KT4 Partners LLC v. Palantir Techs. Inc.

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

C.A. No. N17C-12-212 EMD CCLD

SUPERIOR COURT OF THE STATE OF DELAWARE

Submitted: April 12, 2021¹

June 24, 2021

Upon Defendant Palantir Technologies Inc.'s Motion for Summary Judgment

GRANTED IN PART, DENIED IN PART

Upon Defendant Disruptive Technology Advisers LLC's Motion for Summary Judgment

GRANTED IN PART, DENIED IN PART

Bartholomew J. Dalton, Esquire, Michael C. Dalton, Esquire, Dalton & Associates, P.A., Wilmington, Delaware, Barry S. Simon, Esquire (argued), Jonathan B. Pitt, Esquire, Stephen Wohlgemuth, Esquire, Williams & Connolly LLP, Washington, D.C., Attorneys for Plaintiffs KT4 Partners LLC and Sandra Marsha Clark, as Trustee for Marc Abramowitz Irrevocable Trust Number 7.

Blake Rohrbacher, Esquire, Kelly E. Farnan, Esquire, Kevin M. Gallagher, Esquire, Katharine L. Mowrey, Esquire, Ryan D. Konstanzer, Esquire, Richards, Layton & Finger, P.A., Wilmington, Delaware, John C. Hueston, Esquire, Moez M. Kaba Esquire (argued), Hueston Hennigan LLP, Los Angeles, California, Kevin J. Orsini, Esquire, Rory A. Leraris, Esquire, Cravath Swaine & Moore LLP, New York, New York, Attorneys for Defendant Palantir Technologies Inc.

Elena C. Norman, Esquire, Paul J. Loughman, Esquire, Lakshmi A. Muthu, Esquire, Caleb G. Johnson, Esquire, Young Conaway Stargatt & Taylor LLP, Wilmington, Delaware, John Douglas Bethay, III, Esquire (argued), Maynard Cooper & Gale LLP, Birmingham, Alabama, Attorneys for Defendant Disruptive Technology Advisers LLC.

DAVIS, J.

I. INTRODUCTION

This civil action is assigned to the Complex Commercial Litigation Division of this Court. Plaintiffs KT4 Partners LLC ("KT4") and Sandra Marsha Clark, as trustee for the Marc Abramowitz Irrevocable Trust Number 7 (the "Trust" and, collectively with KT4, the "Plaintiffs") are stockholders of Defendant Palantir Technologies Inc. ("Palantir" or the "Company"). Plaintiffs allege Palantir and Defendant Disruptive Technology Advisers LLC ("DTA" and, collectively with Palantir, the "Defendants") tortiously interfered with a prospective business relationship Plaintiffs had with CDH Investments ("CDH") to sell Plaintiffs' stock through a secondary securities transaction. Plaintiffs also allege that Defendants' conspired to steer CDH away from Plaintiffs so that Defendants could appropriate the stock transaction for themselves.

On December 14, 2017, Plaintiffs filed a complaint (the "Complaint")² seeking compensatory and punitive damages from Defendants for (1) tortious interference with prospective contractual relations; and (2) civil conspiracy to commit tortious interference with prospective contractual relations. On February 16, 2018, Defendants moved to dismiss the Complaint for failure to state a claim upon which relief can be granted.³ On August 22, 2018, the Court issued a decision (the "MTD Decision") that denied the motions.⁴

On December 11, 2020, Defendants moved for summary judgment (the "Motions").⁵ Plaintiffs opposed the Motions on January 11, 2021.⁶ On March 23, 2021, the Court held a hearing on the Motions.⁷ After the hearing, the Court took the Motions under advisement.

For the reasons set forth below, the Court will GRANT the Motions IN PART and DENY the Motions IN PART.

II. BACKGROUND⁸

A. THE PARTIES AND RELEVANT NON-PARTIES

1. Parties

KT4 is a Delaware limited liability company headquartered in North Carolina.⁹ The Trust is a Delaware trust headquartered in North Carolina.¹⁰ Palantir is a Delaware corporation headquartered in California.¹¹ DTA is a Delaware limited liability company headquartered in California.¹² DTA often assisted with primary investments in Palantir on the Company's behalf.¹³

2. Relevant non-parties

CDH is a Chinese private equity firm that engaged Plaintiffs in sale discussions to acquire Plaintiffs' Palantir stock.¹⁴ Brooklands Capital Strategies ("Brooklands") was the acquisition vehicle CDH employed to potentially purchase Plaintiffs and other stockholders' Palantir stock.¹⁵ Amy Gussin served as the lead negotiator on behalf of CDH in her role at Brooklands.¹⁶ Where appropriate, the Court will refer to CDH and Brooklands as the "Buy-Side."

Marc Abramowitz is KT4's managing member and the Trust's grantor.¹⁷ Mr. Abramowitz hired Stephen Brown as Plaintiffs' lead broker during Plaintiffs' sale discussions with the Buy-Side.¹⁸ BTIG, LLC is a brokerage firm that represented other Palantir stockholders in sale discussions with the Buy-Side.¹⁹ Where appropriate, the Court will refer to Mr. Brown and Plaintiffs as the "Selling Group," which is the name Mr. Brown used to delineate his clients from BTIG and its clients.²⁰

Kevin Kawasaki is the Company's Global Head of Business Development.²¹ Alexander Davis and Alexander Fishman are DTA principals.²² Mr. Davis and Mr. Fishman also are affiliated with SF Sentry Securities, Inc ("SF Sentry").²³ SF Sentry served as Palantir's leadbroker-dealer in connection with Palantir's Series K primary equity offering that relates to this dispute.²⁴

B. THE PREFERRED STOCK PURCHASE AGREEMENTS

At various times between June 15, 2006 and November 17, 2009, KT4 became a Palantir preferred stockholder by participating in the Company's Series B, C, and D primary equity offerings.²⁵ On July 5, 2011, the Trust became a Palantir preferred stockholder by participating in the Company's Series E primary equity offering.²⁶ Plaintiffs collectively acquired several hundred thousand preferred shares in the Company.²⁷ Palantir and Plaintiffs memorialized these investments in Preferred Stock Purchase Agreements (the "PSPAs").²⁸ Palantir and Plaintiffs are parties to the PSPAs.²⁹ The PSPAs declare that the PSPAs are "governed by," and must be "construed under[,] the laws of California."³⁰

The PSPAs had the purpose of imposing restrictions on Plaintiffs' right to sell the Company's stock to third parties.³¹ Sale restrictions were necessary because, at the time the PSPAs were executed, Palantir was a privately-held corporation that, under federal securities law, was limited to selling its equity in statutorily-exempt private placements.³² Sale restrictionsalso were necessary because an unchecked secondary sale of the Company's preferred stock could expose the Company to liability under the Securities Act of 1933 for failing to comply with a number of registration obligations enforced by the United States Securities & Exchange Commission (the "SEC") against publicly-traded firms.³³ To avoid these and analogous penalties, the Company required Plaintiffs' consent to a contractual term titled "Further Limitations on Disposition."³⁴ In relevant part, that term provides the following.

Investors further agree not to make any disposition of all or any portion of the Securities unless and until: . . .

(i) Such Investor shall have notified [Palantir] of the proposed disposition and shall have furnished [Palantir] with a detailed statement surrounding the circumstances of the disposition[;] and

(ii) if reasonably requested by [Palantir], such Investor shall have furnished [Palantir] with an opinion of counsel, reasonably satisfactory to [Palantir] that such disposition will not require registration of such shares under the [Securities] Act.³⁵

The PSPAs are silent on Palantir's duties or additional rights with respect to the information the Company receives from preferred stockholders about any proposed outside transactions.

C. PLAINTIFFS' POTENTIAL TRANSACTION

1. The Buy-Side engages with Plaintiffs and BTIG.

Plaintiffs decided to sell their Palantir stock through a secondary securities transaction in the third quarter of 2015.³⁶ As part of this process, Mr. Abramowitz was introduced to Ms. Gussin, who represented the Buy-Side.³⁷ Brooklands wanted to negotiate an acquisition of the Company's stock from "an early investor" for CDH, i.e., to secure a secondary purchase ofpreferred stock from a stockholder who participated in the Company's older preferred equity rounds.³⁸ After making contact, Mr. Abramowitz retained Mr. Brown to negotiate with the Buy-Side on the Selling Group's behalf.³⁹ Mr. Brown learned, early in the negotiation process, that other Palantir stockholders were interested in selling their stock through a secondary transaction.⁴⁰ BTIG represented those stockholders.⁴¹ The Selling Group and BTIG collaborated to secure CDH's acceptance.⁴²

2. CDH sets an aspirational transaction price and outlines a transactional structure.

During the fall of 2015, the Buy-Side communicated with the Selling Group and BTIG about the potential sale "daily."⁴³ The Buy-Side used "Project Christmas" to indicate the Buy-Side's desire to close the transaction by the end of Q4 2015.⁴⁴ Brooklands regularly sought progress updates, informing the Selling Group and BTIG that CDH had at least $100 million "ready to go."⁴⁵ Brooklands also informed BTIG that, at the conclusion of a three-hour meeting with CDH, CDH decided it would purchase up to $300 million of the Company's stock.⁴⁶ Both sides ultimately agreed that $300 million would be the "notional amount" on which the transactional structure would be based.⁴⁷ CDH likely would "tranche" any finalized investment into preferential segments, making the $300 million notional amount more of a ceiling.⁴⁸ Thatstructure, had it been executed, would have allowed the Plaintiffs' stock to be acquired by CDH ahead of, or possibly instead of, BTIG's clients' stock.⁴⁹

3. CDH selects price ranges but does not commit to a per-share price.

CDH priced Palantir common stock at $8.80 to $9.20.⁵⁰ CDH priced Palantir preferred stock at $10.00 to $10.70.⁵¹ CDH was not willing to deviate from those numbers. CDH rejected contrary proposals. For example, on December 2, 2015, BTIG met with Brooklands about BTIG's pricing. BTIG insisted on $10.70 for BTIG's clients' common stock and $11.38 for their preferred stock.⁵² The Buy-Side...