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HomeMy WebLinkAbout2002-4922 Civil RITE AID CORPORATION, : IN THE COURT OF COMMON PLEAS OF Plaintiff, : CUMBERLAND COUNTY, PENNSYLVANIA : vs. : CIVIL ACTION - LAW : 02-4922 CIVIL FRANKLIN BROWN, : Defendant : IN RE: MOTION FOR PARTIAL SUMMARY JUDGMENT OF RITE AID CORPORATION BEFORE HESS, P.J., OLER AND GUIDO, J.J. OPINION AND ORDER The question before the Court is whether the plaintiff, Rite Aid Corporation, is entitled to partial summary judgment in its favor as to liability on Counts I through VI of its amended complaint. Rite Aid’s amended complaint, and accompanying memorandum in support thereof, begins with a statement of substantive allegations and facts. Franklin C. Brown formerly served as Vice Chairman of the Board of Directors and Chief Legal Office of Rite Aid. On June 21, 2002, a grand jury sitting in the Middle District of Pennsylvania returned an indictment against Martin L. Grass, former Chief Executive Officer of Rite Aid, Brown, Franklin M. Bergonzi, former Chief Financial officer of Rite Aid, and others. The indictment (attached to plaintiff’s First Amended Complaint as “Exhibit A”) charged Brown and his co-defendants with participating in two broad criminal conspiracies: a conspiracy to defraud Rite Aid, its Board of Directors, shareholders, investors and vendors; and a conspiracy to obstruct justice. The charges against Brown and the others included, among other things, creating and submitting to the company fraudulently back-dated and unauthorized employment agreements purporting to grant certain employees, including Brown, millions of dollars of benefits; with having caused the company to guarantee loans to corporate executives without authority from the company’s Board of Directors; with having pledged company assets without NO. 02-4922 CIVIL authority from the company’s Board of Directors; with having used company assets for unauthorized private transactions; with having falsely certified Board authorization for such actions where none had been granted; and with otherwise having defrauded Rite Aid and its Board of Directors. Brown’s co-conspirators pled guilty to various counts of the indictment. Brown initially agreed to plead guilty to certain charges but reneged on the counts of the indictment, including counts accusing him of having falsified Rite Aid’s financial statements, having conspired to obstruct government agency and grand jury proceedings relating to investigations of the criminal activities regarding Rite Aid, and having suborned perjury to the grand jury regarding these matters. Brown was ultimately convicted of acts such as having defrauded Rite Aid by fabricating and back-dating letters purporting to obligate Rite Aid to pay select officers, including Brown, millions of dollars of unauthorized benefits upon the termination of their employment with Rite Aid. Brown was sentenced to ten years in prison for these crimes and is currently serving that term of incarceration. Specifically, Brown was convicted by a jury of ten counts of the indictment, including the most serious charges: Count 1, conspiracy to defraud Rite Aid and its Board of Directors, shareholders, investors and vendors, among others in violation of 18 U.S.C. § 371; Count 10, filing a false SEC Form 10K for Rite Aid’s 1999 fiscal year statement, in violation of 18 U.S.C. §§ 1001(a)(3) and (2); count 12, filing a false 1997 Proxy Statement with the SEC, in violation of 18 U.S.C. §§ 1001(a)(1) and (2); Count 13, filing a false 1998 Proxy Statement with the SEC, in violation of 18 U.S.C. §§ 1001(a)(1) and (2); count 14, filing a false SEC Form 8K on February 9, 1999, in violation of 18 U.S.C. §§ 1001(a)(1) and (2); Count 15, filing a false 1999 Proxy Statement with the SEC, in violation of 18 U.S.C. §§ 1001(a)(1) and (2); Count 33, 2 NO. 02-4922 CIVIL conspiracy to obstruct justice, in violation of 18 U.S.C. § 371; Count 34, obstruction of grand jury proceedings, in violation of 18 U.S.C. § 1503; Count 35, obstruction of government agency proceedings, in violation of 18 U.S.C. § 1505; and Count 36, witness tampering, in violation of 18 U.S.C. §§ 1512(b)(1) and (2). In addition to convicting Brown of the conspiracy charges, the jury also completed a verdict sheet. It found that Brown committed the following overt acts in furtherance of the conspiracy: 1. Prepared a back-dated letter purported to be from a member of the Board’s Compensation Committee to Grass, doubling Grass’s bonus payment under one of the company’s incentive plans. 2. Participating in a fraudulent rebate program with two pharmaceutical companies, Bristol Myers Squib and Zeneca, to help conceal Rite Aid’s increasingly dire financial condition. 3. Falsifying documents that were filed with the SEC. 4. Creating a fraudulent employment agreement for Bergonzi, which was subsequently presented to the company to be honored. 5. Creating fraudulent severance letters for Sorkin, Noonan and another Rite Aid employee, which were subsequently presented to the company to be honored. 6. Submitting his own fraudulently created severance letter to the Board. 7. Obstructing the investigations of the above- described wrongdoing conduct by Rite Aid and the United States Government. 3 NO. 02-4922 CIVIL Ex. D, Verdict Form, pp. 1-4, Appendix of Exhibits in Support of the Renewed Motion of Rite Aid Corporation for Partial Summary Judgment as to Liability. (Hereinafter “Appendix of Exhibits”). In imposing sentence, Federal District Judge Sylvia Rambo found that Brown was a leader and organizer of the fraud conspiracy, obstructed the investigations of the grand jury and the SEC, and abused his position of trust as an officer and director of Rite Aid. See U.S. v. Brown, No. 1:02-CR-00146-2 (M.D. Pa. August 16, 2004), Memorandum Denying Defendant’s Objections to Pre-Sentence Investigation Report, slip op. at 1, 10-13 (Ex. N, Memorandum, Appendix of Exhibits). The District Court also rejected Brown’s argument that he should not be held responsible for causing a loss to Rite Aid by participating in the scheme to execute back-dated severance letters for himself and his co-conspirators. See U.S. v. Brown, No. 1:02-CR-00146-2 at 12-13 for the portion of Judge Rambo’s opinion rejecting Brown’s argument that he should not be held responsible for causing a loss to Rite Aid. Pursuant to Rite Aid’s Certificate of Incorporation, the company advanced Brown costs and expenses he claimed to have incurred in connection with his defense of the criminal charges against him, subject to Brown’s written undertaking to repay such advances in the event it were determined that Brown was not entitled to indemnification. Rite Aid claims that under the doctrine of collateral estoppel, the criminal convictions entered against Brown as a result of the jury verdict against him clearly indicate that he is not entitled to indemnification and operate as a matter of law to preclude Brown from relitigating the issues determined in his criminal trial. Rite Aid originally moved for partial summary judgment as to liability on October 16, 2009; however, this Court did not have the complete record of 4 NO. 02-4922 CIVIL Brown’s criminal trial and denied Rite Aid’s motion stating “the current state of the record does not allow for entry of summary judgment.” On April 17, 2009, Rite Aid supplemented the record with the transcript of the criminal trial and the exhibits admitted into evidence at that trial. The record of the criminal trial may be found at pages 761-3765 of the Cumberland County laserfiche Weblink (http://records.ccpa.net/weblink_public/dockview.aspx?id=10358@dbid=8). Rite Aid’s amended complaint, filed July 7, 2004, contains 8 counts. In them, Rite Aid seeks to recover losses it has sustained as a result of Brown’s wrongful conduct. Count I is a claim of breach of fiduciary duty. Count II is a claim of aiding and abetting breach of fiduciary duty. County III is a claim of fraud. Count IV is a claim of conspiracy. Count V is a claim for breach of contract – obligations as an officer and director. Count VI is a claim for breach of contract – deferred compensation agreement. Count VII is a claim for breach of contract – advancement repayment undertaking, where Rite Aid seeks to recover costs of defense it advanced to Brown under the company’s Restated Certificate of Incorporation. Count VIII is a claim for a declaratory judgment. Rite Aid seeks partial summary judgment as to liability for Counts I-VI of its amended complaint. Under Rule 1035 of the Pennsylvania Rules of Civil Procedure, the court may grant summary judgment after the relevant pleadings are closed and “whenever there is no genuine issue of any material fact as to a necessary element of the cause of action or defense which could be established by any additional discovery or expert report.” Pa.R.Civ.P. 1035.2(1). Summary judgment shall be granted whenever “the material facts are undisputed,” or the facts are insufficient “to make out a prima facie cause of action or defense.” McCarthy v. Dan Lepore & Sons Co. Inc., 724 A.2d 938, 940 (Pa.Super. 1998); Pa. R. Civ. P. 1035.2(1). Rite Aid asserts that the relevant pleadings are closed and the claims on which it moves for summary judgment 5 NO. 02-4922 CIVIL do not require discovery or expert reports. Furthermore, it claims that there is no need for trial on the issue of Brown’s liability to Rite Aid on Counts I through VI in the case because all of the facts necessary to establish Brown’s liability to Rite Aid for each of the claims on which it seeks summary judgment are established by his criminal convictions and the record of Brown’s criminal trial which has been provided to the court. Rite Aid asserts that the doctrine of collateral estoppel precludes Brown from relitigating, in this case, issues that were decided in his criminal case, citing the following in support of this proposition: Shaffer v. Smith, 543 Pa. 526, 530, 673 A.2d 872, 875 (1996); Hurtt v. Stirone, 416 Pa. 493, 498, 206 A.2d 624, 627 (1965); Columbia Med. Group, Inc. v. Herring & Roll, P.C., 2003 Pa. Super. 272, ¶ 24, 829 A.2d 1184, 1193 (2003); In re Estate of Reinert, 367 Pa. Super. 147, 153, 532 A.2d 832, 835 (1987). These cases note that “[i]t is well established that a criminal conviction collaterally estops a defendant from denying his acts in a subsequent civil trial.” Shaffer v. Smith, 543 Pa. 526, 529 (Pa. 1996). Furthermore, the collateral estoppel effect of a criminal conviction is not negated or diminished by the pendency of an appeal. See Columbia Med. Group, Inc., 829 A.2d at 1193 (following Shaffer, 673 A.2d at 875 (“For purposes of finality, we believe that holding a criminal conviction in abeyance until appellate review is completed would result in hardship to the party seeking to invoke collateral estoppel.... Accordingly, we hold that once a criminal defendant has been convicted and sentenced, a plaintiff in a civil proceeding may invoke collateral estoppel to preclude the defendant from denying his criminal acts.”)). Therefore, Rite Aid asserts, and we agree, that Brown is estopped from contesting his guilt of the crimes for which he was convicted and the facts established by the jury’s findings of guilt on each conviction. 6 NO. 02-4922 CIVIL Count I is a claim for breach of fiduciary duty. In order to state a claim for breach of fiduciary duty, the plaintiff must demonstrate: 1) that the defendant negligently or intentionally failed to act in good faith and solely for the benefit of the plaintiff in all matters for which he or she was employed; 2) that the plaintiff suffered injury; and 3) that the agent’s failure to act solely for the plaintiff’s benefit was a real factor in bringing about plaintiff’s injuries. Schutter v. Herskowitz, 2008 U.S. Dist. LEXIS 7995, *16-17 (E.D. Pa. 2008) (citing McDermott v. Party Corp., 11 F. Supp. 2d 612, 626 (E.D. Pa. 1998) and Dinger v. Allfirst Fin., Inc., 82 Fed. Appx. rd 261 (3 Cir. 2008)). Rite Aid correctly asserts that as an officer and director of the company, Brown owed that company a fiduciary duty of undivided loyalty. Every director and officer of a corporation stands in a fiduciary relationship with the corporation. See 15 Pa.C.S.A. § 1712(a)(2004). Section 1712(a) provides in pertinent part: A director of a business corporation shall stand in a fiduciary relation to the corporation and shall perform his duties as a director . . .in good faith, in a manner he reasonably believes to be in the best interests of the corporation and with such care, including reasonably inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. 15 Pa.C.S.A. § 1712(a). Furthermore, Section 1712(b) provides that a “director shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that would cause his reliance to be unwarranted.” 15 Pa.C.S.A. § 1712(b). Rite Aid also correctly quotes the Supreme Court of Delaware in stating that the duty of loyalty “embodies not only an affirmative duty to protect the interests of the corporation, but also an obligation to refrain from conduct which would injure the corporation and its stockholders or deprive them of profit or advantage. In short, directors must eschew any conflict between duty 7 NO. 02-4922 CIVIL and self-interest.” Ivanhoe Partners v. Newmont Mining Corp., 535 A.2d 1334, 1345 (Del. 1987). The duty of loyalty. . . requires that corporate directors devote themselves to corporate affairs with a view to promote the common interests and not only their own, and they cannot directly or indirectly utilize their position to obtain any personal profit or advantage other than that enjoyed by their fellow shareholders. Anchel v. Shea, 762 A.2d 346, 357 (Pa.Super. 2000). Given the collateral estoppel effect of Brown’s convictions, there can no longer be any genuine dispute that Brown elevated his personal interests over those of Rite Aid and breached his fiduciary duties as an offer and director. He was convicted of conspiracy, among other things, to falsify Rite Aid’s financial statements to qualify himself and other executives to receive incentive compensation to which they were not entitled and to create back-dated severance agreements purporting to entitle himself and other executives to additional compensation to which they were not entitled. He was convicted of deliberately causing false financial statements for Rite Aid to be filed with the SEC and disseminated to the public. He was convicted of obstructing Rite Aid, government and grand jury investigations into his and his co-conspirators’ criminal activities and of suborning a witness to testify falsely to the grand jury. (Ex. D, Verdict Form, Appendix of Exhibits). These crimes are in violation of Brown’s fiduciary obligations owed to the company that were inherent in his position as an officer and director. Furthermore, the jury made specific findings of fact (Exhibit D, Verdict Form, including the verdict slip containing specific findings by the jury, Appendix of Exhibits). In its motion, 8 NO. 02-4922 CIVIL Rite Aid quotes certain findings of the jury in support of its claim for breach of fiduciary duty. These findings establish that Brown breached his fiduciary obligations. Among the findings, the jury found the following acts were committed in furtherance of the conspiracy of which they convicted Brown: 39. On or about June 2, 1997, GRASS and BROWN caused the Company to file its 1997 Proxy Statement with the SEC, which said Report failed to disclose BROWN’s Amended & Restated Deferred Compensation Agreement dated October 26, 1996. 44. On or about March 24, 1998, BROWN instructed a Rite Aid employee to prepare what purported to be a letter from a member of the Compensation Committee to GRASS. The letter, which was back-dated to April 6, 1995, doubled GRASS’ maximum LTIP I award from 1 million to 2 million shares if the 30 day average price of Rite Aid stock reached $37.50. At the time the back- dated letter was generated, the 30 day average exceeded $33. GRASS and BROWN then caused the Compensation Committee member’s signature to be placed on the letter. 88. On or about May 10, 1999 Brown executed a FY 1999 Proxy Statement Questionnaire in which he concealed and failed to disclose the enhanced severance and retirement benefits conferred him by GRASS’ letter dated May 6, 1998. 117. On or about July 16, 1999, GRASS executed an Employment Agreement that continued BERGONZI’s employment with Rite Aid as a consultant until his retirement on December 31, 2002, at a salary of $525,000 per year and bonuses totaling $375,000. The Employment Agreement, which was back-dated to June 15, 1999, enhanced BERGONZI’s deferred compensation benefits by paying, upon his retirement, $495,000 a year for life with a guaranteed minimum 20 years’ payment. The Agreement also Granted 9 NO. 02-4922 CIVIL BERGONZI an unqualified release from liability for any and all claims stemming from his employment. In exchange, BERGONZI agreed not to disclose any “confidential” Rite Aid information. By separate letter dated July 15, 1999, BROWN clarified BERGONZI was also eligible to receive long term incentive plan (LTIP) and stock option awards if such were paid to other Rite Aid officers. 131. In approximately November of 1999 Brown instructed his secretary to speak to GRASS’ former secretary in order to learn how to later the internal clock on her Rite Aid computer so the file generation date would match the date on a back- dated letter. 132. Sometime after GRASS’ resignation on October 18, 1999, GRASS signed and BROWN delivered a letter on CEO letterhead dated April 2, 1999, to Eric Sorkin, the Rite Aid officer who had the lead role in negotiating the BMS and Zeneca rebate agreements. In addition to stock option exercise rights, the back-dated letter granted Sorkin 3 years continued salary and bonus upon the termination of his employment, followed by early deferred compensation benefits. At the time Sorkin’s annual salary was $250,000 and his most recent bonus had been $114,188. 133. On or about Thanksgiving Day, November 25, 1999, Grass signed and Brown delivered a letter on CEO letterhead dated September 29, 1999, to the residence of another Rite Aid employee. Although the employee was not an officer of the Company, the back-dated letter granted the employee deferred compensation benefits totaling $525,000 and the right to accelerate the payment of the benefits in the event th he was terminated prior to his 65 birthday. 134. In December of 1999, GRASS signed and BROWN delivered a letter on CEO letterhead dated January 8, 1999, to Timothy Noonan. In addition to stock option exercise rights, the back- 10 NO. 02-4922 CIVIL dated letter granted Noonan continued salary and his highest annual bonus for 3 years following his termination or removal from the Presidency of Rite Aid, followed by deferred compensation benefits th for 20 years beyond his 65 birthday. At the time Noonan was 58 years of age, his annual salary was $700,000 and his highest bonus had been $628,600. Exhibit D, Verdict Form, including the verdict slip containing specific findings by the jury. This is not an exhaustive list of the specific jury findings either contained in Rite Aid’s Memorandum in Support of Partial Summary Judgment, or in Verdict Form from Brown’s criminal trial. It does, however, show specific findings of fact, which Brown is estopped from denying, that are sufficient to establish Brown’s liability as to Count I of Rite Aid’s complaint (breach of fiduciary duty). The jury also found him guilty on Counts 10, 12, 13, 14 and 15 of the Indictment, each involving the filing of false financial statements to a government agency on behalf of Rite Aid, including the false financial reports that triggered Brown’s and others’ right to incentive compensation under the LTIP I. See, Ex. D, Appendix of Exhibits. Brown was found to have deliberately falsified and submitted false reports to government agencies and to the public. Id. Rite Aid cites Malone v. Brincat for the proposition that when a director “deliberately misinform[s] shareholders about the business of the corporation, either directly or by a public statement, there is a violation of fiduciary duty.” Malone v. Brincat, 722 A.2d 5, 14 (Del. 1998). As a result of the jury findings, Rite Aid is entitled to summary judgment as to liability on Count I of their amended complaint, breach of fiduciary duty. For reasons stated above, in connection with Count I, we believe that Rite Aid is entitled to summary judgment on Count II, a claim for aiding and abetting breach of fiduciary duty. The 11 NO. 02-4922 CIVIL elements of a cause of action for aiding and abetting a breach of fiduciary duty are: (1) a breach of fiduciary duty owed to another; (2) knowledge of that breach by the aider and abettor; and (3) substantial assistance or encouragement by the aider and abettor in effecting that breach. See Koken v. Steinberg, 825 A.2d 723, 731-32 (Pa. Commw. Ct. 2003) (citing Restatement (Second) of Torts § 876); Reis v. Barley, Snyder, Senft & Cohen, LLC., 484 F. Supp. 2d 337, 350-52 (E.D. Pa. 2007) (following the Commonwealth Court’s holding in Koken v. Steinberg and predicting that “the Supreme Court of Pennsylvania would recognize the tort of aiding and abetting breach of a fiduciary duty if presented with the issue.”). Count III is a claim of fraud. To establish common law fraud under Pennsylvania law: A plaintiff must prove: (1) misrepresentation of a material fact; (2) scienter; (3) intention by the declarant to induce action; (4) justifiable reliance by the party defrauded upon the misrepresentation; and (5) damage to the party defrauded as a proximate result. Colaizzi v. Beck, 2006 Pa.Super. 41, ¶ 9, 895 A.2d 36, 39 (2006). Rite Aid asserts, and is correct in so asserting, that Brown’s criminal conviction establishes each of the elements of fraud. It establishes that Brown made material misrepresentations and caused material misrepresentations to be made concerning Rite Aid’s financial results and the bona fides of the back-dated severance letters Brown created and had Grass sign after Grass had been discharged by the company. (See Ex. K, Tr. Of Bergonzi Change of Plea Hrg., pp. 10-15, Appendix of Exhibits; see also Exhibit D, Verdict Form, including the verdict slip containing specific findings by the jury). It establishes the scienter requirement, that Brown made such misrepresentations knowingly and deliberately. The criminal conviction also establishes that such misrepresentations were made by Brown with the intent to induce Rite aid to rely upon them by 12 NO. 02-4922 CIVIL making payments to him and such other executives under the company’s incentive plans and under the provisions of the back-dated severance letters. Furthermore, it is clear that Rite Aid did reasonably rely on such misrepresentations and was damaged as a result (this motion for summary judgment is only partial in that Rite Aid asserts that it will prove the amount of damages it suffered as a result of Brown’s fraud at trial, if necessary). At Brown’s criminal trial, with respect to the claim of fraud, the government presented testimony of Janene Kope, the secretary who actually typed the letters, that they were dictated by Brown for Grass’ signature after Grass had been dismissed as Rite Aid’s CEO (Ex. J, Trial Tr., pp. 109-37, Appendix of Exhibits). Furthermore, the government offered evidence of Kevinlee E. Kirsch, a local printer who supplied the stationary on which the back-dated severance letters were typed that such stationary was not printed until after Grass was dismissed. Id. at 1235- 1251). Furthermore, the jury did find Brown guilty of the back-dating scheme (Ex. D, Verdict Form, pp. 5-8, Appendix of Exhibits). Lastly, in its ruling in connection with sentencing, the trial court held that the government met its burden of proof to demonstrate Brown’s responsibility for the back-dating severance letters. See U.S. v. Brown, No. 1:02-CR-00146-2 (M.D. Pa . Aug. 17, 2004), Memorandum Denying Defendants’ Objections to Pre-Sentence Investigation Report (Ex. N, Memorandum pp. 10-12, Appendix of Exhibits). As a result of these findings, Rite Aid is entitled to summary judgment as to liability on the count of fraud. Count IV of Rite Aid’s amended complaint is a claim of conspiracy. To establish liability for civil conspiracy in Pennsylvania, a plaintiff must prove: “(1) a combination of two or more persons acting with a common purpose to do an unlawful act or to do a lawful act by unlawful means or for an unlawful purpose; (2) an overt act done in pursuance of the common purpose; and (3) actual legal damage.” McKeeman v. Corestates Bank, N.A., 2000 Pa.Super 117, 13 NO. 02-4922 CIVIL ¶ 14, 751 A.2d 655, 660 (2000) (citing McGuire v. Shubert, A.2d 1087, 1092 (Pa.Super. 1998). Rite Aid cites Watson v. Borough of Darby for the proposition that “[c]ivil conspiracy, like its criminal counterpart, renders a conspirator liable for the foreseeable acts of co-conspirators performed to further that conspiracy.” Watson v. Borough of Darby, No. Civ. A. 96-7182, 1997 WL 135701, at *2 (E.D. Pa. Mar. 17, 1997). Furthermore, co-conspirators may even be liable for tortuous acts committed prior to entering the conspiracy. Daniel Boone Area Sch. Dist. V. Lehman Bros., Inc., 187 F.Supp. 2d 400, 414 (W.D. Pa. 2002) (applying Pennsylvania law). In addition to finding Brown guilty of conspiracy, the jury also made specific findings of fact as to the overt acts that Brown, Grass, Bergonzi and others committed in furtherance of their common purpose. (See, e.g. Ex. D, Verdict Form, Attachment A, pp. 1-8, Appendix of Exhibits). Rite Aid addresses Brown’s argument that he should not be liable to Rite Aid for the back-dated severance letters because he was not aware of all of the wrongful acts committed by his co- conspirators. Rite Aid responds, persuasively, that as a convicted participant in the conspiracy, Brown is liable for all of the foreseeable acts committed by his co-conspirators in furtherance of the conspiracy and the entirety of the resulting damage to Rite Aid. See Sovereign Bank v. Valentino, 2006 Pa.Super. 338, ¶ 24, 914 A.2d 415, 425 (2006); See also Restatement (Second) of Torts § 875 (“Each of two or more persons whose tortious conduct is a legal cause of a single and indivisible harm to the injured party is subject to liability to the injured party for the entire harm.”). Count V is a claim for breach of contract (obligations as officer and director). Rite Aid asserts that in addition to breaching his fiduciary duty to Rite Aid, Brown also breached his contractual obligations to Rite Aid as Chief Legal Counsel, Vice Chairman and employee. To establish a claim for breach of contract in Pennsylvania, a plaintiff must prove (1) the existence 14 NO. 02-4922 CIVIL of a contract between the parties; (2) a material breach thereof and; (3) damage to the plaintiff caused by defendant’s breach. See Omicron Sys., Inc. v. Weiner, 2004 Pa.Super. 389, ¶ 35, 860 A.2d 554, 564 (2004). Rite Aid contends that although Brown did not have a written employment contract with Rite Aid, as an officer, Chief Legal Counsel and Vice Chairman of the Board, Brown was a party to a contract implied in fact with Rite Aid under which he was obligated to zealously protect and act in the best interests of the company. Rite Aid is correct in establishing an implied in fact contract. Implied contracts . . . arise under circumstances which, according to the ordinary course of dealing and the common understanding of men, show a mutual intention to contract. A contract implied in fact ‘is an actual contract, and . . . arises where the parties agree upon the obligations to be incurred, but their intention, instead of being expressed in words, is inferred from their acts in the light of the surrounding circumstances. Tyco Electronics Corp. v. Davis, 2006 Pa.Super. 64, ¶ 3, 895 A.2d 638, 640 (2006) (quoting Cohen v. Marian, 171 Pa.Super. 431, 90 A.2d 373, 376 (1952) (italics original). Rite Aid further contends that under the inferred terms of the implied in fact contract, it reasonably expected Brown zealously to protect its interests as its CLO and Vice Chairman, in exchange for the compensation and benefits Rite Aid paid him. As a result of the facts of Brown’s criminal conviction, it is clear that he did not act in Rite Aid’s best interests. He acted to advance his personal financial interests, and he did so by causing Rite Aid to pay substantial sums of money to him and others to which they were not entitled. The last count of the complaint is Count VI, a claim of breach of contract (deferred compensation agreement). Rite Aid seeks to recover payments made to Brown under the contractual terms of the Deferred Compensation Agreement. Rite Aid asserts that Brown 15 NO. 02-4922 CIVIL forfeited such payments under the terms of the Agreement. The Deferred Compensation Agreement provided that Rite Aid would have no further obligation to make any payments to Brown if he were terminated by Rite Aid for good cause or if it were discovered after the termination of his employment that he committed acts that would have resulted in his discharging for cause had they been known to the Board during the course of his employment. (Ex. B, Def. Comp. Agmt., p.8, Appendix of Exhibits). “Good cause” was defined by the Deferred Compensation Agreement as being “limited to Employee’s conviction of a felony involving his personal dishonesty materially injurious to the Corporation.” Rite Aid asserts that the acts for which he was convicted qualify as good cause for the termination of his employment, and that each of the crimes was a felony involving personal dishonesty and each was materially injurious to Rite Aid. As previously stated, Brown was convicted of Count 1 of the indictment, conspiracy to defraud Rite Aid and its Board of Directors, shareholders, investors and vendors; Count 10, filing a false SEC Form 10K for Rite Aid’s 1999 fiscal year statement; Count 12, filing a false 1997 Proxy Statement with the SEC; Count 13, filing a false 1998 Proxy Statement with the SEC; Count 14, filing a false SEC Form 8K on February 9, 1999; Count 15, filing a false 1999 Proxy Statement with the SEC; Count 33, conspiracy to obstruct justice; Count 34, obstruction of Grand Jury Proceedings; Count 35, obstruction of government agency proceedings; and Count 36, witness tampering. These criminal acts of which Brown was convicted would have given the Board good cause to discharge Brown. He therefore forfeited any right he might have had to compensation under his Deferred Compensation Agreement. As such, Rite Aid is entitled to summary judgment as to liability on Count VI. 16 NO. 02-4922 CIVIL ORDER th AND NOW, this 16 day of March, 2010, the motion of Rite Aid for partial summary judgment on the question of liability with respect to Counts I through VI of its amended complaint is GRANTED. BY THE COURT, _______________________________ Kevin A. Hess, P. J. William A. Slaughter, Esquire For the Plaintiff George Reihner, Esquire Molly Clark, Esquire For the Defendant :rlm 17 RITE AID CORPORATION, : IN THE COURT OF COMMON PLEAS OF Plaintiff, : CUMBERLAND COUNTY, PENNSYLVANIA : vs. : CIVIL ACTION - LAW : 02-4922 CIVIL FRANKLIN BROWN, : Defendant : IN RE: MOTION FOR PARTIAL SUMMARY JUDGMENT OF RITE AID CORPORATION BEFORE HESS, P.J., OLER AND GUIDO, J.J. ORDER th AND NOW, this 16 day of March, 2010, the motion of Rite Aid for partial summary judgment on the question of liability with respect to Counts I through VI of its amended complaint is GRANTED. BY THE COURT, _______________________________ Kevin A. Hess, P. J. William A. Slaughter, Esquire For the Plaintiff George Reihner, Esquire Molly Clark, Esquire For the Defendant :rlm