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KT4 Partners LLC v. Palantir Technologies, Inc.

Court of Chancery of Delaware

February 22, 2018

KT4 PARTNERS LLC, Plaintiff,

          Date Submitted: December 12, 2017

          Bartholomew J. Dalton, Esquire and Andrew C. Dalton, Esquire of Dalton & Associates, P.A., Wilmington, Delaware and Barry S. Simon, Esquire and Jonathan B. Pitt, Esquire of Williams & Connolly LLP, Washington, DC, Attorneys for Plaintiff.

          Blake Rohrbacher, Esquire, Kevin M. Gallagher, Esquire and Kelly L. Freund, Esquire of Richards, Layton & Finger, P.A., Wilmington, Delaware and Kevin J. Orsini, Esquire and Rory A. Leraris, Esquire of Cravath, Swaine & Moore LLP, New York, New York, Attorneys for Defendant.


          SLIGHTS, Vice Chancellor

         Actions to enforce a stockholder's right to demand inspection of a corporation's books and records under Section 220 of the Delaware General Corporation Law ("Section 220") are summary proceedings, until they aren't.[1] This Section 220 action has been anything but summary.

         In 2003, Marc Abramowitz invested in a new company called Palantir Technologies, Inc. ("Palantir" or "Defendant"), through one of his investment vehicles, Plaintiff, KT4 Partners LLC ("KT4" or "Plaintiff"). Initially, Abramowitz enjoyed a close relationship with executives at Palantir. That changed, however, after senior Palantir executives accused Abramowitz of misappropriating Palantir trade secrets. Soon after the falling out, on August 16, 2016, Abramowitz (through KT4) requested information from Palantir under the parties' Investors' Rights Agreement (the "IRA"). KT4 did not respond.

         Two weeks later, on September 1, 2016, Palantir sued Abramowitz for theft of trade secrets in California state court. On September 20, 2016, KT4 supplemented its request for information under the IRA with a formal demand for inspection under Section 220. In its demand, KT4 stated that its purpose for inspection was "to investigate fraud, mismanagement, abuse, and breach of fiduciary duty by [Palantir], its officers, its directors, its agents, and its majority shareholders." On September 28, 2016, Palantir responded with a formal rejection of KT4's demand. KT4 filed its Verified Complaint Against Defendant Palantir Technologies, Inc. for Inspection of Books and Records Pursuant to 8 Del. C. § 220 (the "Complaint") approximately six months later, on March 8, 2017.

         When it became clear during discovery that Plaintiff intended to build his case for inspection on hearsay, double hearsay and, at times, triple hearsay, the Court was drawn into protracted in limine motion practice to determine the bounds of the admissible trial evidence.[2] At trial, Abramowitz previewed at length a tortious interference with contract or prospective business relations case he intends to bring against principals and associates of Palantir, while Palantir was eager to lay out its misappropriation of trade secrets against Abramowitz. When the Court questioned whether the investigation of Abramowitz's personal tortious interference claim, or his defense of a misappropriation claim, were proper subjects of a Section 220 trial, KT4 responded in its post-trial submissions and arguments by focusing on other aspects of the demand where it identified more conventional purposes for inspection. As discussed below, that strategic pivot was well founded and supported by the evidence when viewed under the "credible basis" standard of proof.

         After carefully reviewing the evidence presented at trial and the arguments of counsel, I conclude in this post-trial Memorandum Opinion that KT4 has demonstrated, by a preponderance of the evidence, a proper purpose of investigating potential wrongdoing and a credible basis to justify further investigation into three areas: (1) Palantir's serial failures to hold annual stockholder meetings, (2) Palantir's IRA amendment in 2016 and (3) Palantir's compliance with its stockholder agreements. Judgment is entered for KT4. Palantir shall produce for inspection the books and records designated herein as essential to KT4's pursuit of its proper purpose of investigating this possible wrongdoing.


         Trial of this matter occurred on June 28, 2017, with live testimony from Abramowitz. The Court received one lodged deposition and 325 trial exhibits. The parties presented post-trial arguments on December 12, 2017. I have drawn the facts from admitted allegations in the pleadings, stipulated facts, trial testimony and exhibits along with those matters of which the Court may take judicial notice.[3]Unless otherwise indicated, the following facts were proven by a preponderance of the evidence. I assign the evidence the weight and credibility I find it deserves in accordance with my post-trial motion in limine ruling, which I incorporate herein.

         A. The Parties and Relevant Non-Parties

         Plaintiff KT4 is a Delaware limited liability company and Marc Abramowitz is its managing member.[4] KT4 is the record holder of 5, 696, 977 shares of Palantir common and preferred stock.[5]

         Defendant Palantir is a privately held Delaware corporation with its principal place of business in Palo Alto, California.[6] Non-party Alexander Karp is Palantir's co-founder and CEO.[7] Karp and Abramowitz know each other through a nonprofit organization where Karp was an employee and Abramowitz served as a board member.[8] Non-party Disruptive Technology Advisers LLP ("DTA") is allegedly Palantir's broker.[9] Non-party Brooklands Capital Strategies ("Brooklands") is a division of TPG Capital.[10] Brooklands allegedly represents the interests of a Chinese entity identified by the parties as CDH.[11] In 2015, KT4 attempted to sell its entire Palantir position to CDH indirectly through Brooklands.[12]

         B. KT4 Invests in Palantir

         In approximately 2003, after a meeting with Karp, Abramowitz made an initial investment of $100, 000 in Palantir (through KT4).[13] Thereafter, KT4 made several more investments in Palantir to a point where Abramowitz estimates KT4's current Palantir holdings are worth at least $60 million.[14] Abramowitz was a trusted advisor to Palantir and was afforded unique access to Palantir's executives.[15] Over the course of fifteen years as a Palantir investor, Abramowitz visited Palantir at least a dozen times.[16] Abramowitz met with Karp almost every time he visited Palantir, [17]and the two maintained a cordial and amicable relationship.[18] During this time, Abramowitz did not make formal requests for information from Palantir, presumably because he was in regular contact with Palantir executives.[19] As discussed below, Abramowitz's unique access to Palantir ended after a phone call with Karp in the summer of 2015.[20]

         C. Palantir's Stockholder Agreements

         In connection with KT4's investments in Palantir, KT4 and Palantir executed the IRA dated June 15, 2006 (the "June 2006 IRA") and the Amended IRA dated February 15, 2008 (the "February 2008 IRA").[21] Palantir and certain investors (excluding KT4) entered into an Amended and Restated IRA dated July 8, 2015 (the "July 2015 IRA").[22] The July 2015 IRA was amended in two separate documents, both dated September 1, 2016 (individually, the "September 2016 IRA Amendment-A" and "September 2016 IRA Amendment-B, " and together, the "September 2016 IRA Amendments").[23]

         The IRA (as amended and restated from time to time) grants Major Investors, including KT4, a right of first offer ("ROFO") with respect to future stock offerings by Palantir.[24] Specifically, Section 2.4 of the IRA provides that if Palantir seeks to offer shares of its stock to new investors, it must first provide notice and an opportunity to Major Investors to participate in the offering in proportion to the investor's ownership of certain Palantir stock, or beyond its ownership proportion in the event shares designated for the offering are not all sold to existing or new investors.[25]

         The June 2006 IRA and February 2008 IRA define Major Investor as an investor that holds at least 500, 000 shares of Registrable Securities.[26] The July 2015 IRA, however, executed without KT4's involvement, re-defined Major Investor as an investor that holds at least five million shares of Registrable Securities.[27] The September 2016 IRA Amendment-A increased the Major Investor threshold once again, this time to ten million shares of Registrable Securities.[28]Under the September 2016 IRA Amendment, KT4's 5, 696, 977 shares of Palantir stock fails to meet the Major Investor threshold required to qualify for the ROFO.

         Aside from implicating who receives the ROFO, the Major Investor definition also affects stockholders' right to request information from Palantir. Only Major Investors can request access to, and "inspection" of, Palantir's financial information as defined in the IRA.[29] After the September 2016 IRA Amendment-A changed the Major Investor threshold above KT4's holdings, KT4 lost its contractual right to request Palantir's information or seek inspection.[30]

         The September 2016 IRA Amendment-B restricts a Major Investor's access to information in two additional ways. First, it permits Palantir to deny a request for Palantir's financial information or inspection if Major Investors holding a certain percentage of Registrable Securities and Palantir consider the request to be made in bad faith or for an improper purpose.[31] Second, specific to Major Investors' inspection rights, the September 2016 IRA Amendment-B states that Palantir is not obligated to provide access to any information that it "reasonably considers to be a trade secret or similar confidential information."[32]

         In addition to the IRA, Palantir executed First Refusal and Co-Sale Agreements ("FRCSA") with its investors, including KT4. Specifically, Palantir and KT4 executed a FRCSA dated June 15, 2006 (the "June 2006 FRCSA") and the Amended and Restated FRCSA dated February 5, 2008 (the "February 2008 FRCSA").[33] Several years later, Palantir and certain investors (excluding KT4) entered into the Amended and Restated FRCSA dated July 8, 2015 (the "July 2015 FRCSA").[34] The FRCSA gives Palantir a right of first refusal ("ROFR") when specific investors (each a "Selling Investor" and together, the "Selling Investors")[35]seek to sell Palantir stock.[36] The FRSCA also gives certain investors ("Investors"), including KT4, a ROFR (second to Palantir's ROFR)[37] and a co-sale right.[38] The ROFR and co-sale mechanism operates such that Palantir has the first option to purchase any or all of the block of shares that a Selling Investor seeks to sell, then the Investors get the option to purchase their pro rata share of the unsold shares within the block.[39] If shares remain unsold after Palantir and the Investors have exercised their ROFR, subject to notice requirements, an Investor may sell a percentage of its stock equal to the Investor's pro rata share of the unsold shares of the block.[40]

         Under the June 2006 FRCSA and February 2008 FRCSA, ROFO and co-sale rights do not apply for the first 500, 000 shares that a Selling Investor seeks to sell.[41]The July 2015 FRCSA changed that provision to state that ROFO and co-sale rights do not apply to transfers by Selling Investors that are "approved by a disinterested majority of the Board of Directors of [Palantir]" and do not exceed the exemption levels identified in Schedule B.[42] Karp has zero shares exempted from transfer restrictions.[43]

         D. KT4's Efforts to Sell Palantir Stock to Brooklands

         In the summer of 2015, KT4 and Palantir's relationship was fractured after Abramowitz received a phone call from Karp during which Karp "verbally abused [him] in a manner that [he] thought was irrational, somewhat unhinged, and completely contradictory to any relationship [he] had had with [Karp] in the past."[44]During this conversation, Karp accused Abramowitz of stealing Palantir's intellectual property.[45] Following this conversation, Abramowitz sought to sell his entire Palantir position to Brooklands.[46] Abramowitz teamed up with other Palantir stockholders who also sought liquidity because Brooklands was interested in purchasing more Palantir shares than Abramowitz had to sell.[47] According to Abramowitz, Brooklands did not go through with the transaction because principals at Palantir got wind of the deal and offered Brooklands new shares instead.[48]

         Following the unsuccessful transaction with Brooklands, Abramowitz consulted with attorneys to explore a tortious interference suit against Palantir for blocking the sale of KT4's shares to Brooklands.[49]

         E. KT4 Requests Information and Inspection Pursuant to the February 2008 IRA

         After Abramowitz's attempt to sell KT4's entire Palantir position to Brooklands failed, on August 16, 2016, KT4 sent Palantir an information request pursuant to the February 2008 IRA (the "Information Request").[50] Notably, at the time of the Information Request, KT4 still had information rights under the IRA because its Palantir holdings were sufficient to allow it to qualify as a Major Investor.[51] Palantir wrote to KT4 on August 21, 2016, stating that it was reviewing the request and would respond soon.[52] When Palantir did not respond, KT4 reiterated its request on August 30, 2016.[53]

         F. Palantir Amends the July 2015 IRA and Files a California Lawsuit

         Palantir did not respond to KT4's Information Request. Instead, on September 1, 2016, Palantir executed the September 2016 IRA Amendments, [54] and then, on that same day, filed a lawsuit against KT4 in the Superior Court of the State of California, alleging, inter alia, misappropriation of Palantir's trade secrets (the "California Action").[55]

         G. KT4 Makes a Section 220 Demand

         On September 20, 2016, KT4 sent a Books and Records Demand (the "Demand") to Palantir seeking 22 categories of documents (individually, "Request [#]", and collectively, the "Requests").[56] KT4 stated its purpose in making the Demand was "to investigate fraud, mismanagement, abuse, and breach of fiduciary duty committed by [Palantir], its officers, its directors, its agents, and its majority shareholders" relating to the following issues: (1) interference with KT4's efforts to sell its Palantir shares; (2) Palantir's practice of improperly favoring certain stockholders; (3) corporate waste; (4) Palantir's actions that deprived certain investors of the full value of their investments; (5) Palantir's actions that deprived certain investors of their ROFR to purchase Palantir shares and (6) securities fraud.[57] Of note, KT4's demand did not raise either valuation or communicating with other stockholders as purposes supporting the Demand.[58]On September 28, 2016, Palantir rejected the Demand on four grounds: (1) Abramowitz's primary purpose is improper; (2) the Demand fails to set forth a credible basis from which to infer mismanagement or breach of duty; (3) KT4 did not articulate what it intends to do with the information it seeks; and (4) KT4 did not show that specific documents are necessary and essential to KT4's stated purpose.[59]

         KT4 did not amend its Demand to address Palantir's objections. Instead, on March 8, 2017, six months after serving its Demand, KT4 filed the Complaint in this Court.[60] In its Complaint, KT4 alleges its purpose for asserting inspection rights is "to allow KT4 to investigate whether and to what extent Palantir . . . [has] prevented disfavored investors such as KT4 from realizing the value of their investment."[61] The Complaint also restates the six issues that KT4 seeks to investigate identified in the Demand.[62] Importantly, however, where the Demand did not state a valuation purpose, the Complaint states that KT4 seeks to inspect books and records to value its Palantir stock holdings.[63]

         H. Palantir Offers KT4 Some Books and Records

         Prior to KT4 filing the Complaint, Palantir offered to produce certain books and records in response to the Demand.[64] Palantir renewed its offer during the pendency of this litigation.[65] First, on February 14, 2017, Palantir offered KT4:

(i) [Palantir's] most recent audited consolidated financial statements of operations, comprehensive loss, changes in convertible preferred stock and stockholders' deficit and cash flows for the years then ended, and the related notes to the consolidated financial statements and (ii) [Palantir's] summary capitalization table as of a recent date, aggregated by share class and series.[66]

         Palantir conditioned its offer on KT4's agreement to execute Palantir's Non-Disclosure Agreement.[67] KT4 rejected Palantir's offer on February 22, 2017.[68]

         On April 26, 2017, one month after KT4 filed its Complaint, Palantir again offered KT4 books and records to resolve this litigation.[69] Specifically, Palantir offered six categories of documents responsive to the Demand:

• a list of Palantir stockholders (Request 2);
• a list of all directors and officers, and their dates of service, from 2011 through the present (Requests 3 and 4);
• Palantir's audited consolidated financial statements for the years ended December 31, 2014 and December 31, 2015, the most recent audited statements available (Request 6);
• the July 2015 IRA and the September 2016 IRA Amendments (Request 22); and
• the FRCSA, as amended and restated (Request 22).[70]

         Palantir again conditioned its offer on KT4 executing a "standard Section 220 confidentiality stipulation."[71] On May 2, 2017, KT4 again rejected Palantir's offer, disagreeing that the proposed books and records represent a "complete response to each of the referenced demands" and stating that Palantir's proposed confidentiality stipulation is "not appropriate or reasonable."[72] Palantir has not produced books and records in response to KT4's Demand, but has produced a stocklist and the September 2016 IRA Amendments as discovery in this litigation.[73]

         II. ANALYSIS

         Section 220 permits a stockholder of a corporation to inspect the corporation's books and records for any proper purpose.[74] The stockholder bears the burden of proof to demonstrate a proper purpose for each item sought by a preponderance of the evidence.[75] A plaintiff seeking inspection must also prove that each category of the books and records requested is essential to fulfill the stated purpose.[76] A proper purpose is one that is reasonably related to the stockholder's interests as a stockholder.[77] The stockholder's purpose must be a means to some end. [78] Stated differently, the stockholder "must do more than state, in a conclusory manner, a generally accepted proper purpose."[79] A reason for the purpose must also be stated, i.e., what the stockholder will do with the information it seeks, or an end to which its demand may lead. [80] "Further, once a proper purpose has been established, any secondary purpose or ulterior motive of the stockholder becomes irrelevant."[81] KT4 contends that two overarching purposes can be extracted from its lengthy Demand: valuing its shares and investigating wrongdoing. For the reasons that follow, I find KT4 has failed properly to advance a valuation purpose but has properly stated a purpose to investigate possible wrongdoing (albeit not to the extent alleged).

         A. The Valuation Purpose

         It is settled Delaware law that a desire to value one's stock is a proper purpose for inspection under Section 220.[82] To advance that purpose, or any purpose, Section 220 requires that a stockholder follow certain steps in making its demand to inspect books and records, including that the stockholder clearly state the purpose(s) for its desired inspection.[83] Indeed, our Supreme Court has made clear that "[a] Section 220 plaintiff's compliance with the statutorily mandated procedures is a precondition to having the propriety of its purpose for inspection addressed."[84] KT4 failed to state its valuation purpose in the Demand, and there are consequences for this deficiency.[85]

         KT4 argues that notwithstanding the "quibble over the wording, "[86] the Court should find that the Demand states a valuation purpose for any of three reasons. First, the Demand requests Palantir's year-end financial statements, quarterly financial statements, and internal valuations; therefore, Palantir should have been able to discern that valuation was one of KT4's purposes in making the Demand.[87]Second, any doubt over the wording of the Demand should be resolved in favor of KT4's statutory right to inspection.[88] Finally, if the Demand lacked specificity about KT4's valuation purpose, any arguable technical deficiency was cured when KT4 stated that purpose in its Complaint.[89]

          In response, Palantir points out the obvious; the Demand makes absolutely no mention of valuation as a proffered purpose. Rather, the only identified purposes are investigative purposes. [90] Palantir further asserts that KT4's attempt to circumvent this deficiency by lashing its eleventh-hour valuation purpose to the suspected wrongdoing it identified in its Demand is unavailing because investigating wrongdoing and valuation are two distinct purposes. I agree with Palantir.

         "The requirement that the corporation receive an inspection demand in proper form recognizes the importance of striking an appropriate balance between the rights of stockholders and corporations."[91] And the language of Section 220 setting forth the inspection prerequisites is unambiguous.[92] "Accordingly, Delaware courts require strict adherence to the Section 220 inspection demand procedural requirements" and the demand must be in "proper form before litigation is initiated."[93] "Delaware law does not permit section 220 actions based on an ephemeral purpose, nor will this court impute a purpose absent the plaintiff stating one."[94]

         In Seinfeld, this court held that a stockholder failed strictly to comply with Section 220 because the stockholder's demand omitted certain key words that were deemed necessary to ensure that the demand clearly communicated what the stockholder was looking for and why.[95] Similarly, the Demand is missing certain key words-a stated valuation purpose-and KT4's request for financial materials in furtherance of other stated purposes cannot fill the gap. I cannot infer a valuation purpose from an item in a list of document requests that KT4 states are necessary to advance its investigative purpose simply because KT4 now seeks to slap a Band-Aid on a glaring defect in its Demand.

         KT4's two additional theories for why the Demand has stated a valuation purpose fail as a matter of law. First, KT4 calls upon Compaq Computer Corp. v. Horton for the proposition that if I doubt (as I do) whether the Demand states a valuation purpose, I must resolve my doubt in favor of KT4's statutory right to inspection.[96] KT4's reliance on Compaq is misplaced. There, the only question before this court and ultimately appealed to the Supreme Court was whether the stockholder's stated purpose was a proper purpose.[97] The stockholder in Compaq had complied with the statutory requirements under Section 220.[98] Indeed, KT4's selective citation to Compaq ignores that the Court had already recognized that the stockholder had complied with Section 220's form and manner requirements and, therefore, focused its analysis on whether the stockholder had stated a proper purpose.[99] Here, I cannot reach the propriety of KT4's purported valuation purpose because it did not express that purpose in its Demand as required.

         KT4's final proffered basis upon which I may read a valuation purpose into the Demand is likewise flawed. KT4 argues the Demand's lack of specificity about KT4's valuation purpose was "cured" when it expressly stated a valuation purpose in the Complaint, and then reiterated that stated purpose in Abramowitz's deposition and trial testimony.[100] To support its contention, KT4 cites numerous Delaware cases where this Court granted inspection after a stockholder offered evidence to support its stated purposes.[101] These precedents are inapposite. As Palantir aptly points out, in every case KT4 cites, the stockholder stated a purpose in its initial demand for inspection and then supplemented or clarified the stated purpose during the course of litigation.[102] KT4 missed step one; it failed to state a valuation purpose in any form in its Demand.

         For these reasons, I conclude that KT4 has not stated a valuation purpose. Having found KT4 has not stated a valuation purpose, I do not reach the issue of whether KT4's valuation purpose, had it been stated, is a pretext.

         B. The Investigative Purpose

         It is well established that a stockholder's desire to investigate waste, wrongdoing or mismanagement is a proper purpose.[103] But stockholders are only permitted to investigate wrongdoing to the extent that wrongdoing affects their interests as stockholders.[104] If that connection exists, then the stockholder meets its burden of proof when he presents a credible basis from which the court can infer that waste or wrongdoing may have occurred.[105] This "credible basis" is "some evidence" of possible wrongdoing as would warrant further investigation of the matter.[106] In other words, a stockholder "must make a credible showing, through documents, logic, testimony or otherwise, that there are legitimate issues of wrongdoing."[107] "The 'credible basis' standard sets the lowest possible burden of proof."[108] "The only way to reduce the burden of proof further would be to eliminate any requirement that a stockholder show some evidence of possible wrongdoing."[109]

         The Demand states KT4 seeks books and records "to investigate fraud, mismanagement, abuse, and breach of fiduciary duty, " [110] an accepted proper purpose if it is the primary purpose and not a pretext.[111] In this regard, Palantir argues that investigating wrongdoing is not KT4's primary purpose. Rather, Palantir urges the Court to conclude that KT4's inspection demand is motivated by Abramowitz's personal interests unrelated to KT4's interests as a stockholder-i.e., obtaining leverage against Palantir in the California Action and obtaining pre-suit discovery on his breach of contract and tortious interference claims against Palantir. [112] According to Palantir, Abramowitz "disavowed any interest in contacting other shareholders"[113] and testified at trial that he is not going to hold onto KT4's Palantir shares to pursue fiduciary duty litigation against Palantir managers.[114] It is also telling, according to Palantir, that Abramowitz never requested any of the information he now seeks when he enjoyed unique access to Palantir offices and executives.

         I agree with Palantir that some of KT4's stated purposes reflect Abramowitz's personal desire to gain either litigation leverage or advanced discovery in litigation that he intends to pursue on his own behalf unrelated to his interests as a stockholder. These are not proper purposes. With that said, KT4 has sustained its burden of demonstrating a credible basis of wrongdoing in certain respects that do affect its interests as a Palantir stockholder. I explain the distinction below.

          At the outset, I find unpersuasive Palantir's argument that KT4's investigative purpose is not its primary purpose simply because Abramowitz has "disavowed" any interest in contacting other stockholders or bringing a breach of fiduciary duty suit against Palantir managers. At his deposition, Abramowitz testified that he had not discussed the allegations in the Complaint with any Palantir investors outside of individuals affiliated with the company.[115] This is a far cry from acknowledging that he has no plans to communicate with other stockholders about any of the alleged wrongdoing for which he has requested inspection should he receive those documents.

         I also find no merit in Palantir's argument that KT4's investigative purpose is not its primary purpose because Abramowitz did not commit to pursue breach of fiduciary duty litigation after he received the books and records he seeks here.[116]In this regard, Palantir's reliance upon West Coast Management & Capital, LLC v. Carrier Access Corp. is puzzling.[117] In West Coast Management, this court denied inspection to investigate breaches of fiduciary duty because the plaintiff was precluded from taking a second bite at derivative litigation, and plaintiff's sole purpose for launching the Section 220 action was to obtain additional information to re-plead demand futility.[118] In contrast, as best I can tell, KT4 is not precluded from bringing claims against Palantir; it has simply not committed to do so at this time. In one sense, KT4 could be commended for not committing to launch litigation against Palantir before it sees the documents it has requested. While I am by no means ascribing this degree of forethought to KT4's ambivalence, I cannot conclude that KT4 must commit to initiate litigation as a precondition to receiving Section 220 documents. It is enough that it will consider doing so if evidence of wrongdoing is discovered.[119]

         Finally, I reject the notion that KT4's desire for information must be pretextual because KT4 never requested the information it now seeks when Abramowitz enjoyed unique access to Palantir.[120] In part, at least, Palantir's argument reveals its own fallacy-there was no need to demand inspection when the information from Palantir was free-flowing. Now that the information stream has dried up, KT4 must resort to more formal methods to obtain information.

         Having set aside Palantir's "pretext purpose" arguments, I turn next to the evidence KT4 has presented to determine whether credible bases of wrongdoing exist to warrant further inspection. KT4 presents seven allegations of wrongdoing that it seeks to investigate: (1) Palantir's failure to hold annual stockholder meetings; (2) the adoption of the September 2016 IRA Amendments; (3) violations of the FRCSA and IRA; (4) DTA's compensation; (5) interference with the Brooklands transaction; (6) failure to return liquidity to stockholders and (7) excessive CEO compensation. I address the sufficiency of Plaintiff's proffered evidence in support of each allegation in turn.

         1. Failure to Hold Annual Stockholder Meetings

         KT4 seeks to investigate Palantir's routine failure to hold annual stockholder meetings, in contravention of the Delaware General Corporation Law and Palantir's bylaws.[121] This investigation is reasonably related to KT4's (and others') interests as a Palantir stockholder for the obvious reason that stockholders need and are entitled to receive information about their investment. Stockholders of privately held corporations, such as Palantir, cannot turn to mandated public filings to obtain information about the companies in which they invest. Normally, a corporation shares information about its current and projected operations and performance with stockholders, if not at other times, at least at the company's annual stockholder meeting.[122]

         Palantir's serial failure to convene annual stockholder meetings is problematic. Palantir admits that it has not held stockholder meetings, but states that there is no wrongdoing because stockholders have elected to act, instead, by written consent.[123] Even so, the questions remain whether and to what extent KT4 and other stockholders have been (or have not been) provided an opportunity to participate in decision making by written consent and whether all stockholders have been provided with the kind of basic information they could expect to receive from Palantir at an annual stockholder meeting.[124] Accordingly, I find that KT4 has met its low burden of demonstrating a credible basis to suspect wrongdoing as to Palantir's failure to hold annual stockholder meetings.

         2. The September 2016 IRA Amendments

         Not only does Palantir not provide its stockholders with information at annual stockholder meetings, it appears from the evidence that Palantir has both prospectively and retroactively foreclosed certain stockholders' contractual rights to obtain information about Palantir. Palantir's September 2016 IRA Amendments eviscerated KT4's (and other similarly situated stockholders') contractual information rights after KT4 sought to exercise those rights.[125] Investigating this potential wrongdoing is undeniably related to KT4's interest as a stockholder.

         I find there is a credible basis to suspect wrongdoing in connection with the September 2016 IRA Amendments. In Marmon, this Court dealt with an analogous situation. There, the company did not convene an annual stockholder meeting for over three years, yet during this period, the company engaged in several rounds of financing and purposefully withheld this information from the plaintiff and certain other stockholders.[126] The company explained that its certificate of incorporation and other agreements contractually barred it from disclosing information to stockholders who held less than specified levels of equity in the company.[127] Given these facts, the court held:

The directors of a Delaware corporation have a duty to disclose material facts to all of the corporation's shareholders. The directors are not free arbitrarily to pick and choose the shareholders to whom they will or will not make disclosure. Nor can the corporation be heard to defend such a practice on the basis that it has bound itself contractually not to make such disclosures.[128]

         Credible basis is a low standard. The similarities between the facts here and in Marmon support KT4's contention that a credible basis exists to suspect wrongdoing with respect to the September 2016 IRA Amendments.

         Moreover, the circumstantial evidence surrounding the September 2016 IRA Amendments provides a further credible basis to infer potential wrongdoing. Palantir explains it executed the September 2016 IRA Amendments because Abramowitz requested broad swaths of confidential information after Palantir accused him of theft of trade secrets.[129] Had Palantir been primarily concerned with Abramowitz obtaining confidential information, it could have denied certain requests and at least made an effort to provide information regarding the non-sensitive topics. Instead, Palantir led KT4 to believe that it was considering KT4's information request, and then pulled the rug out from under KT4 (and other similarly situated stockholders) eleven days later by eviscerating its contractual right to seek information. To be clear, I am not reaching the merits of KT4's allegations regarding Palantir's conduct in amending the IRA.[130] That question is not before me here. I am simply finding that KT4 has demonstrated a credible basis to suspect wrongdoing that merits investigation.

         3. Notice of Stock Transactions and the Opportunity to Exercise ROFR, Co-Sale and ROFO Rights Under the FRCSA and IRA

         KT4 seeks to investigate possible wrongdoing in connection with Palantir's alleged violation of certain stockholders' contractual rights under the FRCSA and IRA. KT4 and other Palantir stockholders are signatories to the FRCSA. Accordingly, wrongdoing relating to contractual rights as set forth in the FRCSA and IRA are matters reasonably related to KT4's interests as a stockholder.

         The FRCSA gives KT4 and other stockholders a right to receive notice when a Selling Investor sells shares.[131] The notice requirement gives stockholders the opportunity to exercise a ROFR over the Selling Investor's shares and the right to sell its shares alongside the Selling Investor.[132] KT4 has established a credible basis that Palantir may have violated the FRCSA. Karp, a Selling Investor, owned 61 million shares of common stock in 2009.[133] As of January 2017, however, Karp owns approximately 40 million shares. [134] Although this difference remains unexplained in the record, the difference alone is at least some evidence that Palantir allowed Karp to sell his shares without allowing parties to the FRCSA to exercise their ROFR or sell their shares along with Karp. Additionally, three other Selling Investors also transferred substantial shares between 2009 and 2017. [135]Abramowitz testified that KT4 did not receive notice of these stock transactions, nor was KT4 provided the opportunity to exercise its ROFR and co-sale right.[136]

         Palantir argues that KT4 has not provided evidence that the shares Karp sold are subject to a co-sale right, especially given that the July 2015 FRCSA excludes KT4.[137] Like a ship passing in the night, in response to Palantir's arguments, KT4 cites to the February 2008 FRCSA instead of, and without acknowledging, the July 2015 FRCSA.[138] Even so, Palantir's position is flawed for two reasons.

         First, Palantir is challenging the merits of KT4's FRCSA claim even though, at this stage, "I cannot analyze the strength of the potential underlying claim[]."[139]Second, even if the July 2015 FRCSA governs KT4's rights, as Palantir argues, that agreement does not definitively shut down KT4's allegation of wrongdoing. Specifically, at Section 2.4, the July 2015 FRCSA states that ROFO and co-sale rights do not apply to transfers by Selling Investors that are "approved by a disinterested majority of the Board of Directors of [Palantir]" and do not exceed the exemptions identified in Schedule B.[140] Schedule B explicitly indicates "zero" when referencing Karp's common stock that is excluded from the ROFR and co- sale right.[141] Thus, the ROFR and co-sale right could apply to Karp's Palantir stock. Also, Schedule B exempts 3.5 million shares of another Selling Investor's stock, but the record suggests that this Selling Investor may have transferred far more than 3.5 million shares.[142]

         Establishing a credible basis merely requires some evidence. With this standard in mind, I find some evidence of wrongdoing with respect to the FRCSA. Karp appears to have transferred shares of Palantir stock. Even if Karp's transfer(s) were permissible, one of the other Selling Investors' transfer(s) appears to have exceeded the exemptions established in the July 2015 FRCSA.

         KT4 also seeks to investigate wrongdoing as relates to its notice right and the ROFO under the IRA. The IRA obligates Palantir to give KT4 and certain other stockholders notice and the ROFO on subsequent rounds of financing. [143]Accordingly, this investigation, similar to the FRCSA investigation, is reasonably related to KT4's interest as a stockholder.

         Abramowitz testified that he last received notice of a round of financing when Palantir issued its Series E shares.[144] As of the date of the July 2015 IRA, however, Palantir had issued up to at least Series J preferred stock.[145] One need not strain to divine that several letters of the alphabet have gone missing between the last financing of which KT4 received notice and Palantir's most recent funding rounds.

         Palantir again responds with the "merits" defense that KT4 has not demonstrated that its rights were not waived or amended by the September 2016 IRA Amendment, whereby the Major Investor threshold was increased from 5 million to 10 million shares.[146] According to Palantir, following the September 2016 IRA Amendment, KT4 no longer qualifies as a Major Investor and therefore no longer is entitled to receive notice of Palantir stock offerings.[147] That defense may ultimately carry the day should KT4 assert a breach claim relating to the IRA. For now, however, KT4 has established a credible basis to investigate Palantir's compliance with the IRA in regard to providing stockholders with notice and the opportunity to exercise the ROFO.

         4. DTA's Compensation

         KT4 next states it requires books and records to investigate wrongdoing in connection with Palantir's relationship with DTA. Specifically, KT4 seeks to investigate whether Palantir has committed waste in its compensation of DTA. Investigating potential waste that impacts a corporation's bottom line is reasonably related to one's interest as a stockholder. Therefore, I am satisfied that KT4's interest in investigating this issue is not personal to KT4 nor otherwise pretextual.

         KT4 points to evidence that DTA holds over 19 million shares of Palantir stock, "worth roughly '$100 to $250 million' on the secondary market, " as a credible basis to suspect potential waste.[148] KT4 also highlights six Securities and Exchange Commission filings ("Form Ds") where Palantir reports significant "Sales Compensation" to S F Sentry Securities, Inc. ("S F Sentry") and another broker.[149] KT4 proffers (with no corroboration) that DTA is a firm operating under the license of S F Sentry and, on that basis, seeks to attribute the sales compensation identified on the Form Ds to DTA.[150] Even under the credible basis standard, KT4's evidence of waste falls short of the mark. Abramowitz testified that he had no basis to support the contention that the 19 million shares held by DTA were obtained as compensation from Palantir, and yet that is precisely what KT4 seeks to investigate.[151] The lack of any evidence on this issue is reflective of the kind of speculation and idle curiosity that cannot form a credible basis to investigate.[152]

         5. Interference with the ...

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