Ad Hoc Committee of Equity Holders of Tectonic Network, Inc. v. Wolford (554 F. Supp. 2d 538, 2008)

MEMORANDUM ORDER

MARY PAT THYNGE, United States Magistrate Judge.

1. INTRODUCTION

On October 27, 2006, the Ad Hoc Committee of Equity Holders of Tectonic Network, Inc. (“Ad Hoc Committee” or “the Committee”) filed this action alleging its members suffered economic harm as the result of the purportedly improper conduct of certain former officers and directors of Tectonic Network, Inc. (“Tectonic Network”). The conduct complained of occurred prior to Tectonic Network filing for protection under the Bankruptcy Code in 2005. The Complaint sets forth claims of: (1) fraud against Wolford and Krug; (2) breaches of fiduciary duties against Wol-ford; (3) breaches of fiduciary duties against Krug; and (4) breaches of fiduciary duties against the director-defendants.

Currently before the court is defendants’ motion to dismiss, pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Defendants contend this matter must be dismissed for at least three reasons: (1) lack of subject matter jurisdiction under 28 U.S.C. § 1332; (2) the Committee’s lack of standing to bring the asserted claims; and (3) failure to state a claim upon which relief may be granted and failure to plead fraud with particularity as required by Fed.R.Civ.P. 9(b).

II. BACKGROUND

In 1990, Tectonic Network incorporated in Delaware with its principal place of business located in Georgia. Until February 2005, Tectonic Network had two primary operating subsidiaries: Tectonic Solutions, Inc. (“Tectonic Solutions”) and GO Software, Inc. (“GO Software”). Go Software developed, marketed, and sold software and services for processing credit card, debit card, or check transactions. Tectonic Solutions was incorporated in Delaware in or about the second half of 2003 with its principal place of business in Georgia. Tectonic Solutions is, and has been since its incorporation, a wholly-owned subsidiary of Tectonic Network. Tectonic Solutions provided “custom software solutions to help building product manufacturers and distributors improve the way they organize, display and distribute their product information.”

In late 2003 and early 2004, Tectonic Network acquired three businesses which provided information and advertising for the construction industry: BBN Acquisition, Inc. (“BBN”); Construction Yellow Pages LLC (“CYP”); and Spec-Source.com, Inc. (“SpecSource”). Each of those businesses were combined into Tectonic Solutions.

On November 18, 2003, Tectonic Network and BBN consummated a merger whereby BBN was merged with and into Tectonic Solutions pursuant to an agreement and plan of merger dated October 29, 2003. At the time of the agreement, Wol-ford was the principal and controlling shareholder of BBN and his daughter was a member of the BBN board of directors. As consideration for the merger, Tectonic Network conveyed 750,000 shares of its common stock to the BBN shareholders for all BBN stock. Wolford received 311,-671 of the 750,000 shares for his 41.6% ownership interest in BBN.

On November 26, 2003, Tectonic Network purchased the operating assets of CYP pursuant to an asset purchase agreement dated as of October 29, 2003. As consideration for the purchase, Tectonic Network conveyed 750,000 shares of common stock to the members of CYP and assumed certain CYP liabilities. Wolford was the majority equity owner-member of CYP and received 435,000 of the 750,000 shares for his 58% interest in CYP.

On January 2, 2004, Tectonic Network purchased substantially all of the operating assets of SpecSource, pursuant to an asset purchase agreement dated October 29, 2003 (the “SpecSource Agreement”), in return for a non-interest bearing note in the amount of $533,000 payable to Spec-Source and 1,450,000 shares of Tectonic Network common stock. Wolford was the majority shareholder of SpecSource and his daughter was a SpecSource employee. Wolford was entitled to receive approximately 980,000 shares of the Tectonic Network common stock upon the dissolution of SpecSource and 67.6% of any and all payments on the note. In connection with the SpecSource transaction, Tectonic Network entered into a non-compete agreement with SpecSource’s only other shareholder, John White (“White”). In exchange for White entering into the non-compete agreement, Tectonic Network gave White a $360,000 non-interest bearing note.

During the first three quarters of 2004, Wolford urged the development of a Virtual Model Business (‘VMB”) whereby Tectonic Network would offer the service of converting two-dimensional building construction plans into three-dimensional models to expedite building construction by eliminating the additional time necessary to analyze two-dimensional plans and envision them in a three-dimensional framework. Wolford informed Tectonic Network’s Board of Directors (the “Board”) that VMB would be the foundation of an overall strategy to move Tectonic Network into the construction information business, and that VMB would be highly profitable. When Wolford first urged the development of VMB, Tectonic Network did not have the funds, staff, or management time to develop the business. Consequently, Wolford turned over development of the project to an outside contractor, ROMS. ROMS was a competitor with Tectonic Network for the targeted customers of VMB, but ROMS did not enter into a non-compete agreement before being retained. Wolford’s nephew was employed by ROMS. Tectonic Network paid more than $500,000 to ROMS for the project.

GO Software was the largest generator of revenue for Tectonic Network and the only profitable business among those it owned. For the year ending June 30, 2004, GO Software was responsible for $8,917,666 of the total revenues of $10,586,034 of Tectonic Network and its subsidiaries on a consolidated basis. In the summer of 2004, Wolford began a campaign to convince the Board that Tectonic Network should sell GO Software in order to generate funds to support the recently-acquired BBN, CYP, and SpecSource businesses, as well as, VMB. To finance those businesses, the Board approved procuring substantial loans to Tectonic Network, including loans given in return for secured convertible notes issued by Tectonic Network in August and November 2004, on the basis that GO Software would be sold to repay those loans.

On December 6, 2004, Tectonic Network entered into an asset purchase agreement with VeriFone, Inc. (‘VeriFone”) by which VeriFone purchased substantially all of GO Software’s assets. The sale closed on February 28, 2005, with VeriFone paying $13 million in cash at closing and having the obligation to pay GO Software up to an additional $2 million contingent upon future events.

In early January 2005, Tectonic Network gave two notes to a lender in exchange for a loan of $5.5 million, of which $2,300,000 was to pay the secured convertible notes procured in August and November 2004 and $1,500,000 was used to pay other loans it procured in 2004 to finance the three acquired businesses and VMB.

The Board deemed the sale of GO Software to be a change of control of Tectonic Network. That change in control triggered certain obligations on the part of Tectonic Network under the terms of its employment agreement with Pecchio; the note given by Tectonic Network to Spec-Source; and the note given by Tectonic Network to White, obligating the company to pay $360,000 in monthly installments to Pecchio; to pay the $533,000 note to Spec-Source; and to pay the $360,000 note to White.

Following the sale of GO Software, Tectonic Network’s financial situation worsened. For the year ending June 2005, Tectonic Network had gross revenues of approximately $1.22 million and made payments within the prior year to insiders exceeding $1,572 million, including salary, bonuses, and note payments.

On October 3, 2005, Tectonic Network and Tectonic Solutions filed voluntary petitions in the United States Bankruptcy Court for the Northern District of Georgia (“Bankruptcy Court”) under Chapter 11 of the Bankruptcy Code. By the First Amended Joint Plan of Reorganization (“Reorganization Plan” or “the Plan”) approved in a July 11, 2006 order of the Bankruptcy Court, Tectonic Network, as reorganized, continues to operate. Pursuant to the Reorganization Plan, all issued and outstanding shares of Tectonic Network stock were cancelled and 100,000 shares of common stock of Tectonic Network were issued. Wolford owns all of those shares.

On April 12, 2006, the Bankruptcy Court approved a stipulation and consent order (“Stipulation and Consent Order” or “the Order”) by which, inter alia, “the automatic stay of 11 U.S.C. Section 362 shall be terminated to permit the members of the Committee as shareholders of Network to pursue the Claims ... against the Debtors’ directors and officers in a forum outside of the within chapter 11 proceed-

III. DISCUSSION

A. Subject Matter Jurisdiction

The Complaint avers that this court has subject matter jurisdiction over this action by virtue of 28 U.S.C. § 1332. Defendants contend that there is not complete diversity between the members of the Committee and defendants and, therefore, the suit must be dismissed for lack of subject matter jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(1). The Committee disputes that contention. Alternatively, the Committee argues that, regardless whether there is complete diversity in this matter, the court has subject matter jurisdiction under 28 U.S.C. § 1334. Finally, the Committee suggests that if the court determines that there is not complete diversity and that jurisdiction is not found under § 1334, then it should be permitted to move to delete the defendant which destroyed diversity to preserve this court’s jurisdiction under 28 U.S.C. § 1332. The Committee argues such deletion is proper because that defendant is not an indispensable party under Fed.R.Civ.P. 19.

1. 28 U.S.C. § 1882

The only basis for this court’s jurisdiction alleged in the Complaint is pursuant to 28 U.S.C. § 1332. That statute recites, in relevant part, “[t]he district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between (1) citizens of different States.... ” “Federal courts do not have jurisdiction on the ground of diversity of citizenship unless that diversity exists between all the plaintiffs, on the one hand, and all the defendants, on the other, at the time suit is instituted.”

Defendants may challenge subject matter jurisdiction through a Rule 12(b)(1) motions to dismiss in two ways: a facial challenge to the complaint and a factual challenge to the complaint. By asserting a facial challenge, defendants contend that even if the facts alleged in the complaint are true, they are insufficient to establish the court’s jurisdiction. In considering a facial challenge the court “ ‘must only consider the allegations of the complaint and documents referenced therein and attached thereto, in the light most favorable to the plaintiff.’ ” In asserting a factual challenge to the court’s subject matter jurisdiction, however, the defendant “contends that the allegations in the complaint establishing jurisdiction are not sufficiently supported by the facts. When considering a factual challenge, a court can consider evidence outside of the pleadings.”

Because defendants are asserting a factual challenge to the court’s subject matter jurisdiction, the court may consider evidence outside of the pleadings. With regard to the state citizenship of the individual defendants, the Complaint alleges that Wolford, Krug, Charles McRoberts, Pec-chio, Rogers, and VanderBoom are citizens of the State of Georgia and that John McRoberts is a citizen of the State of Alabama.

The Complaint states that the Ad Hoc Committee “is an unincorporated association consisting of a group of public shareholders which owned approximately fifty percent (50%) of all non-insider owned stock of Tectonic....” “Although corporations suing in diversity long have been ‘deemed’ citizens, unincorporated associations remain mere collections of individuals. When the ‘persons composing such association’ sue in their collective name, they are the parties whose citizenship determines the diversity jurisdiction of a federal court.” The Complaint avers that “[n]one of the members of the Ad Hoc Committee is a citizen of the same state of which any of the Defendants is a citizen” but it does not give the name or state citizenship of any individual member of the committee. Defendants note that the Committee filed a verified statement in Tectonic Network’s bankruptcy proceeding listing the names and addresses of the Committee’s members. That list includes four members of the Committee who reside in the State of Florida. The Committee does not dispute the accuracy of that list, nor does it argue that the addresses listed therein are inconsistent with the citizenship of those individuals for purposes of diversity jurisdiction.

Defendants maintain that John McRo-berts is a citizen of the State of Florida and that such residence means that there is not complete diversity between all plaintiffs and all defendants and, consequently, this court lacks subject matter jurisdiction. Defendant John McRoberts filed a declaration with defendants’ opening brief avering that he has been a resident of Florida since June 2004. Because the Complaint was filed on October 27, 2006, John McRo-berts’ citizenship in Florida as of that date, if found to be accurate, would destroy this court’s § 1332 diversity jurisdiction.

In opposing defendants’ subject matter jurisdiction argument, the Committee contends that at the time the lawsuit was filed, publicly available information showed that John McRoberts was a citizen of Alabama. According to Tectonic Network’s Amendment No. 1 to Form SB-2/A, filed with the United States Securities and Exchange Commission on June 28, 2005, John McRoberts was then the President and Chief Executive Officer of Meadowbrook Healthcare, Inc, Managing Member of CannonGate Partners LLC, and a director of Foresite LLC. The website of Mea-dowbrook Healthcare Inc. shows its corporate office in Birmingham, Alabama and identifies John W. McRoberts as President and CEO. Through an Internet search, the address for CannonGate Partners was shown to be in Birmingham, Alabama. The website for ForeSite Towers, LLC also shows its address as Birmingham, Alabama. A search of an online directory for John McRoberts in Birmingham, Alabama showed an address in Birmingham, Alabama. Finally, the Statement of Financial Affairs of Tectonic Network, Inc., filed in the Bankruptcy Court on October 26, 2005, shows the same street address for John McRoberts. That address is the one alleged in paragraph 8 of the Complaint.

The Committee argues that even if John McRoberts has been a resident of Florida since June 2004, the citizenship for diversity purposes is the individual’s domicile and that an individual can only have a single domicile. It argues that defendants have not meant their jurisdictional burden of proof and requests discovery and a hearing on this issue.

“Citizenship is synonymous with domicile, and ‘the domicile of an individual is his true, fixed and permanent home and place of habitation. It is the place to which, whenever he is absent, he has the intention of returning.’ ” “In determining an individual’s domicile, a court considers several factors, including ‘declarations, exercise of political rights, payment of personal taxes, house of residence, and place of business.’ ” “Other factors to be considered may include location of brokerage and bank accounts, location of spouse and family, membership in unions and other organizations, and driver’s license and vehicle registration.”

To clarify the facts supporting his citizenship for diversity purposes, rather than merely avering his state of residence, John McRoberts filed an additional declaration with defendants’ reply brief. In that declaration, he states that “I am considered a resident of Florida for federal and state income taxation purposes. I am registered to vote in Florida, and am subject to jury duty in Florida. I pay property taxes in Florida. In addition, my car is registered in Florida.”

“A district court’s determination regarding domicile or citizenship is a mixed question of fact and law, but primarily one of fact....” “The party asserting diversity jurisdiction bears the burden of proof .... by proving diversity of citizenship by a preponderance of the evidence.” “Whether the party asserting a change of domicile is asserting or contesting federal subject matter jurisdiction, the appropriate standard of proof is the preponderance of the evidence.”

If a defendant contests any of the jurisdictional allegations as pled by the plaintiff, the court must permit the plaintiff to respond with rebuttal evidence in support of jurisdiction, and the court then decides the jurisdictional issue by weighing the evidence. If there is a dispute of material fact, the court must conduct a plenary hearing on the contested issues prior 'to determining jurisdiction.

Here, there is clearly a question of fact as each side has presented evidence which support their competing averments as to John McRoberts’ citizenship. Although his declarations list several factors weighing in favor of a determination of Florida citizenship, defendants take somewhat contradictory positions on the evidence relied upon by the Committee to show Alabama citizenship. On the one hand, defendants seek to have the Court accept the addresses listed in certain filings in the Bankruptcy Court as establishing the citizenship for diversity purposes of those individuals who constitute the Ad Hoc Committee. On the other hand, defendants ask the court to disregard a Bankruptcy Court filing listing an Alabama address for John McRoberts for that purpose and, instead accept the statements of his declarations as establishing that he is a citizen of Florida. In this case, the Committee has requested jurisdictional discovery and were the court to have determined that it did not have jurisdiction under 28 U.S.C. § 1334, below, it would permit discovery on the issue and likely conduct a plenary hearing on the issue. As discussed below, however, the court has jurisdiction under that section and such discovery is unnecessary.

2. 28 U.S.C. § 133I

The Committee argues that even if there is no subject matter jurisdiction under 28 U.S.C. § 1332, the court has jurisdiction over this action pursuant to 28 U.S.C. § 1334 because, although it is a “non-core” proceeding, it is “related to” a case under title 11 of the United States Code.

That statute provides that “the district courts shall have original and exclusive jurisdiction of all cases under title 11,” and “original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.” § 1334(a), (b). “Cases under title 11, proceedings arising under title 11, and proceedings arising in a case under title 11 are referred to as ‘core’ proceedings; whereas proceedings ‘related to’ a case under title 11 are referred to as ‘non-core’ proceedings.” After plan confirmation, a proceeding will be within the “related to” jurisdiction if it has a “close nexus to the bankruptcy plan.” “Matters that affect the interpretation, implementation, consummation, execution, or administration of the confirmed plan will typically have the requisite close nexus.”

In IT Litigation, the court stated that:

Plaintiffs cause of action in this case arose before the filing of the bankruptcy petition, and the losses claimed by Plaintiff on behalf of unsecured creditors are logically connected to the IT Group insolvency and subsequent bankruptcy. Furthermore, this cause of action was assigned to Plaintiff [in] ... the IT Group bankruptcy plan. The assignment in a confirmed plan of a prepetition cause of action “could well establish the ‘close nexus to the bankruptcy plan or proceeding’ which the Third Circuit requires.”

In light of those facts, the court found that “[b]ecause this matter affects the implementation, consummation, and execution of the bankruptcy plan, there is a close nexus to the bankruptcy sufficient to satisfy the standard set in Resorts.”

Defendants contend that “jurisdiction must be established on the face of the complaint, and the Complaint here is silent as to any such jurisdictional basis” and that silence distinguishes this case from IT Litigation. Next, defendants argue that:

deeming this action one that arises under the Bankruptcy Code is completely at variance with the theory alleged in the Complaint itself, viz. that the claims are state law fraud and fiduciary claims against directors and officers of the company — and it is completely at variance with the Bankruptcy Court’s own determination that the Claims should go forward, if at all, ‘in a forum outside of the within chapter 11 proceedings.

With respect to defendants’ first argument, Fed.R.Civ.P. 15(a) states that “[t]he court should freely give leave [to amend] when justice so requires.” The United States Supreme Court has stated that “this mandate is to be heeded. If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits.” While leave to grant or deny amendment is discretionary,

In the absence of any apparent or declared reason-such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.the leave sought should, as the rules require, be “freely given.”

Any deficiency from the Complaint’s lack of stating that this court has subject matter jurisdiction under § 1334 may be remedied by permitting such amendment. The court finds no reason to deny that amendment.

The court also disagrees with defendants’ second argument, that finding § 1334 jurisdiction is inappropriate in light of the Complaint’s asserted state law claims. Similar state law claims were asserted by the plaintiff in IT Litigation and jurisdiction was found under § 1334. Finally, the court disagrees with defendants’ contention that such jurisdiction “is completely at variance with the Bankruptcy Court’s own determination that the Claims should go forward, if at all, ‘in a forum outside of the within chapter 11 proceedings.’ ” This court is a proper forum outside the chapter 11 proceedings where “related to” claims having a close nexus to the bankruptcy plan may be heard.

Here, the Committee’s claims challenge defendants’ actions prior to Tectonic Network’s bankruptcy. The challenged actions purportedly led to the insolvency and bankruptcy of Tectonic Network. Necessarily, therefore, the claims are logically connected to the insolvency and bankruptcy of that company. Those claims clearly arose prior to the bankruptcy petition as the Stipulation and Consent Order notes.

That Order permits the Committee to pursue the claims asserted here, stating “the automatic stay ... shall be terminated to permit the members of the Committee as shareholders of Network to pursue the Claims ... against the Debtors’ directors and officers in a forum outside of the within chapter 11 proceedings.” The Stipulation and Consent Order is also incorporated by reference in the Reorganization Plan.

Consequently, as was determined in the IT Litigation matter, the court finds that this matter “affects the implementation, consummation, and execution of the bankruptcy plan” and, therefore, “there is a close nexus to the bankruptcy sufficient” to establish “related to” jurisdiction under § 1334. Defendants motion to dismiss’ for lack of subject matter jurisdiction is, therefore, denied.

B. The Committee’s Standing to Assert the Claims

Defendants argue that, even if the court determines it has subject matter jurisdiction, the Complaint must nevertheless be dismissed. Defendants maintain that the Committee’s claims are derivative claims that must be dismissed. First, they argue that all derivative claims were abandoned in the Bankruptcy proceeding and, therefore, the Committee has no standing to assert those claims. Next, defendants contend that the Committee has no standing to assert the claims because it does not satisfy the contemporaneous ownership rule applicable to derivative claims and otherwise failed to satisfy the procedural requirements of Fed.R.Civ.P. 23.1 for bringing such claims. Finally, defendants maintain that even if the court determines that the claims are direct, they must nevertheless be dismissed. According to defendants, because the Committee was never a shareholder, it does not have standing to bring direct claims. Also, such claims are only appropriately asserted as class claims and the Committee has not complied with the requirements of Fed. R.Civ.P. 23.

The Committee argues that “[djefen-dants have mischaracterized this action. This is a direct, rather than a derivative, action....” As such, it argues that there was no need to comply with the procedural requirements of a shareholders’ derivative action and that failure can not warrant dismissal. It also counters that the bankruptcy documents make it clear that the claims asserted were not abandoned in the bankruptcy proceedings.

The court finds defendants’ abandonment argument without merit. They contend that the Committee has no standing to assert the claims alleged here because “[i]n the bankruptcy proceedings, Tectonic expressly and irrevocably abandoned any derivative claims it might have had against its officers and directors.” In support of that contention, they cite the following language of the Stipulation and Consent Order: “Upon entry of this Order ... the Claims shall be deemed to be abandoned.” The Order also recites that the Estate and the Debtors declined to prosecute the Claims and “do not oppose the lifting of the automatic stay to permit the prosecution of [the Claims] by the members of the Committee, either individually or by class action.” By that Order, “the automatic stay ... [was] terminated to permit the members of the Committee as shareholders of Network to pursue the Claims ... in a forum outside of the within chapter 11 proceedings.” “Neither the Plan nor any order of this or any other court, including a confirmation order of the Plan, may approve any releases of the Claims....”

The Reorganization Plan does release claims against certain parties. “Released Parties” are defined as “all officers of each of the Debtors as of the Petition Date, all members of the boards of directors of each of the Debtors as of the Petition Date....” The “Release by Debtors of Certain Parties” of claims against the “Released Parties,” however, is “subject to the terms of the Ad Hoc Committee Stipulation which shall be incorporated herein and in the event of any conflict with the Plan control---- Both the Stipulation and Consent Order and the Reorganization Plan, therefore, make clear that the provision that “[u]pon entry of this Order ... the Claims shall be deemed to be abandoned,” does not operate to preclude the Committee from pursuing the Claims.

With regard to whether the asserted claims are derivative, defendants cite paragraph 8 of the Stipulation and Consent Order which purportedly “made clear that any claims thus abandoned to members of the Ad Hoc Committee were ‘derivative’.” Paragraph 8 of that order does not, however, make “clear” that the Claims are “derivative.” In its entirety, that paragraph reads:

This court shall retain jurisdiction to take any future action necessary to effectuate any action which permits the Committee to pursue the Claims, including without limitation supplementing or amending this order to effectuate such relief in favor of the Committee’s derivative right to pursue the Claims.

That language does not characterize the Claims as “derivative,” rather it describes the “derivative right” of the members of the Committee to pursue the “Claims.” Indeed, the Claims are not characterized at all; they are merely identified as those to which the automatic stay was lifted (and that the Committee might pursue them), and those to which the stay was not lifted (the Preference Claims).

The Committee argues that the claims are direct. It contends that, as a result of the Stipulation and Consent Order, it acquired Tectonic Network’s claims against its former officers and directors and that it stands in the same shoes as the plaintiff trust in IT Litigation Trusts The court agrees with the Committee’s claims in this action are direct claims.

The IT Litigation Trust case arose following the bankruptcy of IT Group Inc. (“IT Group”). Plaintiff IT Litigation Trust asserted a claim for, inter alia, breaches of fiduciary duty against certain former directors and officers of IT Group. Those claims were “originally asserted by the Official Committee of Unsecured Creditors in the IT Group bankruptcy proceeding. By stipulation of the parties and pursuant to the First Amended Joint Chapter 11 Plan for the- IT Group, which was [later confirmed], the IT Litigation Trust was substituted as Plaintiff in this action.” There, the “case is brought as a direct rather than a derivative action solely because the IT Group became insolvent and its board was displaced by a bankruptcy trustee.”

Similarly, the Committee originally moved for appointment as an official committee of equity holders (the “Equity Committee Motion”) and to investigate the Claims, to which the Debtors (Tectonic Network and Tectonic Solutions) objected. The Debtors filed a Joint Plan of Reorganization which provided for the release of all claims against officers and directors, including the Claims, to which the Committee objected. The Estate and the Debtors did not oppose lifting the automatic stay to permit the Committee to pursue the Claims. Therefore, the Debtors, the Estate, and the Committee agreed, inter alia, that: the Equity Committee Motion would be withdrawn and that the automatic stay would be lifted to permit the Committee to pursue “the Claims ... against the Debtors’ directors and officers in a forum outside of the within chapter 11 proceedings.” As a result, the Committee acquired Tectonic Network’s claims against its “directors and officers, including ... claims for fraud, breach of fiduciary duty and breach of the duty of care and loyalty which were assert-able prior to the filing of these chapter 11 cases....” As in IT Litigation, the claims asserted in this action are not derivative claims and are not subject to the procedural requirements of Fed.R.Civ.P. 23.1.

Defendants also argue that if the court determines, as it has, that the claims are not derivative, they still must be dismissed. They contend that because the Ad Hoc Committee never held shares of Tectonic Network in its own name it has no standing to sue for injury either on behalf of the company or in the capacity of a shareholder. The court has already determined that as a result of the Stipulation and Consent Order, the Committee has standing to pursue the claims asserted in this action. Were the Committee to be prohibited from pursuing these claims on the basis that it had never owned shares in the company, plaintiffs such as the IT Litigation Trust (which never owned shares of IT Group in its own name) would never be able to bring similar claims. This would be at odds with the clear intent of Bankruptcy Court orders establishing litigation trusts or committees of former shareholders for the express purpose of enabling those entities to pursue certain claims. Therefore, the court rejects defendants’ argument that the Committee’s lack of ownership of Tectonic Network shares requires dismissal of the claims.

Defendants also quote the language of the Stipulation and Consent Order that any “recoveries” go to “similarly situated members of the class,” and contend that the language of the Stipulation and Consent Order indicates that “the claims, to the extent direct, are class claims. If so, then Defendants hereby move to dismiss on the basis that plaintiff has not pleaded any of the requirements of Fed.R.Civ.P. 23.... ” Here, however, the Committee does not purport assert this matter as a class action and the Stipulation and Consent Order does not so require.

Defendants indirectly make an additional standing contention based on the Stipulation and Consent Order, albeit as part of the argument that the claims are derivative, that the Committee is not the proper plaintiff to have brought this action. They maintain that the Order permits “ ‘the members of the Committee as shareholders of [Tectonic] to pursue the Claims....’” That language is said to show that the Claims “survived only as claims that could have been brought by members of the Ad Hoc Committee — i.e., shareholders.” While the Stipulation and Consent Order is correctly quoted by defendants, read as a whole, it is clear that the Committee is authorized to pursue the Claims in its own name.

The Order states that the automatic stay “shall be terminated to permit the members of the Committee as shareholder of [Tectonic Network] to pursue the Claims....” It refers to “costs incurred by the Committee or its members in their pursuit of the Claims ” and recoveries from the claims benefitting “the Committee or its members subject to any applicable law requiring the Committee to share any recovery with similarly situated members of the class” This alternative language concerning costs and recoveries demonstrates that the parties to the Order contemplated the Committee bringing the Claims in its own name, as does subsequent language therein written both in the alternative and specific as to the Committee. To preserve the Committee’s ability to pursue the Claims, it recites that:

In the event circumstances arise in this or any future proceeding or action which, in the sole discretion of the Committee and/or its members pursuing the Claims, require the Estate or the Debtors to execute any further documents or the Court to enter any further orders to formally assign, deliver or abandon the Claims to the Committee and/or its members, the Estate and the Debtors shall execute such documents, and fully cooperate with the Committee to effectuate such release.

Additionally, the Bankruptcy Court “shall retain jurisdiction to take any future action necessary to effectuate any action which permits the Committee to pursue the Claims, including without limitation supplementing or amending this order to effectuate such relief in favor of the Committee’s derivative right to pursue the Claims.” Finally, “[njeither the Plan nor any order of this or any other court, including a confirmation order of the Plan, may approve any releases of the Claims, which Claims are hereby preserved for the benefit of the Committee.”

In light of the above language, the court finds that the Stipulation and Consent Order permits the Committee to bring the instant action in its own name and does not require that the action be brought as a class action. Defendants’ motion to dismiss based on the Committee’s lack of standing and/or failure to comply with certain procedural of the Federal Rules is denied.

C. Failure to State a Claim Upon which Relief May be Granted and Failure to Plead Fraud With Particularity

Defendants contend that the Complaint must be dismissed for failure to state a claim upon which relief may be granted and failure to plead fraud with particularity. The Committee, naturally, disputes those contentions.

Defendants argue that “Allegations of breach of fiduciary duty must be analyzed to determine whether plaintiff rebuts the business judgment rule presumption that disinterested directors who honestly and reasonably believe they are benefitting the corporation may not be second-guessed by shareholders.” Defendants maintain that the allegations of the Complaint fail to rebut the business judgment rule presumption and must be dismissed.

The Committee points out that, in support of their contentions, defendants cite Delaware state court decisions for the pleading standards for claims officers’ and directors’ breaches of fiduciary duties under substantive Delaware state law such as Aronson v. Lewis. , The Third Circuit’s In re Tower Air, Inc. decision (not cited in defendants’ opening brief), however, made abundantly clear that in pleading directors’ and officers’ breaches of fiduciary duty, the notice pleading standard of Fed.R.Civ.P. 8 applies, rather than the more specific factual pleading required by Delaware state courts under Delaware Court of Chancery Rule 8. Federal Rule of Civil Procedure 8(a) simply requires a complaint to set forth “a short and plain statement of the claim showing that the pleader is entitled to relief.” The Third Circuit noted that Delaware Chancery’s Rule 8 mirrors Fed.R.Civ.P. 8. “The problem is that Delaware courts interpret Chancery Rule 8 to require pleading facts with specificity. That is not the federal notice pleading standard.” “ ‘[A] plaintiff need only make out a claim upon which relief can be granted. If more facts are necessary to resolve or clarify the disputed issues, the parties may avail themselves of the civil discovery mechanisms under the Federal Rules.’ ” “[T]he Federal Rules of Civil Procedure ‘do not require a claimant to set out in detail the facts upon which he bases his claim.’ ” The “supporting facts should be alleged, but only those necessary to provide the defendant fair notice of the plaintiffs claim and the

‘grounds upon which it rests.’ ” “[A] plaintiff will not be thrown out of court on a Rule 12(b)(6) motion for lack of detailed facts. To say that a plaintiffs claim appears factually weak is not to say that he states no claim.” “Generally speaking, [the court] will not rely on an affirmative defense such as the business- judgment rule to trigger dismissal of a complaint under Rule 12(b)(6).” Defendants respond that, even under Tower Air, the Committee must still plead around the business judgment rule because “Tower Air stands for the proposition that a complaint that expressly or implicitly invokes the ‘business judgment rule’ must plead around’ that rule, in order to survive a motion to dismiss.” The court disagrees with defendants’ characterization of that proposition. After stating that the business judgment rule generally will not trigger dismissal under Rule 12(b)(6), the Tower Air court stated that “[a] complaint may be dismissed under Rule 12(b)(6) where an unanswered affirmative defense appears on its face, however.” The Tower Air complaint “declared] that the business judgment rule does not vitiate any of his claims.” Because that defense appeared on the face of the complaint, “[plaintiff] must plead that he overcomes the presumption created by that rule....”

Defendants do not, and can not contend that the business judgment rule appears on the face of the Complaint. Instead, they argue that the Complaint implicitly invokes the business judgment rule by describing “each of the transactions which underlie the breach of fiduciary duty claims as being ‘decisions that no reasonable person could possibly authorize in good faith ....’” A similar argument was recently rejected by this court in Shamrock Holdings, Inc. v. Arenson.

In Shamrock, it was argued that the business judgment rule was implicitly raised “by repeatedly describing the minority shareholders’ behavior with terms such as “well-reasoned’ in a preemptive attempt to combat a possible affirmative defense.” The Court acknowledged the teaching of Tower Air that affirmative defenses, such as the business judgment rule, generally will not trigger dismissal of a complaint, but that a complaint may be dismissed based on that defense if it appears on the face of the complaint. The court rejected the argument that dismissal is appropriate where the business judgment rule is implicitly raised. The court stated that it did not find “a bright line rule permitting courts to dismiss claims under Rule 12(b)(6) based on unanswered affirmative defenses which are raised only implicitly on the face of the complaint.” Defendants have not cited any case that supports the proposition that implicitly raising the business judgment rule as the basis for dismissal. As in Shamrock, this “court declines to infer such ability and holds that defendants are not required to plead around the business judgment rule at this stage in the proceedings.” Consequently, the Committee’s Complaint need only satisfy the notice requirement of Fed.R.Civ.P. 8 to survive defendants’ 12(b)(6) motion to dismiss.

The bulk of defendants’ argument that the Committee fails to state a claim upon which relief may be granted is based on their contention that the Committee must plead around the business judgment rule, which the court has determined is not the case here. Defendants make a passing attempt at arguing that the Complaint fails the notice pleading requirement of Rule 8. They contend that “[i]n all events, plaintiffs claims are subject to dismissal for failure of even the most basic notice pleading standards.” In support of that contention, they cite Tower Air, Continuing Creditors’ Committee of Star Telecommunications v. Edgecomb, and Malpiede v. Townson. Those cases are of no help to defendants. In Tower Air, the Third Circuit had determined that the plaintiff had to plead around the business judgment rule before analyzing the allegations in the complaint. Here, the court has determined that plaintiff is not required to plead around the business judgment rule. Star Telecommunications was decided pri- or to Tower Air. There is no mention of Fed.R.Civ.P. 8 in that case and the court apparently looked to Delaware state court opinions to determine whether the claims were properly plead; the application of which the Tower Air court subsequently held was inappropriate. For the same reason, defendants’ reliance on Malpiede is misplaced as that court, necessarily, was not examining the allegations under Fed. R.Civ.P. 8.

1. Duty of Loyalty

The duty of loyalty requires that “the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally.” The Committee argues that “[a] breach of the duty of loyalty is pleaded if the alleged facts, accepted as true, show that the board was either interested in the transaction or lacked the independence to objectively consider whether the transaction was in the best interest of the corporation and its shareholders.” With respect to the requirement that a fiduciary not be interested in a transaction, that fiduciary “can neither appear on both sides of a transaction nor expect to derive any personal financial benefit from it in the sense of self-dealing, as opposed to a benefit which devolves upon the corporation or all stockholders generally.” A fiduciary’s lack of independence “can be shown when a plaintiff pleads facts that establish ‘that the directors are beholden to [the controlling person] or so under their influence that their discretion would be sterilized.’ ”

Here, the Complaint alleges facts, which if proved, would support a conclusion that some or all of the defendants lacked independence or were interested in the challenged transactions.

The Complaint alleges that, with respect to the acquisitions of BBN, CYP, and SpecSource, Wolford was a majority (or controlling) shareholder of each of those businesses and, as such, appeared on both sides of those transactions and, therefore, lacked disinterest. As a result of the BBN and CYP transactions, Wolford received Tectonic Network stock in return for his interest in those companies. Through the SpecSource transaction, Wol-ford was entitled to receive “approximately 980,000 shares of the common stock of Tectonic Network upon the dissolution of SpecSource and 67.6 % of any and all payments on [a $533,000] note” as consideration for his ownership interest in that company.

With respect to Krug, the Complaint alleges that he lacked independence as he was beholden to and controlled by Wol-ford. Wolford allegedly controlled Krug because Wolford hired Krug as Chief Financial Officer of Tectonic Network and Krug reported to Wolford who acted as Krug’s supervisor. Krug was also purportedly beholden to Wolford who “effectively determined Krug’s compensation, including stock options and bonuses given to him.”

The interest of John McRoberts, Charles McRoberts, and Pecchio is also alleged. Under an agreement entered in 2000, those directors were “entitled to the receipt of over three million seven hundred fifty thousand (3,750,000) shares of common stock of Tectonic Network, held in escrow, upon Tectonic Network reaching certain financial results.” As of the dates of the consideration and authorization of the BBN, CYP, and SpecSource acquisitions, Tectonic Network had never achieved those results. As part of the acquisition of those businesses, Wolford devised a “scheme” whereby “all of the escrowed shares would be released from escrow, most of them (approximately 2.85 million shares) would then be used as consideration or partial consideration given to the [owners of the acquired businesses], and nearly all of the balance of the shares would be given immediately” to those three directors. Charles McRoberts was to receive 309,383 shares, John McRo-berts 187,846 shares, and Pecchio 253,131 shares. As a result of their purported interest, i.e., the anticipated receipt of Tectonic Network stock, those directors “approved the scheme proposed by Wolford and the acquisitions of the three businesses, which were integral to the scheme.”

The lack of independence of Charles McRoberts, VanderBoom and Rogers is also alleged. Wolford purportedly exerted control over Charles McRoberts as Wol-ford was his close friend and supervisor for many years and he reported to Wol-ford. VanderBoom is alleged to have been under the control of Wolford because VanderBoom was a Chief Financial Officer in another company in which Wolford was the Chief Executive Officer to whom Van-derBoom reported. Rogers’ lack of independence was due to her wish “to become the President of Tectonic Network and [she] required Wolford’s good will and support to secure that position.”

These allegations are sufficient, under Rule 8, to put provide defendants fair notice of the Committee’s claims and the grounds upon which those claims rest. Defendants motion to dismiss the Committee’s duty of loyalty claims is denied.

2. Duty of Care

Defendants argue that the Committee’s duty of care claims must be dismissed because Tectonic Network’s certificate of incorporation contains an exculpation provision eliminating liability for breaches of the duty of care. Delaware’s General Corporation Law permits a corporation to eliminate its directors from monetary liability for breaches of the duty of care.

[T]he certificate of incorporation may ... contain ... (7) A provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director: (i) For any breach of the director’s duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law; (iii) under § 174 of this title; or (iv) for any transaction from which the director derived an improper benefit.

Tectonic Network adopted such a provision eliminating liability “to the corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director” tracking the language of § 102(b)(7) and stating that it is “the intention of the foregoing provision to eliminate the liability of the corporation’s directors to the corporation or its stockholders to the fullest extent permitted by Section 102(b)(7) ....”

Defendants do not point to any deficiencies in the Complaint’s allegations concerning purported breaches of the duty of care. The only ground upon which the motion to dismiss on this issue is based on the existence of Tectonic Network’s exculpation provision. Defendants cite IT Litigation, where the court dismissed duty of care claims based on a § 102(b)(7) exculpation provision, as support for dismissal of those claims here. In IT Litigation, the court stated that “[t]he Third Circuit declined to address an exculpatory charter provision because the provision was raised for the first time on appeal” and held that “while the duty of loyalty claims are unaffected, the [IT Group] directors are protected by § 102(b)(7) against liability for breaching the duty of care.”

Although the Tower Air court declined to address the defendants’ § 102(b)(7) argument, it stated both the fact that the argument was first raised on appeal and that such provision appeared to be in the nature of an affirmative defense as its reasons:

We decline to address it today because we generally decline to address arguments for the first time on appeal, and because the protection of an exculpatory charter provision appears to be in the nature of an affirmative defense. As we have said, affirmative defenses generally will not form the basis for dismissal under Rule 12(b)(6).

Delaware state courts characterize a § 102(b)(7) charter provision as in the nature of an affirmative defense. At least two federal courts have cited Tower Air in denying motions to dismiss duty of care claims based on exculpation provisions. Because a section 102(b)(7) provision is in the nature of an affirmative defense and following the statement of the Third Circuit that such defenses will generally not form the basis of a Rule 12(b)(6) dismissal, defendants’ motion to dismiss the duty of care claims is denied.

3. Fraud

Federal Rule of Civil Procedure 9(b) provides that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.”

“Rule 9(b) requires a plaintiff to plead (1) a specific false representation of material fact; (2) knowledge by the person who made it of its falsity; (3) ignorance of its falsity by the person to whom it was made; (4) the intention that it should be acted upon; and (5) that the plaintiff acted upon it to his [or her] damage.”

“Rule 9(b)’s heightened pleading standard gives defendants notice of the claims against them, provides an increased measure of protection for their reputations, and reduces the number of frivolous suits brought solely to extract settlements.” Even with the stringent requirements of Rule 9(b), however, “courts should be sensitive to the fact that application of the Rule prior to discovery may permit sophisticated defrauders to successfully conceal the details of their fraud.” As a result “the normally rigorous particularity rule has been relaxed somewhat where the factual information is peculiarly within the defendant’s knowledge or control.” The court must bear in mind, however, that even with a relaxed application of Rule 9, “boilerplate and conclusory allegations will not suffice. Plaintiffs must accompany their legal theory with factual allegations that make their theoretically viable claim plausible.”

According to defendants, the allegations of the fraud claim are that “Wolford and/or Krug made misrepresentations to induce Tectonic to acquire and invest further in BBN, CYP, and [SpecSource]; to invest in VBM; to sell GO Software; and to approve various payments.” In their opening brief, defendants argue the allegations in support of the fraud claim fail to meet the heightened pleading standard because the allegations are “hopelessly vague” and fail to establish the “who what, when, where, and how” of any fraud, as required by Rule 9(b). In support, defendants point to the assertion that Wol-ford and Krug “falsely represented ... that these businesses would be greatly profitable and viable” and that “[t]he fi-nancials are positive and the risks manageable,” as being “so vague and general that, by their terms, they could not reasonably have been relied upon.” Moreover, the Complaint purportedly makes no effort to provide specific information as to what makes those statements false and merely concludes that “the acquired businesses were riddled with fraudulent and unethical business practices, unprofitable, and in need of large infusions of cash in order to continue operating.” Consequently, defendants contend that the fraud claim must be dismissed for failure to meet the Rule 9(b) pleading standards.

The Complaint specifically calls out particular paragraphs as supporting the allegations of fraud. The Complaint generally alleges that “[p]rior to Tectonic Network’s acquisitions of [BBN, CYP, and SpecSource], Defendants Wolford and Krug falsely represented to Tectonic Network’s Board of Directors and shareholders that these businesses would be greatly profitable and were viable,” and that “Tectonic Network purchased these businesses based upon false or misleading financial information provided by Wolford and Krug who knew the information to be false when provided.” It is only alleged, however, that “[i]n a presentation made to ... [the] Board ... on October 22, 2003, Wolford represented, as to the three businesses, that ‘[t]he finan-cials are positive and the risks manageable.’ ” There are no allegations as to what information Krug gave to the Board that induced them to acquire the three businesses. The court also agrees with defendants that these general statements, directed at the acquisition of all three businesses is vague and does not explain what false and misleading information was presented to the Board. With regard to the acquisition of SpecSource, however, more specific allegations are made.

The Complaint alleges that “[t]he financial statements for SpecSource as of September 30, 2003 and for the period then ended materially overstated SpecSouree’s revenues for that period.” When those “financial statements were made part of a schedule to the SpecSource Agreement, Wolford knew that they materially overstated the revenue....” “In a presentation made to ... [the] Board ... on October 22, 2003, Wolford” materially overstated the average daily number of searches performed on the SpecSource website’s reference database. This knowing overstatement by Wolford was material because “the basis of Spec-Source’s service agreements with its customers was that the website would generate hits and searches on the website which advertised the products of Spec-Source’s customers.” Prior to the acquisition, Wolford also falsely represented to Tectonic Network that SpecSource’s reference database (which was its primary asset and the basis for the amount of consideration to be paid by Tectonic Network in the acquisition) was complete and accurate.

In paragraph 3.16 of the SpecSource Agreement, Wolford represented that SpecSource “has not received any notice or has no knowledge to the effect that any current Customer ... may terminate or materially alter its business relations with the company either as a result of' the transaction contemplated by this Agreement or otherwise.” In paragraph 3.18 of that agreement, Wolford represented that “[n]o representation, warranty or covenant made by [SpecSource] or [Wolford ... ] in this Agreement (including the schedules hereto) contains any untrue statement of a material fact or omits to state a material fact required to be stated herein or necessary to make the statements contained herein not misleading.” It is alleged that Wolford breached paragraph 3.16’s representations and warranty because he knew of:

the falsity of the representations made by SpecSource to its customers, concerning the completeness and accuracy of ... SpecSource’s reference database and the number of hits and searches on the database and that such misrepresentations would ultimately cause a material number of its customers to cancel their contracts, demand and receive refunds, or receive free advertising, thereby terminating or materially altering their relationship to the SpecSource business.

Wolford is alleged to have breached the representation and warranty of paragraph 3.18 because his:

failure to disclose in that paragraph his knowledge of the falsity of the representations made by SpecSource to its customers, concerning the completeness and accuracy of the SpecSource’s reference database and the number of hits and searches on the database, “omit[ted] to state a material fact required to be stated herein or necessary to make the statements contained herein not misleading.”

Following the acquisition of the three businesses, Wolford and Krug purportedly made additional false representations to the Board concerning those businesses. “Shortly following the first quarter of 2004,.... Wolford and Krug falsely represented to [the] ... Board ... that, during that first quarter Tectonic Solutions achieved over $500,000 in advertising revenue from the three acquired businesses” Although the Complaint alleges that the first revenues were “falsely represented,” that dollar figure does not appear to be incorrect as the allegation continues by stating that:

Tectonic Solutions would have to refund much of those advertising revenues or give free advertising to customers because (i) SpecSource had materially inflated and thereby materially misrepresented the hits and searches on its reference database, (ii) the reference data base was materially incomplete and inaccurate, and (iii) Tectonic Solutions decided not to publish and distribute the number of editions of directories carrying customer advertisements that Tectonic Solutions or CYP had contracted with its customers to publish and distribute.

“Following Tectonic Network’s acquisitions of the three businesses, ... Wolford and Krug continued to represent falsely to [the] ... Board ... that these businesses] were growing and held out huge promise for future profitability.”

“In early 2005, ... a former employee of Tectonic Solutions and a putative Sarbanes Oxley Act ‘whistleblower’, flied a complaint alleging that the data used as part of the sales and budgeting efforts at Tectonic Solutions were fraudulent or materially overstated.” The Board assigned Wol-ford to investigate the complaint after which, on March 24, 2005, Tectonic Network filed Form 8-K with the SEC stating “[n]o evidence of any material adverse conditions has been found in connection with the employee’s allegations, but if any is, the Company shall take prompt and appropriate action in response.” Wolford signed that filing and “knew the falsity of this statement when it was made.”

With respect to VMB, “[i]n the first three calendar quarters of 2004, Wolford urged the development” of that business. With no reasonable basis,

Wolford assured the Board ... that (a) this model business would be the foundation of an overall strategy to move Tectonic Network into the construction information business, and (b) that the [VMB] would be hugely profitable, generating revenues of approximately $30,000 to $40,000 per project with a thirty percent profit margin.

“In order to procure authorization for funding this project[,] ... Wolford fabricated results for this project and included them in presentations to the Board and in financial statements for Tectonic Network.” In August 2004, Wolford falsely represented to the Board that:

Tectonic Network had acquired six (6) new contracts ‘in only one month’ of sales during the third calendar quarter of 2004 to develop [VMB] for the customers, each of these contracts had been completed, and revenue for these contracts was included in Tectoni