Waggoner v. Snow, Becker, Kroll, Klaris & Krauss

In 1982, Thomas Waggoner (plaintiff) cofounded STAAR Surgical Company (Staar). He worked as Staar’s chief executive officer and served on the board of directors (the board) until 1989. Waggoner hired Elliot Lutzker as Staar’s counsel in 1986. Lutzker continued as Staar’s counsel after he joined Snow, Becker, Kroll, Klaris & Krauss (the law firm) (defendant). In July 1987, Staar obtained a line of credit from the Bank of New York (BONY). BONY determined that the line of credit was under-collateralized and over-advanced. BONY warned Staar that the loans would end and foreclosure proceedings would begin unless Staar’s officers personally guaranteed the loans. At a board meeting in December 1987, Waggoner agreed to guarantee the BONY debt in return for voting control of Staar. At the meeting, Lutzker stated that he represented Staar. Days later, the board adopted a resolution transferring shares of class-A preferred stock to Waggoner in exchange for his guarantee of the loans, agreeing that the preferred stock could be converted into two million shares of common stock if Waggoner’s guarantees remained outstanding after January 16, 1988. At the board’s direction, Lutzker prepared the required corporate documents, including the share-conversion terms. The board failed to find alternative financing, so Waggoner activated the conversion terms. A year later, the board voted to end Waggoner’s employment and board service. Waggoner asked Lutzker if he was able to remove the other directors and create a new board. Lutzker said he was not aware of anything preventing Waggoner from doing so. Waggoner then dismissed and replaced the board. In response, the board filed suit in Delaware to maintain control of Staar and to enforce Waggoner’s removal. The Delaware Supreme Court determined that the board lacked authority to create a class of preferred stock with voting rights and that Waggoner’s attempted stock conversion was invalid. Waggoner lost his position at and voting control over Staar. Subsequently, Waggoner filed a malpractice lawsuit claiming that Lutzker and the law firm had breached their duty of care when Lutzker negligently drafted the Staar corporate documents and negligently advised Waggoner on replacing the board. The district court granted summary judgment to the law firm, and Waggoner appealed.