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U.S. v. GRASS

January 13, 2003

UNITED STATES OF AMERICA
v.
MARTIN L. GRASS, FRANKLIN C. BROWN



The opinion of the court was delivered by: Sylvia H. Rambo, United States District Judge

MEM0RANDUM

On June 21, 2002, a federal grand jury sitting in Harrisburg, Pennsylvania issued a thirty-seven count indictment against Defendants Grass and Brown, former officers and directors for the Rite Aid Corporation.*fn1 The indictment alleges that Defendants engaged in a conspiracy intended to enrich themselves by defrauding Rite Aid and its stockholders, creditors, and vendors. This conspiracy allegedly lasted the duration of Defendant Grass's tenure as Rite Aid's Chief Executive Officer ("CEO"). The indictment also alleges that Defendants Grass and Brown engaged in a conspiracy to obstruct justice by impeding investigations by the United States Securities and Exchange Commission ("SEC"), the Federal Bureau of Investigation ("FBI"), the United States Attorney's Office for the Middle District of Pennsylvania, and the Grand Jury.

On September 4, 2002, Defendants Grass and Brown filed a motion to suppress tapes of conversations that they had with Timothy Noonan, Rite Aid's former President. Defendants contend that Assistant United States Attorney Kim

Douglas Daniel obtained the recorded conversations in violation of Rules 4.2 and 8.4(a) of the Pennsylvania Rules of Professional Conduct. Following the submission of briefs, the court conducted a suppression hearing on December 20, 2002. The motion is now ripe for disposition.

I. Findings of Fact

Most of the facts pertinent to this motion are not in dispute. Defendant Grass resigned as Rite Aid's CEO on October 18, 1999. Shortly thereafter, Rite Aid's new corporate leadership launched an internal investigation into allegations of fraudulent misconduct during Defendant Grass's tenure as CEO. In December of 1999, the SEC launched its own civil investigation into these same allegations. Around that same time, the FBI's field office in Harrisburg, Pennsylvania began an investigation in conjunction with the United States Attorney's Office for the Middle District of Pennsylvania. The Government assigned FBI Agent George Delaney and Assistant United States Attorney ("AUSA") Kim Douglas Daniel to lead its criminal investigation.

At the suppression hearing, Noonan testified that between October of 1999 and July of 2000 he met with Defendant Brown several times. During those meetings, the two men discussed what each would tell Rite Aid's internal investigators regarding the fraud allegations. Both men were aware, during this period, that both civil and criminal investigations were pending as well.

Previously, on March 9, 2001, Noonan met with AUSA Daniel and Agent Delaney at the United States Attorney's Office in Philadelphia, Pennsylvania. During that meeting, the parties discussed the fraud allegations and any contact that Noonan may have had with Defendants Grass and Brown subsequent to Noonan's departure from Rite Aid in December of 1999. The following day, Defendant Brown called Noonan at his home requesting that the two meet. Noonan deferred the meeting until March 13, 2001. In the meantime — on either March 11 or March 12, 2001 — Noonan contacted Agent Delaney and informed him of Brown's phone call.

On March 13, 2001, Noonan met with Agent Delaney and an unidentified FBI "technical person." (Transcript of Suppression Hearing, Dec. 20, 2002 [hereinafter "Tr."] at p. 24, Ins. 8-9.) During that meeting, Noonan agreed to surreptitiously record his conversation with Brown. In preparation for the meeting, Agent Delaney instructed Noonan to steer the conversation with Defendant Brown towards the same subjects listed on the Government's agenda letter to Brown's attorney. After his meeting with Agent Delaney, Noonan met with Defendant Brown at a restaurant in Mechanicsburg, Pennsylvania. Their conversation was recorded by a hidden microphone attached to Noonan's body. During that meeting, Defendant Brown informed Noonan that he would be meeting with the Government in early April. Defendant Brown also told Noonan that Defendant Grass had retained Attorney William Jeffress to represent him in any criminal proceedings that might occur.

Between March 13 and March 30, 2001, Noonan met again with Agent Delaney in Philadelphia. At some point, either during the meeting in Philadelphia or during a subsequent phone conversation, the two discussed several issues related to the Rite Aid investigation and whether Noonan was willing to become an undercover agent for the Government. Noonan agreed. Agent Delaney then instructed Noonan to meet with Defendant Brown again and to engage him in conversations relevant to the fraud allegations. Agent Delaney also gave Noonan a fake letter signed by AUSA Daniel and addressed to Attorney David Howard, Noonan's retained counsel. That document was similar in content to the agenda letter that AUSA Daniel had already sent to Mr. Stern regarding Defendant Brown's proposed interview. Agent Delaney instructed Noonan to use the letter as a prop to guide his conversation with Brown to the topics listed in the letter. However, Agent Delaney warned Noonan to avoid talking about Defendant Brown's conversations with his attorney. (See Tr. at p. 44, lns. 6-9 ("[Agent Delaney] did say that if Franklin brought up or said he had this discussion with his attorney or that discussion or that these were topics that his attorney said, don't get into those conversations.").)

After this meeting, Noonan called Brown and told him that he wanted to get together and talk on March 30, 2001. As stated above, by March 30, 2001, Brown's attorney had cancelled the Government's interview of Defendant Brown. In any event, Noonan met Defendant Brown on March 30, 2001 at a different restaurant in Mechanicsburg. During their conversation, Noonan, as instructed, showed Defendant Brown the prop letter and attempted to engage him in conversation regarding the subjects listed in the letter. As with their meeting on March 13, 2001, Noonan wore a wire that recorded the conversation.

On April 1, 2001, Defendant Brown called Noonan and "said that he wanted to get together." (Tr. at p. 18, ln. 14.) Noonan agreed and immediately called Agent Delaney who arranged to have Noonan wired. Noonan then met with Brown again and, as before, recorded their conversation for the Government.

On either April 16 or April 18, 2001, Noonan, at Agent Delaney's behest, traveled to Defendant Grass's office in Lemoyne, Pennsylvania to attempt to record a conversation with Grass regarding the fraud allegations.*fn3 Defendant Grass, however, was not in his office.

Following this attempted meeting, Noonan met once again with Agent Delaney in Philadelphia. During this meeting, Delaney instructed Noonan to meet with Defendant Brown again to arrange for a meeting with both Defendants Brown and Grass. On April 27, 2001, Noonan and Defendant Brown met at the Hampden Center Shopping Mall in Mechanicsburg, Pennsylvania. As before, Noonan recorded the conversation. During the course of the meeting, Noonan, as instructed, requested an audience with Defendant Grass. Defendant Brown indicated that Defendant Grass would probably be amenable to such a meeting.

On May 1, 2001, Noonan met with Agent Delaney, another unidentified FBI agent, AUSA Daniel, and AUSA George Rocktashel at the Federal Building in Harrisburg. Although AUSA Daniel was aware of Noonan's cooperation, this marked the first time he and Noonan had spoken since Noonan's initial interview on March 9 in Philadelphia. Their conversation covered a wide variety of subjects relating to the Government's investigation of fraud at Rite Aid and what Noonan's conversations with Brown had unveiled. Noonan also informed AUSA Daniel that he would soon be meeting with both Defendants Grass and Brown. AUSA Daniel then delineated the topics that he wished to have Noonan raise during that meeting. Following his two to three hour meeting with the Government officials, Noonan jotted down on a sheet of paper notes regarding what topics AUSA Daniel wanted Noonan to discuss with Defendants Brown and Grass.

The following day, May 2, 2001, Noonan met with Defendants Grass and Brown at Grass's office. Once again, the Government recorded the conversations through a hidden microphone worn by Noonan. During the course of this meeting, Noonan removed his notes from his pocket and used them to guide the conversation. Noonan told Defendants Grass and Brown that the notes were taken during Noonan's meeting with the Government in Philadelphia in March of 2001. Following the meeting with Grass and Brown, Noonan met with AUSA Daniel. Noonan subsequently threw the notes away.

After the May 2, 2001 meeting, Defendant Brown called Noonan and stated: "That he would like to get together." (Tr. at p. 78, ln. 15.) Noonan and Brown met for the last time on May 21, 2001. As with the other conversations, the Government surreptitiously ...


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