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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND FRANKLIN C. BROWN, et al. v. NEUBERGER, QUINN, GIELEN, RUBIN & GIBBER, P.A., et al. : : : : : : ...o0o... MEMORANDUM Plaintiffs Franklin S. Brown ("Mr. Brown") and Karen C. Brown ("Mrs. Brown" and collectively with Mr. Brown, the "Browns") have filed the present lawsuit against the law firm of Neuberger, Quinn, Gielen, Rubin & Gibber ("NQGRG"), individual attorneys Isaac M. Neuberger and Michael L. Quinn (collectively with NQGRG, the "NQGRG defendants"), and Martin Grass, former CEO of the Rite Aid Corporation ("Rite Aid").1 The amended complaint (the "complaint") alleges seven causes of action relating to injuries the Browns sustained while having to defend against a 2005 civil lawsuit brought by Rite Aid (the "Rite Aid lawsuit").2 Specifically, the Browns allege they were wrongly accused in the Rite Aid lawsuit as a result of the fraudulent actions of the defendants. Now pending are the defendants' motions to dismiss or, in the alternative, for summary judgment. The motions have been fully briefed and the court heard oral argument on June 18, 2010.3 For the reasons set forth below, the defendants' motions

CIVIL NO. CCB-09-1684

The original complaint also named Robert C. Campbell as a defendant. He has since been dismissed from the lawsuit.
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Count I alleges breach of fiduciary duty against Martin Grass; Count II alleges breach of fiduciary duty against Defendants Neuberger, Quinn, and NQGRG; Count III alleges civil conspiracy against all defendants; Count IV alleges fraud against all defendants; Count V alleges constructive fraud against all defendants; Count VI alleges wrongful appropriation of name against all defendants; and Count VII alleges negligence against all defendants. The parties had already briefed motions to dismiss the original complaint before the 1

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will be granted. BACKGROUND This lawsuit is the product of a series of unfortunate events at Rite Aid. At the time this suit was filed, both Mr. Brown and Martin Grass were serving time in federal prison for their criminal acts as Rite Aid executives.4 The present allegations are based on the 1994 sale of a Rite Aid subsidiary, Sera-Tec Biologicals, Inc. ("Sera-Tec"), and the subsequent Rite Aid lawsuit against Mr. Brown and Martin Grass, among others, for their allegedly fraudulent acts associated with the Sera-Tec sale. I. The Sera-Tec Sale Rite Aid became a publicly-traded company in 1968. Mr. Brown was the General Counsel of Rite Aid from 1968 to 2000, and had been the personal friend of and attorney for Alex Grass, Rite Aid's founder, since 1954. Mr. Brown continued to work for Rite Aid even after Martin Grass, the son of Alex Grass, was promoted from President of Rite Aid to CEO and Chairman of the Board in 1995. Rite Aid acquired Sera-Tec as a subsidiary in 1970; by 1990 Rite Aid owned all of SeraTec's stock through a holding company called Life-Aid Services, Inc. ("Life-Aid"). Also through Life-Aid, Rite Aid owned minority shares in two additional companies: Immucor Corp. and Isolyser, Inc. (the "Investment Securities"). As part of a national expansion effort, Rite Aid decided to divest Sera-Tec, along with other non-core businesses, in 1994. Alex Grass decided that he wanted to purchase Sera-Tec from Rite Aid and, with the assistance of NQGRG, formed a company called A.G. Capital, Inc. Browns amended their complaint. Accordingly, the parties have incorporated their initial papers into their present briefs. The transactions at issue in the criminal cases against Mr. Brown and Martin Grass are not directly at issue in the present matter. 2
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("A.G. Capital") for the purpose of bidding on Sera-Tec. The complaint alleges that in 1994 either A.G. Capital was owned in significant part by the Alexander Grass Descendants' Trust (the "Trust"), or the Trust received significant assets from A.G. Capital. Alex Grass and Mr. Brown were excluded from all internal Rite Aid meetings regarding the sale of Sera-Tec because they were insiders of publicly-traded Rite Aid. The Browns allege that Martin Grass did not disclose his interest in any companies planning to bid on Sera-Tec and therefore was not excluded. A Special Committee was formed to handle the sale. After an auction, A.G. Capital was deemed the successful bidder, and a stock purchase agreement was prepared on July 11, 1994. This agreement set forth the assets that were to be sold from Rite Aid to A.G. Capital. The Investment Securities were not part of the sale, and bidders had not included the value of those securities in their bids. The crux of the Browns' complaint is that Martin Grass, or someone acting on his behalf, copied Mr. Brown's and Alex Grass's signatures without their knowledge onto false documents related to the sale of Sera-Tec in order to secretly transfer the Investment Securities to A.G. Capital, and to make it look as though they were part of the sale all along. In short, Martin Grass is alleged to have transferred the Investment Securities to A.G. Capital without paying for them, using Mr. Brown's name and position to give the false documents credibility. The complaint alleges that the defendants placed fraudulently created documents purporting to bear Mr. Brown's and Alex Grass's signatures into a secret file at Rite Aid (the "Secret File"). These documents included a revised disclosure statement and delivery confirmations. The closing for the Sera-Tec sale occurred on October 7, 1994 at the law offices of NQGRG in Baltimore, Maryland. Mr. Brown did not attend the closing, allegedly because Martin Grass informed him that his services were not needed. On March 5, 1995, Martin Grass

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succeeded his father as CEO and Chairman of the Board of Rite Aid. The complaint alleges that Martin Grass, with the assistance of the NQGRG defendants, subsequently created a series of shell companies to hold the Investment Securities and then sell them for a total of $30 million. The ill-gotten gains were allegedly deposited into the Trust. According to the Browns, Mr. Brown had no reason to suspect the scheme because of his exclusion from the Sera-Tec deal. II. The Rite Aid Lawsuit Mr. Brown retired from Rite Aid in 2000, and in 2001 Mrs. Brown became Trustee of the Trust. Then, according to the complaint, years after Mr. Brown's retirement, Rite Aid and/or federal law enforcement personnel discovered the Secret File created by Martin Grass and the NQGRG defendants. The Browns allege that, as a result, on September 12, 2005, Rite Aid named Mr. Brown, Alex Grass, Martin Grass, and Mrs. Brown as Trustee as defendants in a civil lawsuit filed in Dauphin County, Pennsylvania. The lawsuit alleged that Alex and Martin Grass fraudulently converted the Investment Securities, and that Mr. Brown aided and abetted them by retaining the Secret File. The Browns allege, however, that Mr. Brown's only connection to the Secret File was his misappropriated signature on the fraudulent disclosure statement and delivery certificates. The Browns further allege that at the time the Rite Aid lawsuit was filed, Mr. Brown was unaware that Martin Grass and the NQGRG defendants had forged his signature. According to the Browns, in order to keep them from discovering the misappropriation of Mr. Brown's signatures, Mr. Neuberger contacted Mrs. Brown and offered to represent her and her husband in the Rite Aid lawsuit. The representation of the Browns by NQGRG was to be paid for in full by Alex and Martin Grass, and the Browns allege they were told that they only would have to pay for local counsel. The Browns claim they agreed to Mr. Neuberger's offer because they had worked with NQGRG in the past and trusted the firm. But they also claim that

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NQGRG restricted the flow of information to them in order to cover up the fraudulent Sera-Tec sale. In addition, the Browns allege that Martin Grass and the NQGRG defendants further concealed their fraud by removing Mrs. Brown as Trustee in the fall of 2005. The NQGRG defendants, on the other hand, argue that they never represented the Browns in the Rite Aid lawsuit. They contend instead that Jack J. Bernstein served as the Browns' attorney at all times during the Rite Aid lawsuit in Pennsylvania. On March 16, 2006, following objections to venue in Pennsylvania, Rite Aid filed a second, almost identical, lawsuit in New York. After the second suit was filed, the Browns elected to have Amy Adelson and Daniela Klare-Elliot of Dershowitz, Eiger & Adelson represent them, since the firm was already representing Mr. Brown in his criminal appeal. The Rite Aid lawsuit was ultimately dismissed as time-barred, but the Browns allege they incurred expenses in excess of $100,000 in defending the suit. They filed the present lawsuit on June 25, 2009 in order to recoup those expenses. The defendants have moved to dismiss the complaint or, in the alternative, for summary judgment on the grounds that the Browns' claims are time-barred under the applicable three-year statute of limitations. They also argue that the Browns are judicially estopped from bringing this action. For the following reasons, the defendants' motions will be granted. ANALYSIS I. Standard of Review "[T]he purpose of Rule 12(b)(6) is to test the sufficiency of a complaint and not to resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Presley v. City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006) (internal quotation marks and alterations omitted) (quoting Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir.

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1999)). When ruling on such a motion, the court must "accept the well-pled allegations of the complaint as true," and "construe the facts and reasonable inferences derived therefrom in the light most favorable to the plaintiff." Ibarra v. United States, 120 F.3d 472, 474 (4th Cir.1997). To survive a motion to dismiss, the factual allegations of a complaint "must be enough to raise a right to relief above the speculative level, . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations and alterations omitted). Thus, the plaintiff's obligation is to set forth sufficiently the "grounds of his entitlement to relief," offering more than "labels and conclusions." Id. (internal quotation marks and alterations omitted). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not `show[n]'-`that the pleader is entitled to relief.'" Ashcroft v. Iqbal, -U.S. --, 129 S. Ct. 1937, 1950 (2009) (quoting Fed. R. Civ. P. 8(a)(2)) Where, as in this case, materials outside the pleadings are proffered by the parties and relied on by the court, the motion may be converted to one for summary judgment. See Fed. R. Civ. P. 12(b); Gadsby by Gadsby v. Grasmick, 109 F.3d 940, 949 (4th Cir. 1997); Paukstis v. Kenwood Golf & Country Club, Inc., 241 F. Supp. 2d 551, 556 (D. Md. 2003). The parties, however, must be provided with notice that a Rule 12(b)(6) motion may be treated as a motion for summary judgment, which can be satisfied when a party is "aware that material outside the pleadings is before the court." Gay v. Wall, 761 F.2d 175, 177 (4th Cir. 1985); see also Laughlin v. Metro. Washington Airports Auth., 149 F.3d 253, 261 (4th Cir. 1998) (commenting that a court has no obligation "to notify parties of the obvious"). In this case, the Browns were on notice and attached documents to their responses. Accordingly, the court will treat the defendants' motions as ones for summary judgment.

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Federal Rule of Civil Procedure 56(c) provides that summary judgment "should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c)(2). The Supreme Court has clarified that this does not mean that any factual dispute will defeat the motion. "By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original). Whether a fact is material depends upon the substantive law. See id. "A party opposing a properly supported motion for summary judgment `may not rest upon the mere allegations or denials of [his] pleadings,' but rather must `set forth specific facts showing that there is a genuine issue for trial.'" Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003) (alteration in original) (quoting Fed. R. Civ. P. 56(e)). The court must "view the facts and draw reasonable inferences `in the light most favorable to the party opposing the [summary judgment] motion,'" Scott v. Harris, 550 U.S. 372, 378 (2007) (alteration in original) (quoting United States v. Diebold, 369 U.S. 654, 655 (1962)), but the court also must abide by the "affirmative obligation of the trial judge to prevent factually unsupported claims and defenses from proceeding to trial." Drewitt v. Pratt, 999 F.2d 774, 778-79 (4th Cir. 1993) (internal quotation marks omitted). II. Statute of Limitations The parties agree that Maryland law applies in this diversity case, and that the applicable statute of limitations is three years. See Md. Code, Cts. & Jud. Proc.

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