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NON - PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
FRANKLIN C. BROWN

Appellant

v.

RITE AID CORPORATION, BALLARD SPAHR, LLP, AND WILLIAM A. SLAUGHTER : : : : : : : : : : : IN THE SUPERIOR COURT OF

PENNSYLVANIA

No. 1362 MDA 2021

Appeal from the Order Entered September 21, 2021 In the Court of Common Pleas of Cumberland County Civil Division at No(s): 2018

- 02654

BEFORE: DUBOW, J., McLAUGHLIN, J., and COLINS, J. * MEMORANDUM BY McLAUGHLIN, J.: FILED: MARCH 27, 2023 Franklin C. Brown (“Brown”) appeals from the order denying h is motion to disqualify William A. Slaughter , Esquire (“Attorney Slaughter ”) and the law firm of Ballard Spa hr , LL P (“ Ballard ”) from representing Rite Aid Corporation (“Rite Aid”) . We affirm.
Brown was an officer, director, and chief counsel for Rite Aid for many years. In 1999, Rite Aid misstated its fiscal financial reporting results, resulting in numerous shareholder d erivative lawsuits filed against Rite Aid and its board of directors, including Brown. Rite Aid retained Ballard to represent it and its board of directors and officers in its defense of those actions (“derivative actions”). Attorney Slaughter from Ballard was one of the

_________________ __________ ______ ____ _______

* Retired Senior Judge assigned to the Superior Court.J

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lead attorneys for Rite Aid. Rite Aid hired another law firm, Swidler & Berlin, to conduct an internal investigation of Rite Aid’s accounting practices. Brown alleges that during this internal investigation, Swidler & Berlin obtained confid ential information about him and shared the information with Attorney Slaughter and Ballard . However, Brown alleges that he was not aware of this until April 2019 when Atto rney Slaughter disclosed this in a deposition. In December 2000, Ballard and Attorney Slaughter successfully negotiated a settlement of the derivative actions. The settlement agreement defined the “Settling Defendants” as Rite Aid and its current and former directors, which included Brown. All “Settlin g Defendants” were also “Released Parties” under the settlement agreement. The settlement agreement also contained a “Bar Order” and permanent federal injunction whereby the Settling Defendants were “ permanently barred , enjoined and restrained from

commenc ing, prosecuting, or asserting any other claim, however styled, whether for indemnification, contribution or otherwise, and whether arising under state, federal or common law, against the Released Parties based upon, arising out of or relating to the Settl ed Claims.” The late United States District Judge Stewart Dalzell approved the settlement agreement on August 1 5 , 2001. A little more than a year later, o n October 9, 2002, Rite Aid, through its attorneys at Ballard, including Attorney Slaughter, sued Br own in the Court of Common Pleas of Cumberland County (“Underlying Action”). Rite Aid asserted numerous claims against Brown, including breach of fiduciary duty, civilJ

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conspiracy and breach of contract. This litigation continued for approximately
1 4 years. In 2016, Brown’s attorneys alleged that they discovered that Ballard and Attorney Slaughter had caused Rite Aid to initiate the Underlying Action against Brown illegally in violation of the settlement agreement, the Bar Order , and the permanent federal in junction. 1 In March 2016, Brown filed a motion in the Eastern District of Pennsylvania to enforce the settlement agreement, Bar Order , and permanent injunction. In June 2016, Judge Dalzell found that Rite Aid had violated the settlement agreement, Bar Order , and injunction when it commenced the Underlying Action against Brown. The court enjoined Rite Aid from proceeding with the Underlying Action. In March 2018, Brown filed the current action against Rite Aid, Ballard, and Attorney Slau ghter based on their allegedly wrongful initiation of the Underlying Action

. He assert ed claims of wrongful use of civil proceedings, abuse of process, and civil conspiracy. In April 201 9 , Brown deposed Attorney Slaughter in a separate case in Dauphin Coun ty . Brown alleges that during that deposition, “Brown learned for the first time that substantial personal and confidential information that Brown had provided to Swidler & Berlin’s attorneys during their internal investigation had been shared with” Ballar d and Attorney Slaughter. Brown ’ s Br. at 9 n.3.

_________________ __________ ______ ____ _______ 1 Brown maintains that for many years, he was unaware of the settlement agreement and Bar Order, as well as his status as a “Released Party.”J

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Some two and a half years later, in August 2021, Brown filed a motion to disqualify Ballard and Attorney Slaughter from representing Rite Aid due to a conflict of interest . The court heard argument on the mo tion to disqualify and denied the motion on September 20, 2021. This appeal followed. 2 , 3
Brown raises two iss ues for our review:
1. Whether William Slaughter, Esq. should be disqualified from representing his codefendant Rite Aid Corporation in this case[?] 2. Whether Ballard Spahr, LLP should be disqualified from representing its codefendant Rite Aid Corporation in this case [ ? ]

Brown’s Br. at 4

. Brown ’s two issues are related so we address them together. Brown
argues that Attorney Slaughter should be di squalified from representing Rite Aid because during th e internal investigation of Rite Aid , Swidler & Berlin obtained confidential information about Brown and shared th is information with Attorney Slaughter. Brown’s Br. at 32. Brown contends that Attorney Slaughter and Ballard may no t use this information against him in the instant lawsuit

. Id

. Citing Rule of Professional Conduct 1.9, Brown argues that an

_________________ __________ ______ ____ _______ 2 An “ order denying a motion to disqualify a law firm base d on conflict of interest is immediately appealable as a collateral order.” See Rudalavage v. PPL Elec . Util

. Corp . , 268 A.3d 470, 478 (Pa.Super. 2022); see als o Pa.R.A.P. 313 (governing collateral orders).

3 In the same notice of appeal, Brown also appea led the court’s order denying his motion to file an amend ed complaint. However, we quashed that portion of the appeal as a non - appealable collateral order. See Order, 3/14/22.J

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attorney who has formerly represented a client in a matter is prohibited from represent ing another person in a substantially related matter in which that
person ’ s interests are materially adverse to the interests of the former client

. Id. at 28

- 29. According to Brown, Judge Dalzell has already ruled that the derivative litigation in which Attorney Slaughter represented Brown involved the same transactions and legal disputes in the Underlying Action which forms the basis of Brown’s claims in the current case. Id. at 30. Brown thus contends that the instant lawsuit is “substantially related” to the earlier derivative litigation and Attorney Slaughter should be disqualified from representing Rite Aid. Id. at 37. Brown also argues that Ballard should likewise be disqualified under Rule of Professional Conduct 1.10 because the duty owed by an attorney to his client extends to members of the attorney ’ s law firm. Id. at 37

- 38. Brown additionally argues that Attorney Slaughter and Ballard should be disqualified from representing Rite Aid under Rule of Professional Conduct
1.7. Id. at 38. That Rule , discussed below , prohibits an attorney from representing a client if a concurrent conflict of interest exi sts , that is, the representation of one client is directly adverse to the interests of an other client. Brown argues that a concur rent conflict of interest exists because “[a]s codefendants, Rite Aid on the one hand and [ Attorney Slaughter and Ballard] on the other, are aligned directly against each other because each would potentially benefit from blaming the other for the misconduct alleged in the Complaint.” Id. at 40

- 41. Brown concludes that because “ [Attorney] Slaughter and Ba llard [] cannot reasonably ignore their own financial interestsJ

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and wellbeing as codefendants with Rite Aid, this Court should not permit the concurrent conflicts of interest to continue.” Id. at 47. This Court employ s a plenary standard of review when rev iewing a trial court’s order on disqualification of counsel. Rudalavage , 268 A.3 d at 478

. A court may disqualify a n attorney for violating ethical rules. Id. Although disqualification is an appropriate sanction in some cases, “ it is a serious remedy which must be imposed with an awareness of the important interests of a client in representation by counsel of the client ’ s choice.” McCarthy v.
S e. Pa . Transp. Auth . , 772 A.2d 987, 991 (Pa.Super. 2001) ( internal quotation marks and citation omitted)

. Indeed, “courts should not lightly interfere with the right to counsel of one’s choice. Thus, disqualification is appropriate only when both another remedy for the violation is not available and it is essential to ensure that the party seeking disqualifica tion receives the fair trial that due process requires.” Rudalavage , 268 A.3 d at 478 (citation omitted).
A n attorney owes its client a fiduciary duty , which prohibits the attorney from engaging in conflicts of interest

. Dougherty v. Phila . Newspapers, LLC , 85 A.3d 1082 , 1086

- 87 (Pa.Super. 2014) . Rule 1.9 of the Rules of Professional Conduct is a recognition of the common

- law duty attorneys owe to their current and former clients. It provides, in pertinent part : (a) A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person ’ s interests are materially adverse to the interests of the former client unless the former client gives inform ed consent.J

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- *** (c) A lawyer who has formerly represented a client in a matter or whose present or former firm has formerly represented a client in a matter shall not thereafter: (1) use information relating to the representation to the disadvantage of the former client except as these Rules would permit or require with respect to a client, or when the information has become generally known; or (2) reveal information relating to the representation except as these Rules would permit or req uire with respect to a client. Pa.R.P.C. 1.9(a) , (c)

. To establish grounds for disqualification , the former client must demonstrate three elem ents: (1) that a past attorney/client relationship existed which was adverse to a subsequent representation by th e law firm of the other client; (2) that the subject matter of the relationship was substantially related; (3) that a member of the law firm, as attorney for the adverse party, acquired knowledge of confidential information from or concerning the former cl ient, actually or by operation of law. Dougherty , 85 A.3d at 1087 ( citation omitted). Rule 1.7 of the Rules of Professional Conduct governs conflicts involving
current clients and forbids concurrent conflicts of interest. Pa.R.P.C. 1.7(a). A concurrent conflict of interest exists if : ( 1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.J

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Id. Rule 1.7 (b) also outlines four circumstances that must be present that permit s an a ttorney to engage in a representation despite the existence of a concurrent conflict of interest

. It provides: ( b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if: (1) the lawyer r easonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; (3) the representation does not involve the assertion of a claim by one client agains t another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and (4) each affected client gives informed consent. Pa.R.P.C. 1.7(b). Here, i n denying Brown’s motion to disqualify counsel, the trial court observed that Ballard’s representation of Brown in the derivative litigation terminated 21 years ago when Brown retained separate counsel to represent his interests . Trial Court Opinion, filed 12/29/21, at 2. The court found that Ballard’s representation of Brown involved no communication of confidential information between Brown and Ballard that could be used to Brown’s detriment in the present case. Id. The court determined that Rule 1.9 was not applicable because this matter is not the “s ame or substantially related” to the derivative action. Id. It further found that there was no conflict between the
interests of Rite Aid and Ballard under Rule 1.7 , “and even if there were, . . . Rite Aid has selected Ballard as its counsel in this matter and has waived anyJ

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asserted confli ct that would preclude Ballard from undertaking that representation.” Id. at 3. We discern no error by the tri a l court in denying the motion for disqualif ication

. Brown does not allege that he communicated any confidentia l information to Attorney Slaughter or Ballard. Rather, he claims he communicated information to another firm, Swidler & Berlin , who was retained by Rite Aid to conduct an internal investigation of its accounting practices. Thus, Brown cannot claim any confidentiality interest in the un identified information he allegedly provided to Swidler & Berlin since he did not have an attorney

- client relationship with Sw idler & Berlin

. Further, this case is not the “same or substantially related” to the derivative actions. The derivative actions involved shareholders bringing lawsuits against Rite Aid and its directors for accounting misreporting. This case arises from Brown’s claims of wrongful use of civil proceedings, abuse of process, and civil conspiracy against Rite Aid and its counsel based on their wrongful initiation of the Underlying Action

. Additionally , although a party requesting disqualification need not disclose the specifi c confidential information that was obtained by their former counsel, see Pa.R.P.C. 1.9 cmt

. 3, Brown fails to demonstrate how the information that Ballard allegedly obtained in its representation of Brown as a b oard member in the derivative
action would be used to his detriment in t he present case. Brown’s conclusory arguments do not carry his burden. Thus, disqualification under Rule 1.9 is not warranted.J

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D isqualification under Rule 1.7 is also not warranted. By its plain terms, Rule 1.7 relates t o a current client ’ s interest as it relates to his attorney. Brown
is not the current client of Ballard or Attorney Slaughter

. Therefore, Rule 1.7
is in applicable . Even i f Rule 1.7 applied, Rite Aid has given its informed consent to Ballard’s concurrent re presentation of it , Ballard , and Attorney Slaughter in the defense of th is case . Brown is not conceivably harmed by that concurrent representation. Thus, the court did not err in denying Brown’s motion for disqualification under Rule 1.7. Order affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq. Prothonotary

Date: 03/27/ 2023