Courtney

This case involves the misfortunes of a company known as Tools-R-Us (TRU), which at one time franchised a number of retail hardware stores. Plaintiffs are a group of TRU franchisees who suffered financial losses when the company declared bankruptcy in 1980. This appeal concerns their attempts to hold certain corporate insiders and attorneys liable for the damages they incurred.

Factual and Procedural Background

Stephen J. Watson was the founder of TRU. In 1977, Watson retained defendant James T. Waring, an attorney, for the purpose of incorporating TRU. Waring also arranged for the incorporation of a related entity, Tools, Equipment and Machinery, Inc. (TEAM). The business purpose of TRU was to franchise retail tool stores. The business purpose of TEAM was to wholesale tools to TRU franchisees. TRU was a wholly owned subsidiary of TEAM. At this point in time, Watson was the sole shareholder of TRU and TEAM and served as an officer and director. Waring also served as an officer and director, as well as legal counsel to the corporation.

Waring introduced Watson to defendant George Drykerman. Through a series of financing arrangements with related business entities…