In re Robotic Vision Systems, Inc.

• Decision Date: 30 August 2007
• Docket Number: Bankruptcy No. 04-14152-JMD.,Adversary No. 06-1423-JMD.,Bankruptcy No. 04-14151-JMD.
• Citation: 374 B.R. 36,2007 BNH 031
• Parties: In re ROBOTIC VISION SYSTEMS, INC., and Auto Image ID, Inc., Debtors. Steven M. Notinger, Chapter 7 Trustee, Plaintiff, v. Pasquale Costa, Frank DiPietro, Jay M. Haft, Jonathan Howe, Mark J. Lerner, Howard Stern, and Robert H. Walker, Defendants.
• Court: U.S. Bankruptcy Court — District of New Hampshire

Page 36

374 B.R. 36

2007 BNH 031

In re ROBOTIC VISION SYSTEMS, INC., and Auto Image ID, Inc., Debtors Steven M. Notinger, Chapter 7 Trustee, Plaintiff, v. Pasquale Costa, Frank DiPietro, Jay M. Haft, Jonathan Howe, Mark J. Lerner, Howard Stern, and Robert H. Walker, Defendants.

Bankruptcy No. 04-14151-JMD.

Bankruptcy No. 04-14152-JMD.

Adversary No. 06-1423-JMD.

United States Bankruptcy Court, D. New Hampshire.

August 30, 2007.

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James W. Donchess, Esq., Deborah A. Notinger, Esq., Donchess & Notinger, P.C. Nashua, NH, Thomas M. Greene, Esq., Michael Tabb, Esq., Greene & Hoffman, P.C., Boston, MA, Attorneys for Plaintiff.

Thomas J. Pappas, Esq., Wiggin & Nourie, P.A., Manchester, NH, Charles A. Dale III, Esq., Daniel J. Kelly, Esq., David Himelfarb, Esq., McCarter & English, LLP, Boston, MA, Attorneys for Pasquale Costa, Frank DiPietro, Howard Stern, and Robert H. Walker.

Michael J. Connolly, Esq., Daniel M. Deschenes, Esq., Hinckley Allen Snyder, LLP, Concord, NH, Lawrence S. Hirsh, Esq., William C. Baton, Esq., LeBoeuf, Lamb, Greene & MacRae LLP, New York, NY, Attorneys for Jay M. Haft.

John M. Sullivan, Esq., Joshua E. Menard, Esq., Preti Flaherty Beliveau &amp Pachios LLP, Concord, NH, Edward J. Fuhr, Esq., Terence J. Rasmussen, Esq., Hunton & Williams LLP, Richmond, VA, Attorneys for Jonathan Howe.

MEMORANDUM OPINION

J. MICHAEL DEASY, Bankruptcy Judge.

I. INTRODUCTION

Steven M. Notinger, as chapter 7 trustee (the "Trustee") of Robotic Vision Systems, Inc. (the "Debtor" or "RVSI"), filed a twenty-three count complaint against seven former directors of the Debtor seeking, among other relief, to recover for breach of fiduciary duty to RVSI and its creditors and objecting to the directors' proofs of claims. The defendants, with the exception of Mark Lerner ("Lerner"), have filed motions seeking to dismiss various counts of the complaint. Specifically, Pasquale Costa ("Costa") seeks to dismiss Counts I through IV and portions of Count IX; Frank DiPietro ("DiPietro"), Howard Stern ("Stern"), Robert H. Walker ("Walker"),. and Jay M. Haft ("Haft") seek to dismiss Count V; and Jonathan Howe ("Howe") seeks to dismiss Counts V and XIX.

This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the "Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire," dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).

II. MOTION TO DISMISS STANDARD

In order to grant a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), which is made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7012(b),¹ the Court must accept the allegations of the complaint as true and make all reasonable inferences in favor of the plaintiff, and if, under any theory, the allegations are sufficient to state a cause of action in accordance with the law, the Court must deny the motion to dismiss. Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975) (cited in Boles v. Filipowski (In re Enivid, Inc.), 345 B.R. 426, 441-42 (Bankr.D.Mass.2006)); Alternative Energy, Inc. v. St. Paul Fire and Marine Ins. Co., 267 F.3d 30, 33 (1st Cir.2001); Blackstone Realty LLC v. Fed. Deposit Ins. Corp., 244 F.3d 193, 197 (1st Cir. 2001); Vartanian v. Monsanto Co., 14 F.3d 697, 700 (1st Cir.1994); Bezanson v. Gaudette (In re R & R Assocs. of Hampton), 248 B.R. 1, 4 (Bankr.D.N.H.2000). In its recent decision in Bell Atl. Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), the United States Supreme Court explained that a complaint will survive a motion to dismiss under FRCP 12(b)(6) only if the allegations in the complaint cross the line between "possibility" and "plausibility" of entitlement to relief. Bell Atl., 127 S.Ct. at 1966 (citing DM Research, Inc. v. College of Am. Pathologists, 170 F.3d 53, 56 (1st Cir.1999)). A plaintiff need not plead sufficient facts to establish a prima facie case. Swierkiewicz v. Sorema N.A. 534 U.S. 506, 515, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002) (cited with approval in Bell Atl., 127 S.Ct. at 1969). Rather, the complaint must only provide the defendants with fair notice of the plaintiff's claims and sufficient facts to provide notice of the grounds upon which such claims rest. Bell Atl., 127 S.Ct. at 1959; Adelphia Communications Corp. v. Bank of Am., N.A. (In re Adelphia Communications Corp.), 365 B.R. 24, 33 (Bankr.S.D.N.Y.2007).

As explained in this Court's recent decision in Official Committee of Unsecured Creditors v. Foss (In re Felt Mfg. Co., Inc.), 371 B.R. 589 (Bankr.D.N.H.2007), the dismissal standard articulated by the Supreme Court in Bell Atlantic is in line with previous decisions of the First Circuit Court of Appeals. Post-Bell Atlantic, the First Circuit has stated that a complaint must allege "a plausible entitlement to relief," Rodriguez-Ortiz v. Margo Caribe, Inc., 490 F.3d 92, 95 (1st Cir.2007) (quoting Bell Atl., 127 S.Ct. at 1967), and further has indicated that a plaintiff must plead facts sufficient to allow the necessary inferences to be drawn that the plaintiff may be entitled to relief. Marrero-Gutierrez v. Molina, 491 F.3d 1, 9 (1st Cir.2007).

The Court of Chancery of Delaware has stated that in Bell Atlantic "our nation's high court has now embraced the pleading principle that Delaware courts have long applied, which is that a complaint must plead enough facts to plausibly suggest that the plaintiff will ultimately be entitled to the relief [the plaintiff] seeks." Desimone v. Barrows, 924 A.2d 908, 929 (Del.Ch.2007). This Court does not agree that the federal pleading standard articulated in Bell Atlantic is the same as the Delaware pleading standard. In Delaware, when considering a motion to dismiss for failure to state a claim, "the Court must assume the truthfulness of all well-pleaded facts contained in the complaint, view those facts and all reasonable inferences drawn therefrom in the light most favorable to the plaintiff, and determine with `reasonable certainty' whether the plaintiff would be entitled to relief under any set of facts that could be proven." Orman v. Cullman, 794 A.2d 5, 15 (Del.Ch. 2002) (emphasis added); see also Prod. Res. Group, L.L.C. v. NCT Group, Inc., 863 A.2d 772, 781 (Del.Ch.2004) (stating a motion to dismiss for failure to state a claim must be granted when it appears with "reasonable certainty" that the plaintiff would not be entitled to the relief sought under any set of facts which could be proven to support the action). Well-pleaded allegations include "specific allegations of fact and conclusions supported by specific allegations of fact." Orman, 794 A.2d at 15 n. 5 (quoting Malpiede v. Townson, 780 A.2d 1075, 1083 n. 16 (Del.2001)). Delaware courts require "reasonable certainty" regarding a plaintiffs entitlement to relief while federal courts require "plausibility," which appears to be a less stringent standard.

Therefore, [in this Court] in order satisfy the requirements of FRCP 8(a) and to survive a motion to dismiss under FRCP 12(b)(6), the allegations in a complaint must put defendants on fair notice of the plaintiff's claim and allege sufficient facts to establish a plausible entitlement to relief. Bell Atl., 127 S.Ct. at 1967. The allegations in the complaint must cross the line between the mere possibility of relief to the plausibility of relief. Id. at 1966. However, requiring "plausible grounds [for relief] ... does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence [to support relief]." Id. at 1965. Even if the Court believes that the proof of the facts alleged is "very remote and unlikely," a well pleaded complaint may proceed. Id.

Felt Mfg. Co., 371 B.R. at 607.

"While most Rule 12(b)(6) motions are premised on a plaintiffs putative failure to state an actionable claim, such a motion may sometimes be premised on the inevitable success of an affirmative defense. ... Dismissing a case under Rule 12(b)(6) on the basis of an affirmative defense requires that (i) the facts establishing the defense are definitively ascertainable from the complaint and the other allowable sources of information, and (ii) those facts suffice to establish the affirmative defense with certitude." Nisselson v. Lernout, 469 F.3d 143, 150 (1st Cir.2006) (citations and quotations omitted), cert. denied, ___ U.S. ___, 127 S.Ct. 2131, 167 L.Ed.2d 863 (2007).

III. DISCUSSION

A. Counts I to V — Breach of Fiduciary Duty by Costa, DiPietro, Stern, Walker, Howe, and Haft

In determining whether the Trustee has stated valid causes of action against the defendants for breach of fiduciary duty, the Court must look to Delaware law as RVSI is a Delaware corporation (Complaint at ¶ 9)² and the law of the state of incorporation governs a corporation's affairs. See CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 90, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987); CCBN.com, Inc. v. Thomson Fin., Inc., 270 F.Supp.2d 146, 151 n. 2 (D.Mass.2003); Micro Networks Corp. v. HIG Hightec, Inc., 195 F.Supp.2d 255, 265 n. 1 (D.Mass.2001); Harrison v. NetCentric Corp., 433 Mass. 465, 744 N.E.2d 622, 628 (2001).

1. Business Judgment Rule

"The directors of Delaware corporations have a triad of primary fiduciary duties: due care, loyalty, and good faith.... The shareholders of a Delaware corporation are entitled to rely upon their board of directors to discharge each of their three primary fiduciary duties at all times."³ Emerald Partners v. Berlin, 787 A.2d 85, 90 (Del.2001). Officers of a Delaware corporation owe the same fiduciary duties as its directors: due care, loyalty, and good faith. Miller v. U.S. Foodservice, Inc.,...