Simons v. Cogan

In 1987, Knoll International, Inc. (Knoll) (defendant) and Hansac, Inc. (Hansac) merged. As a result of the merger, individuals who had previously obtained convertible debentures issued by Knoll were informed that they could no longer convert the debentures into common stock. Instead, convertible-debenture holders could receive $12 per each $19.20 amount of debenture. Convertible-debenture holder Louise Simons (plaintiff) filed a class-action suit on behalf of convertible-debenture holders against Knoll, controlling shareholder Marshall S. Cogan, and other Knoll leaders (defendants). Simons claimed that Knoll’s directors had breached their fiduciary duty owed to convertible-debenture holders by not negotiating the cash conversion price, by not appointing an independent special committee to determine the appropriate conversion price, by using Knoll’s decrease in value to their advantage, and by setting an unfair and inadequate cash conversion price. Additionally, Simons also claimed that the corporation had committed common-law fraud and breach of indenture. The chancery court dismissed Simons’s breach-of-indenture claim on the ground that the claim was prohibited by the indenture agreement. The court dismissed the fraud claim on the ground that the facts in the complaint were insufficient to make out a cause of action for fraud. The court also dismissed the fiduciary-duty claim on the ground that Knoll’s directors did not owe a fiduciary duty to holders of convertible debentures. The matter was appealed to the Delaware Supreme Court.