Waggoner v. Laster

Thomas Waggoner (defendant) was the founder, chief executive officer, and president of STARR Surgical Company (STARR), which faced mounting financial difficulties. The Bank of New York, a creditor of STARR, demanded personal guarantees on $3.5 million in debt. Thomas provided the guarantees. In exchange, STARR’s other board members—LaMar Laster, John Ford, Howard Silverman, and Peter Utrata (the other board members) (defendants)—issued convertible preferred stock to Thomas, apparently for the purpose of conferring supermajority voting rights, though STARR’s certificate of incorporation made no mention of voting rights. STARR’s financial difficulties worsened. The board considered merger proposals from two companies, Vision Technologies, Inc., and Chiron Corp. Although the board unanimously agreed to move forward with the Vision Technologies proposal, Thomas continued to negotiate with Chiron in private. When the other board members learned of these private negotiations, they agreed to remove Thomas from the board. However, before a vote could be taken, Thomas exercised his supposed supermajority voting rights to remove the other board members from the board and install his wife, Patricia (defendant), as a board member. The other board members brought an action in the Delaware Chancery Court to determine the lawful board membership and enjoin Thomas and Patricia from finalizing the Chiron transaction. The court ruled that STARR’s certificate of incorporation provided no authority to issue preferred stock with supermajority voting rights, thus invalidating Thomas’s attempt to vote out the other board members. Thomas and Patricia appealed. The Delaware Supreme Court granted certiorari.