In re NATIONAL CENTURY FINANCIAL ENTERPRISES, INC., Investment Litigation, 504 F. Supp. 2d 287

OPINION AND ORDER ON CERTAIN MOTIONS TO DISMISS FILED BY THE OUTSIDE DIRECTORS GRAHAM, District Judge. This matter is before the Court on motions to dismiss filed by Harold W. Pote, Eric R. Wilkinson, and Thomas G. Mendell (the “Outside Directors”). Several investor plaintiffs have filed claims against the Outside Directors for their alleged roles in the collapse of National Century Financial Enterprises, Inc. The claims include ones under federal and state securities laws, as well as common law claims for breach of fiduciary duty, fraud, negligent misrepresentation, aiding and abetting, and conspiracy.

For the reasons set forth below, the motions are granted in part and denied in part. I. BACKGROUND A. Allegations The underlying factual allegations regarding National Century’s operations have been discussed in prior orders. See June 10, 2004, Feb. 27, 2006, and Oct. 3, 2006 Orders. At issue here are the allegations against National Century’s former outside directors, Harold W. Pote, Eric R. Wilkinson, and Thomas G. Mendell.

A discussion of those allegations must start with an introduction of the companies the Outside Directors allegedly had ties to: the Beacon Group, LLC (the “Beacon Group”); the Beacon Group III — Focus Value Fund, L.P. (the “Focus Value Fund”); JPMorgan Chase & Co., JPMor-gan Chase Bank, and JPMorgan Partners, LLC (collectively “JPMorgan”). Plaintiffs allege that the Beacon Group, an investment banking firm from New York, and its subsidiary, the Focus Value Fund, acquired a 20% interest in National Century in 1998.

Under the terms of the equity investment, the Beacon Group was entitled to appoint: (1) two of six seats on National Century’s board of directors; (2) two of three seats on the board of directors of NPF VI, a wholly-owned subsidiary of National Century; (3) two of three seats on the board of directors of NPF XII, a wholly-owned subsidiary of National Century; (4) and the chairman position of National Century’s audit committee. At the time of the investment, Pote, Wilkinson, and Mendell served as officers of the Beacon Group.

Plaintiffs allege that Pote and Wilkinson were appointed as the initial outside directors of National Century, NPF VI, and NPF XII. Mendell later replaced Wilkinson in those positions. Plaintiffs further allege that Pote served as chairman of National Century’s audit committee. According to Plaintiffs, Chase Manhattan Corporation (a predecessor of JPMor-gan) acquired the Beacon Group in July 2000. Pote, Wilkinson, and Mendell each became officers of JPMorgan.

Pote became Executive Vice President for Regional Banking at JPMorgan Chase Bank, while Wilkinson and Mendell became managing directors of JPMorgan Partners, LLC. As outlined in previous orders, National Century allegedly engaged in a massive scheme to defraud investors. Plaintiffs allege that the Outside Directors knew of the fraud at National Century and helped conceal it. Plaintiffs further allege that the Outside Directors are responsible for misrepresentations contained in the offering materials that National Century issued to induce investors to purchase notes in its note programs, NPF VI and NPF XII.

Plaintiffs also allege the Outside Directors knew that National Century was violating the Master Indentures governing the note programs but failed to act to protect the interests of investors. B. Plaintiffs and Their Claims Many of the plaintiffs in this multidis-trict litigation brought suit against the Outside Directors. Several plaintiffs, including the Arizona Noteholders, the Unencumbered Assets Trust, and the New York City Pension Funds have settled their claims with the Outside Directors.

Still remaining, and at issue in this opinion, are claims brought against the Outside Directors by Metropolitan Life Insurance Company (“MetLife”), Lloyds TSB Bank PLC, ING Bank N.V., and Pharos Capital Partners, L.P. The claims and cross-claims asserted against the Outside Directors by National Century’s founders will be addressed in a separate opinion. 1. MetLife MetLife is a New York corporation with its principal place of business in New York. Between June 2001 and July 2002, MetLife invested a total of $102.6 million in NPF XII notes.

In August 2002, Met-Life’s affiliate, Metropolitan Insurance and Annuity Company, invested $18.46 million in NPF XII notes. MetLife originally filed suit in New Jersey federal court. MetLife asserts statutory claims against the Outside Directors under Sections 10(

b) and 20(

a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) & 78t(a), and under the Blue Sky laws of Ohio and New Jersey, Ohio Rev. Code §§ 1707.41 & 1707.43, N.J. Stat. Ann. § 49:3-71. MetLife additionally brings common law claims for breach of fiduciary duty, fraud, negligent misrepresentation, and negligence. 2. Lloyds Lloyds is a British public limited company with its principal place of business in London, England. Lloyds invested a total of $128 million in NPF XII notes in March 2001 and November 2002. Lloyds originally filed suit in New Jersey federal court. Lloyds asserts claims against the Outside Directors under

Section 20(

a) of the Securities Exchange Act and under Ohio’s and New Jersey’s Blue Sky laws. Lloyds also asserts a common law claim for breach of fiduciary duty. 3. ING Bank ING Bank is a banking association organized under the laws of the Netherlands. ING invested $500 million in NPF VI notes on June 20, 2001. ING originally brought suit in New York federal court. ING asserts claims against the Outside Directors for breach of fiduciary duty, fraud, aiding and abetting breach of fiduciary duty, aiding and abetting fraud, and negligence. 4.

Pharos Capital Partners Pharos is a limited partnership organized under the laws of Delaware. Pharos describes itself as being in the business of making equity investments on behalf of its limited partner investors. Pharos purchased $12 million worth of National Century preferred stock on July 8, 2002. Pharos originally brought suit in the Southern District of Ohio. Pharos asserts claims against the Outside Directors under Ohio’s Blue Sky law, and for fraud, aiding and abetting fraud, and conspiracy. II.

MOTION TO DISMISS STANDARD OF REVIEW When considering a motion to dismiss under Fed.R.Civ.P. 12(b)(6), a court must construe the complaint in the light most favorable to the plaintiff and accept all well-pleaded material allegations in the complaint as true. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974); Roth Steel Prods. v. Sharon Steel Corp., 705 F.2d 134, 155 (6th Cir.1983). A complaint may be dismissed for failure to state a claim only where “it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v.

Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). A motion to dismiss under Rule 12(b)(6) will be granted if the complaint is without merit due to an absence of law to support a claim of the type made or of facts sufficient to make a valid claim, or where the face of the complaint reveals that there is an insurmountable bar to relief. Rauch v. Day & Night Mfg. Corp., 576 F.2d 697 (6th Cir.1978).

Because a motion under Rule 12(b)(6) is directed solely to the complaint itself, the court must focus on whether the claimant is entitled to offer evidence to support the claims, rather than whether the plaintiff will ultimately prevail. Scheuer, 416 U.S. at 236, 94 S.Ct. 1683; Roth Steel Prods., 705 F.2d at 155. A complaint must contain either direct or inferential allegations with respect to all material elements necessary to sustain a recovery under some viable legal theory. Weiner v. Klais & Co., Inc., 108 F.3d 86, 88 (6th Cir.1997).

The court is not required to accept as true unwarranted legal conclusions or factual inferences. Morgan v. Church’s Fried Chicken, 829 F.2d 10 (6th Cir.1987). Nor may the court consider extrinsic evidence in determining whether a complaint states a claim. Roth Steel Prods., 705 F.2d at 155; Sims v. Mercy Hosp. of Monroe, 451 F.2d 171, 173 (6th Cir.1971). III. FEDERAL STATUTORY CLAIMS A.

Section 10(

b) Section 10 (

b) of the Securities Exchange Act and Rule 10b-5 (

b) promulgated thereunder prohibit any person from making “fraudulent, material misstatements or omissions in connection with the sale or purchase of a security.” Morse v. McWhorter, 290 F.3d 795, 798 (6th Cir.2002); see 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5(b). To state a claim under

Section 10(

b) and Rule 10b-5(b), plaintiffs must allege, in connection with the purchase or sale of securities: “(1) a misstatement or omission, (2) of a material fact, (3) made with scienter, (4) justifiably relied on by plaintiffs, and (5) proximately causing them injury.” Helwig v. Vencor, Inc., 251 F.3d 540, 554 (6th Cir.2001); see also In re Comshare, Inc. Sec. Litig., 183 F.3d 542, 548 (6th Cir.1999).

The Private Securities Litigation and Reform Act (“PSLRA”), 15 U.S.C. § 78u-4(b), requires complaints asserting a claim of federal securities fraud to “specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4 (b)(1). Plaintiff MetLife brings a claim against the Outside Directors for violating

Section 10(b). MetLife alleges that it received certain private placement memoranda (“Offering Materials”) in connection with its purchase of NPF XII notes.

MetLife contends that the Offering Materials contained material misstatements and omissions regarding how NPF XII operated, namely that NPF XII: • maintained separate books and records from other National Century entities; • had on its board of directors an independent director unaffiliated with National Century; • restricted its business to purchasing eligible receivables and issuing notes; • provided certain credit enhancements for the notes in accordance with the Master Indenture; • was capitalized by National Century in accordance with the Indenture; • maintained segregated reserve accounts; • used proceeds from issuing notes to purchase eligible receivables; • did not purchase receivables in excess of payor concentration limitations set forth in the Indenture.

See MetLife Compl., ¶¶ 100-106. The Outside Directors acknowledge that the Court, in its February 27, 2006 Order ruling on Founder Lance Poulsen’s motion to dismiss, held that MetLife’s complaint sufficiently identified the alleged misrepresentations in the Offering Materials. See Feb. 27, 2006 Order, pp. 16-19. The Court also held that the alleged misrepresentations were material because they led potential investors to believe the NPF XII notes were of high quality.

Though the Outside Directors concede that the complaint identifies the alleged misrepresentations with particularity, they argue that they cannot be held liable for those misrepresentations. They contend that the complaint improperly relies on group pleading in trying to impute the misrepresentations in the Offering Materials to them. According to the Outside Directors, the complaint lacks allegations showing that they assisted in preparing the Offering Materials.

MetLife responds by citing a paragraph in the Offering Materials stating that the directors of NPF XII had “taken all reasonable care to ensure that the information contained [herein] is true and accurate in all material respects” and “accept responsibility accordingly.” MetLife Compl., ¶ 106. MetLife argues that this paragraph factored into the Court’s earlier decision that Lance Poulsen, a director of NPF XII, could be held liable for the alleged misrepresentations in the Offering Materials. See Feb. 27, 2006 Order, pp. 35-36.

In that decision, the Court found that the complaint supported an inference that Lance Poulsen — founder, principal shareholder, chairman, chief executive officer, and director of National Century — had reviewed and approved the Offering Materials. MetLife ai'gues that the complaint supports an inference that the Outside Directors also reviewed and approved the Offering Materials. The Outside Directors argue that the Court’s holding with respect to Lance Poulsen does not apply to them. They cite case law in which courts have distinguished outside directors from corporate insiders for purposes of

Section 10(

b) liability. To state a claim against an outside director for misrepresentations contained in published corporate documents, a complaint must make specific allegations that the outside director took

part in preparing the documents or was involved in the company’s day-to-day management. See, e.g., Dresner v. Utility.com, Inc., 371 F.Supp.2d 476, 494 (S.D.N.Y.2005); In re Syntex Corp. Sec. Litig., 855 F.Supp. 1086, 1100 (N.D.Cal.1994). After reviewing the case law, the Court finds that the complaint does not state a

Section 10(

b) claim against the Outside Directors. The complaint fails for three reasons. First, it improperly relies on group pleading in attempting to impose liability on the Outside Directors. Second, even if group pleading were permitted, the complaint does not allege a basis for holding the Outside Directors responsible for the Offering Materials. For instance, the complaint does not allege that the Outside Directors actively participated in managing NPF XII. Third, while the complaint may support a claim for aiding and abetting, private plaintiffs cannot maintain a cause of action for aiding and abetting under

Section 10(b). Since the passage of the Private Securities Litigation and Reform Act, 15 U.S.C. § 78u-4(b), federal courts have disagreed on whether plaintiffs may state a claim under

Section 10(

b) by simply alleging that corporate officers are liable as a group for their company’s SEC filings, prospectuses, and other published materials. See City of Monroe Employees Ret. Sys. v. Bridge-stone Corp., 399 F.3d 651, 689-90 (6th Cir.2005) (discussing the split but declining to take a position). The trend among courts of appeals is that group pleading does not satisfy the heightened pleading requirements of the PSLRA. See Financial Acquisition Partners LP v. Blackwell, 440 F.3d 278, 287 (5th Cir.2006); Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588, 602-03 (7th Cir.2006).

But even where group pleading has been permitted, only those individuals with direct involvement in the everyday business of the company may be presumed to be responsible for statements made in group-published documents. See In re Parmalat Sec. Litig., 479 F.Supp.2d 332, 340-41 (S.D.N.Y.2007) (“Alleging direct involvement in the company’s everyday business is critical to support the presumption.”); In re Geo-Pharma, Inc. Sec. Litig., 399 F.Supp.2d 432, 445 (S.D.N.Y.2005); In re Oxford Health Plans, Inc., 187 F.R.D. 133, 142 (S.D.N.Y.1999).

MetLife’s complaint uses group pleading in attempting to impose liability on the Outside Directors for the alleged misrepresentations in the Offering Materials. The complaint refers to the “directors” and does not specify the roles played by each individual Outside Director in preparing, reviewing, or approving the Offering Materials. It is not alleged that any of the Outside Directors signed the Offering Materials or that any of their names appeared in the Offering Materials. MetLife’s citation to the Court’s earlier decision is unavailing. That decision concerned Lance Poulsen, a true insider.

See In re Enron Corp. Sec., Derivative & ERISA Litig., 258 F.Supp.2d 576, 626 n. 55 (S.D.Tex.2003) [hereinafter “Enron I”] (stating that for purposes of

Section 10(

b) liability, “this Court distinguishes between a corporation’s inside directors, who normally participate in its operations and create its policies, and outside directors”); In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288DLC, 2005 WL 638268, at *9 (S.D.N.Y.2005) (drawing a distinction between insiders and outsiders); Goldstein v. Alodex Corp., 409 F.Supp. 1201, 1203 (E.D.Pa.1976) (noting that the situation of outside directors is “legally and factually different from that of the corporation and the other inside directors”).

Though Met-Life’s complaint initially grouped Poulsen with the rest of the directors, it went on to provide particularized allegations that “painted a clear picture of Poulsen as a corporate insider who had intimate knowledge of pervasive fraud at National Century.” . Feb. 27, 2006 Order, p. 37. This led the Court to find that, regardless of group pleading, the complaint met the heightened pleading standard with respect to Poulsen. See WorldCom, 2005 WL 638268, at *9 (observing that corporate insiders usually will be liable for company’s misrepresentations).

The complaint’s reliance on group pleading with respect to the Outside Directors is problematic because outside directors “[b]y definition ... do not participate in the corporation’s day-to-day affairs.” Syntex, 855 F.Supp. at 1100; see also In re Indep. Energy Holdings PLC Sec. Litig., 154 F.Supp.2d 741, 767-68 (S.D.N.Y.2001). The rationale behind group pleading is that the “facts about fraud flowing from the internal operation of a corporation are peculiarly, and often exclusively, within the control of the corporate insiders who manage the parts of the corporation involved in the fraud.” In re Ross Sys. Sec.

Litig., No. C-94-0017, 1994 WL 583114, at *5 (N.D.Cal. July 21, 1994). Outside directors, by contrast, cannot be assumed to have assisted in preparing, reviewing, or approving offering materials. See Dresner, 371 F.Supp.2d at 494. This is true even when an outside director’s name or signature appears in a company statement. See Picard Chem. Inc. Profit Sharing Plan v. Perrigo Co., 940 F.Supp. 1101, 1134-35 (W.D.Mich.1996); In re Gupta Corp. Sec.

Litig., 900 F.Supp. 1217, 1241 (N.D.Cal.1994) (“[T]he mere fact that an outside director signed a group published document does not make the outside director liable for the contents of the document.”). Thus, the “standard of specificity required with respect to corporate outsiders is higher than that for corporate insiders.” In re Marion Merrell Dow, Inc., No. 92-0609-CV-W-6, 1993 WL 393810, at *6 (W.D.Mo. Oct. 19, 1993) (citing Cohn v. Lone Star Indus., Inc., No. B-89-617, 1990 U.S. Dist. LEXIS 19414, at *9 (D.Conn. May 18, 1990)); see also Fisk v.

SuperAnnuities, Inc., 927 F.Supp. 718, 727-28 (S.D.N.Y.1996) (pleading standard less rigorous for insiders participating in the securities offering). Even where group pleading is allowed, the complaint must make specific assertions that the outside director was either directly involved in the company’s management or had a special relationship with the company. See In re Mutual Funds Inv. Litig., 437 F.Supp.2d 444, 446-47 (D.Md.2006); Dresner, 371 F.Supp.2d at 494; Indep. Energy Holdings, 154 F.Supp.2d at 768; Syntex, 855 F.Supp. at 1100; Gupta, 900 F.Supp. at 1241; KVH Indus., Inc. v. Van Heyningen, No.

CA 05-273 ML, 2006 WL 2521440, at *9 (D.R.I. Aug. 29, 2006); Strassman v. Fresh Choice, Inc., No. C-95-20017, 1995 WL 743728, at *13-14 (N.D.Cal. Dec. 7, 1995). MetLife’s complaint fails to make specific allegations that the Outside Directors participated in the daily operations or management of NPF XII. See Gupta, 900 F.Supp. at 1241 (requiring “assertions of specific day-to-day involvement in the management” of the company). The complaint makes no allegations to show that the Outside Directors played any role in NPF XII beyond what would be expected of an outside director.

See Enron I, 258 F.Supp.2d at 626 n. 55 (court will assume that outside directors are not directly involved in company’s management unless the complaint shows “that the situation is otherwise”). Though the complaint asserts that the Outside Directors were “far more involved” with the operations of NPF XII than “typical outside directors,” Met-Life Compl., ¶ 109, the complaint makes no further allegations to support that assertion. See In re Enron Corp. Sec. Litig., No. MDL-1446, 2003 WL 230688, at *15 (S.D.Tex. Jan. 28, 2003) [hereinafter “Enron II ”] (finding insufficient under § 10(

b) the bare allegation that defendants were “deeply involved” in the operation). The complaint alleges that Pote was the chair of an audit committee, but “[m]ere membership on committees ... is also insufficient to subject an outside director to liability under a group pleading theory.” Gupta, 900 F.Supp. at 1241; see also Strassman, 1995 WL 743728, at *13-14. The complaint must allege “operational involvement” rather than “boardroom titles.” Syntex, 855 F.Supp. at 1100.

The complaint contains no allegations about Pote’s responsibilities as chair of the audit committee, nor does it otherwise allege what involvement the Outside Directors had in NPF XII’s management. See Bruce v. Martin, No. 90 Civ. 1002, 1992 WL 204395, at *6 (S.D.N.Y. Aug. 14, 1992) (finding that mere reference to an outside director’s membership on a corporate committee is “empty of significance”).

The complaint also alleges that Pote once referred to himself in a letter as an “active director” and that one of the Offering Materials referred to the Outside Directors as being part of the “management team.” The complaint, however, fails to state what being an “active director” or part of the “management team” meant in terms of involvement in NPF XII’s operations. The complaint does not make particularized-allegations that any of the Outside Directors took

part in managing NPF XII. See Bruce, 1992 WL 204395, at . *6 (holding that complaint asserting a securities fraud claim against an outside director must provide specifics about what role the outside director played in the company). MetLife argues that the Outside Directors can be held liable for the Offering Materials because they had insider-type access to information. MetLife points to allegations in the complaint that the Outside Directors had knowledge, or at least should have known, of National Century’s failure to operate the note programs in compliance with the Master Indentures.

The complaint alleges that Pote attended board meetings and that each of the Outside Directors had access to documents which should have signaled to them that NPF XII had violated the Master Indenture. These documents include two draft prospectuses, a draft report, two memos from Poulsen, and the minutes from a board of directors meeting. See MetLife Compl., ¶¶ 77-83.

The Outside Directors allegedly knew that National Century had failed to comply with “various documentary and reporting provisions of the indentures,” purchased ineligible health care receivables in 1998 and 1999, and experienced a shortage in reserves. The Court finds that these allegations are insufficient to attribute the alleged misrepresentations in the Offering Materials to the Outside Directors. First, courts have held that having insider-type access to information is, without more, not sufficient to impose

Section 10(

b) liability on outside directors. See, e.g., In re Interactive Network, Inc. Sec. Litig., 948 F.Supp. 917, 921 (N.D.Cal.1996) (“[T]he majority of the decisions in this district have not extended the group publication doctrine where plaintiffs merely allege that outside directors were privy to inside information.”). Second, even if insider-type access to information were sufficient, MetLife’s complaint does not establish that the Outside Directors had such access. The complaint does not show that the Outside Directors had a level of access to information beyond what would be expected for an outside director.

As board members, the Outside Directors, not surprisingly, attended board meetings, had access to board minutes, and received occasional memos from Poulsen and occasional draft prospectuses and reports. These allegations do not show that the Outside Directors really functioned as insiders, such that they are subject to primary liability under

Section 10(b). See Enron I, 258 F.Supp.2d at 627-28 (fihding that attendance at board and committee meetings and access to the minutes from those meetings was insufficient to support

Section 10(

b) claim against outside directors); Gupta, 900 F.Supp. at 1241-42 (dismissing

Section 10(

b) claim against outside directors who had access to company’s financial reports and press releases); Syntex, 855 F.Supp. at 1100 (finding that outside director’s access to company’s internal business plans, budgets, forecasts, and reports was “not sufficient to establish that [he] enjoyed a special relationship with Syntex”). In the end, the complaint’s group pleading that the Outside Directors reviewed the Offering Materials for accuracy at best supports an aiding and abetting claim. See Palladin Partners v. Gaon, No. 05-cv-3305, 2006 WL 2460650, at *7 (D.N.J.

Aug. 22, 2006) (unspecific allegations of helping to prepare SEC filings “amount to little more” than claim of aiding and abetting fraud). While the Blue Sky laws of certain states recognize such a cause of action, as will be discussed below,

Section 10(

b) does not. See Central Bank of Denver, N.A., v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 176-77, 114 S.Ct. 1439, 1447-48, 128 L.Ed.2d 119 (1994). Accordingly, MetLife’s

Section 10(

b) claim against the Outside Directors must be dismissed. B.

Section 20(

a) MetLife and Lloyds assert claims for control person liability against the Outside Directors under

Section 20(

a) of the Securities Exchange Act, 15 U.S.C. § 78t(a), which provides: Every person who, directly or indirectly, controls any person liable under any provision of this title or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce that act or acts constituting the violation or cause of action. 15 U.S.C. § 78t(a).

MetLife and Lloyds allege that the Outside Directors had direct or indirect power over NPF XII. There are two requirements for a finding of control person liability. “First, the ‘controlled person’ must have committed an underlying violation of the securities laws or the rules and regulations promulgated thereunder.” PR Diamonds, Inc. v. Chandler, 364 F.3d 671, 696 (6th Cir.2004). Here, in a prior order, the Court determined that MetLife and Lloyds have sufficiently pleaded a predicate violation of

Section 10(

b) by NPF XII. See Feb. 27, 2006 Order, p. 48. NPF XII may therefore serve as the “controlled person” for

Section 20(

a) liability. The second requirement is that the controlling person defendant “must have directly or indirectly controlled the person liable for the securities law violation.” PR Diamonds, 364 F.3d at 696.

In the absence of a statutory definition, “control” has been defined by the SEC as “the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.” 17 C.F.R. § 230.405. “Control” is “ ‘the practical ability to direct the actions of the people’ who committed the violation.” Stavroff v. Meyo, No. 95-4118, 1997 WL 720475, at *7 n. 5 (6th Cir. Nov. 12, 1997) (quoting Schlifke v.

Seafirst Corp., 866 F.2d 935, 949 (7th Cir.1989)). “Allegations of control are not aver-ments of fraud and therefore need not be pleaded with particularity. They need satisfy only the less stringent requirements of Fed.R.Civ.P. 8.” In re Parmalat Sec. Litig., 414 F.Supp.2d 428, 440 (S.D.N.Y.2006) (citing In re Philip Servs. Corp. Sec. Litig., 383 F.Supp.2d 463, 485 (S.D.N.Y.2004), and In re WorldCom, Inc. Sec. Litig., 294 F.Supp.2d 392, 415-16 (S.D.N.Y.2003)).

See also Enron II, 2003 WL 230688, at *11-14 (surveying the case law and finding that Rule 8(a)’s notice pleading standard applies to allegations of control). A defendant’s status as a control person is normally a question of fact. See Sanders Confectionery Prods., Inc. v. Heller Fin., Inc., 973 F.2d 474, 485 (6th Cir.1992). Nonetheless, courts agree that merely being a director is typically insufficient to support a claim for control person liability. See Hern v. Stafford, 663 F.2d 669, 684 (6th Cir.1981) (“A director of a corporation is not automatically liable as a controlling person.”); Thiemann v. OHSL Fin.

Corp., No. 1:00-cv-793, 2001 WL 34128240, at *9 (S.D.Ohio July 25, 2001). A plaintiff must bolster its claim with allegations supporting an inference that the director possessed control. See Picard Chem. Inc. Profit Sharing Plan v. Perrigo Co., 940 F.Supp. 1101, 1134 (W.D.Mich.1996) (“With respect to the outside directors, plaintiffs must plead facts from which some degree of influence or control over the Perrigo’s operations may be inferred”) (footnote omitted); Gupta, 900 F.Supp. at 1243 (same).

Here, in addition to relying on the Outside Directors’ status as directors, the complaints allege that the Outside Directors constituted a majority of NPF XII’s board of directors. The complaints allege that beginning in 1998, Pote and Wilkinson held two of the three seats on NPF XII’s board of directors. At some unspecified point, Mendell replaced Wilkinson on the board. Moreover, the complaints allege that the Outside Directors held two seats on National Century’s six-seat board of directors. With respect to Pote, the complaints further allege that he chaired National Century’s audit committee.

See In re Livent, Inc. Noteholders Sec. Litig., 151 F.Supp.2d 371, 437 (S.D.N.Y.2001) (outside director who also served on the audit committee is in a position of control). Finally, the complaints allege that Pote and Wilkinson were employed by the Beacon Group, which held a 20% interest in National Century, and that Pote, Wilkinson, and Men-dell later became officers of JP Morgan when JP Morgan acquired the Beacon Group and its 20% interest in National Century.

The Court finds that under Rule 8(a), Fed.R.Civ.P., these allegations support an inference that the Outside Directors were impositions from which they had the ability to exercise control over NPF XII. The Outside Directors argue that besides alleging the capacity to control, the complaints must also allege that the Outside Directors actually exercised control over NPF XII and culpably participated in NPF XII’s securities violation. This argument touches on areas in which the law is unsettled. Courts use different tests in determining whether a plaintiff has sufficiently alleged the element of control in a

Section 20(

a) claim. See WorldCom, 294 F.Supp.2d at 414 (noting the “lack of clarity in the law concerning

Section 20(a)”); Enron II, 2003 WL 230688, at *9 (“The requirements for demonstrating controlling person liability vary widely, depending on The court.”). The most rigorous standard is the “culpable participation” test used -by the Second Circuit. Under this test, a claim under

Section 20(

a) is stated when, in addition to alleging a primary violation and control, the complaint also shows that the controlling person “was in some meaningful sense a culpable participant in the primary violation.” Boguslavsky v. Kaplan, 159 F.3d 715, 720 (2d Cir.1998); SEC v. First Jersey, Inc., 101 F.3d 1450, 1472 (2d Cir.1996). The culpable participation test has been criticized because

Section 20(a) “contains no requirement that plaintiffs must prove a control person’s state of mind.” Adams v. Kinder-Morgan, Inc., 340 F.3d 1083, 1109 (10th Cir.2003) (observing that the statute specifically provides for an affirmative defense of good faith); see also Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1575 (9th Cir.1990) (“The statute does not place such a burden on the plaintiff.... [T]he statute premises liability solely on the control relationship, subject to the good faith defense.”). This Court has already declined to adopt the culpable participation requirement, noting both that

Section 20(

a) does not contain a requirement of culpable participation and that the Sixth Circuit’s most recent statement on the elements of a

Section 20(

a) claim makes no mention of such a requirement. See Feb. 27, 2006 Order, pp. 48A19, citing PR Diamonds, 364 F.3d at 696 (stating two requirements: an underlying violation and control of the primary violator). The Eighth Circuit in Metge v. Baehler, 762 F.2d 621 (8th Cir.1985), rejected the culpable participation test as contrary to “the plain meaning” of the statute and to its remedial purpose. Id. at 631.

The court instead adopted a two-part test that it believed adhered more closely to the statute and to case precedent: (1) the defendant “actually participated in (i.e., exercised control over) the operations of the corporation in general”; and (2) the defendant “possessed the power to control the specific transaction or activity upon which the primary violation is predicated, but [plaintiff] need not prove that this later power was exercised.” Id. Other courts have adopted similar tests in which the complaint must allege both a capacity to control the primary violator and an exercise of that control.

In the First Circuit, “[t]o meet the control element, the alleged controlling person must not only have the general power to control the company, but must also actually exercise control over the company.” Aldridge v. A.T. Cross Corp., 284 F.3d 72, 85 (1st Cir.2002).

The Seventh Circuit looks to “whether the alleged control-person actually participated in, that is, exercised control over, the operations of the person in general and, then, to whether the alleged control-person possessed the power or ability to control the specific transaction or activity upon which the primary violation was predicated, whether or not that power was exercised.” Harrison v. Dean Witter Reynolds, Inc., 974 F.2d 873, 881 (7th Cir.1992). Finally, other courts have applied a less rigorous test requiring that the complaint allege only the ability to control. The Ninth Circuit interprets

Section 20(a)’s mention of a good faith defense as shifting “the burden to the defendant to show that ‘she acted in good faith and did not directly or indirectly induce the violations.’ ” Howard v. Everex Sys., Inc., 228 F.3d 1057, 1065 (9th Cir.2000) (quoting Hollinger, 914 F.2d at 1575). Accordingly, “in order to make out a prima facie case, it is not necessary to show actual participation or the exercise of actual power; however, a defendant is entitled to a good faith defense if he can show no scienter and an effective lack of participation.” Id.; accord Flood v.

Miller, 35 Fed.Appx. 701, 703 (9th Cir.2002) (unpub.). One district court in the Fifth Circuit has interpreted circuit precedent to mean that “a plaintiff may assert controlling person liability by alleging that the controlling person had the power to control the controlled person or to influence corporate policy, but that actual exercise of that control need not be alleged.” Enron I, 258 F.Supp.2d at 642 (citing Fifth Circuit cases). The Enron court’s decision was based in part on its understanding of Swierkiewicz v. Sorema N.A., 534 U.S. 506, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002).

The Supreme Court in Swierkiewicz emphasized that Rule 8 imposes a simplified notice pleading standard and, in the context of a Rule 12(b)(6) motion to dismiss, a court should not evaluate the merits of a claim governed by Rule 8(a). See also Enron II, 2003 WL 230688, at *13 (stating that Swierkiewicz appears to have implicitly overruled more rigorous standards). The Sixth Circuit has not adopted a test for liability as a controlling person. In Sanders Confectionery Prods., Inc. v.

Heller Fin., Inc., 973 F.2d 474 (6th Cir.1992), the court noted that circuits had reached “slightly conflicting results” and cited Met-ge and a case from the Ninth Circuit, which at the time required culpable participation. Id. at 486. The court then stated, “We find it unnecessary to choose between the various tests suggested because [plaintiff] Merigian faded to plead sufficient acts of control under the least rigorous standard applied in Metge.” Id.

The complaint failed to state a claim under § 20(a), the court held, because “[n]owhere does Merigian claim that Heller ‘actually participated in the operations’ ” of the company accused of violating

Section 10(b). Id. (quoting Metge, 762 F.2d at 631). District courts in the Sixth Circuit have adopted the Metge test because they view Sanders as citing Metge with approval. See In re Direct General Corp. Sec. Litig., 398 F.Supp.2d 888, 897 (M.D.Tenn.2005); In re Hayes Lemmerz Int’l, Inc. Equity Sec. Litig., 271 F.Supp.2d 1007, 1021 (E.D.Mich.2003); In re Prison Realty Sec. Litig., 117 F.Supp.2d 681, 692 (M.D.Tenn.2000). The standard applied here makes a difference because the complaints do not allege that the Outside Directors, either as a group or individually, actually exercised control over NPF XII. As explained above in relation to the

Section 10(

b) claim, the complaint does not identify how any of the Outside Directors participated in the daily management of the company or how they exerted control. Though the complaints support an inference that the Outside Directors had the capacity to control, they fail to allege any exercise thereof. In Sanders, the Sixth Circuit described the standard applied in Metge as the “least rigorous” one available. Since Sanders was decided, courts in the Fifth and Ninth Circuits have applied a less rigorous standard.

Though other district courts in this circuit view Sanders as approving the Met-ge standard, the Sixth Circuit expressly declined to adopt a standard for controlling person liability. Sanders, at 486. This Court does not view Sanders as adopting the Metge standard. Rather, the Sixth Circuit applied it because it was the least rigorous standard used at that time. The Court finds persuasive the Enron court’s reasoning in holding that a

Section 20(

a) plaintiff must allege only the power to control, and not an actual exercise of control, in order to survive a motion to dismiss. The court found, as a majority of courts have, that Rule 8(

a) applies to controlling person claims. See Enron II, 2003 WL 230688, at *12. The court then looked to the Supreme Court’s decision in Swier-kiewicz for guidance in applying Rule 8(

a) to a controlling person claim. In Swier-kiewicz, the Supreme Court reversed the dismissal of a Title VII and age discrimination suit for failing to allege facts supporting a prima facie case of discrimination under the burden-shifting framework of McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973). The Supreme Court held that under Rule 8 an employment discrimination complaint does not have to allege specific facts in support of the prima facie case. Swierkiewicz, 534 U.S. at 506-07, 122 S.Ct. 992.

A prima facie case “is an evidentiary standard, not a pleading requirement.” Id. at 510, 122 S.Ct. 992. Courts may not turn the prima facie case “into a rigid pleading standard” that exacts more than what Rule 8 requires. Id. at 512, 122 S.Ct. 992. The complaint need only contain a “ ‘short plain statement of the claim showing that the pleader is entitled to relief.’ ” Id. at 508, 122 S.Ct. 992 (quoting Fed. R.Civ.P. 8(a)(2)). “This simplified notice pleading standard relies on liberal discovery rules and

summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims.” Id. at 512, 122 S.Ct. 992. Thus, “ ‘[a] court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.’ ” Id. at 514, 122 S.Ct. 992 (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984)). The Supreme Court’s holding in Swier-kiewicz led the Enron court to conclude that, in order to state a

Section 20(

a) claim, a complaint need not allege an actual exercise of control. The Swierkiewicz decision has caused district courts in even the Second Circuit to relax their pleading standards for controlling person claims. In WorldCom, the court cited Swierkiew-icz in rejecting the Second Circuit’s requirement that a complaint plead culpable participation. WorldCom, 294 F.Supp.2d at 415-16. “At the pleading stage, the extent to which the control must be alleged will be governed by Rule 8’s pleading standard ....

Although previous opinions of this Court have imposed a greater burden on plaintiffs at the pleading stage, this Court now finds that plaintiffs need not meet the PSLRA’s heightened pleading standard in alleging a violation of

Section 20(a), or separately allege culpable participation.” Id. at 415. See also Parmalat, 414 F.Supp.2d at 440-41 (not requiring allegations of an actual exercise of control); In re Global Crossing, Ltd. Sec. Litig., No. 02 Civ. 910, 2005 WL 2990646, at *8 (S.D.N.Y. Nov. 7, 2005) (citing Swierkiew-icz in holding that allegations of control are sufficient even when they do not support an inference of an actual exercise of control). In light of the Supreme Court’s decision in Swierkiewicz and the Sixth Circuit’s express refusal in Sanders to adopt a pleading standard for

Section 20(

a) claims, the Court concludes that a plaintiff need only allege the power to control and not an actual exercise of control. The complaints of MetLife and Lloyds satisfy Rule 8’s standard. The complaints sufficiently allege that the Outside Directors were in positions of control. The Outside Directors will have an opportunity later to present evidence demonstrating that they acted in good faith or did not exercise control over NPF XII. See In re MicroStrategy, Inc. Sec. Litig., 115 F.Supp.2d 620, 661 (E.D.Va.2000) (control person liability is a “complex factual issue ... not ordinarily subject to resolution on a motion to dismiss.”). The Court’s decision to allow the

Section 20(

a) claims to go forward but to dismiss the

Section 10(

b) claim reflects “the scheme established by Congress. It has imposed a heightened pleading standard for a

Section 10(

b) claim but not for a

Section 20(

a) claim.” WorldCom, 294 F.Supp.2d at 420. IV. STATE BLUE SKY CLAIMS A. Ohio Plaintiffs MetLife, Lloyds, and Pharos Capital Partners assert claims under Ohio’s Blue Sky law against the Outside Directors. Ohio’s Blue Sky law prohibits the use of misrepresentations or material omissions in connection with the sale of securities.

Under Ohio Revised Code § 1707.41, (A)., any person that, by a written or printed circular, prospectus, or advertisement, offers any security for sale, or receives the profits accruing from such sale, is liable, to any person that purchased the security relying on the circular, prospectus, or advertisement, for the loss or damage sustained by the relying person by reason of the falsity of any material statement contained therein or for the omission of material facts, unless the offeror or person that receives the profits establishes that the offeror or person had no knowledge of the publication prior to the transaction complained of, or had just and reasonable grounds to believe the statement to be true or the omitted facts to be not material.

O.R.C. § 1707.41(A). A “lack of reasonable diligence” in “ascertaining the fact of a publication or the falsity of any statement contained in it or of the omission of a material fact shall be deemed knowledge of the publication and of the falsity of any untrue statement in it or of the omission of material facts.” O.R.C. § 1707.41(C). The statute specifically makes directors hable for violations committed by a corporation: (B)

(1) Whenever a corporation is liable as described in division (

A) of this section, each director of the corporation is likewise liable unless the director shows that .the director had no knowledge of the publication complained of, or had just and reasonable grounds to believe the statement therein to be true or the omission of facts to be not material. O.R.C. § 1707.41(B)(1). Further, the statute makes jointly and severally liable to the purchaser “every person that has participated in or aided the seller in any way in making such sale or contract for sale.” O.R.C. § 1707.43(A). 1.

Application to Private Offerings The Outside Directors argue that the claims under Ohio’s Blue Sky law must be dismissed because National Century’s securities offerings were not public. They contend that the law applies only to securities that are part of a public offering. The Outside Directors do not cite any cases directly on point, but argue that Ohio’s Blue Sky law should be interpreted the same as courts have interpreted Section 12(2) of the Securities Act of 1933. In Gustafson v.

Alloyd Co., Inc., 513 U.S. 561, 115 S.Ct. 1061, 131 L.Ed.2d 1 (1995), the United States Supreme Court held that Section 12(2) applies to public offerings of securities and not to private agreements to sell securities. The Outside Directors believe that Ohio’s statute likewise should not apply to private sales, such as the ones to MetLife, Lloyds, and Pharos. This argument is unconvincing. The language of Section 12(2) is different from that of the Ohio statute. Section 12(2) imposes liability for misstatements in a “prospectus” or an oral communication related to a prospectus. 15 U.S.C. § 77 l (2).

In Gustafson, the Supreme Court held that a prospectus “is confined to documents related to public offerings by an issuer or its controlling shareholders.” 513 U.S. at 569, 115 S.Ct. 1061. In reaching this conclusion, the Supreme Court looked to the definition of “prospectus” in other provisions of the 1933 Act and looked to the traditional understanding of the word as referring to a public offering. Id. at 568-71, 575-76,115 S.Ct. 1061. The Ohio statute is not so limited in application. It imposes liability for misstatements in a “written or printed circular, prospectus, or advertisement.” O.R.C. § 1707.41(A).

Black’s Law Dictionary defines an “offering circular” as a “document, similar to a prospectus, that provides information about a private securities offering.” Black’s Law Dictionary (8th ed.2004) (emphasis added). The Ohio Supreme Court has referred to a private placement memorandum as being a “circular.” Arpadi v. First MSP Corp., 68 Ohio St.3d 453, 454, 628 N.E.2d 1335, 1336 (Ohio 1994); see also Abrams & Wofsy v. Renaissance Inv. Corp., 820 F.Supp. 1519, 1525 (N.D.Ga.1993) (referring to a private placement memorandum as a circular); Westland Energy 1981-1 Ltd. v.

Bank of Commerce and Trust Co., 603 F.Supp. 698, 702 (N.D.Okla.,1984); Mendelsohn v. Capital Underwriters, Inc., 490 F.Supp. 1069, 1075 (N.D.Cal.1979); Conrardy v. Ribadeneira, No. 86-1745-C, 1990 WL 66603, at *3 (D.Kan. Apr. 19, 1990). And one Ohio court of appeals, though not directly confronting the issue of whether the Ohio statute applies to private offerings, held that preparing a private placement memorandum, which was distributed to prospective investors, could subject one to liability under O.R.C. § 1707.43. See Corporate Partners, L.P. v.

National Westminster Bank PLC, 126 Ohio App.3d 516, 524, 710 N.E.2d 1144, 1149-1150 (Ohio Ct.App.1998). Thus, the Court finds that Ohio’s Blue Sky law applies to private securities offerings like the ones made to MetLife, Lloyds, and Pharos. 2. Application to Non-Sellers a. Ohio Revised Code

Section 1707.41 The Outside Directors next argue that any claims for primary violations of the Ohio statute must fail because the Outside Directors are not “sellers.” Under Ohio law, a seller of a security includes: (1) an owner who passes title, or other interest in the security, to the buyer for value, and (2) a person, who motivated in part by his own financial interest or the interest of the security’s owner, successfully solicits the purchase of a security. See Byrley v. Nationwide Life Ins.

Co., 94 Ohio App.3d 1, 15, 640 N.E.2d 187, 196 (Ohio Ct.App.1994) (relying on the definition of “seller” found in Pinter v. Dahl, 486 U.S. 622, 647, 108 S.Ct. 2063, 2078, 100 L.Ed.2d 658 (1988)). Plaintiffs do not argue that the Outside Directors fit within the definition of a seller. Instead, they point to those provisions of the Ohio statute that extends liability to directors and to those who aid the seller. O.R.C. §§ 1707.41(B)(1), 1707.43(A). Plaintiffs contend that the complaints sufficiently state causes of action under these provisions.

Under Ohio law, the director of a violating corporation is “likewise liable unless the director shows that the director had no knowledge of the publication complained of, or had just and reasonable grounds to believe the statement therein to be true or the omission of facts to be not material.” O.R.C. § 1707.41(B)(1). Here, the complaints allege both an underlying securities violation by National Century and that Pote, Mendell, and Wilkinson were outside directors of the corporation. The complaints thus appear to state a claim under the plain language of O.R.C. § 1707.41(B)(1).

The Outside Directors argue, without citing any Ohio cases, that when the statute says “director,” it means an inside director, not an outside one. They would have the Court engage in the same analysis as it did above in determining that the federal

Section 10(

b) claim failed. In order for an outside director to be liable under O.R.C. § 1707.41(B)(1), they argue, the complaint must plead that he partid-pated in the day-to-day management of the company. The Court must reject the Outside Directors’ argument at this stage. The federal statute’s heightened pleading standard, combined with the body of federal case law treating outside directors differently from inside directors, led the Court to require particularized allegations of the Outside Directors’ involvement in the company’s management.

In contrast, the Ohio statute expressly provides that directors are liable for the securities violations of their corporations unless they prove otherwise. See Federated Mgmt. Co. v. Coopers & Lybrand, 137 Ohio App.3d 366, 398, 738 N.E.2d 842, 866 (Ohio Ct.App.2000) (holding that “R.C. 1707.41 makes the director(

s) of such corporation likewise liable, unless certain facts are proven”). The Ohio statute simply says “director” and does not exclude outside directors. Further, the Court could find no Ohio case law in support of making a distinction between inside and outside directors at the pleading stage. Allowing the claims under O.R.C. § 1707.41(B)(1) to go forward does not make the difference between inside and outside directors unimportant. Indeed, the very considerations behind federal courts distinguishing outside directors at the pleading stage are the same factors available to directors as a defense under Ohio law.

If an outside director did not participate in the sale or preparation of the offering materials, had no knowledge of the misstatement, had reasonable grounds to believe the statement was true, or exercised reasonable diligence in his capacity as outside director, then Ohio law provides him with an opportunity to prove as much and avoid liability. See O.R.C. §§ 1707.41(A) & (B)(1); Hainbuchner v. Miner, No. 1558, 1986 WL 3205, at *1 (Ohio Ct.App. Mar. 14, 1986) (director not liable if evidence at trial proved that he had no participation in the sale).

The Court therefore finds that the complaints of MetLife, Lloyds, and Pharos state claims under O.R.C. § 1707.41 against the Outside Directors. b. Ohio Revised Code

Section 1707.43 MetLife, Lloyds, and Pharos also argue that the Outside Directors are liable under O.R.C. § 1707.43, which imposes joint and several liability to “every person that has participated in or aided the seller in any way in making such sale or contract for sale.” O.R.C. § 1707.43(A). The Court will examine the claims of MetLife and Lloyds first. MetLife and Lloyds argue that § 1707.43 applies because their complaints support an inference that the Outside Directors aided in preparing the Offering Materials.

In support of their argument, they turn the Court’s attention back to the statement in the Offering Materials that the directors of NPF XII had “taken all reasonable care to ensure that the information contained [herein] is true and accurate in all material respects” and “accept responsibility accordingly.” MetLife Compl., ¶ 106; Lloyds Compl., ¶ 151. This statement was insufficient to support Met-Life’ s

Section 10(

b) claim because it failed to identify with particularity how each of the Outside Directors assisted, if it all, in preparing or approving the Offering Materials. In contrast to

Section 10(b), the Ohio statute does not carry a heightened pleading standard, nor is it accompanied by a body of case law disfavoring group pleading and requiring particularized allegations of involvement with respect to outside directors. Ohio courts have stressed that “the securities laws are to be liberally construed.” Federated Mgmt., 137 Ohio App.3d at 392, 738 N.E.2d at 861 (citing In re Columbus Skyline Sec., Inc., 74 Ohio St.3d 495, 660 N.E.2d 427 (Ohio 1996)). Further, “[i]t must be emphasized that R.C. 1707.43 uses very broad language.” Federated Mgmt., 137 Ohio App.3d at 392, 738 N.E.2d at 861.

This use of the phrase “in any way” suggests that the statute is “broad in scope.” Id. at 137 Ohio App.3d at 391, 738 N.E.2d at, 860; see also Hild v. Woodcrest Ass’n, 59 Ohio Misc. 13, 28-29, 391 N.E.2d 1047, 1056-57 (Ohio Ct.Com.Pl. 1977). Liability extends beyond the seller of the security to any person who participates or aids the sale in any way, including “inducing the purchaser to invest.” Federated Mgmt., 137 Ohio App.3d at 391, 738 N.E.2d at 860; see also Hild, 59 Ohio Misc. at 28-29, 391 N.E.2d at 1056-57.

An inducement is not required, but it is “one factor in determining liability.” Federated Mgmt., 137 Ohio App.3d at 391, 738 N.E.2d at 860-61. The complaints of MetLife and Lloyds sufficiently allege that the Outside Directors aided NPF XII in the sale of notes. Under Rule 8’s liberal pleading standard, the complaints support an inference that the Outside Directors at least reviewed the Offering Materials to ensure their accuracy. MetLife and Lloyds allege that they relied on the accuracy of the Offering Materials in making their decision to purchase notes.

The complaints therefore allege that the Outside Directors aided in inducing MetLife and Lloyds to invest in NPF XII notes. Turning to the complaint of Pharos, it alleges that the Outside Directors gave “rubber-stamp” approval to audits prepared by Deloitte & Touche, L.L.P. These audits allegedly gave a “clean” report for National Century’s financial statements.

According to Pharos, the audits were misleading because they did not reveal National Century’s true financial condition, namely that it was purchasing worthless accounts receivable and engaging in related-party transactions which personally benefitted National Century’s Founders. Pharos contends that it received and relied on these audits during the course of its decision to purchase National Century preferred stock. The Outside Directors’ approval of the audits allegedly helped induce Pharos to buy the stock.

Therefore, Pharos’s complaint sufficiently alleges that the Outside Directors aided in inducing Pharos to invest in National Century. The Court thus finds that MetLife, Lloyds, and Pharos have stated claims under O.R.C. § 1707.43 against the Outside Directors. B. New Jersey MetLife and Lloyds assert claims under New Jersey’s Blue Sky law against the Outside Directors. New Jersey’s Blue Sky law prohibits the use of misrepresentations or material omissions in connection with the sale of securities.

It imposes primary liability upon any person who “offers, sells or purchases a security by means of any untrue statement of material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading (the buyer not knowing of the untruth or omission).” N.J. Stat. Ann. § 49:3-71(a)(2). The statute also imposes joint and several liability on every person who “directly or indirectly controls a seller liable under subsection (a)” or who “materially aids in the sale or conduct.” N.J. Stat. Ann. § 49:3-71(d). 1.

Nexus with New Jersey The Outside Directors argue that the claims under New Jersey law must fail because MetLife and Lloyds do not allege any connection between the actionable conduct and the state of New Jersey. The Outside Directors add that it would violate the Commerce Clause of the United States Constitution to apply New Jersey law ex-traterritorially. New Jersey’s Blue Sky law applies to “persons who sell or offer to sell when (1) an offer to sell is made in this State, or (2) an offer to buy is made or accepted in this State.” N.J. Stat. Ann. § 49:3-51 (a).

MetLife’s complaint alleges that “private placement memoranda and other sales materials” were delivered to MetLife at its “New Jersey office, where the decisions to purchase the Notes were made.” MetLife Compl., ¶41. Therefore, MetLife’s complaint sufficiently alleges a basis for applying New Jersey law. In contrast, the complaint of Lloyds (a British public limited company with its principal place of business in London, England), makes no allegations about where it was offered, or where it accepted an offer, to purchase notes.

The complaint alleges that Credit Suisse First Boston LLC served as lead underwriter for the notes. According to the complaint, Credit Suisse First Boston LLC is a Delaware limited liability company, with its principal place of business in New York. Banc One Capital Markets, a broker-dealer that allegedly had a role in the note offering, is incorporated in Delaware, with it principal place of business in Illinois. The Court finds that the complaint of Lloyds fails to contain any allegations that would bring the Outside Directors’ alleged conduct within the scope of New Jersey’s Blue Sky law.

On the face of the complaint, there is no connection between New Jersey and the Outside Directors’ actionable conduct. Lloyds has amended its complaint four times, and despite the Outside Directors raising this issue from the outset, the complaint fails to allege any connection to New Jersey. Accordingly, Lloyds’s claim under New Jersey’s - Blue Sky law is dismissed. 2.

Application to Non-Sellers As they argued with the Ohio statute, the Outside Directors contend that any claims for primary violations of the New Jersey law must fail because the Outside Directors are not “sellers.” New Jersey courts, also borrowing the definition of “seller” found in Pinter v.

Dahl, 486 U.S. at 647, 108 S.Ct. 2063, have held that a seller of a security includes both (1) an owner who passes title, or other interest in the security, to the buyer for value, and (2) a person, who motivated in part by his own financial interest or the interest of the security’s owner, successfully solicits the purchase of a security. See Zendell v. Newport Oil Corp., 226 N.J.Super. 431, 439-440, 544 A.2d 878, 882 (N.J.Super.Ct.1988).

Again,' MetLife does not argue that the Outside Directors are sellers, but points to those provisions of the New Jersey statute extending liability to control persons and those who aid the seller. See N.J. Stat. Ann: § 49:3-71(d). With respect to control person liability, the Outside Directors repeat the argument they made in relation to the federal

Section 20(

a) control person claims. The Outside Directors argue that in order to state a claim under New Jersey law, the complaint must allege an actual exercise of control and culpable participation in the primary violation. The Court finds that MetLife’s complaint states a claim under New Jersey law for controlling person liability- New Jersey courts look to federal securities law to define controlling person liability. See Abrams v. Ohio Cas. Ins. Co., 322 N.J.Super. 330, 337, 731 A.2d 48, 51-52 (N.J.Super.Ct.App.Div.1999); Zendell, 226 N.J.Super. at 439-40, 544 A.2d at 882.

The Third Circuit, though it once used a culpable participation test, no longer does so at the pleading stage. See In re NUI Secur. Litig., 314 F.Supp.2d 388, 400 (D.N.J.2004); Jones v. Intelli-Check, Inc., 274 F.Supp.2d 615, 645 (D.N.J.2003) (“[T]he overwhelming trend in this circuit is that culpable participation does not have to be pleaded in order to survive a motion to dismiss.”) (internal quotations and citations omitted). Moreover, New Jersey federal and state courts have not required complaints to allege an actual exercise of control in order to survive a motion to dismiss. See Palladin Partners v.

Gaon, No. 05-cv-3305, 2006 WL 2460650, at *16 (D.N.J. Aug. 22, 2006) (holding that a complaint pleading “the potential to influence and direct the activities of the primary violator will survive a motion to dismiss”) (internal quotations and citations omitted); Cammer v. Bloom, 711 F.Supp. 1264, 1294-95 (D.N.J.1989); Abrams, 322 N.J.Super. at 337, 731 A.2d at 51-52. Thus, MetLife’s claim under New Jersey law for controlling person liability is sufficient for the same reasons discussed in relation to its federal

Section 20(

a) claim. Turning to liability for aiding the sale, MetLife’s complaint again relies on the allegations that the Outside Directors reviewed the Offering Materials for accuracy and that MetLife relied on the accuracy of the Offering Materials in deciding to purchase NPF XII notes. This is sufficient to state a claim under New Jersey law because liability under N.J. Stat. Ann. § 49:3-71(

d) extends to those who have “minimal participation in the sale.” Abrahamsen v. Laurel Gardens Ltd. P’ship, 276 N.J.Super. 199, 213, 647 A.2d 869, 877 (N.J.Super. Ct. Law Div.1993); Cola v. Terzano, 129 N.J.Super. 47, 54, 322 A.2d 195, 199 (N.J.Super. Ct. Law Div.1974). The Court thus finds that MetLife has sufficiently stated claims against the Outside Directors under New Jersey’s Blue Sky law. V. COMMON LAW CLAIMS A. Breach of Fiduciary Duty Metlife, Lloyds, and ING allege that the Outside Directors breached their fiduciary duties to NPF VI and NPF XII notehold-ers.

They allege that the Outside Directors knew of self-dealing and corporate waste by National Century’s Founders while the company was insolvent. Plaintiffs contend that the Outside Directors had a fiduciary duty to protect the interests of noteholders but breached their duty by failing to prevent the self-dealing and corporate waste allegedly occurring at National Century. A breach of fiduciary duty claim has three elements: (1) the existence of a duty arising from a fiduciary relationship, (2) a failure to observe such duty, and (3) an injury proximately resulting therefrom. See Strock v.

Pressnell, 38 Ohio St.3d 207, 216, 527 N.E.2d 1235, 1243 (1988); McConnell v. Hunt Sports Ent., 132 Ohio App.3d 657, 687, 725 N.E.2d 1193, 1215 (Ohio Ct.App.1999). Though a corporate officer generally does not owe a fiduciary duty to the corporation’s creditors, “[u]nder longstanding Ohio law, the officers and directors of a corporation that is insolvent or is on the brink of insolvency owe a fiduciary duty to the corporation itself and to its creditors not to waste corporate assets which otherwise could be used to pay corporate debts.” DeNune v. Consol. Capital of N.

Am., Inc., 288 F.Supp.2d 844, 859 (N.D.Ohio 2003) (citing Thomas v. Matthews, 94 Ohio St. 32, 47, 113 N.E. 669 (Ohio 1916)); see also In re Amcast Indus. Corp., 365 B.R. 91, 96-97 (Bkrtcy.S.D.Ohio 2007) (acknowledging the ruling in DeN-une but emphasizing that the scope of the director’s duty to creditors upon insolvency is not as broad as the duty he owes to the corporation itself). The Outside Directors argue that the complaints do not sufficiently plead the first and second elements of a breach of fiduciary duty claim.

With respect to the existence of a fiduciary duty, the Outside Directors argue that the complaints are deficient because they simply allege that National Century went insolvent, without pinpointing when the insolvency occurred. The Outside Directors contend that the complaints must satisfy the. particularity requirement of Rule 9(b), Fed.R.Civ.P., because the breach of fiduciary duty claims “sound in fraud.” As to the second element, the Outside Directors argue that the complaints do not allege specific facts to overcome the presumption that the Outside Directors are protected by the business judgment rule.

See Gries Sports Enterprises, Inc. v. Cleveland Browns Football Co., Inc., 26 Ohio St.3d 15, 20, 496 N.E.2d 959, 963-64 (Ohio 1986). Under Rule 9(b), all averments of fraud must be stated with particularity. This holds true, whether the averment of fraud is “part of a fraud claim or [is] an element of a non-fraud claim.” Tramontana v. May, Nos. 02-10012-BC, 01-10234-BC, 2004 WL 539065, at *5 (E.D.Mich. March 16, 2004). When a breach of fiduciary duty claim rests on averments of fraud, the allegations of fraudulent conduct must satisfy Rule 9(b). See Sachs v.

Sprague, 401 F.Supp.2d 159, 170 n. 15 (D.Mass.2005) (applying Rule 9(

b) to claim of intentional breach of fiduciary duty); Mulbarger v. Royal Alliance Associates, Inc., No. 96-cv-739, 1999 WL 33432317, at *2 (S.D.Ohio Dec. 22,1999) (“The Rule 9(

b) particularity requirement also applies to claims of breach of fiduciary duty predicated upon fraud.”); Tramontana, 2004 WL 539065, at *6-7 (same). Here, the allegations regarding the existence of a fiduciary duty do not rest on averments of fraud, but on whether National Century was insolvent. See DeNune, supra (an officer’s fiduciary duty to creditors arises when a corporation becomes insolvent or is on the brink of insolvency). Plaintiffs’ allegations are subject only to Rule 8(a)’s notice-pleading standard. Traditionally, a company is insolvent when its liabilities exceed the fair value of its assets.

See O.R.C. § 1336.02; Abood v. Nemer, 128 Ohio App.3d 151, 157, 713 N.E.2d 1151, 1155 (Ohio Ct.App.1998); Prudential Ins. Co. of Am. v. Science Park, L.P., 106 Ohio App.3d 823, 830, 667 N.E.2d 437, 442 (Ohio Ct.App.1995). The complaints here allege that National Century was insolvent while Plaintiffs held notes. The complaints further allege National Century became insolvent because it gave hundreds of millions of dollars to healthcare providers in exchange for accounts receivable that had little or no value. National Century allegedly had lost over $2 billion by the time it filed for bankruptcy.

The Court finds that the complaints sufficiently allege that National Century was insolvent while Pote, Wilkinson, and Mendell were outside directors, giving rise to the existence of a fiduciary duty. Turning to the element of breach, the Outside Directors again believe Rule 9(

b) should apply. But the allegations of breach do not involve fraud on the part of the Outside Directors. Instead, the alleged breach was their failure to protect Plaintiffs’ interests against the fraud of National Century and its Founders. The Court has already determined that the underlying allegations of fraud committed by National Century and the Founders satisfy Rule 9(b). See Feb. 27, 2006 Order, pp. 16-21. The allegations of the Outside Directors’ breach of fiduciary duty are not subject to Rule 9(b).

The Outside Directors nonetheless contend that the business judgment rule imposes a heightened pleading standard. The business judgment rule is a “rebutta-ble presumption that directors are better equipped than the courts to make business judgments and that the directors acted without self-dealing or personal interest and exercised reasonable diligence and acted in good faith.” See Gries Sports, 26 Ohio St.3d at 20, 496 N.E.2d at 963-64. According to the Outside Directors, the complaints must allege specific facts sufficient to overcome the rule’s presumption.

In support of their argument, the Outside Directors cite Delaware case law holding that in order to survive a motion to dismiss, a plaintiff “must sufficiently plead facts which if true would take defendants’ actions outside the protection afforded by the business judgment rule.” Crescent/Mach I Partners, L.P. v. Turner, 846 A.2d 963, 984 (Del.Ch.2000); see also In re General Motors Class E Stock Buyout Sec.

Litig., 694 F.Supp. 1119, 1132 (D.Del.1988) (“[I]n order to overcome the presumption of the business judgment rule [the plaintiff] must allege with particularity facts which establish that the contested decision was not a product of valid business judgment.”); Aronson v. Lewis, 473 A.2d 805, 812 (Del.1984). This heightened pleading standard stems from Delaware’s rules of court, which impose a burden of particularity in shareholder derivative actions. See Khanna v. McMinn, No. Civ.A. 20545-NC, 2006 WL 1388744, at *11 (Del.Ch. May 9, 2006).

Nonetheless, the pleading standard has been extended to direct actions challenging the business decisions of corporate officers. See In re IT Group Inc., No. 02-10118, 2005 WL 3050611, at *8 n.10 (D. Del Nov. 15, 2005); Stanziale v. Nachtomi, No. Civ.A. 01-403 KAJ, 2004 WL 1812705, at *2 (D.Del. Aug. 6, 2004); In re RSL COM PRIMECALL, Inc., Nos. 01-11457, 2003 WL 22989669, at *10 (Bankr.S.D.N.Y. Dec. 11, 2003) (applying Delaware law). The rule in Ohio appears to be different.

In the lone case that is directly on point, an Ohio Court of Appeals ruled that the business judgment rule imposes a burden of proof, not a burden of pleading. See Marsalis v. Wilson, 149 Ohio App.3d 637, 642, 778 N.E.2d 612, 616 (Ohio Ct.App.2002). The court held that when a plaintiff alleges “breach of fiduciary duty on the [corporate officer’s] part, the business judgment rule would impose on plaintiffs a burden at trial to present evidence to rebut the presumption the rule imposes.

However, plaintiffs are not likewise obligated to plead operative facts in their complaint that would rebut the presumption.” Id.; see also Thompson v. Cent. Ohio Cellular, Inc., 93 Ohio App.3d 530, 544, 639 N.E.2d 462, 471 (Ohio Ct.App.1994) (noting that “issues concerning ... the business judgment rule are not properly before this court or the trial court on appellees’ motion to dismiss.”). In any event, federal courts are to apply federal procedural law. See Hanna v. Plumer, 380 U.S. 460, 465, 85 S.Ct. 1136, 1141, 14 L.Ed.2d 8 (1965).

The Third Circuit has observed that the Delaware pleading standard does not match the federal standard — “The problem is that Delaware courts interpret Chancery Rule 8 to require pleading with specificity. That is not the federal notice pleading standard.” In re Tower Air, Inc., 416 F.3d 229, 236 (3d Cir.2005). In Tower Air, the court held that the district court erred by “imposing a heightened pleading standard not required by Federal Rule of Civil Procedure 8.” Id. at 237.

The court then found that the proper standard is to require a plaintiff to “plead around the business judgment rule” when the complaint brings the rule directly into issue. Id. at 238. Thus, a plaintiff whose complaint challenges a director’s business action or decision must plead, under the Rule 8 standard, an exception to the business judgement rule. Id.See also NCS Healthcare, Inc. v. Candlewood Partners, LLC, 160 Ohio App.3d 421, 429, 827 N.E.2d 797, 803 (Ohio Ct.App.2005) (dismissing complaint against directors for failing to allege that an exception to business judgment rule applied).

The plaintiff is not required to plead the exception with particularity. Tower Air, 416 F.3d at 237-38; see also Marsalis, 149 Ohio App.3d at 642, 778 N.E.2d at 616 (“Any matters that involve the business judgment rule, as such, are not among those matters that Civ. R. 9 requires a plaintiff to specially plead.”). The business judgment rule does not protect directors who engage in self-dealing or act with bad faith. Gries Sports, 26 Ohio St.3d at 20, 496 N.E.2d at 963-64.

Also not protected are directors who waste the corporate assets of an insolvent company, DeNune, 288 F.Supp.2d at 859, and those who are uninformed, not independent, or grossly negligent. NCS Healthcare, 160 Ohio App.3d at 429, 827 N.E.2d at 803; Granada Invs., Inc. v. DWG Corp., 823 F.Supp. 448, 456 (N.D.Ohio 1993). Finally, the business judgment rule does not protect a director who fails to attempt to prevent waste or self-dealing, of which the director knew or should have known, was being committed by another corporate officer. Biggins v.

Garvey, 90 Ohio App.3d 584, 601, 630 N.E.2d 44, 55 (Ohio Ct.App.1993) (holding that a director breached her fiduciary duty when she failed to act on knowledge of fellow director’s waste of corporate assets); Geygan v. Queen City Grain Co., 71 Ohio App.3d 185, 193-94, 593 N.E.2d 328, 332-33 (Ohio Ct.App.1991) (holding that director breached her fiduciary duty when she acquiesced to fellow director’s misappropriation of insurance proceeds). The complaints here sufficiently plead around the business judgment rule.

They assert that the Outside Directors breached their fiduciary duties by not acting to stop National Century and its Founders from self-dealing and wasting corporate assets. The complaints allege at length that the Founders of National Century wasted corporate assets by setting up an elaborate scheme to misappropriate money invested by noteholders. In short, the Founders allegedly funneled the money to themselves by “purchasing” non-existent or worthless receivables from healthcare companies in which the Founders held a financial interest.

The complaints additionally allege that the Outside Directors knew or should have known about the scheme. Specifically, the complaints allege that the Outside Directors either possessed information or had access to information which should have alerted them to National Century’s wasting of assets. See MetLife Compl., ¶¶ 76-83, 89; Lloyds Compl., ¶¶ 73-80, 86; ING Compl., ¶¶ 100-103. Despite this knowledge, the Outside Directors allegedly did not act to protect the interests of noteholders.

Without citing any cases, the Outside Directors contend that a director does not breach his fiduciary duty unless he personally benefits from the self-dealing. However, “[w]hen a director has knowledge of a fellow director’s improprieties and does not act upon the information, her decision to stand idly by is not a defense.” Geygam, 71 Ohio App.3d at 193, 593 N.E.2d at 333. This amounts to a breach of duty “unprotected by the business judgment rule,” id., even though the director does not personally benefit from the other’s self-dealing.

Biggins, 90 Ohio App.3d at 601, 630 N.E.2d at 55 (“The mere fact that she did not directly receive any of the proceeds from the fire insurance does not exonerate her.”). See also Atherton v. Anderson, 99 F.2d 883, 888-89 (6th Cir.1938) (directors owe duty to “maintain a reasonable control and supervision over the affairs” of the company and cannot “shut their eyes” to misconduct going on around them); Pereira v. Cogan, 265 B.R. 32, 34 (S.D.N.Y.2001) (“[T]he Directors had a duty to prevent self-dealing from happening.”); Trieweiler v.

Sears, 268 Neb. 952, 975-76, 689 N.W.2d 807, 832-33 (Neb.2004) (outside director breached fiduciary duty by failing to detect and prevent insider’s misappropriation of corporate money); Francis v. United Jersey Bank, 87 N.J. 15, 39, 432 A.2d 814, 826 (N.J.1981) (holding that directors have duty to stop insiders from “bleeding a corporation to death”). Accordingly, the Court finds that Met-life, Lloyds, and ING have stated claims for breach of fiduciary duty against the Outside Directors. B. Fraud 1.

Elements and Pleading Standard MetLife, ING Bank, and Pharos each assert claims for fraud against the Outside Directors.

The elements of common law fraud are: (1) a representation or, where there is a duty to disclose, concealment of a fact, (2) which is material to the transaction at hand, (3) made falsely, with knowledge of its falsity, or with such utter disregard and recklessness as to whether it is true or false that knowledge may be inferred, (4) with the intent of misleading another into relying upon it, (5) justifiable reliance upon the representation or concealment, and (6) a resulting injury proximately caused by the reliance. Russ v. TRW, Inc., 59 Ohio St.3d 42, 49, 570 N.E.2d 1076, 1083-84 (Ohio 1991).

Under Rule 9(b), Fed.R.Civ.P., aver-ments of fraud and the circumstances constituting the fraud must be stated with “particularity.” To comply with Rule 9(b), “a plaintiff, at a minimum, must ‘allege the time, place, and content of the alleged misrepresentation on which he or she relied; the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud.’ ” Walburn v. Lockheed Martin Corp., 431 F.3d 966, 972 (6th Cir.2005) (quoting Coffey v. Foamex L.P., 2 F.3d 157, 161-62 (6th Cir.1993)). Scienter may be inferred from circumstantial evidence. S.E.C. v.

Blackwell, 291 F.Supp.2d 673, 696 (S.D.Ohio 2003). 2. MetLife MetLife’s fraud claim is based on the same allegations as its

Section 10(

b) claim. MetLife alleges that the Outside Directors committed fraud because the Offering Materials contained misrepresentations about how NPF XII operated. In response, the Outside Directors return to their argument that group pleading is improper and they cannot be held liable for any misrepresentations in the Offering Materials absent particularized allegations that they prepared the Offering Materials or were involved in the daily operations of NPF XII. A plaintiff is not necessarily barred from using group pleading to support a common law fraud claim, so long as Rule 9(

b) is ultimately satisfied. See MBIA Ins. Corp. v. Royal Indem. Co., 221 F.R.D. 419, 421 (D.Del.2004) (“[Provided a plaintiff alleges sufficiently particularized allegations, there is no per se rule that group pleading cannot satisfy Rule 9(b).”). In the case of National Century’s Founders, the complaints initially used group pleading to assert that one or all of the Founders reviewed the Offering Materials, but went on to provide particularized allegations regarding each of the Founders’ insider roles at National Century and their first-hand knowledge of the fraud.

This was sufficient to hold the Founders responsible for the alleged misrepresentations in the Offering Materials. Thus, even with National Century’s Founders, the Court required something more than bare group pleading. See Feb. 27, 2006 Order, pp. 16-18. With respect to the Outside Directors, MetLife uses bare group pleading to allege that the Outside Directors reviewed the Offering Materials for accuracy. This is not sufficient under Rule 9(

b) because a “plaintiff is required to meet the Rule 9(

b) standard as to each defendant against whom fraud is alleged.” Blackwell, 291 F.Supp.2d at 686 (emphasis added). Met-Life’s complaint contains no particularized allegations about what role each of the Outside Directors played in preparing the Offering Materials or in managing NPF XII’s operations. See Adams v. NVR Homes, Inc., 193 F.R.D. 243, 250 (D.Md.2000) (“A complaint fails to meet the particularity requirements of Rule 9(

b) when a plaintiff asserts merely conclusory allegations of fraud against multiple defendants without identifying each individual defendant’s participation in the alleged fraud.”); Haskin v. R.J. Reynolds Tobacco Co., 995 F.Supp. 1437, 1439 (M.D.Fla.1998) (holding that Rule 9(b) “require[s] plaintiffs to differentiate their allegations when suing more than one defendant ... and inform each defendant separately of the allegations surrounding his alleged participation in the fraud”) (internal quotation omitted); Wiener v.

Napoli, 760 F.Supp. 278, 284 (E.D.N.Y.1991) (holding that where “multiple defendants are involved in the alleged fraud, it is especially important that the fraud be particularized as to each one of them.”). In In re Cendant Corp. Sec. Li

[…]