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KT4 Partners LLC v. Palantir Technologies, Inc.

Superior Court of Delaware

August 22, 2018

KT4 PARTNERS LLC, and SANDRA MARTIN CLARK, as trustee for MARC ABRAMOWITZ IRREVOCABLE TRUST NUMBER 7, Plaintiffs,
v.
PALANTIR TECHNOLOGIES, INC., and DISRUPTIVE TECHNOLOGY ADVISERS LLC, Defendants.

          Submitted: May 25, 2018

          Upon Defendant Palantir Technologies Inc.'s Motion to Dismiss DENIED

         Upon Rule 12(b)(6) Motion to Dismiss of Defendant Disruptive Technology Advisers, LLC DENIED

          Bartholomew J. Dalton, Esquire, Michael C. Dalton, Esquire, Dalton & Associates, P.A., Wilmington, Delaware, Barry S. Simon, Esquire, Jonathan B. Pitt, Esquire, Stephen L. Wohlgemuth, Esquire, Washington, D.C. Attorneys for Plaintiffs KT4 Partners LLC and Sandra Martin Clark, as trustee for Marc Abramowitz Irrevocable Trust Number 7.

          Blake Rohrbacher, Esquire, Kelly E. Farnan, Esquire, Kevin Gallagher, Esquire, Kelly L. Freund, Esquire, Richards, Layton & Finger, P.A., Wilmington, Delaware, Kevin Orsini, Esquire, Rory A. Leraris, Esquire, Cravath, Swaine & Moore LLP, New York, New York, Attorneys for Defendant Palantir Technologies, Inc.

          Elena C. Norman, Esquire, Lakshmi A. Muthu, Esquire, Ashley A. Davoli, Esquire, Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware, C. Andrew Kitchen, Esquire, Nicholas J. Boos, Alexandra Drury, Maynard Cooper & Gale LLP, San Francisco, California, Attorneys for Defendant Disruptive Technology Advisers, LLC

          DAVIS, J.

         I. INTRODUCTION

         This civil action is assigned to the Complex Commercial Litigation Division of the Court. Plaintiffs KT4 Partners LLC ("KT4") and Sandra Martin Clark, as trustee for Marc Abramowitz Irrevocable Trust Number 7 (the "Trust," and together with KT4, "Plaintiffs"), are holders of shares of common and preferred stock of Defendant Palantir Technolgies, Inc. ("Palantir"). Plaintiffs purchased their respective shares of Palantir at times between June 2006 and December 2012 through certain preferred stock purchase agreements.[1]

         As pled, Plaintiffs and certain other stockholders of Palantir (the "Selling Group") commenced negotiations for the sale of their Palantir shares to CDH Investments ("CDH") in October 2015. CDH's agent created a special purpose vehicle for the acquisition known as Brooklands Capital Strategies ("Brooklands"). By December 2015, the Selling Group and Brooklands had reached an agreement in principal for the sale of their respective shares of the Company. As required by the terms of the Stock Purchase Agreements, the Selling Group advised Palantir of the proposed transaction with CDH/Brooklands.

         Plaintiffs contend that Palantir's officers took confidential information regarding the proposed sale of its shares to CDH/Brooklands and directed its broker, Defendant Disruptive Technology Advisors LLC ("DTA," and together with Palantir, "Defendants") to contact CDH and offer CDH the opportunity to purchase shares of Palantir directly from Palantir. DTA contacted CDH, proposing certain due diligence opportunities as well as additional shareholder rights (such as a board seat) that Plaintiffs could not offer. As a result, CDH did not proceed with its transaction with Plaintiffs and instead pursued a primary transaction with Palantir.[2]Plaintiffs assert that since CDH declined to move forward with the deal with the Selling Group, the stock price of Palantir has declined and Plaintiffs' have been unable to sell their shares at a comparable price.

         On December 14, 2017, Plaintiffs filed their Complaint and Demand for Trial by Jury (the "Complaint"). The Complaint asserts two claims: (i) Count I-Tortious Interference with Prospective Economic Advantage; and (ii) Count II-Civil Conspiracy. On February 16, 2018, Palantir filed its Defendant Palantir Technologies Inc.'s Motion to Dismiss and DTA filed its 12(b)(6) Motion to Dismiss of Disruptive Technology Advisers, LLC (collectively, the "Motions").[3] Plaintiffs filed their Plaintiffs' Answering Brief in Opposition to Defendants' Motions to Dismiss (the "Response") on March 26, 2018. On April 19, 2018, DTA filed its Reply Brief in Support of Rule 12(b)(6) Motion to Dismiss of Disruptive Technology Advisers, LLC, and Palantir filed its Defendant Palantir Technologies Inc.'s Reply Brief in Support of its Motion to Dismiss for Failure to State a Claim (collectively, the "Replies"). The Court held a hearing on the Motions, the Response and the Replies on May 25, 2018. After hearing argument, the Court took the matter under advisement.

         For the reasons set forth below, the Court DENIES the Motions.[4]

         II. FACTUAL BACKGROUND[5]

         A. Parties and Relevant Non-Parties[6]

         KT4 is a Delaware limited liability company.[7] The Trust is organized under the laws of the State of Delaware with its principal place of business in Raleigh, North Carolina.[8] Marc Abramowitz serves as the managing member of KT4 and is the Trust's grantor.[9]

         Palantir is a Delaware corporation with its principal place of business in Palo Alto, California.[10] Alexander Karp serves as CEO of the Company. DTA is a Delaware limited liability company and acted as a broker for Palantir in connection with several primary offerings.[11] Alexander Fishman and Alexander Davis are principals of DTA.

         B. Plaintiffs Investment in Palantir

         Plaintiffs purchased millions of shares of Palantir stock between June 2006 and December 2012. In connection with those investments, Plaintiffs entered into the Preferred Stock Purchase Agreements.

         Paragraph 3.7 of each Preferred Stock Purchase Agreement requires a party to provide Palantir with notice of any potential transfer of shares of Palantir's preferred stock. Paragraph 3.7 also provides that unless Palantir has filed a registration statement under the Securities Act of 1933, each Investor (as defined in each of the Preferred Stock Purchase Agreements) cannot sell its shares-

unless and until . . . (i) [s]uch Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if reasonably requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company that such disposition will not require the registration of such shares under the Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances.[12]

         According to the Complaint, the transfer restrictions set forth in Paragraph 3.7 ensure that Palantir does not need to file a registration statement under the Securities Act of 1933 or otherwise violate the federal securities laws.[13]

         C. The Company's Interference in Plaintiffs' Proposed Sales of Stock

         Plaintiffs contend that on two occasions Palantir appropriated confidential information provided by Plaintiffs under Paragraph 3.7 and used the confidential information to try to negotiate a direct sale of Palantir stock with the buyer. The first incident occurred in May 2015 when Plaintiffs negotiated a sale of their Palantir shares with a hedge fund, Highbridge Capital Management LLC ("Highbridge").[14] Plaintiffs notified Palantir of the number of shares to be sold, the purchase price, and the identity of the buyer.[15] Upon learning of the proposed transaction with Highbridge, Palantir informed DTA of the proposed sale and instructed DTA to contact Highbridge and negotiate a direct sale with Palantir instead.[16] Mr. Fishman then visited Highbridge's managing director and made derogatory statements about Mr. Abramowitz. Mr. Fishman purportedly did this so as to persuade Highbridge to abandon its deal with Plaintiffs and to complete a primary sale directly with Palantir through DTA.[17] Highbridge "rebuffed DTA's overture and asked Mr. Fishman to leave.[18] According to the Complaint, Mr. Fishman, Mr. Davis and DTA would have received a commission if it had completed a direct sale between Highbridge and Palantir.[19]

         The second incident occurred in October 2015. This incident involved the Selling Group negotiations with CDH.[20] CDH was represented by the investment company TPG.[21] TPG formed a special purpose vehicle known as Brooklands for purposes of the transaction.[22]Stephen Brown, Plaintiffs' broker, conducted the negotiations between Plaintiffs and Brooklands.[23] The parties reached an agreement in principle with Brooklands agreeing to purchase a total of 5, 950, 367 shares of Palantir stock broken down as follows: (i) 3, 028, 769 were shares of Series B preferred stock owned by KT4, (ii) 1, 792, 690 were shares of Series C preferred stock owned by KT4, (iii) 275, 518 were shares of Series D preferred stock owned by KT4, (iv) 36, 385 were shares of Series E preferred stock owned by the Trust, (v) 29, 917 were shares of Series E preferred stock owned indirectly by KT4, (vi) 600, 000 were shares of common stock owned by KT4 and (vii) 187, 088 were shares of common stock owned by the Trust.[24]Brooklands agreed to pay Plaintiffs $9.25 per share of common stock and $11.00 per share of preferred stock for a total purchase price to Plaintiffs of over $64 million.[25]

         In December 2015, the Selling Group and Brooklands were performing due diligence in anticipation of closing the transaction.[26] At the same time, the Selling Group designated Rosco Hill[27] as the person to inform Palantir of the proposed transaction with Brooklands and to seek guidance from Palantir on how to proceed.[28] Mr. Hill notified a Palantir executive of the pending sale of stock by the Selling Group to Brooklands.[29] Mr. Hill's notice to Palantir was for the sole purpose of effecting the transfer of stock to Brooklands.[30] Mr. Hill purportedly made it clear that proposed transaction was to be kept confidential and could not be used for any other purpose.[31]

         On December 23, 2015, Palantir announced a new primary offering to potential investors.[32] DTA, operating under the auspices of SF Sentry Securities Inc., was Palantir's broker on the primary offering.[33] Upon learning of the proposed sale by the Selling Group to Brooklands, Palantir directed DTA to contact CDH and persuade CDH to pursue a primary sale directly with Palantir.[34] In that regard, Mr. Davis sent the managing director of CDH the following LinkedIn message:

Sorry to reach out to you this way but I'm not sure exactly how best to reach out or who to at your firm. I represent Palantir Technologies in Palo Alto and have been asked by the company to reach out to your firm as you guys demonstrated a level of interest in the company through a third party. If this is not the case, I apologize. In any event, I would appreciate a response back at your convenience so I can discuss the current offering, process and timing.[35]

         Shortly after discovering that Mr. Davis had sent the LinkedIn message to CDH, the Selling Group learned the following additional facts:

a. that Mr. Davis informed CDH that Palantir instructed him to contact CDH;
b. that Palantir learned of CDH's identify through Mr. Hill;
c. that DTA knew that Palantir learned of CDH's identity through Mr. Hill;
d. that Palantir only reached out to CDH after they realized that CDH was a "real buyer";
e. that DTA told CDH that it was trusted by Palantir to be the company's "sole advisor";
f. that DTA offered CDH the opportunity to purchase all the shares it desired in a primary sale directly from Palantir;
g. that Palantir and DTA had offered CDH access to Palantir's "data room," which would have allowed CDH to conduct extensive due diligence on Palantir;
h. that CDH would be able to purchase shares at the same price as the primary offering announced on December 23, 2015;
i. that DTA was planning to meet with CDH in China to further discuss a primary transaction; and
j. that Palantir/DTA had offered CDH other shareholder rights such as a potential seat on ...

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