreed, saying the rule bars claims for both affirmative fraudulent statements and fraudulent omissions. She also found that the golden parachute claim is barred by Pennsylvania’s “gist of the action” doctrine that limits plaintiffs to contract claims where their purported tort claims arise from a contractual relationship. McLaughlin also found that Pennsylvania long ago barred plaintiffs from pursuing a “quasi-contractual” claim for unjust enrichment whenever the relationship between the parties is founded on a written agreement. Finally, McLaughlin dismissed Titelman’s ERISA claims because he conceded that he cannot plead a valid claim without the necessary documents that he expects to get in discovery. Rite Aid’s lawyers had argued that Titelman’s deferred compensation and stock options are not subject to ERISA, and that, even if they were, they would be considered a “top hat” plan to which no fiduciary duty attaches. McLaughlin dismissed the ERISA claims “without prejudice,” meaning that Titelman may add them back into the case at a later date after he receives the documents.

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